G.R. No.

143581

January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,

vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional Trial
Court of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING
CORPORATION, respondents.
DECISION
VELASCO, JR., J.:
In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in civil and
commercial disputes. Arbitration along with mediation, conciliation, and negotiation, being inexpensive,
speedy and less hostile methods have long been favored by this Court. The petition before us puts at
issue an arbitration clause in a contract mutually agreed upon by the parties stipulating that they would
submit themselves to arbitration in a foreign country. Regrettably, instead of hastening the resolution of
their dispute, the parties wittingly or unwittingly prolonged the controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the supply
and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while private
respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract1 whereby KOGIES would set up an LPG
Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines. On April
7, 1997, the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated March 5,
19972 amending the terms of payment. The contract and its amendment stipulated that KOGIES will ship
the machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay
USD 1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC bound
itself to pay USD 306,000 upon the plants production of the 11-kg. LPG cylinder samples. Thus, the total
contract price amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of Lease3 with Worth Properties, Inc. (Worth) for
use of Worths 5,079-square meter property with a 4,032-square meter warehouse building to house the
LPG manufacturing plant. The monthly rental was PhP 322,560 commencing on January 1, 1998 with a
10% annual increment clause. Subsequently, the machineries, equipment, and facilities for the
manufacture of LPG cylinders were shipped, delivered, and installed in the Carmona plant. PGSMC paid
KOGIES USD 1,224,000.
However, gleaned from the Certificate4 executed by the parties on January 22, 1998, after the installation
of the plant, the initial operation could not be conducted as PGSMC encountered financial difficulties
affecting the supply of materials, thus forcing the parties to agree that KOGIES would be deemed to have
completely complied with the terms and conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and initial operation of the plant, PGSMC
issued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP 4,500,000;
and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000.5
When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT STOPPED."
Thus, on May 8, 1998, KOGIES sent a demand letter6 to PGSMC threatening criminal action for violation
of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMCs President
faxed a letter dated May 7, 1998 to KOGIES President who was then staying at a Makati City hotel. She
complained that not only did KOGIES deliver a different brand of hydraulic press from that agreed upon
but it had not delivered several equipment parts already paid for.

On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but the
payments were stopped for reasons previously made known to KOGIES. 7
On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated March 5,
1997 on the ground that KOGIES had altered the quantity and lowered the quality of the machineries and
equipment it delivered to PGSMC, and that PGSMC would dismantle and transfer the machineries,
equipment, and facilities installed in the Carmona plant. Five days later, PGSMC filed before the Office of
the Public Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae
Hyun Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescind
their contract nor dismantle and transfer the machineries and equipment on mere imagined violations by
KOGIES. It also insisted that their disputes should be settled by arbitration as agreed upon in Article 15,
the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998 letter
threatening that the machineries, equipment, and facilities installed in the plant would be dismantled and
transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an Application for Arbitration before
the Korean Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as
amended.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case No. 981178 against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC granted a
temporary restraining order (TRO) on July 4, 1998, which was subsequently extended until July 22, 1998.
In its complaint, KOGIES alleged that PGSMC had initially admitted that the checks that were stopped
were not funded but later on claimed that it stopped payment of the checks for the reason that "their value
was not received" as the former allegedly breached their contract by "altering the quantity and lowering
the quality of the machinery and equipment" installed in the plant and failed to make the plant operational
although it earlier certified to the contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIES
averred that PGSMC violated Art. 15 of their Contract, as amended, by unilaterally rescinding the contract
without resorting to arbitration. KOGIES also asked that PGSMC be restrained from dismantling and
transferring the machinery and equipment installed in the plant which the latter threatened to do on July 4,
1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the
TRO since Art. 15, the arbitration clause, was null and void for being against public policy as it ousts the
local courts of jurisdiction over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim 9 asserting that it had the full
right to dismantle and transfer the machineries and equipment because it had paid for them in full as
stipulated in the contract; that KOGIES was not entitled to the PhP 9,000,000 covered by the checks for
failing to completely install and make the plant operational; and that KOGIES was liable for damages
amounting to PhP 4,500,000 for altering the quantity and lowering the quality of the machineries and
equipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in rent (covering January
to July 1998) to Worth and it was not willing to further shoulder the cost of renting the premises of the
plant considering that the LPG cylinder manufacturing plant never became operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying the
application for a writ of preliminary injunction, reasoning that PGSMC had paid KOGIES USD 1,224,000,
the value of the machineries and equipment as shown in the contract such that KOGIES no longer had
proprietary rights over them. And finally, the RTC held that Art. 15 of the Contract as amended was
invalid as it tended to oust the trial court or any other court jurisdiction over any dispute that may arise
between the parties. KOGIES prayer for an injunctive writ was denied. 10 The dispositive portion of the
Order stated:

WHEREFORE, in view of the foregoing consideration, this Court believes and so holds that
no cogent reason exists for this Court to grant the writ of preliminary injunction to restrain
and refrain defendant from dismantling the machineries and facilities at the lot and building of
Worth Properties, Incorporated at Carmona, Cavite and transfer the same to another site:
and therefore denies plaintiffs application for a writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim.11 KOGIES denied it
had altered the quantity and lowered the quality of the machinery, equipment, and facilities it delivered to
the plant. It claimed that it had performed all the undertakings under the contract and had already
produced certified samples of LPG cylinders. It averred that whatever was unfinished was PGSMCs fault
since it failed to procure raw materials due to lack of funds. KOGIES, relying on Chung Fu Industries
(Phils.), Inc. v. Court of Appeals,12 insisted that the arbitration clause was without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to Dismiss13 answering PGSMCs
memorandum of July 22, 1998 and seeking dismissal of PGSMCs counterclaims, KOGIES, on August 4,
1998, filed its Motion for Reconsideration14 of the July 23, 1998 Order denying its application for an
injunctive writ claiming that the contract was not merely for machinery and facilities worth USD 1,224,000
but was for the sale of an "LPG manufacturing plant" consisting of "supply of all the machinery and
facilities" and "transfer of technology" for a total contract price of USD 1,530,000 such that the dismantling
and transfer of the machinery and facilities would result in the dismantling and transfer of the very plant
itself to the great prejudice of KOGIES as the still unpaid owner/seller of the plant. Moreover, KOGIES
points out that the arbitration clause under Art. 15 of the Contract as amended was a valid arbitration
stipulation under Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries (Phils.),
Inc.15
In the meantime, PGSMC filed a Motion for Inspection of Things 16 to determine whether there was indeed
alteration of the quantity and lowering of quality of the machineries and equipment, and whether these
were properly installed. KOGIES opposed the motion positing that the queries and issues raised in the
motion for inspection fell under the coverage of the arbitration clause in their contract.
On September 21, 1998, the trial court issued an Order (1) granting PGSMCs motion for inspection; (2)
denying KOGIES motion for reconsideration of the July 23, 1998 RTC Order; and (3) denying KOGIES
motion to dismiss PGSMCs compulsory counterclaims as these counterclaims fell within the requisites of
compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration17 of the September 21, 1998
RTC Order granting inspection of the plant and denying dismissal of PGSMCs compulsory counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998 urgent
motion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for
certiorari18 docketed as CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and September
21, 1998 RTC Orders and praying for the issuance of writs of prohibition, mandamus, and preliminary
injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and transferring the machineries
and equipment in the Carmona plant, and to direct the RTC to enforce the specific agreement on
arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES urgent motion for reconsideration and
directed the Branch Sheriff to proceed with the inspection of the machineries and equipment in the plant
on October 28, 1998.19
Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249 informing the CA about
the October 19, 1998 RTC Order. It also reiterated its prayer for the issuance of the writs of prohibition,
mandamus and preliminary injunction which was not acted upon by the CA. KOGIES asserted that the

Branch Sheriff did not have the technical expertise to ascertain whether or not the machineries and
equipment conformed to the specifications in the contract and were properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriffs Report21 finding that the enumerated
machineries and equipment were not fully and properly installed.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC Orders and dismissing the
petition for certiorari filed by KOGIES. The CA found that the RTC did not gravely abuse its discretion in
issuing the assailed July 23, 1998 and September 21, 1998 Orders. Moreover, the CA reasoned that
KOGIES contention that the total contract price for USD 1,530,000 was for the whole plant and had not
been fully paid was contrary to the finding of the RTC that PGSMC fully paid the price of USD 1,224,000,
which was for all the machineries and equipment. According to the CA, this determination by the RTC
was a factual finding beyond the ambit of a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an arbitration
clause which provided for a final determination of the legal rights of the parties to the contract by
arbitration was against public policy.
On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum shopping by
PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones and payment of docket
fees was not required since the Answer with counterclaim was not an initiatory pleading. For the same
reason, the CA said a certificate of non-forum shopping was also not required.
Furthermore, the CA held that the petition for certiorari had been filed prematurely since KOGIES did not
wait for the resolution of its urgent motion for reconsideration of the September 21, 1998 RTC Order
which was the plain, speedy, and adequate remedy available. According to the CA, the RTC must be
given the opportunity to correct any alleged error it has committed, and that since the assailed orders
were interlocutory, these cannot be the subject of a petition for certiorari.
Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following errors:

a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY AND

FACILITIES AS "A QUESTION OF FACT" "BEYOND THE AMBIT OF A PETITION FOR
CERTIORARI" INTENDED ONLY FOR CORRECTION OF ERRORS OF JURISDICTION
OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF
JURISDICTION, AND CONCLUDING THAT THE TRIAL COURTS FINDING ON THE
SAME QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW;
b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15 OF
THE CONTRACT BETWEEN THE PARTIES FOR BEING "CONTRARY TO PUBLIC
POLICY" AND FOR OUSTING THE COURTS OF JURISDICTION;
c. DECREEING PRIVATE RESPONDENTS COUNTERCLAIMS TO BE ALL
COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;

d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT WAITING FOR
THE RESOLUTION OF THE MOTION FOR RECONSIDERATION OF THE ORDER DATED
SEPTEMBER 21, 1998 OR WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO
CORRECT ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21, 1998 NOT
TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION FOR BEING
"INTERLOCUTORY IN NATURE;"
f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC) PETITION
AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT MERIT."23
The Courts Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first tackle the procedural issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket fees and
filed a certificate of non-forum shopping, and that its failure to do so was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with Compulsory
Counterclaim dated July 17, 1998 in accordance with Section 8 of Rule 11, 1997 Revised Rules of Civil
Procedure, the rule that was effective at the time the Answer with Counterclaim was filed. Sec. 8 on
existing counterclaim or cross-claim states, "A compulsory counterclaim or a cross-claim that a defending
party has at the time he files his answer shall be contained therein."
On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against KOGIES, it
was not liable to pay filing fees for said counterclaims being compulsory in nature. We stress, however,
that effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-SC, docket fees
are now required to be paid in compulsory counterclaim or cross-claims.
As to the failure to submit a certificate of forum shopping, PGSMCs Answer is not an initiatory pleading
which requires a certification against forum shopping under Sec. 524 of Rule 7, 1997 Revised Rules of
Civil Procedure. It is a responsive pleading, hence, the courts a quo did not commit reversible error in
denying KOGIES motion to dismiss PGSMCs compulsory counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are neither the remedies
to question the propriety of an interlocutory order of the trial court."26 The CA erred on its reliance
on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal case which was not assailable
in an action for certiorari since the denial of a motion to quash required the accused to plead and to
continue with the trial, and whatever objections the accused had in his motion to quash can then be used
as part of his defense and subsequently can be raised as errors on his appeal if the judgment of the trial
court is adverse to him. The general rule is that interlocutory orders cannot be challenged by an
appeal.27 Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we held:

The proper remedy in such cases is an ordinary appeal from an adverse

judgment on the merits, incorporating in said appeal the grounds for assailing the
interlocutory orders. Allowing appeals from interlocutory orders would result in the sorry
spectacle of a case being subject of a counterproductive ping-pong to and from the
appellate court as often as a trial court is perceived to have made an error in any of its
interlocutory rulings. However, where the assailed interlocutory order was issued with grave
abuse of discretion or patently erroneous and the remedy of appeal would not afford
adequate and expeditious relief, the Court allows certiorari as a mode of redress.28
Also, appeals from interlocutory orders would open the floodgates to endless occasions for dilatory
motions. Thus, where the interlocutory order was issued without or in excess of jurisdiction or with grave
abuse of discretion, the remedy is certiorari.29
The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in the
issuance of the two assailed orders coupled with the fact that there is no plain, speedy, and adequate
remedy in the ordinary course of law amply provides the basis for allowing the resort to a petition for
certiorari under Rule 65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum shopping in filing the petition for certiorari. Note that
KOGIES motion for reconsideration of the July 23, 1998 RTC Order which denied the issuance of the
injunctive writ had already been denied. Thus, KOGIES only remedy was to assail the RTCs
interlocutory order via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998 RTC Order
relating to the inspection of things, and the allowance of the compulsory counterclaims has not yet been
resolved, the circumstances in this case would allow an exception to the rule that before certiorari may be
availed of, the petitioner must have filed a motion for reconsideration and said motion should have been
first resolved by the court a quo. The reason behind the rule is "to enable the lower court, in the first
instance, to pass upon and correct its mistakes without the intervention of the higher court." 30
The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment, and
facilities when he is not competent and knowledgeable on said matters is evidently flawed and devoid of
any legal support. Moreover, there is an urgent necessity to resolve the issue on the dismantling of the
facilities and any further delay would prejudice the interests of KOGIES. Indeed, there is real and
imminent threat of irreparable destruction or substantial damage to KOGIES equipment and machineries.
We find the resort to certiorari based on the gravely abusive orders of the trial court sans the ruling on the
October 2, 1998 motion for reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It provides:

Article 15. Arbitration.All disputes, controversies, or differences which may arise between
the parties, out of or in relation to or in connection with this Contract or for the breach
thereof, shall finally be settled by arbitration in Seoul, Korea in accordance with the
Commercial Arbitration Rules of the Korean Commercial Arbitration Board. The award
rendered by the arbitration(s) shall be final and binding upon both parties concerned.
(Emphasis supplied.)
Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.

Petitioner is correct.
Established in this jurisdiction is the rule that the law of the place where the contract is made
governs. Lex loci contractus. The contract in this case was perfected here in the Philippines. Therefore,
our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutually
agreed arbitral clause or the finality and binding effect of an arbitral award. Art. 2044 provides, "Any
stipulation that the arbitrators award or decision shall be final, is valid, without prejudice to Articles
2038, 2039 and 2040." (Emphasis supplied.)
Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or an arbitral award,
as applied to Art. 2044 pursuant to Art. 2043,34 may be voided, rescinded, or annulled, but these would
not denigrate the finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown to
be contrary to any law, or against morals, good customs, public order, or public policy. There has been no
showing that the parties have not dealt with each other on equal footing. We find no reason why the
arbitration clause should not be respected and complied with by both parties. In Gonzales v. Climax
Mining Ltd.,35 we held that submission to arbitration is a contract and that a clause in a contract providing
that all matters in dispute between the parties shall be referred to arbitration is a contract. 36Again in Del
Monte Corporation-USA v. Court of Appeals, we likewise ruled that "[t]he provision to submit to arbitration
any dispute arising therefrom and the relationship of the parties is part of that contract and is itself a
contract."37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in accordance
with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is final and binding, is not
contrary to public policy. This Court has sanctioned the validity of arbitration clauses in a catena of cases.
In the 1957 case of Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,38 this Court had occasion to
rule that an arbitration clause to resolve differences and breaches of mutually agreed contractual terms is
valid. In BF Corporation v. Court of Appeals, we held that "[i]n this jurisdiction, arbitration has been held
valid and constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this Court
has countenanced the settlement of disputes through arbitration. Republic Act No. 876 was adopted to
supplement the New Civil Codes provisions on arbitration."39 And in LM Power Engineering Corporation
v. Capitol Industrial Construction Groups, Inc., we declared that:

Being an inexpensive, speedy and amicable method of settling disputes, arbitrationalong

with mediation, conciliation and negotiationis encouraged by the Supreme Court. Aside
from unclogging judicial dockets, arbitration also hastens the resolution of disputes,
especially of the commercial kind. It is thus regarded as the "wave of the future" in
international civil and commercial disputes. Brushing aside a contractual agreement calling
for arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution
methods, courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should
be granted. Any doubt should be resolved in favor of arbitration.40
Having said that the instant arbitration clause is not against public policy, we come to the question on
what governs an arbitration clause specifying that in case of any dispute arising from the contract, an
arbitral panel will be constituted in a foreign country and the arbitration rules of the foreign country would
govern and its award shall be final and binding.

RA 9285 incorporated the UNCITRAL Model law

to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising from
contractual relations. In case a foreign arbitral body is chosen by the parties, the arbitration rules of our
domestic arbitration bodies would not be applied. As signatory to the Arbitration Rules of the UNCITRAL
Model Law on International Commercial Arbitration41 of the United Nations Commission on International
Trade Law (UNCITRAL) in the New York Convention on June 21, 1985, the Philippines committed itself to
be bound by the Model Law. We have even incorporated the Model Law in Republic Act No. (RA) 9285,
otherwise known as the Alternative Dispute Resolution Act of 2004 entitled An Act to Institutionalize the
Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for
Alternative Dispute Resolution, and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of
Chapter 4 of the Model Law are the pertinent provisions:

CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 19. Adoption of the Model Law on International Commercial Arbitration.International
commercial arbitration shall be governed by the Model Law on International Commercial
Arbitration (the "Model Law") adopted by the United Nations Commission on International
Trade Law on June 21, 1985 (United Nations Document A/40/17) and recommended for
enactment by the General Assembly in Resolution No. 40/72 approved on December 11,
1985, copy of which is hereto attached as Appendix "A".
SEC. 20. Interpretation of Model Law.In interpreting the Model Law, regard shall be had to
its international origin and to the need for uniformity in its interpretation and resort may be
made to the travaux preparatories and the report of the Secretary General of the United
Nations Commission on International Trade Law dated March 25, 1985 entitled,
"International Commercial Arbitration: Analytical Commentary on Draft Trade identified by
reference number A/CN. 9/264."
While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a procedural
law which has a retroactive effect. Likewise, KOGIES filed its application for arbitration before the KCAB
on July 1, 1998 and it is still pending because no arbitral award has yet been rendered. Thus, RA 9285 is
applicable to the instant case. Well-settled is the rule that procedural laws are construed to be applicable
to actions pending and undetermined at the time of their passage, and are deemed retroactive in that
sense and to that extent. As a general rule, the retroactive application of procedural laws does not violate
any personal rights because no vested right has yet attached nor arisen from them.42
Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law are the
following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of
arbitration pursuant to an arbitration clause, and mandates the referral to arbitration in such cases, thus:

SEC. 24. Referral to Arbitration.A court before which an action is brought in a matter which
is the subject matter of an arbitration agreement shall, if at least one party so requests not
later than the pre-trial conference, or upon the request of both parties thereafter, refer the
parties to arbitration unless it finds that the arbitration agreement is null and void, inoperative
or incapable of being performed.
(2) Foreign arbitral awards must be confirmed by the RTC

Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be final and
binding are not immediately enforceable or cannot be implemented immediately. Sec. 35 43 of the
UNCITRAL Model Law stipulates the requirement for the arbitral award to be recognized by a competent
court for enforcement, which court under Sec. 36 of the UNCITRAL Model Law may refuse recognition or
enforcement on the grounds provided for. RA 9285 incorporated these provisos to Secs. 42, 43, and 44
relative to Secs. 47 and 48, thus:

SEC. 42. Application of the New York Convention.The New York Convention shall govern
the recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed with the Regional
Trial Court in accordance with the rules of procedure to be promulgated by the Supreme
Court. Said procedural rules shall provide that the party relying on the award or applying for
its enforcement shall file with the court the original or authenticated copy of the award and
the arbitration agreement. If the award or agreement is not made in any of the official
languages, the party shall supply a duly certified translation thereof into any of such
languages.
The applicant shall establish that the country in which foreign arbitration award was made in
party to the New York Convention.
xxxx
SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the New
York Convention.The recognition and enforcement of foreign arbitral awards not covered
by the New York Convention shall be done in accordance with procedural rules to be
promulgated by the Supreme Court. The Court may, on grounds of comity and reciprocity,
recognize and enforce a non-convention award as a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A foreign arbitral award when
confirmed by a court of a foreign country, shall be recognized and enforced as a foreign
arbitral award and not as a judgment of a foreign court.
A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced in the
same manner as final and executory decisions of courts of law of the Philippines
xxxx
SEC. 47. Venue and Jurisdiction.Proceedings for recognition and enforcement of an
arbitration agreement or for vacations, setting aside, correction or modification of an arbitral
award, and any application with a court for arbitration assistance and supervision shall be
deemed as special proceedings and shall be filed with the Regional Trial Court (i) where
arbitration proceedings are conducted; (ii) where the asset to be attached or levied upon, or
the act to be enjoined is located; (iii) where any of the parties to the dispute resides or has
his place of business; or (iv) in the National Judicial Capital Region, at the option of the
applicant.
SEC. 48. Notice of Proceeding to Parties.In a special proceeding for recognition and
enforcement of an arbitral award, the Court shall send notice to the parties at their address of
record in the arbitration, or if any part cannot be served notice at such address, at such
partys last known address. The notice shall be sent al least fifteen (15) days before the date
set for the initial hearing of the application.

It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a judgment of a
foreign court but as a foreign arbitral award, and when confirmed, are enforced as final and executory
decisions of our courts of law.
Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments or
awards given by some of our quasi-judicial bodies, like the National Labor Relations Commission and
Mines Adjudication Board, whose final judgments are stipulated to be final and binding, but not
immediately executory in the sense that they may still be judicially reviewed, upon the instance of any
party. Therefore, the final foreign arbitral awards are similarly situated in that they need first to be
confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority and
jurisdiction to set aside, reject, or vacate a foreign arbitral award on grounds provided under Art. 34(2) of
the UNCITRAL Model Law. Secs. 42 and 45 provide:

SEC. 42. Application of the New York Convention.The New York Convention shall govern
the recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed with the Regional
Trial Court in accordance with the rules of procedure to be promulgated by the Supreme
Court. Said procedural rules shall provide that the party relying on the award or applying for
its enforcement shall file with the court the original or authenticated copy of the award and
the arbitration agreement. If the award or agreement is not made in any of the official
languages, the party shall supply a duly certified translation thereof into any of such
languages.
The applicant shall establish that the country in which foreign arbitration award was made is
party to the New York Convention.
If the application for rejection or suspension of enforcement of an award has been made, the
Regional Trial Court may, if it considers it proper, vacate its decision and may also, on the
application of the party claiming recognition or enforcement of the award, order the party to
provide appropriate security.
xxxx
SEC. 45. Rejection of a Foreign Arbitral Award.A party to a foreign arbitration proceeding
may oppose an application for recognition and enforcement of the arbitral award in
accordance with the procedures and rules to be promulgated by the Supreme Court only on
those grounds enumerated under Article V of the New York Convention. Any other ground
raised shall be disregarded by the Regional Trial Court.
Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually agreed
upon by the parties, still the foreign arbitral award is subject to judicial review by the RTC which can set
aside, reject, or vacate it. In this sense, what this Court held in Chung Fu Industries (Phils.), Inc. relied
upon by KOGIES is applicable insofar as the foreign arbitral awards, while final and binding, do not oust
courts of jurisdiction since these arbitral awards are not absolute and without exceptions as they are still
judicially reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether domestic or
foreign, are subject to judicial review on specific grounds provided for.

(4) Grounds for judicial review different in domestic and foreign arbitral awards
The differences between a final arbitral award from an international or foreign arbitral tribunal and an
award given by a local arbitral tribunal are the specific grounds or conditions that vest jurisdiction over our
courts to review the awards.
For foreign or international arbitral awards which must first be confirmed by the RTC, the grounds for
setting aside, rejecting or vacating the award by the RTC are provided under Art. 34(2) of the UNCITRAL
Model Law.
For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23 of RA
87644 and shall be recognized as final and executory decisions of the RTC, 45 they may only be assailed
before the RTC and vacated on the grounds provided under Sec. 25 of RA 876.46
(5) RTC decision of assailed foreign arbitral award appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in cases
where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:

SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of the Regional Trial
Court confirming, vacating, setting aside, modifying or correcting an arbitral award may be
appealed to the Court of Appeals in accordance with the rules and procedure to be
promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court confirming an arbitral award
shall be required by the appellate court to post a counterbond executed in favor of the
prevailing party equal to the amount of the award in accordance with the rules to be
promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition for
review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as it
bound itself through the subject contract. While it may have misgivings on the foreign arbitration done in
Korea by the KCAB, it has available remedies under RA 9285. Its interests are duly protected by the law
which requires that the arbitral award that may be rendered by KCAB must be confirmed here by the RTC
before it can be enforced.
With our disquisition above, petitioner is correct in its contention that an arbitration clause, stipulating that
the arbitral award is final and binding, does not oust our courts of jurisdiction as the international arbitral
award, the award of which is not absolute and without exceptions, is still judicially reviewable under
certain conditions provided for by the UNCITRAL Model Law on ICA as applied and incorporated in RA
9285.
Finally, it must be noted that there is nothing in the subject Contract which provides that the parties may
dispense with the arbitration clause.
Unilateral rescission improper and illegal

Having ruled that the arbitration clause of the subject contract is valid and binding on the parties, and not
contrary to public policy; consequently, being bound to the contract of arbitration, a party may not
unilaterally rescind or terminate the contract for whatever cause without first resorting to arbitration.
What this Court held in University of the Philippines v. De Los Angeles47 and reiterated in succeeding
cases,48 that the act of treating a contract as rescinded on account of infractions by the other contracting
party is valid albeit provisional as it can be judicially assailed, is not applicable to the instant case on
account of a valid stipulation on arbitration. Where an arbitration clause in a contract is availing, neither of
the parties can unilaterally treat the contract as rescinded since whatever infractions or breaches by a
party or differences arising from the contract must be brought first and resolved by arbitration, and not
through an extrajudicial rescission or judicial action.
The issues arising from the contract between PGSMC and KOGIES on whether the equipment and
machineries delivered and installed were properly installed and operational in the plant in Carmona,
Cavite; the ownership of equipment and payment of the contract price; and whether there was substantial
compliance by KOGIES in the production of the samples, given the alleged fact that PGSMC could not
supply the raw materials required to produce the sample LPG cylinders, are matters proper for arbitration.
Indeed, we note that on July 1, 1998, KOGIES instituted an Application for Arbitration before the KCAB in
Seoul, Korea pursuant to Art. 15 of the Contract as amended. Thus, it is incumbent upon PGSMC to
abide by its commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in granting PGSMCs Motion for Inspection of
Things on September 21, 1998, as the subject matter of the motion is under the primary jurisdiction of the
mutually agreed arbitral body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the inspection made
on October 28, 1998, as ordered by the trial court on October 19, 1998, is of no worth as said Sheriff is
not technically competent to ascertain the actual status of the equipment and machineries as installed in
the plant.
For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the grant of
the inspection of the equipment and machineries have to be recalled and nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price of USD
1,530,000 was for the whole plant and its installation is beyond the ambit of a Petition for Certiorari.
Petitioners position is untenable.
It is settled that questions of fact cannot be raised in an original action for certiorari.49 Whether or not
there was full payment for the machineries and equipment and installation is indeed a factual issue
prohibited by Rule 65.
However, what appears to constitute a grave abuse of discretion is the order of the RTC in resolving the
issue on the ownership of the plant when it is the arbitral body (KCAB) and not the RTC which has
jurisdiction and authority over the said issue. The RTCs determination of such factual issue constitutes
grave abuse of discretion and must be reversed and set aside.
RTC has interim jurisdiction to protect the rights of the parties

Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for PGSMC to
dismantle and transfer the equipment and machineries, we find it to be in order considering the factual
milieu of the instant case.
Firstly, while the issue of the proper installation of the equipment and machineries might well be under the
primary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction
to hear and grant interim measures to protect vested rights of the parties. Sec. 28 pertinently provides:

SEC. 28. Grant of interim Measure of Protection.(a) It is not incompatible with an

arbitration agreement for a party to request, before constitution of the tribunal, from a
Court to grant such measure. After constitution of the arbitral tribunal and during arbitral
proceedings, a request for an interim measure of protection, or modification thereof, may be
made with the arbitral or to the extent that the arbitral tribunal has no power to act or is
unable to act effectivity, the request may be made with the Court. The arbitral tribunal is
deemed constituted when the sole arbitrator or the third arbitrator, who has been nominated,
has accepted the nomination and written communication of said nomination and acceptance
has been received by the party making the request.
(b) The following rules on interim or provisional relief shall be observed:
Any party may request that provisional relief be granted against the adverse party.
Such relief may be granted:
(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
(c) The order granting provisional relief may be conditioned upon the provision of security or
any act or omission specified in the order.
(d) Interim or provisional relief is requested by written application transmitted by reasonable
means to the Court or arbitral tribunal as the case may be and the party against whom the
relief is sought, describing in appropriate detail the precise relief, the party against whom the
relief is requested, the grounds for the relief, and the evidence supporting the request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance in implementing or enforcing an
interim measure ordered by an arbitral tribunal.
(g) A party who does not comply with the order shall be liable for all damages resulting from
noncompliance, including all expenses, and reasonable attorney's fees, paid in obtaining the
orders judicial enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of protection as:

Article 17. Power of arbitral tribunal to order interim measures

xxx xxx xxx
(2) An interim measure is any temporary measure, whether in the form of an award or in
another form, by which, at any time prior to the issuance of the award by which the dispute is
finally decided, the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of the dispute;
(b) Take action that would prevent, or refrain from taking action that is likely to cause, current
or imminent harm or prejudice to the arbitral process itself;
(c) Provide a means of preserving assets out of which a subsequent award may be satisfied;
or
(d) Preserve evidence that may be relevant and material to the resolution of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue interim
measures:

Article 17 J. Court-ordered interim measures

A court shall have the same power of issuing an interim measure in relation to arbitration
proceedings, irrespective of whether their place is in the territory of this State, as it has in
relation to proceedings in courts. The court shall exercise such power in accordance with its
own procedures in consideration of the specific features of international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we were explicit that
even "the pendency of an arbitral proceeding does not foreclose resort to the courts for provisional
reliefs." We explicated this way:

As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the
courts for provisional reliefs. The Rules of the ICC, which governs the parties arbitral
dispute, allows the application of a party to a judicial authority for interim or conservatory
measures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law)
recognizes the rights of any party to petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute in arbitration. In addition, R.A. 9285,
otherwise known as the "Alternative Dispute Resolution Act of 2004," allows the filing of
provisional or interim measures with the regular courts whenever the arbitral tribunal has no
power to act or to act effectively.50
It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of protection.
Secondly, considering that the equipment and machineries are in the possession of PGSMC, it has the
right to protect and preserve the equipment and machineries in the best way it can. Considering that the
LPG plant was non-operational, PGSMC has the right to dismantle and transfer the equipment and
machineries either for their protection and preservation or for the better way to make good use of them
which is ineluctably within the management discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining the equipment and machineries in Worths
property is not to the best interest of PGSMC due to the prohibitive rent while the LPG plant as set-up is

not operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for 1998 alone without
considering the 10% annual rent increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the preservation or
transfer of the equipment and machineries as an interim measure, yet on hindsight, the July 23, 1998
Order of the RTC allowing the transfer of the equipment and machineries given the non-recognition by the
lower courts of the arbitral clause, has accorded an interim measure of protection to PGSMC which would
otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based on the
contract. Moreover,KOGIES is amply protected by the arbitral action it has instituted before the KCAB,
the award of which can be enforced in our jurisdiction through the RTC. Besides, by our decision,
PGSMC is compelled to submit to arbitration pursuant to the valid arbitration clause of its contract with
KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to dismantle and transfer the subject equipment
and machineries, it does not have the right to convey or dispose of the same considering the pending
arbitral proceedings to settle the differences of the parties. PGSMC therefore must preserve and maintain
the subject equipment and machineries with the diligence of a good father of a family51 until final
resolution of the arbitral proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117
are REVERSED and SET ASIDE;
(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute and
differences arising from the subject Contract before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it had not
done so, andORDERED to preserve and maintain them until the finality of whatever arbitral award is
given in the arbitration proceedings.
No pronouncement as to costs.
SO ORDERED.
Quisumbing,Chairperson Carpio, Carpio-Morales, Tinga, JJ., concur.
G.R. No. 169332

February 11, 2008

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
WORLD INTERACTIVE NETWORK SYSTEMS (WINS) JAPAN CO., LTD., respondent.
DECISION
CORONA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the February
16, 2005 decision1and August 16, 2005 resolution2 of the Court of Appeals (CA) in CA-G.R. SP No.
81940.
On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation entered into a licensing
agreement with respondent World Interactive Network Systems (WINS) Japan Co., Ltd., a foreign
corporation licensed under the laws of Japan. Under the agreement, respondent was granted the
exclusive license to distribute and sublicense the distribution of the television service known as "The
Filipino Channel" (TFC) in Japan. By virtue thereof, petitioner undertook to transmit the TFC programming
signals to respondent which the latter received through its decoders and distributed to its subscribers.
A dispute arose between the parties when petitioner accused respondent of inserting nine episodes of
WINS WEEKLY, a weekly 35-minute community news program for Filipinos in Japan, into the TFC
programming from March to May 2002.3Petitioner claimed that these were "unauthorized insertions"
constituting a material breach of their agreement. Consequently, on May 9, 2002, 4 petitioner notified
respondent of its intention to terminate the agreement effective June 10, 2002.
Thereafter, respondent filed an arbitration suit pursuant to the arbitration clause of its agreement with
petitioner. It contended that the airing of WINS WEEKLY was made with petitioner's prior approval. It also
alleged that petitioner only threatened to terminate their agreement because it wanted to renegotiate the
terms thereof to allow it to demand higher fees. Respondent also prayed for damages for petitioner's
alleged grant of an exclusive distribution license to another entity, NHK (Japan Broadcasting
Corporation).5
The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator. They stipulated on the
following issues in their terms of reference (TOR)6:

1. Was the broadcast of WINS WEEKLY by the claimant duly authorized by the respondent
[herein petitioner]?
2. Did such broadcast constitute a material breach of the agreement that is a ground for
termination of the agreement in accordance with Section 13 (a) thereof?
3. If so, was the breach seasonably cured under the same contractual provision of Section
13 (a)?
4. Which party is entitled to the payment of damages they claim and to the other reliefs
prayed for?
xxx

xxx

xxx

The arbitrator found in favor of respondent.7 He held that petitioner gave its approval to respondent for the
airing of WINS WEEKLY as shown by a series of written exchanges between the parties. He also ruled
that, had there really been a material breach of the agreement, petitioner should have terminated the
same instead of sending a mere notice to terminate said agreement. The arbitrator found that petitioner
threatened to terminate the agreement due to its desire to compel respondent to re-negotiate the terms
thereof for higher fees. He further stated that even if respondent committed a breach of the agreement,
the same was seasonably cured. He then allowed respondent to recover temperate damages, attorney's
fees and one-half of the amount it paid as arbitrator's fee.
Petitioner filed in the CA a petition for review under Rule 43 of the Rules of Court or, in the alternative, a
petition for certiorari under Rule 65 of the same Rules, with application for temporary restraining order
and writ of preliminary injunction. It was docketed as CA-G.R. SP No. 81940. It alleged serious errors of

fact and law and/or grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the
arbitrator.
Respondent, on the other hand, filed a petition for confirmation of arbitral award before the Regional Trial
Court (RTC) of Quezon City, Branch 93, docketed as Civil Case No. Q-04-51822.
Consequently, petitioner filed a supplemental petition in the CA seeking to enjoin the RTC of Quezon City
from further proceeding with the hearing of respondent's petition for confirmation of arbitral award. After
the petition was admitted by the appellate court, the RTC of Quezon City issued an order holding in
abeyance any further action on respondent's petition as the assailed decision of the arbitrator had already
become the subject of an appeal in the CA. Respondent filed a motion for reconsideration but no
resolution has been issued by the lower court to date.8
On February 16, 2005, the CA rendered the assailed decision dismissing ABS-CBNs petition for lack of
jurisdiction. It stated that as the TOR itself provided that the arbitrator's decision shall be final and
unappealable and that no motion for reconsideration shall be filed, then the petition for review must fail. It
ruled that it is the RTC which has jurisdiction over questions relating to arbitration. It held that the only
instance it can exercise jurisdiction over an arbitral award is an appeal from the trial court's decision
confirming, vacating or modifying the arbitral award. It further stated that a petition for certiorari under
Rule 65 of the Rules of Court is proper in arbitration cases only if the courts refuse or neglect to inquire
into the facts of an arbitrator's award. The dispositive portion of the CA decision read:

WHEREFORE, the instant petition is hereby DISMISSED for lack of jurisdiction. The
application for a writ of injunction and temporary restraining order is likewise DENIED. The
Regional Trial Court of Quezon City Branch 93 is directed to proceed with the trial for the
Petition for Confirmation of Arbitral Award.
SO ORDERED.
Petitioner moved for reconsideration. The same was denied. Hence, this petition.
Petitioner contends that the CA, in effect, ruled that: (a) it should have first filed a petition to vacate the
award in the RTC and only in case of denial could it elevate the matter to the CA via a petition for review
under Rule 43 and (b) the assailed decision implied that an aggrieved party to an arbitral award does not
have the option of directly filing a petition for review under Rule 43 or a petition for certiorari under Rule
65 with the CA even if the issues raised pertain to errors of fact and law or grave abuse of discretion, as
the case may be, and not dependent upon such grounds as enumerated under Section 24 (petition to
vacate an arbitral award) of RA 876 (the Arbitration Law). Petitioner alleged serious error on the part of
the CA.
The issue before us is whether or not an aggrieved party in a voluntary arbitration dispute may avail of,
directly in the CA, a petition for review under Rule 43 or a petition for certiorari under Rule 65 of the Rules
of Court, instead of filing a petition to vacate the award in the RTC when the grounds invoked to overturn
the arbitrators decision are other than those for a petition to vacate an arbitral award enumerated under
RA 876.
RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has jurisdiction over
questions relating to arbitration,9 such as a petition to vacate an arbitral award.
Section 24 of RA 876 provides for the specific grounds for a petition to vacate an award made by an
arbitrator:

Sec. 24. Grounds for vacating award. - In any one of the following cases, the court must
make an order vacating the award upon the petition of any party to the controversy when
such party proves affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in the arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon
sufficient cause shown, or in refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was disqualified to act as such under section
nine hereof, and willfully refrained from disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not made.
Based on the foregoing provisions, the law itself clearly provides that the RTC must issue an order
vacating an arbitral award only "in any one of the . . . cases" enumerated therein. Under the legal maxim
in statutory construction expressio unius est exclusio alterius, the explicit mention of one thing in a statute
means the elimination of others not specifically mentioned. As RA 876 did not expressly provide for errors
of fact and/or law and grave abuse of discretion (proper grounds for a petition for review under Rule 43
and a petition for certiorari under Rule 65, respectively) as grounds for maintaining a petition to vacate an
arbitral award in the RTC, it necessarily follows that a party may not avail of the latter remedy on the
grounds of errors of fact and/or law or grave abuse of discretion to overturn an arbitral award.
Adamson v. Court of Appeals10 gave ample warning that a petition to vacate filed in the RTC which is not
based on the grounds enumerated in Section 24 of RA 876 should be dismissed. In that case, the trial
court vacated the arbitral award seemingly based on grounds included in Section 24 of RA 876 but a
closer reading thereof revealed otherwise. On appeal, the CA reversed the decision of the trial court and
affirmed the arbitral award. In affirming the CA, we held:

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

xxx

xxx

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

xxx

xxx

It is clear then that the Court of Appeals reversed the trial court not because the latter
reviewed the arbitration award involved herein, but because the respondent appellate

court found that the trial court had no legal basis for vacating the award. (Emphasis
supplied).
In cases not falling under any of the aforementioned grounds to vacate an award, the Court has already
made several pronouncements that a petition for review under Rule 43 or a petition for certiorari under
Rule 65 may be availed of in the CA. Which one would depend on the grounds relied upon by petitioner.
In Luzon Development Bank v. Association of Luzon Development Bank Employees,11 the Court held that
a voluntary arbitrator is properly classified as a "quasi-judicial instrumentality" and is, thus, within the
ambit of Section 9 (3) of the Judiciary Reorganization Act, as amended. Under this section, the Court of
Appeals shall exercise:
xxx

xxx

xxx

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or
awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or
commissions, including the Securities and Exchange Commission, the Employees
Compensation Commission and the Civil Service Commission, except those falling within the
appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor
Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of
this Act and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth
paragraph of Section 17 of the Judiciary Act of 1948. (Emphasis supplied)
As such, decisions handed down by voluntary arbitrators fall within the exclusive appellate jurisdiction of
the CA. This decision was taken into consideration in approving Section 1 of Rule 43 of the Rules of
Court.12 Thus:

SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of the
Court of Tax Appeals and from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions. Among
these agencies are the Civil Service Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Office of the President, Land Registration Authority,
Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and
Technology Transfer, National Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department of Agrarian Reform under Republic
Act Number 6657, Government Service Insurance System, Employees Compensation
Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic
Energy Commission, Board of Investments, Construction Industry Arbitration Commission,
and voluntary arbitrators authorized by law. (Emphasis supplied)
This rule was cited in Sevilla Trading Company v. Semana,13 Manila Midtown Hotel v.
Borromeo,14 and Nippon Paint Employees Union-Olalia v. Court of Appeals.15 These cases held that the
proper remedy from the adverse decision of a voluntary arbitrator, if errors of fact and/or law are raised, is
a petition for review under Rule 43 of the Rules of Court. Thus, petitioner's contention that it may avail of
a petition for review under Rule 43 under the circumstances of this case is correct.
As to petitioner's arguments that a petition for certiorari under Rule 65 may also be resorted to, we hold
the same to be in accordance with the Constitution and jurisprudence.
Section 1 of Article VIII of the 1987 Constitution provides that:

SECTION 1. The judicial power shall be vested in one Supreme Court and in such lower
courts as may be established by law.
Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine whether
or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis
supplied)
As may be gleaned from the above stated provision, it is well within the power and jurisdiction of the
Court to inquire whether any instrumentality of the Government, such as a voluntary arbitrator, has
gravely abused its discretion in the exercise of its functions and prerogatives. Any agreement stipulating
that "the decision of the arbitrator shall be final and unappealable" and "that no further judicial recourse if
either party disagrees with the whole or any part of the arbitrator's award may be availed of" cannot be
held to preclude in proper cases the power of judicial review which is inherent in courts. 16 We will not
hesitate to review a voluntary arbitrator's award where there is a showing of grave abuse of authority or
discretion and such is properly raised in a petition for certiorari17 and there is no appeal, nor any plain,
speedy remedy in the course of law.18
Significantly, Insular Savings Bank v. Far East Bank and Trust Company 19 definitively outlined several
judicial remedies an aggrieved party to an arbitral award may undertake:

(1) a petition in the proper RTC to issue an order to vacate the award on the grounds
provided for in Section 24 of RA 876;
(2) a petition for review in the CA under Rule 43 of the Rules of Court on questions of fact, of
law, or mixed questions of fact and law; and
(3) a petition for certiorari under Rule 65 of the Rules of Court should the arbitrator have
acted without or in excess of his jurisdiction or with grave abuse of discretion amounting to
lack or excess of jurisdiction.
Nevertheless, although petitioners position on the judicial remedies available to it was correct, we sustain
the dismissal of its petition by the CA. The remedy petitioner availed of, entitled "alternative petition for
review under Rule 43 or petition for certiorari under Rule 65," was wrong.
Time and again, we have ruled that the remedies of appeal and certiorari are mutually exclusive and not
alternative or successive.20
Proper issues that may be raised in a petition for review under Rule 43 pertain to errors of fact, law or
mixed questions of fact and law.21 While a petition for certiorari under Rule 65 should only limit itself to
errors of jurisdiction, that is, grave abuse of discretion amounting to a lack or excess of
jurisdiction.22 Moreover, it cannot be availed of where appeal is the proper remedy or as a substitute for a
lapsed appeal.23
In the case at bar, the questions raised by petitioner in its alternative petition before the CA were the
following:

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

ABUSED HIS DISCRETION IN RULING THAT THE BROADCAST OF "WINS WEEKLY"
WAS DULY AUTHORIZED BY ABS-CBN.

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

ABUSED HIS DISCRETION IN RULING THAT THE UNAUTHORIZED BROADCAST DID
NOT CONSTITUTE MATERIAL BREACH OF THE AGREEMENT.
C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY
ABUSED HIS DISCRETION IN RULING THAT WINS SEASONABLY CURED THE
BREACH.
D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY
ABUSED HIS DISCRETION IN RULING THAT TEMPERATE DAMAGES IN THE AMOUNT
OF P1,166,955.00 MAY BE AWARDED TO WINS.
E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY
ABUSED HIS DISCRETION IN AWARDING ATTORNEY'S FEES IN THE UNREASONABLE
AMOUNT AND UNCONSCIONABLE AMOUNT OFP850,000.00.
F. THE ERROR COMMITTED BY THE SOLE ARBITRATOR IS NOT A SIMPLE ERROR OF
JUDGMENT OR ABUSE OF DISCRETION. IT IS GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION.
A careful reading of the assigned errors reveals that the real issues calling for the CA's resolution were
less the alleged grave abuse of discretion exercised by the arbitrator and more about the arbitrators
appreciation of the issues and evidence presented by the parties. Therefore, the issues clearly fall under
the classification of errors of fact and law questions which may be passed upon by the CA via a
petition for review under Rule 43. Petitioner cleverly crafted its assignment of errors in such a way as to
straddle both judicial remedies, that is, by alleging serious errors of fact and law (in which case a petition
for review under Rule 43 would be proper) and grave abuse of discretion (because of which a petition for
certiorari under Rule 65 would be permissible).
It must be emphasized that every lawyer should be familiar with the distinctions between the two
remedies for it is not the duty of the courts to determine under which rule the petition should
fall.24 Petitioner's ploy was fatal to its cause. An appeal taken either to this Court or the CA by the wrong
or inappropriate mode shall be dismissed.25 Thus, the alternativepetition filed in the CA, being an
inappropriate mode of appeal, should have been dismissed outright by the CA.
WHEREFORE, the petition is hereby DENIED. The February 16, 2005 decision and August 16, 2005
resolution of the Court of Appeals in CA-G.R. SP No. 81940 directing the Regional Trial Court of Quezon
City, Branch 93 to proceed with the trial of the petition for confirmation of arbitral award is AFFIRMED.
Costs against petitioner.
SO ORDERED.

G.R. No. 106879 May 27, 1994

DR. LUCAS G. ADAMSON and ADAMSON MANAGEMENT CORPORATION, petitioners,
vs.
HON. COURT OF APPEALS and APAC HOLDINGS LIMITED, respondents.
Benjamin J. Yap for petitioners.
Bautista, Picazo, Buyco, Tan & Fider for private respondent.

ROMERO, J.:
Before us is a petition for review on certiorari of a decision of the Court of Appeals, the dispositive
portion of which is quoted hereunder:
WHEREFORE, judgment is hereby rendered setting aside respondent judge's
questioned order dated 23 August 1991 and confirming the subject arbitration award.
Costs against private respondents.
SO ORDERED.
The antecedents of this case are as follows:
On June 15, 1990, the parties, Adamson Management Corporation and Lucas Adamson on the one
hand, and APAC Holdings Limited on the other, entered into a contract whereby the former sold
99.97% of outstanding common shares of stocks of Adamson and Adamson, Inc. to the latter for
P24,384,600.00 plus the Net Asset Value (NAV) of Adamson and Adamson, Inc. as of June 19,
1990. But the parties failed to agree on a reasonable Net Asset Value. This prompted them to submit
the case for arbitration in accordance with Republic Act No. 876, otherwise known as the Arbitration
Law.
On May 15, 1991, the Arbitration Committee rendered a decision finding the Net Asset Value of the
Company to be P167,118.00 which was computed on the basis of a pro-forma balance sheet
submitted by SGV and which was the difference between the total assets of the Company
amounting to P65,554,258.00 (the sum of the balance sheet asset amounting to P65,413,978.00
and the increase in Cuevo appraisal amounting to P140,280.00) and total liabilities amounting to
P65,387,140.00 (the difference between current liabilities and long term debt amounting to
P68,356,132.00 and Tax Savings for 1987 amounting to P2,968,992).
In so holding that NAV equals P167,118.00, the Arbitration Committee disregarded petitioners'
argument that there was a fixed NAV amounting to P5,146,000.00 as of February 28, 1990 to which
should be added the value of intangible assets (P19,116,000.00), the increment of tangible assets
excluding land (P17,003,976.00), the 1987 tax savings (P2,968,992.00), and estimated net income
from February 28, 1990 to June 19, 1990 (P1,500,000.00, later increased to P3,949,772.00).
According to the Committee, however, the amount of P5,146,000.00 which was claimed as initial
NAV by petitioners, was merely an estimate of the Company's NAV as of February 28, 1990 which
was still subject to financial developments until June 19, 1990, the cut-off date. The basis for this
ruling was Clause 3(B) of the Agreement which fixed the said amount; Clause 1(A) which defined
NAV and provided that it should be computed in accordance with Clause 7(A); Clause 7(A) which
directed the auditors to prepare in accordance with good accounting principles a balance sheet as of
cut-off date which would include the goodwill and intangible assets (P19,116,000.00), the value of
tangible assets excluding the land as per Cuervo appraisal, the adjustment agreed upon by the
parties, and the cost of redeeming preferred shares; and Clause 5(E). Furthermore, the Committee
held that the parties used the figures in the pro-forma balance sheet to arrive at the said amount of
P5,146,000.00; that the same had already included the value of the intangible assets and of the
Cuervo appraisal of the tangible assets so that the latter items could not be added again to what
Vendor claimed to be the initial NAV; and that apart from being an estimate, the amount of
P5,146,000.00 was tentative as it was still subject to the adjustments to be made thereto to reflect
subsequent financial events up to the cut-off date.

In the computation of the NAV, the Committee deemed it proper to appreciate in favor of petitioners
the 1987 tax savings because as of the date of the proceedings, no assessment was ever made by
the BIR and the three-year prescriptive period had already expired. However, it did not consider the
estimated net income for the period beginning February 28, 1990 to June 19, 1990 as part of the
NAV because it found that as of June 1990, the books of the company carried a net loss of
P4,678,627.00 which increased to P8,547,868.00 after the proposed adjustments were included in
the computation of the NAV. The Committee pointed out that although petitioners herein contested
the adjustments, they were, however, not able to prove that these were not valid, except with respect
to the tax savings.
Aside from deciding the amount of NAV, the Committee also held that any ambiguity in the contract
should not necessarily be interpreted against herein private respondents because the parties
themselves had stipulated that the draft of the agreement was submitted to petitioners for approval
and that the latter even proposed changes which were eventually incorporated in the final form of the
Agreement.
Thereafter, APAC Holdings Ltd. filed a petition for confirmation of the arbitration award before the
Regional Trial Court of Makati. Herein petitioners opposed the petition and prayed for the
nullification, modification and/or correction of the same, alleging that the arbitrators committed
evident partiality and grave abuse of discretion as shown by the following errors:
a. In creating an entirely new contract for the parties that contradicts the essence of
their agreement and results in the absurd situation where a seller incurs enormous
expense to sell his property;
b. In treating the provisions in the Agreement independently of one another and
thereby nullifying the simple, clear and express stipulations therein;
c. In interpreting the Agreement although it is couched in plain, simple and clear
language, contrary to the well established principle that if the terms of a contract are
clear, the literal meaning of its stipulations shall control;
d. In accepting SGV's proposed adjustments, contrary to the parties' stipulation that
the final adjustment items shall pertain to a specific period and subject to their
agreement; and in giving full reliance on SGV report despite SGV's disclosure of its
lack of independence because it acted solely to assist petitioner and its report was
intended solely for petitioner's information;
e. In not applying the "suppressed evidence" rule against petitioner inspite of its
refusal to present the Company's income statement or any other similar report for the
adjustment period; and in disregarding respondent's estimate of the net income for
the period as "Adjustment" using SGV's figures and ratios;
f. In not awarding damages and attorney's fee to respondents despite petitioner's bad
faith in violating the contract. 1
The Regional Trial Court rendered a decision vacating the arbitration award. The dispositive portion
of the decision reads as follows:
WHEREFORE, the Decision/Arbitration Award in question is hereby VACATED, and
APAC (herein petitioner) is hereby ordered to pay ADAMSON (herein respondents)
the final NAV of Forty-seven Million One Hundred Twenty-One Thousand Four

Hundred Sixty-Eight Pesos (P47,121,468.00), Philippine Currency, in accordance

with the pertinent stipulations expressed in the Agreement as discussed above, plus
twelve (12) percent interest on the above amount which ADAMSON should have
earned had the balance of the final NAV been paid to the Escrow Agent after offset
on August 2, 1990.
ADAMSON's claim for moral and exemplary damages and attorney's fees are (sic)
dismissed for lack of sufficient merit.
SO ORDERED. 2
On appeal, the above decision was reversed and a petition for review was filed in this Court.
Petitioners allege that the Court of Appeals erred and acted in excess of jurisdiction or with grave
abuse of discretion in holding that: (a) the trial judge reversed the arbitration award solely on the
basis of the pleadings submitted by the parties; (b) petitioners failed to substantiate with proofs their
imputation of partiality to the members of the arbitration committee; (c) the nullification by the trial
court of the award was not based on any of the grounds provided by law; (d) to allow the trial judge
to substitute his own findings in lieu of the arbitrators' would defeat the object of arbitration which is
to avoid litigation; and (e) if there really was a ground for vacating the award, it was improper for trial
judge to reverse the decision because it contravened Section 25 of R.A. No. 876.
Did the Court of Appeals err in affirming the arbitration award and in reversing the decision of the
trial court?
The Court of Appeals, in reversing the trial court's decision held that the nullification of the decision
of the Arbitration Committee was not based on the grounds provided by the Arbitration Law and that
". . . private respondents [petitioners herein] have failed to substantiate with any evidence their claim
of partiality. Significantly, even as respondent judge ruled against the arbitrators' award, he could not
find fault with their impartiality and integrity. Evidently, the nullification of the award rendered at the
case at bar was made not on the basis of any of the grounds provided by law." 3
Assailing the above conclusion, petitioners argue that ". . . evident partiality is a state of mind that
need not be proved by direct evidence but may be inferred from the circumstances of the case
(citations omitted). It is related to intention which is a mental process, an internal state of mind that
must be judged by the person's conduct and acts which are the best index of his intention (citations
omitted)." 4 They pointed out that from the following circumstances may be inferred the arbitrators'
evident partiality:

1. the material difference between the results of the arbitrators' computation of the
NAV and that of petitioners;
2. the alleged piecemeal interpretation by the arbitrators of the Agreement which
went beyond the clear provisions of the contract and negated the obvious intention of
the parties;
3. reliance by the arbitrators on the financial statements and reports submitted by
SGV which, according to petitioners, acted solely for the interests of private
respondents; and
4. the finding of the trial court that "the arbitration committee has advanced no valid
justification to warrant a departure from the well-settled rule in contract interpretation

that if the terms of the contract are clear and leave no doubt upon the intention of the
contracting parties the literal meaning of its interpretation shall control." 5
We find no reason to depart from the Court of Appeal's conclusion.
Section 24 of the Arbitration Law provides as follows:
Sec. 24. Grounds for vacating award. In any one of the following cases, the court
must make an order vacating the award upon the petition of any party to the
controversy when such party proves affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud or
other undue means; or
(b) That there was evident partiality or corruption in
the arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in
refusing to postpone the hearing upon sufficient
cause shown, or in refusing to hear evidence
pertinent and material to the controversy; that one or
more of the arbitrators was disqualified to act as such
under section nine hereof, and willfully refrained from
disclosing such disqualifications or any other
misbehavior by which the rights of any party
havebeen 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. . . .
Petitioners herein failed to prove their allegation of partiality on the part of the arbitrators. Proofs
other than mere inferences are needed to establish evident partiality. That they were disadvantaged
by the decision of the Arbitration Committee does not prove evident partiality.
Too much reliance has been accorded by petitioners on the decision of the trial court. However, we
find that the same is but an adaptation of the arguments of petitioners to defeat the petition for
confirmation of the arbitral award in the trial court by herein private respondent. The trial court itself
stated as follows:
In resolving the issues in favor of respondents, the Court has no alternative but to
agree with the contention of said party, as supported by their exhaustive and very
convincing arguments contained in more than twenty-one (21) pages, doubledspaced, which are adopted and reproduced herein by reference. Said arguments
may be CAPSULIZED as follows:
The penultimate paragraph of its decision reads, thus:
To allay any fear of petitioner that its reply and opposition, dated 11
June 1991, has not been taken into account in resolving this case, it

will be well to state that the court has carefully read the same and,
what is more, it has also read respondents' comment, dated 19 June
1991, wherein they made convincing arguments which are likewise
adopted and incorporated herein by reference. 6
The justifications advanced by the trial court for vacating the arbitration award are the following: (a) ".
. . that the arbitration committee had advanced no valid justification to warrant a departure from the
well-settled rule in contract interpretation that if the terms of the contract are clear and leave no
doubt upon the intention of the contracting parties the literal meaning of its interpretation shall
control; (b) that the final NAV of P47,121,468.00 as computed by herein petitioners was well within
APAC's normal investment level which was at least US$1 million and to say that the NAV was
merely P167,118.00 would negate Clause 6 of the Agreement which provided that the purchaser
would deposit in escrow P5,146,000.00 to be held for two (2) years and to be used to satisfy any
actual or contingent liability of the vendor under the Agreement; (c) that the provision for an escrow
account negated any idea of the NAV being less than P5,146,000.00; and (d) that herein private
respondent, being the drafter of the Agreement could not avoid performance of its obligations by
raising ambiguity of the contract, or its failure to express the intention of the parties, or the difficulty
of performing the same.
It is clear therefore, that the award was vacated not because of evident partiality of the arbitrators
but because the latter interpreted the contract in a way which was not favorable to herein petitioners
and because it considered that herein private respondents, by submitting the controversy to
arbitration, was seeking to renege on its obligations under the contract.
That the award was unfavorable to petitioners herein did not prove evident partiality. That the
arbitrators resorted to contract interpretation neither constituted a ground for vacating the award
because under the circumstances, the same was necessary to settle the controversy between the
parties regarding the amount of the NAV. In any case, this Court finds that the interpretation made
by the arbitrators did not create a new contract, as alleged by herein petitioners but was a faithful
application of the provisions of the Agreement. Neither was the award arbitrary for it was based on
the statements prepared by the SGV which was chosen by both parties to be the "auditors."
The trial court held that herein private respondent could not shirk from performing its obligations on
account of the difficulty of complying with the terms of the contract. It said further that the contract
may be harsh but private respondent could not excuse itself from performing its obligations on
account of the ambiguity of the contract because as its drafter, private respondent was well aware of
the implications of the Agreement. We note herein that during the arbitration proceedings, the parties
agreed that the contract as prepared by private respondent, was submitted to petitioners for
approval. Petitioners, therefore, are presumed to have studied the provisions of the Agreement and
agreed to its import when they approved and signed the same. When it was submitted to arbitration
to settle the issue regarding the computation of the NAV, petitioners agreed to be bound by the
judgment of the arbitration committee, except in cases where the grounds for vacating the award
existed. Petitioners cannot now refuse to perform its obligation after realizing that it had erred in its
understanding of the Agreement.
Petitioners also assailed the arbitrator's reliance upon the financial statements submitted by SGV as
they allegedly served the interests of private respondents and did not reflect the true intention of the
parties. We agree with the observation made by the arbitrators that SGV, being a reputable firm, it
should be presumed to have prepared the statements in accordance with sound accounting
principles. Petitioners have presented no proof to establish that SGV's computation was erroneous
and biased.

Petitioners likewise pointed out that the computation of the arbitrators leads to the absurd result of
petitioners incurring great expense just to sell its properties. In arguing that the NAV could not be
less than P5,146,000, petitioners quote Clause (B) of the Agreement as follows:
CLAUSE 3(B)
The consideration for the purchase of the Sale Shares by the Purchaser shall be
equivalent to the Net Asset Value of the Company, . . . which the parties HAVE
FIXED at P5,146,000.00 prior to Adjustments . . .
However, such quotation is incomplete and, therefore, misleading. The full text of the above
provision as quoted by the arbitration committee reads as follows:
(B) The consideration for the purchase of the Sale Shares by the purchaser shall be
equivalent to the Net Asset Value of the Company, without the Property, which the
parties have fixed at P5,146,000 prior to Adjustments plus P24,384,600. The
consideration for the sale of the Sale Shares by the Vendor, is the acquisition of the
property by the Vendor, through Aloha, from the Company at historical cost plus all
Taxes due on said transfer of Property, and the release of all collaterals of the
Vendor securing the RSBS Credit Facility. However, in the implementation of this
Agreement, the parties shall designate the amounts specifiedin Clause 5 as the
purchaser prices in the pro-forma deeds of sale and other documents required to
effect the transfers contemplated in this Agreement.
Thus, petitioner cannot claim that the consideration for private respondent's acquisition of the
outstanding common shares of stock was grossly inadequate. If the NAV as computed was small,
the result was not due to error in the computations made by the arbitrators but due to the extent of
the liabilities being borne by petitioners. During the arbitration proceedings, the committee found that
petitioner has been suffering losses since 1983, a fact which was not denied by petitioner. We
cannot sustain the argument of petitioners that the amount of P5,146,000.00 was an initial NAV as of
February 28, 1990 to which should still be added the value of tangible assets (excluding the land)
and of intangible assets. If indeed the P5,146,000.00 was the initial NAV as of February 28, 1990,
then as of said date, the total assets and liabilities of the company have already been set off against
each other. NET ASSET VALUE is arrived at only after deducting TOTAL LIABILITIES from TOTAL
ASSETS. "TOTAL ASSETS" includes those that are tangible and intangible. If the amount of the
tangible and intangible assets would still be added to the "initial NAV," this would constitute double
counting. Unless the company acquired new assets from February 28, 1990 up to June 19, 1990, no
value corresponding to tangible and intangible assets may be added to the NAV.
We also note that the computation by petitioners of the NAV did not reflect the liabilities of the
company. The term "net asset value" indicates the amount of assets exceeding the liabilities as
differentiated from total assets which include the liabilities. If petitioners were not satisfied, they
could have presented their own financial statements to rebut SGV's report but this, they did not do.
Lastly, in assailing the decision of the Court of Appeals, petitioners would have this Court believe
that the respondent court held that the decision of the arbitrators was not subject to review by the
courts. This was not the position taken by the respondent court.
The Court of Appeals, in its decision stated, thus:
It is settled that arbitration awards are subject to judicial review. In the recent case
of Chung Fu Industries (Philippines), Inc., et. al. v. Court of Appeals, Hon Francisco

X. Velez, et. al., G. R. No. 96283, February 25, 1992, the Supreme Court
categorically ruled that:
It is stated expressly under Art. 2044 of the Civil Code that the finality
of the arbitrators' award is not absolute and without exceptions.
Where the conditions described in Articles 2038, 2039 and 2040
applicable to both compromises and arbitrations are obtaining, the
arbitrators' award may be annulled or rescinded. Additionally, under
Sections 24 and 25 of the Arbitration Law, there are grounds for
vacating, modifying or rescinding an arbitrators' award. Thus, if and
when the factual circumstances referred to in the above-cited
provisions are present, judicial review of the award is properly
warranted.
Clearly, though recourse to the courts may be availed of by parties aggrieved by
decisions or awards rendered by arbitrator/s, the extent of such is neither absolute
nor all encompassing. . . . 7
It is clear then that the Court of Appeals reversed the trial court not because the latter reviewed the
arbitration award involved herein, but because the respondent appellate court found that the trial
court had no legal basis for vacating the award.
WHEREFORE, in view of the foregoing, this petition is hereby DISMISSED and the decision of the
Court of Appeals AFFIRMED.
SO ORDERED.
Feliciano, Bidin, Melo and Vitug, JJ., concur.

G.R. No. 169095

December 8, 2008

HEUNGHWA INDUSTRY CO., LTD., petitioner,

vs.
DJ BUILDERS CORPORATION, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, seeking to
set aside the August 20, 2004 Decision2 and August 1, 2005 Resolution3 of the Court of Appeals (CA) in
CA-G.R. SP Nos. 70001 and 71621.
The facts of the case, as aptly presented by the CA, are as follows:
Heunghwa Industry Co., Ltd. (petitioner) is a Korean corporation doing business in the Philippines, while
DJ Builders Corporation (respondent) is a corporation duly organized under the laws of the Philippines.
Petitioner was able to secure a contract with the Department of Public Works and Highways (DPWH) to
construct the Roxas-Langogan Road in Palawan.

Petitioner entered into a subcontract agreement with respondent to do earthwork, sub base course and
box culvert of said project in the amount of Php113, 228, 918.00. The agreement contained an arbitration
clause. The agreed price was not fully paid; hence, on January 19, 2000, respondent filed before the
Regional Trial Court (RTC) of Puerto Princesa, Branch 51, a Complaint for "Breach of Contract, Collection
of Sum of Money with Application for Preliminary Injunction, Preliminary Attachment, and Prayer for
Temporary Restraining Order and Damages" docketed as Civil Case No. 3421.4
Petitioner's Amended Answer5 averred that it was not obliged to pay respondent because the latter
caused the stoppage of work. Petitioner further claimed that it failed to collect from the DPWH due to
respondent's poor equipment performance. The Amended Answer also contained a counterclaim for
Php24,293,878.60.
On September 27, 2000, parties through their respective counsels, filed a "Joint Motion to Submit Specific
Issues To The Construction Industry Arbitration Commission"6 (CIAC), to wit:

5. Parties would submit only specific issues to the CIAC for arbitration, leaving other claims
to this Honorable Court for further hearing and adjudication. Specifically, the issues to be
submitted to the CIAC are as follows:
a. Manpower and equipment standby time;
b. Unrecouped mobilization expenses;
c. Retention;
d. Discrepancy of billings; and
e. Price escalation for fuel and oil usage.7
On the same day, the RTC issued an Order8 granting the motion.
On October 9, 2000, petitioner, through its counsel, filed an "Urgent Manifestation" 9 praying that additional
matters be referred to CIAC for arbitration, to wit:

1. Additional mobilization costs incurred by [petitioner] for work abandoned by [respondent];

2. Propriety of liquidated damages in favor of [petitioner] for delay incurred by [respondent];
3. Propriety of downtime costs on a daily basis during the period of the existence of the
previous temporary restraining order against [petitioner].10
On October 24, 2000, respondent filed with CIAC a Request for Adjudication 11 accompanied by a
Complaint. Petitioner, in turn filed a "Reply/ Manifestation" informing the CIAC that it was abandoning the
submission to CIAC and pursuing the case before the RTC. In respondent's Comment on petitioner's
Manifestation, it prayed for CIAC to declare petitioner in default.
CIAC then issued an Order12 dated November 27, 2000 ordering respondent to move for the dismissal of
Civil Case No. 3421 pending before the RTC of Palawan and directing petitioner to file anew its answer.
The said Order also denied respondent's motion to declare petitioner in default.
Respondent filed a Motion for Partial Reconsideration of the November 27, 2000 Order while petitioner
moved to suspend the proceeding before the CIAC until the RTC had dismissed Civil Case No. 3421.

On January 8, 2000, CIAC issued an Order13 setting aside its Order of November 27, 2000 by directing
the dismissal of Civil Case No. 3421 only insofar as the five issues referred to it were concerned. It also
directed respondent to file a request for adjudication. In compliance, respondent filed anew a "Revised
Complaint"14 which increased the amount of the claim from Php23,391,654.22 to Php65,393,773.42.
On February 22 2001, petitioner, through its new counsel, filed with the RTC a motion to withdraw the
Order dated September 27, 2000 which referred the case to the CIAC, claiming it never authorized the
referral. Respondent opposed the motion15 contending that petitioner was already estopped from asking
for the recall of the Order.
Petitioner filed in the CIAC its opposition to the second motion to declare it in default, with a motion to
dismiss informing the CIAC that it was abandoning the submission of the case to it and asserting that the
RTC had original and exclusive jurisdiction over Civil Case No. 3421, including the five issues referred to
the CIAC.
On March 5, 2001, the CIAC denied petitioner's motion to dismiss on the ground that the November 27,
2000 Order had already been superseded by its Order of January 8, 2001. 16
On March 13, 2001, the CIAC issued an Order setting the preliminary conference on April 10, 2001. 17
On March 23, 2001 petitioner filed with the CIAC a motion for reconsideration of the March 5, 2001 Order.
For clarity, the succeeding proceedings before the RTC and CIAC are presented in graph form in
chronological order.

RTC

May 16, 2001 - the RTC issued a

Resolution18granting petitioner's
Motion to Recall.19
June 1, 2001- Respondent moved
for a reconsideration of the May 16,
2001 Resolution and prayed for the
dismissal of the case without
prejudice to the filing of a complaint
with the CIAC.20
June 11, 2001- Petitioner opposed
respondent's motion for
reconsideration and also prayed for
the dismissal of the case but with
prejudice.21
July 6, 2001 - The RTC denied
respondent's motion for
reconsideration but stated that
respondent may file a formal motion

CIAC
April 5, 2001 - Petitioner filed a
Motion to Suspend proceedings
because of the Motion to Recall it
filed with the RTC.
April 6, 2001 - CIAC granted
petitioner's motion and suspended
the hearings dated April 10 and 17,
2001.

to dismiss if it so desired.22
July 16, 2001- Respondent filed
with the RTC a Motion to
Dismiss23 Civil Case No. 3421
praying for the dismissal of the
complaint without prejudice to the
filing of the proper complaint with
the CIAC.
On the same day, the RTC
granted the motion without
prejudice to petitioner's
counterclaim.24
August 1, 2001- Petitioner moved
for a reconsideration of the July 16,
2001 Order claiming it was denied
due process.25
August 7, 2001 - Respondent filed
with the CIAC a motion for the
resumption of the proceedings
claiming that the dismissal of Civil
Case No. 3421 became final on
August 3, 2001.
August 15, 2001 - Petitioner filed a
counter-manifestation26 asserting that
the RTC Order dated July 16, 2001
was not yet final. Petitioner reiterated
the prayer to dismiss the case.
August 27, 2001 - CIAC issued an
Order maintaining the suspension but
did not rule on petitioner's Motion to
Dismiss.
January 22, 2002 - CIAC issued an
Order setting the case for Preliminary
Conference on February 7, 2002.
February 1, 2002 - Petitioner filed a
Motion for Reconsideration of the
January 22, 2002 Order which also
included a prayer to resolve the
Motion for Reconsideration of the
July 16, 2001 Order.
February 5, 2002 - CIAC denied
petitioner's Motion for
Reconsideration.
February 7, 2002 - CIAC conducted a
preliminary conference.27
March 13, 2002 - the RTC issued
a Resolution28 declaring the July
16, 2001 Order which dismissed
the case "without force and
effect" and set the case for
hearing on May 30, 2002.

March 15, 2002 - Petitioner filed a

Manifestation before the CIAC that
the CIAC had no authority to hear the
case.
March 18, 2002 - CIAC issued an
Order setting the hearing on April 2,
2002.
March 21, 2002 - Petitioner filed a
Manifestation/Motion that the RTC
had recalled the July 16, 2001 Order
and had asserted jurisdiction over the
entire case and praying for the
dismissal of the pending case.29
March 22, 2002 - CIAC issued an
Order30denying the Motion to
Dismiss filed by petitioner and
holding that the CIAC had
jurisdiction over the case.
March 25, 2002- Respondent
March 26, 2002 - CIAC ordered
moved for a reconsideration31 of the respondent to file a reply to
March 13, 2002 Order recalling the petitioner's March 21, 2002
July 16, 2001 Order which
Manifestation.
petitioner opposed.
June 17, 2002 - RTC denied
respondent's Motion for
Reconsideration.
The parties, without waiting for the reply required by the CIAC, 32 filed two separate petitions for certiorari:
petitioner, on April 5, 2002, docketed as CA-G.R. SP No. 70001; and respondent, on July 5, 2002,
docketed as CA-G.R. SP No. 71621 with the CA.
In CA-G.R. SP No. 70001, petitioner assailed the denial by the CIAC of its motion to dismiss and sought
to enjoin the CIAC from proceeding with the case.
In CA-G.R. SP No. 71621, respondent questioned the March 13, 2002 Order of the RTC which reinstated
Civil Case No. 3421 as well as the Order dated June 17, 2002 which denied respondent's motion for
reconsideration. Respondent also sought to restrain the RTC from further proceeding with the civil case.
In other words, petitioner is questioning the jurisdiction of the CIAC; while respondent is questioning the
jurisdiction of the RTC over the case.
Both cases were consolidated by the CA.
The CA ruled against petitioner on procedural and substantive grounds.
On matters of procedure, the CA took note of the fact that petitioner did not file a motion for
reconsideration of the March 22, 2002 Order of the CIAC and held that it is in violation of the well-settled
rule that a motion for reconsideration should be filed to allow the respondent tribunal to correct its error
before a petition can be entertained.33 Moreover, the CA ruled that it is well-settled that a denial of a
motion to dismiss, being an interlocutory order, is not the proper subject for a petition forcertiorari.34

Moreover, the CA ruled against petitioner's main argument that the arbitration clause found in the
subcontract agreement between the parties did not refer to CIAC as the arbitral body. The CA held that
the CIAC had jurisdiction over the controversy because the construction agreement contained a provision
to submit any dispute for arbitration, and there was a joint motion to submit certain issues to the CIAC for
arbitration.35
Anent petitioner's argument that its previous lawyer was not authorized to submit the case for arbitration,
the CA held that what is required for a dispute to fall under the jurisdiction of the CIAC is for the parties to
agree to submit to voluntary arbitration. Since the parties agreed to submit to voluntary arbitration in the
construction contract, the authorization insisted upon by petitioner was a mere superfluity. 36
The CA further cited National Irrigation Administration v. Court of Appeals 37 (NIA), where this Court ruled
that active participation in the arbitration proceedings serves to estop a party from denying that it had in
fact agreed to submit the dispute for arbitration.
Lastly, the CA found no merit in petitioner's prayer to remand the case to the CIAC.
Petitioner's Motion for Reconsideration was denied by the CA. Hence, herein petition raising the following
assignment of errors:

A.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT RULED THAT THE
PETITION SUFFERED FROM PROCEDURAL INFIRMITIES WHEN PETITIONER
HEUNGHWA, IN VIEW OF THE QUESTIONS OF LAW INVOLVED IN THE CASE,
IMMEDIATELY INVOKED ITS AID BY WAY OF PETITION FOR CERTIORARI WITHOUT
FIRST FILING A MOTION FOR RECONSIDERATION OF THE CIAC'S ORDER DATED 22
MARCH 2002. THE COURT OF APPEALS FURTHER ERRED IN RULING THAT A
DENIAL OF A MOTION TO DISMISS (IN REFERENCE TO THE ORDER DATED 22
MARCH 2002), BEING AN INTERLOCUTORY ORDER, IS NOT THE PROPER SUBJECT
OF A PETITION FOR CERTIORARI.
B.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN CONFIRMING THE
JURISDICTION OF THE CIAC OVER THE CASE. ITS RELIANCE ON THE NATIONAL
IRRIGATION AUTHORITY VS. COURT OF APPEALS ("NIA VS. CA") WAS MISPLACED
AS THE FACTS OF THE INSTANT CASE ARE SERIOUSLY AND SUBSTANTIALLY
DIFFERENT FROM THOSE OF NIA VS. CA.
C.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING
PETITIONER'S REQUEST TO AT LEAST REMAND THE CASE TO THE CIAC FOR
FURTHER RECEPTION OF EVIDENCE IN THE INTEREST OF JUSTICE AND EQUITY AS
PETITIONER COULD NOT HAVE AVAILED OF ITS OPPORTUNITY TO PRESENT ITS
SIDE ON ACCOUNT OF ITS JURISDICTIONAL OBJECTION.38
The petition is devoid of merit.
The first assignment of error raises two issues: first, whether or not the non-filing of a motion for
reconsideration was fatal to the petition for certiorari filed before the CA; and second, whether or not a

petition for certiorari is the proper remedy to assail an order denying a motion to dismiss as in the case at
bar .
As a general rule, a petition for certiorari before a higher court will not prosper unless the inferior court
has been given, through a motion for reconsideration, a chance to correct the errors imputed to it. This
rule, though, has certain exceptions: (1) when the issue raised is purely of law, (2) when public interest is
involved, or (3) in case of urgency. As a fourth exception, it has been held that the filing of a motion for
reconsideration before availment of the remedy of certiorari is not a condition sine qua non when the
questions raised are the same as those that have already been squarely argued and exhaustively passed
upon by the lower court.39
The Court agrees with petitioner that the main issue of the petition for certiorari filed before the CA
undoubtedly involved a question of jurisdiction as to which between the RTC and the CIAC had authority
to hear the case. Whether the subject matter falls within the exclusive jurisdiction of a quasi-judicial
agency is a question of law.40 Thus, given the circumstances present in the case at bar, the non-filing of a
motion for reconsideration by petitioner to the CIAC Order should have been recognized as an exception
to the rule.
Anent the second issue, petitioner argues that when its motion to dismiss was denied by the CIAC, the
latter acted without jurisdiction or with grave abuse of discretion amounting to lack or excess of
jurisdiction; thus, the same is the proper subject of a petition for certiorari.
As a general rule, an order denying a motion to dismiss cannot be the subject of a petition for certiorari.
However, this Court has provided exceptions thereto:

Under certain situations, recourse to certiorari or mandamus is considered appropriate,

i.e., (a) when the trial court issued the order without or in excess of jurisdiction; (b)
where there is patent grave abuse of discretion by the trial court; or (c) appeal would
not prove to be a speedy and adequate remedy as when appeal would not promptly relieve a
defendant from the injurious effects of the patently mistaken order maintaining the plaintiff's
baseless action and compelling the defendant needlessly to go through a protracted trial and
clogging the court dockets by another futile case."41 (Emphasis supplied)
The term "grave abuse of discretion" in its judicial sense connotes a capricious, despotic, oppressive or
whimsical exercise of judgment as is equivalent to lack of jurisdiction. The word "capricious," usually used
in tandem with the term "arbitrary," conveys the notion of willful and unreasoning action.42
The question then is: "Did the denial by the CIAC of the motion to dismiss constitute a patent grave abuse
of discretion?"
Records show that the CIAC acted within its jurisdiction and it did not commit patent grave abuse of
discretion when it issued the assailed Order denying petitioner's motion to dismiss. Thus, this Court rules
in the negative.
Based on law and jurisprudence, the CIAC has jurisdiction over the present dispute.
The CIAC, in its assailed Order, correctly applied the doctrine laid down in Philrock, Inc. v. Construction
Industry Arbitration Commission43 (Philrock) where this Court held that what vested in the CIAC original
and exclusive jurisdiction over the construction dispute was the agreement of the parties and not the
Court's referral order. The CIAC aptly ruled that the recall of the referral order by the RTC did not deprive
the CIAC of the jurisdiction it had already acquired,44 thus:

x x x The position of CIAC is anchored on Executive Order No. 1008 (1985) which created
CIAC and vested in it "original and exclusive jurisdiction" over construction disputes in
construction projects in the Philippines provided the parties agreed to submit such disputes
to arbitration. The basis of the Court referral is precisely the agreement of the parties in
court, and that, by this agreement as well as by the court referral of the specified issues to
arbitration, under Executive Order No. 1008 (1985), the CIAC had in fact acquired original
and exclusive jurisdiction over these issues.45
In the case at bar, the RTC was indecisive of its authority and capacity to hear the case. Respondent first
sought redress from the RTC for its claim against petitioner. Thereafter, upon motion by both counsels for
petitioner and respondent, the RTC allowed the referral of five specific issues to the CIAC. However, the
RTC later recalled the case from the CIAC because of the alleged lack of authority of the counsel for
petitioner to submit the case for arbitration. The RTC recalled the case even if it already admitted its lack
of expertise to deal with the intricacies of the construction business.46
Afterwards, the RTC issued a Resolution recommending that respondent file a motion to dismiss without
prejudice to the counterclaim of petitioner, so that it could pursue arbitration proceedings under the
CIAC.47 Respondent complied with the recommendation of the RTC and filed a motion to dismiss which
was granted by the said court.48 Later, however, the RTC again asserted jurisdiction over the dispute
because it apparently made a mistake in granting respondent's motion to dismiss without conducting any
hearing on the motion.49
On the other hand, the CIAC's assertion of its jurisdiction over the dispute was consistent from the
moment the RTC allowed the referral of specific issues to it.
Executive Order 100850 grants to the CIAC original and exclusive jurisdiction over disputes arising from,
or connected with, contracts entered into by parties involved in construction in the Philippines. In the case
at the bar, it is undeniable that the controversy involves a construction dispute as can be seen from the
issues referred to the CIAC, to wit:

1. Manpower and equipment standby time;

2. Unrecouped mobilization expenses;
3. Retention;
4. Discrepancy of billings; and
5. Price escalation for fuel and oil usage.51
xxxx
The Court notes that the Subcontract Agreement52 between the parties provides an arbitration clause, to
wit:

Article 7
Arbitration
7. Any controversy or claim between the Contractor and the Subcontractor arising out of or
related to this Subcontract, or the breach thereof, shall be settled by arbitration, which
shall be conducted in the same manner and under the same procedure as provided in

the Prime Contract with Respect to claims between the Owner and the Contractor, except
that a decision by the Owner or Consultant shall not be a condition precedent to arbitration. If
the Prime Contract does not provide for arbitration or fails to specify the manner and
procedure for arbitration, it shall be conducted in accordance with the law of the Philippines
currently in effect unless the Parties mutually agree otherwise.53 (Emphasis supplied)
However, petitioner insists that the General Conditions which form part of the Prime Contract provide for a
specific venue for arbitration, to wit:

5.19.3. Any dispute shall be settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed under such
Rules.54
The claim of petitioner is not plausible.
In National Irrigation Administration v. Court of Appeals55 this Court recognized the new procedure in the
arbitration of disputes before the CIAC, in this wise:

It is undisputed that the contracts between HYDRO and NIA contained an arbitration clause
wherein they agreed to submit to arbitration any dispute between them that may arise before
or after the termination of the agreement. Consequently, the claim of HYDRO having arisen
from the contract is arbitrable. NIA's reliance with the ruling on the case of Tesco Services
Incorporated v. Vera, is misplaced.
The 1988 CIAC Rules of Procedure which were applied by this Court in Tesco case had
been duly amended by CIAC Resolutions No. 2-91 and 3-93, Section 1 of Article III of which
reads as follows:
Submission to CIAC Jurisdiction - An arbitration clause in a construction contract or a
submission to arbitration of a construction dispute shall be deemed an agreement to
submit an existing or future controversy to CIAC jurisdiction, notwithstanding the
reference to a different arbitration institution or arbitral body in such contract or
submission. When a contract contains a clause for the submission of a future controversy to
arbitration, it is not necessary for the parties to enter into a submission agreement before the
claimant may invoke the jurisdiction of CIAC.
Under the present Rules of Procedure, for a particular construction contract to fall within the
jurisdiction of CIAC, it is merely required that the parties agree to submit the same to
voluntary arbitration. Unlike in the original version of Section 1, as applied in the Tesco case,
the law as it now stands does not provide that the parties should agree to submit disputes
arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over
the same. Rather, it is plain and clear that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum they may choose, their agreement will
fall within the jurisdiction of the CIAC, such that, even if they specifically choose
another forum, the parties will not be precluded from electing to submit their dispute
before the CIAC because this right has been vested upon each party by law, i.e., E.O.
No. 1008.56 (Emphasis and underscoring supplied)
Based on the foregoing, there are two acts which may vest the CIAC with jurisdiction over a construction
dispute. One is the presence of an arbitration clause in a construction contract, and the other is the
agreement by the parties to submit the dispute to the CIAC.

The first act is applicable to the case at bar. The bare fact that the parties incorporated an arbitration
clause in their contract is sufficient to vest the CIAC with jurisdiction over any construction controversy or
claim between the parties. The rule is explicit that the CIAC has jurisdiction notwithstanding any reference
made to another arbitral body.
It is well-settled that jurisdiction is conferred by law and cannot be waived by agreement or acts of the
parties. Thus, the contention of petitioner that it never authorized its lawyer to submit the case for
arbitration must likewise fail. Petitioner argues that notwithstanding the presence of an arbitration clause,
there must be a subsequent consent by the parties to submit the case for arbitration. To stress, the CIAC
was already vested with jurisdiction the moment both parties agreed to incorporate an arbitration clause
in the sub-contract agreement. Thus, a subsequent consent by the parties would be superfluous and
unnecessary.
It must be noted however that the reliance of the CIAC in it's assailed Order on Philrock57is inaccurate.
In Philrock, the Court ruled that the CIAC had jurisdiction over the case because of the agreement of the
parties to refer the case to arbitration. In the case at bar, the agreement to refer specific issues to the
CIAC is disputed by petitioner on the ground that such agreement was entered into by its counsel who
was not authorized to do so. In addition, in Philrock, the petitioner therein had actively participated in the
arbitration proceedings, while in the case at bar there where only two instances wherein petitioner
participated, to wit: 1) the referral of five specific issues to the CIAC; and 2) the subsequent manifestation
that additional matters be referred to the CIAC.
The foregoing notwithstanding, CIAC has jurisdiction over the construction dispute because of the mere
presence of the arbitration clause in the subcontract agreement.
Thus, the CIAC did not commit any patent grave abuse of discretion, nor did it act without jurisdiction
when it issued the assailed Order denying petitioner's motion to dismiss. Accordingly, there is no
compelling reason for this Court to deviate from the rule that a denial of a motion to dismiss, absent a
showing of lack of jurisdiction or grave abuse of discretion amounting to lack of or excess jurisdiction,
being an interlocutory order, is not the proper subject of a petition for certiorari.
Anent the second assigned error, the Court notes that the reliance of the CA on NIA is inaccurate.
In NIA,58this Court observed:

Moreover, it is undeniable that NIA agreed to submit the dispute for arbitration to the CIAC.
NIA through its counsel actively participated in the arbitration proceedings by filing an answer
with counterclaim, as well as its compliance wherein it nominated arbitrators to the proposed
panel, participating in the deliberations on, and the formulation of the Terms of Reference of
the arbitration proceeding, and examining the documents submitted by HYDRO after NIA
asked for originals of the said documents."59
In the case at bar, the only participation that can be attributed to petitioner is the joint referral of specific
issues to the CIAC and the manifestation praying that additional matters be referred to the CIAC. Both
acts, however, have been disputed by petitioner because said acts were performed by their lawyer who
was not authorized to submit the case for arbitration. And even if these were duly authorized, this would
still not change the correct finding of the CA that the CIAC had jurisdiction over the dispute because, as
has been earlier stressed, the arbitration clause in the subcontract agreement ipso factovested the CIAC
with jurisdiction.
In passing, even the RTC in its Resolution recognized the authority of the CIAC to hear the case, to wit:

Courts cannot and will not resolve a controversy involving a question which is within the
jurisdiction of an administrative tribunal, especially where the question demands the exercise

of sound administrative discretion requiring the special knowledge, experience and services
of the administrative tribunal to determine technical and intricate matters of fact. And
undoubtedly in this case, the CIAC it cannot be denied, is that administrative
tribunal.60(Emphasis supplied)
It puzzles this Court why petitioner would insist that the RTC should hear the case when the CIAC has the
required skill and expertise in addressing construction disputes. Records will bear out the fact that
petitioner refused to and did not participate in the CIAC proceedings. In its defense, petitioner cited
jurisprudence to the effect that active participation before a quasi-judicial body would be tantamount to an
invocation of the latter bodies' jurisdiction and a willingness to abide by the resolution of the
case.61 Pursuant to such doctrine, petitioner argued that had it participated in the CIAC proceedings, it
would have been barred from impugning the jurisdiction of the CIAC.
Petitioner cannot presume that it would have been estopped from questioning the jurisdiction of the CIAC
had it participated in the proceedings. In fact, estoppel is a matter for the court to consider. The doctrine
of laches or of stale demands is based upon grounds of public policy which requires, for the peace of
society, the discouragement of stale claims and, unlike the statute of limitations, is not a mere question of
time but is principally a question of the inequity or unfairness of permitting a right or claim to be enforced
or asserted.62 The Court always looks into the attendant circumstances of the case so as not to subvert
public policy.63 Given that petitioner questioned the jurisdiction of the CIAC from the beginning, it was not
remiss in enforcing its right. Hence, petitioner's claim that it would have been estopped is premature.
The Court finds the last assigned error to be without merit.
It is well to note that in its petition for certiorari64 filed with the CA on April 9, 2002, petitioner prayed for
the issuance of a temporary restraining order and a writ of preliminary injunction to enjoin the CIAC from
hearing the case. On September 27, 2002, the CIAC promulgated its decision awarding
Php31,119,465.81 to respondent. It is unfortunate for petitioner that the CA did not timely act on its
petition. Records show that the temporary restraining order65 was issued only on October 15, 2002 and a
writ of preliminary injunction66 was granted on December 11, 2002, long after the CIAC had concluded its
proceedings. The only effect of the writ was to enjoin temporarily the enforcement of the award of the
CIAC.
The Court notes that had the CA performed its duty promptly, then this present petition could have been
avoided as the CIAC rules allow for the reopening of hearings, to wit:

SECTION 13.14 Reopening of hearing - The hearing may be reopened by the Arbitral
Tribunal on their own motion or upon the request of any party, upon good cause
shown, at any time before the award is rendered. When hearings are thus reopened, the
effective date for the closing of the hearing shall be the date of closing of the reopened
hearing. (Emphasis supplied)
But because of the belated action of the CA, the CIAC had to proceed with the hearing notwithstanding
the non-participation of petitioner.
Under the CIAC rules, even without the participation of petitioner in the proceedings, the CIAC was still
required to proceed with the hearing of the construction dispute. Section 4.2 of the CIAC rules provides:

SECTION 4.2 Failure or refusal to arbitrate - Where the jurisdiction of CIAC is properly
invoked by the filing of a Request for Arbitration in accordance with these Rules, the
failure despite due notice which amounts to a refusal of the Respondent to arbitrate,
shall not stay the proceedings notwithstanding the absence or lack of participation of
the Respondent. In such case, CIAC shall appoint the arbitrator/s in accordance with these

Rules. Arbitration proceedings shall continue, and the award shall be made after receiving
the evidence of the Claimant. (Emphasis and underscoring supplied)
This Court finds that the CIAC simply followed its rules when it proceeded with the hearing of the dispute
notwithstanding that petitioner refused to participate therein.
To reiterate, the proceedings before the CIAC were valid, for the same had been conducted within its
authority and jurisdiction and in accordance with the rules of procedure provided by Section 4.2 of the
CIAC Rules.
The ruling of the Supreme Court in Lastimoso v. Asayo67 is instructive:

xxxx
In addition, it is also understandable why respondent immediately resorted to the remedy
of certiorari instead of pursuing his motion for reconsideration of the PNP Chief's decision as
an appeal before the National Appellate Board (NAB). It was quite easy to get confused as
to which body had jurisdiction over his case. The complaint filed against respondent
could fall under both Sections 41 and 42 of Republic Act (R.A.) No. 6975 or the
Department of Interior and Local Government Act of 1990. Section 41 states that
citizens' complaints should be brought before the People's Law Enforcement Board (PLEB),
while Section 42 states that it is the PNP Chief who has authority to immediately remove or
dismiss a PNP member who is guilty of conduct unbecoming of a police officer.
It was only in Quiambao v. Court of Appeals, promulgated in 2005 or after respondent
had already filed the petition for certiorari with the trial court, when the Court resolved
the issue of which body has jurisdiction over cases that fall under both Sections 41
and 42 of R.A. No. 6975. x x x
With the foregoing peculiar circumstances in this case, respondent should not be deprived of
the opportunity to fully ventilate his arguments against the factual findings of the PNP Chief.
xxx
xxxx
Thus, the opportunity to pursue an appeal before the NAB should be deemed available to
respondent in the higher interest of substantial justice.68 (Emphasis supplied)
In Lastimoso, this Court allowed respondent to appeal his case before the proper agency because of the
confusion as to which agency had jurisdiction over the case. In the case at bar, law and supporting
jurisprudence are clear and leave no room for interpretation that the CIAC has jurisdiction over the
present controversy.
The proceedings cannot then be voided merely because of the non-participation of petitioner. Section 4.2
of the CIAC Rules is clear and it leaves no room for interpretation. Therefore, petitioner's prayer that the
case be remanded to CIAC in order that it may be given an opportunity to present evidence is untenable.
Petitioner had its chance and lost it, more importantly so, by its own choice. This Court will not afford a
relief that is apparently inconsistent with the law.
WHEREFORE, the petition is denied for lack of merit. The August 20, 2004 Decision and August 1, 2005
Resolution of the Court of Appeals in CA-G.R. SP Nos. 70001 and 71621 are AFFIRMED.

Double costs against petitioner.

SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
G.R. No. 163101

February 13, 2008

BENGUET CORPORATION, petitioner,

vs.
DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES -MINES ADJUDICATION BOARD
and J.G. REALTY AND MINING CORPORATION, respondents.
DECISION
VELASCO, JR., J.:
The instant petition under Rule 65 of the Rules of Court seeks the annulment of the December 2, 2002
Decision1 and March 17, 2004 Resolution2 of the Department of Environment and Natural ResourcesMining Adjudication Board (DENR-MAB) in MAB Case No. 0124-01 (Mines Administrative Case No. R-M2000-01) entitled Benguet Corporation (Benguet) v. J.G. Realty and Mining Corporation (J.G.
Realty). The December 2, 2002 Decision upheld the March 19, 2001 Decision3of the MAB Panel of
Arbitrators (POA) which canceled the Royalty Agreement with Option to Purchase (RAWOP) dated June
1, 19874 between Benguet and J.G. Realty, and excluded Benguet from the joint Mineral Production
Sharing Agreement (MPSA) application over four mining claims. The March 17, 2004 Resolution denied
Benguets Motion for Reconsideration.
The Facts
On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP, wherein J.G. Realty was
acknowledged as the owner of four mining claims respectively named as Bonito-I, Bonito-II, Bonito-III,
and Bonito-IV, with a total area of 288.8656 hectares, situated in Barangay Luklukam, Sitio Bagong
Bayan, Municipality of Jose Panganiban, Camarines Norte. The parties also executed a Supplemental
Agreement5 dated June 1, 1987. The mining claims were covered by MPSA Application No. APSA-V0009 jointly filed by J.G. Realty as claimowner and Benguet as operator.
In the RAWOP, Benguet obligated itself to perfect the rights to the mining claims and/or otherwise acquire
the mining rights to the mineral claims. Within 24 months from the execution of the RAWOP, Benguet
should also cause the examination of the mining claims for the purpose of determining whether or not
they are worth developing with reasonable probability of profitable production. Benguet undertook also to
furnish J.G. Realty with a report on the examination, within a reasonable time after the completion of the
examination. Moreover, also within the examination period, Benguet shall conduct all necessary
exploration in accordance with a prepared exploration program. If it chooses to do so and before the
expiration of the examination period, Benguet may undertake to develop the mining claims upon written
notice to J.G. Realty. Benguet must then place the mining claims into commercial productive stage within
24 months from the written notice.6 It is also provided in the RAWOP that if the mining claims were placed
in commercial production by Benguet, J.G. Realty should be entitled to a royalty of five percent (5%) of
net realizable value, and to royalty for any production done by Benguet whether during the examination or
development periods.
Thus, on August 9, 1989, the Executive Vice-President of Benguet, Antonio N. Tachuling, issued a letter
informing J.G. Realty of its intention to develop the mining claims. However, on February 9, 1999, J.G.

Realty, through its President, Johnny L. Tan, then sent a letter to the President of Benguet informing the
latter that it was terminating the RAWOP on the following grounds:

a. The fact that your company has failed to perform the obligations set forth in the RAWOP,
i.e., to undertake development works within 2 years from the execution of the Agreement;
b. Violation of the Contract by allowing high graders to operate on our claim.
c. No stipulation was provided with respect to the term limit of the RAWOP.
d. Non-payment of the royalties thereon as provided in the RAWOP.7
In response, Benguets Manager for Legal Services, Reynaldo P. Mendoza, wrote J.G. Realty a letter
dated March 8, 1999,8 therein alleging that Benguet complied with its obligations under the RAWOP by
investing PhP 42.4 million to rehabilitate the mines, and that the commercial operation was hampered by
the non-issuance of a Mines Temporary Permit by the Mines and Geosciences Bureau (MGB) which must
be considered as force majeure, entitling Benguet to an extension of time to prosecute such permit.
Benguet further claimed that the high graders mentioned by J.G. Realty were already operating prior to
Benguets taking over of the premises, and that J.G. Realty had the obligation of ejecting such small scale
miners. Benguet also alleged that the nature of the mining business made it difficult to specify a time limit
for the RAWOP. Benguet then argued that the royalties due to J.G. Realty were in fact in its office and
ready to be picked up at any time. It appeared that, previously, the practice by J.G. Realty was to pick-up
checks from Benguet representing such royalties. However, starting August 1994, J.G. Realty allegedly
refused to collect such checks from Benguet. Thus, Benguet posited that there was no valid ground for
the termination of the RAWOP. It also reminded J.G. Realty that it should submit the disagreement to
arbitration rather than unilaterally terminating the RAWOP.
On June 7, 2000, J.G. Realty filed a Petition for Declaration of Nullity/Cancellation of the RAWOP9 with
the Legaspi City POA, Region V, docketed as DENR Case No. 2000-01 and entitled J.G. Realty v.
Benguet.
On March 19, 2001, the POA issued a Decision,10 dwelling upon the issues of (1) whether the arbitrators
had jurisdiction over the case; and (2) whether Benguet violated the RAWOP justifying the unilateral
cancellation of the RAWOP by J.G. Realty. The dispositive portion stated:

WHEREFORE, premises considered, the June 01, 1987 [RAWOP] and its Supplemental
Agreement is hereby declared cancelled and without effect. BENGUET is hereby excluded
from the joint MPSA Application over the mineral claims denominated as "BONITO-I",
"BONITO-II", "BONITO-III" and "BONITO-IV".
SO ORDERED.
Therefrom, Benguet filed a Notice of Appeal11 with the MAB on April 23, 2001, docketed as Mines
Administrative Case No. R-M-2000-01. Thereafter, the MAB issued the assailed December 2, 2002
Decision. Benguet then filed a Motion for Reconsideration of the assailed Decision which was denied in
the March 17, 2004 Resolution of the MAB. Hence, Benguet filed the instant petition.
The Issues

1. There was serious and palpable error when the Honorable Board failed to rule that the
contractual obligation of the parties to arbitrate under the Royalty Agreement is mandatory.

2. The Honorable Board exceeded its jurisdiction when it sustained the cancellation of the
Royalty Agreement for alleged breach of contract despite the absence of evidence.
3. The Questioned Decision of the Honorable Board in cancelling the RAWOP prejudice[d]
the substantial rights of Benguet under the contract to the unjust enrichment of JG Realty.12
Restated, the issues are: (1) Should the controversy have first been submitted to arbitration before the
POA took cognizance of the case?; (2) Was the cancellation of the RAWOP supported by evidence?; and
(3) Did the cancellation of the RAWOP amount to unjust enrichment of J.G. Realty at the expense of
Benguet?
The Courts Ruling
Before we dwell on the substantive issues, we find that the instant petition can be denied outright as
Benguet resorted to an improper remedy.
The last paragraph of Section 79 of Republic Act No. (RA) 7942 or the "Philippine Mining Act of 1995"
states, "A petition for review by certiorari and question of law may be filed by the aggrieved party with the
Supreme Court within thirty (30) days from receipt of the order or decision of the [MAB]."
However, this Court has already invalidated such provision in Carpio v. Sulu Resources Development
Corp.,13 ruling that a decision of the MAB must first be appealed to the Court of Appeals (CA) under Rule
43 of the Rules of Court, before recourse to this Court may be had. We held, thus:

To summarize, there are sufficient legal footings authorizing a review of the MAB Decision
under Rule 43 of the Rules of Court. First, Section 30 of Article VI of the 1987 Constitution,
mandates that "[n]o law shall be passed increasing the appellate jurisdiction of the Supreme
Court as provided in this Constitution without its advice and consent." On the other hand,
Section 79 of RA No. 7942 provides that decisions of the MAB may be reviewed by this
Court on a "petition for review by certiorari." This provision is obviously an expansion of the
Courts appellate jurisdiction, an expansion to which this Court has not consented.
Indiscriminate enactment of legislation enlarging the appellate jurisdiction of this Court would
unnecessarily burden it.
Second, when the Supreme Court, in the exercise of its rule-making power, transfers to the
CA pending cases involving a review of a quasi-judicial bodys decisions, such transfer
relates only to procedure; hence, it does not impair the substantive and vested rights of the
parties. The aggrieved partys right to appeal is preserved; what is changed is only the
procedure by which the appeal is to be made or decided. The parties still have a remedy and
a competent tribunal to grant this remedy.
Third, the Revised Rules of Civil Procedure included Rule 43 to provide a uniform rule on
appeals from quasi-judicial agencies. Under the rule, appeals from their judgments and final
orders are now required to be brought to the CA on a verified petition for review. A quasijudicial agency or body has been defined as an organ of government, other than a court or
legislature, which affects the rights of private parties through either adjudication or rulemaking. MAB falls under this definition; hence, it is no different from the other quasi-judicial
bodies enumerated under Rule 43. Besides, the introductory words in Section 1 of Circular
No. 1-91"among these agencies are"indicate that the enumeration is not exclusive or
conclusive and acknowledge the existence of other quasi-judicial agencies which, though not
expressly listed, should be deemed included therein.

Fourth, the Court realizes that under Batas Pambansa (BP) Blg. 129 as amended by RA No.
7902, factual controversies are usually involved in decisions of quasi-judicial bodies; and the
CA, which is likewise tasked to resolve questions of fact, has more elbow room to resolve
them. By including questions of fact among the issues that may be raised in an appeal from
quasi-judicial agencies to the CA, Section 3 of Revised Administrative Circular No. 1-95 and
Section 3 of Rule 43 explicitly expanded the list of such issues.
According to Section 3 of Rule 43, "[a]n appeal under this Rule may be taken to the Court of
Appeals within the period and in the manner herein provided whether the appeal involves
questions of fact, of law, or mixed questions of fact and law." Hence, appeals from quasijudicial agencies even only on questions of law may be brought to the CA.
Fifth, the judicial policy of observing the hierarchy of courts dictates that direct resort from
administrative agencies to this Court will not be entertained, unless the redress desired
cannot be obtained from the appropriate lower tribunals, or unless exceptional and
compelling circumstances justify availment of a remedy falling within and calling for the
exercise of our primary jurisdiction.14
The above principle was reiterated in Asaphil Construction and Development Corporation v. Tuason, Jr.
(Asaphil).15However, the Carpio ruling was not applied to Asaphil as the petition in the latter case was
filed in 1999 or three years before the promulgation of Carpio in 2002. Here, the petition was filed on April
28, 2004 when the Carpio decision was already applicable, thus Benguet should have filed the appeal
with the CA.
Petitioner having failed to properly appeal to the CA under Rule 43, the decision of the MAB has become
final and executory. On this ground alone, the instant petition must be denied.
Even if we entertain the petition although Benguet skirted the appeal to the CA via Rule 43, still, the
December 2, 2002 Decision and March 17, 2004 Resolution of the DENR-MAB in MAB Case No. 012401 should be maintained.

First Issue: The case should have first been brought to

voluntary arbitration before the POA
Secs. 11.01 and 11.02 of the RAWOP pertinently provide:
11.01 Arbitration
Any disputes, differences or disagreements between BENGUET and the OWNER with
reference to anything whatsoever pertaining to this Agreement that cannot be amicably
settled by them shall not be cause of any action of any kind whatsoever in any court or
administrative agency but shall, upon notice of one party to the other, be referred to a Board
of Arbitrators consisting of three (3) members, one to be selected by BENGUET, another to
be selected by the OWNER and the third to be selected by the aforementioned two
arbitrators so appointed.
xxxx
11.02 Court Action
No action shall be instituted in court as to any matter in dispute as hereinabove stated,
except to enforce the decision of the majority of the Arbitrators.16

Thus, Benguet argues that the POA should have first referred the case to voluntary arbitration before
taking cognizance of the case, citing Sec. 2 of RA 876 on persons and matters subject to arbitration.
On the other hand, in denying such argument, the POA ruled that:
While the parties may establish such stipulations clauses, terms and conditions as they may deem
convenient, the same must not be contrary to law and public policy. At a glance, there is nothing wrong
with the terms and conditions of the agreement. But to state that an aggrieved party cannot initiate an
action without going to arbitration would be tying ones hand even if there is a law which allows him to do
so.17
The MAB, meanwhile, denied Benguets contention on the ground of estoppel, stating:

Besides, by its own act, Benguet is already estopped in questioning the jurisdiction of the
Panel of Arbitrators to hear and decide the case. As pointed out in the appealed Decision,
Benguet initiated and filed an Adverse Claim docketed as MAC-R-M-2000-02 over the same
mining claims without undergoing contractual arbitration. In this particular case (MAC-R-M2000-02) now subject of the appeal, Benguet is likewise in estoppel from questioning the
competence of the Panel of Arbitrators to hear and decide in the summary proceedings J.G.
Realtys petition, when Benguet itself did not merely move for the dismissal of the case but
also filed an Answer with counterclaim seeking affirmative reliefs from the Panel of
Arbitrators.18
Moreover, the MAB ruled that the contractual provision on arbitration merely provides for an additional
forum or venue and does not divest the POA of the jurisdiction to hear the case.19
In its July 20, 2004 Comment,20 J.G. Realty reiterated the above rulings of the POA and MAB. It argued
that RA 7942 or the "Philippine Mining Act of 1995" is a special law which should prevail over the
stipulations of the parties and over a general law, such as RA 876. It also argued that the POA cannot be
considered as a "court" under the contemplation of RA 876 and that jurisprudence saying that there must
be prior resort to arbitration before filing a case with the courts is inapplicable to the instant case as the
POA is itself already engaged in arbitration.
On this issue, we rule for Benguet.

Sec. 2 of RA 876 elucidates the scope of arbitration:

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[s] arising out of valuations, appraisals or
other controversies which may be collateral, incidental, precedent or subsequent to any
issue between the parties. (Emphasis supplied.)
In RA 9285 or the "Alternative Dispute Resolution Act of 2004," the Congress reiterated the efficacy of
arbitration as an alternative mode of dispute resolution by stating in Sec. 32 thereof that domestic
arbitration shall still be governed by RA 876. Clearly, a contractual stipulation that requires prior resort to

voluntary arbitration before the parties can go directly to court is not illegal and is in fact promoted by the
State. Thus, petitioner correctly cites several cases whereby arbitration clauses have been upheld by this
Court.21
Moreover, the contention that RA 7942 prevails over RA 876 presupposes a conflict between the two
laws. Such is not the case here. To reiterate, availment of voluntary arbitration before resort is made to
the courts or quasi-judicial agencies of the government is a valid contractual stipulation that must be
adhered to by the parties. As stated in Secs. 6 and 7 of RA 876:

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.
xxxx
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.)
In other words, in the event a case that should properly be the subject of voluntary arbitration is
erroneously filed with the courts or quasi-judicial agencies, on motion of the defendant, the court or quasijudicial agency shall determine whether such contractual provision for arbitration is sufficient and
effective. If in affirmative, the court or quasi-judicial agency shall then order the enforcement of said
provision. Besides, in BF Corporation v. Court of Appeals, we already ruled:

In this connection, it bears stressing that the lower court has not lost its jurisdiction over the
case. Section 7 of Republic Act No. 876 provides that proceedings therein have only been
stayed. After the special proceeding of arbitration has been pursued and completed, then the
lower court may confirm the award made by the arbitrator.22
J.G. Realtys contention, that prior resort to arbitration is unavailing in the instant case because the POAs
mandate is to arbitrate disputes involving mineral agreements, is misplaced. A distinction must be made
between voluntary and compulsory arbitration. In Ludo and Luym Corporation v. Saordino, the Court had
the occasion to distinguish between the two types of arbitrations:

Comparatively, in Reformist Union of R.B. Liner, Inc. vs. NLRC, compulsory arbitration has
been defined both as "the process of settlement of labor disputes by a government agency
which has the authority to investigate and to make an award which is binding on all the

parties, and as a mode of arbitration where the parties are compelled to accept the resolution
of their dispute through arbitration by a third party." While a voluntary arbitrator isnot part of
the governmental unit or labor departments personnel, said arbitrator renders arbitration
services provided for under labor laws.23 (Emphasis supplied.)
There is a clear distinction between compulsory and voluntary arbitration. The arbitration provided by the
POA is compulsory, while the nature of the arbitration provision in the RAWOP is voluntary, not involving
any government agency. Thus, J.G. Realtys argument on this matter must fail.
As to J.G. Realtys contention that the provisions of RA 876 cannot apply to the instant case which
involves an administrative agency, it must be pointed out that Section 11.01 of the RAWOP states that:

[Any controversy with regard to the contract] shall not be cause of any action of any kind
whatsoever in any court oradministrative agency but shall, upon notice of one party to the
other, be referred to a Board of Arbitrators consisting of three (3) members, one to be
selected by BENGUET, another to be selected by the OWNER and the third to be selected
by the aforementioned two arbiters so appointed.24 (Emphasis supplied.)
There can be no quibbling that POA is a quasi-judicial body which forms part of the DENR, an
administrative agency. Hence, the provision on mandatory resort to arbitration, freely entered into by the
parties, must be held binding against them.25
In sum, on the issue of whether POA should have referred the case to voluntary arbitration, we find that,
indeed, POA has no jurisdiction over the dispute which is governed by RA 876, the arbitration law.
However, we find that Benguet is already estopped from questioning the POAs jurisdiction. As it were,
when J.G. Realty filed DENR Case No. 2000-01, Benguet filed its answer and participated in the
proceedings before the POA, Region V. Secondly, when the adverse March 19, 2001 POA Decision was
rendered, it filed an appeal with the MAB in Mines Administrative Case No. R-M-2000-01 and again
participated in the MAB proceedings. When the adverse December 2, 2002 MAB Decision was
promulgated, it filed a motion for reconsideration with the MAB. When the adverse March 17, 2004 MAB
Resolution was issued, Benguet filed a petition with this Court pursuant to Sec. 79 of RA 7942 impliedly
recognizing MABs jurisdiction. In this factual milieu, the Court rules that the jurisdiction of POA and that
of MAB can no longer be questioned by Benguet at this late hour. What Benguet should have done was
to immediately challenge the POAs jurisdiction by a special civil action for certiorari when POA ruled that
it has jurisdiction over the dispute. To redo the proceedings fully participated in by the parties after the
lapse of seven years from date of institution of the original action with the POA would be anathema to the
speedy and efficient administration of justice.
Second Issue: The cancellation of the RAWOP
was supported by evidence
The cancellation of the RAWOP by the POA was based on two grounds: (1) Benguets failure to pay J.G.
Realtys royalties for the mining claims; and (2) Benguets failure to seriously pursue MPSA Application
No. APSA-V-0009 over the mining claims.
As to the royalties, Benguet claims that the checks representing payments for the royalties of J.G. Realty
were available for pick-up in its office and it is the latter which refused to claim them. Benguet then thus
concludes that it did not violate the RAWOP for nonpayment of royalties. Further, Benguet reasons that
J.G. Realty has the burden of proving that the former did not pay such royalties following the principle that
the complainants must prove their affirmative allegations.

With regard to the failure to pursue the MPSA application, Benguet claims that the lengthy time of
approval of the application is due to the failure of the MGB to approve it. In other words, Benguet argues
that the approval of the application is solely in the hands of the MGB.
Benguets arguments are bereft of merit.
Sec. 14.05 of the RAWOP provides:

14.05 Bank Account

OWNER shall maintain a bank account at ___________ or any other bank from time to time
selected by OWNER with notice in writing to BENGUET where BENGUET shall deposit to
the OWNERs credit any and all advances and payments which may become due the
OWNER under this Agreement as well as the purchase price herein agreed upon in the
event that BENGUET shall exercise the option to purchase provided for in the
Agreement. Any and all deposits so made by BENGUET shall be a full and complete
acquittance and release to [sic] BENGUET from any further liability to the OWNER of
the amounts represented by such deposits. (Emphasis supplied.)
Evidently, the RAWOP itself provides for the mode of royalty payment by Benguet. The fact that there
was the previous practice whereby J.G. Realty picked-up the checks from Benguet is unavailing. The
mode of payment is embodied in a contract between the parties. As such, the contract must be
considered as the law between the parties and binding on both.26 Thus, after J.G. Realty informed
Benguet of the bank account where deposits of its royalties may be made, Benguet had the obligation to
deposit the checks. J.G. Realty had no obligation to furnish Benguet with a Board Resolution considering
that the RAWOP itself provided for such payment scheme.
Notably, Benguets claim that J.G. Realty must prove nonpayment of its royalties is both illogical and
unsupported by law and jurisprudence.
The allegation of nonpayment is not a positive allegation as claimed by Benguet. Rather, such is a
negative allegation that does not require proof and in fact transfers the burden of proof to Benguet. Thus,
this Court ruled in Jimenez v. National Labor Relations Commission:

As a general rule, one who pleads payment has the burden of proving it. Even where the
plaintiff must allege non-payment, the general rule is that the burden rests on the defendant
to prove payment, rather than on the plaintiff to prove non-payment. The debtor has the
burden of showing with legal certainty that the obligation has been discharged by
payment.27 (Emphasis supplied.)
In the instant case, the obligation of Benguet to pay royalties to J.G. Realty has been admitted and
supported by the provisions of the RAWOP. Thus, the burden to prove such obligation rests on Benguet.
It should also be borne in mind that MPSA Application No. APSA-V-0009 has been pending with the MGB
for a considerable length of time. Benguet, in the RAWOP, obligated itself to perfect the rights to the
mining claims and/or otherwise acquire the mining rights to the mineral claims but failed to present any
evidence showing that it exerted efforts to speed up and have the application approved. In fact, Benguet
never even alleged that it continuously followed-up the application with the MGB and that it was in
constant communication with the government agency for the expeditious resolution of the application.
Such allegations would show that, indeed, Benguet was remiss in prosecuting the MPSA application and
clearly failed to comply with its obligation in the RAWOP.
Third Issue: There is no unjust enrichment in the instant case

Based on the foregoing discussion, the cancellation of the RAWOP was based on valid grounds and is,
therefore, justified. The necessary implication of the cancellation is the cessation of Benguets right to
prosecute MPSA Application No. APSA-V-0009 and to further develop such mining claims.
In Car Cool Philippines, Inc. v. Ushio Realty and Development Corporation, we defined unjust
enrichment, as follows:

We have held that "[t]here is unjust enrichment when a person unjustly retains a benefit to
the loss of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience." Article 22 of the Civil Code
provides that "[e]very person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter without
just or legal ground, shall return the same to him." The principle of unjust enrichment under
Article 22 requires two conditions: (1) that a person is benefited without a valid basis or
justification, and (2) that such benefit is derived at anothers expense or damage.
There is no unjust enrichment when the person who will benefit has a valid claim to
such benefit.28(Emphasis supplied.)
Clearly, there is no unjust enrichment in the instant case as the cancellation of the RAWOP, which left
Benguet without any legal right to participate in further developing the mining claims, was brought about
by its violation of the RAWOP. Hence, Benguet has no one to blame but itself for its predicament.
WHEREFORE, we DISMISS the petition, and AFFIRM the December 2, 2002 Decision and March 17,
2004 Resolution of the DENR-MAB in MAB Case No. 0124-01 upholding the cancellation of the June 1,
1987 RAWOP. No costs.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice
G.R. Nos. 169408 & 170144

April 30, 2008

HANJIN HEAVY INDUSTRIES AND CONSTRUCTION CO., LTD., petitioner,

vs.
DYNAMIC PLANNERS AND CONSTRUCTION CORP., respondent.
DECISION
VELASCO, JR., J.:
Central to the dispute between petitioner Hanjin Heavy Industries and Construction Co., Ltd. (Hanjin), as
contractor, and respondent Dynamic Planners and Construction Corporation (Dynamic), as subcontractor,
is the Davao International Airport Project (Project). Hanjin seeks a reversal of the decision rendered by
the Construction Industry Arbitration Commission (CIAC), as affirmed with modifications by the Court of
Appeals (CA).
It is Hanjins basic posture that Dynamic was in delay in the prosecution of, and eventually abandoned,
the Project, prompting Hanjin to complete the same. Hanjin thus claims that Dynamic should not be
entitled to the retention money and should instead be held liable for damages.

Dynamic denies having abandoned the Project, then nearing completion, some time in December 2002,
but admits suspending work thereon on account of Hanjins act of withholding the release of the down
payment and the payment of its progress billing. Dynamic claims being entitled to the release of its
retention money, to partial payment in foreign currency, and to payment for escalation costs.
The parties question certain items covered by the award, the corresponding amount due for each item,
and the computations adopted first by the CIAC and then by the CA in arriving at a final award.
The Case
The instant Petitions for Review on Certiorari, both filed under Rule 45, arose from CIAC Case No. 072004 entitledDynamic Planners & Construction Corporation v. Hanjin Heavy Industries & Construction
Co., Ltd., a request for arbitration initiated by Dynamic before the CIAC. On September 7, 2004, the CIAC
rendered a decision denominated as Final Award,1 allowing and ordering payment of most of Dynamics
claims, albeit on lowered amounts. Therefrom, both parties appealed to the CA, Dynamics appeal
docketed as CA-G.R. SP No. 86641, while that of Hanjins as CA-G.R. SP No. 86633. The separate
appeals were eventually raffled to and resolved by different divisions of the CA.
On July 6, 2005, in CA-G.R. SP No. 86641, the CA rendered a Decision,2 modifying the CIACs decision,
the modification favoring Dynamic. Hanjins motion for reconsideration was denied by the CA per its
Resolution dated August 31, 2005.3Hanjin thus filed the instant Petition for Review on Certiorari dated
October 20, 2005 docketed as G.R. No. 169408, assailing the above CA decision and resolution.
Earlier, in CA-G.R. SP No. 86633, the CA issued a Decision dated January 28, 2005,4 also modifying the
CIAC Decision. Hanjin then sought reconsideration but the CA similarly denied the motion via a
Resolution of October 14, 2005.5 Hanjin then interposed a petition for review docketed as G.R. No.
170144, questioning the decision and resolution of the CA.
The Facts
The facts, as found by the CIAC and the CA, are as follows:
On August 23, 1999, the Department of Transportation and Communications (DOTC) awarded to Hanjin
the contract for the construction of the Project for the aggregate sum of PhP 1,701,353,495.92, 65% of
which is payable in Philippine peso and the remaining 35% in US dollars at the stipulated exchange rate
of PhP 34.10 to USD 1.6 Thereafter, steps were taken and negotiations undertaken towards a subcontracting arrangement between Hanjin and Dynamic.
On February 28, 2000, Hanjin and Dynamic executed a Subcontract Agreement over a 76.5% portion of
the main contract for the price of PhP 924,670,819.7 Among others, the subcontract contained provisions
on down or advance payment and progress billing, the first item payable within 20 days from contract
signing.8 To note, progress billings represent claims for payment for works accomplished and materials
delivered as construction progresses.
As drawn, the subcontract was a unit price, as distinguished from a lump sum, agreement. As such, the
quantities specified therein and upon which the subcontract price was determined were provisional.
Accordingly, after re-measuring and after determining actual quantities required for the works on the basis
of changes in the specifications, the estimated quantities were substantially reduced. The reduction
resulted in an adjustment of the subcontract price to PhP 714,868,129.9
As of January 2000, Dynamic already mobilized its equipment and manpower, albeit it has yet to receive
a Notice to Proceed from Hanjin. This advance accommodating arrangement was made so that the
mobilization would coincide with the Notice to Proceed that the DOTC issued to Hanjin. By March 2000,

when it received a Notice to Proceed from Hanjin, Dynamic had already spent a tidy sum for mobilization
purposes.
In a clear breach of the subcontract agreement which obligated Hanjin to give Dynamic an advance/down
payment within 20 days from contract execution,10 Hanjin paid Dynamic the stipulated down payment in
10 installments spread over a six-month period. Payments for Dynamics progress billings likewise came
late and also effected in installments, when the subcontract called for progress billing payment within
seven working days from the payment by the client (DOTC) to the contractor (Hanjin). 11
It may be stated at this stage that shortly after the subcontract signing, Dynamic secured a US dollar
denominated loan from GRB Capital, Inc. (GRB) of California. As security for the loan, Dynamic agreed to
assign its receivables from the Project to GRB, but Hanjin opposed the security arrangement on the
ground that the assignment might interfere with Dynamics performance.
Prior to the start of the construction works, Dynamic engaged the services of Gregorio E. Origenes, a
structural engineer with 38-years experience behind him, to check on the designs of the Project. After
examining the plans and specifications for the Project, Origenes found that "[t]he depth of the girder was
undersigned [sic] considering the length of the beam and considering further that no post tensioning
cables were provided; and [t]he framing system of the beams and girders was poorly designed." 12
Dynamic called Hanjins attention to such design deficiency. But upon the prodding of Hanjin which relied
on a contrary assessment of the Davao Airport Consultants (DAC), Dynamic nonetheless proceeded with
the construction as designed. The flawed design would later, however, manifest themselves by cracks
appearing in the beams to the second floor slab in the Passenger Terminal Building. Initially, Hanjin
considered such defects as construction in nature attributable to Dynamic, not design defects. However,
the Association of Structural Engineers of the Philippines, Task Force Davao International Airport, upon
investigation, discovered no evidence of deviation from the design plans and specifications, and stated
the opinion that there is a failure of structural design for some of the beams and girders of Passenger
Terminal Buildings 1 and 2.13
To address the adverted design defect, Dynamic recommended post-tensioning. However, Hanjin balked
at this recommendation. Eventually, Hanjin and the DAC approved the use of carbon fiber as posttensioning material of the structures to be used by a new subcontractor, the Composite Technology
Corporation.14
On December 31, 2000, the parties executed a modificatory Supplementary Agreement 15 in a bid to
ensure the timely completion of the Project, with Hanjin assisting Dynamic in the scheduled works. Under
this supplementary contract, Hanjin would, among other things, take over the responsibility for canvassing
of quotations, procurement, and delivery of materials and installation works. Dynamic would still provide
for temporary facilities, such as scaffoldings, formwork materials, and the like. 16
As of April 2002, 89% of the Project had been finished. Hanjin would, however, inform Dynamic that no
progress billing payment would be forthcoming after April 2002. As of that time, a total of 20 progress
billings were submitted to Hanjin in the total amount of PhP 582,103,359.35, 10% of which, or over PhP
58.2 million, was retained by Hanjin.17 By December 2002, when project works had reached a 94%
completion level, Hanjin took over the Project for the reason of alleged abandonment. 18 Dynamic was
thus impelled to demand payment from Hanjin for work done on the Project, which then went unheeded.
Such was the state of things when Dynamic submitted its claim against Hanjin for arbitration to the CIAC.
In its Answer, Hanjin made counterclaims, such as costs of takeover, contractual negative balance, and
damages.
At the CIAC, the parties entered into a Terms of Reference whereby the issues they raised were
embodied, viz:

1. Is Claimant [Dynamic] entitled to the release of its retention amounting to P58,210,336.00

when DOTC released to the Respondent [Hanjin] the retained amount of P89,492,594.56?
2. Is Claimant entitled to its claim for payment of escalation cost and/or price adjustment
amounting to P60,000,000.00?
3. Is Claimant entitled to its claim for payment of a foreign currency adjustment in the amount
of P160,688,069.00?
4. Is Claimant entitled to its claim for payment of its work accomplishments valued at
P27,790,675.00?
5. Whether or not Claimant is entitled to claim payment at 40% mark-up of the following
variation orders: (1) Variation Order amounting to P219,171,878.00 x 40% =
P87,668,722.00; (2) Variation Order amounting to P60,923,533.00 x 40% = P24,369,413.20?
6. Is Claimant entitled to its claim for payment for the installation of three systems of arrival
carousel in the amount of P34,297,691.91?
7. x x x x
8. Is Claimant entitled to its claim for payment for interest computed at the rate of 12% per
annum in the amount of P51,288,786.36?
9. Was respondent guilty of bad faith and deceit in its dealings with the Claimant when (a) it
released the down payment in installments; x x x (c) it delayed payment of progress billings;
(d) it refused to release to the Claimant 35% of the foreign currency portion of its contract
with DOTC; x x x (f) it overpriced the materials it purchased for the Claimant under the
Supplementary Agreement between the parties, and claimed reimbursement for materials for
which it failed to produce supporting receipts and also claimed reimbursement for
transporting materials from abroad using unreasonable and unacceptable method of
transporting materials?
10. Were there deductions from the work accomplishments of Claimant, which were
unauthorized and undue? Did the Claimant abandon the works? If it did, is the Claimant
liable to Respondent for additional expenses it incurred in completing the work in the
aggregate amount of P107,459,925.51?
11. Is Claimant liable for the claim x x x, for the cost of the supplies, materials and
equipment, inclusive of taxes and customs duties, supplied by the Respondent x x x for the
performance of the Subcontracted Works? If so, how much of this claim is Respondent
entitled to x x x ?
12. Was the Claimant (i) mismanaged, (ii) lacking in capacity to perform the Subcontracted
Works, (iii) lacking in technical Know-how x x x (iv) lacking in expert engineers and qualified
manpower x x x (v) financially incapable of accomplishing the Subcontracted Works x x x ?
13. Did Claimant discover the deficiency in the structural design of the buildings to be
constructed by it, namely: (i) the Passenger Terminal Building, (ii) the ATC-Administration
Building, and (iii) the Central Plant Building? If so, did it call the attention of the Respondent
to this deficiency? Did the Respondent instruct the Claimant to proceed with the construction

of the shop drawings and the construction of the buildings? Did cracks occur in the concrete
beams of the buildings causing the DOTC through its consultant to provide procedures for
correction of the defects and determine their cause? x x x Who between Claimant and
Respondent is liable for the cost of retrofitting the cracked slabs and beams?
14. Is the Claimant liable for the claims of Respondent, described generally as "Contractual
Negative Balance" x x x ?
15. Is Claimant liable to Respondent for delay x x x ?
16. Is the Claimant liable to the Respondent for x x x moral damages x x x and attorneys
fees x x x ?
17. Is Claimant entitled to its claim for payment of attorneys fees in the amount of
P25,554,857.55?19
The following is a summary of the parties claims and counterclaims submitted before the CIAC:

[DYNAMICS CLAIMS:]
Retention Money
Escalation Cost/Price
Adjustment
Foreign Currency Adjustment
Work Accomplishments
Variation Orders
Interest for Late Payments
Attorneys Fees

P 58,210,336.00
60,000,000.00
160,688,069.00
27,790,675.00
153,119,284.73
51,288,786.36
25,554,857.55
P 536,652,008.64

[HANJINS COUNTERCLAIMS:]
Contractual Negative Balance
Increase Manpower
Equipment
Electrical Consumption
Miscellaneous Materials
Liquidated Damages
Expenses for Preparation of
Final Drawing
Miscellaneous Expenses of
Claimants Subcontractors
Moral Damages
Exemplary Damages
Attorneys Fees

P 121,273,314.00
81,486,997.00
635,500.00
419,939.16
481,734.81
12,600,000.00
11,705,354.12
130,500.00
1,000,000.00
1,000,000.00
2,000,000.00
P 232,733,339.5120

Thereafter, the CIAC issued a Final Award awarding the following amounts for the items as indicated:

The total credits to Dynamic

are:
Adjusted Subcontract
Price
P 1,028,932,282.36
Share in Profit in VOs
9,295,667.94
Materials Over-purchased
54,847,739.30
TOTAL P
1,093,075,739.30
The total deductions are:
Payment, Progress Billings
Nos. 1-20
P 582,103,359.35
Net Cost to Complete
368,578,828.92
Repayment Un-recouped
Advance Payment
16,398,419.74
TOTAL
P 967,080,608.01
xxxx
BALANCE
P 125,995,131.2921
Following the denial of Dynamics Motion to Correct Award per the CIACs Order of September 24,
2004,22 both parties appealed to the CA.
The Rulings of the Court of Appeals
In CA-G.R. SP No. 86633, the CA rendered the first appealed Decision dated January 28, 2005, veritably
affirming the factual findings of the CIAC, but nonetheless modified the latters ruling insofar only as the
award of attorneys fees, rate of interest imposable, and liability for arbitration fees were concerned.
The fallo of the January 28, 2005 CA Decision reads:

WHEREFORE, the assailed CIAC Final Award dated September 7, 2004

is MODIFIED and/or RECTIFIED as follows: (a) to order the parties to equally share the
costs of arbitration conformably with Article 24 of theirSubcontract Agreement; (b) to delete
the award of attorneys fees in favor of respondent [Dynamic]; and, (c) to reduce the rate of
interest imposable after the finality of the award from 15% to 12% per annum. The rest
isAFFIRMED in toto.23
The CA would subsequently deny Hanjins motion for reconsideration in its Resolution of October 14,
2005.
On the other hand, the appellate courts Decision dated July 6, 2005 in CA-G.R. SP No. 86641
dispositively reads:

Foregoing premises considered we vote to GRANT the instant petition. The Final Award
dated September 7, 2004 in CIAC Case No. 07-2004 is hereby MODIFIED; the net award
shall be computed as follows:

Original Subcontract Price

PhP
714,868,129.00

Foreign Currency
Adjustment
Price Escalation
Variation Orders
Adjusted Subcontract
Price
xxxx
Share in Profit in VOs
Materials Over-Purchased
Total PhP
Less: Total Deductions
Progress Billings Nos. 120
net of retention money
523,893,023.35
Net Cost to Complete
368,578,828.92
Repayment, Unrecouped
Advance Payment
16,398,419.74
Net Award
================

131,338,674.80
48,171,585.32
156,786,932.62
PhP
1,051,165,321.74
61,400,096.07
54,847,789.94
1,167,413,207.75

908,870,252.01
PhP
258,542,935.74

The net award in favor of petitioner Dynamic x x x shall be [PhP 258,542,935.74] plus
attorneys fees of [PhP 500,000]. Respondent Hanjin x x x is hereby ordered to pay petitioner
corporation the amount of [PhP 259,042,935.74]; plus interest at 12% per annum from the
promulgation of the assailed Final Award on September 7, 2004, until paid. The cost of
arbitration, however, should be equally borne by the parties in accordance with Article 24 of
the Subcontract Agreement.
SO ORDERED.24
Upon motion for reconsideration filed by both parties, the CA recomputed and came up with a higher net
award as set forth in its Resolution of August 31, 2005 in CA-G.R. SP No. 86641, disposing as follows:

Due to the complexity of the computations involved, We deem it wise to RESTATE Our
Decision. The net award shall be recomputed as follows:
Original Subcontract Price
Foreign Currency Adjustment
Price Escalation
Variation Orders (VOs)
Adjusted Subcontract Price
Share in Profit in VOs
Materials Over-Purchased
Total

PhP 714,868,129.00
131,338,674.80
53,744,697.39
141,535,238.92
__________________
PhP 1,041,486,740.11
9,295,667.94
54,847,789.94
__________________
PhP 1,105,630,197.99

Less, Total Deductions

Progress Billings
Nos. 1-20
net of retention
money
523,893,023.35
Unadjusted Net Cost
to
Complete
470,183,498.41
Plus: Mech. Works
(EFQ)
7,776,735.77
Less: Amount to be reimbursed
to [Dynamic]
(3,338,736.57)
Disallowed items
(93,983,040.38)
Additional disallowed
(8,381,856.00)
Overcharging of
Materials
for VOs
(104,208,856.26)
Amended Cost to
Complete
271,386,481.54
Repayment, Unrecouped
Advance Payment
16,398,419.74
Net Award PhP

811,677,924.63
293,952,273.36

The net award in favor of petitioner [Dynamic] shall be [PhP 293,952,273.36] plus attorneys
fees of [PhP 500,000]. Respondent [Hanjin] is hereby ordered to pay petitioner x x x the
amount of [PhP 293,952,273.36] plus interest at 12% per annum from the promulgation of
the assailed Final Award on September 7, 2004, until paid. Hanjin is likewise ordered to
release to [Dynamic] the retention money in the amount of PhP 58,210,336.00, plus interest
at 12% per annum from the time the Request for Arbitration was filed with the CIAC on
February 20, 2004, until fully paid. The cost of arbitration, however, should be equally borne
by the parties in accordance with Article 24 of the Subcontract Agreement.
SO ORDERED.25
From the CA Decision in CA-G.R. SP No. 86633, Hanjin has come to this Court on a Petition for Review
on Certiorari, the same docketed as G.R. No. 170144. And from the more adverse CA Resolution in CAG.R. SP No. 86641, Hanjin also filed a similar petition, docketed as G.R. No. 169408.
In a Resolution dated February 28, 2007,26 this Court consolidated the above cases.
The Issues
Hanjin raises identical issues in both of its petitions, to wit:

I
WHETHER A REVIEW OF THE INSTANT CASE BY WAY OF THE INSTANT PETITION
FOR REVIEW IS WARRANTED

II
WHETHER THE [CA] ERRONEOUSLY READ INTO THE SUBCONTRACT AGREEMENT
EXTRANEOUS AND CONTRACTUALLY INEXISTENT TERMS AND CONDITIONS TO
LAMELY JUSTIFY ITS AWARD TO RESPONDENT DYNAMIC OF PAYMENT IN FOREIGN
CURRENCY
III
WHETHER THE [CAS] AWARD OF PRICE ESCALATION IN FAVOR OF RESPONDENT
DYNAMIC IS WITH LEGAL BASIS
IV
WHETHER THE [CAS] IMPOSITION OF CERTAIN ITEMS, PERCENTAGES AND
AMOUNTS IN RESPONDENT DYNAMICS CLAIM TO VARIATION ORDERS IS WITH
LEGAL BASIS
V
WHETHER THE [CA] WAS LEGALLY JUSTIFIED IN ITS COMPUTATION WITH REGARD
TO THE ITEMS ON COSTS TO COMPLETE IN FAVOR OF PETITIONER HANJIN
VI
WHETHER THE [CA] COMMITTED REVERSIBLE ERROR WHEN IT DISREGARDED THE
EVIDENCE ESTABLISHED ON RECORD BY REWARDING RESPONDENT DYNAMIC
PAYMENT OF RETENTION MONEY DESPITE ITS ABANDONMENT OF THE
SUBCONTRACTED WORKS
VII
WHETHER PETITIONER HANJIN IS LEGALLY ENTITLED TO REIMBURSEMENT OF THE
COST OF ATTORNEYS FEES, MORAL AND EXEMPLARY DAMAGES
VIII
WHETHER THERE WAS LEGAL BASIS FOR THE [CAS] RULING THAT RESPONDENT
DYNAMIC IS ENTITLED TO INTEREST PAYMENT27
The Ruling of the Court
The Propriety of the Petitions for Review
Dynamic maintains that the issues Hanjin raised in its petitions are factual in nature and are, therefore,
not proper subject of review under Section 1 of Rule 45, prescribing that a petition under the said rule, like
the one at bench, "shall raise only questions of law which must be distinctly set forth."
Dynamics contention is valid to point as, indeed, the matters raised by Hanjin are factual, revolving as
they do on the entitlement of Dynamic to the awards granted and computed by the CIAC and the CA.
Generally, this would be a question of fact that this Court would not delve upon. Imperial v.

Jaucian suggests as much. There, the Court ruled that the computation of outstanding obligation is a
question of fact:

Arguing that she had already fully paid the loan x x x, petitioner alleges that the two lower
courts misappreciated the facts when they ruled that she still had an outstanding balance of
P208,430.
This issue involves a question of fact. Such question exists when a doubt or difference
arises as to the truth or the falsehood of alleged facts; and when there is need for a
calibration of the evidence, considering mainly the credibility of witnesses and the existence
and the relevancy of specific surrounding circumstances, their relation to each other and to
the whole, and the probabilities of the situation.28 (Emphasis supplied.)
The rule, however, precluding the Court from delving on the factual determinations of the CA, admits of
several exceptions. In Fuentes v. Court of Appeals, we held that the findings of facts of the CA, which are
generally deemed conclusive, may admit review by the Court in any of the following instances, among
others:

(1) when the factual findings of the [CA] and the trial court are contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or conjectures;
(3) when the inference made by the [CA] from its findings of fact is manifestly mistaken,
absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the [CA], in making its findings, goes beyond the issues of the case, and such
findings are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the [CA] is premised on a misapprehension of facts;
(7) when the [CA] fails to notice certain relevant facts which, if properly considered, will justify
a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific evidence on
which they are based; and
(10) when the findings of fact of the [CA] are premised on the absence of evidence but such
findings are contradicted by the evidence on record.29
Significantly, jurisprudence teaches that mathematical computations as well as the propriety of the arbitral
awards are factual determinations.30 And just as significant is that the factual findings of the CIAC and
CAin each separate appealed decisionspractically dovetail with each other. The perceptible essential
difference, at least insofar as the CIACs Final Award and the CA Decision in CA-G.R. SP No. 86641 are
concerned, rests merely on mathematical computations or adjustments of baseline amounts which the
CIAC may have inadvertently utilized.

At any rate, the challenge hurled by Hanjin against the merits of the CAs findings, particularly those
embodied in its Decision in CA-G.R. SP No. 86641, must fail, such findings being fully supported by, or
deducible from, the evidence on record.
Issue of Payment in Foreign Currency
Hanjin argues that there is no provision in the subcontract agreement, as supplemented, for the partial
payment of the contract price in foreign currency.
Hanjin is wrong, a peso-dollar payment mix being effectively contemplated in the subcontract. In
construing a contract, the provisions thereof should not be read in isolation, but in relation to each other
and in their entirety so as to render them effective, having in mind the intention of the parties and the
purpose to be achieved.31 Thus, Article 1374 of the Civil Code provides that "the various stipulations of a
contract shall be interpreted together attributing to the doubtful ones that sense which result from all of
them taken jointly."
In other words, the stipulations in a contract and other contract documents should be interpreted together
with the end in view of giving effect to all.32 The CA, as did the CIAC, found the Hanjin-Dynamic
Subcontract Agreement as including and incorporating the provisions of other agreements entered into by
and between the parties respecting the Project. They appropriately cited Art. 1 of the Subcontract
Agreement, stating:

ARTICLE 1. SUBCONTRACT DOCUMENTS

1.1) The following documents shall be deemed to form and be read and be
construed as an integral part of the Subcontract Agreement in the same order of
precedence as below:
a) Subcontract Agreement No. DAV-2-Sub-A-OO 1
b) Special Conditions as the Annex 1
c) General Conditions of the Main Contract
d) Technical Specifications of the Main Contract
e) Tender Drawings
f) Priced Bill of Quantities as the Annex 2.
1.2) The Subcontractor is deemed to have examined and fully understood the aforesaid
Subcontract Agreement Documents.33 (Emphasis supplied.)
It is abundantly clear from the emphasized portions of the aforequoted provision that the DOTC-Hanjin
Main Contract forms as "an integral part of the Subcontract Agreement." It is settled that if the terms of a
contract leave no doubt as to the parties intention, the literal meaning of its stipulations should
control.34 The categorical finding of the CA, affirmatory of that of the CIAC, was that "the Subcontract is a
back-to-back contract with Hanjins contract with DOTC." Under the Main Contract, DOTC undertook to
pay Hanjin 35% of the contract price in US dollars. Be that as it may, and on the postulate that the Main
Contract is an integral part of the Subcontract Agreement, it behooves Hanjin to extend to Dynamic the
same benefits otherwise accruing to Hanjin under the Main Contract. Apart from dollar payment, other
benefits contemplated include the payment of price adjustment or escalation. An application of the "back-

to-back" arrangement between Hanjin and Dynamic to the contrary would be tantamount to a construction
against the terms of the Subcontract Agreement.
Before the CIAC, Hanjin argued that Dynamics entitlement to a share in the foreign currency portion of
the contract price is conditioned on the completion of the Project by April 2002.35 The CIAC, however,
correctly made short shrift of this argument, tagging the condition to be an impossible one and noting that
Hanjins very act of releasing advance payments to Dynamic in trickles, rather than in one full payment,
as agreed upon, and delaying payments for approved progress billings ensured that Dynamic would not
meet the April 2002 deadline. The CA, it bears to stress, echoed these CIAC findings, and stated the
observation that Hanjins actions not only delayed the Project, but also rendered its completion on the
date imposed by Hanjin impossible. Hanjin, therefore, cannot plausibly fault and penalize Dynamic for not
meeting the imposed deadline, the latter having in its favor Art. 1186 of the Civil Code, which says that
"[t]he condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment."
Given the above perspective, the condition imposed for Dynamics entitlement to a share in Hanjins
foreign currency receipts is, for the nonce, deemed fulfilled. Accordingly, there is no legal obstacle to the
award of a foreign currency adjustment to Dynamic. Furthermore, Hanjins admission before the CIAC
that Dynamic is entitled to a foreign currency portion of the subcontract price veritably placed Hanjin in
estoppel from claiming otherwise. Under the doctrine of estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved as against the person
relying thereon.36
Issue of Computation of Foreign Currency Adjustment
As to the amount of foreign currency adjustment due Dynamic, the CIAC arrived at the figure PhP
131,338,674.80. The CA agreed with the CIACs computation and the ratiocination therefor. We
reproduce with approval what the CIAC wrote:

Dynamics Subcontract Price of P714,868,129.00 is 76% of what Hanjin will derive from
DOTC for the Subcontract Works. 35% of this amount represents the foreign currency
portion of the Subcontract Price. This amounts to P250,203,845.00. At the exchange rate of
Hanjin which is P34.10: US$1, this amount of P250,203,845.00 is equivalent to
US$7,337,356.15. Converted again into its value in pesos at the time when the Subcontract
was performed which ranged from P50.00 to P54.00 to US$1, or an average rate of P52.00:
US$1, its peso equivalent is P381,542,519.80. This is the rate used by Hanjin in charging
Dynamic for the peso value of the importation of foreign materials. The difference between
P381,542,519.80 and P250,203,845.00 is P131,338,674.80. We award to Dynamic as its
share of the foreign currency portion of the Subcontract Price the amount of
P131,338,674.80 which shall be added to the Subcontract Price.37
Issue of Applicable Exchange Rate
Hanjin questions the PhP 52: USD 1 exchange rate adopted by the CA and by the CIAC earlier, asserting
that what is applicable is the PhP 34.10: USD 1 exchange rate, the same being stipulated in the DOTCHanjin Main Contract.
Hanjins assertion may be accorded some cogency but for the fact that, as the CA and the CIAC found,
Hanjin charged Dynamic for all the costs related to the importation of raw materials to be used in the
Project at the average exchange rate of PhP 52.00: USD 1. And as the CA aptly observed, the
"Subcontract called for the importation of a substantial amount of equipment and materials for the
project." We need not belabor the iniquitousness of the lopsided formula foisted by Hanjin and the undue
enrichment resulting therefrom.

Issue of Computation of Total Escalation

Hanjin assails the CA for failing to use the 52 formulas and price indexes from the National Statistics
Office and the National Statistical Coordination Board in computing the escalation cost or price
adjustment. Alternatively, it argues that if Dynamic is indeed entitled to any price escalation, then the
applicable figure is 35% of price index only. Notably, Hanjin admitted before the CIAC that Dynamic is
entitled to price escalation of PhP 25,938,545.94 for the local portion,38 which amount the CIAC awarded
to Dynamic. In view of such admission, Hanjins arguments contesting the award for price escalation are
puerile.
As against, however, the CIACs computation of escalation cost which the CIAC predicated on works
accomplished as of April 2002 and covered by the 20 progress billings, the Court is inclined to sustain the
CAs computation of the price escalation as summarized in its Resolution of August 31, 2005 in CA-G.R.
SP No. 86641, for the CA rightfully took into account Dynamics accomplishment after April 2000 but
before Hanjin took over the Project, thus:

x x x. In Our assailed Decision [of July 6, 2005], We granted [Dynamic] additional escalation
as to the "local portion"i.e., on 65% of [Dynamic] billings based on the formula: [Dynamic]
Billing multiplied by 65% of the said billing, multiplied by the percentage of the escalation.
However, We computed escalation of the total amount of PhP 545,162,305.61 because the
CIAC computed escalation up to this extent only. It appears that a total of twenty (20)
progress billings have been submitted by [Dynamic] to Hanjin because it was advised that no
payments were forthcoming for subsequent progress billings.
xxxx
This being the case, We have no recourse but to limit the award of escalation only up to the
period covered by Progress Billing No. 20 or up to April 2002 as the value of all subsequent
accomplishments remained undetermined. It appears however, that the total amount billed
up to the time was PhP 582,103,359.35. We have computed escalation only up to the PhP
545,162,035.61 or short as to PhP 36,941,052.74. Applying the formula mentioned above,
an additional [PhP 5,573,112.07] is due [Dynamic] as escalation computed: PhP
36,941,053.74 x 65% x 0.2321, over and above PhP 22,233,039.38, so that a total of [PhP
27,806,151.45] is due [Dynamic] as additional escalation over and above that computed by
the CIAC.39
As it were, the records do not show that Hanjin presented any of the supposed 52 formulas and price
indexes, the utilization of which would have resulted, so it claims, in a more exact price escalation figure.
Hanjin did not adduce any evidence to provide legal support to its assertion that the price escalation
portion to which Dynamic is entitled to is 35% of the price index only. The Court agrees with the CA that,
in computing price escalation, the allowable escalation is to be pegged on the local portion, that is, on
65% of the Dynamic billing multiplied by 100% price index, because Dynamic is entitled to both price
adjustment and price escalation under the Subcontract Agreement.
As may be noted, the CA initially followed the baseline amount used by the CIAC in computing the
amount of price escalation at PhP 545,162,305.61. However, after another look at the case, the CA found
the CIAC to have erred in starting at the figure of PhP 582,103,359.35 as the baseline amount which, as
earlier indicated, represented the total billing as of April 2002. Accordingly, the CA granted a total award
of PhP 27,806,151.45 by adding the amount of PhP 5,573,112.07 to its previous award of PhP
22,233,039.38 to Dynamic based on the corrected computation. At bottom then, the CA merely corrected
its own computation error, a process which it can undoubtedly do as long as jurisdiction over the matter
has not been lost, as here.40

Issue of Computation of Variation Order

Hanjin also challenges the CAs computation of Dynamics share in the profit in the Variation Orders
(VOs). The CA, in its July 6, 2005 Decision in CA-G.R. SP No. 86641, found the amount of Dynamics
share in the VOs to be PhP 61,400,096.07, up from the PhP 9,295,667.94 awarded by the CIAC. On
reconsideration, the CA returned to the original CIAC figure. Instead, in its August 31, 2005 Resolution,
the appellate court deducted the whole amount of PhP 104,208,856.26 from Hanjins Net Cost to
Complete Claim. This amount represented the cost of materials with the overcharge component passed
by Hanjin to Dynamic. The CA arrived at the figure of PhP 104,208,856.26 after a painstaking, itemized
comparison of the items and amounts common in the Tables of Variance submitted by the parties in the
two tables.
We see no reason to disturb the CAs findings which appear to be supported by the evidence on record.
The computation of awards is, to stress, purely factual which the Court, not being a trier of facts, need not
evaluate and analyze all over again.
On another point, Hanjin argues that the original contract price on the items subject to VOs should be
added to the DOTC-approved amount for the same items. And from this sum total should be deducted the
amount representing what the CA considered as overcharging Hanjin passed onto Dynamic. According to
Hanjin, the amount it was charging Dynamic represents the actual cost of work done on the items subject
to VOs. Hanjins posture would necessarily diminish the amount allegedly overcharged by Hanjin to
Dynamic.
The Court is not convinced. At the outset, we find Hanjins presentation of a partial list41 in its
Memorandum of the items each party is charging the other quite disturbing. As the petitioner in this case,
Hanjin is charged with the burden of establishing the grave error allegedly committed by the CA in its
computation of the overcharged amount. Its failure to provide a complete and clear computation of what it
considers as the correct one militates against the supposed merit of its argument.
Hanjins own annexes to its Petition indicate the deleted items from the original subcontract price of PhP
924,670,819, as follows:

Original Subcontract
Price
Deleted after remeasurement
Deleted due change of
specifications subject to
VOs

PhP
924,670,819.00
PhP
118,338,206.31

91,464,481.64

209,802,687.95
PhP
714,868,129.0542

Also pertinent is a list of VOs43 approved by the DOTC with an aggregate amount of PhP
37,326,381.54,44 corresponding to the same items previously deleted, as shown above, amounting to PhP
91,464,481.64.
Hanjin presently asks the Court to add the original subcontract price of the items subject to VOs, that is,
PhP 91,464,481.64, to the DOTC- approved amount for the corresponding VOs in the amount of PhP
37,326,381.54, the sum of which to be deducted from the amount of PhP 141,535,238.92 45 which Hanjin
is charging Dynamic to arrive at the amount of the overcharge.

Hanjin knows fully well that the amount of PhP 91,464,481.64 covers items deleted from the contract
price by reason of the VOs. Such deleted items lowered the original aggregate subcontract price from
PhP 924,670,819 to PhP 714,868,129. The amount of PhP 91,464,481.64, representing items already
deleted by reason of VOs, has been superseded by the succeeding changes in specifications which the
DOTC approved in the amount of PhP 37,326,381.54. Hence, only the amount approved by the DOTC
for the items actually installed should be the subject of computation. The amounts representing
items already deleted should necessarily be excluded from the computation.
From the foregoing consideration, it is unreasonable for Hanjin to charge Dynamic the amount of PhP
141,535,238.92 for the items subject to VOs when DOTC actually approved only PhP 37,326,381.54 for
the same items. And lest it be overlooked, Dynamic was credited only the amount approved by DOTC at
PhP 37,326,381.54 of the subject VOs. To charge Dynamic more than the approved amount for the VOs
would result in an overcharging on the part of Hanjin.
Issue on Computation of Hanjins Net Cost to Complete
As regards the issue of disallowed deductions from Hanjins Net Cost to Complete, the CA, in its
underlying decision in CA-G.R. SP No. 86641, included the amount of PhP 8,558,652.78 and PhP
1,257,417.30, being not properly receipted, as additional disallowed deductions to the CIACs figure of
PhP 84,166,970.4746 or a total disallowable deduction of PhP 93,983,040.38.47 We agree and thus affirm
the CAs holding that when expenses or offered deductions are not properly documented, such
deductions should not be allowed, such deductions being in the nature of actual damages. To be
recoverable, actual damages must be pleaded and adequately proven in court. An award thereof cannot
be predicated on flimsy, remote, speculative, and insubstantial proof.48 Again, we see no reason to
deviate from the CAs findings on the matter of how much Hanjin expended to complete the Project.
To be sure, the Court cannot close its eyes to the consistent findings of the appellate court, affirmatory of
that of the CIAC, that Hanjin padded expenses chargeable against Dynamic. Consider the following apt
observations of the CIAC on the computation of deductions Hanjin charged Dynamic under "Net Cost to
Complete":

The Dynamic Summary is divided into two parts: The first part covered all purchases,
payments to subcontractors and all expenses deducted from Dynamics progress billings
nos. 1 to 20. We reviewed the Dynamic Summary to ascertain the expenses that are
questioned. We assume that those not questioned are admitted to be proper expenses and
are deductible from the [adjusted subcontract price]. We agree with Dynamic that we should
disallow certain items for the following reasons:
1. The expense is outside the scope of work of Dynamic;
2. The expense relates to an item that is subject to a prior deduction; in other words,
in the cases of double deduction.
3. The expense is undocumented.
We came across a substantial number of imported items where there was a material
variance between the value of an imported item as reflected in a Customs declaration and
the value reflected in private documents. The value reflected in the Bureau of Customs
declaration is less, in some cases, substantially less than that reflected in other documents.
We chose to rely on the value in the Bureau of Customs declaration. First, because it is a
public document. Second, because if the case is one in which Hanjin undervalued the
imported goods, which is a criminal act, we will not allow it to profit from its own wrong.49

Issue of Dynamics Abandonment of Work

Hanjin claims as being entitled to other costs which it incurred when Dynamic later abandoned the
subcontracted works in December 2002. Both the issues of "other costs" and "abandonment" are factual
matters settled in the proceedings below. The CIAC findings argue against the notion of abandonment on
the part of Dynamic. Wrote the CIAC:
Even if it were true, as argued by Hanjin, that there were other aspects of the work that could have been
aggressively pursued by Dynamic, it could have given the guarantee requested by Dynamic that it will be
paid even if DOTC does not in turn pay Hanjin for the same work. Moreover, the admission by Hanjin that
after the April 2002 progress billings, it did not pay Dynamic for work it had accomplished, in our view,
provides sufficient legal justification for not continuing with the work. Article 1169 [of the] Civil Code,
invoked by Dynamic provides:

ART. 1169. In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills the obligation, delay by the other begins.
Under the Subcontract, Dynamic agreed to perform the Subcontract Works in consideration
for which Hanjin agreed to pay Dynamic the stipulated Subcontract Price in accordance with
the terms and conditions of the Subcontract. The payment for performing the Subcontract
Works consisted of an advance payment exclusively to cover the costs of mobilization and
monthly progress payments within seven (7) days after DOTC pays Hanjin. [Hanjin has not
argued] that DOTC was remiss in the payment of Hanjins progress billings. Clearly,
therefore, there was failure on the part of Hanjin to comply with its obligation to pay
Dynamic. Thus, we hold that x x x Dynamic did not abandon the Works. As will be
shown later, Dynamic was squeezed out of the Subcontract and was rendered by Hanjin
incapable of performing its obligations therein. Under Article 1186 of the Civil Code, "The
condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment."50 (Emphasis supplied.)
In its Resolution dated August 31, 2005, the CA sustained the CIACs finding on non-abandonment, as
follows:

[T]he CIAC found that [Dynamic] did not abandon the subcontract works, but that it was
squeezed out of the Subcontract and was rendered by Hanjin incapable of performing the
obligations therein. It found certain circumstances to justify the suspension of work by
[Dynamic], to wit: that [Dynamic] was forced to de-mobilize because it was not being paid for
work undertaken; that the issue of retrofitting had not been resolved; and that the manner of
retrofitting still had to be decided upon. Despite the same, [Dynamic] continued with the work
not affecting the retrofitting work, but Hanjin terminated the Subcontract. The CIAC thus held
that Hanjin, the obligor, in voluntarily preventing the fulfillment by [Dynamic], the obligee, of
its obligation, the condition was deemed fulfilled.51
It cannot be overemphasized that conclusions arrived at on factual issues by the CIAC, when affirmed by
the CA, are accorded great respect and even finality, if supported by substantial evidence.52 In the instant
case, both the CIAC and the CA found more than ample evidence to support Dynamics disclaimer of
having abandoned the Project.
The Court concurs with the parallel findings of the CIAC and the CA on the issue of abandonment.
Indeed, Hanjin, by its unjustifiable and unfair actions, veritably forced Dynamic out of the Project at a time
when the subcontract works were already 94% complete. In net effect, Hanjin accepted the benefits
arising from the subcontract agreement without as much as asking Dynamic to finish its part of the

bargain. Under Art. 1235 of the Civil Code, the obligation is deemed fully complied with when an obligee
accepts the performance thereof knowing its incompleteness or irregularity, and without expressing any
protest or objection. An obligee is deemed to have waived strict compliance by an obligor with an
obligation when the following elements are present: (1) an intentional acceptance of the defective or
incomplete performance; (2) with actual knowledge of the incompleteness or defect; and (3) under
circumstances that would indicate an intention to consider the performance as complete and renounce
any claim arising from the defect.53
These elements obtain in the instant case. At the time it "booted out" Dynamic from the Project, Hanjin
knew that the subcontract works were not yet complete. In fact, there were unresolved matters involving
structural design deficiencies and the methods to be used in the retrofitting of the cracked slabs and
beams in the Passenger Terminal Building. Hanjin served notice that it will not pay the progress billings
for works done after April 2000. In December 2002, it refused entry to Dynamics workers at the project
site. Hanjin took all these actions without demanding that Dynamic finish its contractual undertaking. By
operation of law, Hanjin is thus deemed to have waived its right to claim any payment for expenses it
incurred in completing the unfinished six percent of the work. No reversible error can thus be attributed to
the CA in refusing to allow additional completion costs to Hanjin.
Issue of Dynamics Entitlement to Retention Money
Hanjin, as stated at the outset, refused to release Dynamics retention money on the ground of
abandonment and non-completion of the Project. Arts. 6.2, 7, and 8.3 of the Subcontract Agreement,
relating to the matter on retention money, respectively read, as follows:

6.2) Monthly progress billing calculated on the basis of actual works measured and sixty
percent (60%) of the material costs of the delivered goods according to the Bill of quantities,
x x x shall be paid with deductions of advance payment stipulated in Article 6.1 and ten
percent (10%) of billing amount as the retention money stipulated in Article 7.1 for the period
covered. Monthly progress billing[s] shall be paid by the Contractor and to the Subcontractor
within seven (7) working days after the Client pays the Contractor.
xxxx
ARTICLE 7. RETENTION
7.1) The retention money, ten percent (10%) of every progress billing with cumulative
amount not exceeding ten percent (10%) of the Subcontract Price shall be deducted
therefrom in order to secure the remedy of defects.
7.2) Fifty percent (50%) of the retention money shall be released to the Subcontractor
immediately after the Contractor issues the "Taking Over Certificate" to the Subcontractor
and against presentation of Warranty Bond x x x valid for the duration of the Defects Liability
Period specified in Article 8.
The other fifty percent (50%) retention shall be released pro rata, if no defects have been
found, after the Client releases retention money to the Contractor, after the Subcontractor
issues a Clearance Certificate to the Contractor attesting that the Contractor is free from all
liens and encumbrances in relation to the Subcontract Works and after the Subcontractor
submits an acceptable Warranty Bond to the Contractor which is valid until the defects
liability period of the Main Contract plus 2 months.
xxxx

8.3) Defects Liability Period shall be three hundred sixty-five (365) days from the date of
issuance of the Taking Over Certificate. Within this period, the Subcontractor shall repair and
make good all defects in the Subcontract Works at his own cost x x x. The Subcontractor
shall assume full and sole responsibility for the removal, repair and replacement of any
defective or non- conforming works.54 x x x
The retention money, as described above, is intended to ensure defect and deficiency-free work as
evidenced by the contractors issuance of a Take Over Certificate. Hanjin, as contractor, never issued this
key document to Dynamic. Instead, it discharged Dynamic from the 94%-done Project rendering the
issuance of such certificate a virtual impossibility. On June 1, 2003, the DOTC issued a Take Over
Certificate to Hanjin and released the latters retention money under the Main Contract. But even earlier,
the DOTC released Hanjins retention money covering the period February 2000 to December 2001, a
development which would have obligated Hanjin to release the corresponding Dynamics retention money
for the same period. But instead of paying, Hanjin held onto Dynamics retention money. Worse still,
Hanjin willfully and in apparent bad faith took over the unfinished work of Dynamic. To us, and to CIAC
and the CA earlier, Hanjin in effect waived any and all of its rights to hold Dynamic liable for any defects,
deficiencies, or unfinished work. Consequently, there is no legal basis for Hanjin to further withhold
payment of Dynamics retention money.
Issue of Entitlement to Moral and Exemplary Damages
Hanjins ascription of bad faith and gross negligence on the part of Dynamic, as basis for its claim of
attorneys fees against the latter, has nothing to commend itself for concurrence. In fact, both the CIAC
and CA are one in saying that it was Hanjin which acted in bad faith in its contractual relation with
Dynamic. The CIAC, in awarding attorneys fees to Dynamic, categorically stated:

On the basis of the evidence before us, we do not find any basis to hold Dynamic liable to
Hanjin for x x x damages and attorneys fees. On the other hand, on the basis of our finding
that Hanjin acted in bad faith and had persistently acted in a manner that we interpret as
attempts to squeeze out Dynamic from the Subcontract, and for attempting to pass on to
Dynamic a part of the cost of retrofitting when, it is clear from the evidence, it was free from
fault, and all the difficulties encountered by Dynamic in trying to enforce its rights under the
Subcontract, we should find Hanjin liable to pay Dynamic exemplary damages but we cannot
award exemplary damages as they are not part of the claim of Dynamic. x x x We, however,
award attorneys fees of P500,000.00.55
Issue of Entitlement to Attorneys Fees
The Subcontract Agreement, as supplemented, is silent as to payment of attorneys fees. The applicable
law, Art. 2208 of the Civil Code, must thus govern any award thereof. It reads:

ART. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other
than judicial costs, cannot be recovered except:
xxxx
2) When the defendants acts or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect its interest;
xxxx

5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim;
xxxx
11) In any case where the court deems it just and equitable that attorneys fees and
expenses of litigation should be recovered.
An award of attorneys fees being the exception,56 some compelling legal reason must obtain to bring the
case within the exception and justify such award. In the case at bench, there is a categorical finding by
the CIAC and CA that Hanjins refusal to satisfy Dynamics just claims amounted to gross and evident bad
faith. This to us presents the justifying ingredient for the award of attorneys fees. Accordingly, we affirm
the award of attorneys fees in CA-G.R. SP No. 86641 to Dynamic in the amount of PhP 500,000.
Issue of Computation of Interest
The Court of Appeals Erred in Its Award of Interest Payment
In its appealed Resolution of August 31, 2005, the CA decreed that:

[Hanjin] x x x is hereby ordered to pay [Dynamic] the amount of [PhP 293,952,273.36]; plus
interest at 12% per annum from the promulgation of the assailed Final Award on September
7, 2004, until paid. Hanjin is likewise ordered to release to [Dynamic] the retention money in
the amount of PhP 58,210,336.00, plus interest at 12% per annum from the time the Request
for Arbitration was filed with the CIAC on February 20, 2004, until fully paid.57 x x x
In the landmark case of Eastern Shipping Lines v. Court of Appeals, the Court summarized the rules on
interest award, as follows:

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.58
The contract under consideration does not partake of a loan or forbearance of money; it is a construction
contract. Thus, the matter of interest award proceeding from the dispute would fall under the second
paragraph of the above-quoted decision.
The reckoning point in the determination of the period of application of the six percent interest is from the
time extrajudicial demand is made. In the instant case, the Terms of Reference submitted before the
CIAC shows that, in a letter dated November 20, 2003, Dynamic served notice that should Hanjin fail to
pay the formers claims, the case shall be submitted for arbitration. Thus, the six percent interest due shall
start to run from November 20, 2003 until the award becomes final and executory. Only then will the 12%
interest referred to in the aforequoted third paragraph of Eastern Shipping Lines start to run until the
same is paid.
WHEREFORE, the CA Decision dated July 6, 2005, as modified by the Resolution dated August 31,
2005, both rendered in CA-G.R. SP No. 86641, are hereby AFFIRMED with the MODIFICATION that the
interest to be imposed on the sum total of the net award (PhP 293,952,273.36) and retention money (PhP
58,210,336) awarded to Dynamic shall be six percent (6%) interest per annum, reckoned from November
20, 2003 until the total award becomes final and executory. A yearly interest of twelve percent (12%) on
the total amount adjudged by the CIAC, as modified in the CA Resolution and further modified by this
Decision, as due to Dynamic, shall be assessed against Hanjin, computed from the finality of the CIAC
Final Award, as thus modified, until the final satisfaction thereof.
Insofar as they are inconsistent with this Decision, the CA Decision dated January 28, 2005 and
Resolution dated October 14, 2005 in CA-G.R. SP No. 86633 are MODIFIED accordingly.
The petitions of Hanjin are PARTIALLY GRANTED in a sense as above discussed.
Costs against Hanjin.
SO ORDERED.

G.R. No. 182248

December 18, 2008

EQUITABLE PCI BANKING CORPORATION,1 GEORGE L. GO, PATRICK D. GO, GENEVIEVE W.J.
GO, FERDINAND MARTIN G. ROMUALDEZ, OSCAR P. LOPEZ-DEE, RENE J. BUENAVENTURA,
GLORIA L. TAN-CLIMACO, ROGELIO S. CHUA, FEDERICO C. PASCUAL, LEOPOLDO S. VEROY,
WILFRIDO V. VERGARA, EDILBERTO V. JAVIER, ANTHONY F. CONWAY, ROMULAD U. DY TANG,
WALTER C. WESSMER, and ANTONIO N. COTOCO, petitioners,
vs.
RCBC CAPITAL CORPORATION, respondent.
DECISION
VELASCO, JR., J.:

The Case
This Petition for Review on Certiorari under Rule 45 seeks the reversal of the January 8, 2008 2 and
March 17, 20083Orders of the Regional Trial Court (RTC), Branch 148 in Makati City in SP Proc. Case
No. 6046, entitled In the Matter of ICC Arbitration Ref. No. 13290/MS/JB/JEM Between RCBC Capital
Corporation, (Claimant), and Equitable PCI Banking Corporation, Inc. et al., (Respondents). The assailed
January 8, 2008 Order confirmed the Partial Award dated September 27, 2007 4 rendered by the
International Chamber of Commerce-International Court of Arbitration (ICC-ICA) in Case No.
13290/MS/JB/JEM, entitled RCBC Capital Corporation (Philippines) v. Equitable PCI Bank, Inc. & Others
(Philippines).The March 17, 2008 Order denied petitioners motion for reconsideration of the January 8,
2008 Order.
The Facts
On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB) and the individual shareholders of
Bankard, Inc., as sellers, and respondent RCBC Capital Corporation (RCBC), as buyer, executed a Share
Purchase Agreement5 (SPA) for the purchase of petitioners interests in Bankard, representing
226,460,000 shares, for the price of PhP 1,786,769,400. To expedite the purchase, RCBC agreed to
dispense with the conduct of a due diligence audit on the financial status of Bankard.
Under the SPA, RCBC undertakes, on the date of contract execution, to deposit, as downpayment, 20%
of the purchase price, or PhP 357,353,880, in an escrow account. The escrowed amount, the SPA stated,
should be released to petitioners on an agreed-upon release date and the balance of the purchase price
shall be delivered to the share buyers upon the fulfillment of certain conditions agreed upon, in the form of
a managers check.
The other relevant provisions of the SPA are:

Section 5. Sellers Representations and Warranties

The SELLERS jointly and severally represent and warrant to the BUYER that:
xxxx
The Financial Condition of Bankard
g. The audited financial statements of Bankard for the three (3) fiscal years ended December
31, 1997, 1998 and 1999, and the unaudited financial statements for the first quarter ended
31 March 2000, are fair and accurate, and complete in all material respects, and have been
prepared in accordance with generally accepted accounting principles consistently followed
throughout the period indicated and:
i) the balance sheet of Bankard as of 31 December 1999, as prepared and certified
by SGV & Co. ("SGV"), and the unaudited balance sheet for the first quarter ended
31 March 2000, present a fair and accurate statement as of those dates, of
Bankards financial condition and of all its assets and liabilities, and is complete in all
material respects; and
ii) the statements of Bankards profit and loss accounts for the fiscal years 1996 to
1999, as prepared and certified by SGV, and the unaudited profit and loss accounts
for the first quarter ended 31 March 2000, fairly and accurately present the results of

the operations of Bankard for the periods indicated, and are complete in all material
respects.
h. Except as disclosed in the Disclosures, and except to the extent set forth or reserved in
the audited financial statements of Bankard as of 31 December 1999 and its unaudited
financial statements as of 31 March 2000, Bankard, as of such dates and up to 31 May 2000,
had and shall have no liabilities, omissions or mistakes in its records which will have material
adverse effect on the net worth or financial condition of Bankard to the extent of more than
One Hundred Million Pesos (P100,000,000.00) in the aggregate. In the event such material
adverse effect on the net worth or financial condition of Bankard exceeds One Hundred
Million Pesos (P100,000,000.00), the Purchase Price shall be reduced in accordance with
the following formula:
Reduction in Purchase Price = X multiplied by 226,460,000
where
Amount by which negative
adjustment exceeds P100 Million
X = -------------------------------------------- (1.925)
338,000,000
xxxx
Section 7. Remedies for Breach of Warranties
a. If any of the representations and warranties of any or all of the SELLERS or the BUYER
(the "Defaulting Party") contained in Sections 5 and 6 shall be found to be untrue when made
and/or as of the Closing Date, the other party, i.e., the BUYER if the Defaulting Party is any
or all of the SELLERS and the SELLERS if the Defaulting Party is the BUYER (hereinafter
referred to as the "Non-Defaulting Party") shall have the right to require the Defaulting Party,
at the latters expense, to cure such breach, and/or seek damages, by providing notice or
presenting a claim to the Defaulting Party, reasonably specifying therein the particulars of the
breach. The foregoing remedies shall be available to the Non-Defaulting Party only if the
demand therefor is presented in writing to the Defaulting Party within three (3) years from the
Closing Date except that the remedy for a breach of the SELLERS representation and
warrant in Section 5 (h) shall be available only if the demand therefor is presented to the
Defaulting Party in writing together with schedules and to substantiate such demand, within
six (6) months from the Closing Date.6
On June 2, 2000, RCBC deposited the stipulated downpayment amount in an escrow account after which
it was given full management and operational control of Bankard. June 2, 2000 is also considered by the
parties as the Closing Datereferred to in the SPA.
Thereafter, the parties executed an Amendment to Share Purchase Agreement (ASPA) dated September
19, 2000.7 Its paragraph 2(e) provided that:

2. Notwithstanding any provisions to the contrary in the Share Purchase Agreement and/or
any agreement, instrument or document entered into or executed by the Parties in relation
thereto (the "Related Agreements"), the Parties hereby agree that:

xxxx
e) Notwithstanding the provisions of Sec. 7 of the Share Purchase Agreement to the
contrary, the remedy for a breach of the SELLERS representation and warranty in
Section 5(h) of the Share Purchase Agreement shall be available if the demand therefor
is presented to the SELLERS in writing together with schedules and data to substantiate
such demand, on or before 31 December 2000. (Emphasis added.)
Sometime in September 2000, RCBC had Bankards accounts audited, creating for the purpose an audit
team led by a certain Rubio, the Vice-President for Finance of RCBC at the time. Rubios conclusion was
that the warranty, as contained in Section 5(h) of the SPA (simply Sec. 5[h] hereinafter), was correct.
On December 28, 2000, RCBC paid the balance of the contract price. The corresponding deeds of sale
for the shares in question were executed in January 2001.
Thereafter, in a letter of May 5, 2003, RCBC informed petitioners of its having overpaid the purchase
price of the subject shares, claiming that there was an overstatement of valuation of accounts amounting
to PhP 478 million, resulting in the overpayment of over PhP 616 million. Thus, RCBC claimed that
petitioners violated their warranty, as sellers, embodied in Sec. 5(g) of the SPA (Sec. 5[g] hereinafter).
Following unsuccessful attempts at settlement, RCBC, in accordance with Sec. 10 of the SPA, filed
a Request for Arbitration dated May 12, 20048 with the ICC-ICA. In the request, RCBC charged Bankard
with deviating from, contravening and not following generally accepted accounting principles and
practices in maintaining their books. Due to these improper accounting practices, RCBC alleged that both
the audited and unaudited financial statements of Bankard prior to the stock purchase were far from fair
and accurate and, hence, violated the representations and warranties of petitioners in the SPA. Per
RCBC, its overpayment amounted to PhP 556 million. It thus prayed for the rescission of the SPA,
restitution of the purchase price, payment of actual damages in the amount of PhP 573,132,110, legal
interest on the purchase price until actual restitution, moral damages, and litigation and attorneys fees.
As alternative to rescission and restitution, RCBC prayed for damages in the amount of at least PhP
809,796,092 plus legal interest.
To the Request for Arbitration, petitioners filed an Answer dated July 28, 2004,9 denying RCBCs
inculpatory averments and setting up the following affirmative allegations: the period for filing of the
asserted claim had already lapsed by force of Sec. 7 of the SPA; RCBC is not entitled to rescission
having had ample opportunity and reasonable time to file a claim against petitioners; RCBC is not entitled
to its alternative prayer of damages, being guilty of laches and failing to set out the details of the breach
as required under Sec. 7.
Arbitration in the ICC-ICA proceeded after the formation of the arbitration tribunal consisting of retired
Justice Santiago M. Kapunan, nominated by petitioners; Neil Kaplan, RCBCs nominee; and Sir Ian
Barker, appointed by the ICC-ICA.
After drawn out proceedings with each party alleging deviation and non-compliance by the other with
arbitration rules, the tribunal, with Justice Kapunan dissenting, rendered a Partial Award dated September
27, 2007,10 the dispositive portion of which states:

15 AWARD AND DIRECTIONS

15.1 The Tribunal makes the following declarations by way of Partial Award:
(a) The Claimants claim is not time-barred under the provisions of this SPA.

(b) The Claimant is not estopped by its conduct or the equitable doctrine of laches from
pursuing its claim.
(c) As detailed in the Partial Award, the Claimant has established the following breaches by
the Respondents of clause 5(g) of the SPA:
i) the assets, revenue and net worth of Bankard were overstated by reason of its
policy on and recognition of Late Payment Fees;
ii) reported receivables were higher than their realizable values by reason of the
bucketing method, thus overstating Bankards assets; and
iii) the relevant Bankard statements were inadequate and misleading in that their
disclosures caused readers to be misinformed about Bankards accounting policies
on revenue and receivables.
(d) Subject to proof of loss the Claimant is entitled to damages for the foregoing breaches.
(e) The Claimant is not entitled to rescission of the SPA.
(f) All other issues, including any issue relating to costs, will be dealt with in a further or final
award.
15.2 A further Procedural Order will be necessary subsequent to the delivery of this Partial
Award to deal with the determination of quantum and in particular, whether there should be
an Expert appointed by the Tribunal under Article 20(4) of the ICC Rules to assist the
Tribunal in this regard.
15.3 This Award is delivered by a majority of the Tribunal (Sir Ian Barker and Mr. Kaplan).
Justice Kapunan is unable to agree with the majoritys conclusion on the claim of estoppel
brought by the respondents.
On the matter of prescription, the tribunal held that RCBCs claim is not time-barred, the claim properly
falling under the contemplation of Sec. 5(g) and not Sec. 5(h). As such, the tribunal concluded, RCBCs
claim was filed within the three (3)-year period under Sec. 5(g) and that the six (6)-month period under
Sec. 5(h) did not apply.
The tribunal also exonerated RCBC from laches, the latter having sought relief within the three (3)-year
period prescribed in the SPA. On the matter of estoppel suggested in petitioners answer, the tribunal
stated in par. 10.27 of the Partial Award the following:

10.27 Clearly, there has to be both an admission or representation by (in this case) the
Claimant [RCBC], plus reliance upon it by (in this case) the Respondents [herein petitioners].
The Tribunal cannot find as proved any admission/representation that the Claimant was
abandoning a 5(g) claim, any reliance by the Respondents on an admission, and any
detriment to the Respondents such as would entitle them to have the Claimant deprived of
the benefit of clause 5(g). These aspects of the claim for estoppels are rejected.11
Notably, the tribunal considered the rescission of the SPA and ASPA as impracticable and "totally out of
the question."12

In his Dissenting Opinion13 which he submitted to and which was received on September 24, 2007 by the
ICC-ICA, Justice Kapunan stated the observation that RCBCs claim is time-barred, falling as such claim
did under Sec. 5(h), which prescribes a comparatively shorter prescriptive period, not 5(g) as held by the
majority of the tribunal, to wit:

Claimant admits that the Claim is for recovery of P431 million on account of alleged
"overvaluation of the net worth of Bankard," allegedly for "improper accounting practices"
resulting in "its book value per share as of 31 December 1999 [being] overstated." Claimants
witness, Dean Echanis asserts that "the inadequate provisioning for Bankards doubtful
accounts result[ed] in an overstatement of its December 31, 1999 total assets and net worth
of by [sic] least P418.2 million."
In addition, Claimants demand letter addressed to the Respondents alleged that "we
overpaid for the Shares to the extent of the impact of the said overstatement on the Book
Value per share".
These circumstances establish beyond dispute that the Claim is based on the alleged
overstatement of the 1999 net worth of Bankard, which the parties relied on in setting the
purchase price of the shares. Moreover, it is clear that there was an overstatement because
of "improper accounting practices" which led Claimant to overpay for the shares.
Ultimately, the Claim is one for recovery of overpayment in the purchase price of the shares.
xxx
As to the issue of estoppel, Justice Kapunan stated:

Moreover, Mr. Rubios findings merely corroborated the disclosures made in the Information
Memorandum that Claimant received from the Respondents prior to the execution of the
SPA. In this connection, I note that Bankards policy on provisioning and setting of
allowances using the Bucketed Method and income recognition from AR/Principal,
AR/Interest and AR/LPFs were disclosed in the Information Memorandum. Thus, these
alleged improper accounting practices were known to the Claimant even prior to the
execution of the SPA.
Thus, when Claimant paid the balance of the purchase price, it did so with full knowledge of
these accounting practices of Bankard that it now assails. By paying the balance of the
purchase price without taking exception or objecting to the accounting practices disclosed
through Mr. Rubio s review and the Information Memorandum, Claimant is deemed to have
accepted such practices as correctly reporting the 1999 net worth. x x x
xxxx
As last point, I note that my colleagues invoke a principle that for estoppels to apply there
must be positive indication that the right to sue was waived. I am of the view that there is no
such principle under Philippine law. What is applicable is the holding in Knecht and in
Coca- Cola that prior knowledge of an unfavorable fact is binding on the party who has such
knowledge; "when the purchaser proceeds to make investigations by himself, and the vendor
does nothing to prevent such investigation from being as complete as the former might wish,
the purchaser cannot later allege that the vendor made false representations to him" (Cf.
Songco v. Sellner, 37 Phil 254 citations omitted).

Applied to this case, the Claimant cannot seek relief on the basis that when it paid the
purchase price in December 2000, it was unaware that the accounting practices that went
into the reporting of the 1999 net worth as amounting to P1,387,275,847 were not in
conformity with GAAP [generally accepted accounting principles]. (Emphasis added.)
On October 26, 2007, RCBC filed with the RTC a Motion to Confirm Partial Award. On the same day,
petitioners countered with a Motion to Vacate the Partial Award. On November 9, 2007, petitioners again
filed a Motion to Suspend and Inhibit Barker and Kaplan.
On January 8, 2008, the RTC issued the first assailed order confirming the Partial Award and denying the
adverted separate motions to vacate and to suspend and inhibit. From this order, petitioners sought
reconsideration, but their motion was denied by the RTC in the equally assailed second order of March
17, 2008.
From the assailed orders, petitioners came directly to this Court through this petition for review.

The Issues
This petition seeks the review, reversal and setting aside of the orders Annexes A and B
and, in lieu of them, it seeks judgment vacating the arbitrators liability award, Annex C, on
these grounds:
(a) The trial court acted contrary to law and judicial authority in refusing to vacate the arbitral
award, notwithstanding it was rendered in plain disregard of the parties contract and
applicable Philippine law, under which the claim in arbitration was indubitably time-barred.
(b) The trial court acted contrary to law and judicial authority in refusing to vacate and in
confirming the arbitral award, notwithstanding that the arbitrators had plainly and admittedly
failed to accord petitioners due process by denying them a hearing on the basic factual
matter upon which their liability is predicated.
(c) The trial court committed grave error in confirming the arbitrators award, which held
petitioners-sellers liable for an alleged improper recording of accounts, allegedly affecting the
value of the shares they sold, notwithstanding that the respondent-buyer knew before
contracting that the accounts were kept in the manner complained of, and in fact ratified and
adopted the questioned accounting practice and policies.14
The Courts Ruling
The petition must be denied.
On Procedural Misstep of Direct Appeal to This Court
As earlier recited, the ICC-ICAs Partial Award dated September 27, 2007 was confirmed by the RTC in
its first assailed order of January 8, 2008. Thereafter, the RTC, by order of March 17, 2008, denied
petitioners motion for reconsideration. Therefrom, petitioners came directly to this Court on a petition for
review under Rule 45 of the Rules of Court.
This is a procedural miscue for petitioners who erroneously bypassed the Court of Appeals (CA) in pursuit
of its appeal. While this procedural gaffe has not been raised by RCBC, still we would be remiss in not
pointing out the proper mode of appeal from a decision of the RTC confirming, vacating, setting aside,
modifying, or correcting an arbitral award.

Rule 45 is not the remedy available to petitioners as the proper mode of appeal assailing the decision of
the RTC confirming as arbitral award is an appeal before the CA pursuant to Sec. 46 of Republic Act No.
(RA) 9285, otherwise known as the Alternative Dispute Resolution Act of 2004, or completely, An Act to
Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish the
Office for Alternative Dispute Resolution, and for other Purposes, promulgated on April 2, 2004 and
became effective on April 28, 2004 after its publication on April 13, 2004.
In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the RTC decision of an assailed
arbitral award is appealable to the CA and may further be appealed to this Court, thus:

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved
party in cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral
award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of the Regional Trial
Court confirming, vacating, setting aside, modifying or correcting an arbitral award may
be appealed to the Court of Appeals in accordance with the rules and procedure to be
promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court confirming an arbitral award
shall be required by the appellate court to post a counterbond executed in favor of the
prevailing party equal to the amount of the award in accordance with the rules to be
promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before this Court through a
petition for review under Rule 45 of the Rules of Court.15
It is clear from the factual antecedents that RA 9285 applies to the instant case. This law was already
effective at the time the arbitral proceedings were commenced by RCBC through a request for arbitration
filed before the ICC-ICA on May 12, 2004. Besides, the assailed confirmation order of the RTC was
issued on March 17, 2008. Thus, petitioners clearly took the wrong mode of appeal and the instant
petition can be outright rejected and dismissed.
Even if we entertain the petition, the outcome will be the same.
The Court Will Not Overturn an Arbitral Award
Unless It Was Made in Manifest Disregard of the Law
In Asset Privatization Trust v. Court of Appeals,16 the Court passed on similar issues as the ones
tendered in the instant petition. In that case, the arbitration committee issued an arbitral award which the
trial court, upon due proceedings, confirmed despite the opposition of the losing party. Motions for
reconsideration by the losing party were denied. An appeal interposed by the losing party to the CA was
denied due course. On appeal to this Court, we established the parameters by which an arbitral award
may be set aside, to wit:

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

of the arbitrators, are insufficient to invalidate an award fairly and honestly made.
Judicial review of an arbitration is, thus, more limited than judicial review of a trial.
Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators
cannot resolve issues beyond the scope of the submission agreement. The parties to such
an agreement are bound by the arbitrators award only to the extent and in the manner
prescribed by the contract and only if the award is rendered in conformity thereto. Thus,
Sections 24 and 25 of the Arbitration Law provide grounds for vacating, rescinding or
modifying an arbitration award. Where the conditions described in Articles 2038, 2039 and
2040 of the Civil Code applicable to compromises and arbitration are attendant, the
arbitration award may also be annulled.
xxxx
Finally, it should be stressed that while a court is precluded from overturning an award for
errors in determination of factual issues, nevertheless, if an examination of the record
reveals no support whatever for the arbitrators determinations, their award must be vacated.
In the same manner, an award must be vacated if it was made in "manifest disregard of
the law."17 (Emphasis supplied.)
Following Asset Privatization Trust, errors in law and fact would not generally justify the reversal of an
arbitral award. A party asking for the vacation of an arbitral award must show that any of the grounds for
vacating, rescinding, or modifying an award are present or that the arbitral award was made in manifest
disregard of the law. Otherwise, the Court is duty-bound to uphold an arbitral award.
The instant petition dwells on the alleged manifest disregard of the law by the ICC-ICA.
The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros 18 expounded on the phrase "manifest
disregard of the law" in the following wise:

This court has emphasized that manifest disregard of the law is a very narrow standard of
review. Anaconda Co. v. District Lodge No. 27, 693 F.2d 35 (6th Cir.1982). A mere error in
interpretation or application of the law is insufficient. Anaconda, 693 F.2d at 37-38. Rather,
the decision must fly in the face of clearly established legal precedent. When faced with
questions of law, an arbitration panel does not act in manifest disregard of the law unless (1)
the applicable legal principle is clearly defined and not subject to reasonable debate; and (2)
the arbitrators refused to heed that legal principle.
Thus, to justify the vacation of an arbitral award on account of "manifest disregard of the law," the arbiters
findings must clearly and unequivocally violate an established legal precedent. Anything less would not
suffice.
In the present case, petitioners, in a bid to establish that the arbitral award was issued in manifest
disregard of the law, allege that the Partial Award violated the principles of prescription, due process, and
estoppel. A review of petitioners arguments would, however, show that their arguments are bereft of
merit. Thus, the Partial Award dated September 27, 2007 cannot be vacated.
RCBCs Claim Is Not Time-Barred
Petitioners argue that RCBCs claim under Sec. 5(g) is based on overvaluation of Bankards revenues,
assets, and net worth, hence, for price reduction falling under Sec. 5(h), in which case it was belatedly
filed, for RCBC presented the claim to petitioners on May 5, 2003, when the period for presenting it under

Sec. 5(h) expired on December 31, 2000. As a counterpoint, RCBC asserts that its claim clearly comes
under Sec. 5(g) in relation to Sec. 7 which thus gave it three (3) years from the closing date of June 2,
2000, or until June 1, 2003, within which to make its claim. RCBC contends having acted within the
required period, having presented its claim-demand on May 5, 2003.
To make clear the issue at hand, we highlight the pertinent portions of Secs. 5(g), 5(h), and 7 bearing on
what petitioners warranted relative to the financial condition of Bankard and the remedies available to
RCBC in case of breach of warranty:

g. The audited financial statements of Bankard for the three (3) fiscal years ended
December 31, 1997, 1998 and 1999, and the unaudited financial statements for the first
quarter ended 31 March 2000, are fair and accurate, and complete in all material
respects, and have been prepared in accordance with generally accepted accounting
principles consistently followed throughout the period indicated and:
i) the balance sheet of Bankard as of 31 December 1999, as prepared and
certified by SGV & Co. ("SGV"), and the unaudited balance sheet for the first quarter
ended 31 March 2000, present a fair and accurate statement as of those dates,
of Bankards financial condition and of all its assets and liabilities, and is
complete in all material respects; and
ii) the statements of Bankards profit and loss accounts for the fiscal years
1996 to 1999, as prepared and certified by SGV, and the unaudited profit and loss
accounts for the first quarter ended 31 March 2000, fairly and accurately
present the results of the operations of Bankard for the periods indicated,
and are complete in all material respects.
h. Except as disclosed in the Disclosures, and except to the extent set forth or reserved in
the audited financial statements of Bankard as of 31 December 1999 and its unaudited
financial statements for the first quarter ended 31 March 2000, Bankard, as of such dates
and up to 31 May 2000, had and shall have no liabilities, omissions or mistakes in its
records which will have a material adverse effect on the net worth or financial
condition of Bankard to the extent of more than One Hundred Million Pesos (P
100,000,000.00) in the aggregate. In the event such material adverse effect on the net
worth or financial condition of Bankard exceeds One Hundred Million Pesos (P
100,000,000.00), the Purchase Price shall be reduced in accordance with the following
formula:
xxxx
Section 7. Remedies for Breach of Warranties
If any of the representations and warranties of any or all of the SELLERS or the BUYER (the
"Defaulting Party") contained in Sections 5 and 6 shall be found to be untrue when made
and/or as of the Closing Date, the other party, i.e., the BUYER if the Defaulting is any of the
SELLERS and the SELLERS if the Defaulting Party is the BUYER (hereinafter referred to as
the "Non-Defaulting Party") shall have the right to require the Defaulting Party, at the
latters expense, to cure such breach, and/or seek damages, by providing notice or
presenting a claim to the Defaulting Party, reasonably specifying therein the particulars of
the breach. The foregoing remedies shall be available to the Non-Defaulting Party only if the
demand therefor is presented in writing to the Defaulting Party within three (3) years
from the Closing Date, except that the remedy for a breach of the SELLERS

representation and warranty in Section 5 (h) shall be available only if the demand
therefor is presented to the Defaulting Party in writing together with schedules and data to
substantiate such demand, within six (6) months from the Closing Date. (Emphasis
supplied.)
Before we address the issue put forward by petitioners, there is a necessity to determine the nature and
application of the reliefs provided under Sec. 5(g) and Sec. 5(h) in conjunction with Sec. 7, thus:
(1) The relief under Sec. 5(h) is specifically for price reduction as said section explicitly states that the
"Purchase Price shall be reduced in accordance with the following formula x x x." In addition, Sec. 7 gives
the aggrieved party the right to ask damages based on the stipulation that the non-defaulting party "shall
have the right to require the Defaulting Party, at the latters expense, to cure such breach and/or seek
damages."
On the other hand, the remedy under Sec. 5(g) in conjunction with Sec. 7 can include specific
performance, damages, and other reliefs excluding price reduction.
(2) Sec. 5(g) warranty covers the audited financial statements (AFS) for the three (3) years ending
December 31, 1997 to 1999 and the unaudited financial statements (UFS) for the first quarter ending
March 31, 2000. On the other hand, the Sec. 5(h) warranty refers only to the AFS for the year ending
December 31, 1999 and the UFS up to May 31, 2000. It is undenied that Sec. 5(h) refers to price
reduction as it covers "only the most up-to-date audited and unaudited financial statements upon which
the price must have been based."19
(3) Under Sec. 5(h), the responsibility of petitioners for its warranty shall exclude the disclosures and
reservations made in AFS of Bankard as of December 31, 1999 and its UFS up to May 31, 2000. No such
exclusions were made under Sec. 5(g) with respect to the warranty of petitioners in the AFS and UFS of
Bankard.
(4) Sec. 5(h) gives relief only if there is material adverse effect in the net worth in excess of PhP 100
million and it provides a formula for price reduction.20 On the other hand, Sec. 5(g) can be the basis for
remedies like specific performance, damages, and other reliefs, except price reduction, even if the
overvaluation is less or above PhP 100 million and there is no formula for computation of damages.
(5) Under Sec. 7, the aggrieved party shall present its written demand to the defaulting party within three
(3) years from closing date. Under Sec. 5(h), the written demand shall be presented within six (6) months
from closing date. In accordance with par. 2(c) of the ASPA, the deadline to file the demand under Sec.
5(h) was extended to December 31, 2000.
From the above determination, it becomes clear that the aggrieved party is entitled to two (2) separate
alternative remedies under Secs. 5 and 7 of the SPA, thus:

1. A claim for price reduction under Sec. 5(h) and/or damages based on the breach of
warranty by Bankard on the absence of liabilities, omissions and mistakes on the financial
statements as of 31 December 1999 and the UFS as of 31 May 2000, provided that the
material adverse effect on the net worth exceeds PhP 100M and the written demand is
presented within six (6) months from closing date (extended to 31 December 2000); and
2. An action to cure the breach like specific performance and/or damages under Sec. 5(g)
based on Bankards breach of warranty involving its AFS for the three (3) fiscal years ending
31 December 1997, 1998, and 1999 and the UFS for the first quarter ending 31 March 2000
provided that the written demand shall be presented within three (3) years from closing date.

Has RCBC the option to choose between Sec. 5(g) or Sec. 5(h)?
The answer is yes. Sec. 5 and Sec. 7 are clear that it is discretionary on the aggrieved parties to avail
themselves of any remedy mentioned above. They may choose one and dispense with the other. Of
course, the relief for price reduction under Sec. 5(h) will have to conform to the prerequisites and time
frame of six (6) months; otherwise, it is waived.
Preliminarily, petitioners basic posture that RCBCs claim is for the recovery of overpayment is specious.
The records show that in its Request for Arbitration dated May 12, 2004, RCBC prayed for the rescission
of the SPA, restitution of the whole purchase price, and damages not for reduction of price or for the
return of any overpayment. Even in its May 5, 2000 letter,21 RCBC did not ask for the recovery of any
overpayment or reduction of price, merely stating in it that the accounts of Bankard, as reflected in its
AFS for 1999, were overstated which, necessarily, resulted in an overpayment situation. RCBC was
emphatic and unequivocal that petitioners violated their warranty covered by Sec. 5(g) of the SPA.
It is thus evident that RCBC did not avail itself of the option under Sec. 5(h), i.e., for price reduction or the
return of any overpayment arising from the overvaluation of Bankards financial condition. Clearly, RCBC
invoked Sec. 5(g) to claim damages from petitioners which is one of the alternative reliefs granted under
Sec. 7 in addition to rescission and restitution of purchase price.
Petitioners do not deny that RCBC formally filed its claim under Sec. 5(g) which is anchored on the
material overstatement or overvaluation of Bankards revenues, assets, and net worth and, hence, the
overstatement of the purchase price. They, however, assert that such claim for overpayment is actually a
claim under Sec. 5(h) of the SPA for price reduction which it forfeited after December 31, 2000.
We cannot sustain petitioners position.
It cannot be disputed that an overstatement or overvaluation of Bankards financial condition as of closing
date translates into a misrepresentation not only of the accuracy and truthfulness of the financial
statements under Sec. 5(g), but also as to Bankards actual net worth mentioned in Sec. 5(h).
Overvaluation presupposes mistakes in the entries in the financial statements and amounts to a breach of
petitioners representations and warranties under Sec. 5. Consequently, such error in the financial
statements would impact on the figure representing the net worth of Bankard as of closing date. An
overvaluation means that the financial condition of Bankard as of closing date, i.e., June 2, 2000, is
overstated, a situation that will definitely result in a breach of EPCIBs representations and warranties.
A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of the SPA would indicate the following
remedies available to RCBC should it be discovered, as of closing date, that there is overvaluation which
will constitute breach of the warranty clause under either Sec. 5(g) or (h), to wit:
(1) An overvaluation of Bankards actual financial condition as of closing date taints the veracity and
accuracy of the AFS for 1997, 1998, and 1999 and the UFS for the first quarter of 2000 and is an
actionable breach of petitioners warranties under Sec. 5(g).
(2) An overvaluation of Bankards financial condition as of May 31, 2000, encompassing the warranted
financial condition as of December 31, 1999 through the AFS for 1999 and as of March 31, 2000 through
the UFS for the first quarter of 2000, is a breach of petitioners representations and warranties under Sec.
5(h).
Thus, RCBC has two distinct alternative remedies in case of an overvaluation of Bankards financial
condition. It may invoke Sec. 5(h) when the conditions of the threshold aggregate overvaluation and the
claim made within the six-month time-bar are present. In the alternative, it may invoke Sec. 5(g) when it
finds that a claim for "curing the breach" and/or damages will be more advantageous to its interests

provided it is filed within three (3) years from closing date. Since it has two remedies, RCBC may opt to
exercise either one. Of course, the exercise of either one will preclude the other.
Moreover, the language employed in Sec. 5(g) and Sec. 5(h) is clear and bereft of any ambiguity. The
SPAs stipulations reveal that the non-use or waiver of Sec. 5(h) does not preclude RCBC from availing
itself of the second relief under Sec. 5(g). Article 1370 of the Civil Code is explicit that "if terms of a
contract are clear and leave no doubt upon the intention of the contracting parties the literal meaning of
its stipulations shall control." Since the terms of a contract have the force of law between the
parties,22 then the parties must respect and strictly conform to it. Lastly, it is a long held cardinal rule that
when the terms of an agreement are reduced to writing, it is deemed to contain all the terms agreed upon
and no evidence of such terms can be admitted other than the contents of the agreement itself. 23 Since
the SPA is unambiguous, and petitioners failed to adduce evidence to the contrary, then they are legally
bound to comply with it.
Petitioners agreed ultimately to the stipulation that:

Each of the representations and warranties of the SELLERS is deemed to be a separate

representation and warranty, and the BUYER has placed complete reliance thereon in
agreeing to the Purchase Price and in entering into this Agreement. The representations and
warranties of the SELLERS shall be correct as of the date of this Agreement and as of the
Closing Date with the same force and effect as though such representations and warranties
had been made as of the Closing Date.24 (Emphasis supplied.)
The Court sustains the finding in the Partial Award that Sec. 5(g) of the SPA is a free standing warranty
and not constricted by Sec. 5(h) of the said agreement.
Upon the foregoing premises and in the light of the undisputed facts on record, RCBCs claim for
rescission of the SPA and damages due to overvaluation of Bankards accounts was properly for a
breach of the warranty under Sec. 5(g) and was not time-barred. To repeat, RCBC presented its written
claim on May 5, 2003, or a little less than a month before closing date, well within the three (3)-year
prescriptive period provided under Sec. 7 for the exercise of the right provided under Sec. 5(g).
Petitioners bemoan the fact that "the arbitrators liability award (a) disregarded the 6-month contractual
limitation for RCBCs overprice claim, and [b] substituted in its place the 3-year limitation under the
contract for other claims,"25adopting in that regard the interpretation of the SPA made by arbitral tribunal
member, retired Justice Kapunan, in his Dissenting Opinion, in which he asserted:

Ultimately, the Claim is one for recovery of overpayment in the purchase price of the shares.
And it is in this context, that I respectfully submit that Section 5(h) and not Section 5(g),
applies to the present controversy.26
xxxx
True, without Section 5(h), the Claim for price recovery would fall under Section 5(g). The
recovery of the pecuniary loss of the Claimant in the form of the excess price paid would be
in the nature of a claim for actual damages by way of compensation. In that situation, all the
accounts in the 1999 financial statements would be the subject of the warranty in Section
5(g).
However, since the parties explicitly included Section 5(h) in their SPA, which assures the
Claimant that there were no "omissions or mistakes in the records" that would misstate the
1999 net worth account, I am left with no other conclusion but that the accuracy of the
net worth was the subject of the warranty in Section 5(h), while the accuracy or

correctness of the other accounts that did not bear on, or affect Bankards net worth,
were guaranteed by Section 5(g).
xxxx
This manner of reconciling the two provisions is consistent with the principle in Rule 130,
Section 12 of the Rules of Court that "when a general and a particular provision are
inconsistent, the latter is paramount to the former [so] a particular intent will control a
general one that is inconsistent with it." This is also consistent with existing doctrines on
statutory construction, the application of which is illustrated in the case of Commissioner of
Customs vs. Court of Tax Appeals, GR No. L-41861, dated March 23, 1987 x x x.
xxxx
The Claim is for recovery of the excess price by way of actual damages.27 x x x
(Emphasis supplied.)
Justice Kapunan noted that without Sec. 5(h), RCBCs claim would fall under Sec. 5(g), impliedly
admitting that both provisions could very well cover RCBCs claim, except that Sec. 5(h) excludes the
situation contemplated in it from the general terms of Sec. 5(g).
Such view is incorrect.
While it is true that Sec. 5(h), as couched, is a warranty on the accuracy of the Bankards net worth while
Sec. 5(g), as also couched, is a warranty on the veracity, accuracy, and completeness of the AFS in all
material respects as prepared in accordance with generally accepted accounting principles consistently
followed throughout the period audited, yet both warranties boil down to the same thing and stem from
the same accounts as summarized in the AFS. Since the net worth is the balance of Bankards assets
less its liabilities, it necessarily includes all the accounts under the AFS. In short, there are no
accounts in the AFS that do not bear on the net worth of Bankard. Moreover, as earlier elucidated,
any overvaluation of Bankards net worth is necessarily a misrepresentation of the veracity, accuracy, and
completeness of the AFS and also a breach of the warranty under Sec. 5(g). Thus, the subject of the
warranty in Sec. 5(h) is also covered by the warranty in Sec. 5(g), and Sec. 5(h) cannot exclude such
breach from the ambit of Sec. 5(g). There is no need to rely on Sec. 12, Rule 130 of the Rules of Court for
both Sec. 5(g) and Sec. 5(h) as alternative remedies are of equal footing and one need not categorize
one section as a general provision and the other a particular provision.
More importantly, a scrutiny of the four corners of the SPA does not explicitly reveal any stipulation nor
even impliedly that the parties intended to limit the scope of the warranty in Sec. 5(g) or gave priority to
Sec. 5(h) over Sec. 5(g).
The arbitral tribunal did not find any legal basis in the SPA that Sec. 5(h) "somehow cuts down" the scope
of Sec. 5(g), thus:

9.10 In the opinion of the Tribunal, there is nothing in the wording used in the SPA to
give priority to one warranty over the other. There is nothing in the wording used to
indicate that the parties intended to limit the scope of the warranty in 5(g). If it be
contended that, on a true construction of the two warranties, 5(h) somehow cuts down the
scope of 5(g), the Tribunal can find no justification for such conclusion on the wording
used. Furthermore, the Tribunal is of the view that very clear words would be needed to cut
down the scope of the 5(g) warranty.28

The Court upholds the conclusion of the tribunal and rules that the claim of RCBC under Sec. 5(g) is not
time-barred.
Petitioners Were Not Denied Due Process
Petitioners impute on RCBC the act of creating summaries of the accounts of Bankard which "in turn were
used by its experts to conclude that Bankard improperly recorded its receivables and committed material
deviations from GAAP requirements."29 Later, petitioners would assert that "the arbitrators partial award
admitted and used the Summaries as evidence, and held on the basis of the information contained in
them that petitioners were in breach of their warranty in GAAP compliance."
To petitioners, the ICC-ICAs use of such summaries but without presenting the source documents
violates their right to due process. Pressing the point, petitioners had moved, but to no avail, for the
exclusion of the said summaries. Petitioners allege that they had reserved the right to cross-examine the
witnesses of RCBC who testified on the summaries, pending the resolution of their motion to exclude.
But, according to them, they were effectively denied the right to cross-examine RCBCs witnesses when
the ICC-ICA admitted the summaries of RCBC as evidence.
Petitioners position is bereft of merit.
Anent the use but non-presentation of the source documents as the jumping board for a claim of denial of
due process, petitioners cite Compania Maritima v. Allied Free Workers Union.30 It may be stated,
however, that such case is not on all fours with the instant case and, therefore, cannot be applied here
considering that it does not involve an administrative body exercising quasi-judicial function but rather the
regular court.
In a catena of cases, we have ruled that "[t]he essence of due process is the opportunity to be heard.
What the law prohibits is not the absence of previous notice but the absolute absence thereof and the
lack of opportunity to be heard."31
We also explained in Lastimoso v. Asayo that "[d]ue process in an administrative context does not require
trial type proceedings similar to those in courts of justice. Where an opportunity to be heard either through
oral arguments or through pleadings is accorded, there is no denial of procedural due process." 32
Were petitioners afforded the opportunity to refute the summaries and pieces of evidence submitted by
RCBC which became the bases of the experts opinion?
The answer is in the affirmative.
We recall the events that culminated in the issuance of the challenged Partial Award, thus:
On May 17, 2004, the ICC-ICA received the Request for Arbitration dated May 12, 2004 from RCBC
seeking rescission of the SPA and restitution of all the amounts paid by RCBC to petitioners, with actual
and moral damages, interest, and costs of suit.
On August 8, 2004, petitioners filed an Answer to the Request for Arbitration dated July 28, 2004, setting
up a counterclaim for USD 300,000 for actual and exemplary damages.
RCBC filed its Reply33 dated August 31, 2004 to petitioners Answer to the Request for Arbitration.
On October 4, 2004, the parties entered into the Terms of Reference.34 At the same time, the chairperson
of the arbitral tribunal issued a provisional timetable35 for the arbitration.

On October 25, 2004, as previously agreed upon in the meeting on October 4, 2004, petitioners filed a
Motion to Dismiss36while RCBC filed a "Claimants Position Paper (Re: [Petitioners] Assertion that RCBC
CAPITAL CORPORATIONs Present Claim Is Time Barred)."37
Then, the tribunal issued Procedural Order No. 1 dated January 12, 2005,38 denying the motion to dismiss
and setting the initial hearing of the case on April 11, 2005.
In a letter dated February 9, 2005,39 petitioners requested that the tribunal direct RCBC to produce certain
documents. At the same time, petitioners sought the postponement of the hearing on April 11, 2005 to
March 21, 2005, in light of their own request.
On February 11, 2005, petitioners received RCBCs brief of evidence and supporting documentation in
accordance with the provisional timetable.40 In the brief of evidence, RCBC provided summaries of the
accounts of Bankard, which petitioners now question.
Later, in a letter dated February 14, 2005,41 petitioners complained to the tribunal with regard to their lack
of access to RCBCs external auditor. Petitioners sought an audit by an accounting firm of the records of
Bankard with respect to the claims of RCBC. By virtue of such requests, petitioners also sought a
rescheduling of the provisional timetable, despite their earlier assurance to the tribunal that if they
received the documents that they requested on February 9, 2005 on or before February 21, 2005, they
would abide by the provisional timetable.
Thereafter, the tribunal issued Procedural Order No. 2 dated February 18, 2005, 42 in which it allowed the
discovery and inspection of the documents requested by petitioners that were also scheduled on
February 18, 2005. The request for an audit of Bankards accounts was denied without prejudice to the
conduct of such audit during the course of the hearings. Consequently, the tribunal amended the
provisional timetable, extending the deadline for petitioners to file their brief of evidence and documents
to March 21, 2005. The date of the initial hearing, however, remained on April 11, 2005.
On February 18, 2005, petitioners were furnished the documents that they requested RCBC. 43 The
parties also agreed to meet again on February 23, 2005 to provide petitioners with a "walk-through" of
Bankards Statistical Analysis System and to provide petitioners with a soft copy of all of Bankards
cardholders.44
During the February 23, 2005 meeting, EPCIBs counsels/representatives were accompanied to the
Bankards Credit-MIS Group. There, Bankards representative, Amor Lazaro, described and explained to
petitioners representatives the steps involved in procuring and translating raw data on customer
transactions. Lazaro explained that Bankard captures cardholder information and transactions through
encoding or electronic data capture. Thereafter, such data are transmitted to its main credit card
administration system. Such raw data are then sent to Bankards Information Technology Group. Using a
proprietary software called SAS, the raw data is then converted into SAS files which may be viewed,
handled, and converted into Excel files for reporting purposes. During the walk-through, petitioners
representatives asked questions which were answered in detail by Lazaro.
At the same time, another Bankard representative, Felix L. Sincoegue, accompanied two
auditors/representatives of petitioners to examine the journal vouchers and supporting documents of
Bankard consisting of several boxes. The auditors randomly sifted through the boxes which they had
earlier requested to be inspected.
In addition, petitioners were furnished with an electronic copy of the details of all cardholders, including
relevant data for aging of receivables for the years 2000 to 2003, as well as data containing details of
written-off accounts from 1999 to March 2000 contained in compact discs. 45

On March 4, 2005, petitioners sent a letter46 to the tribunal requesting for a postponement of the April 11,
2005 hearing of the case. Petitioners claim that they could not confirm the summaries prepared by RCBC,
considering that RCBC allegedly did not cooperate in providing data that would facilitate their verification.
Petitioners specifically mentioned the following data: (1) list of names of cardholders whose accounts are
sources of data gathered or calculated in the summaries; (2) references to the basic cardholder
documents from which such data were collected; and (3) access to the underlying cardholder documents
at a time and under conditions mutually convenient to the parties. As regards the compact discs of
information provided to petitioners, it is claimed that such information could not be accessed as the
software necessary for the handling of the data could not be made immediately available to them.
In Procedural Order No. 3 dated March 11 2005,47 the initial hearing was moved to June 13 to 16, 2005,
considering that petitioners failed to pay the advance on costs of the tribunal.
On March 23, 2005, RCBC paid the balance of the advance on costs.48
On April 22, 2005, petitioners sent the tribunal a letter,49 requesting for the postponement of the hearing
scheduled on June 13 to 16, 2005 on the ground that they could not submit their witness statements due
to the volume of data that they acquired from RCBC.
In a letter dated April 25, 2005,50 petitioners demanded from RCBC that they be allowed to examine the
journal vouchers earlier made available to them during the February 23, 2005 meeting. This demand was
answered by RCBC in a letter dated April 26, 2005,51 stating that such demand was being denied by
virtue of Procedural Order No. 2, in which it was ruled that further requests for discovery would not be
made except with leave of the chairperson of the tribunal.
In Procedural Order No. 4,52 the tribunal granted petitioners request for the postponement of the hearing
on June 13, 2005 and rescheduled it to November 21, 2005 in light of the pending motions filed by EPCIB
with the RTC in Makati City.
On July 29, 2005, the parties held a meeting wherein it was agreed that petitioners would be provided
with hard and soft copies of the inventory of the journal vouchers earlier presented to its representatives,
while making the journal vouchers available to petitioners for two weeks for examination and
photocopying.53
On September 2, 2005, petitioners applied for the postponement of the November 21, 2005 hearing due
to the following: (1) petitioners had earlier filed a motion dated August 11, 2005 with the RTC, in which
the issue of whether the non-Filipino members of the tribunal were illegally practicing law in the
Philippines by hearing their case, which was still pending; and (2) the gathering and processing of the
data and documents made available by RCBC would require 26 weeks.54 Such application was denied by
the tribunal in Procedural Order No. 5 dated September 16, 2005.55
On October 21, 2005, the tribunal issued Procedural Order No. 6, 56 postponing the November 21, 2005
hearing by virtue of an order issued by the RTC in Makati City directing the tribunal to reset the hearing
for April 21 and 24, 2006.
Thereafter, in a letter dated January 18, 2006,57 petitioners wrote the tribunal requesting that RCBC be
directed to: (1) provide petitioners with information identifying the journal vouchers and other supporting
documents that RCBC used to arrive at the figures set out in the summaries and other relevant
information necessary to enable them to reconstruct and/or otherwise understand the figures or amounts
in each summary; and (2) submit to petitioners the requested pieces of information as soon as these are
or have become available, or in any case not later than five days.
In response to such letter, RCBC addressed a letter dated January 31, 2006 58 to the tribunal claiming that
the pieces of information that petitioners requested are already known to petitioners considering that

RCBC merely maintained the systems that they inherited when it bought Bankard from petitioners. RCBC
added that the documents that EPCIB originally transmitted to it when RCBC bought Bankard were all
being made available to petitioners; thus, any missing supporting documents from these files were never
transmitted to them in the first place.
Later, petitioners sent to the tribunal a letter dated February 10, 2006, 59 asking that it direct RCBC to
provide petitioners with the supporting documents that RCBC mentioned in its letter dated January 31,
2006. Petitioners wrote that should RCBC fail to present such documents, RCBCs summaries should be
excluded from the records.
In a letter dated March 10, 2006,60 petitioners requested that they be given an additional period of at least
47 days within which to submit their evidence-in-chief with the corresponding request for the cancellation
of the hearing on April 24, 2006. Petitioners submit that should such request be denied, RCBCs
summaries should be excluded from the records.
On April 6, 2006, petitioners filed their arbitration briefs and witness statements. By way of reply, on April
17, 2006, RCBC submitted Volumes IV and V of its exhibits and Volume II of its evidence-in-chief.61
On April 18, 2006, petitioners requested the tribunal that they be allowed to file rejoinder briefs, or
otherwise exclude RCBCs reply brief and witness statements.62 In this request, petitioners also requested
that the hearing set for April 24, 2006 be moved. These requests were denied.
Consequently, on April 24 to 27, 2006, the arbitral tribunal conducted hearings on the case. 63
On December 4, 2006, petitioners submitted rejoinder affidavits, raising new issues for the first time, to
which RCBC submitted Volume III of its evidence-in-chief by way of a reply.
On January 16, 2007, both parties simultaneously submitted their memoranda. On January 26, 2007,
both parties simultaneously filed their reply to the others memorandum. 64
Thus, on September 27, 2007, the Partial Award was rendered by the Tribunal.
Later, petitioners moved to vacate the said award before the RTC. Such motion was denied by the trial
court in the first assailed order dated January 8, 2008. Petitioners then moved for a reconsideration of
such order, but their motion was also denied in the second assailed order dated March 17, 2008.
The foregoing events unequivocally demonstrate ample opportunity for petitioners to verify and examine
RCBCs summaries, accounting records, and reports. The pleadings reveal that RCBC granted
petitioners requests for production of documents and accounting records. More so, they had more than
three (3) years to prepare for their defense after RCBCs submission of its brief of evidence. Finally, it
must be emphasized that petitioners had the opportunity to appeal the Partial Award to the RTC, which
they in fact did. Later, petitioners even moved for the reconsideration of the denial of their appeal. Having
been able to appeal and move for a reconsideration of the assailed rulings, petitioners cannot claim a
denial of due process.65
Petitioners right to due process was not breached.
As regards petitioners claim that its right to due process was violated when they were allegedly denied
the right to cross-examine RCBCs witnesses, their claim is also bereft of merit.
Sec. 15 of RA 876 or the Arbitration Law provides that:

Section 15. Hearing by arbitrators. Arbitrators may, at the commencement of the hearing,
ask both parties for brief statements of the issues in controversy and/or an agreed statement
of facts. Thereafter the parties may offer such evidence as they desire, and shall produce
such additional evidence as the arbitrators shall require or deem necessary to an
understanding and determination of the dispute. The arbitrators shall be the sole judge of
the relevancy and materiality of the evidence offered or produced, and shall not be
bound to conform to the Rules of Court pertaining to evidence. Arbitrators shall
receive as exhibits in evidence any document which the parties may wish to submit
and the exhibits shall be properly identified at the time of submission. All exhibits shall
remain in the custody of the Clerk of Court during the course of the arbitration and shall be
returned to the parties at the time the award is made. The arbitrators may make an ocular
inspection of any matter or premises which are in dispute, but such inspection shall be made
only in the presence of all parties to the arbitration, unless any party who shall have received
notice thereof fails to appear, in which event such inspection shall be made in the absence of
such party. (Emphasis supplied.)
The well-settled rule is that administrative agencies exercising quasi-judicial powers shall not be fettered
by the rigid technicalities of procedure, albeit they are, at all times required, to adhere to the basic
concepts of fair play. The Court wrote in CMP Federal Security Agency, Inc. v. NLRC:

While administrative tribunals exercising quasi-judicial powers, like the NLRC and Labor
Arbiters, are free from the rigidity of certain procedural requirements, they are nonetheless
bound by law and practice to observe the fundamental and essential requirements of due
process. The standard of due process that must be met in administrative tribunals allows a
certain degree of latitude as long as fairness is not ignored. Hence, it is not legally
objectionable, for being violative of due process, for the Labor Arbiter to resolve a case
based solely on the position papers, affidavits or documentary evidence submitted by the
parties. The affidavits of witnesses in such case may take the place of their direct
testimony.66
Of the same tenor is our holding in Quiambao v. Court of Appeals:

In resolving administrative cases, conduct of full-blown trial is not indispensable to dispense

justice to the parties. The requirement of notice and hearing does not connote full adversarial
proceedings. Submission of position papers may be sufficient for as long as the parties
thereto are given the opportunity to be heard. In administrative proceedings, the essence
of due process is simply an opportunity to be heard, or an opportunity to explain
ones side or opportunity to seek a reconsideration of the action or ruling complained
of. This constitutional mandate is deemed satisfied if a person is granted an
opportunity to seek reconsideration of an action or a ruling. It does not require trial-type
proceedings similar to those in the courts of justice. Where opportunity to be heard either
through oral arguments or through pleadings is accorded, there is no denial of procedural
due process.67 (Emphasis supplied.)
Citing Vertudes v. Buenaflor, petitioners also cry denial of due process when they were allegedly denied
the right to cross-examine the witnesses presented by RCBC. It is true that in Vertudes, we stated: "The
right of a party to confront and cross-examine opposing witnesses in a judicial litigation, be it criminal or
civil in nature, or in proceedings before administrative tribunals with quasi-judicial powers, is a
fundamental right which is part of due process."68
It is, however, equally true that:

[T]he right is a personal one which may be waived expressly or impliedly by conduct
amounting to a renunciation of the right of cross-examination. Thus, where a party has had
the opportunity to cross-examine a witness but failed to avail himself of it, he
necessarily forfeits the right to cross-examine and the testimony given on direct
examination of the witness will be received or allowed to remain in the record.69 (Emphasis
supplied.)
We also held in one case:

However, the right has always been understood as requiring not necessarily an actual
cross-examination but merely an opportunity to exercise the right to cross-examine if
desired. What is proscribed by statutory norm and jurisprudential precept is the
absence of the opportunity to cross-examine. The right is a personal one and may be
waived expressly or impliedly. There is an implied waiver when the party was given the
opportunity to confront and cross-examine an opposing witness but failed to take advantage
of it for reasons attributable to himself alone. If by his actuations, the accused lost his
opportunity to cross-examine wholly or in part the witnesses against him, his right to crossexamine is impliedly waived.70 (Emphasis supplied.)
And later in Velez v. De Vera, the Court En Banc expounded on the above rulings, adding that in
administrative proceedings, cross-examination is not indispensable, thus:

Due process of law in administrative cases is not identical with "judicial process" for a trial in
court is not always essential to due process. While a day in court is a matter of right in
judicial proceedings, it is otherwise in administrative proceedings since they rest upon
different principles. The due process clause guarantees no particular form of procedure and
its requirements are not technical. Thus, in certain proceedings of administrative character,
the right to a notice or hearing [is] not essential to due process of law. The constitutional
requirement of due process is met by a fair hearing before a regularly established
administrative agency or tribunal. It is not essential that hearings be had before the making
of a determination if thereafter, there is available trial and tribunal before which all objections
and defenses to the making of such determination may be raised and considered. One
adequate hearing is all that due process requires. What is required for "hearing" may differ
as the functions of the administrative bodies differ.
The right to cross-examine is not an indispensable aspect of due process.71 x x x
(Emphasis supplied.)
Clearly, the right to cross-examine a witness, although a fundamental right of a party, may be waived.
Petitioners themselves admit having had the opportunity to cross-examine RCBCs witnesses during the
hearings before the tribunal, but declined to do so by reserving such right at a later time. Having had the
opportunity to cross-examine RCBCs witnesses, petitioners were not denied their right to due process.
RCBC Is Not Estopped from Questioning
the Financial Condition of Bankard
On estoppel, petitioners contend that RCBC already knew the recording of the Bankard accounts before it
paid the balance of the purchase price and could no longer challenge the financial statements of Bankard.
RCBC, they claim, had full control of the operations of Bankard since June 2, 2000 and RCBCs audit
team reviewed the accounts in September 2000. Thus, RCBC is now precluded from denying the fairness
and accuracy of said accounts since it did not seek price reduction under Sec. 5(h). Lastly, they
asseverate that RCBC continued with Bankards accounting policies and practices and found them to
conform to the generally accepted accounting principles, contrary to RCBCs allegations.

It also bears stating that in his dissent, retired Justice Kapunan, an arbitral tribunal member, argued that
Bankards accounting practices were disclosed in the information memorandum provided to RCBC;
hence, RCBC was supposed to know such accounting practices and to have accepted their propriety
even before the execution of the SPA. He then argued that when it paid the purchase price on December
29, 2000, RCBC could no longer claim that the accounting practices that went into the reporting of the
1999 AFS of Bankard were not in accord with generally accepted accounting principles. He pointed out
that RCBC was bound by the audit conducted by a certain Rubio prior to the full payment of the purchase
price of Bankard. Anchored on these statements by Justice Kapunan, petitioners conclude that RCBC is
estopped from claiming that the former violated their warranties under the SPA.
Petitioners contention is not meritorious.
Art. 1431 of the Civil Code, on the subject of estoppel, provides: "Through estoppel an admission or
representation is rendered conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon."
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith, and justice;
and its purpose is to forbid one to speak against ones own acts, representations, or commitments to the
injury of one to whom they were directed and who reasonably relied on them. 72
We explained the principle of estoppel in Philippine Savings Bank v. Chowking Food Corporation:

x x x The equitable doctrine of estoppel was explained by this Court in Caltex (Philippines),
Inc. v. Court of Appeals:
Under the doctrine of estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against
the person relying thereon. A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them. In the law of
evidence, whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing true, to act upon
such belief, he cannot, in any litigation arising out of such declaration, act, or
omission, be permitted to falsify it.
The principle received further elaboration in Maneclang v. Baun:
In estoppel by pais, as related to the party sought to be estopped, it is necessary that
there be a concurrence of the following requisites: (a) conduct amounting to false
representation or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those which the
party subsequently attempts to assert; (b) intent, or at least expectation that this
conduct shall be acted upon, or at least influenced by the other party; and (c)
knowledge, actual or constructive of the actual facts.
Estoppel may vary somewhat in definition, but all authorities agree that a party invoking the
doctrine must have been misled to ones prejudice. That is the final and, in reality, most
important of the elements of equitable estoppel. It is this element that is lacking
here.73 (Emphasis supplied.)
The elements of estoppel pertaining to the party estopped are:

(1) conduct which amounts to a false representation or concealment of material facts, or, at
least, which calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (2) intention, or at
least expectation, that such conduct shall be acted upon by the other party; and (3)
knowledge, actual or constructive, of the actual facts.74
In the case at bar, the first element of estoppel in relation to the party sought to be estopped is not
present. Petitioners claim that RCBC misrepresented itself when RCBC made it appear that they
considered petitioners to have sufficiently complied with its warranties under Sec. 5(g) and 5(h), in
relation to Sec. 7 of the SPA. Petitioners position is that "RCBC was aware of the manner in which the
Bankard accounts were recorded, well before it consummated the SPA by taking delivery of the shares
and paying the outstanding 80% balance of the contract price."75
Petitioners, therefore, theorize that in this case, the first element of estoppel in relation to the party sought
to be estopped is that RCBC made a false representation that it considered Bankards accounts to be in
order and, thus, RCBC abandoned any claim under Sec. 5(g) and 5(h) by its inaction.
Such contention is incorrect.
It must be emphasized that it was only after a second audit that RCBC presented its claim to petitioners
for violation of Sec. 5(g), within the three (3)-year period prescribed. In other words, RCBC, prior to such
second audit, did not have full and thorough knowledge of the correctness of Bankards accounts, in
relation to Sec. 5(g). RCBC, therefore, could not have misrepresented itself considering that it was still in
the process of verifying the warranties covered under Sec. 5(g). Considering that there must be a
concurrence of the elements of estoppel for it to arise, on this ground alone such claim is already
negated. As will be shown, however, all the other elements of estoppel are likewise absent in the case at
bar.
As to the second element, in order to establish estoppel, RCBC must have intended that petitioners would
act upon its actions. This element is also missing. RCBC by its actions did not mislead petitioners into
believing that it waived any claim for violation of a warranty. The periods under Sec. 5(g) and 5(h) were
still available to RCBC.
The element that petitioners relied on the acts and conduct of RCBC is absent. The Court finds that there
was no reliance on the part of petitioners on the acts of RCBC that would lead them to believe that the
RCBC will forego the filing of a claim under Sec. 5(g). The allegation that RCBC knew that the Bankard
accounts did not comply with generally accepted accounting principles before payment and, hence, it
cannot question the financial statements of Bankard is meritless. Precisely, the SPA explicitly provides
that claims for violation of the warranties under Sec. 5(g) can still be filed within three (3) years from the
closing date. Petitioners contention that RCBC had full control of Bankard operations after payment of
the price and that an audit undertaken by the Rubio team did not find anything wrong with the accounts
could not have plausibly misled petitioners into believing that RCBC will waive its right to file a claim
under Sec. 5(g). After all, the period to file a claim under Sec. 5(g) is three (3) years under Sec. 7, much
longer than the six (6)-month period under Sec. 5(h). Petitioners are fully aware that the warranties under
Sec. 5(g) (1997 up to March 2000) are of a wider scope than that of Sec. 5(h) (AFS of 1999 and UFS up
to May 31, 2000), necessitating a longer audit period than the six (6)-month period under Sec. 5(h).
The third element of estoppel in relation to the party sought to be estopped is also absent considering
that, as stated, RCBC was still in the process of verifying the correctness of Bankards accounts prior to
presenting its claim of overvaluation to petitioners. RCBC, therefore, had no sufficient knowledge of the
correctness of Bankards accounts.
On another issue, RCBC could not have immediately changed the Bankard accounting practices until it
had conducted a more extensive and thorough audit of Bankards voluminous records and transactions to

uncover any irregularities. That would be the only logical explanation why Bankards alleged irregular
practices were maintained for more than two (2) years from closing date. The fact that RCBC continued
with the audit of Bankards AFS and records after the termination of the Rubio audit can only send the
clear message to petitioners that RCBC is still entertaining the possibility of filing a claim under Sec. 5(g).
It cannot then be said that petitioners reliance on RCBCs acts after full payment of the price could have
misled them into believing that no more claim will be presented by RCBC.
The Arbitral Tribunal explained in detail why estoppel is not present in the case at bar, thus:

10.18 The audit exercise conducted by Mr. Legaspi and Mr. Rubio was clearly not one
comprehensive enough to have discovered the problems later unearthed by Dr. Laya and
Dean Ledesma. x x x
10.19 Although the powers of the TC [Transition Committee] may have been widely
expressed in the view of Mr. Rogelio Chua, then in charge of Bankard x x x the TC
conducted meetings only to get updated on the status and progress of Bankards operations.
Commercially, one would expect that an unpaid vendor expecting to receive 80% of a large
purchase price would not be receptive to a purchaser making vast policy changes in the
operation of the business until the purchaser has paid up its money. It is more likely that,
until the settlement date, there was a practice of maintaining the status quo at Bankard.
10.20 But neither the Claimant nor the TC did anything, in the Tribunals view, which would
have given the Respondents the impression that they were being relieved over the next three
years of susceptibility to a claim under clause 5(g). Maybe the TC could have been more
proactive in commissioning further or more in-depth audits but it was not. It did not have to
be. It is commercially unlikely that it have been done so, with the necessary degree of
attention to detail, within the relatively short time between the appointment of the TC and the
ultimate settlement date of the purchase a period of some three months. An interim
arrangement was obviously sensible to enable the Claimant and its staff to become familiar
with the practices and procedures of Bankard.
10.21 The core consideration weighing with the Tribunal in assessing these claims for
estoppel is that the SPA allowed two types of claim; one within six months under 5(h) and
one within three years under 5(g). The Tribunal has already held the present claim is not
barred by clause 5(h). It must therefore have been within the reasonable contemplation of
the parties that a 5(g) claim could surface within the three-year period and that it could be
somewhat differently assessed than the claim under 5(h). The Tribunal cannot find estoppel
by conduct either from the formation of the TC or from the limited auditing exercise done by
Mr. Rubio and Mr. Legaspi. The onus proving estoppel is on the Respondents and it has not
been discharged.
10.22 If the parties had wished the avenues of relief for misrepresentation afforded to the
Claimant to have been restricted to a claim under Clause 5(h), then they could have said so.
The special audit may have provided an answer to any claim based on clause 5(h) but it
cannot do so in respect of a claim based on Clause 5(g). Clause 5(g) imposed a positive
obligation on the Respondents from which they cannot be excused, simply by reason of
either the formation and conduct of the TC or of the limited audit.
10.23 The three-year limitation period obviously contemplated that it could take some time to
ascertain whether there had been a breach of the GAAP standards, etc. Such was the case.
A six-month limitation period under Clause 5(h), in contrast, presaged a somewhat less
stringent enquiry of the kind carried out by Mr. Rubio and Mr. Legaspi.

10.24 Clause 2(3) of the Amendment to the SPA strengthens the conclusion that the parties
were concerned only with a 5(h) claim during the TCs reign. The focus of the audit
however intense it was conducted by Mr. Rubio and Mr. Legaspi, was on establishing
possible liability under that section and thus as a possible reduction in the price to be paid on
settlement.
10.25 The fact that the purchase price was paid over in full without any deduction in terms of
clause 5(h) is not a bar to the Claimant bringing a claim under 5(g) within the three-year
period. The fact that payment was made can be, as the Tribunal has held, a barrier to a
claim for rescission and restitution ad inegrum. A claim for estoppel needs a finding of
representation by words of conduct or a shared presumption that a right would not be relied
upon. The party relying on estoppel has to show reliance to its detriment or that, otherwise, it
would be unconscionable to resile from the provision.
10.26 Article 1431 of the Civil Code states:
"Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon."
10.27 Clearly, there has to both an admission or representation by (in this case) the
Claimant, plus reliance upon it by (in this case) the Respondents. The Tribunal cannot find
as proved any admission/representation that the Claimant was abandoning a 5(g) claim, any
reliance by Respondents on an admission, and any detriment to the Respondents such as
would entitle them to have the Claimant deprived of the benefit of clause 5(g). These aspects
of the claim of estoppel are rejected.
xxxx
10.42 The Tribunal is not the appropriate forum for deciding whether there have been any
regulatory or ethical infractions by Bankard and/or the Claimant in setting the buy-back
price. It has no bearing on whether the Claimant must be considered as having waived its
right to claim against the Respondents.
10.43 In the Tribunals view, neither any infraction by Bankard in failing to advise the Central
Bank of the experts findings, nor a failure to put a tag on the accounts nor to have said
something to the shareholders in the buy-back exercise operates as a "technical knock-out"
of Claimants claim.
10.44 The Tribunal notes that the conciliation process mandated by the SPA took most of
2003 and this may explain a part of the delay in commencing arbitral proceedings.
10.45 Whatever the status of Mr. Rubios and Mr. Legaspis enquiries in late 2000, the
Claimant was quite entitled to commission subsequent reports from Dr. Laya and Dr.
Echanis and, on the basis of those reports, make a timeous claim under clause 5(g) of the
SPA.
10.46 In the Tribunals view, therefore, there is no merit in Respondents various
submissions that the Claimant is debarred from prosecuting its claims on the grounds of
estoppel. There is just no proof of the necessary representation to the Respondent, nor any
detriment to the Respondent proved. The grounds of delay and laches are not substantiated.

In summary, the tribunal properly ruled that petitioners failed to prove that the formation of the Transition
Committee and the conduct of the audit by Rubio and Legaspi were admissions or representations by
RCBC that it would not pursue a claim under Sec. 5(g) and that petitioners relied on such representation
to their detriment. We agree with the findings of the tribunal that estoppel is not present in the situation at
bar.
Additionally, petitioners claim that in Knecht v. Court of Appeals76 and Coca-Cola Bottlers Philippines, Inc.
v. Court of Appeals (Coca-Cola),77 this Court ruled that the absence of the element of reliance by a party
on the representation of another does not negate the principle of estoppel. Those cases are, however, not
on all fours with and cannot be applied to this case.
In Knecht, the buyer had the opportunity of knowing the conditions of the land he was buying early on in
the transaction, but proceeded with the sale anyway. According to the Court, the buyer was estopped
from claiming that the vendor made a false representation as to the condition of the land. This is not true
in the instant case. RCBC did not conduct a due diligence audit in relation to Sec.5(g) prior to the sale
due to petitioners express representations and warranties. The examination conducted by RCBC,
through Rubio, after the execution of the SPA on June 2, 2000, was confined to finding any breach under
Sec. 5(h) for a possible reduction of the purchase price prior to the payment of its balance on December
31, 2000. Further, the parties clearly agreed under Sec. 7 of the SPA to a three (3)-year period from
closing date within which to present a claim for damages for violation of the warranties under the SPA.
Hence, Knecht is not a precedent to the case at bar.
So is Coca-Cola. As lessee, Coca-Cola Bottlers was well aware of the nature and situation of the land
relative to its intended use prior to the signing of the contract. Its subsequent assertion that the land was
not suited for the purpose it was leased was, therefore, cast aside for being unmeritorious. Such
circumstance does not obtain in the instant case. There was no prior due diligence audit conducted by
RCBC, it having relied, as earlier stated, on the warranties of petitioners with regard to the financial
condition of Bankard under Sec. 5(g). As such, Sec. 5(g) guaranteed RCBC that it could file a claim for
damages for any mistakes in the AFS and UFS of Bankard. Clearly, Coca-Cola also cannot be applied to
the instant case.
It becomes evident from all of the foregoing findings that the ICC-ICA is not guilty of any manifest
disregard of the law on estoppel. As shown above, the findings of the ICC-ICA in the Partial Award are
well-supported in law and grounded on facts. The Partial Award must be upheld.
We close this disposition with the observation that a member of the three-person arbitration panel was
selected by petitioners, while another was respondents choice. The respective interests of the parties,
therefore, are very much safeguarded in the arbitration proceedings. Any suggestion, therefore, on the
partiality of the arbitration tribunal has to be dismissed.
WHEREFORE, the instant petition is hereby DENIED. The assailed January 8, 2008 and March 17, 2008
Orders of the RTC, Branch 148 in Makati City are hereby AFFIRMED.
SO ORDERED.
G.R. No. 142525

February 13, 2009

FEDERAL BUILDERS, INC., Petitioner,

vs.
DAIICHI PROPERTIES AND DEVELOPMENT, INC., Respondent.
DECISION

CHICO-NAZARIO, J.:
This Petition for Review on Certiorari under Rule 65 of the Rules of Court assails the Decision 1 of the
Court of Appeals dated 9 November 1999 in CA-G.R. SP No. 54122 which set aside the Orders of the
Arbitral Tribunal of the Construction Industry Arbitration Commission denying the Motion to Commission
an Independent Quantity Surveyor of Daiichi Properties and Development, Inc. (Daiichi), and the Court of
Appeals Resolution2 dated 23 February 2000 denying the motion for reconsideration of the said decision.
Daiichi invited bidders for the general construction of its high-rise building project named Orient Plaza.
One of those who submitted its proposal was Federal Builders, Inc. (Federal). Federal emerged as the
winning bidder for the construction project.
On 29 December 1995, Daiichi and Federal executed a Construction Agreement which, among other
things, stipulated that the cement and steel bars to be used in the construction of Orient Plaza would be
provided by Daiichi while the labor and other materials would be supplied by Federal, viz:

1. 834,273 bags of cement, as the guaranteed maximum quantity of cement to be supplied

by Daiichi;
2. 9,262,334.45 kilograms of steel bars, as the guaranteed maximum quantity of steel bars,
also to be supplied by Daiichi; and
3. P212,000,000.00 as the fixed price of [Federals] labor and other materials.3
The Construction Agreement likewise granted Daiichi the right to revise the construction plans for the
project, thus:

2.10 All variations or departures from the bid plans, this Contract
Agreement and other related contract and bid documents to the issued
construction plans and other future revisions shall be considered as
change order.
xxxx
8.01. The CONTRACTOR is obliged to undertake any additional work or extra work or omission or
reduction of work which the OWNER may require.
xxxx
8.04. The OWNER may at any time during the progress of the work by written instructions, cause
alterations in the original plans and specifications to be made by way of addition, deletion, or otherwise
deviating therefrom; and said work shall be executed by the CONTRACTOR under the direction of the
Construction Manager in the same manner as if the same had been part of the original plans and
specifications.4
In the course of the construction, Daiichi made some changes by reducing the concrete strength from
8,000 to 6,000 pounds per square inch, which reduction resulted in a decrease in the required quantities
of cement, steel bars, other materials and a diminution of the labor costs. Pursuant to this, Daiichi issued
revised construction plans. Daiichi and Federal also agreed to reduce the contract price of the project and

to submit a separate evaluation of the deductive costs arising from the revisions of the construction plans.
While the parties agreed that due to the reduction in the concrete strength, a corresponding decrease in
the required quantities of cement, steel bars, other materials and labor must follow, they cannot agree on
the method in arriving at the deductive cost. Daiichi presented its own estimate of the deductive cost by
getting the difference between the quantities/peso value of steel bars, cement, labor and materials
required under the original plan with the quantities/peso value of the same items required under the
revised plan; thus:

Change in
Quantity

Quantity of Materials
required Under
Revised Plan.

Quantity of Materials
Required Under
Original Plan

Using the foregoing methodology, Daiichi computed the deductive cost at P64,602,110.59.
For its part, Federal insisted on a different formula to obtain the deductive cost by comparing the
quantities/peso value of steel bars, cement, labor and materials required under the construction
agreement (or guaranteed maximum) with the quantity of materials required under the revised plan, to
wit:

Change in
Quantity

Guaranteed Maximum
or Fixed Quantity of
Materials under the
Construction
Agreement.

Quantity of Materials
required under Revised
Plan.

By employing the foregoing formula, Federal reached the amount of P31,326,810.15 as the deductive
costs.
On account of this differing computations in determining the deductive costs, Daiichi engaged the
services of an independent quantity surveyor, Davis Langdo and Seah Philippines, Inc. (DLS), to conduct
a survey of the deductive costs. DLS came out with its own estimate of the deductive cost in the amount
of P68,441,415.58, which is closer to that submitted by Daiichi.
Daiichi also made some deductions from the amount it paid to Federal using the formers manner of
computation.
Feeling aggrieved, Federal filed a petition for arbitration with the Construction Industry Arbitration
Commission (CIAC) on 9 November 1998. The parties agreed that their dispute be settled by the Arbitral
Tribunal.
1awphi1.zw+

The basic issue submitted to the Arbitral Tribunal appears to be the determination of the correct approach
in order to obtain the deductive costs brought about by the revisions in the project.
In the course of the hearing, Daiichi filed on 2 June 1999 a Motion to Commission an Independent
Quantity Surveyor in order to determine the actual quantities of materials required to complete the project
under the original or old plan and the revised plan.5 Daiichi was of the opinion that the only way to
ascertain the deductive costs was to compare the materials required under the old and the new plans.
Federal opposed the said motion on the grounds that Daiichi already submitted estimates from an
independent quantity surveyor, and that there was no need to make an estimate of the old plans since the
same were never implemented. Federal insisted that the estimate of the old plan was irrelevant since the
quantity of materials required for the project was reflected in the construction agreement.

On 29 June 1999, the Arbitral Tribunal issued an Order denying Daiichis Motion to Commission an
Independent Quantity Surveyor, reasoning that the commissioning of an independent surveyor was not
absolutely necessary, and that the engagement of such surveyor would only be useful if both parties
agreed on such engagement.
Daiichi filed a motion for reconsideration, which was also denied by the Arbitral Tribunal in an Order dated
13 July 1999.
Unfazed, Daiichi questioned the orders of the Arbitral Tribunal before the Court of Appeals.
In a Decision dated 9 November 1999, the Court of Appeals set aside the orders of the Arbitral Tribunal
and ordered the latter to commission an independent quantity surveyor to determine the actual quantities
of materials required under the original plan and the revised plans therefor as requested by Daiichi. The
decretal portion of the Decision reads:
WHEREFORE, the instant petition is hereby GRANTED and the assailed orders dated June 29, 1999 and
July 13, 1999 of the respondent Arbitral Tribunal are hereby NULLIFIED and SET ASIDE. Accordingly,
the respondent Arbitral Tribunal is hereby ordered, subject to the prescription of Section 5, Chapter XV of
the Rules of Procedure Governing Construction Arbitration, to commission an independent quantity
surveyor to determine the actual quantities of materials required to complete the "Orient Square" project
under the original/bid plan and the revised plans therefor. 6
Federal filed a motion for reconsideration which was denied by the Court of Appeals in a Resolution dated
23 February 2000.
Hence, this petition.
It bears stressing that this case must be dismissed outright since Federal chose the wrong remedy in
bringing this case before this Court. Petitioner should have filed a petition for review under Rule 45 of the
1997 Rules of Civil Procedure instead of a Special Civil Action for Certiorari under Rule 65. The proper
remedy of a party aggrieved by a decision of the Court of Appeals is a petition for review under Rule 45,
which is not identical to a Petition for Certiorari under Rule 65. Under Rule 45, decisions, final orders or
resolutions of the Court of Appeals in any case, i.e., regardless of the nature of the action or proceedings
involved, may be appealed to this Court by filing a petition for review, which would be but a continuation
of the appellate process over the original case. On the other hand, a special civil action under Rule 65 is
an independent action based on the specific grounds therein provided and, as a general rule, cannot be
availed of as a substitute for the lost remedy of an ordinary appeal, including that to be taken under Rule
45. Accordingly, when a party adopts an improper remedy, as in this case, such petition may be
dismissed outright.
At any rate, even if we were to ignore the procedural defects, the instant petition must still be dismissed
as the Court of Appeals did not commit any grave abuse of discretion amounting to want or excess of
jurisdiction in reversing the orders of the Arbitral Tribunal.
In certiorari proceedings under Rule 65 of the Rules of Court, the inquiry is limited essentially to whether
or not the public respondent acted without or in excess of its jurisdiction or with grave abuse of
discretion.7
A court, tribunal, board or officer acts without jurisdiction if it/he does not have the legal power to
determine the case.8There is excess of jurisdiction where, being clothed with the power to determine the
case, the tribunal, board or officer oversteps its/his authority as determined by law. And there is grave
abuse of discretion where the court, tribunal, board or officer acts in a capricious, whimsical, arbitrary or
despotic manner in the exercise of its/his judgment as to be said to be equivalent to lack of jurisdiction. 9

The Court of Appeals is far from being abusive in rendering its questioned decision.
The Court of Appeals annulled and set aside the Arbitral Tribunals orders on the ground that said orders
completely failed to give Daiichi the vital piece of information necessary for the judicious resolution of the
case thereby ignoring the letter, spirit, policy and objective of the Rules of Procedure Governing
Construction Arbitration which require, among other things, that arbitrators must employ all reasonable
means to ascertain facts in each case. To the mind of the Court of Appeals, the Arbitral Tribunal must
exert all its best efforts to thresh out the matters relevant to the case and to apprise itself of the evidence
that contending parties may present to support their respective theories. According to the appellate court,
since it is Daiichis claim that the deductive cost can only be established by finding out the quantities of
materials required to complete the project under the original plan and the revised plan, the Arbitral
Tribunal should have allowed the commissioning of an independent expert who would give an objective
information for the tribunal to reach a sensible, if not well-informed, resolution of the controversy.
We agree with the Court of Appeals.
As mentioned earlier, the crux of the controversy lies in the formula to arrive at the deductive cost. Daiichi
postulates that the deductive cost is ascertained by getting the difference between the quantities/peso
value of steel bars, cement, labor and materials required under the original plan with the quantities/peso
value of the same items required under the revised plan. Two reference points must be determined first,
i.e., the old quantity and the new quantity which are to be matched. To determine the old quantity
(quantity of materials required under the old plan) and the new quantity (quantity of materials required
under the revised plan), it is necessary that a quantitative survey must first be conducted on these two
items. Without such survey, Daiichi asserts, the deductive cost can never be determined.
Federal, for its part, has a different formula to obtain the deductive cost by comparing the quantities
required under the construction agreement and those required under the revised plan.
Obviously Daiichi and Federal disagree on one item in the formula. Daiichi insists that the old quantity
must be factored in, while Federal contends that in place of the old quantity, the quantity required under
the construction agreement should instead be brought in. Although in Federals formula, the quantity
required under the construction agreement is already established, as evidenced by the construction
agreement contract, what remains unknown, however, are the items in Daiichis formula which are the
quantities under the revised plan and the old plan. By not allowing Daiichi to commission an independent
survey on these unknown items, the tribunal effectively prevents respondent from presenting evidence for
its cause. Furthermore, this case undeniably involves highly technical matters within the special training
and expertise of those engaged in the construction industry. Persons specialized in this field, and are fairminded, are invaluable sources of needed information that can shed light on the confusing and
contradicting claims asserted by the parties. The Court cites with approval the disquisition of the Court of
Appeals in this regard:
A determination of the quantities of materials required to complete the project under the original bid plans
and the revised plans is doubtless necessary for the judicious resolution of the underlying dispute
between the parties. Given the tedious and technical process involved in this undertaking, the
participation of an impartial third person who will provide the Arbitral Tribunal with the necessary detailed
information is, contrary to what the assailed orders imply, virtually a must. Thus, its refusal to consider
what [Daiichi] aptly describes as "vital" and "unimpeachable" piece of information constitutes an utter
disregard of the spirit, if not the letter, of the Rules of Procedure Governing Construction Arbitration,
Article 1, Section 3 of which exhorts arbitrators to "use every and all reasonable means to ascertain facts
in each case speedily and objectively and without regard to technicalities of law or procedure."
Just like any dispenser of justice, the [Arbitral Tribunal] is bound to seek the truth or what approximates it.
It cannot engage in and rely on speculation, conjecture and guesswork, which, needless to state, cannot
be an acceptable norm for an intelligent judgment. [Daiichis] motion to commission an independent

quantity surveyor was an earnest attempt to provide the [Arbitral Tribunal] with a credible tool to get at the
truth, to afford it with a rational basis to fairly settle clashing interests. x x x. 10
As to the Arbitral Tribunals ratiocination that the hiring of an independent quantity surveyor can be useful
only if both parties agree to such engagement, the Court of Appeals rightly impugned said excuse as frail
and baseless, viz:
This justification is specious inasmuch as the designation of an independent quantity surveyor may be
made on the basis alone of the motion of one party. Section 5, Chapter XV of the Rules of Procedure
Governing Construction Arbitration says so:
"Section 5. Appointment of Experts. The service of technical or legal experts may be utilized in the
settlement of disputes if requested by one of the parties x x x."11
The Court is in a quandary why the Arbitral Tribunal refused to grant the motion of Daiichi. The tribunal
ignored the effort of a party whose only desire was to elucidate and give details of the pertinent
information, not necessarily favorable to the latter, particularly those which can be provided by an
independent quantity surveyor. By doing so, the tribunal was being unmindful of Article 1, Section 3 of the
Rules of Procedure Governing Construction Arbitration, which exhorts the arbitrators to "use every and all
reasonable means to ascertain facts in each case speedily and objectively and without regard to
technicalities of law or procedure." The information that the independent surveyor can provide is not at all
inconsequential, for it redounds to the very thesis of Daiichi, i.e., that the deductive cost is arrived at by
determining the quantities of materials required to complete the project under the old plan or original bid
and the revised plan. The stubborn refusal of the Arbitral Tribunal to commission an independent quantity
surveyor despite the clear right of Daiichi to the same was characterized by capriciousness and
arbitrariness amounting to grave abuse of discretion. In the language of the appellate court:
The error is so egregious as to justify a charge of grave abuse of discretion. As it were, the Court is at a
loss to understand why a simple motion, containing a reasonable plea not necessarily favorable to
[Daiichi], but envisaged to assist in the judicious resolution of the basic dispute between the parties,
would elicit an unrealistic response from the [Arbitral Tribunal].12
As to Federals claim that there is no necessity to conduct a survey, since Daiichi has already submitted
estimates from an independent quantity surveyor, we find said argument tenuous. The survey initiated by
Daiichi cannot be said to be independent, because it was done through its behest. An independent survey
sanctioned by the Arbitral Tribunal, and not at the prodding of any contending party, is suitable in this kind
of controversy.
Federal contends that the Court of Appeals encroached on the Arbitral Tribunals jurisdiction in finding
Daiichis formula more acceptable, thereby pre-empting any decision which the Tribunal had yet to make.
This is inaccurate. The Court of Appeals resolved primarily the issue of the grave abuse of discretion
committed by the Arbitral Tribunal in refusing to commission an independent survey of the original plan
and the revised plan. While the said court may have intimated that the formula of Daiichi was desirable,
the former did so to lay emphasis on its position that the Arbitral Tribunal could not, without abusing its
discretion, blindly preclude Daiichi from presenting evidence or information to substantiate its theory. This
information, to the Court of Appeals mind, can only be elicited from the commissioning of an independent
quantity surveyor. A solid testimony attesting to the fact that the Court of Appeals did not attempt to preempt the Arbitral Tribunals disposition of the main case is evidenced by the declaration of the same
court, to wit:
Much has been made by [Federal] of what it views as the insignificant evidentiary value of a second
survey report. In this regard, suffice it to state that the worth of such document, be it accepted as

evidence, or, to borrow from the Arbitral Tribunal, as procedural device, is for the Tribunal to decide at the
first instance.13 (Emphasis supplied.)
Moreover, the tenor of the dispositive portion of the Court of Appeals Decision does not order the Arbitral
Tribunal to adopt the formula of Daiichi in resolving the focal issue of the case. The appellate court simply
directed the tribunal to commission an independent surveyor. Indeed, it is the dispositive part of the
judgment that actually settles and declares the rights and obligations of the parties, finally, definitively,
authoritatively, notwithstanding the existence of inconsistent statements in the body that may tend to
confuse.14 It is the dispositive part that controls, for purposes of execution.15Hence, there is no doubt that
the Court of Appeals decided the case within the ambit of its authority.
In fine, this Court defers to the findings of the Court of Appeals, there being no cogent reason to veer
away from such.
WHEREFORE, the Decision of the Court of Appeals dated 9 November 1999 nullifying the Arbitral
Tribunals Orders dated 29 June 1999 and 13 July 1999, and ordering the said tribunal to commission an
independent quantity surveyor, is hereby AFFIRMED. Upon finality of this Decision, the Arbitral Tribunal is
hereby directed to issue, with all deliberate dispatch, an Order commissioning an independent surveyor to
determine the actual quantities of materials required to complete the "Orient Plaza" project under the
original plan and the revised plan, and to resolve the main case.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice

2009
G.R. No. 180640

April 24, 2009

HUTAMA-RSEA JOINT OPERATIONS, INC., Petitioner,

vs.
CITRA METRO MANILA TOLLWAYS CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition1 for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside
the Decision2dated 23 May 2007 and Resolution3 dated 16 November 2007 of the Court of Appeals in
CA-G.R. SP No. 92504.
The facts, culled from the records, are as follows:
Petitioner HUTAMA-RSEA Joint Operations Incorporation and respondent Citra Metro Manila Tollways
Corporation are corporations organized and existing under Philippine laws. Petitioner is a sub-contractor
engaged in engineering and construction works. Respondent, on the other hand, is the general contractor
and operator of the South Metro Manila Skyway Project (Skyway Project).

On 25 September 1996, petitioner and respondent entered into an Engineering Procurement Construction
Contract (EPCC) whereby petitioner would undertake the construction of Stage 1 of the Skyway Project,
which stretched from the junction of Buendia Avenue, Makati City, up to Bicutan Interchange, Taguig City.
As consideration for petitioners undertaking, respondent obliged itself under the EPCC to pay the former
a total amount of US$369,510,304.00.4
During the construction of the Skyway Project, petitioner wrote respondent on several occasions
requesting payment of the formers interim billings, pursuant to the provisions of the EPCC. Respondent
only partially paid the said interim billings, thus, prompting petitioner to demand that respondent pay the
outstanding balance thereon, but respondent still failed to do so.5
The Skyway Project was opened on 15 December 1999 for public use, and toll fees were accordingly
collected. After informing respondent that the construction of the Skyway Project was already complete,
petitioner reiterated its demand that respondent pay the outstanding balance on the interim billings, as
well as the "Early Completion Bonus" agreed upon in the EPCC. Respondent refused to comply with
petitioners demands.6
On 24 May 2004, petitioner, through counsel, sent a letter to respondent demanding payment of the
following: (1) the outstanding balance on the interim billings; (2) the amount of petitioners final billing; (3)
early completion bonus; and (4) interest charges on the delayed payment. Thereafter, petitioner and
respondent, through their respective officers and representatives, held several meetings to discuss the
possibility of amicably settling the dispute. Despite several meetings and continuous negotiations, lasting
for a period of almost one year, petitioner and respondent failed to reach an amicable settlement.7
Petitioner finally filed with the Construction Industry Arbitration Commission (CIAC) a Request for
Arbitration, seeking to enforce its money claims against respondent.8 Petitioners Request was docketed
as CIAC Case No. 17-2005.
In its Answer ad cautelam with Motion to Dismiss, respondent averred that the CIAC had no jurisdiction
over CIAC Case No. 17-2005. Respondent argued that the filing by petitioner of said case was premature
because a condition precedent, i.e., prior referral by the parties of their dispute to the Dispute
Adjudication Board (DAB), required by Clause 20.4 of the EPCC, had not been satisfied or complied with.
Respondent asked the CIAC to dismiss petitioners Request for Arbitration in CIAC Case No. 17-2005
and to direct the parties to comply first with Clause 20.4 of the EPCC. 9
After submission by the parties of the necessary pleadings on the matter of jurisdiction, the CIAC issued
on 30 August 2005, an Order in CIAC Case No. 17-2005, favoring petitioner. The CIAC ruled that it had
jurisdiction over CIAC Case No. 17-2005, and that the determination of whether petitioner had complied
with Clause 20.4 of the EPCC was a factual issue that may be resolved during the trial. It then ordered
respondent to file an Answer to petitioners Request for Arbitration.10
After respondent and petitioner filed an Answer and a Reply, respectively, in CIAC Case No. 17-2005, the
CIAC conducted a preliminary conference, wherein petitioner and respondent signed the "Terms of
Reference" outlining the issues to be resolved, viz:

(1) Is prior resort to the DAB a precondition to submission of the dispute to arbitration
considering that the DAB was not constituted?;
(2) Is [herein petitioner] entitled to the balance of the principal amount of the contract? If so,
how much?;
(3) Is [petitioner] entitled to the early compensation bonus net of VAT due thereon? If so,
how much?;

(4) Was there delay in the completion of the project? If so, is [herein respondent] entitled to
its counterclaim for liquidated damages?;
(5) Is [petitioner] entitled to payment of interest on the amounts of its claims for unpaid
billings and early completion bonus? If so, at what rate and for what period?;
(6) Which of the parties is entitled to reimbursement of the arbitration costs incurred? 11
Respondent, however, subsequently filed an Urgent Motion requesting that CIAC refrain from proceeding
with the trial proper of CIAC Case No. 17-2005 until it had resolved the issue of whether prior resort by
the parties to DAB was a condition precedent to the submission of the dispute to CIAC.12 Respondents
Urgent Motion was denied by the CIAC in its Order dated 6 December 2005. 13
Respondent filed a Motion for Reconsideration of the CIAC Order dated 6 December 2005. 14 The CIAC
issued, on 12 December 2005, an Order denying respondents Motion for Reconsideration. 15 It held that
prior resort by the parties to DAB was not a condition precedent for it to assume jurisdiction over CIAC
Case No. 17-2005. Aggrieved, respondent assailed the CIAC Order dated 12 December 2005 by filing a
special civil action for certiorari and prohibition with the Court of Appeals,16 docketed as CA-G.R. SP No.
92504.
On 23 May 2007, the Court of Appeals rendered its Decision in CA-G.R. SP No. 92504, annulling the 12
December 2005 Order of the CIAC, and enjoining the said Commission from proceeding with CIAC Case
No. 17-2005 until the dispute between petitioner and respondent had been referred to and decided by the
DAB, to be constituted by the parties pursuant to Clause 20.4 of the EPCC. The appellate court, thus,
found that the CIAC exceeded its jurisdiction in taking cognizance of petitioners Request for Arbitration in
CIAC Case No. 17-2005 despite the latters failure to initially refer its dispute with respondent to the DAB,
as directed by Clause 20.4 of the EPCC.
The dispositive portion of the 23 May 2007 Decision of the Court of Appeals reads:
WHEREFORE, the instant petition is GRANTED and the order of the Arbitration Tribunal of the
Construction Industry Arbitration Commission dated December 12, 2005 is hereby ANNULED and SET
ASIDE and, instead, [CIAC, members of the Arbitral Tribunal,17 and herein petitioner], their agents or
anybody acting in their behalf, are enjoined from further proceeding with CIAC Case No. 17-2005,
promulgating a decision therein, executing the same if one has already been promulgated or otherwise
enforcing said order of December 12, 2005 until the dispute has been referred to and decided by the
Dispute Adjudication Board to be constituted by the parties in accordance with Sub-Clause 20.4 of the
Engineering Procurement Construction Contract dated September 25, 1996.
Petitioner filed a Motion for Reconsideration of the afore-mentioned Decision but this was denied by the
Court of Appeals in a Resolution dated 16 November 2007.
Hence, petitioner filed the instant Petition for Review before us raising the sole issue of whether CIAC has
jurisdiction over CIAC Case No. 17-2005.
Section 4 of Executive Order No. 100818 defines the jurisdiction of CIAC, thus:
SECTION 4. Jurisdiction. - The CIAC shall have original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved in construction in the Philippines,
whether the disputes arises before or after the completion of the contract, or after the abandonment or
breach thereof. These disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual
provisions; amount of damages and penalties; commencement time and delays; maintenance and
defects; payment default of employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships which
shall continue to be covered by the Labor Code of the Philippines. (Emphasis ours.)
Further, Section 1, Article III of the CIAC Rules of Procedure Governing Construction Arbitration 19 (CIAC
Rules), provides:
SECTION 1. Submission to CIAC Jurisdiction. An arbitration clause in a construction contract or a
submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing or
future controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or
arbitral body in such contract or submission. When a contract contains a clause for the submission of a
future controversy to arbitration, it is not necessary for the parties to enter into a submission agreement
before the claimant may invoke the jurisdiction of CIAC.
An arbitration agreement or a submission to arbitration shall be in writing, but it need not be signed by the
parties, as long as the intent is clear that the parties agree to submit a present or future controversy
arising from a construction contract to arbitration.
It may be in the form of exchange of letters sent by post or by telefax, telexes, telegrams or any other
modes of communication. (Emphasis ours.)
Based on the foregoing provisions, the CIAC shall have jurisdiction over a dispute involving a construction
contract if said contract contains an arbitration clause (nothwithstanding any reference by the same
contract to another arbitration institution or arbitral body); or, even in the absence of such a clause in the
construction contract, the parties still agree to submit their dispute to arbitration.
It is undisputed that in the case at bar, the EPCC contains an arbitration clause in which the petitioner
and respondent explicitly agree to submit to arbitration any dispute between them arising from or
connected with the EPCC, under the following terms and conditions 20 :
CLAIMS, DISPUTES and ARBITRATION
xxxx
20.3 Unless the member or members of the Dispute Adjudication Board have been previously mutually
agreed upon by the parties and named in the Contract, the parties shall, within 28 days of the Effective
Date, jointly ensure the appointment of a Dispute Adjudication Board. Such Dispute Adjudication Board
shall comprise suitably qualified persons as members, the number of members being either one or three,
as stated in the Appendix to Tender. If the Dispute Adjudication Board is to comprise three members,
each party shall nominate one member for the approval of the other party, and the parties shall mutually
agree upon and appoint the third member (who shall act as chairman).
The terms of appointment of the Dispute Adjudication Board shall:

(a) incorporate the model terms published by the Fdration Internationale des IngnieursConseils (FIDIC),
(b) require each member of the Dispute Adjudication Board to be, and to remain throughout
the appointment, independent of the parties,

(c) require the Dispute Adjudication Board to act impartially and in accordance with the
Contract, and
(d) include undertakings by the parties (to each other and to the Dispute Adjudication Board)
that the members of the Dispute Adjudication Board shall in no circumstances be liable for
breach of duty or of contract arising out of their appointment; the parties shall indemnify the
members against such claims.
The terms of the remuneration of the Dispute Adjudication Board, including the remuneration of each
member and of any specialist from whom the Dispute Adjudication Board may require to seek advice,
shall be mutually agreed upon by the Employer, the Contractor and each member of the Dispute
Adjudication Board when agreeing such terms of appointment. In the event of disagreement, the
remuneration of each member shall include reimbursement for reasonable expenses, a daily fee in
accordance with the daily fee established from time to time for arbitrators under the administrative and
financial regulations of the International Centre for Settlement of Investment Disputes, and a retainer fee
per calendar month equivalent to three times such daily fee.
The Employer and the Contractor shall each pay one-half of the Dispute Adjudication Boards
remuneration in accordance with its terms of remuneration. If, at any time, either party shall fail to pay its
due proportion of such remuneration, the other party shall be entitled to make payment on his behalf and
recover if from the party in default.
The Dispute Adjudication Boards appointment may be terminated only by mutual agreement of the
Employer and the Contractor. The Dispute Adjudication Boards appointment shall expire when the
discharge referred to in Sub-Clause 13.12 shall have become effective, or at such other time as the
parties may mutually agree.
It, at any time, the parties so agree, they may appoint a suitably qualified person to replace (or to be
available to replace) any or all members of the Dispute Adjudication Board. The appointment will come
into effect if a member of the Dispute Adjudication Board declines to act or is unable to act as a result of
death, disability, resignation or termination of appointment. If a member so declines or is unable to act,
and no such replacement is available to act, the member shall be replaced in the same manner as such
member was to have been nominated.
If any of the following conditions apply, namely:

(a) the parties fail to agree upon the appointment of the sole member of a one-person
Dispute Adjudication Board within 28 days of the Effective Date,
(b) either party fails to nominate an acceptable member, for the Dispute Adjudication Board
of three members, within 28 days of the Effective Date,
(c) the parties fail to agree upon the appointment of the third member (to act as chairman)
within 28 days of the Effective Date, or
(d) the parties fail to agree upon the appointment of a replacement member of the Dispute
Adjudication Board within 28 days of the date on which a member of the Dispute
Adjudication Board declines to act or is unable to act as a result of death, disability,
resignation or termination of appointment,
then the person or administration named in the Appendix to the Tender shall, after due consultation with
the parties, nominate such member of the Dispute Adjudication Board, and such nomination shall be final
and conclusive.

20.4 If a dispute arises between the Employer and the Contractor in connection with, or arising out of, the
Contract or the execution of the Works, including any dispute as to any opinion, instruction,
determination, certification or valuation of the Employers Representative, the dispute shall initially be
referred in writing to the Dispute Adjudication Board for its decision, with a copy to the other party. Such
reference shall state that it is made under this Sub-Clause. The parties shall promptly make available to
the Dispute Adjudication Board all such information, access to the Site, and appropriate facilities, as the
Dispute Adjudication Board may require for the purposes of rendering its decision. No later than the fiftysixth day after the day on which it received such reference, the Dispute Adjudication Board, acting as a
panel of expert(s) and not as arbitrator(s), shall give notice of its decision to the parties. Such notice shall
include reasons and shall state that it is given under this Sub-Clause.
1awphi1.zw+

Unless the Contract has already been repudiated or terminated, the Contractor shall, in every case,
continue to proceed with the Works with all due diligence, and the Contractor and the Employer shall give
effect forthwith to every decision of the Dispute Adjudication Board, unless and until the same shall be
revised, as hereinafter provided, in an amicable settlement or an arbitral award.
If either party is dissatisfied with the Dispute Adjudication Boards decision, then either party, on or before
the twenty-eighth day after the day on which it received notice of such decision, may notify the other party
of its dissatisfaction. If the Dispute Adjudication Board fails to give notice of its decision on or before the
fifty-sixth day after the day on which it received the reference, then either party, on or before the twentyeighth day after the day on which the said period of fifty-six days has expired, may notify the other party
of its dissatisfaction. In either event, such notice of dissatisfaction shall state that it is given under this
Sub-Clause, such notice shall set out the matters in dispute and the reason(s) for dissatisfaction and,
subject to Sub-Clauses 20.7 and 20.8, no arbitration in respect of such dispute may be commenced
unless such notice is given.
If the Dispute Adjudication Board has given notice of its decision as to a matter in dispute to the Employer
and the Contractor and no notice of dissatisfaction has been given by either party on or before the twentyeighth day after the day on which the parties received the Dispute Adjudication Boards decision, then the
Dispute Adjudication Boards decision shall become final and binding upon the Employer and the
Contractor.
20.5 Where notice of dissatisfaction has been given under Sub-Clause 20.4, the parties shall attempt to
settle such dispute amicably before the commencement of arbitration. Provided that unless the parties
agree otherwise, arbitration may be commenced on or after the fifty-sixth day after the day on which
notice of dissatisfaction was given, even if no attempt at amicable settlement has been made.
20.6 Any dispute in respect of which:

(a) the decision, if any, of the Dispute Adjudication Board has not become final and binding
pursuant to Sub-Clause 20.4, and
(b) amicable settlement has not been reached, shall be finally decided by international
arbitration. The arbitration rules under which the arbitration is conducted, the institution to
nominate the arbitrator(s) or to administer the arbitration rules (unless named therein), the
number of arbitrators, and the language and place of such arbitration shall be as set out in
the Appendix to Tender. The arbitrator(s) shall have full power to open up, review and revise
any decision of the Dispute Adjudication Board.
Neither party shall be limited, in the proceedings before such arbitrator(s), to the evidence or arguments
previously put before the Dispute Adjudication Board to obtain its decision.

Arbitration may be commenced prior to or after completion of the Works. The obligations of the parties
and the Dispute Adjudication Board shall not be altered by reason of the arbitration being conducted
during the progress of the Works.
20.7 Where neither party has given notice of dissatisfaction within the period stated in Sub-Clause 20.4
and the Dispute Adjudication Boards related decision, if any, has become final and binding, either party
may, if the other party fails to comply with such decision, and without prejudice to any other rights it may
have, refer the failure itself to arbitration under Sub-Clause 20.6. The provisions of Sub-Clauses 20.4 and
20.5 shall not apply to any such reference.
20.8 When the appointment of the Dispute Adjudication Board and of any replacement has expired, any
such dispute referred to in Sub-Clause 20.4 shall be finally settled by arbitration pursuant to Sub-Clause
20.6. The provisions of Sub-Clauses 20.4 and 20.5 shall not apply to any such reference. (Emphasis
ours.)
Despite the presence of the afore-quoted arbitration clause in the EPCC, it is respondents position,
upheld by the Court of Appeals, that the CIAC still cannot assume jurisdiction over CIAC Case No. 172005 (petitioners Request for Arbitration) because petitioner has not yet referred its dispute with
respondent to the DAB, as directed by Clause 20.4 of the EPCC. Prior resort of the dispute to DAB is a
condition precedent and an indispensable requirement for the CIAC to acquire jurisdiction over CIAC
Case No. 17-2005.21
It is true that Clause 20.4 of the EPCC states that a dispute between petitioner and respondent as
regards the EPCC shall be initially referred to the DAB for decision, and only when the parties are
dissatisfied with the decision of the DAB should arbitration commence. This does not mean, however, that
the CIAC is barred from assuming jurisdiction over the dispute if such clause was not complied with.
Under Section 1, Article III of the CIAC Rules, an arbitration clause in a construction contract shall be
deemed as an agreement to submit an existing or future controversy to CIAC jurisdiction,
"notwithstanding the reference to a different arbitration institution or arbitral body in such contract x x x."
Elementary is the rule that when laws or rules are clear, it is incumbent on the court to apply them. When
the law (or rule) is unambiguous and unequivocal, application, not interpretation thereof, is imperative. 22
Hence, the bare fact that the parties herein incorporated an arbitration clause in the EPCC is sufficient to
vest the CIAC with jurisdiction over any construction controversy or claim between the parties. 23 The
arbitration clause in the construction contract ipso facto vested the CIAC with jurisdiction. 24 This rule
applies, regardless of whether the parties specifically choose another forum or make reference to another
arbitral body.25 Since the jurisdiction of CIAC is conferred by law, it cannot be subjected to any condition;
nor can it be waived or diminished by the stipulation, act or omission of the parties, as long as the parties
agreed to submit their construction contract dispute to arbitration, or if there is an arbitration clause in the
construction contract.26 The parties will not be precluded from electing to submit their dispute to CIAC,
because this right has been vested in each party by law.27
In China Chang Jiang Energy Corporation (Philippines) v. Rosal Infrastructure Builders, 28 we elucidated
thus:
What the law merely requires for a particular construction contract to fall within the jurisdiction of CIAC is
for the parties to agree to submit the same to voluntary arbitration. Unlike in the original version of Section
1, as applied in the Tesco case, the law does not mention that the parties should agree to submit disputes
arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over such
disputes. Rather, it is plain and clear that as long as the parties agree to submit to voluntary arbitration,
regardless of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC,
such that, even if they specially choose another forum, the parties will not be precluded from electing to

submit their dispute before the CIAC because this right has been vested upon each party by law, i.e.,
E.O. No. 1008.
xxxx
Now that Section 1, Article III [CIAC Rules of Procedure Governing Construction Arbitration], as
amended, is submitted to test in the present petition, we rule to uphold its validity with full certainty.
However, this should not be understood to mean that the parties may no longer stipulate to submit their
disputes to a different forum or arbitral body. Parties may continue to stipulate as regards their preferred
forum in case of voluntary arbitration, but in so doing, they may not divest the CIAC of jurisdiction as
provided by law. Under the elementary principle on the law on contracts that laws obtaining in a
jurisdiction form part of all agreements, when the law provides that the Board acquires jurisdiction when
the parties to the contract agree to submit the same to voluntary arbitration, the law in effect,
automatically gives the parties an alternative forum before whom they may submit their disputes. That
alternative forum is the CIAC. This, to the mind of the Court, is the real spirit of E.O. No. 1008, as
implemented by Section 1, Article III of the CIAC Rules. (Emphases ours.)
Likewise, in National Irrigation Administration v. Court of Appeals,29 we pronounced that:
Under the present Rules of Procedure [CIAC Rules of Procedure Governing Construction Arbitration], for
a particular construction contract to fall within the jurisdiction of CIAC, it is merely required that the parties
agree to submit the same to voluntary arbitration. Unlike in the original version of Section 1, as applied in
the Tesco case, the law as it now stands does not provide that the parties should agree to submit
disputes arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over the
same. Rather, it is plain and clear that as long as the parties agree to submit to voluntary arbitration,
regardless of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC,
such that, even if they specifically choose another forum, the parties will not be precluded from electing to
submit their dispute before the CIAC because this right has been vested upon each party by law, i.e.,
E.O. No. 1008.
We note that this is not a case wherein the arbitration clause in the construction contract named another
forum, not the CIAC, which shall have jurisdiction over the dispute between the parties; rather, the said
clause requires prior referral of the dispute to the DAB. Nonetheless, we still hold that this condition
precedent, or more appropriately, non-compliance therewith, should not deprive CIAC of its jurisdiction
over the dispute between the parties.
It bears to emphasize that the mere existence of an arbitration clause in the construction contract is
considered by law as an agreement by the parties to submit existing or future controversies between
them to CIAC jurisdiction, without any qualification or condition precedent. To affirm a condition precedent
in the construction contract, which would effectively suspend the jurisdiction of the CIAC until compliance
therewith, would be in conflict with the recognized intention of the law and rules to automatically vest
CIAC with jurisdiction over a dispute should the construction contract contain an arbitration clause.
Moreover, the CIAC was created in recognition of the contribution of the construction industry to national
development goals. Realizing that delays in the resolution of construction industry disputes would also
hold up the development of the country, Executive Order No. 1008 expressly mandates the CIAC to
expeditiously settle construction industry disputes and, for this purpose, vests in the CIAC original and
exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by the parties
involved in construction in the Philippines.30
The dispute between petitioner and respondent has been lingering for almost five years now. Despite
numerous meetings and negotiations between the parties, which took place prior to petitioners filing with
the CIAC of its Request for Arbitration, no amicable settlement was reached. A ruling requiring the parties
to still appoint a DAB, to which they should first refer their dispute before the same could be submitted to

the CIAC, would merely be circuitous and dilatory at this point. It would entail unnecessary delays and
expenses on both parties, which Executive Order No. 1008 precisely seeks to prevent. It would, indeed,
defeat the purpose for which the CIAC was created.
WHEREFORE, the Petition is hereby GRANTED. The Decision, dated 23 May 2007, and Resolution,
dated 16 November 2007, of the Court of Appeals in CA-G.R. SP No. 92504 are hereby REVERSED and
SET ASIDE. The instant case is hereby REMANDED for further proceedings to the CIAC which is
DIRECTED to resolve the same with dispatch.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
G.R. No. 176709

May 8, 2009

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,

vs.
HON. EDWIN D. SORONGON and VALENTIN FONG, Respondents.
DECISION
TINGA, J.:
Petitioner Fort Bonifacio Development Corporation (petitioner), a corporation registered under Philippine
laws, is engaged in the business of real estate development. Respondent, Valentin Fong (respondent)
doing business under the name VF Industrial Sales is the assignee of L & M Maxco Specialist
Constructions (Maxco) retention money from the Bonifacio Ridge Condominium Phase 1 (BRCP 1).
In this Petition for Review,1 petitioner assails the Decision2 of the Court of Appeals dated November 30,
2006 which ruled that it is the regional trial court and not the Construction Industry Arbitration
Commission (CIAC) that has jurisdiction over respondents claim.
The facts are as follows:
On July 2000, Petitioner entered into a trade contract with Maxco wherein Maxco would undertake the
structural and partial architectural package of the BRCP 1. Later petitioner accused Maxco of delay in
completion of its work and on August 24, 2004 sent the latter a notice of termination. Petitioner also
instructed Maxco to perform remedial measures prior to the contract expiration pursuant to Clause 23.1 of
the contract.
Subsequently, Maxco was sued by its creditors including respondent for debts unrelated to BRCP 1. In
order to settle the collection suit, on February 28, 2005, Maxco assigned its receivables representing its
retention money from the BRCP 1 in the amount of one million five hundred seventy seven thousand one
hundred fifteen pesos and ninety centavos (P1,577,115.90). On April 18, 2005, respondent wrote to
petitioner, informing the latter of Maxcos assignment in his favor and asking the latter to confirm the
validity of Maxcos receivables.3 Petitioner replied, informing the respondent that Maxco did have
receivables, however these were not due and demandable until January of next year, moreover the
amount had to be ascertained and liquidated.

A subsequent exchange of correspondence failed to settle the matter. Specifically, on January 31,
2006,4 petitioner through counsel, wrote to respondent informing the latter that there is no more amount
due to Maxco from petitioner after the rectification of defect as well as the satisfaction of notices of
garnishment dated July 30, 20045 and January 26, 2006.6 On February 13, 2006, respondent filed a
complaint for a sum of money against petitioner and Maxco in the Regional Trial Court of Mandaluyong
City.7 Respondent claimed that there were sufficient residual amounts to pay the receivables of Maxco at
the time he served notice of the assignment. The subsequent notices of garnishment should not
adversely affect the receivables assigned to him. The retention money was over due in January 2006 and
despite demand, petitioner did not pay the amount subject of the deed of assignment. Petitioner however,
paid out the retention money to other garnishing creditors of Maxco to the detriment of respondent.
On March 16, 2006, instead of filing an Answer, petitioner filed a Motion to Dismiss on the ground of lack
of jurisdiction over the subject matter.8 Petitioner argued that since respondent merely stepped into the
shoes of Maxco as its assignee, it was the CIAC and not the regular courts that had jurisdiction over the
dispute as provided in the Trade Contract. Judge Edwin Sorongon issued an Order dated June 27, 2006
denying the motion to dismiss.9 Petitioner moved for reconsideration but this was denied in an Order
dated August 15, 2006.
On October 16, 2006, petitioner filed a petition for certiorari and prohibition with the Court of Appeals. On
November 30, 2006, the Court of Appeals denied the petition for lack of merit. The dispositive portion
reads:
WHEREFORE, premises considered, the present petition is hereby DENIED DUE COURSE and
accordingly DISMISSED for lack of merit. The assailed Orders dated June 27, 2006 and August 15, 2006
of respondent Judge in Civil Case No. MC-06-2928 are hereby AFFIRMED.
With costs against the petitioner.
SO ORDERED.10
The appellate court held that it was the trial court and not the Construction Industry Arbitration
Commission (CIAC) that had jurisdiction over the claims of Valentin Fong. The claim could not be
construed as related to the construction industry as it is for enforcement of Maxcos deed of assignment
over its retention money.
Petitioner moved for reconsideration on December 22, 2006 but this was denied by the appellate court in
a resolution dated February 29, 2006.
Hence, the present petition for review on certiorari. Petitioners sets forth four (4) errors committed by the
appellate court namely: (1) the original and exclusive jurisdiction over respondents complaint is vested
with the CIAC; (2) Respondents complaint failed to state a cause of action; (3) the claim of respondent
has already been extinguished; and (4) the conditions precedent for the complaint have not been
complied with.
The petition lacks merit.
In reference to the first error, Section 4 of Executive Order No. 1008, Series of 1985 (E.O. No. 1008) sets
forth the jurisdiction of CIAC. To wit:
SECTION 4. Jurisdiction.The CIAC shall have original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved in construction in the Philippines,
whether the dispute arises before or after the completion of the contract, or after the abandonment or

breach thereof. These disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual
provisions; maintenance and defects; payment default of employer or contractor and changes in contract
cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships which
shall continue to be covered by the Labor Code of the Philippines.
Jurisdiction is defined as the authority to try, hear and decide a case. 11 Moreover, that jurisdiction of the
court over the subject matter is determined by the allegations of the complaint without regard to whether
or not the plaintiff is entitled to recover upon all or some of the claims asserted therein is a well
entrenched principle.12 In this regard, the jurisdiction of the court does not depend upon the defenses
pleaded in the answer or in the motion to dismiss, lest the question of jurisdiction would almost entirely
depend upon the defendant.13
An examination of the allegations in Fongs complaint reveals that his cause of action springs not from a
violation of the provisions of the Trade Contract, but from the assignment of Maxcos retention money to
him and failure of petitioner to turn over the retention money. The allegations in Fongs Complaint are
clear and simple: (1) That Maxco had an outstanding obligation to respondent; (2) Maxco assigned to
Fong its retention from petitioner in payment of the said obligation,; (3) Petitioner as early as April 18,
2005 was notified of the assignment; (4) Despite due notice of such assignment, petitioner still refused to
deliver the amount assigned to respondent, giving preference, instead, to the 2 other creditors of Maxco;
(5) At the time petitioner was notified of the assignment, there were only one other notice of garnishment
and there were sufficient residual amounts to satisfy Fongs claim; and (6) uncertain over which one
between Maxco and petitioner he may resort to for payment, respondent named them both as defendants
in Civil Case No. 06-0200-CFM.
While it is true that respondent, as the assignee of the receivables of Maxco from petitioner under the
Trade Contract, merely stepped into the shoes of Maxco. However, the right of Maxco to the retention
money from petitioner under the trade contract is not even in dispute in Civil Case No. 06-0200-CFM.
Respondent raises as an issue before the RTC is the petitioners alleged unjustified preference to the
claims of the other creditors of Maxco over the retention money.
1aw phi1

Although the jurisdiction of the CIAC is not limited to the instances enumerated in Section 4 of E. O. No.
1008, Fongs claim is not even construction-related at all. This court has held that: "Construction is
defined as referring to all on-site works on buildings or altering structures, from land clearance through
completion including excavation, erection and assembly and installation of components and
equipment."14 Thus, petitioners insistence on the application of the arbitration clause of the Trade
Contract to Fong is clearly anchored on an erroneous premise that the latter is seeking to enforce a right
under the trade contract. This premise cannot stand since the right to the retention money of Maxco
under the Trade Contract is not being impugned herein. It bears mentioning that petitioner readily
conceded the existence of the retention money. Fongs demand that the portion of retention money
should have been paid to him before the other creditors of Maxco clearly, does not require the CIACs
expertise and technical knowledge of construction.
The adjudication of Civil Case necessarily involves the application of pertinent statutes and jurisprudence
to matters of assignment and preference of credits. As this Court held in Fort Bonifacio Development
Corporation v. Domingo,15 this task more suited for a trial court to carry out after a full-blown trial, than an
arbitration body specifically devoted to construction contracts.

The second error raised also has not merit. Failure to state a cause of action refers to the insufficiency of
allegation in the pleading. In resolving a motion to dismiss based on the failure to state a cause of action
only the facts alleged in the complaint must be considered. The test is whether the court can render a
valid judgment on the complaint based on the facts alleged and the prayer asked for.
In this case the complaint alleges that:
x x x at the time he served notice of assignment to defendant FBDC there was only one notice of
garnishment that the latter had received and there were still sufficient residual amounts to pay that
assigned by defendant Maxco to the plaintiff. Subsequent notices of garnishment received by defendant
FBDC could not adversely affect the amounts already assigned to the plaintiff as they are already his
property, no longer that of defendant Maxco.16
From this statement alone, it is clear that a cause of action is present in the complaint filed a quo.
Respondent has specifically alleged that the undue preference given to other creditors of Maxco over the
retention money by petitioner was to the prejudice of his rights.
Petitioner next asserts that the appellate court erred in not ruling that the claim of respondent was
extinguished by payment to the other garnishing creditors of Maxco. The assignment of this as an error is
misleading as this is precisely one of the issues that need to be resolved in a full blown trial and one of
the reasons that respondent impleaded Maxco and petitioner in the alternative.
The final error raised by petitioner that the other judgment creditors 17 as well as the trial court that issued
the writ of garnishment and CIAC should have been impleaded as defendants in the case as they were
indispensable parties is likewise weak. Section 7, Rule 3 of the Revised Rules of Court provides for the
compulsory joinder of indispensable parties without whom no final determination can be had of an action.
An indispensable party is defined as one who has such an interest in the controversy or subject matter
that a final adjudication cannot be made, in his absence, without injuring or affecting that interest. 18 The
other judgment creditors are entitled to the fruits of the final judgments rendered in their favor. Their rights
are distinct from the rights acquired by the respondent over the portion of the retention money assigned to
the latter by Maxco. Their interests are in no way affected by any judgment to be rendered in this case.
1av vphi1

WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated November 30,
2006 and the Resolution dated February 19, 2007 of the Court of Appeals in CA-G.R. SP No. 96532 are
hereby AFFIRMED.
SO ORDERED.
G.R. No. 169514

March 30, 2007

CONFEDERATION OF SUGAR PRODUCERS ASSOCIATION, INC., (CONFED), NATIONAL

FEDERATION OF SUGARCANE PLANTERS, INC. (NFSP), UNITED SUGAR PRODUCERS
FEDERATION OF THE PHILS., INC. (UNIFED), PANAY FEDERATION OF SUGAR-CANE FARMERS,
INC. (PANAYFED), FIRST FARMERS HOLDING CORPORATION, NATIONAL CONGRESS OF
UNIONS IN THE SUGAR INDUSTRY OF THE PHILIPPINES (NACUSIP), LEAGUE OF
MUNICIPALITIES OF THE PHILIPPINES NEGROS OCCIDENTAL CHAPTER. Petitioners,
vs.
DEPARTMENT OF AGRARIAN REFORM (DAR), (Now also known as DEPARTMENT OF LAND
REFORM), LAND BANK OF THE PHILIPPINES (LBP), LAND REGISTRATION AUTHORITY
(LRA). Respondents.
DECISION

CALLEJO, SR., J.:

Before the Court is a petition for prohibition and mandamus under Rule 65 of the Rules of Court with
prayer for the issuance of a writ of preliminary injunction or temporary restraining order filed by the
___________
* No part.
Confederation of Sugar Producers Association, Inc., et al. It seeks, inter alia, to enjoin the Department of
Agrarian Reform, the Land Bank of the Philippines, and the Land Registration Authority from "subjecting
the sugarcane farms of Petitioner Planters to eminent domain or compulsory acquisition without filing the
necessary expropriation proceedings pursuant to the provisions of Rule 67 of the Rules of Court and/or
without the application or conformity of a majority of the regular farmworkers on said farms."
The Parties
The petition is filed by the following: (1) the Confederation of Sugar Producers Association, Inc.
(CONFED), a national federation of sugar planters associations and cooperatives from Luzon, Visayas
and Mindanao, which is purportedly joined by its individual member organizations;1 (2) the National
Federation of Sugarcane Planters, Inc. (NFSP), a duly organized federation of sugar planters
associations and cooperatives from Luzon, Visayas and Mindanao, which is also purportedly joined by its
individual member organizations;2 (3) the United Sugar Producers Federation of the Phil., Inc. (UNIFED),
likewise a national federation of sugar planters associations and cooperatives from Luzon, Visayas and
Mindanao, and is purportedly joined by its individual member organizations; 3 (4) the Panay Federation of
Sugarcane Farmers, Inc. (PANAYFED), a federation of sugarcane planters organizations and
cooperatives from Panay Island, also purportedly joined by its individual member organizations;4 (5) the
First Farmers Holding Co., a domestic corporation principally engaged in operating a sugar mill for the
milling and manufacture or processing of sugarcane into sugar and the distribution of sugar and its byproducts; (6) the National Congress of Unions in the Sugar Industry of the Philippines (NACUSIP), a labor
organization; and (7) the League of Municipalities of the Philippines, Negros Occidental Chapter.
For the purpose of the present petition, CONFED, NFSP, UNIFED and PANAYFED are represented by
their Chairman or President, namely, Bernardo C. Trebol, Enrique D. Rojas, Manuel R. Lamata and
Francis P. Trenas, respectively.
On the other hand, named as respondents are the Department of Agrarian Reform (DAR), the Land Bank
of the Philippines (LBP) and the Land Registration Authority (LRA).
The Petitioners Case
Petitioners CONFED, NFSP, UNIFED and PANAYFED claim that their members own or administer
private agricultural lands devoted to sugarcane. They and their predecessors-in-interest have been
planting sugarcane on their lands allegedly since time immemorial. While their petition is denominated as
one for prohibition and mandamus, the petitioners likewise seek to nullify paragraphs (d), (e) and (f) of
Section 165 of Republic Act No. (RA) 6657, otherwise known as the Comprehensive Agrarian Reform
Law. In other words, their arguments, which will be discussed shortly, are anchored on the proposition
that these provisions are unconstitutional.
They allege the following grounds in support of their petition:
A. RESPONDENT DAR ACTED WITHOUT OR IN EXCESS OF JURISDICTION OR WITH GRAVE
ABUSE OF DISCRETION BY THE COMMISSION OF THE FOLLOWING ACTS:

1. By Exercising the Power of Eminent Domain to Deprive Thousands of Landowners,

including the Member-Planters of Petitioner-Federations of their Private Agricultural Lands,
without Filing the Necessary Expropriation Proceedings pursuant to Rule 67 of the Rules of
Court in Gross Violation of the Bill of Rights of the Constitution and in Lawless Usurpation of
the Exclusive Power of the Supreme Court to Promulgate Rules of Procedure as vested by
the Constitution. Paragraphs (d), (e) and (f) Section 16 of R.A. 6657 are Unconstitutional.
2. In Usurping the Powers and Functions of the Presidential Agrarian Reform Council or
PARC by Promulgating and Issuing Ultra Vires Rules and Procedures Governing the
Acquisition and Distribution of Agricultural Lands in Gross Violation of the Provisions of E.O.
229 and R.A. 6657 or the CARL.
3. In Unlawfully Delegating to the MAROs the Authority to Issue Notices of Coverage and
Acquisition to Landowners of Private Agricultural Lands in their Respective Cities and
Municipalities in violation of R.A. 6657.
4. In Subjecting the Sugar Lands of the Planters to CARP Coverage and Acquisition, Without
First Ascertaining: No. 1. Whether there are Regular Farmworkers on said lands and No. 2.
Whether the Regular Farmworkers, if any, are Interested to Own, Directly or Collectively the
Lands they Till.
5. In Choosing and Designating Non-Tillers, Non-Regular Farmworkers and Outsiders of the
sugar lands as Beneficiaries and later, Forcibly Installing Them in said lands.
6. By Disturbing and Outlawing the Farming System of LABOR ADMINISTRATION obtaining
in the Sugar Lands Knowing As it Does that Under R.A. 6657 and By the Very Definition of
Agrarian Reform in said Act, Labor Administration is Recognized as an Alternative Mode of
Agrarian Reform.
7. In Assuming Jurisdiction, through DARAB, over Cases and Controversies which, by virtue
of the provisions of B.P. 129 or the Judiciary Reorganization Act, in relation to P.D. 946
should fall under the original jurisdiction of the Regional Trial Courts.
B. THE LAND BANK OF THE PHILIPPINES ACTED WITHOUT OR IN EXCESS OF JURISDICTION OR
WITH GRAVE ABUSE OF DISCRETION.
By Making or Causing Payment, Through a Deposit or Opening a Trust Account with a Bank designated
by DAR for the Alleged Compensation for the Land, without Waiting For the Final Determination of Such
Compensation By the Court.
C. THE LAND REGISTRATION AUTHORITY OR LRA ACTED WITHOUT OR IN EXCESS OF
JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION.
By Authorizing the Registers of Deeds under its Jurisdiction to Cancel, upon being directed by DAR, the
Certificates of Title of the Registered Owners without the Notice to or Consent of the latter or an Order
from the Court in Gross Violation of the Property Rights of the Latter and the provisions of the Land
Registration Laws.6
It is the principal contention of the petitioners that, in the exercise by the State of the power of eminent
domain, which in the case of RA 6657 is the acquisition of private lands for distribution to farmerbeneficiaries, expropriation proceedings, as prescribed in Rule 67 of the Rules of Court, must be strictly
complied with. The petitioners rely on the case of Visayas Refining Company v. Camus and

Paredes7 decided by the Court in 1919. In the said case, the Government of the Philippine Islands,
through the Governor-General, instructed the Attorney-General to initiate condemnation proceedings for
the purpose of expropriating a tract of land containing an area of 1,100,463 square meters to be used for
military and aviation purposes. In compliance therewith, the Attorney-General filed a complaint with the
Court of First Instance (CFI) and among the defendants impleaded was Visayan Refining Co. which
owned a portion of the property intended to be expropriated. The CFI provisionally fixed the total value of
the subject property at P600,000 and upon payment thereof as deposit, the CFI authorized that the
Government be placed in possession thereof.
Visayan Refining Co. questioned the validity of the proceedings on the ground that there was no law
enacted by the Philippine Legislature authorizing the exercise of the power of eminent domain to acquire
land for military or aviation purposes. The Court, speaking through Justice Street, upheld the right of the
Governor-General to authorize the condemnation of the subject property for military and aviation
purposes. It pointed to Sections 241 up to 2538 of the Code of Civil Procedure as the applicable
provisions for the conduct of expropriation proceedings. It likewise pointed to Sections 2 and 3 9 of Act No.
2826 as authorizing immediate possession when the Government is the plaintiff. Further, Article 349 of
the Old Civil Code was also cited as it stated that:
ART. 349. No one may be deprived of his property unless it be by competent authority for some purpose
of proven public utility and after payment of the proper compensation.
Unless this requisite has been complied with, it shall be the duty of the court to protect the owner of such
property in its possession or to restore its possession to him, as the case may be.
The Court stated that "[t]aken together the laws mentioned supply a very complete scheme of judicial
expropriation, deducing the authority from its ultimate source in sovereignty, providing in detail for the
manner of its exercise, and making the right of the expropriator finally dependent upon the payment of the
amount awarded by the court."10
The petitioners also quote the following disquisition in Visayan Refining Co. on expropriation vis--vis due
process of law:
Nevertheless it should be noted that the whole problem of expropriation is resolvable in its ultimate
analysis into a constitutional question of due process of law. The specific provisions that just
compensation shall be made is merely in the nature of a superadded requirement to be taken into
account by the Legislature in prescribing the method of expropriation. Even were there no organic or
constitutional provision in force requiring compensation to be paid, the seizure of ones property without
payment, even though intended for a public use, would undoubtedly be held to be a taking without due
process of law and a denial of the equal protection of the laws.
This point is not merely an academic one, as might superficially seem. On the contrary it has a practical
bearing on the problem before us, which may be expressed by saying that, if the Legislature has
prescribed a method of expropriation which provides for the payment of just compensation, and such
method is so conceived and adapted as to fulfill the constitutional requisite of due process of law, any
proceeding conducted in conformity with that method must be valid.11
Citing Visayan Refining Co. as well as other cases12 and statutes,13 the petitioners thus contend that a
landowner cannot be deprived of his property until expropriation proceedings are instituted in court. They
insist that the expropriation proceedings to be followed are those prescribed under Rule 67 of the Revised
Rules of Court. In other words, for a valid exercise of the power of eminent domain, the Government must
institute the necessary expropriation proceedings in the competent court in accordance with the
provisions of the Rules of Court.
In this connection, they cite Section 1 of Rule 67, which they stress is entitled EXPROPRIATION, thus:

SEC. 1. The complaint. - The right of eminent domain shall be exercised by the filing of a verified
complaint which shall state with certainty the right and purpose of expropriation, describe the real or
personal property sought to be expropriated, and join as defendants all persons owning or claiming to
own, or occupying, any part thereof or interest therein, showing, so far as practicable, the separate
interest of each defendant. If the title to any property sought to be expropriated appears to be in the
Republic of the Philippines, although occupied by private individuals, or if the title is otherwise obscure or
doubtful so that the plaintiff cannot with accuracy or certainty specify who are the real owners, averment
to that effect shall be made in the complaint.
The DAR, however, according to the petitioners, particularly through the process of compulsory
acquisition, has managed to operate outside of the Constitution and the Rules of Court. They alleged that
the compulsory acquisition process adopted by the DAR is absolutely without any constitutional or lawful
basis whatsoever. It is allegedly "utterly repugnant to the principle of eminent domain" or "expropriation"
and an "unmitigated and lawless usurpation of the constitutional power of the Supreme Court to
promulgate rules of procedure." As such, the process of compulsory acquisition is allegedly null and void.
The petitioners add that Section 22, Article XVII (Transitory Provisions) of the Constitution states that "[a]t
the earliest possible time, the Government shall expropriate idle or abandoned lands as may be defined
by law, for distribution to the beneficiaries of the agrarian reform program." The use of the word
"expropriate" in this provision allegedly underscores the necessity of expropriation proceedings pursuant
to Rule 67 of the Rules of Court in the acquisition of private agricultural lands.
It is the petitioners view that the following provisions of RA 3844,14 as amended, remain effective:
SEC. 51. Powers and Functions. It shall be the responsibility of the Department:
(1) to initiate and prosecute expropriation proceedings for the acquisition of private agricultural lands as
defined in Section one hundred sixty-six of Chapter XI of this Code for the purpose of subdivision into
economic family-size farm units and resale of said farm units to bona fide tenants, occupants and
qualified farmers; Provided, That the powers herein granted shall apply only to private agricultural lands
subject to the terms and conditions and order of priority hereinbelow specified.
xxx
SEC. 53. Compulsory Purchase of Agricultural Lands. The Authority shall, upon petition in writing of at
least one-third of the lessees and subject to the provisions of Chapter VII of this Code, institute and
prosecute expropriation proceedings for the acquisition of private agricultural lands and home lots
enumerated under Section fifty-one. In the event a landowner agrees to sell his property under the terms
specified in this Chapter and the National Land Reform Council finds it suitable and necessary to acquire
such property, a joint motion embodying the agreement, including the valuation of the property, shall be
submitted by the Land Authority and the landowner to the court for approval; Provided, That in such case,
any person qualified to be a beneficiary of such expropriation or purchase may object to the valuation as
excessive, in which case the Court shall determine the just compensation in accordance with Section fiftysix of this Code.
According to the petitioners, the foregoing provisions have not been repealed by RA 6657; hence, in
consonance therewith, the acquisition of private agricultural lands for purposes of agrarian reform can
only be exercised by the Government through expropriation proceedings under Rule 67 of the Rules of
Court. On the other hand, the process of compulsory acquisition adopted by the DAR, as embodied in its
administrative orders, is allegedly violative of the landowners rights enshrined in the Constitution.
The petitioners specifically refer to Section 16 of RA 6657, which reads:

SEC. 16. Procedure for Acquisition of Private Lands. For purposes of acquisition of private lands, the
following procedures shall be followed:

(a) After having identified the land, the landowners and the beneficiaries, the DAR shall send
its notice to acquire the land to the owners thereof, by personal delivery or registered mail,
and post the same in a conspicuous place in the municipal building and barangay hall of the
place where the property is located. Said notice shall contain the offer of the DAR to pay a
corresponding value in accordance with the valuation set forth in Sections 17, 18 and other
pertinent provisions hereof.
(b) Within thirty (30) days from the date of receipt of written notice by personal delivery or
registered mail, the landowners, his administrator or representative shall inform the DAR of
his acceptance or rejection of the former.
(c) If the landowner accepts the offer of the DAR, the LBP shall pay the landowner the
purchase price of the land within thirty (30) days after he executes and delivers a deed of
transfer in favor of the Government and surrenders the Certificate of Title and other
muniments of title.
(d) In case of rejection or failure to reply, the DAR shall conduct summary administrative
proceedings to determine the compensation for the land by requiring the landowner, the LBP
and other interested parties to submit evidence as to the just compensation for the land,
within fifteen (15) days from the receipt of notice. After the expiration of the above period, the
matter is deemed submitted for decision. The DAR shall decide the case within thirty (30)
days after it is submitted for decision.
(e) Upon receipt by the landowner of the corresponding payment or in case of rejection or no
response from the landowner, upon the deposit with an accessible bank designated by the
DAR of the compensation in cash or in LBP bonds in accordance with this Act, the DAR shall
take immediate possession of the land and shall request the proper Register of Deeds to
issue a Transfer Certificate of Title (TCT) in the name of the Republic of the Philippines. The
DAR shall thereafter proceed with the redistribution of the land to the qualified beneficiaries.
(f) Any party who disagrees with the decision may bring the matter to the court of proper
jurisdiction for final determination of just compensation.
They clarify that while they concede the validity of paragraphs (a), (b) and (c), they vigorously assail the
validity of paragraphs (d), (e) and (f) of the above-quoted provision. Under the assailed paragraphs, a
landowner is allegedly deprived of his right to question or challenge the legality or necessity of the taking
of his land by the DAR. The "public purpose and necessity" of the taking is already assumed without the
predicate of a prior hearing where the landowner is given an opportunity to be heard. He is allegedly only
allowed in paragraph (d) to question or reject the compensation offered by the DAR. This procedure
allegedly violates the rights of the landowners under Sections 1 and 9 of Article III (Bill of Rights) of the
Constitution, to wit:
SEC. 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any
person be denied the equal protection of the laws.
xxx
SEC. 9. Private property shall not be taken for public use without just compensation.

Paragraph (e) is assailed by the petitioners as it authorizes the DAR, by allegedly merely causing the
deposit with the Land Bank of the compensation, to immediately take possession of the property and to
direct the Register of Deeds to cancel the certificate of title of the landowner without notice to and consent
of the latter. The petitioners contend that, in contrast, under the Civil Code, if the creditor or obligee
refuses to accept the tender of payment, it is the duty of the debtor or obligor to make consignation of the
thing or amount due. Under the Civil Code, there is no effective payment without valid tender of payment
and consignation in court.15 The petitioners theorize that, in the same manner, the DAR cannot be
allowed to take possession of the property of a landowner, by mere deposit of the compensation that it
has summarily fixed under paragraph (e), without having to go to court.
Paragraph (f) is characterized by the petitioners as meaningless and useless to the landowner. It
allegedly compels him to file a case, and in the process incur costs therefor, for the final determination of
just compensation when, in the meantime, he has already been deprived of possession of his property
and his certificate of title cancelled. The petitioners cite EPZA v. Dulay16 where the Court ruled that:
We, therefore, hold that P.D. 1533 which eliminates the courts discretion to appoint commissioners
pursuant to Rule 67 of the Rules of Court, is unconstitutional and void. To hold otherwise would be to
undermine the very purpose why this Court exists in the first place.17
Relying on the above pronouncement, the petitioners submit that paragraphs (d), (e) and (f) of Section 16
of RA 6657, as they similarly eliminate the appointment by the court of commissioners to appraise the
valuation of the land, are unconstitutional, null and void.
The petitioners next assail the Courts Decision in Association of Small Landowners in the Philippines,
Inc. v. Secretary of Agrarian Reform 18 which affirmed the constitutionality of RA 6657. They describe the
Decision as a "riddle wrapped in an enigma." They refer to pronouncements made therein that are
allegedly inconsistent with its conclusion, i.e., affirming the validity of RA 6657, including paragraphs (d),
(e) and (f) of Section 16. For example, while the Decision, citing EPZA, pronounced that "[t]o be sure, the
determination of just compensation is a function addressed to the courts of justice and may not be
usurped by any other branch or official of the government"19 and that "the determination made by the DAR
is only preliminary unless accepted by all parties concerned,"20 these pronouncements are allegedly
irreconcilable with paragraphs (d) and (e) which allow the DAR, through summary administrative
proceeding, "to take immediate possession of the land" and cause "the cancellation of the certificate of
title of the landowner."
Further, the petitioners maintain that paragraphs (d) and (e) contemplate a transfer of possession and
ownership even before full payment of compensation. They thus wonder how these paragraphs were
allowed to survive and remain despite the avowals of the Court in the Decision that "[t]he recognized rule,
indeed, is that title to the property expropriated shall pass from the owner to the expropriator only upon
full payment of the just compensation"21 and its dispositive portion that "2. Title to all expropriated
properties shall be transferred to the State only upon full payment of compensation to their respective
owners."22
The petitioners opine that even as the Decision affirmed the validity of RA 6657, the pronouncements
made in the body, quoted earlier, actually support their argument that paragraphs (d), (e) and (f) of
Section 16 are invalid as they dispense with the expropriation proceedings under Rule 67 of the Rules of
Court in the acquisition of private agricultural lands. The petitioners assert that the only procedure for the
exercise by the State of eminent domain in the implementation of agrarian reform is through expropriation
under Rule 67 of the Rules of Court.
The DAR is also being accused by the petitioners of usurping the powers and functions of the Presidential
Agrarian Reform Council (PARC),23 which is allegedly the body charged under RA 6657 with the task of
promulgating the rules for the schedule of acquisition and redistribution of agricultural lands. 24 No law has

allegedly been passed transferring the powers of the PARC to DAR; consequently, the various
administrative orders that it has issued to implement RA 6657 are ultra vires.
The petitioners also assail as undue and unlawful delegation to the Municipal Agrarian Reform Officers
(MAROs) the authority to issue notices of coverage and compulsory acquisition. Section 16 (a), quoted
earlier, provides that "[a]fter having identified the land, the landowners and the beneficiaries, the DAR
shall send its notice to acquire the land to the owners thereof x x x." According to the petitioners, this
function has been delegated to the DAR Secretary and it can and should only be exercised by the said
official. The DAR Secretary cannot allegedly delegate the same to a subordinate official or employee.
Consequently, the delegation by the DAR Secretary to the MAROs of the authority and discretion to send
the notices of coverage and compulsory acquisition involving sugar lands to be brought under RA 6657
allegedly constituted grave abuse of discretion amounting to lack or excess of jurisdiction.
Citing Section 4, Article XIII (Social Justice and Human Rights) which states in part that "[t]he State shall,
by law, undertake an agrarian reform program founded on the right of farmers and regular farmworkers,
who are landless, to own directly or collectively the lands they till x x x," the petitioners posit that only the
regular farmworkers or farmers are entitled to own the land they till. Further, this entitlement or right may
be waived or declined by the regular farmworkers or farmers. As a corollary, they must first express their
willingness or conformity to own the lands they are tilling before the DAR may allegedly send the notices
of coverage and acquisition.
Allegedly in violation thereof, notices of coverage and acquisition are being sent out by the DAR
"indiscriminately" without first identifying the land, the landowners and the beneficiaries. The petitioners
emphasize that, with respect to the regular farmworkers in sugar lands, a majority of the regular
farmworkers must first agree to exercise their right to own the land they till. In other words, the regular
farmworkers in sugar lands can exercise their right to own the land only collectively, not individually. If
they decide against the exercise of the said right, the DAR cannot choose to replace them with nonregular farmworkers or non-tillers thereon because they would not qualify as beneficiaries.
What is actually implemented in the sugar lands of the members of petitioners-federations is that the
DAR, allegedly in collusion with some non-governmental organizations (NGOs) and farmer organizations,
ejects and replaces the regular farmworkers with non-tillers, non-regular farmworkers or outsiders who
are falsely designated as "beneficiaries." These "beneficiaries" are then installed on the sugar lands with
the assistance of members of the Armed Forces of the Philippines (AFP) or the Philippine National Police
(PNP). The petitioners claim that these incidents have resulted in heightened tension and anxiety and
even violent confrontations in the sugar lands in the Visayas.
By these alleged acts, the petitioners charge the DAR with "deliberate and unmitigated distortion" of
Section 2225 of RA 6657. In contravention of the letter of the said provision, the DAR has allegedly
included landless residents who are non-tillers and who are outsiders as beneficiaries in the distribution of
private agricultural lands.
As an alternative mode of agrarian reform, the petitioners aver that the system of Land Administration, as
recognized in RA 3844, should continue to be allowed particularly in sugar lands. Labor
Administration,26 they explain, is a farming system that has been adopted and followed by sugar planters
in the operation of their farms. Under this system, the planters employ or hire farmworkers who supply the
labor required for the entire farm operations. Aside from their salaries and wages, which are covered by
the minimum wage law, the farmworkers also receive other benefits from the planters such as housing,
medical services and education for their children.
The petitioners contend that RA 6657 expressly recognizes Land Administration as an alternative mode
of agrarian reform as it defines "agrarian reform" in this wise:
SEC. 3. Definitions. For the purpose of this Act, unless the context indicates otherwise:

(a) Agrarian Reform means the redistribution of lands, regardless of crops or fruits produced, to farmer
and regular farmworkers who are landless, irrespective of tenurial arrangement, to include the totality of
factors and support services designed to lift the economic status of the beneficiaries and all other
arrangements alternative to the physical redistribution of lands, such as production or profit-sharing, labor
administration, and the distribution of shares of stock, which will allow beneficiaries to receive a just share
of the fruits of the lands they work.
Another indication that Land Administration is continued to be recognized in the operation of farms,
according to the petitioners, is the fact that after RA 6657, Congress amended the minimum wage law
several times to provide for the increase of the minimum wage not only for non-agricultural workers but
also for agricultural laborers. Also, in 1991, Congress enacted RA 698227 which, according to the
petitioners, granted wage and other benefits to workers in the sugar industry. The said law allegedly
recognized that the work in the sugar industry is seasonal. Implicit in these policies of minimum wage
increases and amelioration of benefits for sugar farmworkers is allegedly the recognition of the system of
Land Administration as a legitimate mode of agrarian reform.
Despite this recognition, the DAR has allegedly outlawed Land Administration as it is bent on acquiring
and distributing thousands of hectares of private agricultural lands. In so doing, the DAR is allegedly not
bothering to find out whether the alternative mode of agrarian reform, i.e., Land Administration, is already
in place and whether the regular farmworkers entitled to own the land want to exercise their right.
The petitioners explain that there are certain crops, and sugar is one of them, that are more economically
and efficiently produced by organized, mechanized and plantation-type agriculture than by small,
"parcelized" and owner-cultivated farms. This is allegedly especially true in the sugar producing regions in
the Visayas where planting and harvesting of sugarcane have to be synchronized with the milling season
of the sugar mill in a particular district. The peculiar nature of the sugar industry is allegedly the reason
why RA 3844, RA 6982 and other laws have recognized Labor Administration as an alternative mode of
agrarian reform.
The petitioners stress that the mandate of the Constitution is not only to give the landless farmers and
regular farmworkers the right to own the land they till but also the right to receive a just share of the fruits
of the land. If these farmers then choose not to exercise their right to own the land they till, then it
allegedly behooves the DAR to see to it that the other laws, such as the minimum wage law and RA
6982, are implemented to afford the farmworkers a "just share of the fruits of the land." Instead, the DAR,
by its stance of singularly implementing RA 6657, is allegedly violating the rights of the sugar farmworkers
guaranteed by other applicable laws.28 Specifically, the DAR is ousting regular farmworkers and installing
outsiders to take over the lands.
The DAR is further allegedly committing grave abuse of discretion by assuming jurisdiction, through the
Department of Agrarian Reform Adjudication Board (DARAB), over cases and controversies which, by
virtue of Batas Pambansa Blg. (BP) 129, known as "The Judiciary Reorganization Act," are properly
cognizable by the Regional Trial Courts (RTCs). The petitioners note that prior to BP 129, "cases
involving expropriation of all kinds of land in furtherance of the agrarian reform program" and
"expropriation proceedings for public purpose of all kinds of tenanted agricultural lands x x x" 29 were
exclusively within the jurisdiction of the Court of Agrarian Relations (CAR). With the enactment of BP 129,
the CAR was abolished and cases under its jurisdiction were transferred to the exclusive and original
jurisdiction of RTCs. The petitioners advance the view that RA 6657 did not repeal BP 129 such that the
RTCs are not divested of their exclusive and original jurisdiction over cases formerly under the jurisdiction
of the CAR. This is so, according to the petitioners, because the jurisdiction of the CAR involved the
exercise of judicial power that could not be properly transferred to an administrative body like the DAR.
The latters jurisdiction is allegedly limited only to matters involving the administrative implementation of
agrarian reform laws, e.g., disputes and controversies "relating to tenurial arrangements."
With respect to the Land Bank, the petitioners allege that in the light of the Courts pronouncement in
Association of Small Landowners that "the determination made by the DAR is only preliminary unless

accepted by all parties concerned, [o]therwise, the courts of justice will still have the right to review with
finality the said determination in the exercise of what is admittedly a judicial function," the Land Bank
cannot effect the payment of compensation as determined by the DAR which is considered as
preliminary. The Land Bank must allegedly wait until such compensation is determined with finality by the
courts.
The Land Registration Authority is similarly assailed as committing grave abuse of discretion since it,
through the various Registers of Deeds in the country and particularly in the sugar producing regions in
the Visayas, has been allegedly summarily canceling certificates of title merely upon the directive or
request of the DAR and without the knowledge and consent of the registered owners. In violation of the
pertinent provisions30 of the Land Registration Act (Act No. 496), the Registers of Deeds are allegedly
canceling certificates of title of landowners without asking them to surrender their owners duplicate
certificates of titles.
The petitioners thus pray, inter alia, for the issuance of a writ to prohibit the DAR, the Land Bank and the
Land Registration Authority from subjecting the petitioners sugarcane farms to eminent domain or
compulsory acquisition without filing the necessary expropriation proceedings pursuant to the provisions
of Rule 67 of the Rules of Court and/or without the application or conformity of a majority of the regular
farmworkers on said farms. The petitioners likewise pray that paragraphs (d), (e) and (f) of Section 16 of
RA 6657 be declared unconstitutional.
The Respondents Counter-Arguments
The Land Bank urges the Court to dismiss the petition since the constitutionality of RA 6657 had already
been categorically upheld by the Court in Association of Small Landowners. Further, some of the grounds
relied upon by the petitioners allege matters that require factual determination. For example, the
allegation that the DAR is subjecting the sugar lands to the coverage of RA 6657 without first ascertaining
whether there are regular farmworkers therein and whether they are interested to own, directly or
collectively, the land they till, allegedly requires factual determination. Considering that the Court is not a
trier of facts, the Land Bank argues that these matters are better threshed out in a trial court.
Refuting the petitioners, the Land Bank asserts that taking of private property for agrarian reform
purposes can be effected even without full payment of just compensation. It cites the following
commentary of Fr. Bernas:
xxxx
IS SUCH RIGHT OF IMMEDIATE ENTRY CONSTITUTIONAL? x x x Reviewing conflicting American
authorities, the Court said that "ACCORDING TO THE WEIGHT OF AUTHORITY, IF THE
CONSTITUTION OR STATUTES DO NOT EXPRESSLY REQUIRE IT, ACTUAL PAYMENT OR
TENDER BEFORE TAKING IS UNNECESSARY, and it will be sufficient if a certain and adequate remedy
is provided by which the owner can obtain compensation without any unreasonable delay." THE COURT
OPTED FOR THIS MORE LIBERAL VIEW and found that the statute in question with its provision for
deposit of the money with the court satisfied constitutional requirements.31
The Land Bank is also of the view that the framers of the Constitution did not intend to require full
payment of just compensation before taking of private lands for agrarian reform purposes could be
effected. It cites Fr. Bernas anew:
xxx
ANOTHER MATTER TAKEN UP BY THE COMMISSION WAS THE PROPOSAL TO REQUIRE PRIOR
PAYMENT OF JUST COMPENSATION IN LAND REFORM EXPROPRIATIONS. Commissioner
Regalado proposed the amendment as a measure to protect the interest of landowners. Regalados

explanation, however, revealed that ALL HE WANTED WAS WHAT ALREADY OBTAINS IN
EXPROPRIATION LAWS WHICH REQUIRES A COURT DEPOSIT PRIOR TO ENTRY INTO THE
CONDEMNED PROPERTY. BUT REGALADO WAS SATISFIED WHEN THIS MEANING WAS
ACCEPTED BY THE COMMISSION and he did not insist on an explicit constitutional provision. 32
By insisting that title should remain with the landowners until the issue of just compensation is finally
adjudicated by the courts, the petitioners allegedly simply want to interminably delay the acquisition of
lands covered by RA 6657.
Debunking the petitioners argument that it may have been "unwise" and "impractical" for Congress to
include sugar lands within the coverage of RA 6657 as certain crops, including sugar, are more efficiently
and more economically produced by organized, mechanized, plantation-type agriculture than by small,
"parcelized," owner-cultivated farms, the Land Bank opines that the wisdom, morality or practicability of
acquiring sugar lands for agrarian reform is beyond the ambit of judicial review. The remedy to address
this issue, according to the Land Bank, is legislative not judicial. Absent any amendment to RA 6657 with
respect to its coverage, there can be no basis to prohibit the DAR and the Land Bank from acquiring all
agricultural lands, sugar lands included, for purposes of agrarian reform.
The Land Bank thus denies committing any grave abuse of discretion in "making or causing the payment
of the initial amount of valuation regarding private lands acquired pursuant to RA 6657 notwithstanding
the lack of finality of the decision adjudging the amount of just compensation of subject properties." 33
Through the Office of the Solicitor General, the DAR urges the Court to dismiss the petition outright on
the ground that it is premature. It avers that when issues of constitutionality are raised, as in this case, the
Court can exercise its power of judicial review only if the following requisites are present: (1) an actual
and appropriate case exists; (2) a personal and substantial interest of the party raising the constitutional
question; (3) the exercise of judicial review is pleaded at the earliest possible opportunity; and (4) the
constitutional question is the lis mota of the case.34
In the present case, the DAR contends that the first requisite, i.e., the existence of an actual or
appropriate case, is not attendant. There is allegedly no showing that the petitioners sugar lands have
been subjected to compulsory acquisition by the DAR. Even the petition itself is allegedly devoid of such
allegation. Accordingly, there is no actual case or controversy to speak of and the instant petition is, at
best, premature.
In this connection, the DAR informs the Court that the concerns of the petitioners are appropriately within
the domain of the Task Force Sugarlandia, created pursuant to Memorandum Order No. 199 dated
December 5, 2005 issued by President Gloria Macapagal-Arroyo, which reads:
Section 2. Powers and Functions. Task Force Sugarlandia shall exercise the following powers and
functions:

a. Conduct and complete a study identifying and addressing specific problems in the
implementation of the Comprehensive Agrarian Reform Program as provided under Republic
Act 6657 directly affecting the development of the sugar industry and conduct consultations
in areas to be identified by the Task Force;
b. Submit recommendations to the President on the formulation of policies, plans, programs
and projects relative to the development of the sugar industry and implementation of the
ethanol program;
c. Recommend modifications/amendments to existing laws, rules, regulations and
procedures to remove impediments in the immediate, effective and efficient implementation

of the programs and activities relative to the Comprehensive Agrarian Reform Program
under Republic Act 6657;
d. Enlist the assistance of any branch, department, bureau, office, agency or instrumentality
of the Government, including government-owned and controlled corporations, to carry out
the provisions of this Memorandum Order;
e. Perform such other functions as may be directed by the President.
Anent the alleged unconstitutionality of paragraphs (d), (e) and (f) of Section 16 of RA 6657, the DAR
invokes Association of Small Landowners which affirmed the constitutionality of the said law.
For its part, the Land Registration Authority observes that it was impleaded as a nominal party;
nonetheless, it adopts the Comment of the DAR as its own.
The Courts Rulings
The petition lacks merit.
The validity of Section 16, including paragraphs (d), (e) and (f) thereof, of RA 6657 has already been
affirmed in Association of Small Landowners
In Association of Small Landowners, the Court categorically passed upon and upheld the validity of
Section 16 of RA 6657, including paragraphs (d), (e) and (f), which sets forth the manner of acquisition of
private agricultural lands and ascertainment of just compensation, in this wise:
Where the State itself is the expropriator, it is not necessary for it to make a deposit upon its taking
possession of the condemned property, as "the compensation is a public charge, the good faith of the
public is pledged for its payment, and all the resources of taxation may be employed in raising the
amount." Nevertheless, Section 16(e) of the CARP Law provides that:
Upon receipt by the landowner of the corresponding payment, or in case of rejection or no response from
the landowner, upon the deposit with an accessible bank designated by the DAR of the compensation in
cash or in LBP bonds in accordance with this Act, the DAR shall take immediate possession of the land
and shall request the proper Register of Deeds to issue a Transfer Certificate of Title (TCT) in the name
of the Republic of the Philippines. The DAR shall thereafter proceed with the redistribution of the land to
the qualified beneficiaries.
Objection is raised, however, to the manner of fixing the just compensation, which it is claimed is
entrusted to the administrative authorities in violation of judicial prerogatives. Specific reference is made
to Section 16(d), which provides that in case of the rejection or disregard by the owner of the offer of the
government to buy his land x x x the DAR shall conduct summary administrative proceedings to determine the compensation for the
land by requiring the landowner, the LBP and other interested parties to submit evidence as to the just
compensation for the land, within fifteen (15) days from the receipt of the notice. After the expiration of the
above period, the matter is deemed submitted for decision. The DAR shall decide the case within thirty
(30) days after it is submitted for decision.
To be sure, the determination of just compensation is a function addressed to the courts of justice and
may not be usurped by any other branch or official of the government. EPZA v. Dulay resolved a
challenge to several decrees promulgated by President Marcos providing that the just compensation for
property under expropriation should be either the assessment of the property by the government or the

sworn valuation thereof by the owner, whichever was lower. In declaring these decrees unconstitutional,
the Court held through Mr. Justice Hugo E. Gutierrez, Jr.:
The method of ascertaining just compensation under the aforecited decrees constitutes impermissible
encroachment on judicial prerogatives. It tends to render this Court inutile in a matter which under this
Constitution is reserved to it for final determination.
Thus, although in an expropriation proceeding the court technically would still have the power to
determine the just compensation for the property, following the applicable decrees, its task would be
relegated to simply stating the lower value of the property as declared either by the owner or the
assessor. As a necessary consequence, it would be useless for the court to appoint commissioners under
Rule 67 of the Rules of Court. Moreover, the need to satisfy the due process clause in the taking of
private property is seemingly fulfilled since it cannot be said that a judicial proceeding was not had before
the actual taking. However, the strict application of the decrees during the proceedings would be nothing
short of a mere formality or charade as the court has only to choose between the valuation of the owner
and that of the assessor, and its choice is always limited to the lower of the two. The court cannot
exercise its discretion or independence in determining what is just and fair. Even a grade school pupil
could substitute for the judge insofar as the determination of constitutional just compensation is
concerned.
xxx
In the present petition, we are once again confronted with the same question of whether the courts under
P.D. No. 1533, which contains the same provision on just compensation as its predecessor decrees, still
have the power and authority to determine just compensation, independent of what is stated by the
decree and to this effect, to appoint commissioners for such purpose.
This time we answer in the affirmative.
xxx
It is violative of due process to deny the owner the opportunity to prove that the valuation in the tax
documents is unfair or wrong. And it is repulsive to the basic concepts of justice and fairness to allow the
haphazard work of a minor bureaucrat or clerk to absolutely prevail over the judgment of a court
promulgated only after expert commissioners have actually viewed the property, after evidence and
arguments pro and con have been presented, and after all factors and considerations essential to a fair
and just determination have been judiciously evaluated.
A reading of the aforecited Section 16(d) will readily show that it does not suffer from the arbitrariness that
rendered the challenged decrees constitutionally objectionable. Although the proceedings are described
as summary, the landowner and other interested parties are nevertheless allowed an opportunity to
submit evidence on the real value of the property. But more importantly, the determination of the just
compensation by the DAR is not by any means final and conclusive upon the landowner or any other
interested party, for Section(f) clearly provides:
(f) Any party who disagrees with the decision may bring the matter to the court of proper jurisdiction for
final determination of just compensation.
The determination made by the DAR is only preliminary unless accepted by all parties concerned.
Otherwise, the courts of justice will still have the right to review with finality the said determination in the
exercise of what is admittedly a judicial function.35

On the matter of when transfer of possession and ownership of the land to the Government is reckoned,
Association of Small Landowners instructs:
The CARP Law, for its part, conditions the transfer of possession and ownership of the land to the
government on receipt by the landowner of the corresponding payment or the deposit by the DAR of the
compensation in cash or LBP bonds with an accessible bank. Until then, title also remains with the
landowner. No outright change of ownership is contemplated either.36
The foregoing disquisition is binding and applicable to the present case following the salutary doctrine of
stare decisis et non quieta movere which means "to adhere to precedents, and not to unsettle things
which are established."37 Under the doctrine, when the Supreme Court has once laid down a principle of
law as applicable to a certain state of facts, it will adhere to that principle, and apply it to all future cases,
where facts are substantially the same; regardless of whether the parties and property are the
same.38 The doctrine of stare decisis is based upon the legal principle or rule involved and not upon the
judgment which results therefrom. In this particular sense stare decisis differs from res judicata which is
based upon the judgment.39
The doctrine of stare decisis is one of policy grounded on the necessity for securing certainty and stability
of judicial decisions, thus:
Time and again, the Court has held that it is a very desirable and necessary judicial practice that when a
court has laid down a principle of law as applicable to a certain state of facts, it will adhere to that
principle and apply it to all future cases in which the facts are substantially the same. Stare decisis et non
quieta movere. Stand by the decisions and disturb not what is settled. Stare decisis simply means that for
the sake of certainty, a conclusion reached in one case should be applied to those that follow if the facts
are substantially the same, even though the parties may be different. It proceeds from the first principle of
justice that, absent any powerful countervailing considerations, like cases ought to be decided alike.
Thus, where the same questions relating to the same event have been put forward by the parties similarly
situated as in a previous case litigated and decided by a competent court, the rule of stare decisis is a bar
to any attempt to relitigate the same.40
A careful reading of the petition shows that while it purports to be one for prohibition and mandamus, it
practically seeks a reconsideration, albeit partial, of the Decision in Association of Small Landowners. It is
noted that in G.R. 79310, one of the consolidated cases therein, the petitioners were landowners and
sugar planters in Victorias, Negros Occidental and Planters Committee, Inc., an organization composed
of 1,400 planter-members. Also allowed to intervene as petitioner therein was the National Federation of
Sugarcane Planters, presumably the same organization as one of the petitioners in this case, which then
claimed to represent its members of at least 20,000 individual sugar planters all over the country. The
Decision in Association of Small Landowners is thus final and conclusive on these parties not only on the
ground of stare decisis, but res judicata as well.
In any case, despite its lengthy discussion, the petition has failed to present any cogent argument for the
Court to re-examine Association of Small Landowners. As correctly observed by the Solicitor General, the
petition does not allege that the farm lands of any of the petitioners have actually been subjected to
compulsory acquisition or, at the least, that the DAR, following Section 16 of RA 6657, has actually given
any of the petitioners notice that it is acquiring their respective properties for the purpose of agrarian
reform. In other words, the allegations of the petition have failed to present an actual case or controversy,
or that it is ripe for adjudication, which would warrant the Courts re-examination of its rulings in
Association of Small Landowners, including those pertaining to the validity of Section 16, including
paragraphs (d), (e) and (f), of RA 6657.
DARs compulsory acquisition procedure is based on Section 16 of RA 6657. It does not, in any way,
preclude judicial determination of just compensation

Contrary to the petitioners submission that the compulsory acquisition procedure adopted by the DAR is
without legal basis, it is actually based on Section 16 of RA 6657. Under the said law, there are two
modes of acquisition of private agricultural lands: compulsory and voluntary. The procedure for
compulsory acquisition is that prescribed under Section 16 of RA 6657.
In Roxas & Co., Inc. v. Court of Appeals,41 the Court painstakingly outlined the procedure for compulsory
acquisition, including the administrative orders issued by the DAR in relation thereto, in this manner:
In the compulsory acquisition of private lands, the landholding, the landowners and the farmer
beneficiaries must first be identified. After identification, the DAR shall send a Notice of Acquisition to the
landowner, by personal delivery or registered mail, and post it in a conspicuous place in the municipal
building and barangay hall of the place where the property is located. Within thirty days from receipt of the
Notice of Acquisition, the landowner, his administrator or representative shall inform the DAR of his
acceptance or rejection of the offer. If the landowner accepts, he executes and delivers a deed of transfer
in favor of the government and surrenders the certificate of title. Within thirty days from the execution of
the deed of transfer, the Land Bank of the Philippines (LBP) pays the owner the purchase price. If the
landowner rejects the DARs offer or fails to make a reply, the DAR conducts summary administrative
proceedings to determine just compensation for the land. The landowner, the LBP representative and
other interested parties may submit evidence on just compensation within fifteen days from notice. Within
thirty days from submission, the DAR shall decide the case and inform the owner of its decision and the
amount of just compensation. Upon receipt by the owner of the corresponding payment, or, in case of
rejection or lack of response from the latter, the DAR shall deposit the compensation in cash or in LBP
bonds with an accessible bank. The DAR shall immediately take possession of the land and cause the
issuance of a transfer certificate of title in the name of the Republic of the Philippines. The land shall then
be redistributed to the farmer beneficiaries. Any party may question the decision of the DAR in the regular
courts for final determination of just compensation.
The DAR has made compulsory acquisition the priority mode of land acquisition to hasten the
implementation of the Comprehensive Agrarian Reform Program (CARP). Under Section 16 of the CARL,
the first step in compulsory acquisition is the identification of the land, the landowners and the
beneficiaries. However, the law is silent on how the identification process must be made. To fill in this
gap, the DAR issued on July 26, 1989 Administrative Order No. 12, Series of 1989, which set the
operating procedure in the identification of such lands. The procedure is as follows:
"II. OPERATING PROCEDURE
A. The Municipal Agrarian Reform Officer, with the assistance of the pertinent Barangay Agrarian Reform
Committee (BARC), shall:

1. Update the master list of all agricultural lands covered under the CARP in his area of
responsibility. The master list shall include such information as required under the attached
CARP Master List Form which shall include the name of the landowner, landholding area,
TCT/OCT number, and tax declaration number.
2. Prepare a Compulsory Acquisition Case Folder (CACF) for each title (OCT/TCT) or
landholding covered under Phase I and II of the CARP except those for which the
landowners have already filed applications to avail of other modes of land acquisition. A case
folder shall contain the following duly accomplished forms:
a) CARP CA Form 1MARO Investigation Report
b) CARP CA Form 2-- Summary Investigation Report of Findings and Evaluation

c) CARP CA Form 3Applicants Information Sheet

d) CARP CA Form 4Beneficiaries Undertaking
e) CARP CA Form 5Transmittal Report to the PARO
The MARO/ BARC shall certify that all information contained in the above-mentioned forms
have been examined and verified by him and that the same are true and correct.
3. Send a Notice of Coverage and a letter of invitation to a conference/ meeting to the
landowner covered by the Compulsory Case Acquisition Folder. Invitations to the said
conference/ meeting shall also be sent to the prospective farmer-beneficiaries, the BARC
representative(s), the Land Bank of the Philippines (LBP) representative and other interested
parties to discuss the inputs to the valuation of the property. He shall discuss the MARO/
BARC investigation report and solicit the views, objection, agreements or suggestions of the
participants thereon. The landowner shall also be asked to indicate his retention area. The
minutes of the meeting shall be signed by all participants in the conference and shall form an
integral part of the CACF.
4. Submit all completed case folders to the Provincial Agrarian Reform Officer (PARO).
B. The PARO shall:

1. Ensure that the individual case folders are forwarded to him by his MAROs.
2. Immediately upon receipt of a case folder, compute the valuation of the land in
accordance with A.O. No. 6, Series of 1988. The valuation worksheet and the related CACF
valuation forms shall be duly certified correct by the PARO and all the personnel who
participated in the accomplishment of these forms.
3. In all cases, the PARO may validate the report of the MARO through ocular inspection and
verification of the property. This ocular inspection and verification shall be mandatory when
the computed value exceeds 500,000 per estate.
4. Upon determination of the valuation, forward the case folder, together with the duly
accomplished valuation forms and his recommendations, to the Central Office. The LBP
representative and the MARO concerned shall be furnished a copy each of his report.
C. DAR Central Office, specifically through the Bureau of Land Acquisition and Distribution (BLAD), shall:

1. Within three days from receipt of the case folder from the PARO, review, evaluate and
determine the final land valuation of the property covered by the case folder. A summary
review and evaluation report shall be prepared and duly certified by the BLAD Director and
the personnel directly participating in the review and final valuation.
2. Prepare, for the signature of the Secretary or her duly authorized representative, a Notice
of Acquisition (CARP CA Form 8) for the subject property. Serve the Notice to the landowner
personally or through registered mail within three days from its approval. The Notice shall
include, among others, the area subject of compulsory acquisition, and the amount of just
compensation offered by DAR.

3. Should the landowner accept the DARs offered value, the BLAD shall prepare and submit
to the Secretary for approval the Order of Acquisition. However, in case of rejection or nonreply, the DAR Adjudication Board (DARAB) shall conduct a summary administrative hearing
to determine just compensation, in accordance with the procedures provided under
Administrative Order No. 13, Series of 1989. Immediately upon receipt of the DARABs
decision on just compensation, the BLAD shall prepare and submit to the Secretary for
approval the required Order of Acquisition.
4. Upon the landowners receipt of payment, in case of acceptance, or upon deposit of
payment in the designated bank, in case of rejection or non-response, the Secretary shall
immediately direct the pertinent Register of Deeds to issue the corresponding Transfer
Certificate of Title (TCT) in the name of the Republic of the Philippines. Once the property is
transferred, the DAR, through the PARO, shall take possession of the land for redistribution
to qualified beneficiaries."
Administrative Order No. 12, Series of 1989 requires that the Municipal Agrarian Reform Officer (MARO)
keep an updated master list of all agricultural lands under the CARP in his area of responsibility
containing all the required information. The MARO prepares a Compulsory Acquisition Case Folder
(CACF) for each title covered by CARP. The MARO then sends the landowner a "Notice of Coverage"
and a "letter of invitation" to a "conference/ meeting" over the land covered by the CACF. He also sends
invitations to the prospective farmer-beneficiaries, the representatives of the Barangay Agrarian Reform
Committee (BARC), the Land Bank of the Philippines (LBP) and other interested parties to discuss the
inputs to the valuation of the property and solicit views, suggestions, objections or agreements of the
parties. At the meeting, the landowner is asked to indicate his retention area.
The MARO shall make a report of the case to the Provincial Agrarian Reform Officer (PARO) who shall
complete the valuation of the land. Ocular inspection and verification of the property by the PARO shall
be mandatory when the computed value of the estate exceeds P500,000.00. Upon determination of the
valuation, the PARO shall forward all papers together with his recommendation to the Central Office of
the DAR. The DAR Central Office, specifically, the Bureau of Land Acquisition and Distribution (BLAD),
shall review, evaluate and determine the final land valuation of the property. The BLAD shall prepare, on
the signature of the Secretary or his duly authorized representative, a Notice of Acquisition for the subject
property. From this point, the provisions of Section 16 of R.A. 6657 then apply.
For a valid implementation of the CAR Program, two notices are required: (1) the Notice of Coverage and
letter of invitation to a preliminary conference sent to the landowner, the representatives of the BARC,
LBP, farmer beneficiaries and other interested parties pursuant to DAR A. O. No. 12, Series of 1989; and
(2) the Notice of Acquisition sent to the landowner under Section 16 of the CARL.
The importance of the first notice, i.e., the Notice of Coverage and the letter of invitation to the
conference, and its actual conduct cannot be understated. They are steps designed to comply with the
requirements of administrative due process. The implementation of the CARL is an exercise of the States
police power and the power of eminent domain. To the extent that the CARL prescribes retention limits to
the landowners, there is an exercise of police power for the regulation of private property in accordance
with the Constitution. But where, to carry out such regulation, the owners are deprived of lands they own
in excess of the maximum area allowed, there is also a taking under the power of eminent domain. The
taking contemplated is not a mere limitation of the use of the land. What is required is the surrender of the
title to and physical possession of the said excess and all beneficial rights accruing to the owner in favor
of the farmer beneficiary. The Bill of Rights provides that "[n]o person shall be deprived of life, liberty or
property without due process of law." The CARL was not intended to take away property without due
process of law. The exercise of the power of eminent domain requires that due process be observed in
the taking of private property.

DAR A. O. No. 12, Series of 1989, from whence the Notice of Coverage first sprung, was amended in
1990 by DAR A.O. No. 9, Series of 1990 and in 1993 by DAR A.O. No. 1, Series of 1993. The Notice of
Coverage and letter of invitation to the conference meeting were expanded and amplified in said
amendments.
DAR A. O. No. 9, Series of 1990 entitled "Revised Rules Governing the Acquisition of Agricultural Lands
Subject of Voluntary Offer to Sell and Compulsory Acquisition Pursuant to R. A. 6657," requires that:
"B. MARO

1. Receives the duly accomplished CARP Form Nos. 1 & 1.1 including supporting
documents.
2. Gathers basic ownership documents listed under 1.a or 1.b above and prepares
corresponding VOCF/ CACF by landowner/ landholding.
3. Notifies/ invites the landowner and representatives of the LBP, DENR, BARC and
prospective beneficiaries of the schedule of ocular inspection of the property at least one
week in advance.
4. MARO/ LAND BANK FIELD OFFICE/ BARC
a) Identify the land and landowner, and determine the suitability for agriculture and
productivity of the land and jointly prepare Field Investigation Report (CARP Form
No. 2), including the Land Use Map of the property.
b) Interview applicants and assist them in the preparation of the Application For
Potential CARP Beneficiary (CARP Form No. 3).
c) Screen prospective farmer-beneficiaries and for those found qualified, cause the
signing of the respective Application to Purchase and Farmers Undertaking (CARP
Form No. 4).
d) Complete the Field Investigation Report based on the result of the ocular
inspection/ investigation of the property and documents submitted. See to it that Field
Investigation Report is duly accomplished and signed by all concerned.
5. MARO
a) Assists the DENR Survey Party in the conduct of a boundary/ subdivision survey
delineating areas covered by OLT, retention, subject of VOS, CA (by phases, if
possible), infrastructures, etc., whichever is applicable.
b) Sends Notice of Coverage (CARP Form No. 5) to landowner concerned or his duly
authorized representative inviting him for a conference.
c) Sends Invitation Letter (CARP Form No. 6) for a conference/ public hearing to
prospective farmer-beneficiaries, landowner, representatives of BARC, LBP, DENR,
DA, NGOs, farmers organizations and other interested parties to discuss the
following matters:

Result of Field Investigation

Inputs to valuation
Issues raised
Comments/ recommendations by all parties concerned.
d) Prepares Summary of Minutes of the conference/ public hearing to be guided by CARP
Form No. 7.
e) Forwards the completed VOCF/CACF to the Provincial Agrarian Reform Office (PARO)
using CARP Form No. 8 (Transmittal Memo to PARO).
x x x."
DAR A. O. No. 9, Series of 1990 lays down the rules on both Voluntary Offer to Sell (VOS) and
Compulsory Acquisition (CA) transactions involving lands enumerated under Section 7 of the CARL. In
both VOS and CA transactions, the MARO prepares the Voluntary Offer to Sell Case Folder (VOCF) and
the Compulsory Acquisition Case Folder (CACF), as the case may be, over a particular landholding. The
MARO notifies the landowner as well as representatives of the LBP, BARC and prospective beneficiaries
of the date of the ocular inspection of the property at least one week before the scheduled date and
invites them to attend the same. The MARO, LBP or BARC conducts the ocular inspection and
investigation by identifying the land and landowner, determining the suitability of the land for agriculture
and productivity, interviewing and screening prospective farmer beneficiaries. Based on its investigation,
the MARO, LBP or BARC prepares the Field Investigation Report which shall be signed by all parties
concerned. In addition to the field investigation, a boundary or subdivision survey of the land may also be
conducted by a Survey Party of the Department of Environment and Natural Resources (DENR) to be
assisted by the MARO. This survey shall delineate the areas covered by Operation Land Transfer (OLT),
areas retained by the landowner, areas with infrastructure, and the areas subject to VOS and CA. After
the survey and field investigation, the MARO sends a "Notice of Coverage" to the landowner or his duly
authorized representative inviting him to a conference or public hearing with the farmer beneficiaries,
representatives of the BARC, LBP, DENR, Department of Agriculture (DA), non-government
organizations, farmers organizations and other interested parties. At the public hearing, the parties shall
discuss the results of the field investigation, issues that may be raised in relation thereto, inputs to the
valuation of the subject landholding, and other comments and recommendations by all parties concerned.
The Minutes of the conference/ public hearing shall form part of the VOCF or CACF which files shall be
forwarded by the MARO to the PARO. The PARO reviews, evaluates and validates the Field Investigation
Report and other documents in the VOCF/ CACF. He then forwards the records to the RARO for another
review.
DAR A. O. No. 9, Series of 1990 was amended by DAR A. O. No. 1, Series of 1993. DAR A. O. No. 1,
Series of 1993 provided, among others, that:

"IV. OPERATING PROCEDURES:

"Steps

Responsible
Agency/Unit

Activity
Forms/Document
(Requirements)

A. Identification and Documentation

xxx
5

DARMO Issues Notice of Coverage to

Form No. 2

LO CARP by personal
delivery with proof of service,
or by registered mail with
return card, informing him
that his property is now under
CARP coverage and for LO to
select his retention area, if he
desires to avail of his right of
retention; and at the same
time invites him to join the
field investigation to be
conducted on his property
which should be scheduled at
least two weeks in advance of
said notice.
A copy of said Notice shall be CARP Form No.
posted for at least one week 17
on bulletin board of the
municipal and barangay halls
where the property is located.
LGU office concerned notifies
DAR about compliance with
posting requirement thru
return indorsement on CARP
Form No. 17. Notify
prospective ARBs of the
schedule of the field 6
DARMO Sends notice to the
LBP, BARC, Form No.3
CARP DENR representatives
and prospective ARBs of the
schedule of the field
investigation to be conducted
on the subject property.
7

DARMO
LBP
DENR
Local
Office

With the participation of LO,

CARP BARC No. representatives
BARC, and DENR
4 Land Use Map of the LBP
prospective ARBs, conducts
Form
the investigation on subject
Office property to identify the
landholding, deter- mines its
suitability and product- vity;
and jointly prepares the Field
Investigation Report (FIR)
and Land Use Map. However,
the field investigation shall
proceed even if the LO, the
representatives of the DENR
and prospective ARBs are not
available provided, they were
given due notice of the time
and date of the investigation
to be conducted. Similarly, if

the LBP representative is not

available or court or could not
come on the scheduled date,
the field investigation shall
also be conducted, after
which the duly accomplished
Part I of CARP Form No. 4
shall be forwarded to the LBP
representative for validation.
If he agrees to the ocular
inspection report of DAR, he
signs the FIR (Part I) and
accomplishes Part II thereof.
In the event that there is a difference or variance between the
findings of the DAR and the LBP as to the propriety of covering
the land under CARP, whether in whole or in part, on the issue of
suitability to agriculture, degree of development or slope, and on
issues affecting idle lands, the conflict shall be resolved by a
composite team of DAR, LBP, DENR and DA which shall jointly
conduct further investigation thereon. The team shall submit its
report of findings which shall be binding to both DAR and LBP,
pursuant to Joint Memorandum Circular of the DAR, LBP, DENR
and DA dated 27 January 1992. 8 DARMO Screens prospective
ARBS and CARP BARC causes the signing of Application Form of
Purchase and Farmers' under- No. 5 taking (APFU).
9

DARMO Furnishes a copy of the duly CARP Form No.

accomplished FIR to the
4
landowner by personal
delivery with proof of service
or regis- tered mail with return
card and posts a copy thereof
for at least one week on the
bulletin board of the municipal
and barangay halls where the
property is located.
LGU office concerned notifies CARP Form No.
notifies DAR about posting
17
requirement thru return
endorsement on CARP Form
No. 17.
B. Land Survey

10 DARMO
and/or
Local
Office

Conducts perimeter or
segregation survey covered
by OLT , "uncarpable areas
such as 18% slope and
above, unproductive/unsuitable to agriculture, retention,
infrastructure. In case of
segregation or subdivision
survey, the plan shall be

Perimeter
or
Survey Plan

DENR
delineating
areas
Segregation

approved by DENR-LMS.
C. Review and Completion of Documents.
11 DARMO Forwards VOCF/CACFto
DARPO.

CARP Form No 6

x x x."
DAR A. O. No. 1, Series of 1993, modified the identification process and increased the number of
government agencies involved in the identification and delineation of the land subject to acquisition. This
time, the Notice of Coverage is sent to the landowner before the conduct of the field investigation and the
sending must comply with specific requirements. Representatives of the DAR Municipal Office (DARMO)
must send the Notice of Coverage to the landowner by "personal delivery with proof of service, or by
registered mail with return card," informing him that his property is under CARP coverage and that if he
desires to avail of his right of retention, he may choose which area he shall retain. The Notice of
Coverage shall also invite the landowner to attend the field investigation to be scheduled at least two
weeks from notice. The field investigation is for the purpose of identifying the landholding and determining
its suitability for agriculture and its productivity. A copy of the Notice of Coverage shall be posted for at
least one week on the bulletin board of the municipal and barangay halls where the property is located.
The date of the field investigation shall also be sent by the DAR Municipal Office to representatives of the
LBP, BARC, DENR and prospective farmer beneficiaries. The field investigation shall be conducted on
the date set with the participation of the landowner and the various representatives. If the landowner and
other representatives are absent, the field investigation shall proceed, provided they were duly notified
thereof. Should there be a variance between the findings of the DAR and the LBP as to whether the land
be placed under agrarian reform, the lands suitability to agriculture, the degree or development of the
slope, etc., the conflict shall be resolved by a composite team of the DAR, LBP, DENR and DA which
shall jointly conduct further investigation. The teams findings shall be binding on both DAR and LBP.
After the field investigation, the DAR Municipal Office shall prepare the Field Investigation Report and
Land Use Map, a copy of which shall be furnished the landowner "by personal delivery with proof of
service or registered mail with return card." Another copy of the Report and Map shall likewise be posted
for at least one week in the municipal or barangay halls where the property is located.
Clearly then, the notice requirements under the CARL are not confined to the Notice of Acquisition set
forth in Section 16 of the law. They also include the Notice of Coverage first laid down in DAR A. O. No.
12, Series of 1989 and subsequently amended in DAR A. O. No. 9, Series of 1990 and DAR A. O. No. 1,
Series of 1993. This Notice of Coverage does not merely notify the landowner that his property shall be
placed under CARP and that he is entitled to exercise his retention right; it also notifies him, pursuant to
DAR A. O. No. 9, Series of 1990, that a public hearing shall be conducted where he and representatives
of the concerned sectors of society may attend to discuss the results of the field investigation, the land
valuation and other pertinent matters. Under DAR A. O. No. 1, Series of 1993, the Notice of Coverage
also informs the landowner that a field investigation of his landholding shall be conducted where he and
the other representatives may be present.42
The procedure prescribed in Section 16 of RA 6657 is a summary administrative proceeding. As outlined
in Roxas, the said procedure, taken together with the pertinent administrative issuances of the DAR,
ensures compliance with the due process requirements of the law. More importantly, this summary
administrative proceeding does not preclude judicial
determination of just compensation. In fact, paragraph (e) of Section 16 of RA 6657 is categorical on this
point as it provides that "[a]ny party who disagrees with the decision may bring the matter to the court of
proper jurisdiction for final determination of just compensation."
In Land Bank of the Philippines v. Court of Appeals,43 the Court underscored that the jurisdiction of the
RTCs, sitting as Special Agrarian Courts, over petitions for the determination of just compensation is

original and exclusive as provided in Section 5744 of RA 6657. As such, direct resort to the RTC, sitting as
a Special Agrarian Court, is valid:
x x x It is clear from Sec. 57 that the RTC, sitting as a Special Agrarian Court, has "original and exclusive
jurisdiction over all petitions for the determination of just compensation to landowners." This "original and
exclusive" jurisdiction of the RTC would be undermined if the DAR would vest in administrative officials
original jurisdiction in review of administrative decisions. Thus, although the new rules speak of directly
appealing the decision of adjudicators to the RTCs sitting as Special Agrarian Courts, it is clear from Sec.
57 that the original and exclusive jurisdiction to determine such cases is in the RTCs. Any effort to
transfer such jurisdiction of the RTCs into an appellate jurisdiction would be contrary to Sec. 57 and
therefore would be void. Thus, direct resort to the SAC by private respondent is valid. 45
In relation thereto, the Court in its Administrative Circular No. 29-2002 dated July 1, 2002, delineated the
jurisdiction of the DAR and the Special Agrarian Courts with the view of avoidance of conflict of
jurisdiction under RA 6657, thus:
In view of the increasing number of complaints on matters of jurisdiction over agrarian disputes, the
concerned trial court judges are reminded of the need for a careful and judicious application of Republic
Act No. 6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988, in order to avoid
conflict of jurisdiction with the Department of Agrarian Reform (DAR) or the Department of Environment
and Natural Resources (DENR). Conflict in jurisdiction must be avoided to prevent delay in the resolution
of agrarian problems. In appropriate cases before it the court concerned must not tolerate any delay.
For this purpose, pertinent provisions of R.A. No. 6657 delineating jurisdiction over agrarian disputes are
hereby reproduced:
Section 50. Quasi-Judicial Powers of the DAR. The DAR is hereby vested with primary jurisdiction to
determine and adjudicate agrarian reform matters and shall have exclusive original jurisdiction over all
matters involving the implementing of agrarian reform, except those falling under the exclusive jurisdiction
of the Department of Agriculture (DA) and the Department of Environment and Natural Resources
(DENR).
Section 55. No Restraining Order or Preliminary Injunction. No court in the Philippines shall have
jurisdiction to issue any restraining order or writ of preliminary injunction against PARC or any of its duly
authorized or designated agencies in any case, dispute or application, implementation, enforcement, or
interpretation of this Act and other pertinent laws on agrarian reform.
Section 56. Special Agrarian Courts. -- The Supreme Court shall designate at least one (1) branch of the
Regional Trial Court (RTC) within each province to act as a Special Agrarian Court.
The Supreme Court may designate more branches to constitute such additional Special Agrarian Courts
as may be necessary to cope with the number of agrarian cases in each province. In the designation, the
Supreme Court shall give preference to the Regional Trial Courts which have been assigned to handle
agrarian cases or whose presiding judges were former judges of the defunct Court of Agrarian Relations.
The Regional Trial Court (RTC) judges assigned to said courts shall exercise said special jurisdiction in
addition to the regular jurisdiction of their respective courts.
The Special Agrarian Courts shall have the powers and prerogatives inherent in or belonging to the
Regional Trial Courts.
Section 57. Special Jurisdiction. The special Agrarian Courts shall have original and exclusive
jurisdiction over all petitions for the determination of just compensation to land owners, and the

prosecution of all criminal offenses under this Act. The Rules of Court shall apply to all proceedings
before the Special Agrarian Courts, unless modified by this Act.
The Special Agrarian Courts shall decide all appropriate cases under their special jurisdiction within thirty
(30) days from submission of the case for decision.
Further, the trial court judges concerned are directed to take note of the decisions of the Supreme Court
of 3 December 1990 in Vda. De Tangub vs. Court of Appeals [191 SCRA 885), and of 13 September
1991 in Quismundo vs. Court of Appeals (201 SCRA 609).
Strict compliance is hereby enjoined. The Office of the Court Administrator is directed to implement this
Administrative Circular, which shall take effect upon its issuance.

Rule 67 of the Rules of Court is not entirely disregarded in the implementation of RA 6657
The petitioners main objection to paragraphs (d), (e) and (f) of Section 16 of RA 6657 is that they are
allegedly in complete disregard of the expropriation proceedings prescribed under Rule 67 of the Rules of
Court. The petitioners argument does not persuade. As declared by the Court in Association of Small
Landowners, we are not dealing here with the traditional exercise of the power of eminent domain, but a
revolutionary kind of expropriation:
x x x However, we do not deal here with the traditional exercise of the power of eminent domain. This is
not an ordinary expropriation where only a specific property of relatively limited area is sought to be taken
by the State from its owner for a specific and perhaps local purpose. What we deal with here is a
revolutionary kind of expropriation.
The expropriation before us affects all private agricultural lands whenever found and of whatever kind as
long as they are in excess of the maximum retention limits allowed their owners. This kind of expropriation
is intended for the benefit not only of a particular community or of a small segment of the population but of
the entire Filipino nation, from all levels of our society, from the impoverished farmer to the land-glutted
owner. Its purpose does not cover only the whole territory of this country but goes beyond in time to the
foreseeable future, which it hopes to secure and edify with the vision and the sacrifice of the present
generation of Filipinos. Generations yet to come are as involved in this program as we are today,
although hopefully only as beneficiaries of a richer and more fulfilling life we will guarantee to them
tomorrow through our thoughtfulness today. And, finally, let it not be forgotten that it is no less than the
Constitution itself that has ordained this revolution in the farms, calling for "a just distribution" among the
farmers of lands that have heretofore been the prison of their dreams and deliverance. 46
Despite the revolutionary or non-traditional character of RA 6657, however, the chief limitations on the
exercise of the power of eminent domain, namely: (1) public use; and (2) payment of just compensation,
are embodied therein as well as in the Constitution.
With respect to "public use," the Court in Association of Small Landowners declared that the requirement
of public use had already been settled by the Constitution itself as it "calls for agrarian reform, which is
the reason why private agricultural lands are to be taken from their owners, subject to the prescribed
maximum retention limits. The purposes specified in P.D. No. 27,47 Proc. No. 13148 and RA No. 6657 are
only an elaboration of the constitutional injunction that the State adopt the necessary measures to
encourage and undertake the just distribution of all agricultural lands to enable farmers who are landless
to own directly or collectively the lands they till. That public use, as pronounced by the fundamental law
itself, must be binding on us."49
On the other hand, judicial determination of just compensation is expressly prescribed in Section 57 of RA
6657, quoted above, as it vests on the Special Agrarian Courts original and exclusive jurisdiction over all
petitions for the determination of just compensation to landowners. It bears stressing that the

determination of just compensation during the compulsory acquisition proceedings of Section 16 of RA

6657 is preliminary only.
Section 57 of RA 6657 authorizes not only direct resort to the Special Agrarian Courts in cases involving
petitions for the determination of just compensation, it likewise mandates that the "Rules of Court shall
apply to all proceedings before the Special Agrarian Courts, unless modified by this Act." Hence, contrary
to the contention of the petitioners, the Rules of Court, including Rule 67 thereof, is not completely
disregarded in the implementation of RA 6657 since the Special Agrarian Courts, in resolving petitions for
the determination of just compensation, are enjoined to apply the pertinent provisions of the Rules of
Court. Moreover, Section 58 of RA 6657, like Rule 67 of the Rules of Court, provides for the appointment
of commissioners by the Special Agrarian Courts:
SEC. 58. Appointment of Commissioners. The Special Agrarian Courts, upon their own initiative or at
the instance of any of the parties, may appoint one or more commissioners to examine, investigate and
ascertain facts relevant to the dispute, including the valuation of properties, and to file a written report
thereof to the court.
The petitioners contention that RA 6657 contradicts the dictum in EPZA by eliminating the appointment
by the court of commissioners to appraise the valuation of the land is, therefore, erroneous.

The inclusion of sugar lands in the coverage of RA 6657 delves into the wisdom of an act of
Congress, beyond the ambit of judicial review
The scope of lands subjected to agrarian reform under RA 6657 has been characterized as
overwhelming, even broader in scope than that of PD 27. While the latter (PD 27) applies to all private
agricultural lands primarily devoted to rice and corn with tenant farmers under a system of sharecrop or
lease tenancy, RA 6657 generally covers all public and private agricultural lands regardless of tenurial
arrangement and commodity produced.50
The petitioners insist that the system of Land Administration should be maintained to govern the relations
between the sugar planters and the farmworkers because sugar is one of the crops that is more suitably
and efficiently produced by plantation-type agriculture rather than by small and owner-cultivated farms. In
Association of Small Landowners, however, the matter of the inclusion of sugar farms in the coverage of
RA 6657 had already been settled. The sugar planters therein argued that there was no tenancy problem
in the sugar areas that could justify the application of RA 6657 and that they should not have been
lumped in the same legislation as the others because they (sugar planters) belong to a particular class
with particular interests of their own.
Rejecting this particular argument, the Court held that the sugar planters failed to show that they belong
to a different class and are entitled to a different treatment. It thus upheld the classification made by RA
6657, insofar as it included the sugar farms, as conforming to the following requirements: (1) it must be
based on substantial distinctions; (2) it must be germane to the purposes of the law; (3) it must not be
limited to existing conditions only; (4) it must apply equally to all the members of the class. 51
Indeed, it is not within the power of the Court to pass upon or look into the wisdom of the inclusion by
Congress of the sugar lands in the coverage of RA 6657. It is basic in our form of government that the
judiciary cannot inquire into the wisdom or expediency of the acts of the executive or the legislative
department, for each department is supreme and independent of the others, and each is devoid of
authority not only to encroach upon the powers or field of action assigned to any of the other
departments, but also to inquire into or pass upon the advisability or wisdom of the acts performed,
measures taken or decisions made by the other departments.52

The other issues raised by the petitioners require factual determination which the Court cannot
properly undertake in the present case

The petitioners allege that the DAR, without consulting the regular farmworkers on whether or not they
want to exercise their right to own the land they till, "indiscriminately sends notices of coverage and
acquisition to practically all the planters and leaves the matter of identifying and convincing the
prospective beneficiaries later."53 It is also alleged that "in ACTUAL PRACTICE in the sugar lands of
planter members of petitioners-federations, DAR, in collusion with some NGOs and other instant farmer
organizations, designated as beneficiaries, non-tillers, non-regular farmers, and outsiders of the land and
other unqualified groups to eject and replace the regular farmworkers and later on installed these
beneficiaries on the sugar lands, with the assistance of the AFP or the PNP." 54
The petitioners also made the statement that "what is actually happening in the country today, particularly
in the sugar-producing regions, is that Certificates of Title of the landowners are being canceled by LRA
merely upon the directive or request by DAR, without asking the landowner to surrender his owners
duplicate of title or even notifying him that, whether he likes it or not, the Register of Deeds will cancel his
certificate of title and issue a new certificate in the name of the Republic of the Philippines." 55
These allegations of the petitioners, however, remain as such mere allegations, unsupported by any
evidence to prove their veracity or truthfulness. Moreover, they require de novo appreciation of factual
questions. No trial court has had the opportunity to ascertain the validity of these factual claims, the
appreciation of which is beyond the function of this Court since it is not a trier of facts. 56
WHEREFORE, premises considered, the petition is DISMISSED for lack of merit.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice
G.R. No. 181969

October 2, 2009

ROMAGO, INC., Petitioner,

vs.
SIEMENS BUILDING TECHNOLOGIES, INC.,* Respondent.
DECISION
NACHURA, J.:
Romago, Inc. (ROMAGO) appeals by certiorari the October 19, 2007 Decision1 of the Court of Appeals
(CA) in CA-G.R. SP No. 99128 and the February 26, 2008 Resolution2 denying its reconsideration.
On June 11, 1999, petitioner ROMAGO entered into a Consortium Agreement 3 with respondent Siemens
Building Technologies, Inc. (SBTI). Under the agreement, ROMAGO undertook to jointly bid with SBTI for
the Mechanical and Electrical Requirements of the Insular Life Corporate Center (the project) to be
constructed at the Corporate City in Alabang. SBTI would provide and supply the equipment requirements
and components of the project, while ROMAGO would supply and perform all the technical service
requirements of the project.
However, Insular Life Assurance Company, Ltd. (Insular Life), the project owner, was not keen on dealing
with a consortium of companies. Ultimately, only ROMAGO bidded and was awarded the Sub-contract for
the Building Services-Electrical Package of the project.

On December 3, 1999, ROMAGO entered into an Equipment Supply Sub-Contract Agreement

(ESSA)4 with SBTI. For the contract price of P100,000,000.00, SBTI undertook to deliver the needed
electrical equipment for the project.
SBTI made deliveries, but ROMAGO failed to pay in full. As of March 2001, ROMAGOs unpaid billings
amounted toP6,807,400.92. SBTI demanded payment, but the demand just fell on deaf ears, prompting
SBTI to withhold further deliveries of equipment to the jobsite. Consequently, ROMAGO took over all the
contractual activities of SBTI.
Later, however, SBTI resumed its deliveries under the ESSA. As of July 25, 2001, it had already delivered
99.81% of all the necessary equipment. ROMAGO, however, refused to pay for the deliveries which, by
then, already amounted toP16,937,612.68, unless SBTI compensates ROMAGO for the total expenses it
allegedly incurred in taking over SBTIs contractual obligations. Demands to pay were made but were not
heeded.
Hence, on June 4, 2003, SBTI filed a Request for Arbitration5 with the Philippine Dispute Resolution
Center, Inc. (PDRCI), docketed as PDRCI Case No. 20-2003/SSP.
On July 16, 2003, ROMAGO, through its Vice-President for Operations, Ramon Lorenzo R. Arel, Sr.,
signed the Agreement to Submit Dispute to Arbitration.6
In its Answer7 filed on May 4, 2004, ROMAGO admitted that the agreed contract price
was P67,734,457.27, but averred that it made substantial payments. It further alleged that it had claims
against SBTI, which should be deducted from the formers liability. Specifically, ROMAGO claimed the
cost of installation of transformer and temporary generator sets amounting to P184,208.15
and P5,040,408.44, respectively. It added that it paid damages amounting to P3,627,226.37 to Insular
Life and to some of its tenants when the generator sets supplied by SBTI malfunctioned on May 1, 2001.
ROMAGO further claimed payments for the miscellaneous items amounting to P106,694.49, and for
liquidated damages ofP3,493,223.72 for SBTIs delay in the delivery of the equipment. According to
ROMAGO, these items and the P300,000.00 cost of arbitration must be deducted from SBTIs claim, thus,
leaving a balance of only P2,127,471.97.
The parties then signed the Terms of Reference (TOR)8 and, later, the Amended Terms of
Reference.9 Signatories to the TOR and Amended TOR were SBTIs counsel, Atty. Carla E. SantamariaSea of Siguion Reyna Montecillo & Ongsiako; ROMAGOs counsel, Atty. Melvin L. Villa of Villa Judan &
Associates; and Ramon Lorenzo R. Arel, Sr., ROMAGOs authorized representative.
After due proceedings, Arbitrator Beda Fajardo rendered a Decision on February 1, 2005, 10 disposing
that:
Premises considered, this Arbitrator hereby resolves the various issues in this case as follows:

ISSUE NO. 1
[SBTI] is entitled to its claim for P16,937,612.68 against [ROMAGO] plus legal interest computed
from the time that it made its extrajudicial demand on October 21, 2002 up to its filing of the Request
for Arbitration.
ISSUE NO. 2
[SBTI] is entitled to recover attorneys fees from [ROMAGO] in the amount of P500,000.00.
ISSUE NO. 3

[SBTI] is entitled to recover its arbitration costs from [ROMAGO] in the sum of P916,300.04.
ISSUE NO. 4
[SBTI] is not liable to [ROMAGOs] counterclaim of P11,241,058.33.
WHEREFORE, judgment is hereby rendered in favor of Siemens Building [Technologies, Inc.] and
against Romago, Inc., ordering the latter to pay the former the sum of SIXTEEN MILLION NINE
HUNDRED THIRTY SEVEN THOUSAND SIX HUNDRED TWELVE PESOS AND SIXTY EIGHT
CENTAVOS (P16,937,612.68), plus legal interest computed from the time that extrajudicial demand was
made on October 21, 2002 up to the filing of the Request for Arbitration.
Romago, Inc. is also ordered to pay Siemens Building Technologies, [Inc.] the amount of FIVE
HUNDRED THOUSAND PESOS (P500,000.00) for attorneys fees and NINE HUNDRED SIXTEEN
THOUSAND THREE HUNDRED AND 04/100 (P916,300.04) for the costs of arbitration.
SO ORDERED.11
SBTI, through counsel, was served a copy of the Arbitrators decision via personal service on February 3,
2005. ROMAGOs counsel, Atty. Villa, was also served copies of the decision through private courier 2GO
on February 3, 2005,12 received on the same day; and through registered mail on February 7,
2005,13 received on February 28, 2005.
Meanwhile, on February 16, 2005, SBTI filed a petition for confirmation of the Arbitrators decision 14 with
the Regional Trial Court (RTC) of Makati City, docketed as Special Proclamation No. M-6039.
On March 15, 2005, the RTC issued an Order15 directing ROMAGO to file its answer to the petition within
fifteen (15) days from receipt of the Order.
On March 30, 2005, ROMAGO, through its collaborating counsel, Atty. Jose A.V. Evangelista, filed an
answer,16 praying for the denial of the petition and for the setting aside of the Arbitrators decision.
ROMAGO argued that the Arbitrator displayed partiality in hearing the arbitration case and in rendering
the decision. It pointed out that the Arbitrator considered SBTIs claims as gospel truth and granted the
same in toto, but denied ROMAGOs counterclaims despite the preponderance of evidence in support of
its claim. ROMAGO, thus, contended that SBTI could not ask for the confirmation and execution of the
Arbitrators decision.
After due proceedings, the RTC issued an Order, dated September 5, 2005, declaring the case submitted
for decision. Subsequently, on October 10, 2005, Atty. Hernani Barrios entered his appearance as
ROMAGOs new counsel,17 after Atty. Evangelista withdrew his appearance.18
On June 22, 2006, the RTC issued an Order19 granting SBTIs petition, viz.:
After a careful consideration of the parties respective evidence, the Court resolves to GRANT the
Petition.
The instant proceeding is simply a petition for the confirmation of the arbitral award rendered by the
PDRCI and for the issuance of a writ for its execution, pursuant to section 23 of R.A. No. 876. Thus, the
only relevant issues to be resolved are: (1) whether there has been an Arbitral Award rendered by PDRCI
in favor of the petitioner; and (2) whether such award has attained finality in the absence of any motion to
vacate the same.

There is no dispute with respect to the first issue as the existence of the Decision is admitted by the
parties. The only point of contention now is the issue of whether or not the same Decision has attained
finality and hence may now be confirmed for purposes of execution. It is clear to the Court that the
answer to this core issue should be in the affirmative. [SBTI] has for its legal anchor Section 26 of the
Arbitration Law, which states that, "a motion to vacate, modify or correct the award or decision must be
made within 30 days after the award is filed or delivered."
[ROMAGO] does not dispute that it did not file any Motion to Vacate the Award made by the PDRCI
Arbitrator. It insists however that it met the requirements for the timely filing of such Motion when it
alleged the grounds for vacation in its Answer to the herein petition. This is faulty reasoning. As correctly
argued by [SBTI], there is a difference between the act of setting forth an affirmative defense and filing a
Motion to Vacate within the context of the law on Arbitration. The Arbitration Law requires the losing party
to seek vacation of the award by filing a Motion for this purpose within a period of thirty (30) days from
service of the Decision. For as a matter of consequence, failure to do so will amount to an unqualified
acquiescence to the findings of the Arbitrator, and if he does not, then the award must be confirmed in
accordance with section 23 of the law. The Arbitration Law provides that, where an award is vacated, the
Court, in its discretion, may direct a new hearing either before the same arbitrator(s) or before a new
arbitrator(s) to be chosen in the manner provided in the submission of the contract for the selection of the
original arbitrator(s) and any provision limiting the time in which the arbitrator(s) may make a decision
shall be deemed applicable to the new arbitration and to commence from the date of the courts order.
(Sec. 24 par. (d), R.A. 876).
1avvphi 1

"It is possible therefore, that when the prevailing party file[d] a petition to confirm a domestic arbitral
award, the losing party responds with a counterclaim to have the award vacated. There is a time limit,
however, to actions to vacate domestic arbitral awards. The party dissatisfied with the award must
institute a suit to vacate the award within one (1) month from the time it is served upon him. If he fails to
institute the suit to vacate the award within this period, the award becomes final and executory" x x x.
ROMAGO avers that it actually received its copy of the arbitral Decision on February 28, 2005. But a
review of the records would show that it was furnished with a copy of the Arbitral Decision twice. One, by
courier on February 3, 2005, received on February 4, 2005 by certain Amie Arciaga, as evidenced by the
couriers internet tracking services; and the second, by registered mail on February 28, 2005 under
registry receipt no. 5653, issued by the Ayala post office. Thirty (30) days from February 4, 2005, is March
6, 2005. Hence, the filing of an Answer with Affirmative and special defenses to the Petition now pending
before this Court on March 30, 2005 is way beyond that period prescribed by law hence rendering the
subject arbitral Decision final and executory.20
The RTC disposed, thus:
WHEREFORE, PREMISES CONSIDERED, the Court resolves to CONFIRM the February 1, 2005
Decision of the Philippine Dispute Resolution Center Inc. (PDRCI) docketed as PDRCI Case No. 202003/SSP. As the said Decision has already attained finality, and as prayed for, let a Writ of Execution be
issued to enforce the same. Costs against [ROMAGO].
SO ORDERED.21
ROMAGO and Atty. Barrios were served copies of the RTC Order on July 3, 2006. 22 Despite receipt of the
Order, ROMAGO did not interpose an appeal.
On August 22, 2006, Atty. Barrios withdrew his appearance as counsel for ROMAGO. The Law Office of
Mutia Trinidad Venadas & Verzosa thereafter entered its appearance as ROMAGOs new counsel, and
filed a Petition for Relief from Judgment.23 ROMAGO claimed that Atty. Barrios failed to interpose an
appeal from the June 22, 2006 Order of the RTC, because he was then at his ancestral house in
Cabanatuan City taking a three-week rest after being diagnosed with severe hypertension. Atty. Barrios

became aware of the June 22, 2006 Order only on July 20, 2006,24 upon his return to Manila. By then, the
period to appeal had already lapsed. ROMAGO asserted that it should not be bound or prejudiced by the
negligence of its previous counsel. It added that there exist sufficient grounds to deny SBTIs application
for confirmation of decision. Thus, if given a chance to present its side in court, ROMAGO could prove its
bona fide and meritorious claims against SBTI. ROMAGO, therefore, prayed for the setting aside of the
Arbitrators decision and of the June 22, 2006 Order. In the alternative, it prayed that it be allowed to file a
Notice of Appeal.
SBTI opposed the petition, arguing that ROMAGOs failure to appeal was far from excusable, and prayed
for its denial. It argued that to allow the petition to prosper would put a premium on the negligence of
ROMAGOs former counsel and would encourage the non-termination of the case. SBTI added that
ROMAGO could not invoke the alleged negligence of its counsel as a ground for the setting aside of the
Arbitrators decision, because the negligence took place only after the judgment was rendered. 25
On December 12, 2006, the RTC denied ROMAGOs petition for relief from judgment, holding that:
[T]he Supreme [C]ourt has repeatedly reminded lawyers to be circumspect in the handling of their affairs
particularly when it comes to pleadings and documents that may spell the difference between the misery
or success of their clients. Atty. Barrios, unfortunately, seemed to have failed to exercise that degree of
diligence expected of him as [Romagos] counsel, and such failure cannot, by established jurisprudential
standards, be described as "excusable." Consequently, such lack of diligence binds his client Romago,
Inc., the petitioner herein.
WHEREFORE, the Petition for Relief from Judgment is DENIED for lack of merit. The Order dated 22
June 2006 confirming the 01 February Decision of the P[DR]CI and directing the issuance of a Writ of
Execution stands.
SO ORDERED.26
ROMAGO filed a motion for reconsideration and to set the case for clarificatory hearing, 27 but the RTC
denied the same on March 20, 2007.28
ROMAGO then filed a petition for certiorari with application for temporary restraining order (TRO) and writ
of preliminary injunction29 with the CA. It sought the annulment and reversal of the RTC Orders dated
June 22, 2006, December 12 2006 and March 20, 2007; and the Arbitrators decision on grounds of lack
of jurisdiction and grave abuse of discretion. ROMAGO contended that the PDRCI and the RTC had no
jurisdiction over the dispute. Its contract with SBTI, it continued, is a construction contract, cognizable by
the Construction Industry Arbitration Commission (CIAC). It, therefore, asserted that the RTC abused its
discretion in confirming the Arbitrators decision.
On October 19, 2007, the CA rendered the now assailed Decision30 dismissing the petition for certiorari.
Rejecting ROMAGOs argument, it held that the contract between SBTI and ROMAGO is a supply
contract, which may be taken cognizance of by the PDRCI. The CA further held that ROMAGO is already
estopped from assailing the PDRCIs jurisdiction over the dispute, after actively participating in all its
proceedings. The CA added that the Arbitrators decision already attained finality; thus, the RTC
committed no reversible error or grave abuse of discretion in confirming the decision. The CA also
sustained the denial of ROMAGOs petition for relief from judgment. It applied the well-settled rule that the
negligence of counsel binds the client, and further held that Atty. Barrios negligence in checking his mails
during his three-week rest could hardly be characterized as excusable. Finally, the CA found no grave
abuse of discretion, bias or partiality on the part of the Arbitrator in rendering the decision.
The CA disposed, thus:

WHEREFORE, premises considered, the assailed orders dated June 22, 2006, December 12, 2006 and
March 20, 2007, respectively, of the RTC, Branch 143, Makati City in Special Proceedings No. M-6039,
and the decision dated February 1, 2005 in PDRCI Case No. 20-2003/SSP are hereby AFFIRMED.
SO ORDERED.31
ROMAGOs motion for reconsideration suffered the same fate, as the CA denied the same in its
Resolution32 dated February 26, 2008.
ROMAGO is now before us faulting the CA for dismissing its petition for certiorari. It also prayed for a
TRO to enjoin the execution of the Arbitrators decision. In its April 2, 2009 Resolution, this Court granted
ROMAGOs prayer, and issued a TRO enjoining the execution of the Arbitrators decision.
In the main, ROMAGO seeks the nullification of all the proceedings before the PDRCI, RTC and CA, and
the setting aside of all the decisions and orders rendered against it on grounds of lack of jurisdiction,
grave abuse of discretion and reversible error. Specifically, ROMAGO asserts that SBTIs claim arose
from a construction contract. As such, it is a construction dispute that falls within the jurisdiction of the
CIAC. It, thus, insists on a new trial before the CIAC.
The petition is devoid of merit.
Executive Order No. 1008 defines the jurisdiction of CIAC, viz.:
SEC. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising from,
or connected with, contracts entered into by parties involved in construction in the Philippines, whether
the dispute arises before or after the completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual
provisions; amount of damages and penalties; commencement time and delays; maintenance and
defects; payment default of employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships which
shall continue to be covered by the Labor Code of the Philippines.
In Fort Bonifacio Development Corporation v. Manuel M. Domingo,33 the word construction is defined as
referring to all on-site works on buildings or altering structures, from land clearance through completion,
including excavation, erection, and assembly and installation of components and equipment.
SBTIs scope of work under the ESSA34 was:
1.01 x x x to furnish all equipment in accordance with the equipment and delivery schedule x x x, to
commence and complete the delivery of all equipment in accordance with the Equipment Supply Subcontract and to delivery (sic) the equipment ready for installation (except for equipment to be supplied by
others (sic) parties as specifically excluded herefrom by agreement of the parties hereto) x x x.
1.02 [to] supply and deliver the equipment in accordance with the Bill of Quantities and Cost Schedule
(Attachment Nos. 1 &2) and equipment delivery schedule (Attachment -3) to the jobsite/designated areas
including unloading of equipment from the delivery truck.

1.03 [to] furnish all the necessary shopdrawings (sic) and installation drawings, product
brochures/catalogs, spare parts as stipulated on (sic) the Original Bill of Quantities
concerning NEES supply equipment.
1.04 [to] have a (sic) responsible representatives for the start up energization including testing and
commissioning ofNEES supply equipment.
By no stretch of the imagination can the ESSA be characterized as a construction contract. Crystal clear
from the provisions of the ESSA is that SBTIs role was merely to supply the needed equipment for the
Insular Life Corporate Center project. The ESSA is, therefore, a mere supply contract that does not fall
within the original and exclusive jurisdiction of CIAC.
We also note that the Consortium Agreement35 between ROMAGO and SBTI contained an arbitration
clause, wherein the parties agreed to submit any dispute between them for arbitration under the
Philippine Chamber of Commerce and Industry (PCCI), 36 such as the PDRCI. It is well settled that the
arbitral clause in the agreement is a commitment by the parties to submit to arbitration the disputes
covered therein. Because that clause is binding, they are expected to abide by it in good faith. 37 The CA,
therefore, correctly rejected ROMAGOs assertion that the PDRCI had no jurisdiction over the suit in the
first instance.
Furthermore, the issue of jurisdiction was rendered moot by ROMAGO's active participation in the
proceedings before the PDRCI and the RTC.
Records show that ROMAGOs Vice-President for Operations, Ramon Lorenzo R. Arel, Sr., signed an
Agreement to Submit Dispute to Arbitration before the PDRCI.38 ROMAGO also concluded and signed the
TOR and the Amended TOR confirming its intention and agreement to submit the dispute to PDRCI. It
actively participated in the discussion on the merits of the case, even going to the extent of seeking
affirmative relief.
We are not unmindful of the settled doctrine that the issue of jurisdiction may be raised by any of the
parties or may be reckoned by the court at any stage of the proceedings, even on appeal, and is not lost
by waiver or by estoppel.
However, this case falls within the exception. To repeat, ROMAGO actively participated in the
proceedings before the PDRCI; even after an adverse judgment had been rendered by the Arbitrator, it
did not assail the PDRCIs jurisdiction over the dispute. In fact, during the proceedings for the
confirmation of the Arbitrators award, ROMAGOs opposition zeroed in on the alleged bias and partiality
of the Arbitrator in rendering the decision. Even in its petition for relief from judgment filed with the RTC,
the PDRCIs alleged lack of jurisdiction was never raised as an issue. It was only in its petition for
certiorari with the CA, and after a writ of execution had been issued, that ROMAGO raised the issue of
lack of jurisdiction.
In Tijam, et al. v. Sibonghanoy, et al.39 we held:
[A] party cannot invoke the jurisdiction of a court to secure affirmative relief against his opponent and,
after obtaining or failing to obtain such relief, repudiate or question that same jurisdiction (Dean vs. Dean,
136 Or. 694, 86 A.L.R. 79). x x x the question whether the court had jurisdiction either of the subjectmatter of the action or of the parties was not important in such cases because the party is barred from
such conduct not because the judgment or order of the Court is valid and conclusive as an adjudication,
but for the reason that such a practice cannot be tolerated obviously for reasons of public policy.
Furthermore, it has also been held that after voluntarily submitting a cause and encountering an adverse
decision on the merits, it is too late for the loser to question the jurisdiction or power of the court x x x
[a]nd in Littleton vs. Burgess, 16 Wyo. 58, the Court said that it is not right for a party who has affirmed

and invoked the jurisdiction of a court in a particular matter to secure an affirmative relief, to afterwards
deny that same jurisdiction to escape a penalty.
We had emphasized in Figueroa v. People40 and recently in Apolonia Banayad Frianela v. Servillano
Banayad, Jr.41 that estoppel by laches supervenes in exceptional cases similar to the factual milieu in
Tijam v. Sibonghanoy. It is, therefore, too late in the day for ROMAGO to repudiate the jurisdiction of
PDRCI over the dispute, and consequently, of the RTC to confirm the decision.
Finally, ROMAGO conceded and estopped itself from further questioning the jurisdiction of the PDRCI
and the RTC when it filed a petition for relief from judgment. A petition for relief under Rule 38 of the
Rules of Court is only available against a final and executory judgment. If ROMAGO indeed believed that
the PDRCI had no jurisdiction over the suit in the first instance, then all the proceedings therein, including
the decision, are null and void. Hence, it would not have filed a petition for relief from judgment. In so
doing, ROMAGO recognized that the PDRCI had jurisdiction over the dispute.
Certainly, the Arbitrators decision, which was confirmed by the RTC, had attained finality when ROMAGO
failed to interpose an appeal to the CA. Hence, the decision may now be executed.
In a last ditch effort, ROMAGO attempted to avoid this final and executory judgment by filing a petition for
relief from judgment with the RTC.
Unfortunately for ROMAGO, a petition for relief from judgment, being an equitable remedy, is allowed
only in exceptional cases, as when there is no other available or adequate remedy. Under Rule 38 42 of
the 1997 Rules of Civil Procedure, it may be availed of only after a judgment, final order or other
proceedings were taken against petitioner in any court through fraud, accident, mistake, or excusable
negligence.43
Thus, a party is not entitled to relief under Rule 38, Section 2, of the Rules of Court if he was not
prevented from filing his notice of appeal by fraud, accident, mistake, or excusable negligence. Such relief
will not be granted to a party who seeks to be relieved from the effects of the judgment, when the loss of
the remedy at law was due to his own negligence or to a mistaken mode of procedure for that matter;
otherwise, the petition for relief will be tantamount to reviving the right of appeal, which has already been
lost either due to inexcusable negligence or due to a mistake of procedure by counsel. 44
ROMAGO ascribes its failure to appeal to the negligence of its previous counsel, Atty. Barrios. It claims
that the receipt of the June 22, 2006 Order was not brought to Atty. Barrios attention, because the latter
was then at his ancestral house taking a three-week rest after being diagnosed with severe hypertension.
According to ROMAGO, this is a clear case of excusable negligence on the part of its counsel, warranting
a relief from judgment.
We are not convinced.
Records show that ROMAGO was also served a copy of the Order dated June 22, 2006 on July 3,
2006.45 Yet, it did not bother to contact its counsel to inquire on the status of the case or the possibility of,
or the need to, appeal. Clearly, ROMAGOs failure to appeal was not only due to its counsels negligence,
but also due to its own negligence.
Besides, we are not convinced by ROMAGOs claim that its counsel was suffering from high blood
pressure at that time.
The affidavit46 attached to ROMAGOs petition for relief from judgment left blank the names of the doctor
and the hospital that Atty. Barrios consulted. Thus:

1. On 29 June 2006, I was at my ancestral home in Cabanatuan City. As my pulsating headaches, blurred
or impaired vision, nausea and vomiting had become too unbearable, I consulted Dr. _____________,
the physician in charge in ________________ Hospital, Cabanatuan City. 47
The omission of these important details casts serious doubts on the credibility of the excuse proffered by
ROMAGO and its counsel, and strengthens our belief that the said allegation was a mere afterthought to
cover up its and its own counsels collective negligence.
It is settled that clients are bound by the mistakes, negligence and omission of their counsel. 48 While,
exceptionally, the client may be excused from the failure of counsel, 49 the circumstances obtaining in the
present case do not persuade this Court to take exception.
Public interest demands an end to every litigation and a belated effort to reopen a case that has already
attained finality will serve no purpose other than to delay the administration of justice. To reverse the CA
Decision denying petitioner's petition for relief from judgment would put a premium on the negligence of
petitioner's former counsel and encourage endless litigation. If the negligence of counsel is generally
admitted as a justification for opening cases, there would never be an end to a suit so long as a new
counsel can be employed who could allege and show that prior counsel had not been sufficiently diligent,
experienced or learned.50 We, therefore, write finis to this litigation
WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in
CA-G.R. SP No. 99128 are AFFIRMED. The temporary restraining order issued by this Court on April 2,
2008 is LIFTED.
Costs against petitioner.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
G.R. No. 179537

October 23, 2009

PHILIPPINE ECONOMIC ZONE AUTHORITY, Petitioner,

vs.
EDISON (BATAAN) COGENERATION CORPORATION, Respondent.
DECISION
CARPIO MORALES, J.:
Petitioner Philippine Economic Zone Authority (PEZA) and Edison (Bataan) Cogeneration Corporation
(respondent) entered into a Power Supply and Purchase Agreement (PSPA or agreement) for a 10-year
period effective October 25, 1997 whereby respondent undertook to construct, operate, and maintain a
power plant which would sell, supply and deliver electricity to PEZA for resale to business locators in the
Bataan Economic Processing Zone.
In the course of the discharge of its obligation, respondent requested from PEZA a tariff increase with a
mechanism for adjustment of the cost of fuel and lubricating oil, which request it reiterated on March 5,
2004.

PEZA did not respond to both requests, however, drawing respondent to write PEZA on May 3, 2004.
Citing a tariff increase which PEZA granted to the East Asia Utilities Corporation (EAUC), another supplier
of electricity in the Mactan Economic Zone, respondent informed PEZA of a violation of its obligation
under Clause 4.9 of the PSPA not to give preferential treatment to other power suppliers.
After the lapse of 90 days, respondent terminated the PSPA, invoking its right thereunder, and
demanded P708,691,543.00 as pre-termination fee. PEZA disputed respondents right to terminate the
agreement and refused to pay the pre-termination fee, prompting respondent to request PEZA to submit
the dispute to arbitration pursuant to the arbitration clause of the PSPA.
Petitioner refused to submit to arbitration, however, prompting respondent to file a Complaint 1 against
PEZA for specific performance before the Regional Trial Court (RTC) of Pasay, alleging that, inter alia:
xxxx
4. Under Clauses 14.1 and 14.2 of the Agreement, the dispute shall be resolved through arbitration
before an Arbitration Committee composed of one representative of each party and a third member who
shall be mutually acceptable to the parties: x x x
xxx
5. Conformably with the Agreement, plaintiff notified defendant in a letter dated September 6, 2004
requesting that the parties submit their dispute to arbitration. In a letter dated September 8, 2004, which
defendant received on the same date, defendant unjustifiably refused to comply with the request for
arbitration, in violation of its undertaking under the Agreement. Defendant likewise refused to nominate its
representative to the Arbitration Committee as required by the Agreement.
6. Under Section 8 of Republic Act No. 876 (1953), otherwise known as the Arbitration Law, (a) if either
party to the contract fails or refuses to name his arbitrator within 15 days after receipt of the demand for
arbitration; or (b) 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, then this
Honorable Court shall appoint the arbitrator or arbitrators.2 (Emphasis and underscoring supplied)
Respondent accordingly prayed for judgment
x x x (a) designating (i) an arbitrator to represent defendant; and (ii) the third arbitrator who shall act as
Chairman of the Arbitration Committee; and (b) referring the attached Request for Arbitration to the
Arbitration Committee to commence the arbitration.3
and for other just and equitable reliefs.
In its Answer,4 PEZA (hereafter petitioner):

1. ADMIT[TED] the allegations in paragraphs 1, 2, 3, 4, and 6 of the complaint, with the

qualification that the alleged dispute subject of the plaintiffs Request for Arbitration dated
October 20, 2004 is not an arbitrable issue,considering that the provision on pretermination fee in the Power Sales and Purchase Agreement (PSPA), isgravely onerous,
unconscionable, greatly disadvantageous to the government, against public policy and
therefore invalid and unenforceable.
2. ADMIT[TED] the allegation in paragraph 5 of the complaint with the qualification that the
refusal of the defendant to arbitrate is justified considering that the provision on the pretermination fee subject of the plaintiffs Request for Arbitration is invalid and

unenforceable. Moreover, the pre-termination of the PSPA is whimsical, has no valid basis
and in violation of the provisions thereof, constituting breach of contract on the part of the
plaintiff.5 (Emphasis and underscoring supplied)
Xxxx
Respondent thereafter filed a Reply and Motion to Render Judgment on the Pleadings,6 contending that
since petitioner
x x x does not challenge the fact that (a) there is a dispute between the parties; (b) the dispute must be
resolved through arbitration before a three-member arbitration committee; and (c) defendant refused to
submit the dispute to arbitration by naming its representative in the arbitration committee,
judgment may be rendered directing the appointment of the two other members to complete the
composition of the arbitration committee that will resolve the dispute of the parties. 7
1avv phi1

By Order of April 5, 2005, Branch 118 of the Pasay City RTC granted respondents Motion to Render
Judgment on the Pleadings, disposing as follows:
WHEREFORE, all the foregoing considered, this Court hereby renders judgment in favor of the plaintiff
and against the defendant. Pursuant to Section 8 of RA 876, also known as the Arbitration Law, and
Power Sales and Purchase Agreement, this Court hereby appoints, subject to their agreement as
arbitrators, retired Supreme Court Chief Justice Andres Narvasa, as chairman of the committee, and
retired Supreme Court Justices Hugo Gutierrez, and Justice Jose Y. Feria, as defendants and plaintiffs
representative, respectively, to the arbitration committee. Accordingly, let the Request for Arbitration be
immediately referred to the Arbitration Committee so that it can commence with the arbitration.
SO ORDERED.8 (Underscoring supplied)
On appeal,9 the Court of Appeals, by Decision of April 10, 2007, affirmed the RTC Order. 10 Its Motion for
Reconsideration11 having been denied,12 petitioner filed the present Petition for Review on
Certiorari,13 faulting the appellate court

I
. . . WHEN IT DISMISSED PETITIONERS APPEAL AND AFFIRMED THE 05 APRIL 2004 ORDER
OF THE TRIAL COURT WHICH RENDERED JUDGMENT ON THE PLEADINGS, DESPITE THE
FACT THAT PETITIONERS ANSWER TENDERED AN ISSUE.
II
. . . WHEN IT AFFIRMED THE ORDER OF THE TRIAL COURT WHICH REFERRED
RESPONDENTS REQUEST FOR ARBITRATION DESPITE THE FACT THAT THE ISSUE
PRESENTED BY THE RESPONDENT IS NOT AN ARBITRABLE ISSUE.14 (Underscoring supplied)
The petition fails.
The dispute raised by respondent calls for a proceeding under Section 6 of 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" which reads:

SECTION 6. Hearing by court. A party aggrieved by the failure, neglect or refusal of another to perform
under anagreement 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.
x x x x (Underscoring supplied)
R.A. No. 876 "explicitly confines the courts authority only to the determination of whether or not there is
an agreement in writing providing for arbitration."15 Given petitioners admission of the material allegations
of respondents complaint including the existence of a written agreement to resolve disputes through
arbitration, the assailed appellate courts affirmance of the trial courts grant of respondents Motion for
Judgment on the Pleadings is in order.
Petitioner argues that it tendered an issue in its Answer as it disputed the legality of the pre-termination
fee clause of the PSPA. Even assuming arguendo that the clause is illegal, it would not affect the
agreement between petitioner and respondent to resolve their dispute by arbitration.
The doctrine of separability, or severability as other writers call it, enunciates that an arbitration
agreement is independent of the main contract. The arbitration agreement is to be treated as a separate
agreement and the arbitration agreement does not automatically terminate when the contract of which it is
a part comes to an end.
The separability of the arbitration agreement is especially significant to the determination of whether the
invalidity of the main contract also nullifies the arbitration clause. Indeed, the doctrine denotes that the
invalidity of the main contract, also referred to as the "container" contract, does not affect the validity of
the arbitration agreement. Irrespective of the fact that the main contract is invalid, the arbitration
clause/agreement still remains valid and enforceable.16 (Emphasis in the original; underscoring supplied)
Petitioner nevertheless contends that the legality of the pre-termination fee clause is not arbitrable, citing
Gonzales v. Climax Mining Ltd. 17 which declared that the therein complaint should be brought before the
regular courts, and not before an arbitral tribunal, as it involved a judicial issue. Held the Court:
We agree that the case should not be brought under the ambit of the Arbitration Law xxx. The question of
validity of the contract containing the agreement to submit to arbitration will affect the applicability of the
arbitration clause itself. A party cannot rely on the contract and claim rights or obligations under it and at
the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent
positions. As previously discussed, the complaint should have been filed before the regular courts as it
involved issues which are judicial in nature.18
The ruling in Gonzales was, on motion for reconsideration filed by the parties, modified, however, in this
wise:
x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the Decision dated 28
February 2005 in G.R. No. 161957. Hence, we now hold that the validity of the contract containing the
agreement to submit to arbitration does not affect the applicability of the arbitration clause itself. A
contrary ruling would suggest that a partys mere repudiation of the main contract is sufficient to avoid

arbitration. That is exactly the situation that the separability doctrine, as well as jurisprudence applying it,
seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case should not be brought
for arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before
the DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of fraud,
as it had already been determined that the case should have been brought before the regular courts
involving as it did judicial issues.19 (Emphasis and underscoring supplied)
It bears noting that respondent does not seek to nullify the main contract. It merely submits these issues
for resolution by the arbitration committee, viz:

a. Whether or not the interest of Claimant in the project or its economic return in its
investment was materially reduced as a result of any laws or regulations of the Philippine
Government or any agency or body under its control;
b. Whether or not the parties failed to reach an agreement on the amendments to the
Agreement within 90 days from notice to respondent on May 3, 2004 of the material
reduction in claimants economic return under the Agreement;
c. Whether or not as a result of (a) and (b) above, Claimant is entitled to terminate the
Agreement;
d. Whether or not Respondent accorded preferential treatment to EAUC in violation of the
Agreement;
e. Whether or not as a result of (d) above, Claimant is entitled to terminate the Agreement;
f. Whether or not Claimant is entitled to a termination fee equivalent to P708,691,543.00; and
g. Who between Claimant and Respondent shall bear the cost and expenses of the
arbitration, including arbitrators fees, administrative expenses and legal fees.20
In fine, the issues raised by respondent are subject to arbitration in accordance with the arbitration clause
in the parties agreement.
WHEREFORE, the petition is DENIED.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
WE CONCUR:
G.R. No. 175048

February 10, 2009

EXCELLENT QUALITY APPAREL, INC., Petitioner,

vs.
WIN MULTI RICH BUILDERS, INC., represented by its President, WILSON G. CHUA, Respondent.
DECISION

TINGA, J.:
Before us is a Rule 45 petition1 seeking the reversal of the Decision2 and Resolution3 of the Court of
Appeals in CA-G.R. SP No. 84640. The Court of Appeals had annulled two orders 4 of the Regional Trial
Court (RTC), Branch 32, of Manila in Civil Case No. 04-108940. This case involves a claim for a sum of
money which arose from a construction dispute.
On 26 March 1996, petitioner Excellent Quality Apparel, Inc. (petitioner) then represented by Max L.F.
Ying, Vice-President for Productions, and Alfiero R. Orden, Treasurer, entered into a contract 5 with MultiRich Builders (Multi-Rich) represented by Wilson G. Chua (Chua), its President and General Manager, for
the construction of a garment factory within the Cavite Philippine Economic Zone Authority (CPEZ). 6 The
duration of the project was for a maximum period of five (5) months or 150 consecutive calendar days.
Included in the contract is an arbitration clause which is as follows:
Article XIX : ARBITRATION CLAUSE
Should there be any dispute, controversy or difference between the parties arising out of this Contract
that may not be resolved by them to their mutual satisfaction, the matter shall be submitted to an
Arbitration Committee of three (3) members; one (1) chosen by the OWNER; one (1) chosen by the
CONTRACTOR; and the Chairman thereof to be chosen by two (2) members. The decision of the
Arbitration Committee shall be final and binding on both the parties hereto. The Arbitration shall be
governed by the Arbitration Law (R.A. [No.] 876). The cost of arbitration shall be borned [sic] jointly by
both CONTRACTOR and OWNER on 50-50 basis.7
The construction of the factory building was completed on 27 November 1996.
Respondent Win Multi-Rich Builders, Inc. (Win) was incorporated with the Securities and Exchange
Commission (SEC) on 20 February 19978 with Chua as its President and General Manager. On 26
January 2004, Win filed a complaint for a sum of money9 against petitioner and Mr. Ying amounting
to P8,634,448.20. It also prayed for the issuance of a writ of attachment claiming that Mr. Ying was about
to abscond and that petitioner was about to close. Win obtained a surety bond 10 issued by Visayan Surety
& Insurance Corporation. On 10 February 2004, the RTC issued the Writ of Attachment 11 against the
properties of petitioner.
On 16 February 2004, Sheriff Salvador D. Dacumos of the RTC of Manila, Branch 32, went to the office of
petitioner in CPEZ to serve the Writ of Attachment, Summons 12 and the Complaint. Petitioner issued
Equitable PCIBank (PEZA Branch) Check No. 160149, dated 16 February 2004, in the amount
of P8,634,448.20, to prevent the Sheriff from taking possession of its properties. 13 The check was made
payable to the Office of the Clerk of Court of the RTC of Manila as a guarantee for whatever liability there
may be against petitioner.
Petitioner filed an Omnibus Motion14 claiming that it was neither about to close. It also denied owing
anything to Win, as it had already paid all its obligations to it. Lastly, it questioned the jurisdiction of the
trial court from taking cognizance of the case. Petitioner pointed to the presence of the Arbitration Clause
and it asserted that the case should be referred to the Construction Industry Arbitration Commission
(CIAC) pursuant to Executive Order (E.O.) No. 1008.
In the hearing held on 10 February 2004, the counsel of Win moved that its name in the case be changed
from "Win Multi-Rich Builders, Inc." to "Multi-Rich Builders, Inc." It was only then that petitioner apparently
became aware of the variance in the name of the plaintiff. In the Reply15 filed by petitioner, it moved to
dismiss the case since Win was not the contractor and neither a party to the contract, thus it cannot
institute the case. Petitioner obtained a Certificate of Non-Registration of Corporation/Partnership16 from
the SEC which certified that the latter did not have any records of a "Multi-Rich Builders, Inc." Moreover,
Win in its Rejoinder17 did not

oppose the allegations in the Reply. Win admitted that it was only incorporated on 20 February 1997
while the construction contract was executed on 26 March 1996. Likewise, it admitted that at the time of
execution of the contract, Multi-Rich was a registered sole proprietorship and was issued a business
permit18 by the Office of the Mayor of Manila.
In an Order19 dated 12 April 2004, the RTC denied the motion and stated that the issues can be answered
in a full-blown trial. Upon its denial, petitioner filed its Answer and prayed for the dismissal of the
case.20 Win filed a Motion21 to deposit the garnished amount to the court to protect its legal rights. In a
Manifestation,22 petitioner vehemently opposed the deposit of the garnished amount. The RTC issued an
Order23 dated 20 April 2004, which granted the motion to deposit the garnished amount. On the same
date, Win filed a motion24 to release the garnished amount to it. Petitioner filed its opposition 25 to the
motion claiming that the release of the money does not have legal and factual basis.
On 18 June 2004, petitioner filed a petition for review on certiorari26 under Rule 65 before the Court of
Appeals, which questioned the jurisdiction of the RTC and challenged the orders issued by the lower
court with a prayer for the issuance of a temporary retraining order and a writ of preliminary injunction.
Subsequently, petitioner filed a Supplemental Manifestation and Motion27 and alleged that the money
deposited with the RTC was turned over to Win. Win admitted that the garnished amount had already
been released to it. On 14 March 2006, the Court of Appeals rendered its Decision 28 annulling the 12 April
and 20 April 2004 orders of the RTC. It also ruled that the RTC had jurisdiction over the case since it is a
suit for collection of sum of money. Petitioner filed a Motion for Reconsideration 29 which was
subsequently denied in a resolution.30
1avv phi 1

Hence this petition.

Petitioner raised the following issues to wit: (1) does Win have a legal personality to institute the present
case; (2) does the RTC have jurisdiction over the case notwithstanding the presence of the arbitration
clause; and (3) was the issuance of the writ of attachment and the subsequent garnishment proper.
A suit may only be instituted by the real party in interest. Section 2, Rule 3 of the Rules of Court defines
"parties in interest" in this manner:
A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action
must be prosecuted or defended in the name of the real party in interest.
Is Win a real party in interest? We answer in the negative.
Win admitted that the contract was executed between Multi-Rich and petitioner. It further admitted that
Multi-Rich was a sole proprietorship with a business permit issued by the Office of the Mayor of Manila. A
sole proprietorship is the oldest, simplest, and most prevalent form of business enterprise. 31 It is an
unorganized business owned by one person. The sole proprietor is personally liable for all the debts and
obligations of the business.32 In the case of Mangila v. Court of Appeals,33 we held that:
x x x In fact, there is no law authorizing sole proprietorships to file a suit in court.
A sole proprietorship does not possess a juridical personality separate and distinct from the personality of
the owner of the enterprise. The law merely recognizes the existence of a sole proprietorship as a form of
business organization conducted for profit by a single individual and requires its proprietor or owner to
secure licenses and permits, register its business name, and pay taxes to the national government. The
law does not vest a separate legal personality on the sole proprietorship or empower it to file or defend an
action in court.

The original petition was instituted by Win, which is a SEC-registered corporation. It filed a collection of
sum of money suit which involved a construction contract entered into by petitioner and Multi-Rich, a sole
proprietorship. The counsel of Win wanted to change the name of the plaintiff in the suit to Multi-Rich. The
change cannot be countenanced. The plaintiff in the collection suit is a corporation. The name cannot be
changed to that of a sole proprietorship. Again, a sole proprietorship is not vested with juridical
personality to file or defend an action.34
Petitioner had continuously contested the legal personality of Win to institute the case. Win was given
ample opportunity to adduce evidence to show that it had legal personality. It failed to do so. Corpus Juris
Secundum, notes:
x x x where an individual or sole trader organizes a corporation to take over his business and all his
assets, and it becomes in effect merely an alter ego of the incorporator, the corporation, either on the
grounds of implied assumption of the debts or on the grounds that the business is the same and is merely
being conducted under a new guise, is liable for the incorporator's preexisting debts and liabilities.
Clearly, where the corporation assumes or accepts the debt of its predecessor in business it is liable and
if the transfer of assets is in fraud of creditors it will be liable to the extent of the assets transferred. The
corporation is not liable on an implied assumption of debts from the receipt of assets where the
incorporator retains sufficient assets to pay the indebtedness, or where none of his assets are transferred
to the corporation, or where, although all the assets of the incorporator have been transferred, there is a
change in the persons carrying on the business and the corporation is not merely an alter ego of the
person to whose business it succeeded.35
In order for a corporation to be able to file suit and claim the receivables of its predecessor in business, in
this case a sole proprietorship, it must show proof that the corporation had acquired the assets and
liabilities of the sole proprietorship. Win could have easily presented or attached any document e.g., deed
of assignment which will show whether the assets, liabilities and receivables of Multi-Rich were acquired
by Win. Having been given the opportunity to rebut the allegations made by petitioner, Win failed to use
that opportunity. Thus, we cannot presume that Multi-Rich is the predecessor-in-business of Win and hold
that the latter has standing to institute the collection suit.
Assuming arguendo that Win has legal personality, the petition will still be granted.
Section 4 of E.O. No. 100836 provides for the jurisdiction of the Construction Industry Arbitration
Commission, to wit:
Section 4. Jurisdiction.The CIAC shall have original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved in construction in the Philippines,
whether the disputes arises before or after the completion of the contract, or after the abandonment or
breach thereof. These disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual time
and delays; amount of damages and penalties; commencement time and delays; maintenance and
defects; payment, default of employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes from employer-employee relationships which shall
continue to be covered by the Labor Code of the Philippines.
There is nothing in the law which limits the exercise of jurisdiction to complex or difficult cases. E.O. No.
1008 does not distinguish between claims involving payment of money or not. 37 The CIAC acquires
jurisdiction over a construction contract by the mere fact that the parties agreed to submit to voluntary
arbitration.38 The law does not preclude parties from stipulating a preferred forum or arbitral body but they

may not divest the CIAC of jurisdiction as provided by law.39Arbitration is an alternative method of dispute
resolution which is highly encouraged.40 The arbitration clause is a commitment on the part of the parties
to submit to arbitration the disputes covered since that clause is binding, and they are expected to
abide by it in good faith.41 Clearly, the RTC s
hould not have taken cognizance of the collection suit.
The presence of the arbitration clause vested jurisdiction to the CIAC over all construction disputes
between Petitioner and Multi-Rich. The RTC does not have jurisdiction.42
Based on the foregoing, there is no need to discuss the propriety of the issuance of the writ of
attachment. However, we cannot allow Win to retain the garnished amount which was turned over by the
RTC. The RTC did not have jurisdiction to issue the questioned writ of attachment and to order the
release of the garnished funds.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals is hereby MODIFIED.
Civil Case No. 04-108940 is DISMISSED. Win Multi-Rich Builders, Inc. is ORDERED to return the
garnished amount of EIGHT MILLION SIX HUNDRED THIRTY-FOUR THOUSAND FOUR HUNDRED
FORTY-EIGHT PESOS AND FORTY CENTAVOS (P8,634,448.40),
which was turned over by the Regional Trial Court, to petitioner with legal interest of 12 percent (12%) per
annum upon finality of this Decision until payment.
SO ORDERED.
G.R. Nos. 158820-21

June 5, 2009

STRONGHOLD INSURANCE COMPANY, INCORPORATED, Petitioner,

vs.
TOKYU CONSTRUCTION COMPANY, LTD., Respondent.
DECISION
NACHURA, J.:
Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the Court of
Appeals (CA) Decision1dated January 21, 2003 and its Resolution2 dated June 25, 2003.
The factual and procedural antecedents follow:
Respondent Tokyu Construction Company, Ltd., a member of a consortium of four (4) companies, was
awarded by the Manila International Airport Authority a contract for the construction of the Ninoy Aquino
International Airport (NAIA) Terminal 2 (also referred to as "the project"). On July 2, 1996, respondent
entered into a Subcontract Agreement3 with G.A. Gabriel Enterprises, owned and managed by Remedios
P. Gabriel (Gabriel), for the construction of the projects Storm Drainage System (SDS)
for P33,007,752.00 and Sewage Treatment Plant (STP) for P23,500,000.00, or a total contract price
ofP56,507,752.00. The parties agreed that the construction of the SDS and STP would be completed on
August 10, 1997 and May 31, 1997, respectively.4
In accordance with the terms of the agreement, respondent paid Gabriel 15% of the contract price, as
advance payment, for which the latter obtained from petitioner Stronghold Insurance Company, Inc.
Surety Bonds5 dated February 26, 19966and April 15, 1996,7 to guarantee its repayment to respondent.
Gabriel also obtained from petitioner Performance Bonds 8to guarantee to respondent due and timely
performance of the work.9 Both bonds were valid for a period of one year from date of issue.

In utter defiance of the parties agreements, Gabriel defaulted in the performance of her obligations. On
February 10, 1997, in a letter10 sent to Gabriel, respondent manifested its intention to terminate the
subcontract agreement. Respondent also demanded that petitioner comply with its undertaking under its
bonds.
On February 26, 1997, both parties (respondent and Gabriel) agreed to revise the scope of work,
reducing the contract price for the SDS phase from P33,007,752.00 to P1,175,175.0011 and the STP
from P23,500,000.00 to P11,095,930.50,12fixing the completion time on May 31, 1997.
Gabriel thereafter obtained from Tico Insurance Company, Inc. (Tico) Surety13 and Performance14 Bonds
to guarantee the repayment of the advance payment given by respondent to Gabriel and the completion
of the work for the SDS, respectively.
Still, Gabriel failed to accomplish the works within the agreed completion period. Eventually, on April 26,
1997, Gabriel abandoned the project. On August 8, 1997, respondent served a letter 15 upon Gabriel
terminating their agreement since the latter had only completed 63.48% of the SDS project, valued
at P744,965.00; and 46.60% of the STP, valued atP5,171,032.48. Respondent thereafter demanded from
Gabriel the return of the balance of the advance payment. Respondent, likewise, demanded the payment
of the additional amount that it incurred in completing the project.16 Finally, respondent made formal
demands against petitioner and Tico to make good their obligations under their respective performance
and surety bonds. However, all of them failed to heed respondents demand. Hence, respondent filed a
complaint17 against petitioner, Tico, and Gabriel, before the Construction Industry Arbitration Commission
(CIAC).
In the complaint, respondent prayed that Gabriel, Tico, and petitioner be held jointly and severally liable
for the payment of the additional costs it incurred in completing the project covered by the subcontract
agreement; for liquidated damages; for the excess downpayment paid to Gabriel; for exemplary
damages; and for attorneys fees.18
Gabriel denied liability and argued that the delay in the completion of the project was caused by
respondent. She also contended that the original subcontract agreement was novated by the revised
scope of work and completion schedule. To counter respondents monetary demands, she claimed that it
was, in fact, respondent who had an unpaid balance.
For its part, Tico averred that it actually treated respondents demand as a claim on the performance and
surety bonds it issued; but it could not make payment since the claim was still subject to determination,
findings, and recommendation of its assigned independent adjuster. 19
On the other hand, petitioner interposed the following special and affirmative defenses: 1) the surety and
performance bonds had expired; 2) the premium on the bonds had not been paid by Gabriel; 3) the
contract for which the bonds were issued was set aside/novated; 4) the requisite notices were not made
which thus barred respondents claims against it; and 5) the damages claimed were not arbitrable. 20
On February 5, 1999, the parties signed the Terms of Reference21 (TOR) wherein their admission of facts,
their respective positions and claims, the issues to be determined, and the amount of arbitration fees
were summarized and set forth.
On August 24, 1999, the CIAC rendered a decision,22 the dispositive portion of which reads:
WHEREFORE, award is hereby made as follows:

1. On Tokyus claims for cost overrun and cost of materials, equipment, manpower
contributed prior to alleged takeover, Gabriel is found liable to pay Tokyu the amount
of P1,588,527.00.
2. On Tokyus claim of liquidated damages, Gabriel is found liable to pay Tokyu the amount
of P662,666.44.
3. On Tokyus claim against Tico, we find Tico to be jointly and severally liable with Gabriel
on its Performance Bond for the payment of the amounts stated in numbers [1] and [2] above
but its liability to Tokyu shall not exceed the amount of P238,401.39 on its performance
bond. The claim against Tico on its Surety Bond is hereby dismissed.
4. With regard to the claim for the return of the unrecouped down payment, we find that
Gabriel is liable to pay Tokyu the amount [of] P7,588,613.18.
5. With regard to Tokyus claim against Stronghold on its Surety Bonds, we find Stronghold
liable jointly and severally with Gabriel for the payment of the unrecouped down payment but
only up to the amount of P6,701,063.60. The claim against Stronghold on its Performance
Bonds is hereby dismissed.
6. The counterclaim of Gabriel against Tokyu is not contested. Tokyu is held liable to pay
Gabriel on her counterclaim of P1,007,515.78.
7. The net amount due Gabriel for its unpaid progress billing is P1,190,108.41. Tokyu is held
liable to pay this amount to Gabriel.
The amount adjudged in favor of Tokyu against Gabriel is P9,642,182.43 The amount adjudged in favor
of Gabriel against Tokyu is P2,197,624.19. Offsetting these two amounts, there is a net award in favor of
Tokyu of P7,642,182.43. Payment of this amount or any portion thereof shall inure to the benefit of and
reduce pro tanto the liability of the respondents sureties. (Art. 1217, Civil Code)
All other claims or counterclaims not included in the foregoing disposition are hereby denied. The costs of
arbitration shall be shared by the parties pro rata on the basis of their claims and counterclaims as
reflected in the TOR.
SO ORDERED.23
The CIAC refused to resolve the issue of novation since respondent had already terminated the
agreement by sending a letter to Gabriel. It further held that petitioners liabilities under the surety and
performance bonds were not affected by the revision of the scope of work, contract price, and completion
time.
Petitioner and respondent separately appealed the CIAC decision to the CA via a petition for review
under Rule 43 of the Rules of Court. The appeals were docketed as CA-G.R. SP Nos. 54920 (petitioner)
and 55167 (respondent) which were later consolidated. On January 21, 2003, the CA rendered a
decision24 modifying the awards made by the Arbitral Tribunal, thus:
WHEREFORE, the appealed decision/award of the Arbitral Tribunal is hereby MODIFIED in that:

1. On TOKYUs claim for liquidated damages, GABRIEL is found liable to pay TOKYU the
amount of P1,699,843.95.

2. STRONGHOLD and TICO are ordered to pay TOKYU from their respective performance
bonds, jointly and severally with GABRIEL the cost of overrun and liquidated damages in the
amount of P1,588,570.00 andP1,699,843.95 or the total amount of P3,288,370.95 but
TICOs liability for liquidated damages shall be limited only to those accruing from the SDS
phase of the Project and only in the amount of P70,992.77.
3. STRONGHOLD is further ordered to pay TOKYU from its surety bonds, jointly and
severally with GABRIEL, the total unrecouped downpayments in the amount
of P7,588,613.18.
4. The aggregate amount adjudged in favor of TOKYU against GABRIEL is P10,876,984.13
while the total amount adjudged in favor of Gabriel is P2,197,624.19. Offsetting these two (2)
amounts against each other, there is a net award in favor of TOKYU in the amount
of P8,679,359.94. Payment of this net amount or any portion thereof by GABRIEL shall in
(sic) inure to the benefit and reduce pro tanto the liability of the sureties STRONGHOLD and
TICO.
In all other respects, the same appealed decision/award is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.25
Hence, the instant petition, anchored on the following grounds:

5.1. THE COURT OF APPEALS ERRED IN HOLDING STRONGHOLD LIABLE ON ITS

BONDS AFTER THE BONDS HAVE BEEN INVALIDATED, LAPSED AND EXPIRED.
5.2. THE COURT OF APPEALS ERRED IN HOLDING STRONGHOLD LIABLE ON ITS
BONDS WHICH WERE ISSUED WITHOUT THE EXISTENCE OF ANY PRINCIPAL
CONTRACT.
5.3. THE COURT OF APPEALS ERRED IN HOLDING STRONGHOLD LIABLE ON ITS
BONDS AND CONFUSED THE LEGAL EFFECTS, IMPORT AND SIGNIFICANCE
BETWEEN A GUARANTY (UNDER THE CIVIL CODE) AND SURETY UNDER THE
INSURANCE CODE.
5.4. THE COURT OF APPEALS ERRED IN HOLDING STRONGHOLD LIABLE ON ITS
BONDS WHERE THE PRINCIPAL CONTRACT UNDER WHICH THE BONDS WERE
ISSUED HAD BEEN NOVATED.26
Apart from the errors specifically assigned in its petition and memorandum, petitioner asks this Court to
address the issue of whether the CIAC had jurisdiction to take cognizance of insurance claims. Petitioner
insists that respondents claim against it is not related to the construction dispute, hence, it should have
been lodged with the regular courts.
The argument is misplaced.
Section 4 of Executive Order (E.O.) No. 1008, or the Construction Industry Arbitration Law, provides:
SEC. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising from,
or connected with, contracts entered into by parties involved in construction in the Philippines, whether

the dispute arises before or after the completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship, violation of the terms of agreement, interpretation and/or application of contractual time
and delays, maintenance and defects, payment, default of employer or contractor, and changes in
contract cost.
Excluded from the coverage of the law are disputes arising from employer-employee relationships which
shall continue to be covered by the Labor Code of the Philippines.
Clearly, E.O. 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes arising
from or connected with construction contracts entered into by parties that have agreed to submit their
dispute to voluntary arbitration.27
In this case, the CIAC validly acquired jurisdiction over the dispute. Petitioner submitted itself to the
jurisdiction of the Arbitral Tribunal when it signed the TOR. 28 The TOR states:
II. STIPULATION/ADMISSION OF FACTS
xxxx
11. The Construction Industry Arbitration Commission has jurisdiction over the instant case by virtue of
Section 12.10 (Arbitration Clause) of the Subcontract Agreement.29
After recognizing the CIACs jurisdiction, petitioner cannot be permitted to now question that same
authority it earlier accepted, only because it failed to obtain a favorable decision. This is especially true in
the instant case since petitioner is challenging the tribunals jurisdiction for the first time before this Court.
With the issue of jurisdiction resolved, we proceed to the merits of the case.
It is well to note that Gabriel did not appeal the CIAC decision and Ticos petition before this Court has
been denied with finality.30 Hence, the CIAC and CA decisions have become final and executory as to
Gabriel and Tico, and in that respect, they shall not be disturbed by this Court.
Thus, the sole issue that confronts us is whether or not petitioner is liable under its bonds. To resolve the
same, we need to inquire into the following corollary issues:

1) whether the bonds (surety and performance) are null and void having been secured
without a valid and existing principal contract;
2) whether the bonds were invalidated by the modification of the subcontract agreement
without notice to the surety; and
3) whether the bonds for which petitioner was being made liable already expired.
Initially, petitioner argued that the surety and performance bonds (which were accessory contracts) were
of no force and effect since they were issued ahead of the execution of the principal contract. To support
this contention, it now adds that the bonds were actually secured through misrepresentation, as petitioner
was made to believe that the principal contract was already in existence when the bonds were issued, but
it was, in fact, yet to be executed.31

We are not persuaded.

In the first place, as correctly observed by respondent, the claim of misrepresentation was never raised
by petitioner as a defense in its Answer. Settled is the rule that points of law, theories, issues, and
arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be,
considered by a reviewing court. They cannot be raised for the first time on appeal. To allow this would be
offensive to the basic rules of fair play, justice, and due process. 32
Besides, even if we look into the merit of such contention, the CA is correct in holding that there was no
evidentiary support of petitioners claim of misrepresentation. 33 This being a factual issue, we respect the
finding made in the assailed decision. We have repeatedly held that we are not a trier of facts. We
generally rely upon, and are bound by, the conclusions on factual matters made by the lower courts,
which are better equipped and have better opportunity to assess the evidence first-hand, including the
testimony of the witnesses.34
Petitioner also contends that the principal contract (original subcontract agreement) was novated by the
revised scope of work and contract schedule, without notice to the surety, thereby rendering the bonds
invalid and ineffective. Finally, it avers that no liability could attach because the subject bonds expired and
were replaced by the Tico bonds.
Again, we do not agree.
Petitioners liability was not affected by the revision of the contract price, scope of work, and contract
schedule. Neither was it extinguished because of the issuance of new bonds procured from Tico.
As early as February 10, 1997, respondent already sent a letter 35 to Gabriel informing the latter of the
delay incurred in the performance of the work, and of the formers intention to terminate the subcontract
agreement to prevent further losses. Apparently, Gabriel had already been in default even prior to the
aforesaid letter; and demands had been previously made but to no avail. By reason of said default,
Gabriels liability had arisen; as a consequence, so also did the liability of petitioner as a surety arise.
A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance
by another party, called the principal or obligor, of an obligation or undertaking in favor of another party,
called the obligee.36 By its very nature, under the laws regulating suretyship, the liability of the surety is
joint and several but is limited to the amount of the bond, and its terms are determined strictly by the
terms of the contract of suretyship in relation to the principal contract between the obligor and the
obligee.37
By the language of the bonds issued by petitioner, it guaranteed the full and faithful compliance by
Gabriel of its obligations in the construction of the SDS and STP specifically set forth in the subcontract
agreement, and the repayment of the 15% advance payment given by respondent. These guarantees
made by petitioner gave respondent the right to proceed against the former following Gabriels noncompliance with her obligation.
Confusion, however, transpired when Gabriel and respondent agreed, on February 26, 1997, to reduce
the scope of work and, consequently, the contract price. Petitioner viewed such revision as novation of
the original subcontract agreement; and since no notice was given to it as a surety, it resulted in the
extinguishment of its obligation.
We wish to stress herein the nature of suretyship, which actually involves two types of relationship --- the
underlying principal relationship between the creditor (respondent) and the debtor (Gabriel), and the
accessory surety relationship between the principal (Gabriel) and the surety (petitioner).The creditor
accepts the suretys solidary undertaking to pay if the debtor does not pay. Such acceptance, however,
does not change in any material way the creditors relationship with the principal debtor nor does it make

the surety an active party to the principal creditor-debtor relationship. In other words, the acceptance
does not give the surety the right to intervene in the principal contract. The suretys role arises only upon
the debtors default, at which time, it can be directly held liable by the creditor for payment as a solidary
obligor.38
The surety is considered in law as possessed of the identity of the debtor in relation to whatever is
adjudged touching upon the obligation of the latter. Their liabilities are so interwoven as to be
inseparable. Although the contract of a surety is, in essence, secondary only to a valid principal
obligation, the suretys liability to the creditor is direct, primary, and absolute; he becomes liable for the
debt and duty of another although he possesses no direct or personal interest over the obligations nor
does he receive any benefit therefrom.39
Indeed, a surety is released from its obligation when there is a material alteration of the principal contract
in connection with which the bond is given, such as a change which imposes a new obligation on the
promising party, or which takes away some obligation already imposed, or one which changes the legal
effect of the original contract and not merely its form. However, a surety is not released by a change in
the contract, which does not have the effect of making its obligation more onerous. 40
In the instant case, the revision of the subcontract agreement did not in any way make the obligations of
both the principal and the surety more onerous. To be sure, petitioner never assumed added obligations,
nor were there any additional obligations imposed, due to the modification of the terms of the contract.
Failure to receive any notice of such change did not, therefore, exonerate petitioner from its liabilities as
surety.
Neither can petitioner be exonerated from liability simply because the bonds it issued were replaced by
those issued by Tico.
The Court notes that petitioner issued four bonds, namely: 1) Performance Bond No. 43601 which
guaranteed the full and faithful compliance of Gabriels obligations for the construction of the SDS; 2)
Performance Bond No. 13608 for the construction of the STP; 3) Surety Bond No. 065493 which
guaranteed the repayment of the 15% advance payment for the SDS project; and 4) Surety Bond No.
068189 for the STP project. Under the surety agreements, the first and third bonds were to expire on
February 25, 1997 or one year from date of issue of the bonds, while the second and fourth bonds were
to expire one year from April 15, 1996.
The impending expiration of the first and third bonds prompted respondent to require Gabriel to arrange
for their (the bonds) immediate revalidation. Thus, in a letter dated February 21, 1997, respondent asked
that the performance bond for the SDS phase be extended until May 31, 1998; and for the surety bond,
until June 30, 1997.41 Contrary to petitioners contention, this should not be construed as a recognition on
the part of respondent that the bonds were no longer valid by reason of the modification of the
subcontract agreement. There was indeed a need for the renewal of petitioners bonds because they
were about to expire, pursuant to the terms of the surety agreements. Since petitioner refused to
revalidate the aforesaid bonds, Gabriel was constrained to secure the required bonds from Tico which
issued, on February 25, 1997, the new performance and surety bonds (for the SDS phase) replacing
those of petitioners. The performance bond was coterminous with the final acceptance of the project,
while the surety bond was to expire on February 26, 1998.
Notwithstanding the issuance of the new bonds, the fact remains that the event insured against, which is
the default in the performance of Gabriels obligations set forth in the subcontract agreement, already
took place. By such default, petitioners liability set in. Thus, petitioner remains solidarily liable with
Gabriel, subject only to the limitations on the amount of its liability as provided for in the Bonds
themselves.

Considering that the performance bonds issued by petitioner were valid only for a period of one year, its
liabilities should further be limited to the period prior to the expiration date of said bonds. As to
Performance Bond No. 43601 for the SDS project, the same was valid only for one year from February
26, 1996; while Performance Bond No. 13608 was valid only for one year from April 15, 1996. Logically,
petitioner can be held solidarily liable with Gabriel only for the cost overrun and liquidated damages
accruing during the above periods. The assailed CA decision is, therefore, modified in this respect.
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals dated
January 21, 2003 and its Resolution dated June 25, 2003 are AFFIRMED with the MODIFICATION that
petitioner Stronghold Insurance, Company, Inc. is jointly and severally liable with Remedios P. Gabriel
only for the cost overrun and liquidated damages accruing during the effectivity of its bonds.
All other aspects of the assailed decision STAND.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
G.R. No. 171763

June 5, 2009

MARIA LUISA PARK ASSOCIATION, INC., Petitioner,

vs.
SAMANTHA MARIE T. ALMENDRAS and PIA ANGELA T. ALMENDRAS, Respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the Decision1 dated August 31, 2005 and the
Resolution2 dated February 13, 2006 of the Court of Appeals in CA-G.R. SP No. 81069.
The facts, culled from the records, are as follows:
On February 6, 2002, respondents Samantha Marie T. Almendras and Pia Angela T. Almendras
purchased from MRO Development Corporation a residential lot located in Maria Luisa Estate Park,
Banilad, Cebu City. After some time, respondents filed with petitioner Maria Luisa Park Association,
Incorporated (MLPAI) an application to construct a residential house, which was approved in February 10,
2002. Thus, respondents commenced the construction of their house.
Upon ocular inspection of the house, MLPAI found out that respondents violated the prohibition against
multi-dwelling3stated in MLPAIs Deed of Restriction. Consequently, on April 28, 2003, MLPAI sent a
letter to the respondents, demanding that they rectify the structure; otherwise, it will be constrained to
forfeit respondents construction bond and impose stiffer penalties.
In a Letter4 dated April 29, 2003, respondents, as represented by their father Ruben D. Almendras denied
having violated MLPAIs Deed of Restriction.
On May 5, 2003, MLPAI, in its reply, pointed out respondents specific violations of the subdivision rules,
to wit: (a) installation of a second water meter and tapping the subdivisions main water pipeline, and (b)
construction of "two separate entrances that are mutually exclusive of each other." It likewise reiterated its
warning that failure to comply with its demand will result in its exercise of more stringent measures.

In view of these, respondents filed with the Regional Trial Court of Cebu City, Branch 7, a Complaint5 on
June 2, 2003 for Injunction, Declaratory Relief, Annulment of Provisions of Articles and By-Laws with
Prayer for Issuance of a Temporary Restraining Order (TRO)/Preliminary Injunction.
MLPAI moved for the dismissal of the complaint on the ground of lack of jurisdiction and failure to comply
with the arbitration clause6 provided for in MLPAIs by-laws.
In an Order7 dated July 31, 2003, the trial court dismissed the complaint for lack of jurisdiction, holding
that it was the Housing and Land Use Regulatory Board (HLURB) that has original and exclusive
jurisdiction over the case. Respondents moved for reconsideration but their motion was denied.
Aggrieved, the respondents questioned the dismissal of their complaint in a petition for certiorari and
prohibition before the Court of Appeals.
The Court of Appeals granted the petition in its Decision dated August 31, 2005, the dispositive portion of
which reads:
WHEREFORE, in view of all the foregoing, the petition is GRANTED and the assailed orders of the
respondent trial court are declared NULL AND VOID, and SET ASIDE. Respondent RTC is hereby
ordered to take jurisdiction of Civil Case No. CEB-29002.
SO ORDERED.8
MLPAI filed a motion for reconsideration but it was denied by the Court of Appeals in its Resolution dated
February 13, 2006.
Hence, this petition raising the following issues:

I.
WHETHER THE HONORABLE COURT OF APPEALS HAS DISREGARDED LAWS AND WELLSETTLED JURISPRUDENCE IN HOLDING THAT JURISDICTION OVER [THE] DISPUTE
BETWEEN HOMEOWNERS AND HOMEOWNERS ASSOCIATION LIES WITH THE REGULAR
COURTS AND NOT WITH HLURB.
II.
WHETHER THERE IS NO OTHER RELIEF AND REMEDY AVAILABLE TO PETITIONER TO
AVERT THE CONDUCT OF A VOID [PROCEEDING] THAN THE PRESENT RECOURSE.9
Simply stated, the issue is whether the appellate court erred in ruling that it was the trial court and not the
HLURB that has jurisdiction over the case.
Petitioner MLPAI contends that the HLURB10 has exclusive jurisdiction over the present controversy, it
being a dispute between a subdivision lot owner and a subdivision association, where the latter aimed to
compel respondents to comply with the MLPAIs Deed of Restriction, specifically the provision prohibiting
multi-dwelling.
Respondents, on the other hand, counter that the case they filed against MLPAI is one for declaratory
relief and annulment of the provisions of the by-laws; hence, it is outside the competence of the HLURB
to resolve. They likewise stated that MLPAIs rules and regulations are discriminatory and violative of their

basic rights as members of the association. They also argued that MLPAIs acts are illegal, immoral and
against public policy and that they did not commit any violation of the MLPAIs Deed of Restriction.
We agree with the trial court that the instant controversy falls squarely within the exclusive and original
jurisdiction of the Home Insurance and Guaranty Corporation (HIGC),11 now HLURB.
Originally, administrative supervision over homeowners associations was vested by law with the
Securities and Exchange Commission (SEC). However, pursuant to Executive Order No. 535,12 the HIGC
assumed the regulatory and adjudicative functions of the SEC over homeowners associations. Section 2
of E.O. No. 535 provides:
2. In addition to the powers and functions vested under the Home Financing Act, the Corporation, shall
have among others, the following additional powers:

(a) . . . and exercise all the powers, authorities and responsibilities that are vested on the
Securities and Exchange Commission with respect to homeowners associations, the
provision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding;
(b) To regulate and supervise the activities and operations of all houseowners associations
registered in accordance therewith;
xxxx
Moreover, by virtue of this amendatory law, the HIGC also assumed the SECs original and exclusive
jurisdiction under Section 5 of Presidential Decree No. 902-A to hear and decide cases involving:
b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders,
members, or associates; between any and/or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively; and between such
corporation, partnership or association and the state insofar as it concerns their individual franchise or
right to exist as such entity;13 (Emphasis supplied.)
xxxx
Consequently, in Sta. Clara Homeowners Association v. Gaston14 and Metro Properties, Inc. v.
Magallanes Village Association, Inc.,15 the Court recognized HIGCs "Revised Rules of Procedure in the
Hearing of Home Owners Disputes," pertinent portions of which are reproduced below:

RULE II
Disputes Triable by HIGC/Nature of Proceedings
Section 1. Types of Disputes The HIGC or any person, officer, body, board or committee duly
designated or created by it shall have jurisdiction to hear and decide cases involving the following:
xxxx
(b) Controversies arising out of intra-corporate relations between and among members of the
association,between any or all of them and the association of which they are members, and
between such association and the state/general public or other entity in so far as it concerns its right
to exist as a corporate entity.16 (Emphasis supplied.)
xxxx

Later on, the above-mentioned powers and responsibilities, which had been vested in the HIGC with
respect to homeowners associations, were transferred to the HLURB pursuant to Republic Act No.
8763,17 entitled "Home Guaranty Corporation Act of 2000."
In the present case, there is no question that respondents are members of MLPAI as they have even
admitted it.18Therefore, as correctly ruled by the trial court, the case involves a controversy between the
homeowners association and some of its members. Thus, the exclusive and original jurisdiction lies with
the HLURB.
Indeed, in Sta. Clara Homeowners Association v. Gaston, we held:
. . . the HIGC exercises limited jurisdiction over homeowners' disputes. The law confines its
authority to controversies that arise from any of the following intra-corporate relations: (1)
between and among members of the association; (2) between any and/or all of them and the
association of which they are members; and (3) between the association and the state insofar as the
controversy concerns its right to exist as a corporate entity.19 (Emphasis supplied.)
The extent to which the HLURB has been vested with quasi-judicial authority must also be determined by
referring to Section 3 of P.D. No. 957,20 which provides:
SEC. 3. National Housing Authority. The National Housing Authority shall have exclusive jurisdiction to
regulate the real estate trade and business in accordance with the provisions of this Decree. (Emphasis
supplied.)
The provisions of P.D. No. 957 were intended to encompass all questions regarding subdivisions and
condominiums. The intention was aimed at providing for an appropriate government agency, the HLURB,
to which all parties aggrieved in the implementation of provisions and the enforcement of contractual
rights with respect to said category of real estate may take recourse. The business of developing
subdivisions and corporations being imbued with public interest and welfare, any question arising from
the exercise of that prerogative should be brought to the HLURB which has the technical know-how on
the matter.22
It is apparent that although the complaint was denominated as one for declaratory relief/annulment of
contracts, the allegations therein reveal otherwise. It should be stressed that respondents neither asked
for the interpretation of the questioned by-laws nor did they allege that the same is doubtful or ambiguous
and require judicial construction. In fact, what respondents really seek to accomplish is to have a
particular provision of the MLPAIs by-laws nullified and thereafter absolve them from any violations of the
same.23 In Kawasaki Port Service Corporation v. Amores,24 the rule was stated:
. . . where a declaratory judgment as to a disputed fact would be determinative of issues rather than a
construction of definite stated rights, status and other relations, commonly expressed in written
instrument, the case is not one for declaratory judgment.25
Contrary to the observation of the Court of Appeals, jurisdiction cannot be made to depend on the
exclusive characterization of the case by one of the parties.26 While respondents are questioning the
validity or legality of the MLPAIs articles of incorporation and its by-laws, they did not, however, raise any
legal ground to support its nullification. The legality of the by-laws in its entirety was never an issue in the
instant controversy but merely the provision prohibiting multi-dwelling which respondents assert they did
not violate.27 So to speak, there is no justiciable controversy here that would warrant declaratory relief, or
even an annulment of contracts.
We reiterate that in jurisdictional issues, what determines the nature of an action for the purpose of
ascertaining whether a court has jurisdiction over a case are the allegations in the complaint and the
nature of the relief sought.28

Moreover, under the doctrine of primary administrative jurisdiction, courts cannot or will not determine a
controversy where the issues for resolution demand the exercise of sound administrative discretion
requiring the special knowledge, experience, and services of the administrative tribunal to determine
technical and intricate matters of fact.29
In the instant case, the HLURB has the expertise to resolve the basic technical issue of whether the
house built by the respondents violated the Deed of Restriction, specifically the prohibition against multidwelling.
1avv phi 1

As observed in C.T. Torres Enterprises, Inc. v. Hibionada:30

The argument that only courts of justice can adjudicate claims resoluble under the provisions of the Civil
Code is out of step with the fast-changing times. There are hundreds of administrative bodies now
performing this function by virtue of a valid authorization from the legislature. This quasi-judicial function,
as it is called, is exercised by them as an incident of the principal power entrusted to them of regulating
certain activities falling under their particular expertise.
In the Solid Homes case for example the Court affirmed the competence of the Housing and Land Use
Regulatory Board to award damages although this is an essentially judicial power exercisable ordinarily
only by the courts of justice. This departure from the traditional allocation of governmental powers is
justified by expediency, or the need of the government to respond swiftly and competently to the pressing
problems of the modern world.31
We also note that the parties failed to abide by the arbitration agreement in the MLPAI by-laws. Article XII
of the MLPAI by-laws entered into by the parties provide:
Mode of Dispute Resolution
Mode of Dispute Resolution. Should any member of the Association have any grievance, dispute or claim
against the Association or any of the officers and governors thereof in connection with their function
and/or position in the Association, the parties shall endeavor to settle the same amicably. In the event
that efforts at amicable settlement fail, such dispute, difference or disagreement shall be brought by the
member to an arbitration panel composed of three (3) arbitrators for final settlement, to the exclusion of
all other fora. Such arbitration may be initiated by giving notice to the other party, such notice designating
one (1) independent arbitrator. Within thirty (30) from the receipt of said notice, the other party shall
designate a second independent arbitrator by written notice to the first party. Both arbitrators shall within
fifteen (15) days thereafter select a third independent arbitrator, who shall be the chairman of the
Arbitration Tribunal. In the event that the two (2) arbitrators respectively nominated by the parties fail to
select the third independent arbitrator within the fifteen-day period, the third arbitrator shall be jointly
selected by the parties. In the event that the other party does not nominate an arbitrator, the Arbitration
Tribunal shall be composed of one (1) arbitrator nominated by the party initiating the proceedings. The
Arbitration Tribunal shall render its decision within forty-five (45) days from the selection of the third
arbitrator, which decision shall be valid and binding between the parties unless repudiated within five (5)
days from receipt thereof on grounds that the same was procured through fraud or violence, or that there
are patent or gross errors in facts made basis of the decision. The award of the Tribunal shall be enforced
by a court of competent jurisdiction. Venue of action covered by this Article shall be in the courts of justice
of Cebu City only.
Under the said provision of the by-laws, any dispute or claim against the Association or any of its officers
and governors shall first be settled amicably. If amicable settlement fails, such dispute shall be brought by
the member to an arbitration panel for final settlement. The arbitral award shall be valid and binding
between the parties unless repudiated on grounds that the same was procured through fraud or violence,
or that there are patent or gross errors in the tribunals findings of facts upon which the decision was
based.

The terms of Article XII of the MLPAI by-laws clearly express the intention of the parties to bring first to
the arbitration process all disputes between them before a party can file the appropriate action. The
agreement to submit all disputes to arbitration is a contract. As such, the arbitration agreement binds the
parties thereto, as well as their assigns and heirs.32Respondents, being members of MLPAI, are bound by
its by-laws, and are expected to abide by it in good faith.33
In the instant case, we observed that while both parties exchanged correspondence pertaining to the
alleged violation of the Deed of Restriction, they, however, made no earnest effort to resolve their
differences in accordance with the arbitration clause provided for in their by-laws. Mere exchange of
correspondence will not suffice much less satisfy the requirement of arbitration. Arbitration being the
mode of settlement between the parties expressly provided for in their by-laws, the same should be
respected. Unless an arbitration agreement is such as absolutely to close the doors of the courts against
the parties, the courts should look with favor upon such amicable arrangements.34
Arbitration is one of the alternative methods of dispute resolution that is now rightfully vaunted as "the
wave of the future" in international relations, and is recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement between the parties would therefore be a step
backward.35
WHEREFORE, the instant petition is GRANTED. The Decision dated August 31, 2005 and Resolution
dated February 13, 2006 of the Court of Appeals in CA-G.R. SP No. 81069 are SET ASIDE. The Order
dated July 31, 2003 of the Regional Trial Court of Cebu City, Branch 7, is hereby REINSTATED.
SO ORDERED.
LEONARDO A. QUISUMBING
Associate Justice
WE CONCUR:
G.R. Nos. 147925-26

June 8, 2009

ELPIDIO S. UY, doing business under the name and style EDISON DEVELOPMENT &
CONSTRUCTION,Petitioner,
vs.
PUBLIC ESTATES AUTHORITY and the HONORABLE COURT OF APPEALS, Respondents.
DECISION
NACHURA, J.:
Petitioner Elpidio S. Uy (Uy) appeals by certiorari the Joint Decision1 dated September 25, 2000 and the
Joint Resolution2dated April 25, 2001 of the Court of Appeals (CA) in the consolidated cases CA-G.R. SP
Nos. 59308 and 59849.
Respondent Public Estates Authority (PEA) was designated as project manager by the Bases Conversion
Development Authority (BCDA), primarily tasked to develop its 105-hectare demilitarized lot in Fort
Bonifacio, Taguig City into a first-class memorial park to be known as Heritage Park. PEA then engaged
the services of Makati Development Corporation (MDC) to undertake the horizontal works on the project;
and Uy, doing business under the name and style Edison Development and Construction (EDC), to do
the landscaping.

For a contract price of Three Hundred Fifty-Five Million Eighty Thousand One Hundred Forty-One and
15/100 Pesos (P355,080,141.15), PEA and EDC signed the Landscaping and Construction
Agreement3 on November 20, 1996. EDC undertook to complete the landscaping works in four hundred
fifty (450) days commencing on the date of receipt of the notice to proceed.
EDC received the notice to proceed on December 3, 1996;4 and three (3) days after, or on December 6,
1996,5 it commenced the mobilization of the equipment and manpower needed for the project. PEA,
however, could not deliver any work area to EDC because the horizontal works of MDC were still
ongoing. EDC commenced the landscaping works only on January 7, 1997 when PEA finally made an
initial delivery of a work area.
PEA continuously incurred delay in the turnover of work areas. Resultantly, the contract period of 450
days was extended to 693 days. PEA also failed to turn over the entire 105-hectare work area due to the
presence of squatters. Thus, on March 15, 1999, the PEA Project Management Office (PEA-PMO) issued
Change Order No. 2-LC,6 excluding from the contract the 45-square-meter portion of the park occupied
by squatters.
In view of the delay in the delivery of work area, EDC claimed additional cost from the PEA-PMO
amounting toP181,338,056.30. Specifically, Uy alleged that he incurred additional rental costs for the
equipment, which were kept on standby, and labor costs for the idle manpower. He added that the delay
by PEA caused the topsoil at the original supplier to be depleted; thus, he was compelled to obtain the
topsoil from a farther source, thereby incurring extra costs. He also claims that he had to mobilize water
trucks for the plants and trees which had already been delivered to the site. Furthermore, it became
necessary to construct a nursery shade to protect and preserve the young plants and trees prior to actual
transplanting to the landscaped area. The PEA-PMO evaluated the EDCs claim and arrived at a lesser
amount ofP146,484,910.7 The evaluation of PEA-PMO was then referred to the Heritage Park Executive
Committee (ExCom) for approval.
On November 12, 1999, the Performance Audit Committee (PAC) reviewed the progress report submitted
by the works engineer and noted that the EDCs landscaping works were behind schedule by twenty
percent (20%). The PAC considered this delay unreasonable and intolerable, and immediately
recommended to BCDA the termination of the landscaping contract. 8 The BCDA adopted PACs
recommendation and demanded from PEA the termination of the contract with EDC. In compliance, PEA
terminated the agreement on November 29, 1999.
PEA fully paid all the progress billings up to August 26, 1999, but it did not heed EDCs additional claims.
Consequently, Uy filed a Complaint9 with the Construction Industry Arbitration Commission (CIAC),
docketed as CIAC Case No. 02-2000.
On May 16, 2000, the CIAC rendered a Decision,10 the dispositive portion of which reads:
WHEREFORE, Judgment is hereby rendered in favor of the [Petitioner] Contractor ELPIDIO S.
UY and Award is hereby made on its monetary claims as follows:
Respondent PUBLIC ESTATES AUTHORITY is directed to pay the [petitioner] the following amounts:

P19,604,132.06 --- for the cost of idle time of equipment.

2,275,721.00

--- for the cost of idled manpower.

6,050,165.05

--- for the construction of the nursery shade net area.

605,016.50

--- for attorneys fees.

Interest on the amount of P6,050,165.05 as cost for the construction of the nursery shade net area shall
be paid at the rate of 6% per annum from the date the Complaint was filed on 12 January 2000. Interest
on the total amount ofP21,879,853.06 for the cost of idled manpower and equipment shall be paid at the
same rate of 6% per annum from the date this Decision is promulgated. After finality of this Decision,
interest at the rate of 12% per annum shall be paid on the total of these 3 awards amounting
to P27,930,018.11 until full payment of the awarded amount shall have been made, "this interim period
being deemed to be at that time already a forbearance of credit" (Eastern Shipping Lines, Inc. v. Court of
Appeals, et al., 243 SCRA 78 [1994]; Keng Hua Paper Products Co., Inc. v. Court of Appeals, 286 SCRA
257 [1998];Crismina Garments, Inc. v. Court of Appeals, G.R. No. 128721, March 9, 1999).
SO ORDERED.11
Uy received the CIAC decision on June 7, 2000. On June 16, 2000, Uy filed a motion for correction of
computation,12followed by an amended motion for correction of computation,13 on July 21, 2000. The
CIAC, however, failed to resolve Uys motion and amended motion within the 30-day period as provided
in its rules, and Uy considered it as denial of the motion.
Hence, on July 24, 2000, Uy filed a petition for review14 with the CA, docketed as CA-G.R. SP No. 59849.
Uys petition was consolidated with CA-G.R. SP No. 59308, the earlier petition filed by PEA, assailing the
same CIAC decision.
On August 1, 2000, the CIAC issued an Order15 denying Uys motion for correction of computation.
On September 25, 2000, the CA rendered the now assailed Joint Decision dismissing both petitions on
both technical and substantive grounds. PEAs petition was dismissed because the verification thereof
was defective. Uys petition, on the other hand, was dismissed upon a finding that it was belatedly filed.
Further, the CA found no sufficient basis to warrant the reversal of the CIAC ruling, which it held is based
on clear provisions of the contract, the evidence on record and relevant law and jurisprudence.
The CA disposed thus:
WHEREFORE, premises considered, the petitions in CA-G.R. SP No. 59308, entitled "Public Estates
Authority v. Elpidio S. Uy, doing business under the name and style of Edison [D]evelopment &
Construction," and CA-G.R. SP No. 59849, "Elpidio S. Uy, doing business under the name and style
of Edison [D]evelopment & Construction v. Public Estates Authority," are both hereby DENIED DUE
COURSE and accordingly DISMISSED, for lack of merit.
Consequently, the Award/Decision issued by the Construction Industry Arbitration Commission on May
16, 2000 in CIAC Case No. 02-2000, entitled "Elpidio S. Uy, doing business under the name and style
of Edison [D]evelopment & Construction v. Public Estates Authority," is hereby AFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.16
PEA and Uy filed motions for reconsideration. Subsequently, PEA filed with the CA an Urgent Motion for
Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction, 17 seeking to enjoin the
CIAC from proceeding with CIAC Case No. 03-2001, which Uy had subsequently filed. PEA alleged that
the case involved claims arising from the same Landscaping and Construction Agreement, subject of the
cases pending with the CA.
On April 25, 2001, the CA issued the assailed Joint Resolution, thus:

WHEREFORE, the present Motion/s for Reconsideration in CA-G.R. SP No. 59308 and CA-G.R. SP No.
59849 are hereby both DENIED, for lack of merit.
Accordingly, let an injunction issue permanently enjoining the Construction Industry Arbitration
Commission from proceeding with CIAC CASE NO. 03-2001, entitled ELPIDIO S. UY, doing business
under the name and style of EDISON DEVELOPMENT &
CONSTRUCTION v. PUBLIC ESTATES AUTHORITY and/or HONORABLE CARLOS P. DOBLE.
SO ORDERED.18
PEA and Uy then came to us with their respective petitions for review assailing the CA ruling. PEAs
petition was docketed as G.R. Nos. 147933-34, while that of Uy was docketed as G.R. Nos. 147925-26.
The petitions, however, were not consolidated.
On December 12, 2001, this Court resolved G.R. Nos. 147933-34 in this wise:
WHEREFORE, in view of the foregoing, the petition for review is DENIED. The Motion to Consolidate this
petition with G.R. No. 147925-26 is also DENIED.
SO ORDERED.19
Thus, what remains for us to resolve is Uys petition, raising the following issues:

I
WHETHER OR NOT RESPONDENT COURT OF APPEALS HAS DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS IN DISMISSING PETITIONER
UYS PETITION IN CA-G.R. SP NO. 59849 ON THE ALLEGED GROUND OF NON-COMPLIANCE
WITH THE REGLEMENTARY PERIOD IN FILING AN APPEAL
II
WHETHER OR NOT THE RESPONDENT COURT OF APPEALS, IN AFFIRMING THE DECISION
OF THE CIAC ARBITRAL TRIBUNAL INSOFAR AS IT DENIED CERTAIN CLAIMS OF
PETITIONER UY, HAS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORDANCE WITH
LAW AND THE APPLICABLE DECISIONS OF THE HONORABLE COURT
III
WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED WITHOUT OR IN
EXCESS OF ITS JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION WHEN IT ENJOINED THE PROCEEDINGS IN CIAC CASE
NO. 03-2001 IN ITS JOINT RESOLUTION DATED 25 APRIL 2000, WHICH CASE IS TOTALLY
DIFFERENT FROM THE CASE A QUO20
We will deal first with the procedural issue.
Appeals from judgment of the CIAC shall be taken to the CA by filing a petition for review within fifteen
(15) days from the receipt of the notice of award, judgment, final order or resolution, or from the date of its
last publication if publication is required by law for its effectivity, or of the denial of petitioners motion for
new trial or reconsideration duly filed in accordance with the governing law of the court or agency a quo. 21

Admittedly, Uy received the CIAC decision on June 7, 2000; that instead of filing a verified petition for
review with the CA, Uy filed a motion for correction of computation on June 16, 2000, pursuant to Section
9, Article XV of the Rules of Procedure Governing Construction Arbitration:
Section 9. Motion for Reconsideration. As a matter of policy, no motion for reconsideration shall be
allowed. Any of the parties may, however, file a motion for correction within fifteen (15) days from receipt
of the award upon any of the following grounds:

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

b. An evident mistake in the description of any party, person, date, amount, thing or property
referred to in the award.
The filing of the motion for correction shall interrupt the running of the period for appeal.
With the filing of the motion for correction, the running of the period to appeal was effectively interrupted.
CIAC was supposed to resolve the motion for correction of computation within 30 days from the time the
comment or opposition thereto was submitted. In Uys case, no resolution was issued despite the lapse of
the 30-day period, and Uy considered it as a denial of his motion. Accordingly, he elevated his case to the
CA on July 24, 2000. But not long thereafter, or on August 1, 2000, the CIAC issued an Order 22 denying
the motion for correction of computation.
Obviously, when Uy filed his petition for review with the CA, the period to appeal had not yet lapsed; it
was interrupted by the pendency of his motion for computation. There is no basis, therefore, to conclude
that the petition was belatedly filed.
The foregoing notwithstanding, inasmuch as the CA resolved the petition on the merits, we now confront
the substantive issue the propriety of the CAs affirmance of the CIAC decision.
Uy cries foul on the award granted by CIAC, and affirmed by the CA. He posits that PEA already admitted
its liability, pegged at P146,484,910.10, in its memorandum dated January 6, 2000. Thus, he faults the
CA for awarding a lesser amount.
We meticulously reviewed the records before us and failed to discern any admission of liability on the part
of PEA.
The PEA-PMO evaluation dated January 6, 2000,23 where PEA allegedly admitted its liability, reads in full:

MEMORANDUM
For :

Mr. Jaime R. Millan

Project Manager
Heritage Park Project

Subject: EDCs Various Claim

Landscape Development Works
Revision shall be made on our evaluation dated 28 December 1999 concerning various claims of
contractor EDC-Landscape Development Works (Package IV), particularly on the claim on Project
Equipment on Standby (item a of the earlier evaluation).

Reference to item 4 of the Terms and Conditions of 1998 ACEL Rate Equipment Guidebook, the
CMO inadvertently did not consider are the wages and salaries of standby operator/driver
corresponding to the equipment standby being claimed.
Thus, the corresponding gross amount to be incorporated shall be P4,925,600.00 computed based
on the total man-months of each standby equipment being claimed.
A tabulation of the claims is shown hereinbelow:

Nature of Claim

Works
PMO
Engineer
Evaluation
Evaluation
P95,740,834.30 67,422,840.40 81,851,396.08
EDC Claim

a. Project
Equipment
on Standby
Equipment
Operator/Driver
b. Manpower on 28,165,022.00
Standby
c. Topsoil Addl 37,780,200.00
Hauling
Distance
d. Water Truck
19,652,000.00
Operating Cost
Total

4,925,600.00
2,275,721.00

2,275,721.00

37,780,200.00 37,780,200.00

15,467,800.00 19,652,000.00

P181,338,056.30 122,946,561.40 146,484,917.[08]

Further, it is being specified that the PMO maintains the earlier notes of the CMO in its memo of 18
October 1999 and that legal interpretations on each item of claims is likewise enjoined.
Attached are pertinent documents for your review and reference
(Sgd.)
ROGELIO H. IGNACIO
PMO-B Asst.

(Sgd.)
FLORO C. URCIA
Project Manager

By no stretch of the imagination can we consider this memorandum an admission of liability on the part of
PEA. First, nowhere in the memorandum does it say that PEA is admitting its liability. The evaluation
contained in the above memorandum is merely a verification of the accuracy of EDCs claims. As a matter
of fact, the evaluation is still subject for review by the project manager, whose decision on the matter
requires the approval of the Heritage Park ExCom. Second, Messrs. Ignacio and Urcia had no legal
authority to make admissions on behalf of PEA. Thus, even assuming that the evaluation contained in the
memorandum was in the nature of an admission, the same cannot bind PEA. Third, Uy filed his complaint
with the CIAC because PEA did not act on EDCs various claims. This supports our conclusion that PEA
never admitted, but on the contrary denied, whatever additional liabilities were claimed by Uy under the
landscaping contract.
Neither do we find any admission of liability on the part of PEA during the proceedings before the CIAC.
What was admitted by PEA was that PMO evaluated the claim at the lesser amount of P146,484,910
(Exh. "S").24 The admission of the evaluation made by PEA cannot translate to an admission of liability.
There is simply no basis for Uy to claim that PEA had admitted its liability.

This issue disposed of, we now resolve Uys claims on the basis of the evidence presented.
Uy claims P95,740,834.30 as the standby equipment cost. CIAC, however, did not agree and granted
only P19,604,132.06 as the cost of standby equipment using its so-called equitable method:
[Uy] had mobilized manpower and equipment sufficient to do the landscaping works for the entire 105
hectares. The unilateral reduction in scope of work made by [PEA] thus laid idle the men and equipment
of [Uy] in direct proportion to said reduction. In effect, therefore, Uy had on hand manpower and
equipment amounting to 42.85% in excess of that necessary to perform the landscaping works for the
reduced scope of work. [Uy] thus suffered costs in terms of excess manpower and equipment in
proportion to the reduced scope of work.
xxxx
The total contract period original extensions to complete the landscaping works for the entire 105
hectares is 693 days. The reduction in scope of work 42.85% laid idle his equipment by the same
percentage of 42.85[%] or 296.95 days. Since [Uy] calculated his claim for idled equipment on a per
month basis, it is necessary to convert this into months. 296.95 days is equivalent of 9.89 months.
Multiplied by the rate of P1,982,217.60 per month of delay, this would translate toP19,604,132.06 as the
cost of idle time for equipment by reason of the [delay].25
Upon review of the records before us, we find a need to modify, by increasing, the award for standby
equipment cost.
CIAC found that PEA incurred delays in the turnover of work areas:
The first delay was the turn-over of a portion of Area 1 A that was made on 17 April 1997. The start of
work on that area was scheduled for March, 1997. There was, therefore, a delay of about one month. The
second delay was the turn-over of a portion of Area 2 A that was made on 20 October 1997. The start of
work on that area was scheduled for May, 1997. There was, therefore, a delay of about five months. The
third delay was the turn-over of a portion of Area 2 B that was made on 05 March 1998. The start of work
on that area was scheduled for mid-February 1997. There was, therefore, a delay of more than one (1)
year. Altogether,
the several periods of delayed turn-over of work areas total one year and six months or 546 days.26
Surely, on the days that EDC was waiting for the turn over of additional work areas, it was paying rentals
for the equipment on standby. Yet, CIAC completely ignored these delays in determining the cost of
equipment on standby, reasoning that:
It must be pointed out, however, that the division of the vast area to be landscaped into distinct work
areas with different start of work schedules under the PERT-CPM, [Uy] could easily have shifted his
equipment from an area where the delivery was delayed to the area where there was an advanced turnover.27
This is wrong.
Records establish that EDC promptly commenced the landscaping work on every area that was turned
over. EDC, in fact, shifted its equipment where there was an advance delivery, if only to minimize the
additional expenses incurred by reason of the long delays in the turnover of the other work areas. Thus,
in addition to the award of P19,604,132.06 for cost of idle time for equipment by reason of the reduction
of scope of work,

Uy is entitled to the cost of idle time for equipment by reason of the delay incurred in the delivery of work
areas.
The period of owner-caused delay was 546 days or 18.2 months. The rate given by the Association of
Carriers and Equipment Lessors (ACEL), Inc., and which was also used as basis by CIAC in granting the
costs for equipment on standby, was P1,982,271.60 per month of delay. Considering that PEA was in
delay for 564 days or 18.2 months, Uy is entitled to an additional award of P36,076,360.32. Accordingly,
he is entitled to an aggregate amount of P55,680,492.38 for the equipment rentals on standby.
As to the awards of P2,275,721.00, for the cost of idle manpower, and P6,050,165.05, for the
construction of the nursery shade net area, we find no reason to disturb the same, as Uy never raised this
issue in his petition.
Next, we resolve Uys claims for costs for additional hauling distance of topsoil and for mobilization of
water truck.
The approved hauling cost of topsoil was only P12.00/kilometer or P120.00 for the 10 kms original
source. Uy, however, claims that due to the delay in delivery of work areas, the original source became
depleted; hence, he was constrained to haul topsoil from another source located at a much farther
distance of 40 kms. Uy insists that the exhaustion of topsoil at the original source was solely attributable
to the delay in the turnover of the project site. Thus, he claims from PEA the increased cost of topsoil
amounting to P37,780,200.00.
Article 1724 of the Civil Code provides:
ART. 1724. The contractor who undertakes to build a structure or any other work for a stipulated price, in
conformity with plans and specifications agreed upon with the land-owner, can neither withdraw from the
contract nor demand an increase in the price on account of the higher cost of labor or materials, save
when there has been a change in the plans and specifications, provided:

(1) Such change has been authorized by the proprietor in writing; and
(2) The additional price to be paid to the contractor has been determined in writing by both
parties.
By this article, a written authorization from the owner is required before the contractor can validly recover
his claim. The evident purpose of the provision is to avoid litigation for added costs incurred by reason of
additions or changes in the original plan. Undoubtedly, it was adopted to serve as a safeguard or a
substantive condition precedent to recovery.28
This provision is echoed in the Landscaping Contract, viz.:
ARTICLE IX
CHANGE OF WORK
xxxx
9.3. Under no circumstances shall PEA be held liable for the payment of change of work undertaken
without the written approval of the PEA General Manager x x x.
ARTICLE X
EXTRA WORK

xxxx
10.3. Under no circumstances shall PEA be held liable for the payment of extra work undertaken without
the written approval of the PEA General Manager to perform the said work.29
Admittedly, EDC did not secure the required written approval of PEAs general manager before obtaining
the topsoil from a farther source. As pointed out by the CIAC:
There is no change order authorizing payment for the increased cost upon which this claim is based.
There is, therefore, no legal right based upon contract (the landscaping agreement or a change order)
that would impose such a liability upon [PEA]. In a lump sum contract, as that entered into by the parties,
the matter of how the contractor had made [a] computation to arrive at [a] bid that he submits is
completely irrelevant. The contract amount of delivered topsoil is P780.00 per truckload of 5.5 cubic
meters sourced from a distance of [10] km. or 100 [meters]. There is nothing in Exhibit "L" or in the
landscaping contract (Exhibit "A") that would indicate an agreement of [PEA] to pay for the increase in
hauling cost if the source of topsoil exceeds 10 kilometers. Corollarily, there is also nothing therein to
show that [PEA] would also be entitled to decrease said costs by paying less if the distance would have
been less than 10 kilometers. Had there been such a counterpart provision, there might have been more
arguable claim for [Uy]. Unfortunately, no such provision exists.30
In Powton Conglomerate, Inc. v. Agcolicol,31 we emphasized:
The written consent of the owner to the increased costs sought by the respondent is not a mere formal
requisite, but a vital precondition to the validity of a subsequent contract authorizing a higher or additional
contract price. Moreover, the safeguards enshrined in the provisions of Article 1724 are not only intended
to obviate future misunderstandings but also to give the parties a chance to decide whether to bind ones
self to or withdraw from a contract.
By proceeding to obtain topsoil up to a 40-kilometer radius without written approval from the PEA general
manager, Uy cannot claim the additional cost he incurred.
Uy further claims P19,625,000.00 for cost of mobilization of water trucks. He asserts that PEA completely
failed to provide the generator sets necessary to undertake the watering and/or irrigation works for the
landscaping and construction activities.32
Uy, however, admitted that MDC had already installed a deep well in the project site, and EDC used it in
its landscaping and construction activities.33 Under the contract, the operational costs of the deep well
and its appurtenant accessories, including the generator sets, shall be borne by EDC:
The CONTRACTOR shall shoulder all cost of electricity, maintenance, repairs, replacement of parts,
when needed, and all costs of operation of the deepwell/s, and its appurtenant accessories, i.e. generator
sets, etc. (which are already existing at the project site, constructed by another Contractor) while such
deepwell/s are being used by CONTRACTOR herein for its landscaping and construction activities. These
[deepwells] shall be turned over to PEA by CONTRACTOR in good operating/usable condition as when it
was first used by CONTRACTOR.34
Thus, Uy cannot claim additional cost for providing generator sets.
Uy also attempts to justify his claim for cost of mobilization of water trucks by alleging that the water from
the deep well provided by MDC and PEA was grossly insufficient to undertake the watering works for the
project; hence, he was constrained to mobilize water trucks to save the plants from dying.

Indisputably, Uy mobilized water trucks for the landscaping projects and, certainly, incurred additional
costs. But like his claim for additional cost of topsoil, such additional expenses were incurred without prior
written approval of PEAs general manager. Thus, he cannot claim payment for such cost from PEA.
As aptly said by the CIAC:
Since [Uy] had presumably intended all along to charge [PEA] for the water truck operating costs,
considering the very substantial amount of his claim, the prudence that he presumably has, as an
experienced general contractor of the highest triple A category, should have dictated that he negotiate
with the [PEA] for a change order or an extra work order before continuing to spend the huge amounts
that he claims to have spent. [Uy] did just that in relation to his much smaller claim for the construction of
the nursery shade x x x. He, however, made no effort to negotiate with the PEA for a similar change order
or extra work order to safeguard his even bigger additional costs to operate the water trucks. No
explanation was offered for such a mystifying differential treatment. He cannot, therefore, pass on without
any contractual basis, such additional costs to the [PEA].
Neither can we hold PEA liable based on solutio indebiti, the legal maxim that no one should enrich itself
at the expense of another. As we explained in Powton Conglomerate, Inc. v. Agcolicol, 35
the principle of unjust enrichment cannot be validly invoked by the respondent who, through his own act
or omission, took the risk of being denied payment for additional costs by not giving the petitioners prior
notice of such costs and/or by not securing their written consent thereto, as required by law and their
contract.
1avv phi 1

Uy cannot, therefore, claim from PEA the costs of the additional hauling distance of topsoil, and of the
mobilization of water trucks.
Uy also assails the grant of attorneys fees equivalent to 10% of the total amount due. Citing paragraph
24.4 of the Landscaping and Construction Agreement, Uy asserts entitlement to attorneys fees of twenty
percent (20%) of the total amount claimed. He ascribes error to the CIAC and the CA for reducing the
stipulated attorneys fees from 20% to 10% of the total amount due.
Paragraph 24.4 of the agreement provides:
Should the PEA be constrained to resort to judicial or quasi-judicial relief to enforce or safeguard its rights
and interests under this Agreement, the CONTRACTOR if found by the court or [the] quasi-judicial body,
as the case [may be], to have been at fault, shall be liable to PEA for attorneys fees in an amount
equivalent to twenty percent (20%) of the total [amount] claimed in the complaint, exclusive of [any]
damages and costs of suit.36
Clearly, the cited provision cannot support Uys insistence. Paragraph 24.4 on stipulated attorneys fees is
applicable only in complaints filed by PEA against the contractor. The provision is silent on the amount of
attorneys fees that can be recovered from PEA.
Besides, even assuming that Paragraph 24.4 is applicable, the amount of attorneys fees may be reduced
if found to be iniquitous or unconscionable. Thus:
Articles 1229 and 2227 of the Civil Code empower the courts to reduce the penalty if it is iniquitous or
unconscionable. The determination of whether the penalty is iniquitous or unconscionable is addressed to
the sound discretion of the court and depends on several factors such as the type, extent, and purpose of
the penalty, the nature of the obligation, the mode of breach and its consequences. 37

The Court finds Uys claim for attorney's fees equivalent to 20% of whatever amount is due and payable
to be exorbitant. The CIAC and the CA, therefore, correctly awarded 10% of the total amount due and
payable as reasonable attorneys fees.
Finally, on the propriety of the writ of injunction.
Uy asserts that the CA acted without or in excess of jurisdiction when it enjoined the proceedings in CIAC
Case No. 03-2001, despite the fact that the said case is totally different from the instant case.
By grave abuse of discretion is meant such capricious and whimsical exercise of judgment equivalent to
lack of jurisdiction. Mere abuse of discretion is not enough. It must be grave, as when it is exercised
arbitrarily or despotically by reason of passion or personal hostility; and such abuse must be so patent
and so gross as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty
enjoined or to act at all in contemplation of law.38
The CA granted PEAs prayer for the injunctive writ not without reason. We quote its Joint Resolution,
viz.:
[T]here is no question that Elpidio S. Uys amended complaint is based on the same Landscaping and
Construction Agreement, as he himself admits. The claims pertinent thereto had already been arbitrated
and passed upon in CIAC CASE NO. 02-2000 and the decision therein was already elevated to Us for
review and, in view of Our joint decision in the instant petitions, a reconsideration thereof.
1avv phi 1

Based on the foregoing, We are inclined to grant the prayer of PEA to enjoin the CIAC from further
proceeding with CIAC CASE NO. 03-2001, considering that the allegations therein constrain Us to apply
the doctrine of litis pendentia, which has for its requisites: (a) identity of parties, or at least such parties
who represent the same interests in both actions; (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts; and (c) the identity with respect to the two preceding particulars in
the two (2) cases is such that any judgment that may be rendered in the pending case, regardless of
which party is successful, would amount to res judicata in the other case. Forum shopping exists where
the elements of litis pendentia are present or where a final judgment in one case will amount to res
judicata in the other. The principle of bar by prior judgment raised by the PEA, i.e., res judicata, finds
application only upon a showing of a final judgment as one of its requisites, which is not yet present under
the present circumstances.
At this juncture, it bears stressing that the essence of forum shopping is the filing of multiple suits
involving the same parties for the same cause of action, either simultaneously or successively, for the
purpose of obtaining a favorable judgment. Accordingly, based on Our holding that the final resolution of
the instant petitions takes precedence as it is the appropriate vehicle for litigating the issues between the
parties, now that the instant petitions before Us have come full circle with this joint resolution and, if the
parties herein so choose, may seek further relief to the High Tribunal afterwards. We cannot allow CIAC
CASE NO. 03-2001 to proceed because to do so would render inutile the proscriptions against forum
shopping which is frowned upon in Our jurisdiction. Hence, the grant of injunctive relief. This must be
done, or else a travesty of the efficient administration of justice would lamentably result. 39
Indeed, the assailed resolution shows no patent or gross error amounting to grave abuse of discretion.
Neither does it show an arbitrary or despotic exercise of power arising from passion or hostility.
At this point, it should be stated that the Court is not convinced by Uys argument that the claims under
CIAC Case No. 03-2001 are different from his claims in CIAC Case No. 02-2000. There is only one cause
of action running through Uys litigious undertakings his alleged right under the Landscaping and
Construction Agreement. Therefore, the landscaping agreement is indispensable in prosecuting his
claims in both CIAC Cases Nos. 02-2000 and 03-2001.

As we held in Villanueva v. Court of Appeals:40

A party, by varying the form or action or by bringing forward in a second case additional parties or
arguments, cannot escape the effects of the principle of res judicata when the facts remain the same at
least where such new parties or matter could have been impleaded or pleaded in the prior action.
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Joint Decision and Joint Resolution
of the Court of Appeals in CA-G.R. SP Nos. 59308 and 59849 are AFFIRMED with MODIFICATIONS.
Respondent Public Estates Authority is ordered to pay Elpidio S. Uy, doing business under the name and
style Edison Development and Construction,P55,680,492.38 for equipment rentals on
standby; P2,275,721.00 for the cost of idle manpower; and P6,050,165.05 for the construction of the
nursery shade net area; plus interest at 6% per annum to be computed from the date of the filing of the
complaint until finality of this Decision and 12% per annum thereafter until full payment. Respondent PEA
is further ordered to pay petitioner Uy 10% of the total award as attorneys fees.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
G.R. Nos. 180880-81

September 25, 2009

KEPPEL CEBU SHIPYARD, INC., Petitioner,

vs.
PIONEER INSURANCE AND SURETY CORPORATION, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. Nos. 180896-97
PIONEER INSURANCE AND SURETY CORPORATION, Petitioner,
vs.
KEPPEL CEBU SHIPYARD, INC., Respondent.
DECISION
NACHURA, J.:
Before us are the consolidated petitions filed by the partiesPioneer Insurance and Surety
Corporation1 (Pioneer) and Keppel Cebu Shipyard, Inc. 2 (KCSI)to review on certiorari the
Decision3 dated December 17, 2004 and the Amended Decision4 dated December 20, 2007 of the Court
of Appeals (CA) in CA-G.R. SP Nos. 74018 and 73934.
On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) executed a Shiprepair
Agreement5wherein KCSI would renovate and reconstruct WG&As M/V "Superferry 3" using its dry
docking facilities pursuant to its restrictive safety and security rules and regulations. Prior to the execution
of the Shiprepair Agreement, "Superferry 3" was already insured by WG&A with Pioneer for
US$8,472,581.78. The Shiprepair Agreement reads

SHIPREPAIR AGREEMENT6
Company: WG & A JEBSENS SHIPMANAGEMENT INC.

Address: Harbour Center II, Railroad & Chicago Sts.

Port Area, City of Manila
We, WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V "SUPERFERRY 3" and KEPPEL
CEBU SHIPYARD, INC. (KCSI) enter into an agreement that the Drydocking and Repair of the
above-named vessel ordered by the Owners Authorized Representative shall be carried out under
the Keppel Cebu Shipyard Standard Conditions of Contract for Shiprepair, guidelines and
regulations on safety and security issued by Keppel Cebu Shipyard. In addition, the following are
mutually agreed upon by the parties:
1. The Owner shall inform its insurer of Clause 207 and 22 (a)8 (refer at the back
hereof) and shall include Keppel Cebu Shipyard as a co-assured in its insurance
policy.
2. The Owner shall waive its right to claim for any loss of profit or loss of use or
damages consequential on such loss of use resulting from the delay in the redelivery
of the above vessel.
3. Owners sub-contractors or workers are not permitted to work in the yard without
the written approval of the Vice President Operations.
4. In consideration of Keppel Cebu Shipyard allowing Owner to carry out own repairs
onboard the vessel, the Owner shall indemnify and hold Keppel Cebu Shipyard
harmless from any or all claims, damages, or liabilities arising from death or bodily
injuries to Owners workers, or damages to the vessel or other property however
caused.
5. On arrival, the Owner Representative, Captain, Chief Officer and Chief Engineer
will be invited to attend a conference with our Production, Safety and Security
personnel whereby they will be briefed on, and given copies of Shipyard safety
regulations.
6. An adequate number of officers and crew must remain on board at all times to
ensure the safety of the vessel and compliance of safety regulations by crew and
owner employed workmen.
7. The ships officers/crew or owner appointed security personnel shall maintain
watch against pilferage and acts of sabotage.
8. The yard must be informed and instructed to provide the necessary security
arrangement coverage should there be inadequate or no crew on board to provide
the expressed safety and security enforcement.
9. The Owner shall be liable to Keppel Cebu Shipyard for any death and/or bodily
injuries for the [K]eppel Cebu Shipyards employees and/or contract workers; theft
and/or damages to Keppel Cebu Shipyards properties and other liabilities which are
caused by the workers of the Owner.
10. The invoice shall be based on quotation reference 99-KCSI-211 dated December
20, 1999 tariff dated March 15, 1998.

11. Payment term shall be as follows:

12. The Owner and Keppel Cebu Shipyard shall endeavor to settle amicably any
dispute that may arise under this Agreement. Should all efforts for an amicable
settlement fail, the disputes shall be submitted for arbitration in Metro Manila in
accordance with provisions of Executive Order No. 1008 under the auspices of the
Philippine Arbitration Commission.
(Signed)
BARRY CHIA SOO HOCK
(Printed Name/Signature Above
Name)

(Signed)
(Printed Name/Signature Above
Name)
Authorized Representative
for and in behalf of:
WG & A Jebsens Shipmgmt.

Vice President Operations

Keppel Cebu Shipyard, Inc.
JAN. 26, 2000.

Date

Date

On February 8, 2000, in the course of its repair, M/V "Superferry 3" was gutted by fire. Claiming that the
extent of the damage was pervasive, WG&A declared the vessels damage as a "total constructive loss"
and, hence, filed an insurance claim with Pioneer.
On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount of US$8,472,581.78.
WG&A, in turn, executed a Loss and Subrogation Receipt9 in favor of Pioneer, to wit:

LOSS AND SUBROGATION RECEIPT

16 June 2000
Our Claim Ref: MH-NIL-H0-99-00018
US$8,472,581.78
-----------------------------------------------RECEIVED from PIONEER INSURANCE & SURETY CORPORATION the sum of U.S. DOLLARS
EIGHT MILLION FOUR HUNDRED SEVENTY-TWO THOUSAND FIVE HUNDRED EIGHTY-ONE &
78/100 (US$ 8,472,581.78) equivalent to PESOS THREE HUNDRED SIXTY MILLION & 00/100
(Php 360,000,000.00), in full satisfaction, compromise and discharge of all claims for loss and
expenses sustained to the vessel "SUPERFERRY 3" insured under Policy Nos. MH-H0-99-000016800-D (H&M) and MH-H0-99-0000169 (I.V.) by reason as follows:
Fire on board at Keppel Cebu Shipyard
on 08 February 2000
and in consideration of which the undersigned hereby assigns and transfers to the said company
each and all claims and demands against any person, persons, corporation or property arising from
or connected with such loss or damage and the said company is subrogated in the place of and to
the claims and demands of the undersigned against said person, persons, corporation or property in
the premises to the extent of the amount above-mentioned.

WILLIAM, GOTHONG & ABOITIZ, INC.

&/OR ABOITIZ SHIPPING CORP.
By:
(Signed)
______________________________________
Witnesses:
(Signed)
______________________________________
(Signed)
______________________________________
Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter denied any
responsibility for the loss of the subject vessel. As KCSI continuously refused to pay despite repeated
demands, Pioneer, on August 7, 2000, filed a Request for Arbitration before the Construction Industry
Arbitration Commission (CIAC) docketed as CIAC Case No. 21-2000, seeking the following reliefs:

1. To pay to the claimant Pioneer Insurance and Surety Corporation the sum of
U.S.$8,472,581.78 or its equivalent amount in Philippine Currency, plus interest thereon
computed from the date of the "Loss and Subrogation Receipt" on 16 June 2000 or from the
date of filing of [the] "Request for Arbitration," as may be found proper;
2. To pay to claimant WG&A, INC. and/or Aboitiz Shipping Corporation and WG&A Jebsens
Shipmanagement, Inc. the sum of P500,000,000.00 plus interest thereon from the date of
filing [of the] "Request for Arbitration" or date of the arbitral award, as may be found proper;
3. To pay to the claimants herein the sum of P3,000,000.00 for and as attorneys fees; plus
other damages as may be established during the proceedings, including arbitration fees and
other litigation expenses, and the costs of suit.
It is likewise further prayed that Clauses 1 and 2 on the unsigned page 1 of the "Shiprepair Agreement"
(Annex "A") as well as the hardly legible Clauses 20 and 22 (a) and other similar clauses printed in very
fine print on the unsigned dorsal page thereof, be all declared illegal and void ab initio and without any
legal effect whatsoever.10
KCSI and WG&A reached an amicable settlement, leading the latter to file a Notice of Withdrawal of
Claim on April 17, 2001 with the CIAC. The CIAC granted the withdrawal on October 22, 2001, thereby
dismissing the claim of WG&A against KCSI. Hence, the arbitration proceeded with Pioneer as the
remaining claimant.
In the course of the proceedings, Pioneer and KCSI stipulated, among others, that: (1) on January 26,
2000, M/V "Superferry 3" arrived at KCSI in Lapu-Lapu City, Cebu, for dry docking and repairs; (2) on the
same date, WG&A signed a ship repair agreement with KCSI; and (3) a fire broke out on board M/V
"Superferry 3" on February 8, 2000, while still dry docked in KCSIs shipyard.11
As regards the disputed facts, below are the respective positions of the parties, viz.:
Pioneers Theory of the Case:

First, Pioneer (as Claimant) is the real party in interest in this case and that Pioneer has been subrogated
to the claim of its assured. The Claimant claims that it has the preponderance of evidence over that of the
Respondent. Claimant cited documentary references on the Statutory Source of the Principle of
Subrogation. Claimant then proceeded to explain that the Right of Subrogation:

Is by Operation of Law
exists in Property Insurance
is not Dependent Upon Privity of Contract.
Claimant then argued that Payment Operates as Equitable Assignment of Rights to Insurer and that the
Right of Subrogation Entitles Insurer to Recover from the Liable Party.
Second, Respondent Keppel had custody of and control over the M/V "Superferry 3" while said vessel
was in Respondent Keppels premises. In its Draft Decision, Claimant stated:

A. The evidence presented during the hearings indubitably proves that respondent not only
took custody but assumed responsibility and control over M/V Superferry 3 in carrying out
the dry-docking and repair of the vessel.
B. The presence on board the M/V Superferry 3 of its officers and crew does not relieve the
respondent of its responsibility for said vessel.
C. Respondent Keppel assumed responsibility over M/V Superferry 3 when it brought the
vessel inside its graving dock and applied its own safety rules to the dry-docking and repairs
of the vessel.
D. The practice of allowing a shipowner and its sub-contractors to perform maintenance
works while the vessel was within respondents premises does not detract from the fact that
control and custody over M/V Superferry 3 was transferred to the yard.
From the preceding statements, Claimant claims that Keppel is clearly liable for the loss of M/V
Superferry 3.
Third, the Vessels Safety Manual cannot be relied upon as proof of the Masters continuing control over
the vessel.
Fourth, the Respondent Yard is liable under the Doctrine of Res Ipsa Loquitur. According to Claimant, the
Yard is liable under the ruling laid down by the Supreme Court in the "Manila City" case. Claimant asserts
that said ruling is applicable hereto as The Law of the Case.
Fifth, the liability of Respondent does not arise merely from the application of the Doctrine of Res Ipsa
Loquitur, but from its negligence in this case.
Sixth, the Respondent Yard was the employer responsible for the negligent acts of the welder. According
to Claimant;
In contemplation of law, Sevillejo was not a loaned servant/employee. The yard, being his employer, is
solely and exclusively liable for his negligent acts. Claimant proceeded to enumerate its reasons:

A. The "Control Test" The yard exercised control over Sevillejo. The power of control is not
diminished by the failure to exercise control.

B. There was no independent work contract between Joniga and Sevillejo Joniga was not
the employer of Sevillejo, as Sevillejo remained an employee of the yard at the time the loss
occurred.
C. The mere fact that Dr. Joniga requested Sevillejo to perform some of the Owners hot
works under the 26 January 2000 work order did not make Dr. Joniga the employer of
Sevillejo.
Claimant proffers that Dr. Joniga was not a Contractor of the Hot Work Done on Deck A. Claimant argued
that:

A. The yard, not Dr. Joniga, gave the welders their marching orders, and
B. Dr. Jonigas authority to request the execution of owners hot works in the passenger
areas was expressly recognized by the Yard Project Superintendent Orcullo.
Seventh, the shipowner had no legal duty to apply for a hotworks permit since it was not required by the
yard, and the owners hotworks were conducted by welders who remained employees of the yard.
Claimant contends that the need, if any, for an owners application for a hot work permit was canceled out
by the yards actual knowledge of Sevillejos whereabouts and the fact that he was in deck A doing
owners hotworks.
Eight[h], in supplying welders and equipment as per The Work Order Dated 26 January 2000, the Yard
did so at its own risk, and acted as a Less Than Prudent Ship Repairer.
1avv phi 1

The Claimant then disputed the statements of Manuel Amagsila by claiming that Amagsila was a
disgruntled employee. Nevertheless, Claimant claims that Amagsila affirmed that the five yard welders
never became employees of the owner so as to obligate the latter to be responsible for their conduct and
performance.
Claimant enumerated further badges of yard negligence.
According to Claimant:

A. Yards water supply was inadequate.

B. Yard Fire Fighting Efforts and Equipment Were Inadequate.
C. Yard Safety Practices and Procedures Were Unsafe or Inadequate.
D. Yard Safety Assistants and Firewatch-Men were Overworked.
Finally, Claimant disputed the theories propounded by the Respondent (The Yard). Claimant presented
its case against:

(i) Non-removal of the life jackets theory.

(ii) Hole-in-the[-]floor theory.
(iii) Need for a plan theory.

(iv) The unauthorized hot works theory.

(v) The Marina report theory.
The Claimant called the attention of the Tribunal (CIAC) on the non-appearance of the welder involved in
the cause of the fire, Mr. Severino Sevillejo. Claimant claims that this is suppression of evidence by
Respondent.
KCSIs Theory of the Case

1. The Claimant has no standing to file the Request for Arbitration and the Tribunal has no
jurisdiction over the case:
(a) There is no valid arbitration agreement between the Yard and the Vessel Owner.
On January 26, 2000, when the ship repair agreement (which includes the arbitration
agreement) was signed by WG&A Jebsens on behalf of the Vessel, the same was
still owned by Aboitiz Shipping. Consequently, when another firm, WG&A, authorized
WG&A Jebsens to manage the MV Superferry 3, it had no authority to do so. There
is, as a result, no binding arbitration agreement between the Vessel Owner and the
Yard to which the Claimant can claim to be subrogated and which can support CIAC
jurisdiction.
(b) The Claimant is not a real party in interest and has no standing because it has not
been subrogated to the Vessel Owner. For the reason stated above, the insurance
policies on which the Claimant bases its right of subrogation were not validly
obtained. In any event, the Claimant has not been subrogated to any rights which the
Vessel may have against the Yard because:
i. The Claimant has not proved payment of the proceeds of the policies to
any specific party. As a consequence, it has also not proved payment to the
Vessel Owner.
ii. The Claimant had no legally demandable obligation to pay under the
policies and did so only voluntarily. Under the policies, the Claimant and the
Vessel agreed that there is no Constructive Total Loss "unless the expense
of recovering and repairing the vessel would exceed the Agreed Value"
ofP360 million assigned by the parties to the Vessel, a threshold which the
actual repair cost for the Vessel did not reach. Since the Claimant opted to
pay contrary to the provisions of the policies, its payment was voluntary, and
there was no resulting subrogation to the Vessel.
iii. There was also no subrogation under Article 1236 of the Civil Code. First,
if the Claimant asserts a right of payment only by virtue of Article 1236, then
there is no legal subrogation under Article 2207 and it does not succeed to
the Vessels rights under the Ship [R]epair Agreement and the arbitration
agreement. It does not have a right to demand arbitration and will have only a
purely civil law claim for reimbursement to the extent that its payment
benefited the Yard which should be filed in court. Second, since the Yard is
not liable for the fire and the resulting damage to the Vessel, then it derived
no benefit from the Claimants payment to the Vessel Owner. Third, in any
event, the Claimant has not proved payment of the proceeds to the Vessel
Owner.

2. The Ship [R]epair Agreement was not imposed upon the Vessel. The Vessel knowingly
and voluntarily accepted that agreement. Moreover, there are no signing or other formal
defects that can invalidate the agreement.
3. The proximate cause of the fire and damage to the Vessel was not any negligence
committed by Angelino Sevillejo in cutting the bulkhead door or any other shortcoming by the
Yard. On the contrary, the proximate cause of the fire was Dr. Jonigas and the Vessels
deliberate decision to have Angelino Sevillejo undertake cutting work in inherently dangerous
conditions created by them.
(a) The Claimants material witnesses lied on the record and the Claimant presented
no credible proof of any negligence by Angelino Sevillejo.
(b) Uncontroverted evidence proved that Dr. Joniga neglected or decided not to
obtain a hot work permit for the bulkhead cutting and also neglected or refused to
have the ceiling and the flammable lifejackets removed from underneath the area
where he instructed Angelino Sevillejo to cut the bulkhead door. These decisions or
oversights guaranteed that the cutting would be done in extremely hazardous
conditions and were the proximate cause of the fire and the resulting damage to the
Vessel.
(c) The Yards expert witness, Dr. Eric Mullen gave the only credible account of the
cause and the mechanics of ignition of the fire. He established that: i) the fire started
when the cutting of the bulkhead door resulted in sparks or hot molten slag which fell
through pre-existing holes on the deck floor and came into contact with and ignited
the flammable lifejackets stored in the ceiling void directly below; and ii) the bottom
level of the bulkhead door was immaterial, because the sparks and slag could have
come from the cutting of any of the sides of the door. Consequently, the cutting itself
of the bulkhead door under the hazardous conditions created by Dr. Joniga, rather
than the positioning of the doors bottom edge, was the proximate cause of the fire.
(d) The Manila City case is irrelevant to this dispute and in any case, does not
establish governing precedent to the effect that when a ship is damaged in dry dock,
the shipyard is presumed at fault. Apart from the differences in the factual setting of
the two cases, the Manila City pronouncements regarding the res ipsa loquitur
doctrine are obiter dicta without value as binding precedent. Furthermore, even if the
principle were applied to create a presumption of negligence by the Yard, however,
that presumption is conclusively rebutted by the evidence on record.
(e) The Vessels deliberate acts and its negligence created the inherently hazardous
conditions in which the cutting work that could otherwise be done safely ended up
causing a fire and the damage to the Vessel. The fire was a direct and logical
consequence of the Vessels decisions to: (1) take Angelino Sevillejo away from his
welding work at the Promenade Deck restaurant and instead to require him to do
unauthorized cutting work in Deck A; and (2) to have him do that without satisfying
the requirements for and obtaining a hot work permit in violation of the Yards Safety
Rules and without removing the flammable ceiling and life jackets below, contrary to
the requirements not only of the Yards Safety Rules but also of the demands of
standard safe practice and the Vessels own explicit safety and hot work policies.
(f) The vessel has not presented any proof to show that the Yard was remiss in its
fire fighting preparations or in the actual conduct of fighting the 8 February 2000 fire.

The Yard had the necessary equipment and trained personnel and employed all
those resources immediately and fully to putting out the 8 February 2000 fire.
4. Even assuming that Angelino Sevillejo cut the bulkhead door close to the deck floor, and
that this circumstance rather than the extremely hazardous conditions created by Dr. Joniga
and the Vessel for that activity caused the fire, the Yard may still not be held liable for the
resulting damage.
(a) The Yards only contractual obligation to the Vessel in respect of the 26 January
2000 Work Order was to supply welders for the Promenade Deck restaurant who
would then perform welding work "per owner[s] instruction." Consequently, once it
had provided those welders, including Angelino Sevillejo, its obligation to the Vessel
was fully discharged and no claim for contractual breach, or for damages on account
thereof, may be raised against the Yard.
(b) The Yard is also not liable to the Vessel/Claimant on the basis of quasi-delict.
i. The Vessel exercised supervision and control over Angelino Sevillejo when
he was doing work at the Promenade Deck restaurant and especially when
he was instructed by Dr. Joniga to cut the bulkhead door. Consequently, the
Vessel was the party with actual control over his tasks and is deemed his
true and effective employer for purposes of establishing Article 2180
employer liability.
ii. Even assuming that the Yard was Angelino Sevillejos employer, the Yard
may nevertheless not be held liable under Article 2180 because Angelino
Sevillejo was acting beyond the scope of his tasks assigned by the Yard
(which was only to do welding for the Promenade Deck restaurant) when he
cut the bulkhead door pursuant to instructions given by the Vessel.
iii. The Yard is nonetheless not liable under Article 2180 because it exercised
due diligence in the selection and supervision of Angelino Sevillejo.
5. Assuming that the Yard is liable, it cannot be compelled to pay the full amount of P360
million paid by the Claimant.
(a) Under the law, the Yard may not be held liable to the Claimant, as subrogee, for
an amount greater than that which the Vessel could have recovered, even if the
Claimant may have paid a higher amount under its policies. In turn, the right of the
Vessel to recover is limited to actual damage to the MV Superferry 3, at the time of
the fire.
(b) Under the Ship [R]epair Agreement, the liability of the Yard is limited to P50
million a stipulation which, under the law and decisions of the Supreme Court, is
valid, binding and enforceable.
(c) The Vessel breached its obligation under Clause 22 (a) of the Yards Standard
Terms to name the Yard as co-assured under the policies a breach which makes
the Vessel liable for damages. This liability should in turn be set-off against the
Claimants claim for damages.

The Respondent listed what it believes the Claimant wanted to impress upon the Tribunal. Respondent
enumerated and disputed these as follows:

1. Claimants counsel contends that the cutting of the bulkhead door was covered by the 26
January 2000 Work Order.
2. Claimants counsel contends that Dr. Joniga told Gerry Orcullo about his intention to have
Angelino Sevillejo do cutting work at the Deck A bulkhead on the morning of 8 February
2000.
3. Claimants counsel contends that under Article 1727 of the Civil Code, "The contractor is
responsible for the work done by persons employed by him."
4. Claimants counsel contends that "[t]he second reason why there was no job spec or job
order for this cutting work, [is] the cutting work was known to the yard and coordinated with
Mr. Gerry Orcullo, the yard project superintendent."
5. Claimants counsel also contends, to make the Vessels unauthorized hot works activities
seem less likely, that they could easily be detected because Mr. Avelino Aves, the Yard
Safety Superintendent, admitted that "No hot works could really be hidden from the Yard,
your Honors, because the welding cables and the gas hoses emanating from the dock will
give these hotworks away apart from the assertion and the fact that there were also safety
assistants supposedly going around the vessel."
Respondent disputed the above by presenting its own argument in its Final Memorandum. 12
On October 28, 2002, the CIAC rendered its Decision13 declaring both WG&A and KCSI guilty of
negligence, with the following findings and conclusions
The Tribunal agrees that the contractual obligation of the Yard is to provide the welders and equipment to
the promenade deck. [The] Tribunal agrees that the cutting of the bulkhead door was not a contractual
obligation of the Yard. However, by requiring, according to its own regulations, that only Yard welders are
to undertake hotworks, it follows that there are certain qualifications of Yard welders that would be
requisite of yard welders against those of the vessel welders. To the Tribunal, this means that yard
welders are aware of the Yard safety rules and regulations on hotworks such as applying for a hotwork
permit, discussing the work in a production meeting, and complying with the conditions of the hotwork
permit prior to implementation. By the requirement that all hotworks are to be done by the Yard, the
Tribunal finds that Sevillejo remains a yard employee. The act of Sevillejo is however mitigated in that he
was not even a foreman, and that the instructions to him was (sic) by an authorized person. The Tribunal
notes that the hotworks permit require[s] a request by at least a foreman. The fact that no foreman was
included in the five welders issued to the Vessel was never raised in this dispute. As discussed earlier by
the Tribunal, with the fact that what was ask (sic) of Sevillejo was outside the work order, the Vessel is
considered equally negligent. This Tribunal finds the concurrent negligence of the Yard through Sevillejo
and the Vessel through Dr. Joniga as both contributory to the cause of the fire that damaged the vessel. 14
Holding that the liability for damages was limited to P50,000,000.00, the CIAC ordered KCSI to pay
Pioneer the amount ofP25,000,000.00, with interest at 6% per annum from the time of the filing of the
case up to the time the decision is promulgated, and 12% interest per annum added to the award, or any
balance thereof, after it becomes final and executory. The CIAC further ordered that the arbitration costs
be imposed on both parties on a pro rata basis.15
Pioneer appealed to the CA and its petition was docketed as CA-G.R. SP No. 74018. KCSI likewise filed
its own appeal and the same was docketed as CA-G.R. SP No. 73934. The cases were consolidated.

On December 17, 2004, the Former Fifteenth Division of the CA rendered its Decision, disposing as
follows:
WHEREFORE, premises considered, the Petition of Pioneer (CA-G.R. SP No. 74018) is DISMISSED
while the Petition of the Yard (CA-G.R. SP No. 73934) is GRANTED, dismissing petitioners claims in its
entirety. No costs.
The Yard and The WG&A are hereby ordered to pay the arbitration costs pro-rata.
SO ORDERED.16
Aggrieved, Pioneer sought reconsideration of the December 17, 2004 Decision, insisting that it suffered
from serious errors in the appreciation of the evidence and from gross misapplication of the law and
jurisprudence on negligence. KCSI, for its part, filed a motion for partial reconsideration of the same
Decision.
On December 20, 2007, an Amended Decision was promulgated by the Special Division of Five Former
Fifteenth Division of the CA in light of the dissent of Associate Justice Lucas P. Bersamin,17 joined by
Associate Justice Japar B. Dimaampao. The fallo of the Amended Decision reads
WHEREFORE, premises considered, the Court hereby decrees that:

1. Pioneers Motion for Reconsideration is PARTIALLY GRANTED, ordering The Yard to pay
Pioneer P25 Million, without legal interest, within 15 days from the finality of this Amended
Decision, subject to the following modifications:
1.1 Pioneers Petition (CA-G.R. SP No. 74018) is PARTIALLY GRANTED as the
Yard is hereby ordered to pay Pioneer P25 Million without legal interest;
2. The Yard is hereby declared as equally negligent, thus, the total GRANTING of its Petition
(CA-G.R. SP No. 73934) is now reduced to PARTIALLY GRANTED, in so far as it is ordered
to pay Pioneer P25 Million, without legal interest, within 15 days from the finality of this
Amended Decision; and
3. The rest of the disposition in the original Decision remains the same.
SO ORDERED.18
Hence, these petitions. Pioneer bases its petition on the following grounds:

I
THE COURT OF APPEALS ERRED IN BASING ITS ORIGINAL DECISION ON NON-FACTS
LEADING IT TO MAKE FALSE LEGAL CONCLUSIONS; NON-FACTS REMAIN TO INVALIDATE
THE AMENDED DECISION. THIS ALSO VIOLATES SECTION 14, ARTICLE VIII OF THE
CONSTITUTION.
II
THE COURT OF APPEALS ERRED IN LIMITING THE LEGAL LIABILITY OF THE YARD TO THE
SUM OFP50,000,000.00, IN THAT:

A. STARE DECISIS RENDERS INAPPLICABLE ANY INVOCATION OF LIMITED

LIABILITY BY THE YARD.
B. THE LIMITATION CLAUSE IS CONTRARY TO PUBLIC POLICY.
C. THE VESSEL OWNER DID NOT AGREE THAT THE YARDS LIABILITY FOR
LOSS OR DAMAGE TO THE VESSEL ARISING FROM YARDS NEGLIGENCE IS
LIMITED TO THE SUM OFP50,000,000.00 ONLY.
D. IT IS INIQUITOUS TO ALLOW THE YARD TO LIMIT LIABILITY, IN THAT:
(i) THE YARD HAD CUSTODY AND CONTROL OVER THE VESSEL (M/V
"SUPERFERRY 3") ON 08 FEBRUARY 2000 WHEN IT WAS GUTTED BY
FIRE;
(ii) THE DAMAGING FIRE INCIDENT HAPPENED IN THE COURSE OF
THE REPAIRS EXCLUSIVELY PERFORMED BY YARD WORKERS.
III
THE COURT OF APPEALS ERRED IN ITS RULING THAT WG&A WAS CONCURRENTLY
NEGLIGENT, CONSIDERING THAT:
A. DR. JONIGA, THE VESSELS PASSAGE TEAM LEADER, DID NOT SUPERVISE
OR CONTROL THE REPAIRS.
B. IT WAS THE YARD THROUGH ITS PROJECT SUPERINTENDENT
GERMINIANO ORCULLO THAT SUPERVISED AND CONTROLLED THE REPAIR
WORKS.
C. SINCE ONLY YARD WELDERS COULD PERFORM HOT WORKS IT FOLLOWS
THAT THEY ALONE COULD BE GUILTY OF NEGLIGENCE IN DOING THE SAME.
D. THE YARD AUTHORIZED THE HOT WORK OF YARD WELDER ANGELINO
SEVILLEJO.
E. THE NEGLIGENCE OF ANGELINO SEVILLEJO WAS THE PROXIMATE CAUSE
OF THE LOSS.
F. WG&A WAS NOT GUILTY OF NEGLIGENCE, BE IT DIRECT OR
CONTRIBUTORY TO THE LOSS.
IV
THE COURT OF APPEALS CORRECTLY RULED THAT WG&A SUFFERED A CONSTRUCTIVE
TOTAL LOSS OF ITS VESSEL BUT ERRED BY NOT HOLDING THAT THE YARD WAS LIABLE
FOR THE VALUE OF THE FULL CONSTRUCTIVE TOTAL LOSS.
V

THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD LIABLE FOR INTEREST.
VI
THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD SOLELY LIABLE FOR
ARBITRATION COSTS.19
On the other hand, KCSI cites the following grounds for the allowance of its petition, to wit:
1. ABSENCE OF YARD RESPONSIBILITY
IT WAS GRIEVOUS ERROR FOR THE COURT OF APPEALS TO ADOPT, WITHOUT
EXPLANATION, THE CIACS RULING THAT THE YARD WAS EQUALLY NEGLIGENT BECAUSE
OF ITS FAILURE TO REQUIRE A HOT WORKS PERMIT FOR THE CUTTING WORK DONE BY
ANGELINO SEVILLEJO, AFTER THE COURT OF APPEALS ITSELF HAD SHOWN THAT RULING
TO BE COMPLETELY WRONG AND BASELESS.
2. NO CONSTRUCTIVE TOTAL LOSS
IT WAS EQUALLY GRIEVOUS ERROR FOR THE COURT OF APPEALS TO RULE, WITHOUT
EXPLANATION, THAT THE VESSEL WAS A CONSTRUCTIVE TOTAL LOSS AFTER HAVING
ITSELF EXPLAINED WHY THE VESSEL COULD NOT BE A CONSTRUCTIVE TOTAL LOSS.
3. FAILURE OR REFUSAL TO ADDRESS
KEPPELS MOTION FOR RECONSIDERATION
FINALLY, IT WAS ALSO GRIEVOUS ERROR FOR THE COURT OF APPEALS TO HAVE
EFFECTIVELY DENIED, WITHOUT ADDRESSING IT AND ALSO WITHOUT EXPLANATION,
KEPPELS PARTIAL MOTION FOR RECONSIDERATION OF THE ORIGINAL DECISION WHICH
SHOWED: 1) WHY PIONEER WAS NOT SUBROGATED TO THE RIGHTS OF THE VESSEL
OWNER AND SO HAD NO STANDING TO SUE THE YARD; 2) WHY KEPPEL MAY NOT BE
REQUIRED TO REIMBURSE PIONEERS PAYMENTS TO THE VESSEL OWNER IN VIEW OF
THE CO-INSURANCE CLAUSE IN THE SHIPREPAIR AGREEMENT; AND 3) WHY PIONEER
ALONE SHOULD BEAR THE COSTS OF ARBITRATION.
4. FAILURE TO CREDIT FOR SALVAGE RECOVERY
EVEN IF THE COURT OF APPEALS RULINGS ON ALL OF THE FOREGOING ISSUES WERE
CORRECT AND THE YARD MAY PROPERLY BE HELD EQUALLY LIABLE FOR THE DAMAGE
TO THE VESSEL AND REQUIRED TO PAY HALF OF THE DAMAGES AWARDED (P25 MILLION),
THE COURT OF APPEALS STILL ERRED IN NOT DEDUCTING THE SALVAGE VALUE OF THE
VESSEL RECOVERED AND RECEIVED BY THE INSURER, PIONEER, TO REDUCE ANY
LIABILITY ON THE PART OF THE YARD TOP9.874 MILLION.20
To our minds, these errors assigned by both Pioneer and KCSI may be summed up in the following core
issues:

A. To whom may negligence over the fire that broke out on board M/V "Superferry 3" be
imputed?

B. Is subrogation proper? If proper, to what extent can subrogation be made?

C. Should interest be imposed on the award of damages? If so, how much?
D. Who should bear the cost of the arbitration?
To resolve these issues, it is imperative that we digress from the general rule that in petitions for review
under Rule 45 of the Rules of Court, only questions of law shall be entertained. Considering the disparate
findings of fact of the CIAC and the CA which led them to different conclusions, we are constrained to
revisit the factual circumstances surrounding this controversy.21
The Courts Ruling
A. The issue of negligence

Undeniably, the immediate cause of the fire was the hot work done by Angelino Sevillejo (Sevillejo)
on the accommodation area of the vessel, specifically on Deck A. As established before the CIAC
The fire broke out shortly after 10:25 and an alarm was raised (Exh. 1-Ms. Aini Ling,22 p. 20).
Angelino Sevillejo tried to put out the fire by pouring the contents of a five-liter drinking water
container on it and as he did so, smoke came up from under Deck A. He got another container of
water which he also poured whence the smoke was coming. In the meantime, other workers in the
immediate vicinity tried to fight the fire by using fire extinguishers and buckets of water. But because
the fire was inside the ceiling void, it was extremely difficult to contain or extinguish; and it spread
rapidly because it was not possible to direct water jets or the fire extinguishers into the space at the
source. Fighting the fire was extremely difficult because the life jackets and the construction
materials of the Deck B ceiling were combustible and permitted the fire to spread within the ceiling
void. From there, the fire dropped into the Deck B accommodation areas at various locations, where
there were combustible materials. Respondent points to cans of paint and thinner, in addition to the
plywood partitions and foam mattresses on deck B (Exh. 1-Mullen,23 pp. 7-8, 18; Exh. 2-Mullen, pp.
11-12).24
Pioneer contends that KCSI should be held liable because Sevillejo was its employee who, at the
time the fire broke out, was doing his assigned task, and that KCSI was solely responsible for all the
hot works done on board the vessel. KCSI claims otherwise, stating that the hot work done was
beyond the scope of Sevillejos assigned tasks, the same not having been authorized under the
Work Order25 dated January 26, 2000 or under the Shiprepair Agreement. KCSI further posits that
WG&A was itself negligent, through its crew, particularly Dr. Raymundo Joniga (Dr. Joniga), for
failing to remove the life jackets from the ceiling void, causing the immediate spread of the fire to the
other areas of the ship.
We rule in favor of Pioneer.
First. The Shiprepair Agreement is clear that WG&A, as owner of M/V "Superferry 3," entered into a
contract for the dry docking and repair of the vessel under KCSIs Standard Conditions of Contract
for Shiprepair, and its guidelines and regulations on safety and security. Thus, the CA erred when it
said that WG&A would renovate and reconstruct its own vessel merely using the dry docking
facilities of KCSI.
Second. Pursuant to KCSIs rules and regulations on safety and security, only employees of KCSI
may undertake hot works on the vessel while it was in the graving dock in Lapu-Lapu City, Cebu.
This is supported by Clause 3 of the Shiprepair Agreement requiring the prior written approval of

KCSIs Vice President for Operations before WG&A could effect any work performed by its own
workers or sub-contractors. In the exercise of this authority, KCSIs Vice-President for Operations, in
the letter dated January 2, 1997, banned any hot works from being done except by KCSIs workers,
viz.:
The Yard will restrict all hot works in the engine room, accommodation cabin, and fuel oil tanks to be
carried out only by shipyard workers x x x.26
WG&A recognized and complied with this restrictive directive such that, during the arrival conference
on January 26, 2000, Dr. Joniga, the vessels passage team leader in charge of its hotel department,
specifically requested KCSI to finish the hot works started by the vessels contractors on the
passenger accommodation decks.27 This was corroborated by the statements of the vessels hotel
manager Marcelo Rabe28 and the vessels quality control officer Joselito Esteban.29 KCSI knew of the
unfinished hot works in the passenger accommodation areas. Its safety supervisor Esteban
Cabalhug confirmed that KCSI was aware "that the owners of this vessel (M/V Superferry 3) had
undertaken their own (hot) works prior to arrival alongside (sic) on 26th January," and that no hot
work permits could thereafter be issued to WG&As own workers because "this was not allowed for
the Superferry 3."30 This shows that Dr. Joniga had authority only to request the performance of hot
works by KCSIs welders as needed in the repair of the vessel while on dry dock.
Third. KCSI welders covered by the Work Order performed hot works on various areas of the M/V
"Superferry 3," aside from its promenade deck. This was a recognition of Dr. Jonigas authority to
request the conduct of hot works even on the passenger accommodation decks, subject to the
provision of the January 26, 2000 Work Order that KCSI would supply welders for the promenade
deck of the ship.
At the CIAC proceedings, it was adequately shown that between February 4 and 6, 2000, the
welders of KCSI: (a) did the welding works on the ceiling hangers in the lobby of Deck A; (b) did the
welding and cutting works on the deck beam to access aircon ducts; and (c) did the cutting and
welding works on the protection bars at the tourist dining salon of Deck B,31 at a rate
of P150.00/welder/hour.32 In fact, Orcullo, Project Superintendent of KCSI, admitted that "as early as
February 3, 2000 (five days before the fire) [the Yard] had acknowledged Dr. Jonigas authority to
order such works or additional jobs."33
It is evident, therefore, that although the January 26, 2000 Work Order was a special order for the
supply of KCSI welders to the promenade deck, it was not restricted to the promenade deck only.
The Work Order was only a special arrangement between KCSI and WG&A that meant additional
cost to the latter.
Fourth. At the time of the fire, Sevillejo was an employee of KCSI and was subject to the latters
direct control and supervision.
Indeed, KCSI was the employer of Sevillejopaying his salaries; retaining the power and the right to
discharge or substitute him with another welder; providing him and the other welders with its
equipment; giving him and the other welders marching orders to work on the vessel; and monitoring
and keeping track of his and the other welders activities on board, in view of the delicate nature of
their work.34 Thus, as such employee, aware of KCSIs Safety Regulations on Vessels Afloat/Dry,
which specifically provides that "(n)o hotwork (welding/cutting works) shall be done on board [the]
vessel without [a] Safety Permit from KCSI Safety Section,"35 it was incumbent upon Sevillejo to
obtain the required hot work safety permit before starting the work he did, including that done on
Deck A where the fire started.

Fifth. There was a lapse in KCSIs supervision of Sevillejos work at the time the fire broke out.
It was established that no hot works could be hidden from or remain undetected by KCSI because
the welding cables and the gas hoses emanating from the dock would give the hot works away.
Moreover, KCSI had roving fire watchmen and safety assistants who were moving around the
vessel.36 This was confirmed by Restituto Rebaca (Rebaca), KCSIs Safety Supervisor, who actually
spotted Sevillejo on Deck A, two hours before the fire, doing his cutting work without a hot work
permit, a fire watchman, or a fire extinguisher. KCSI contends that it did its duty when it prohibited
Sevillejo from continuing the hot work. However, it is noteworthy that, after purportedly scolding
Sevillejo for working without a permit and telling him to stop until the permit was acquired and the
other safety measures were observed, Rebaca left without pulling Sevillejo out of the work area or
making sure that the latter did as he was told. Unfortunately for KCSI, Sevillejo reluctantly proceeded
with his cutting of the bulkhead door at Deck A after Rebaca left, even disregarding the 4-inch
marking set, thus cutting the door level with the deck, until the fire broke out.
This conclusion on the failure of supervision by KCSI was absolutely supported by Dr. Eric Mullen of
the Dr. J.H. Burgoyne & Partners (International) Ltd., Singapore, KCSIs own fire expert, who
observed that
4.3. The foregoing would be compounded by Angelino Sevillejo being an electric arc welder, not a
cutter. The dangers of ignition occurring as a result of the two processes are similar in that both
electric arc welding and hot cutting produce heat at the work area and sparks and incendive material
that can travel some distance from the work area. Hence, the safety precautions that are expected to
be applied by the supervisor are the same for both types of work. However, the quantity and
incendivity of the spray from the hot cutting are much greater than those of sparks from electric arc
welding, and it may well be that Angelino Sevillejo would not have a full appreciation of the dangers
involved. This made it all the more important that the supervisor, who should have had such an
appreciation, ensured that the appropriate safety precautions were carried out.37
In this light, therefore, Sevillejo, being one of the specially trained welders specifically authorized by
KCSI to do the hot works on M/V "Superferry 3" to the exclusion of other workers, failed to comply
with the strict safety standards of KCSI, not only because he worked without the required permit, fire
watch, fire buckets, and extinguishers, but also because he failed to undertake other precautionary
measures for preventing the fire. For instance, he could have, at the very least, ensured that
whatever combustible material may have been in the vicinity would be protected from the sparks
caused by the welding torch. He could have easily removed the life jackets from the ceiling void, as
well as the foam mattresses, and covered any holes where the sparks may enter.
Conjunctively, since Rebaca was already aware of the hazard, he should have taken all possible
precautionary measures, including those above mentioned, before allowing Sevillejo to continue with
his hot work on Deck A. In addition to scolding Sevillejo, Rebaca merely checked that no fire had
started yet. Nothing more. Also, inasmuch as KCSI had the power to substitute Sevillejo with another
electric arc welder, Rebaca should have replaced him.
There is negligence when an act is done without exercising the competence that a reasonable
person in the position of the actor would recognize as necessary to prevent an unreasonable risk of
harm to another. Those who undertake any work calling for special skills are required to exercise
reasonable care in what they do.38 Verily, there is an obligation all persons have to take due care
which, under ordinary circumstances of the case, a reasonable and prudent man would take. The
omission of that care constitutes negligence. Generally, the degree of care required is graduated
according to the danger a person or property may be subjected to, arising from the activity that the
actor pursues or the instrumentality that he uses. The greater the danger, the greater the degree of

care required. Extraordinary risk demands extraordinary care. Similarly, the more imminent the
danger, the higher degree of care warranted.39 In this aspect,
KCSI failed to exercise the necessary degree of caution and foresight called for by the
circumstances.
We cannot subscribe to KCSIs position that WG&A, through Dr. Joniga, was negligent.
On the one hand, as discussed above, Dr. Joniga had authority to request the performance of hot
works in the other areas of the vessel. These hot works were deemed included in the January 26,
2000 Work Order and the Shiprepair Agreement. In the exercise of this authority, Dr. Joniga asked
Sevillejo to do the cutting of the bulkhead door near the staircase of Deck A. KCSI was aware of
what Sevillejo was doing, but failed to supervise him with the degree of care warranted by the
attendant circumstances.
Neither can Dr. Joniga be faulted for not removing the life jackets from the ceiling void for two
reasons (1) the life jackets were not even contributory to the occurrence of the fire; and (2) it was
not incumbent upon him to remove the same. It was shown during the hearings before the CIAC that
the removal of the life jackets would not have made much of a difference. The fire would still have
occurred due to the presence of other combustible materials in the area. This was the uniform
conclusion of both WG&As40 and KCSIs41fire experts. It was also proven during the CIAC
proceedings that KCSI did not see the life jackets as being in the way of the hot works, thus, making
their removal from storage unnecessary.42
These circumstances, taken collectively, yield the inevitable conclusion that Sevillejo was negligent
in the performance of his assigned task. His negligence was the proximate cause of the fire on board
M/V "Superferry 3." As he was then definitely engaged in the performance of his assigned tasks as
an employee of KCSI, his negligence gave rise to the vicarious liability of his employer43 under
Article 2180 of the Civil Code, which provides
Art. 2180. The obligation imposed by article 2176 is demandable not only for ones own act or
omission, but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or
industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage.
KCSI failed to prove that it exercised the necessary diligence incumbent upon it to rebut the legal
presumption of its negligence in supervising Sevillejo.44 Consequently, it is responsible for the
damages caused by the negligent act of its employee, and its liability is primary and solidary. All that
is needed is proof that the employee has, by his negligence, caused damage to another in order to
make the employer responsible for the tortuous act of the former.45 From the foregoing disquisition,
there is ample proof of the employees negligence.

B. The right of subrogation

Pioneer asseverates that there existed a total constructive loss so that it had to pay WG&A the full
amount of the insurance coverage and, by operation of law, it was entitled to be subrogated to the
rights of WG&A to claim the amount of the loss. It further argues that the limitation of liability clause
found in the Shiprepair Agreement is null and void for being iniquitous and against public policy.
KCSI counters that a total constructive loss was not adequately proven by Pioneer, and that there is
no proof of payment of the insurance proceeds. KCSI insists on the validity of the limited-liability
clause up toP50,000,000.00, because WG&A acceded to the provision when it executed the
Shiprepair Agreement. KCSI also claims that the salvage value of the vessel should be deducted
from whatever amount it will be made to pay to Pioneer.
We find in favor of Pioneer, subject to the claim of KCSI as to the salvage value of M/V "Superferry
3."
In marine insurance, a constructive total loss occurs under any of the conditions set forth in Section
139 of the Insurance Code, which provides
Sec. 139. A person insured by a contract of marine insurance may abandon the thing insured, or any
particular portion hereof separately valued by the policy, or otherwise separately insured, and
recover for a total loss thereof, when the cause of the loss is a peril insured against:
(a) If more than three-fourths thereof in value is actually lost, or would have to be
expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x
x.
It appears, however, that in the execution of the insurance policies over M/V "Superferry 3," WG&A
and Pioneer incorporated by reference the American Institute Hull Clauses 2/6/77, the Total Loss
Provision of which reads
Total Loss
In ascertaining whether the Vessel is a constructive Total Loss the Agreed Value shall be taken as
the repaired value and nothing in respect of the damaged or break-up value of the Vessel or wreck
shall be taken into account.
There shall be no recovery for a constructive Total Loss hereunder unless the expense of recovering
and repairing the Vessel would exceed the Agreed Value in policies on Hull and Machinery. In
making this determination, only expenses incurred or to be incurred by reason of a single accident or
a sequence of damages arising from the same accident shall be taken into account, but expenses
incurred prior to tender of abandonment shall not be considered if such are to be claimed separately
under the Sue and Labor clause. x x x.
In the course of the arbitration proceedings, Pioneer adduced in evidence the estimates made by
three (3) disinterested and qualified shipyards for the cost of the repair of the vessel, specifically:
(a) P296,256,717.00, based on the Philippine currency equivalent of the quotation dated April 17,
2000 turned in by Tsuneishi Heavy Industries (Cebu) Inc.; (b) P309,780,384.15, based on the
Philippine currency equivalent of the quotation of Sembawang Shipyard Pte. Ltd., Singapore; and

(c) P301,839,974.00, based on the Philippine currency equivalent of the quotation of Singapore
Technologies Marine Ltd. All the estimates showed that the repair expense would
exceed P270,000,000.00, the amount equivalent to of the vessels insured value
ofP360,000,000.00. Thus, WG&A opted to abandon M/V "Superferry 3" and claimed from Pioneer
the full amount of the policies. Pioneer paid WG&As claim, and now demands from KCSI the full
amount ofP360,000,000.00, by virtue of subrogation.
1avv phi 1

KCSI denies the liability because, aside from its claim that it cannot be held culpable for negligence
resulting in the destructive fire, there was no constructive total loss, as the amount of damage was
only US$3,800,000.00 or P170,611,260.00, the amount of repair expense quoted by Simpson,
Spence & Young.
In the face of this apparent conflict, we hold that Section 139 of the Insurance Code should govern,
because (1) Philippine law is deemed incorporated in every locally executed contract; and (2) the
marine insurance policies in question expressly provided the following:
IMPORTANT
This insurance is subject to English jurisdiction, except in the event that loss or losses are payable in
the Philippines, in which case if the said laws and customs of England shall be in conflict with the
laws of the Republic of the Philippines, then the laws of the Republic of the Philippines shall
govern. (Underscoring supplied.)
The CA held that Section 139 of the Insurance Code is merely permissive on account of the word
"may" in the provision. This is incorrect. Properly considered, the word "may" in the provision is
intended to grant the insured (WG&A) the option or discretion to choose the abandonment of the
thing insured (M/V "Superferry 3"), or any particular portion thereof separately valued by the policy,
or otherwise separately insured, and recover for a total loss when the cause of the loss is a peril
insured against. This option or discretion is expressed as a right in Section 131 of the same Code, to
wit:
Sec. 131. A constructive total loss is one which gives to a person insured a right to abandon under
Section one hundred thirty-nine.
It cannot be denied that M/V "Superferry 3" suffered widespread damage from the fire that occurred
on February 8, 2000, a covered peril under the marine insurance policies obtained by WG&A from
Pioneer. The estimates given by the three disinterested and qualified shipyards show that the
damage to the ship would exceed P270,000,000.00, or of the total value of the policies
P360,000,000.00. These estimates constituted credible and acceptable proof of the extent of the
damage sustained by the vessel. It is significant that these estimates were confirmed by the
Adjustment Report dated June 5, 2000 submitted by Richards Hogg Lindley (Phils.), Inc., the
average adjuster that Pioneer had enlisted to verify and confirm the extent of the damage. The
Adjustment Report verified and confirmed that the damage to the vessel amounted to a constructive
total loss and that the claim for P360,000,000.00 under the policies was compensable.46 It is also
noteworthy that KCSI did not cross-examine Henson Lim, Director of Richards Hogg, whose
affidavit-direct testimony submitted to the CIAC confirmed that the vessel was a constructive total
loss.
Considering the extent of the damage, WG&A opted to abandon the ship and claimed the value of its
policies. Pioneer, finding the claim compensable, paid the claim, with WG&A issuing a Loss and
Subrogation Receipt evidencing receipt of the payment of the insurance proceeds from Pioneer. On
this note, we find as unacceptable the claim of KCSI that there was no ample proof of payment

simply because the person who signed the Receipt appeared to be an employee of Aboitiz Shipping
Corporation.47 The Loss and Subrogation Receipt issued by WG&A to Pioneer is the best evidence
of payment of the insurance proceeds to the former, and no controverting evidence was presented
by KCSI to rebut the presumed authority of the signatory to receive such payment.
On the matter of subrogation, Article 2207 of the Civil Code provides
Art. 2207. If the plaintiffs property has been insured and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury.
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so
that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including
its remedies or securities. The principle covers a situation wherein an insurer has paid a loss under
an insurance policy is entitled to all the rights and remedies belonging to the insured against a third
party with respect to any loss covered by the policy. It contemplates full substitution such that it
places the party subrogated in the shoes of the creditor, and he may use all means that the creditor
could employ to enforce payment.48
We have held that payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies that the insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out
of, any privity of contract. It accrues simply upon payment by the insurance company of the
insurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and to
accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a debt by
one who, in justice, equity, and good conscience, ought to pay.49
We cannot accept KCSIs insistence on upholding the validity Clause 20, which provides that the
limit of its liability is only up to P50,000,000.00; nor of Clause 22(a), that KCSI stands as a coassured in the insurance policies, as found in the Shiprepair Agreement.
Clauses 20 and 22(a) of the Shiprepair Agreement are without factual and legal foundation. They are
unfair and inequitable under the premises. It was established during arbitration that WG&A did not
voluntarily and expressly agree to these provisions. Engr. Elvin F. Bello, WG&As fleet manager,
testified that he did not sign the fine-print portion of the Shiprepair Agreement where Clauses 20 and
22(a) were found, because he did not want WG&A to be bound by them. However, considering that
it was only KCSI that had shipyard facilities large enough to accommodate the dry docking and
repair of big vessels owned by WG&A, such as M/V "Superferry 3," in Cebu, he had to sign the front
portion of the Shiprepair Agreement; otherwise, the vessel would not be accepted for dry docking.50
Indeed, the assailed clauses amount to a contract of adhesion imposed on WG&A on a "take-it-orleave-it" basis. A contract of adhesion is so-called because its terms are prepared by only one party,
while the other party merely affixes his signature signifying his adhesion thereto. Although not
invalid, per se, a contract of adhesion is void when the weaker party is imposed upon in dealing with
the dominant bargaining party, and its option is reduced to the alternative of "taking it or leaving it,"
completely depriving such party of the opportunity to bargain on equal footing.51
Clause 20 is also a void and ineffectual waiver of the right of WG&A to be compensated for the full
insured value of the vessel or, at the very least, for its actual market value. There was clearly no

intention on the part of WG&A to relinquish such right. It is an elementary rule that a waiver must be
positively proved, since a waiver by implication is not normally countenanced. The norm is that a
waiver must not only be voluntary, but must have been made knowingly, intelligently, and with
sufficient awareness of the relevant circumstances and likely consequences. There must be
persuasive evidence to show an actual intention to relinquish the right.52 This has not been
demonstrated in this case.
Likewise, Clause 20 is a stipulation that may be considered contrary to public policy. To allow KCSI
to limit its liability to only P50,000,000.00, notwithstanding the fact that there was a constructive total
loss in the amount of P360,000,000.00, would sanction the exercise of a degree of diligence short of
what is ordinarily required. It would not be difficult for a negligent party to escape liability by the
simple expedient of paying an amount very much lower than the actual damage or loss sustained by
the other.53
Along the same vein, Clause 22(a) cannot be upheld. The intention of the parties to make each other
a co-assured under an insurance policy is to be gleaned principally from the insurance contract or
policy itself and not from any other contract or agreement, because the insurance policy
denominates the assured and the beneficiaries of the insurance contract. Undeniably, the hull and
machinery insurance procured by WG&A from Pioneer named only the former as the assured. There
was no manifest intention on the part of WG&A to constitute KCSI as a co-assured under the
policies. To have deemed KCSI as a co-assured under the policies would have had the effect of
nullifying any claim of WG&A from Pioneer for any loss or damage caused by the negligence of
KCSI. No ship owner would agree to make a ship repairer a co-assured under such insurance policy.
Otherwise, any claim for loss or damage under the policy would be rendered nugatory. WG&A could
not have intended such a result.54
Nevertheless, we concur with the position of KCSI that the salvage value of the damaged M/V
"Superferry 3" should be taken into account in the grant of any award. It was proven before the CIAC
that the machinery and the hull of the vessel were separately sold for P25,290,000.00 (or
US$468,333.33) and US$363,289.50, respectively. WG&As claim for the upkeep of the wreck until
the same were sold amounts to P8,521,737.75 (or US$157,809.96), to be deducted from the
proceeds of the sale of the machinery and the hull, for a net recovery of US$673,812.87, or
equivalent to P30,252,648.09, at P44.8977/$1, the prevailing exchange rate when the Request for
Arbitration was filed. Not considering this salvage value in the award would amount to unjust
enrichment on the part of Pioneer.
C. On the imposition of interest

Pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,55 the award in favor of
Pioneer in the amount of P350,146,786.89 should earn interest at 6% per annum from the filing of
the case until the award becomes final and executory. Thereafter, the rate of interest shall be 12%
per annum from the date the award becomes final and executory until its full satisfaction.
D. On the payment for the cost of arbitration

It is only fitting that both parties should share in the burden of the cost of arbitration, on a pro rata
basis. We find that Pioneer had a valid reason to institute a suit against KCSI, as it believed that it
was entitled to claim reimbursement of the amount it paid to WG&A. However, we disagree with
Pioneer that only KCSI should shoulder the arbitration costs. KCSI cannot be faulted for defending
itself for perceived wrongful acts and conditions. Otherwise, we would be putting a price on the right
to litigate on the part of Pioneer.

WHEREFORE, the Petition of Pioneer Insurance and Surety Corporation in G.R. No. 180896-97 and the
Petition of Keppel Cebu Shipyard, Inc. in G.R. No. 180880-81 are PARTIALLY GRANTED and the
Amended Decision dated December 20, 2007 of the Court of Appeals is MODIFIED. Accordingly, KCSI is
ordered to pay Pioneer the amount of P360,000,000.00 less P30,252,648.09, equivalent to the salvage
value recovered by Pioneer from M/V "Superferry 3," or the net total amount of P329,747,351.91, with six
percent (6%) interest per annum reckoned from the time the Request for Arbitration was filed until this
Decision becomes final and executory, plus twelve percent (12%) interest per annum on the said amount
or any balance thereof from the finality of the Decision until the same will have been fully paid. The
arbitration costs shall be borne by both parties on a pro rata basis. Costs against KCSI.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
G.R. No. 162095

October 12, 2009

IBEX INTERNATIONAL, INC., Petitioner,

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM and COURT OF APPEALS, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 of the 30 October 2003 Decision2 and 6 February 2004 Resolution3 of the
Court of Appeals in CA-G.R. SP No. 68606. In its 30 October 2003 Decision, the Court of Appeals
dismissed petitioner IBEX International, Inc.s (IBEX) petition for lack of merit and affirmed the 3 January
2002 Decision4 of the Construction Industry Arbitration Commission (CIAC). In its 6 February 2004
Resolution, the Court of Appeals denied IBEXs motion for reconsideration.
The Facts
Sometime in 1984, respondent Government Service Insurance System (GSIS), through its project
manager, Design Coordinates, Inc. (Design Coordinates), requested IBEX to submit a proposal for the
graphic signage requirements of the then on-going construction of the GSIS Headquarters Building (GSIS
Building). In their Contract Agreement5 dated 23 February 1984, IBEX undertook to supply and install the
interior and exterior graphic signage requirements of the GSIS Building for P11,500,000. IBEX and GSIS
also agreed on 26 May 1986 as the delivery date.
In a letter6 dated 24 March 1986, Design Coordinates, in accordance with the instructions of Benigno
Zialcita III, GSIS Officer-in-Charge, informed IBEX that, effective 1 April 1986, all operations in the
construction of the GSIS Building would be suspended until further notice.
In two letters dated 25 January 19887 and 5 August 1988,8 IBEX informed GSIS of its interest in resuming
the work on the signage project.
In a letter9 dated 3 April 1991, GSIS advised IBEX that the GSIS Board of Trustees created an Executive
Committee to resolve all pending contracts relative to the GSIS Building. The letter also mentioned that,

on 2 October 1984, GSIS had released the downpayment of P1,725,000, or 15% of the contract price
of P11,500,000, to IBEX under Check No. 319185.
In a letter10 dated 19 April 1991, IBEX reiterated that it was still interested and willing to finish the contract.
IBEX also clarified that only 10% of the total contract price, not 15%, was released as downpayment.
Sometime in March 1994, GSIS informed IBEX that it intended to hold a bidding for the Parking and
Directional Signs and Graphic Signage of the GSIS Building. In a letter 11 dated 24 March 1994, IBEX
reminded GSIS that their contract had neither been rescinded nor abrogated and that the said bidding
would encroach on certain provisions of their contract. IBEX insisted that there was no need for it to prequalify since its contract with GSIS was still valid and existing.
In a letter12 dated 10 June 1994, GSIS explained that it had to take-over the contract because of IBEXs
failure to meet the deadline for the submission of the requirements for all contractors with suspended
contracts.
On 28 December 1999, IBEX filed a complaint with the CIAC.13 IBEX alleged that the unilateral take-over
of GSIS of their contract constituted a breach of its contractual obligation. IBEX prayed that GSIS be
ordered to pay actual damages ofP13,941,664.38 plus one percent interest per month starting March
1987 and attorneys fees of 25% of the actual damages awarded.
On 18 January 2000, GSIS filed its answer with compulsory counterclaim for actual and liquidated
damages including attorneys fees.
On 28 February 2000, a preliminary conference was held and the Terms of Reference 14 (TOR) limited the
issues to be resolved by the CIAC to the following:

1. Was the project completed?

1.1 If so, when?
1.2 If so, was there a delay in accepting delivery of the completed Project?
1.3 If not, what percentage of accomplishment was reached by the Claimant on 1
April 1986 when the operations were suspended?
1.4 If not, was there delay in the completion of the project in accordance with the
contract?
1.5 If there was delay, is Respondent entitled to liquidated damages under the
contract?
2. How much was Claimant paid by way of down-payment?
3. Was the Contract Agreement between the Claimant and the Respondent dated 23
February 1984 validly rescinded or abrogated?
4. Is Claimant entitled to its claim for actual damages plus 1% interest per month?15
In its 3 January 2002 Decision, the CIAC dismissed IBEXs complaint for being barred by laches and
extinctive prescription.

IBEX appealed to the Court of Appeals. In its 30 October 2003 Decision, the Court of Appeals dismissed
the petition for lack of merit and affirmed the CIACs 3 January 2002 Decision.
IBEX filed a motion for reconsideration. In its 6 February 2004 Resolution, the Court of Appeals denied
the motion.
Hence, this petition.
The Ruling of the CIAC
According to the CIAC, IBEXs cause of action accrued on 24 March 1986, when GSIS sent IBEX the
letter informing them of the suspension of the contract. Since IBEX filed the complaint only on 28
December 1999, or 13 years and 9 months after the cause of action accrued, the CIAC ruled that the
complaint was now barred by prescription. The CIAC added that, even assuming that IBEXs letters dated
25 January 1988 and 5 August 1988 interrupted the prescriptive period, laches had set in because of
IBEXs unexplained inaction to sue GSIS after GSIS took over the project in 1994. Accordingly, the CIAC
denied IBEXs claim for actual damages.
However, the CIAC still discussed the issues raised in the TOR. First, the CIAC ruled that the project was
not completed because IBEX, through its President Percival F. Cruz, admitted that the project "had been
partly executed" and expressed "interest in resuming the work." According to the CIAC, this inferred an
incomplete work. The CIAC noted that IBEX gave three contradictory claims of accomplishment ranging
from 30% to 100%. The CIAC also found that IBEX failed to submit monthly progress billings in violation
of the contract. The CIAC denied GSISs claim for liquidated damages as there was no factual or legal
basis to support GSISs claim.
Second, the CIAC declared that GSIS paid IBEX P1,725,000, or 15% of the contract price, as stated in
the contract. The CIAC said IBEX failed to present any proof that GSIS gave only 10% of the contract
price as downpayment.
Lastly, the CIAC declared that GSIS terminated the contract because of the findings of the Commission
on Audit of graft and corruption committed through the negotiated contracts that President Ferdinand E.
Marcos had authorized GSIS President/General Manager Roman Cruz, Jr. to enter into in lieu of the
normal bidded contracts.
The Ruling of the Court of Appeals
While the Court of Appeals agreed with the CIAC that IBEXs cause of action accrued when GSIS
indefinitely suspended the contract without legal justification, the Court of Appeals ruled that prescription
had not set in because the running of the prescriptive period was interrupted by IBEXs 24 March 1994
letter reminding GSIS of the existence of a valid contract. The Court of Appeals said that this can be
considered as an extrajudicial demand under Article 115516 of the Civil Code sufficient to toll the running
of the prescriptive period. Accordingly, the Court of Appeals also declared that laches had not set in.
The Court of Appeals affirmed the CIACs findings that IBEX never completed the project and that IBEX
received 15% of the contract price as downpayment. The Court of Appeals also ruled that IBEX was not
entitled to actual damages because (1) GSIS took over the signage contract because of IBEXs failure to
submit the necessary requirements for contractors with suspended contracts; (2) the project was not
completed; (3) IBEX failed to liquidate the downpayment; and (4) not a single signage manufactured by
IBEX was actually used and installed in the GSIS Building. The Court of Appeals also said that the CIAC
did not commit any reversible error when it took the inconsistencies in the percentage of work
accomplishment against IBEX. According to the Court of Appeals, the percentage of completion at the
time of the suspension of the project was very much material to IBEXs cause of action considering that
the complaint was for actual damages and interest.

The Issues
IBEX raises the following issues:

I.
Whether or not [sic] the Court of Appeals committed a grave error and abuse of discretion when it
failed to consider certain relevant facts which, if properly considered, will justify a different
conclusion;
* In not finding that the takeover of the contract packaged VII.E was unjustified and constitute [sic]
breach of contract.
II.
Whether or not [sic] the Court of Appeals committed a grave error and abuse of discretion when it
finds [sic] that there was no completed project, since the petitioner was never able to convincingly
demonstrate that the project was in fact accomplished.
III.
Whether or not [sic] the Court of Appeals committed a grave error and abuse of discretion when it
made its findings, beyond the issues of the case, and which findings are contrary to what were put
forward as issues by the parties terms of reference (tor).17
GSIS opposes IBEXs petition on the ground that it raised questions of fact.
The Ruling of the Court
The petition has no merit.
At the outset, we note that IBEX is raising factual issues. A petition for review under Rule 45 of the 1997
Rules of Court should cover only questions of law.18 A question of law exists when the doubt or difference
centers on what the law is on a certain state of facts.19 A question of fact exists if the doubt centers on the
truth or falsity of the alleged facts.20 We note that matters pertaining to the takeover, completion and
delivery of the project are factual issues which had been exhaustively discussed and ruled upon by the
CIAC.
It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise because their
jurisdiction is confined to specific matters, are generally accorded not only respect, but also finality,
especially when affirmed by the Court of Appeals.21 In particular, factual findings of construction
arbitrators are final and conclusive and not reviewable by this Court on appeal. 22
This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources Corporation v.
Titan-Ikeda Construction and Development Corporation,23 we said:
In David v. Construction Industry and Arbitration Commission, we ruled that, as exceptions, factual
findings of construction arbitrators may be reviewed by this Court when the petitioner proves affirmatively
that: (1) the award was procured by corruption, fraud or other undue means; (2) there was evident
partiality or corruption of the arbitrators or any of them; (3) the arbitrators were guilty of misconduct in
refusing to hear evidence pertinent and material to the controversy; (4) one or more of the arbitrators
were disqualified to act as such under Section nine of Republic Act No. 876 and willfully refrained from

disclosing such disqualifications or of any other misbehavior by which the rights of any party have been
materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not made.
Other recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse of
discretion resulting in lack or loss of jurisdiction as when a party was deprived of a fair opportunity to
present its position before the Arbitral Tribunal or when an award is obtained through fraud or the
corruption of arbitrators, (2) when the findings of the Court of Appeals are contrary to those of the CIAC,
and (3) when a party is deprived of administrative due process.24
In this case, IBEX failed to show that any of these exceptions apply.
Moreover, the Court of Appeals upheld the factual findings of the CIAC. In its 30 October 2003 Decision,
the Court of Appeals stated:
A careful scrutiny of the records and the assailed decision of the CIAC indubitably shows that the
petitioner never completed the project. Thus, we concur with the following findings of the CIAC, viz:
"Claimants President Percival F. Cruz himself stated in his letter dated 24 March 1994 protesting the
intended re-bidding to be conducted by the respondent since his signage contract was not only in force
but "had been partly executed," plainly shows that the contract had indeed not been completed. Further,
in his own words, Claimants Cruz stated that it had "accomplished about 70% of the graphic signage"
(Answer to Q.#9, Affidavit). His letter of 05 August 1988 (Exhibit "E") expressing "interest in resuming
work" infers an incomplete work. There is, therefore, no question that the project was not completed.
1av vphi1

The Tribunal takes note that the foregoing percentage claimed by the Claimants Cruz directly contradicts
the allegations made in paragraph 15 of the Complaint that "By the time EDSA Revolution broke
out...IBEX had already completed 100% of the project." It must also be noted that the Complaint was
verified on 15 December 1999 by Mr. Cruz himself who expressly stated that he had "read the pleading
and that the allegations therein are true and correct of my knowledge and belief."
Earlier, on 05 February 1999, Counsel for Claimant, Atty. Gerald C. Jacob, had written a final demand
letter to the Respondent wherein he stated that "the contract was already 30% completed when GSIS
suddenly gave an order for immediate stoppage and unjustifiable contract cancellation." 25
We find no reason to reverse the factual findings of the CIAC as affirmed by the Court of Appeals. The
CIAC is the duly constituted quasi-judicial agency accorded with jurisdiction to resolve disputes arising
from construction contracts in the Philippines. This Court must confer finality to its factual findings as they
are supported by evidence.26
WHEREFORE, we DENY the petition. We AFFIRM the 30 October 2003 Decision and 6 February 2004
Resolution of the Court of Appeals in CA-G.R. SP No. 68606.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
G.R. No. 183335

December 23, 2009

JUANITO TABIGUE, ALEX BIBAT, JECHRIS DASALLA, ANTONIO TANGON, ROLANDO PEDRIGAL,
DANTE MAUL, ALFREDO IDUL, EDGAR RAMOS, RODERICK JAVIER, NOEL PONAYO, ROMEL
ORAPA, REY JONE, ALMA PATAY, JERIC BANDIGAN, DANILO JAYME, ELENITA S. BELLEZA,

JOSEPHINE COTANDA, RENE DEL MUNDO, PONCIANO ROBUCA, and MARLON

MADICLUM, Petitioners,
vs.
INTERNATIONAL COPRA EXPORT CORPORATION (INTERCO), Respondent.
DECISION
CARPIO MORALES, J.:
Petitioner Juanito Tabigue and his 19 co-petitioners, all employees of respondent International Copra
Export Corp-oration (INTERCO), filed a Notice of Preventive Mediation with the Department of Labor and
Employment National Conciliation and Mediation Board (NCMB), Regional Branch No. XI, Davao City
against respondent, for violation of Collective Bargaining Agreement (CBA) and failure to sit on the
grievance conference/meeting.1
As the parties failed to reach a settlement before the NCMB, petitioners requested to elevate the case to
voluntary arbitration. The NCMB thus set a date for the parties to agree on a Voluntary Arbitrator.
Before the parties could finally meet, respondent presented before the NCMB a letter 2 of Genaro Tan
(Tan), president of the INTERCO Employees/Laborers Union (the union) of which petitioners are
members, addressed to respondents plant manager Engr. Paterno C. Tangente (Tangente), stating that
petitioners "are not duly authorized by [the] board or the officers to represent the union, [hence] . . . all
actions, representations or agreements made by these people with the management will not be honored
or recognized by the union." Respondent thus moved to dismiss petitioners complaint for lack of
jurisdiction.3
Petitioners soon sent union president Tan and respondents plant manager Tangente a Notice to
Arbitrate, citing the "Revised Guidelines" in the Conduct of Voluntary Arbitration Procedure vis a vis
Section 3, Article XII of the CBA, furnishing the NCMB with a copy4 thereof, which notice respondent
opposed.5
The parties having failed to arrive at a settlement,6 NCMB Director Teodorico O. Yosores wrote petitioner
Alex Bibat and respondents plant manager Tangente of the lack of willingness of both parties to submit to
voluntary arbitration, which willingness is a pre-requisite to submit the case thereto; and that under the
CBA forged by the parties, the union is an indispensable party to a voluntary arbitration but that since Tan
informed respondent that the union had not authorized petitioners to represent it, it would be absurd to
bring the case to voluntary arbitration.
The NCMB Director thus concluded that "the demand of [petitioners] to submit the issues . . . to voluntary
arbitration CAN NOT BE GRANTED." He thus advised petitioners to avail of the compulsory arbitration
process to enforce their rights.7
On petitioners Motion for Reconsideration,8 the NCMB Director, by letter of April 11, 2007 to petitioners
counsel, stated that the NCMB "has no rule-making power to decide on issues [as it] only facilitates
settlement among the parties to . . . labor disputes."
Petitioners thus assailed the NCMB Directors decision via Petition for Review before the Court of
Appeals9 which dismissed it by Resolution10 of October 24, 2007 in this wise:
xxxx
Considering that NCMB is not a quasi-judicial agency exercising quasi-judicial functions but merely a
conciliatory body for the purpose of facilitating settlement of disputes between parties, its decisions or that

of its authorized officer cannot be appealed either through a petition for review under Rule 43 or under
Rule 65 of the Revised Rules of Court.
Further perusal of the petition reveals the following infirmities:

1. Payment of the docket fees and other legal fees is short by One Thousand Pesos (Php
1,000.00);
2. Copy of the assailed "Decision" of the Regional Director of the National Conciliation and
Mediation Board has not been properly certified as the name and designation of the
certifying officer thereto are not indicated; and
3. Not all of the petitioners named in the petition signed the verification and non-forum
shopping.11 (emphasis and underscoring supplied)
Their Motion for Reconsideration12 having been denied,13 petitioners filed the present Petition for Review
on Certiorari,14raising the following arguments:

THIS PARTICULAR CASE XXX FALLS SQUARELY WITHIN THE PURVIEW OF SECTION 6,
RULE IV, IN RELATION TO PARAGRAPH 3, SUB-PARAGRAPH 3.2, SECTION 4, RULE IV, ALL
OF THE REVISED PROCEDURAL GUIDELINES IN THE CONDUCT OF VOLUNTARY
ARBITRATION PROCEEDINGS.15
THE NCMB, WHEN EXERCISING ADJUDICATIVE POWERS, ACTS AS A QUASI-JUDICIAL
AGENCY.16
FINAL JUDGMENTS, DECISIONS, RESOLUTIONS, ORDERS, OR AWARDS OF REGIONAL
TRIAL COURTS AND QUASI-JUDICIAL BOARDS, LIKE THE NCMB, COMMISSIONS, AGENCIES,
INSTRUMENTALITIES, ARE APPEALABLE BY PETITION FOR REVIEW TO THE COURT OF
APPEALS.17(emphasis in the original)
LABOR CASES, AS A GENERAL RULE, ARE NEVER RESOLVED ON THE BASIS OF
TECHNICALITYESPECIALLY SO WHEN SUBSTANTIAL RIGHTS OF EMPLOYEES ARE
AFFECTED.18 (emphasis and underscoring supplied)
The petition fails.
Section 7 of Rule 43 of the Rules of Court provides that
[t]he failure of the petitioner to comply with any of the foregoing requirements regarding the payment of
the docket and other lawful fees, the deposit for costs, proof of service of the petition, and the contents of
and the documents which should accompany the petition shall be sufficient ground for the dismissal
thereof. (underscoring and emphasis supplied)
Petitioners claim that they had completed the payment of the appellate docket fee and other legal fees
when they filed their motion for reconsideration before the Court of Appeals.19 While the Court has, in the
interest of justice, given due course to appeals despite the belated payment of those fees, 20 petitioners
have not proffered any reason to call for a relaxation of the above-quoted rule. On this score alone, the
dismissal by the appellate court of petitioners petition is in order.
But even if the above-quoted rule were relaxed, the appellate courts dismissal would just the same be
sustained. Under Section 9 (3) of the Judiciary Reorganization Act of 1980, 21 the Court of Appeals

exercises exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards
of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions.
Rule 43 of the Rules of Court under which petitioners filed their petition before the Court of
Appeals22 applies to awards, judgments, final orders or resolutions of or authorized by any quasi-judicial
agency in the exercise of its quasi-judicial functions.23
A[n agency] is said to be exercising judicial function where [it] has the power to determine what the law is
and what the legal rights of the parties are, and then undertakes to determine these questions and
adjudicate upon the rights of the parties. Quasi-judicial function is a term which applies to the action,
discretion, etc. of public administrative officers or bodies, who are required to investigate facts or
ascertain the existence of facts, hold hearings, and draw conclusions from them as a basis for their
official action and to exercise discretion of a judicial nature.24 (underscoring supplied)
Given NCMBs following functions, as enumerated in Section 22 of Executive Order No. 126 (the
Reorganization Act of the Ministry of Labor and Employment), viz:

(a) Formulate policies, programs, standards, procedures, manuals of operation and

guidelines pertaining to effective mediation and conciliation of labor disputes;
(b) Perform preventive mediation and conciliation functions;
(c) Coordinate and maintain linkages with other sectors or institutions, and other government
authorities concerned with matters relative to the prevention and settlement of labor
disputes;
(d) Formulate policies, plans, programs, standards, procedures, manuals of operation and
guidelines pertaining to the promotion of cooperative and non-adversarial schemes,
grievance handling, voluntary arbitration and other voluntary modes of dispute settlement;
(e) Administer the voluntary arbitration program; maintain/update a list of voluntary
arbitrations; compile arbitration awards and decisions;
(f) Provide counseling and preventive mediation assistance particularly in the administration
of collective agreements;
(g) Monitor and exercise technical supervision over the Board programs being implemented
in the regional offices; and
(h) Perform such other functions as may be provided by law or assigned by the Minister,
it can not be considered a quasi-judicial agency.
Respecting petitioners thesis that unsettled grievances should be referred to voluntary arbitration as
called for in the CBA, the same does not lie. The pertinent portion of the CBA reads:
In case of any dispute arising from the interpretation or implementation of this Agreement or any matter
affecting the relations of Labor and Management, the UNION and the COMPANY agree to exhaust all
possibilities of conciliation through the grievance machinery. The committee shall resolve all problems
submitted to it within fifteen (15) days after the problems ha[ve] been discussed by the members. If the
dispute or grievance cannot be settled by the Committee, or if the committee failed to act on the matter
within the period of fifteen (15) days herein stipulated, the UNION and the COMPANY agree to submit the

issue to Voluntary Arbitration. Selection of the arbitrator shall be made within seven (7) days from the
date of notification by the aggrieved party. The Arbitrator shall be selected by lottery from four (4)
qualified individuals nominated by in equal numbers by both parties taken from the list of Arbitrators
prepared by the National Conciliation and Mediation Board (NCMB). If the Company and the Union
representatives within ten (10) days fail to agree on the Arbitrator, the NCMB shall name the Arbitrator.
The decision of the Arbitrator shall be final and binding upon the parties. However, the Arbitrator shall not
have the authority to change any provisions of the Agreement. The cost of arbitration shall be borne
equally by the parties.25 (capitalization in the original, underscoring supplied)
1avv phi1

Petitioners have not, however, been duly authorized to represent the union. Apropos is this Courts
pronouncement in Atlas Farms, Inc. v. National Labor Relations Commission, 26 viz:
x x x Pursuant to Article 260 of the Labor Code, the parties to a CBA shall name or designate their
respective representatives to the grievance machinery and if the grievance is unsettled in that level, it
shall automatically be referred to the voluntary arbitrators designated in advance by parties to a CBA.
Consequently only disputes involving the union and the company shall be referred to the grievance
machinery or voluntary arbitrators.27 (emphasis and underscoring supplied)
Clutching at straws, petitioners invoke the first paragraph of Article 255 of the Labor Code which states:
Art. 255. The labor organization designated or selected by the majority of the employees in an
appropriate collective bargaining unit shall be the exclusive representative of the employees in such unit
for the purpose of collective bargaining.However, an individual employee or group of employees shall
have the right at any time to present grievances to their employer.
x x x x (emphasis and underscoring supplied)
To petitioners, the immediately quoted provision "is meant to be an exception to the exclusiveness of the
representative role of the labor organization/union."28
This Court is not persuaded. The right of any employee or group of employees to, at any time, present
grievances to the employer does not imply the right to submit the same to voluntary arbitration.
WHEREFORE, the petition is DENIED.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice