THIRD DIVISION action of certiorari, theCourt will not engage in a 7.
urt will not engage in a 7. ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCIES;
[G.R. No. 96283. February 25, 1992.]
CHUNG FU INDUSTRIES (PHILIPP
INES) INC., its Directors and
Officers namely: HUANG KUO-
CHANG, HUANG AN-CHUNG,
JAMES J.R. CHEN, TRISTAN A.
CATINDIG, VICENTE B. AMADOR,
ROCK A.C. HUANG, JEM S.C.
HUANG, MARIA TERESA SOLIVEN
and VIRGILIO M. DEL
ROSARIO, petitioners, vs. COURT O
F APPEALS, HON. FRANCISCO X.
VELEZ (Presiding Judge, Regional
Trial Court of Makati [Branch
57]) and ROBLECOR
PHILIPPINES INC.,respondents.
SYLLABUS
1. REMEDIAL LAW; REGULAR COURTS; REMAIN THE FORA
TO RESOLVE THE DISPUTES OF PARTIES IN THE
ABSENCE OF AN AGREEMENT AS TO THE
MODE OF SETTLEMENT. — Absent an agreement of the
parties to resolve their disputes via a particular mode, it is
the regular courts that remain the fora to resolve such
matters. However, the parties may opt for recourse to third
parties, exercising their basic freedom to "establish such
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy." In
such a case, resort to the arbitration process may be
spelled out by them in a contract in anticipation of disputes
that may arise between them. Or this may be stipulated in a
submission agreement when they are actually confronted
by a dispute. Whatever be the case, such recourse to an
extrajudicial means of settlement is not intended to
completely deprive the courts of jurisdiction. In fact, the
early cases on arbitration carefully spelled out the
prevailing doctrine at the time, thus: ". . . a clause in a
contract providing that all matters in dispute between the
parties shall be referred to arbitrators and to them alone is
contrary to public policy and cannot oust the
courts of jurisdiction. A court action may likewise be
proper where the arbitrator has not been selected by the
parties [Umbao v. Yap, 100 Phil. 1008 (1957).
2. ID.; SPECIAL CIVIL ACTIONS; CERTIORARI; LIES WHERE
GRAVE ABUSE OF DISCRETION OR AN ACTWITHOUT OR
IN EXCESS OF JURISDICTION IS CLEARLY SHOWN. — What
if courts refuse or neglect to inquire into the factual
milieu of an arbitrator's award to determine whether it is
in accordance with law or within the scope of his authority?
How may the power of judicial review be invoked? This is
where the proper remedy is certiorari under Rule 65 of the
Revised Rules of Court. It is to be borne in mind, however,
that this action will lie only where a grave
abuse of discretion or an act without or in
excess of jurisdiction on the partof the voluntary arbitrator
is clearly shown. For "the writ of certiorari is an extra-
ordinary remedy and that certiorari jurisdiction is not to be
equated with appellate jurisdiction. In a special civil
Claiming an unsatisfied account of P10,500,000.00 and
review of the facts found nor even of the law as interpreted DECISIONS WHICH ARE DECLARED FINAL BY LAW, NOT unpaid progress billings of P2,370,179.23, Roblecor on May
or applied by the arbitrator unless the supposed EXEMPT FROM JUDICIAL REVIEW. — Even 18, 1990, filed a petition for Compulsory Arbitration with
errors of fact or of law are so patent and gross and decisions of administrative agencies which are declared prayer for Temporary Restraining Order before respondent
prejudicial as to amount to a grave abuse of discretion or "final" by law are not exempt from judicial review when so Regional Trial Court, pursuant to the arbitration clause in
an excess de pouvoir on the part of the arbitrator." warranted. Thus, in the case of Oceanic Bic Division the construction agreement.Chung Fu moved to dismiss the
3. ID.; ID.; ID.; ID.; APPLICABLE IN CASE AT BAR. — We find (FFW), et al. v. Flerida Ruth P. Romero, et al., this Court had petition and further prayed for the quashing of the
that petitioners have amply made out a case where the occasion to rule that: ". . . Inspite of statutory provisions restraining order.
voluntary arbitrator failed to apply the terms and making 'final' the decisions of certain administrative Subsequent negotiations between the parties eventually
provisions of the Construction Agreement which forms agencies, we have taken cognizance ofpetitions questioning led to the formulation of an arbitration agreement which,
part of the law applicable as between the parties, thus these decisions where want of jurisdiction, grave among others, provides:
committing a grave abuse of discretion. Furthermore, in abuse of discretion, violation of due process, "2. The parties mutually agree that
granting unjustified extra compensation to respondent for denial of substantial justice or erroneous the arbitration shall proceed in
several items, he exceeded his powers — all of which interpretation of the law were brought to our attention. x x " accordance with the following
would have constituted ground for vacating the award It should be stressed too, that voluntary arbitrators, by the terms and conditions: —
under Section 24 (d) of the Arbitration Law. But the nature of their functions, act in a quasi-judicial capacity. It xxx xxx xxx
respondent trial court's refusal to look into the stands to reason, therefore, that their decisions should not 'd. The parties
merits of the case, despite prima facie showing of the be beyond the scope of the power ofjudicial mutually agree that they
existence of grounds warranting judicial review, effectively review of this Court. will abide by the
deprived petitioners of their opportunity to prove or DECISION decision of the arbitrator
substantiate their allegations. In so doing, the ROMERO, J p: including any amount
trial court itself committed grave abuse of discretion. This is a special civil action for certiorari seeking to annul that may be awarded to
4. CIVIL LAW; CONTRACTS; ARBITRATION; STIPULATION the Resolutions of the Court of Appeals * dated October 22, either party as
TO REFER ONGOING OR FUTURE DISPUTES THERETO; 1990 and December 3, 1990 upholding the Orders of July compensation,
VALID. — The stipulation to refer all future disputes to an 31, 1990 and August 23, 1990 of the Regional consequential damage
arbitrator or to submit an ongoing dispute to one is valid. Trial Court of Makati, Branch 57, in Civil Case No. 90-1335. and/or interest thereon;
Being part of a contract between the parties, it is binding Respondent Court of Appeals affirmed the ruling of the 'e. The parties
and enforceable in court in case one of them neglects, fails trial court that herein petitioners, after submitting mutually agree that the
or refuses to arbitrate. Going a step further, in the event themselves for arbitration and agreeing to the terms and decision of the arbitrator
that they declare their intention to refer their differences to conditions thereof, providing that the arbitration award shall be final and
arbitration first before taking court action, this constitutes shall be final and unappealable, are precluded from seeking unappealable. Therefore,
a condition precedent, such that where a suit has been judicial review of subject arbitration award. there shall be no further
instituted prematurely, the court shall suspend the same It appears that on May 17, 1989, judicial recourse if either
and the parties shall be directed forthwith to proceed to petitioner Chung Fu Industries (Philippines) (Chung Fu for party disagrees with the
arbitration. [Bengson v. Chan, No. L-27283, July 29, 1977, 78 brevity) and private respondent Roblecor Philippines, Inc. whole or any part of the
SCRA 113] (Roblecor for short) forged a construction arbitrator's award;
5. ID.; ID.; ID.; STIPULATION THAT ARBITRATOR'S AWARD agreement 1 whereby respondent contractor committed to
SHALL BE FINAL AND UNAPPEALABLE; RULE AND construct and finish on December 31, 1989, petitioner 'f. As an
EXCEPTION. — Under present law, may the parties who corporation's industrial/factory complex in Tanawan, exception to sub-
agree to submit their disputes to arbitration further Tanza, Cavite for and in consideration of P42,000,000.00. In paragraph (e), above, the
provide that the arbitrators' award shall be final, the eventof disputes arising from the parties mutually agree
unappealable and executory? Article 2044 of theCivil performance of subject contract, it was stipulated therein that either party is
Code recognizes the validity of such stipulation, thus: "Any that the issue(s) shall be submitted for resolution before a entitled to seek judicial
stipulation that the arbitrators' award or decision shall be single arbitrator chosen by both parties. assistance for
final is valid, without prejudice to Articles 2038, 2039 and Apart from the aforesaid construction purposes of enforcing
2040." Similarly, the Construction Industry Arbitration agreement, Chung Fu and Roblecor entered into two (2) the arbitrator's award;
Law provides that the arbitral award "shall be final and other ancillary contracts, to wit: one dated June 23, 1989, xxx xxx xxx" 4
inappealable except on questions of law which shall be for the construction of a dormitory and support facilities (Emphasis supplied)
appealable to the Supreme Court. with a contract price of P3,875,285.00, to be completed on Respondent Regional Trial Court approved the arbitration
6. LABOR AND SOCIAL LEGISLATION; VOLUNTARY or before October 31, 1989; 2 and the other dated August agreement thru its Order of May 30, 1990. Thereafter, Engr.
ARBITRATOR; MANDATED TO RENDER A DECISION 12, 1989, for the installation of electrical, water and Willardo Asuncion was appointed as the sole arbitrator.
WITHIN TWENTY DAYS FROM hydrant systems at the plant site, commanding a On June 30, 1990, Arbitrator Asuncion ordered petitioners
DATE OF SUBMISSION OF THE DISPUTES. — Under price of P12.1 million and requiring completion thereof one to immediately pay respondent contractor, the
the Labor Code, the voluntary arbitrator is now mandated month after civil works have been finished. 3 sum of P16,108,801.00. He further declared the award as
to render an award or decision within twenty (20) calendar However, respondent Roblecor failed to complete the work final and unappealable, pursuant to the Arbitration
days from the date of submission of the dispute and such despite the extension of time allowed it byChung Fu. Agreement precluding judicial review of the award.
decision shall be final and executory after ten (10) calendar Subsequently, the latter had to take over the construction Consequently, Roblecor moved for the confirmation of said
days from receipt of the copy of the award or decision by when it had become evident that Roblecor was not in a award. On the other hand, Chung Fu moved to remand the
the parties. position to fulfill its obligation. LLjur case for further hearing and asked for a
reconsideration of the judgment award claiming that
Arbitrator Asuncion committed twelve (12)
instances of grave error by disregarding
provisions of the parties' contract.
Respondent lower court denied Chung Fu's Motion to
Remand thus compelling it to seek reconsideration
therefrom but to no avail. The trial court granted
Roblecor's Motion for Confirmation of Award and
accordingly, entered judgment in conformity therewith.
Moreover, it granted the motion for the issuance of a
writ of execution filed by respondent.
Chung Fu elevated the case via a petition for certiorari to
respondent Court of Appeals. On October 22, 1990 the
assailed resolution was issued. The respondent
appellate court concurred with the findings and
conclusions of respondent trial court resolving
that Chung Fu and its officers, as signatories to the
Arbitration Agreement are bound to observe the
stipulations thereof providing for the finality of the award
and precluding any appeal therefrom.
A motion for reconsideration of said resolution was filed by
petitioner, but it was similarly denied
respondent Court of Appeals thru its questioned
resolution of December 3, 1990.
Hence, the instant petition anchored on the following
grounds:
First
Respondents Court of Appe
als and trial Judge gravely
abused their discretion
and/or exceeded their
jurisdiction, as well as
denied due process and
substantial justice to
petitioners, — (a) by
refusing to exercise their
judicial authority and legal
duty to review the
arbitration award, and (b)
by declaring that
petitioners are estopped
from questioning the
arbitration award allegedly
in view of the stipulations
in the parties' arbitration
agreement that "the
decision of the arbitrator
shall be final and
unappealable" and that
"there shall be no further
judicial recourse if either
party disagrees with the
whole or any part of the
arbitrator's award." prLL
Second
Respondent Court of Appea
ls and trial Judge gravely
abused their discretion
and/or exceeded their
jurisdiction, as well as
denied due process and
the substantial justice to
petitioner, by not vacating
and annulling the award
dated 30 June 1990 of the
Arbitrator, on the ground
that the Arbitrator grossly
departed from the
terms of the parties'
contracts and misapplied
the law, and thereby
exceeded the authority and
power delegated to him.
(Rollo, p. 17).
Allow us to take a leaf from history and briefly trace the
evolution of arbitration as a mode of dispute settlement.
Because conflict is inherent in human society, much effort
has been expended by men and institutions in devising
ways of resolving the same. With the
progress of civilization, physical combat has been ruled out
by and instead, more pacific means have been evolved, such as
recourse to the good offices of a disinterested third party,
whether this be a court or a private individual or
individuals.
Legal history discloses that "the early judges called upon to
solve private conflicts were primarily the arbiters, persons
not specially trained but in whose morality, probity and
good sense the parties in conflict reposed full trust. Thus, in
Republican Rome, arbiter and judge (judex) were
synonymous. The magistrate or praetor, after noting down
the conflicting claims of litigants, and clarifying the issues,
referred them for decision to a private person designated
by the parties, by common agreement, or selected by them
from an apposite listing (the album judicium) or else by
having the arbiter chosen by lot. The judges proper, as
specially trained state officials endowed with own power
and jurisdiction, and taking cognizance of litigations from
beginning to end, only appeared under the Empire, by the
so-called cognitio extra ordinem." 5
Such means of referring a dispute to a third party has also
long been an accepted alternative to litigation at common
law. 6
Sparse though the law and jurisprudence may be on the
subject of arbitration in the Philippines, it was nonetheless
recognized in the Spanish Civil Code; specifically, the
provisions on compromises made applicable to arbitrations
under Articles 1820 and 1821. 7 Although said provisions
were repealed by implication with the repeal of the Spanish
Law of Civil Procedure, 8 these and additional ones were
reinstated in the present Civil Code. 9
Arbitration found a fertile field in the resolution of labor-
management disputes in the Philippines. Although early
on, Commonwealth Act 103 (1936) provided for
compulsory arbitration as the state policy to be
administered by the Court of Industrial Relations, in time
such a modality gave way to voluntary arbitration. While
not completely supplanting compulsory arbitration which
until today is practiced by government officials, the
Industrial Peace Act which was passed in 1953 as
Republic Act No. 875, favored the policy of free collective
bargaining, in general, and resort to grievance procedure,
in particular, as the preferred mode ofsettling disputes in
industry. It was accepted and enunciated more explicitly in
the Labor Code, which was passed on November 1, 1974
as Presidential Decree No. 442, with the amendments later
introduced by Republic Act No. 6715 (1989).
Whether utilized in business transactions or in employer-
employee relations, arbitration was gaining wide
acceptance. A consensual process, it was preferred to
orders imposed by government upon the disputants.
Moreover, court litigations tended to be time-consuming,
costly, and inflexible due to their scrupulous
observance of the due process of law doctrine and their
strict adherence to rules of evidence.
As early as the 1920's, this Court declared:
"In the Philippines fortunately, the
attitude of the courts toward
arbitration agreements is slowly
crystallizing into definite and
workable form.... The rule now is
that unless the agreement' is such
as absolutely to close the
doors of the courts against the
parties, which agreement would be
void, the courts will look with favor
upon such amicable arrangements
and will only with great reluctance
interfere to anticipate or nullify the
action of the arbitrator." 10
That there was a growing need for a law regulating
arbitration in general was acknowledged when
RepublicAct No. 876 (1953), otherwise known as the
Arbitration Law, was passed. "Said Act was obviously
adopted to supplement — not to supplant — the New Civil
Code on arbitration. It expressly declares that 'the
provisionsof chapters one and two, Title XIV, Book
IV of the Civil Code shall remain in force.'" 11
In recognition of the pressing need for an arbitral
machinery for the early and expeditious
settlement ofdisputes in the construction industry, a
Construction Industry Arbitration Commission (CIAC) was
created byExecutive Order No. 1008, enacted on February
4, 1985. cdrep
In practice nowadays, absent an agreement of the parties to
resolve their disputes via a particular mode, it is the
regular courts that remain the fora to resolve such matters.
However, the parties may opt for recourse to third parties,
exercising their basic freedom to "establish such
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy." 12 In
such a case, resort to the arbitration process may be
spelled out by them in a contract in anticipation of disputes
that may arise between them. Or this may be stipulated in a
submission agreement when they are actually confronted
by a dispute. Whatever be the case, such recourse to an
extrajudicial means of settlement is not intended to
completely deprive the courts of jurisdiction. In fact, the
early cases on arbitration carefully spelled out the
prevailing doctrine at the time, thus: ". . . a clause in a
contract providing that all matters in dispute between the
parties shall be referred to arbitrators and to them alone is
contrary to public policy and cannot oust the
courts of jurisdiction." 13
But certainly, the stipulation to refer all future disputes to
an arbitrator or to submit an ongoing dispute to one is
valid. Being part of a contract between the parties, it is
binding and enforceable in court in case one ofthem
neglects, fails or refuses to arbitrate. Going a step further,
in the event that they declare their intention to refer their
differences to arbitration first before taking court action,
this constitutes a condition precedent, such that where a
suit has been instituted prematurely, the court shall
suspend the same and the parties shall be directed
forthwith to proceed to arbitration. 14
A court action may likewise be proper where the arbitrator
has not been selected by the parties. 15
Under present law, may the parties who agree to submit
their disputes to arbitration further provide that the
arbitrators' award shall be final, unappealable and
executory?
Article 2044 of the Civil Code recognizes the
validity of such stipulation, thus:.
"Any stipulation that the
arbitrators' award or decision shall
be final is valid, without prejudice
to Articles 2038, 2039 and 2040."
Similarly, the Construction Industry Arbitration
Law provides that the arbitral award "shall be final and
inappealable except on questions of law which shall be
appealable to the Supreme Court." 16
Under the original Labor Code, voluntary arbitration
awards or decisions were final, unappealable and
executory. "However, voluntary arbitration awards or
decisions on money claims, involving an amount exceeding
One Hundred Thousand Pesos (P100,000.00) or forty-
percent (40%) of the paid-up capital of the respondent
employer, whichever is lower, may be appealed to the
National Labor Relations Commission on any of the
following grounds: (a) abuse of discretion; and (b) gross
incompetence." 17 It is to be noted that the appeal in the
instances cited were to be made to the National Labor
Relations Commission and not to the courts.
With the subsequent deletion of the above-cited provision
from the Labor Code, the voluntary arbitrator is now
mandated to render an award or decision within twenty
(20) calendar days from the date of submissionof the
dispute and such decision shall be final and executory after
ten (10) calendar days from receipt of the copy of the
award or decision by the parties. 18
Where the parties agree that the decision of the arbitrator
shall be final and unappealable as in the instant case, the
pivotal inquiry is whether subject arbitration award is
indeed beyond the ambit of the court's power of judicial
review.
We rule in the negative. It is stated explicitly under Art. conditions ofthe Construction
2044 of the Civil Code that the finality of the arbitrators' Agreement, Dormitory Contract
award is not absolute and without exceptions. Where the and Electrical Contract, and in
conditions described in Articles 2038, 2039 and 2040 using instead the "practices" in the
applicable to both compromises and arbitrations are construction industry;
obtaining, the arbitrators' award may be annulled or 2. The Honorable Arbitrator
rescinded. 19 Additionally, under Sections 24 and 25 of the committed grave error in granting
Arbitration Law, there are grounds for vacating, modifying extra compensation to Roblecor for
or rescinding an arbitrator's award. 20 Thus, if and when loss of productivity due to adverse
the factual circumstances referred to in the above-cited weather conditions;
provisions are present, judicial review of the award is 3. The Honorable Arbitrator
properly warranted. committed grave error in granting
What if courts refuse or neglect to inquire into the factual extra compensation to Roblecor for
milieu of an arbitrator's award to determine whether it is loss due to delayed
in accordance with law or within the scope of his authority? payment of progress billings;
How may the power of judicial review be invoked? 4. The Honorable Arbitrator
This is where the proper remedy is certiorari under Rule committed grave error in granting
65 of the Revised Rules of Court. It is to be borne in mind, extra compensation to Roblecor for
however, that this action will lie only where a grave loss of productivity due to the
abuse of discretion or an act without or in cement crisis;
excessof jurisdiction on the part of the voluntary arbitrator 5. The Honorable Arbitrator
is clearly shown. For "the writ of certiorari is an extra- committed grave error in granting
ordinary remedy and that certiorari jurisdiction is not to be extra compensation to Roblecor for
equated with appellate jurisdiction. In a special civil losses allegedly sustained on
action of certiorari, the Court will not engage in a account of the failed coup d'etat;
review of the facts found nor even of the law as interpreted 6. The Honorable Arbitrator
or applied by the arbitrator unless the supposed committed grave error in granting
errors of fact or of law are so patent and gross and to Roblecor the amount
prejudicial as to amount to a grave abuse of discretion or representing the alleged unpaid
an excess de pouvoir on the part of the arbitrator." 21 billings of Chung Fu;
Even decisions of administrative agencies which are 7. The Honorable Arbitrator
declared "final" by law are not exempt from judicial review committed grave error in granting
when so warranted. Thus, in the case of Oceanic Bic Division to Roblecor the amount
(FFW), et al. v. Flerida Ruth P. Romero, et representing the alleged extended
al., 22 this Court had occasion to rule that: LexLib overhead expenses;
". . . Inspite of statutory provisions 8. The Honorable Arbitrator
making 'final' the committed grave error in granting
decisions of certain administrative to Roblecor the amount
agencies, we have taken representing expenses for change
cognizance of petitions questioning order for site development outside
these decisions where the
want of jurisdiction, grave area of responsibility ofRoblecor;
abuseof discretion, violation of due 9. The Honorable Arbitrator
process, denial of substantial justice committed grave error in granting
or erroneous interpretation of the to Roblecor the cost of warehouse
law were brought to our attention. . No. 2;
. ." 23 (Emphasis ours.). 10. The Honorable Arbitrator
It should be stressed too, that voluntary arbitrators, by the committed grave error in granting
nature of their functions, act in a quasi-judicial to Roblecor extra compensation for
capacity. 24 It stands to reason, therefore, that their airduct change in dimension;
decisions should not be beyond the scope of the 11. The Honorable Arbitrator
powerof judicial review of this Court. committed grave error in granting
In the case at bar, petitioners assailed the arbitral award on to Roblecor extra compensation for
the following grounds, most of which allege error on the airduct plastering; and
part of the arbitrator in granting compensation for various 12. The Honorable Arbitrator
items which apparently are disputed by said petitioners: committed grave error in awarding
1. The Honorable Arbitrator to Roblecor attorney's fees.
committed grave error in failing to After closely studying the list of errors, as well as
apply the terms and petitioners' discussion of the same in their Motion to
Remand Case For Further Hearing and Reconsideration and
Opposition to Motion for Confirmation of Award, we find
that petitioners have amply made out a case where the
voluntary arbitrator failed to apply the terms and
provisions of the Construction Agreement which forms
part of the law applicable as between the parties, thus
committing a grave abuse of discretion. Furthermore, in
granting unjustified extra compensation to respondent for
several items, he exceeded his powers - all of which would
have constituted ground for vacating the award under
Section 24 (d) of the Arbitration Law. cdphil
But the respondent trial court's refusal to look into the
merits of the case, despite prima facie showing of the
existence of grounds warranting judicial review, effectively
deprived petitioners of their opportunity to prove or
substantiate their allegations. In so doing, the
trial court itself committed grave abuse of discretion.
Likewise, the appellate court, in not giving due course to
the petition, committed grave abuse of discretion.
Respondent courts should not shirk from exercising their
power to review, where under the applicable laws and
jurisprudence, such power may be rightfully exercised;
more so where the objections raised against an arbitration
award may properly constitute grounds for annulling,
vacating or modifying said award under the laws on
arbitration.
WHEREFORE, the petition is GRANTED. The
Resolutions of the Court of Appeals dated October 22, 1990
and December 3, 1990 as well as the Orders of respondent
Regional Trial Court dated July 31, 1990 and August 23,
1990, including the writ of execution issued pursuant
thereto, are hereby SET ASIDE. Accordingly, this case is
REMANDED to the court of origin for further hearing on
this matter. All incidents arising therefrom are reverted to
the status quo ante until such time as the trial court shall
have passed upon the merits of this case. No costs.
SO ORDERED.
||| (Chung Fu Industries (Philippines) Inc. v. Court of Appeals,
G.R. No. 96283, [February 25, 1992])
SECOND DIVISION
[G.R. No. 136154. February 7, 2001.]
DEL MONTE CORPORATION-USA,
PAUL E. DERBY, JR., DANIEL
COLLINS and LUIS
HIDALGO,petitioners, vs. COURT
OF APPEALS, JUDGE BIENVENIDO
L. REYES in his capacity as
Presiding Judge, RTC-Br. 74,
Malabon, Metro Manila,
MONTEBUENO MARKETING, INC.,
LIONG LIONG C. SY and SABROSA
FOODS, INC., respondents.
Quisumbing Torres Law Office for petitioners.
Albano & Associates for private respondent Montebueno
Marketing Inc.
Sioson Sandiego & Associates for respondents L.C. Sy and
Sabrosa
Foods Inc.
SYNOPSIS
Petitioner DMC-USA and its Managing Director for Export
Sales Paul Derby, Jr. appointed respondent MMI as the sole
and exclusive distributor of its Del Monte products in the
Philippines. The contract provided for arbitration of all
disputes to be held in San Francisco, California under the
Rules of the American Arbitration Association. MMI, thru
its Managing Director Lily Sy, appointed Sabrosa Foods, Inc.
(SFI) as its marketing arm. Despite the agreement, Del
Monte products were brought into the country by parallel
importers. Thus, the complaint for damages with prayer for
the issuance of a writ of preliminary attachment for
violations of Articles 20, 21 and 23 of the Civil Code filed
against DMC-USA, its Managing Director Derby, its Regional
Director Collins, its Head of credit Services, Hidalgo and
Dewey, Ltd., owner by assignment of its trademark here.
Petitioners moved to suspend proceedings invoking the
arbitration clause in their contract. The trial court
originally deferred consideration on the motion but later
denied the same on the ground that to allow suspension
will only delay the determination of the issues and delay
the parties' rights to seek redress. The Court of Appeals
affirmed the decision of the trial court. It held that the acts
complained of required the interpretation of Article 21 of
the Civil Code and that a full blown trial is required in
determining whether the petitioners violated the law.
Resort to this Court was made when petitioners' motion for
reconsideration was denied.
Arbitration in this jurisdiction is valid and constitutional
and that the provision to submit to arbitration any dispute
arising therefrom and the relationship of the parties is part
of the contract and is itself a contract. As a rule, contracts
are respected as the law between the contracting parties
and produce effect as between them, their assigns and
heirs. However, where other persons, not bound by the
arbitration clause, are impleaded as parties to a case, the
splitting of the proceedings to arbitration as to some
parties on one hand and trial for the others should not be
allowed as it would result in multiplicity of suit, duplicitous
procedure and unnecessary delay. EAIaHD
SYLLABUS
l. CIVIL LAW; SPECIAL CONTRACTS; ARBITRATION; VALID
AND CONSTITUTIONAL. — There is no doubt that
arbitration is valid and constitutional in our jurisdiction.
Even before the enactment of RA 876, this Court has
countenanced the settlement of disputes through
arbitration. Unless the agreement is such as absolutely to
close the doors of the courts against the parties, which
agreement would be void, the courts will look with favor
upon such amicable arrangement and will only interfere
with great reluctance to anticipate or nullify the action of
the arbitrator. Moreover, as RA 876 expressly authorizes
arbitration of domestic disputes, foreign arbitration as a
system of settling commercial disputes was likewise
recognized when the Philippines adhered to the United
Nations "Convention on the Recognition and the
Enforcement of Foreign Arbitral Awards of 1958" under the
10 May 1965 Resolution No. 71 of the Philippine Senate,
giving reciprocal recognition and allowing enforcement of
international arbitration agreements between parties of
different nationalities within a contracting state.
2. ID.; OBLIGATIONS AND CONTRACTS; CONTRACT, LAW
BETWEEN PARTIES, THEIR ASSIGNS AND HEIRS; CASE AT
BAR. — The provision to submit to arbitration any dispute
arising therefrom and the relationship of the parties is part
of that contract and is itself a contract. As a rule, contracts
are respected as the law between the contracting parties
and produce effect as between them, their assigns and
heirs. Clearly, only parties to the Agreement, i.e., petitioners
DMC-USA and its Managing Director for Export Sales Paul
E. Derby, Jr., and private respondents MMI and its
Managing Director LILY SY are bound by the Agreement
and its arbitration clause as they are the only signatories
thereto. Petitioners Daniel Collins and Luis Hidalgo, and
private respondent SFI, not parties to the Agreement and
cannot even be considered assigns or heirs of the parties,
are not bound by the Agreement and the arbitration clause
therein. Consequently, referral to arbitration in the State of
California pursuant to the arbitration clause and the
suspension of the proceedings in Civil Case No. 2637-MN
pending the return of the arbitral award could be called
for but onlyas to petitioners DMC-USA and Paul E. Derby,
Jr., and private respondents MMI and LILY SY, and not as to
the other parties in this case, in accordance with the recent
case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty
Corporation, which superseded that of Toyota Motor
Philippines Corp. v. Court of Appeals.
3. ID.; SPECIAL CONTRACTS; ARBITRATION; DISPENSED
WITHIN THE INTEREST OF JUSTICE. — The object of
arbitration is to allow the expeditious determination of a
dispute. Clearly, the issue before us could not be speedily
and efficiently resolved in its entirety if we allow
simultaneous arbitration proceedings and trial, or
suspension of trial pending arbitration. Accordingly, the
interest of justice would only be served if the trial court
hears and adjudicates the case in a single and complete
proceeding.
DECISION
BELLOSILLO, J p:
This Petition for Review on certiorari assails the 17 July
1998 Decision 1 of the Court of Appeals affirming the 11
November 1997 Order 2 of the Regional Trial Court which
denied petitioners' Motion to Suspend Proceedings in Civil
Case No. 2637-MN. It also questions the appellate
court's Resolution 3 of 30 October 1998 which denied
petitioners' Motion for Reconsideration. DTAHEC
On 1 July 1994, in a Distributorship Agreement, petitioner
Del Monte Corporation-USA (DMC-USA) appointed private
respondent Montebueno Marketing, Inc. (MMI) as the sole
and exclusive distributor of its Del Monte products in the
Philippines for a period of five (5) years, renewable for two
(2) consecutive five (5) year periods with the consent of
the parties. The Agreement provided, among others, for an
arbitration clause which states —
12. GOVERNING LAW AND
ARBITRATION 4
This Agreement shall be governed
by the laws of the State of California
and/or, if applicable, the United
States of America. All disputes
arising out of or relating to this
Agreement or the parties'
relationship, including the
termination thereof, shall be
resolved by arbitration in the City
of San Francisco, State of California,
under the Rules of the American
Arbitration Association. The
arbitration panel shall consist of
three members, one of whom shall
be selected by DMC-USA, one of
whom shall be selected by MMI,
and third of whom shall be selected
by the other two members and
shall have relevant experience in
the industry . . . .
In October 1994 the appointment of private respondent
MMI as the sole and exclusive distributor of Del Monte
products in the Philippines was published in several
newspapers in the country. Immediately after its
appointment, private respondent MMI appointed Sabrosa
Foods, Inc. (SFI), with the approval of petitioner DMC-USA,
as MMI's marketing arm to concentrate on its marketing
and selling function as well as to manage its critical
relationship with the trade.
On 3 October 1996 private respondents MMI, SFI and
MMI's Managing Director Liong Liong C. Sy (LILY SY) filed a
Complaint 5 against petitioners DMC-USA, Paul E. Derby,
Jr., 6 Daniel Collins 7 and Luis Hidalgo, 8 and Dewey
Ltd. 9 before the Regional Trial Court of Malabon, Metro
Manila. Private respondents predicated their complaint on
the alleged violations by petitioners of Arts.
20, 10 21 11 and 23 12 of the Civil Code. According to
private respondents, DMC-USA products continued to be
brought into the country by parallel importers despite the
appointment of private respondent MMI as the sole and
exclusive distributor of Del Monte products thereby
causing them great embarrassment and substantial
damage. They alleged that the products brought into the
country by these importers were aged, damaged, fake or
counterfeit, so that in March 1995 they had to cause, after
prior consultation with Antonio Ongpin, Market Director
for Special Markets of Del Monte Philippines, Inc., the
publication of a "warning to the trade" paid advertisement
in leading newspapers. Petitioners DMC-USA and Paul E.
Derby, Jr., apparently upset with the publication, instructed
private respondent MMI to stop coordinating with Antonio
Ongpin and to communicate directly instead with
petitioner DMC-USA through Paul E. Derby, Jr.
Private respondents further averred that petitioners
knowingly and surreptitiously continued to deal with the
former in bad faith by involving disinterested third parties
and by proposing solutions which were entirely out of their
control. Private respondents claimed that they had
exhausted all possible avenues for an amicable resolution
and settlement of their grievances; that as a result of the
fraud, bad faith, malice and wanton attitude of petitioners,
they should be held responsible for all the actual expenses
incurred by private respondents in the delayed shipment of
orders which resulted in the extra handling thereof, the
actual expenses and cost of money for the unused Letters of
Credit (LCs) and the substantial opportunity losses due to
created out-of-stock situations and unauthorized
shipments of Del Monte-USA products to the Philippine
Duty Free Area and Economic Zone; that the bad faith,
fraudulent acts and willful negligence of petitioners,
motivated by their determination to squeeze private
respondents out of the outstanding and ongoing
Distributorship Agreement in favor of another party, had
placed private respondent LILY SY on tenterhooks since
then; and, that the shrewd and subtle manner with which
petitioners concocted imaginary violations by private
respondent MMI of the Distributorship Agreement in order
to justify the untimely termination thereof was a
subterfuge. For the foregoing, private' respondents
claimed, among other reliefs, the payment of actual
damages, exemplary damages, attorney's fees and litigation
expenses.
On 21 October 1996 petitioners filed a Motion to Suspend
Proceedings 13 invoking the arbitration clause in their
Agreement with private respondents.
In a Resolution 14 dated 23 December 1996 the trial court
deferred consideration of petitioners' Motion to Suspend
Proceedings as the grounds alleged therein did not
constitute the suspension of the proceedings considering
that the action was for damages with prayer for the
issuance of Writ of Preliminary Attachmentand not on the
Distributorship Agreement.
On 15 January 1997 petitioners filed a Motion for
Reconsideration to which private respondents filed
theirComment/Opposition. On 31 January 1997 petitioners
filed their Reply. Subsequently, private respondents filed
an Urgent Motion for Leave to Admit Supplemental
Pleading dated 2 April 1997. This Motion was admitted,
over petitioners' opposition, in an Order of the trial court
dated 27 June 1997. DEHaTC
As a result of the admission of the Supplemental Complaint,
petitioners filed on 22 July 1997 a Manifestationadopting
their Motion to Suspend Proceedings of 17 October 1996
and Motion for Reconsideration of 14 January 1997.
On 11 November 1997 the Motion to Suspend
Proceedings was denied by the trial court on the ground
that it "will not serve the ends of justice and to allow said
suspension will only delay the determination of the issues,
frustrate the quest of the parties for a judicious
determination of their respective claims, and/or deprive and
delay their rights to seek redress." 15
On appeal, the Court of Appeals affirmed the decision of the
trial court. It held that the alleged damaging acts recited in
the Complaint, constituting petitioners' causes of action,
required the interpretation of Art. 21 of the Civil
Code 16 and that in determining whether petitioners had
violated it "would require a full blown trial" making
arbitration "out of the question." 17 Petitioners' Motion for
Reconsideration of the affirmation was denied. Hence,
this Petition for Review.
The crux of the controversy boils down to whether the
dispute between the parties warrants an order compelling
them to submit to arbitration.
Petitioners contend that the subject matter of private
respondents' causes of action arises out of or relates to the
Agreement between petitioners and private respondents.
Thus, considering that the arbitration clause of the
Agreement provides that all disputes arising out of or
relating to the Agreement or the parties' relationship,
including the termination thereof, shall be resolved by
arbitration, they insist on the suspension of the
proceedings in Civil Case No. 2637-MN as mandated by Sec.
7 of RA 876 18 —
SECTION 7. Stay of Civil Action. If
any suit or proceeding be brought
upon an issue arising out of an
agreement providing for
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.
Private respondents claim, on the other hand, that their
causes of action are rooted in Arts. 20, 21 and 23 of the
Civil Code, 19 the determination of which demands a full
blown trial, as correctly held by the Court of Appeals.
Moreover, they claim that the issues before the trial court
were not joined so that the Honorable Judge was not given
the opportunity to satisfy himself that the issue involved in
the case was referable to arbitration. They submit that,
apparently, petitioners filed a motion to suspend
proceedings instead of sending a written demand to private
respondents to arbitrate because petitioners were not sure
whether the case could be a subject of arbitration. They
maintain that had petitioners done so and private
respondents failed to answer the demand, petitioners could
have filed with the trial court their demand for arbitration
that would warrant a determination by the judge whether
to refer the case to arbitration. Accordingly, private
respondents assert that arbitration is out of the question.'
Private respondents further contend that the arbitration
clause centers more on venue rather than on arbitration.
They finally allege that petitioners filed their motion for
extension of time to file this petition on the same
date 20 petitioner DMC-USA filed a petition to compel
private respondent MMI to arbitrate before the United
States District Court in Northern California, docketed as
Case No. C-98-4446. They insist that the filing of the
petition to compel arbitration in the United States made the
petition filed before this Court an alternative remedy and,
in a way, an abandonment of the cause they are fighting for
here in the Philippines, thus warranting the dismissal of the
present petition before this Court.
There is no doubt that arbitration is valid and
constitutional in our jurisdiction. 21 Even before the
enactment of RA 876, this Court has countenanced the
settlement of disputes through arbitration. Unless the
agreement is such as absolutely to close the doors of the
courts against the parties, which agreement would be void,
the courts will look with favor upon such amicable
arrangement and will only interfere with great reluctance
to anticipate or nullify the action of the
arbitrator. 22 Moreover, as RA 876 expressly authorizes
arbitration of domestic disputes, foreign arbitration as a
system of settling commercial disputes was likewise
recognized when the Philippines adhered to the United
Nations "Convention on the Recognition and the
Enforcement of Foreign Arbitral Awards of 1958" under the
10 May 1965 Resolution No. 71 of the Philippine Senate,
giving reciprocal recognition and allowing enforcement of
international arbitration agreements between parties of
different nationalities within a contracting state. 23
A careful examination of the instant case shows that the
arbitration clause in the Distributorship Agreement
between petitioner DMC-USA and private respondent MMI
is valid and the dispute between the parties is arbitrable.
However, this Court must deny the petition. cDEICH
The Agreement between petitioner DMC-USA and private
respondent MMI is a contract. The provision to submit to
arbitration any dispute arising therefrom and the
relationship of the parties is part of that contract and is
itself a contract. As a rule, contracts are respected as the
law between the contracting parties and produce effect as
between them, their assigns and heirs. 24 Clearly, only
parties to the Agreement, i.e., petitioners DMC-USA and its
Managing Director for Export Sales Paul E. Derby, Jr., and
private respondents MMI and its Managing Director LILY
SY are bound by the Agreement and its arbitration clause
as they are the only signatories thereto. Petitioners Daniel
Collins and Luis Hidalgo, and private respondent SFI, not
parties to the Agreement and cannot even be considered
assigns or heirs of the parties, are not bound by the
Agreement and the arbitration clause therein.
Consequently, referral to arbitration in the State of
California pursuant to the arbitration clause and the
suspension of the proceedings in Civil Case No. 2637-MN
pending the return of the arbitral award could be called
for 25 but only as to petitioners DMC-USA and Paul E.
Derby, Jr., and private respondents MMI and LILY SY, and
not as to the other parties in this case, in accordance with
the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal
Realty Corporation, 26 which superseded that ofToyota
Motor Philippines Corp. v. Court of Appeals. 27
In Toyota, the Court ruled that "[t]he contention that the
arbitration clause has become dysfunctional because of the
presence of third parties is untenable ratiocinating that
[c]ontracts are respected as the law between the
contracting parties" 28 and that "[a]s such, the parties are
thereby expected to abide with good faith in their
contractual commitments." 29 However, in Salas, Jr., only
parties to the Agreement, their assigns or heirs have the
right to arbitrate or could be compelled to arbitrate. The
Court went further by declaring that in recognizing the
right of the contracting parties to arbitrate or to compel
arbitration, the splitting of the proceedings to arbitration
as to some of the parties on one hand and trial for the
others on the other hand, or the suspension of trial pending
arbitration between some of the parties, should not be
allowed as it would, in effect, result in multiplicity of suits,
duplicitous procedure and unnecessary delay. 30
The object of arbitration is to allow the expeditious
determination of a dispute. 31 Clearly, the issue before us
could not be speedily and efficiently resolved in its entirety
if we allow simultaneous arbitration proceedings and trial,
or suspension of trial pending arbitration. Accordingly, the
interest of justice would only be served if the trial court
hears and adjudicates the case in a single and complete
proceeding. 32
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals affirming the Order of the Regional Trial
Court of Malabon, Metro Manila, in Civil Case No. 2637-MN,
which denied petitioners' Motion to Suspend Proceedings, is
AFFIRMED. The Regional Trial Court concerned is directed
to proceed with the hearing of Civil Case No. 2637-MN with
dispatch. No costs.
SO ORDERED.
||| (Del Monte Corp.-USA v. Court of Appeals, G.R. No. 136154,
[February 7, 2001], 404 PHIL 192-203)
EN BANC
[G.R. No. 103200. August 31, 1994.]
LA NAVAL DRUG
CORPORATION, petitioner, vs. THE
HONORABLE COURT OF APPEALS
and WILSON C. YAO, respondents.
SYLLABUS
1. REMEDIAL LAW; REPUBLIC ACT NO. 876;
ARBITRATORS, HOW GOVERNED; CASE AT BAR. —
Arbitration, in particular, is governed by a special
law, Republic Act 876, suppletory to which are laws and
rules of general application. This case before us concerns
the jurisdiction of courts, in relation to the provisions of
Section 6 of Republic Act No. 876, and, in that respect, the
applicability of the doctrine of estoppel.
2. ID.; CIVIL PROCEDURE; JURISDICTION OVER THE
PERSON; LACK OF; DEFENSE THEREOF, HOW WAIVED. —
The lack of jurisdiction over the person of the defendant
may be waived either expressly or impliedly. When a
defendant voluntarily appears, he is deemed to have
submitted himself to the jurisdiction of the court. If he so
wishes not to waive this defense, he must do so seasonably
by motion for the purpose of objecting to the jurisdiction of
the court; otherwise, he shall be deemed to have submitted
himself to that jurisdiction. The decisions promulgated
heretofore by this Court would likewise seemingly apply
estoppel to bar the defendant from pursuing that defense
by alleging in his answer any other issue for dismissing the
action.
3. ID.; ID.; ID.; ID.; ESTOPPEL; INVOKED ONLY IN HIGHLY
EXCEPTIONAL CASES. — The doctrine of estoppel is
predicated on, and has its origin in, equity which, broadly
defined, is justice according to natural law and right. It is a
principle intended to avoid a clear case of injustice. The
term is hardly distinguishable from a waiver of right.
Estoppel, like its said counterpart, must be unequivocal and
intentional for, when misapplied, it can easily become a
most convenient and effective means of injustice. Estoppel
is not understood to be a principle that, as a rule, should
prevalently apply but, such as it concededly is, as a mere
exception from the standard legal norms of general
application that can be invoked only in highly exceptional
and justifiable cases.
4. ID.; ID.; ID.; ID.; ID.; ASSERTION OF AFFIRMATIVE
DEFENSE ALONG WITH OBJECTION TO COURT'S
JURISDICTION OVER THE PERSON, NOT A CASE OF. — The
submission of other issues in a motion to dismiss, or of an
affirmative defense (as distinguished from an affirmative
relief) in an answer, would necessarily foreclose, and have
the effect of a waiver of, the right of a defendant to set up
the court's lack of jurisdiction over the person of the
defendant. . . . In the same manner that a plaintiff may
assert two or more causes of action in a court suit, a
defendant is likewise expressly allowed, under Section 2,
Rule 8, of the Rules of Court, to put up his own defenses
alternatively or even hypothetically. Indeed, under Section
2, Rule 9, of the Rules of Court, defenses and objections not
pleaded either in a motion to dismiss or in an answer,
except for the failure to state a cause of action, are deemed
waived. We take this to mean that a defendant may, in fact,
feel enjoined to set up, along with his objection to the
court's jurisdiction over his person, all other possible
defenses. It thus appears that it is not the invocation of any
of such defenses, but the failure to so raise them, that can
result in waiver or estoppel. By defenses, of course, we
refer to the grounds provided for in Rule 16 of the Rules of
Court that must be asserted in a motion to dismiss or by
way of affirmative defenses in an answer.
5. ID.; ID.; JURISDICTION OVER THE SUBJECT MATTER,
LACK OF; EFFECTS THEREOF. — Lack of jurisdiction over
the subject matter of the suit is yet another matter.
Whenever it appears that the court has no jurisdiction over
the subject matter, the action shall be dismissed (Section 2,
Rule 9, Rules of Court). This defense may be interposed at
any time, during appeal (Roxas vs. Rafferty, 37 Phil. 957) or
even after final judgment (Cruzcosa vs. Judge Concepcion,
et al., 101 Phil. 146). Such is understandable, as this kind of
jurisdiction is conferred by law and not within the courts,
let alone the parties, to themselves determine or
conveniently set aside.
6. ID.; ID.; JURISDICTION OVER THE NATURE OF THE
ACTION, LACK OF; EFFECTS THEREOF. — Lack of
jurisdiction over the nature of the action is the situation
that arises when a court, which ordinarily would have the
authority and competence to take a case, is rendered
without it either because a special law has limited the
exercise of its normal jurisdiction on a particular matter or
because the type of action has been reposed by law in
certain other courts or quasi-judicial agencies for
determination. Nevertheless, it can hardly be questioned
that the rules relating to the effects of want of jurisdiction
over the subject matter should apply with equal vigor to
cases where the court is similarly bereft of jurisdiction over
the nature of the action.
7. ID.; ID.; ID.; ID.; CASE AT BENCH. — In the case at bench,
the want of jurisdiction by the court is indisputable, given
the nature of the controversy. The arbitration law explicitly
confines the court's authority only to pass upon the issue of
whether there is or there is no agreement in writing
providing for arbitration. In the affirmative, the statute
ordains that the court shall issue an order "summarily
directing the parties to proceed with the arbitration in
accordance with the terms thereof." If the court, upon the
other hand, finds that no such agreement exists, "the
proceeding shall be dismissed." The proceedings are
summary in nature.
8. ID.; ID.; SUMMARY OF RULES RELATING TO EFFECTS OF
WANT OF JURISDICTION BY THE COURT. — In summary, it
is our considered view, as we now so hereby express, that
— (1) Jurisdiction over the person must be seasonably
raised, i.e., that it is pleaded in a motion to dismiss or by
way of an affirmative defense in an answer. Voluntary
appearance shall be deemed a waiver of this defense. The
assertion, however, of affirmative defenses shall not be
construed as an estoppel or as a waiver of such defense. (2)
Where the court itself clearly has no jurisdiction over the
subject matter or the nature of the action, the invocation of
this defense may be done at any time. It is neither for the
courts nor the parties to violate or disregard that rule, let
alone to confer that jurisdiction, this matter being
legislative in character. Barring highly meritorious and
exceptional circumstances, such as hereinbefore
exemplified, neither estoppel nor waiver shall apply.
DECISION
VITUG, J p:
In an effort to declog the courts of an increasing volume of
work load and, most importantly, in order to accord
contending parties with expeditious alternatives for
settling disputes, the law authorizes, indeed discourages,
out of court settlements or adjudications. Compromises
and arbitration are widely known and used as such
acceptable methods of resolving adversarial claims.
Arbitrations, in particular, is governed by a special
law, Republic Act 876, suppletory to which are laws and
rules of general application. This case before us concerns
the jurisdiction of courts, in relation to the provisions of
Section 6 of Republic Act No. 876, and, in that respect, the
applicability of the doctrine of estoppel. The law (R.A. 876),
specifically Section 6 thereof, provides: cdrep
"Sec. 6. Hearing by court. — A party
aggrieved by the failure, neglect or
refusal of another to perform under
an agreement in writing providing
for arbitration may petition the
court for an order directing that
such arbitration proceed in the
manner provided for in such
 agreement. Five days notice in
writing of the hearing of such
application shall be served either
personally or by registered mail
upon the party in default. The court
shall hear the parties, and upon
being satisfied that the making of
the agreement or such failure to
comply therewith is not in issue,
shall make an order directing the
parties to proceed to arbitration in
accordance with the terms of the
agreement. If the making of the
agreement or default be in issue the
court shall proceed to summarily
hear such issue. If the finding be
that no agreement in writing
providing for arbitration was made,
or that there is no default in the
proceeding thereunder, the
proceeding shall be dismissed. If
the finding be that a written
provision for arbitration was made
and there is a default in proceeding
thereunder, an order shall be made
summarily directing the parties to
proceed with the arbitration in
accordance with the terms thereof.
"The court shall decide all motions,
petitions or application filed under
the provisions of this Act, within
ten days after such motions,
petitions, or applications have been
heard by it."
In chronology, the events that have led to the case at bench
are detailed in the appealed decision of respondent
appellate court, which we here reproduce in toto.
"Original action for Certiorari and
Prohibition for Annulment of the
Orders, dated April 26, 1990 and
June 22, 1990, respectively, of
Branch LXI, Regional Trial Court,
Angeles City, in Special Case No.
6024 for Enforcement of
ARBITRATION Agreement with
Damages. Petitioner assails that
portion of subject Order of April 26,
1990, stating as follows:
"'(1) Petitione
r's claim for damages
predicated on alleged
tortuous acts of
respondents La Naval
Drug corporation such as
their alleged interference
and dilatory tactics, etc.
in the implementation of
the Arbitration
Agreement in the
Contract of Lease,
thereby compelling
among others the
petitioner to go to Court
for redress; and
respondent La Naval
Drug Corporation's
counterclaim for
damages may be
entertained by this Court
in a hearing - not
summary - for the
purpose, under the Rules
of Court.
'(2) A
preliminary hearing of
the special and
affirmative defense to
show that Petitioner has
no cause of action
against respondent's
claim for damages is
denied; a resolution on
this issue deferred after
the trial of the case on
the merits.'
And challenges the Order of June
22, 1990 denying its motion for
reconsideration of the said earlier
Order.
"From the petition below of
respondent Yao, it appears that he
is the present owner of a
commercial building a portion of
which is leased to petitioner under
a contract of lease executed on
December 23, 1983 with the former
owner thereof, La Proveedora, Inc.,
which contract expired on April 30,
1989. However, petitioner
exercised its option to lease the
same building for another five
years. But petitioner and
respondent Yao disagreed on the
rental rate, and to resolve the
controversy, the latter, thru written
notices to the former, expressed his
intention to submit their
disagreement to arbitration, in
accordance with Republic Act 876,
otherwise known as the Arbitration
Law, and paragraph 7 of their lease
contract, providing that:
"'7. . . . Should
the parties fail to agree
on the rate of rentals, the
same shall be submitted
to a group of Arbitrators
composed of three (3)
members, one to be
appointed by LESSOR,
another by LESSEE and
the third one to be
agreed upon by the two
arbitrators previously
chosen and the parties
hereto shall submit to
the decision of the
arbitrators.'
"Thus, on May 6, 1989, respondent
Yao appointed Domingo Alamarez,
Jr. as his arbitrator, while on June 5,
1989, petitioner chose Atty.
Casiano Sabile as its arbitrator. The
confirmation of the appointment of
Aurelio Tupang, as third arbitrator,
was held in abeyance because
petitioner instructed Atty. Sabile to
defer the same until its Board of
Directors could convene and
approve Tupang's appointment.
Respondent Yao theorizes that this
was petitioner's design to delay the
arbitration proceedings, in
violation of the Arbitration Law,
and the governing stipulations of
their contract of lease.
"On the basis of the aforesaid
allegations, respondent Yao prayed
that after summary hearing
pursuant to Section 6 of the
Arbitration Law, Atty. Casiano
Sabile and Domingo Alamarez be
directed to proceed with the
arbitration in accordance with
Section 7 of subject Contract of
Lease and the applicable provisions
of the Arbitration Law, by
appointing and confirming the
appointment of the Third
Arbitrator; and that the Board of
Three Arbitrators be ordered to
immediately convene and resolve
the controversy before it, pursuant
to Section 12 and the succeeding
sections of the Arbitration Law.
(Annex 'A,' Petition.).
"In its Answer with Counterclaim
(Annex 'C,' Petition), petitioner
here specifically denied the
averments of the petition below;
theorizing that such petition is
premature since respondent Yao
has not yet formally required
arbitrators Alamarez and Sabile to
agree on the third arbitrator, within
ten (10) days from notice, and that
the delay in the arbitration was due
to respondent Yao's failure to
perform what is incumbent upon
him, of notifying and thereafter,
requiring both arbitrators to
appoint the third member of the
Board of Arbitrators. According to
petitioner, it actually gave
arbitrators Sabile and Alamarez a
free hand in choosing the third
arbitrator; and, therefore,
respondent Yao has no cause of
action against it (petitioner). By
way of Counterclaim, petitioner
alleged that it suffered actual
damages of P100,000.00; and
incurred attorney's fees of
P50,000.00, plus P500.00 for every
court appearance of its counsel.
"On October 20, 1989, respondent
Yao filed an amended petition for
'Enforcement of Arbitration
Agreement with Damages;' praying
that petitioner be ordered to pay
interest on the unpaid rents, at the
prevailing rate of interest in
commercial banks, and exemplary
damages of at least P250,000.00.
"On October 24, 1989, despite
petitioner's opposition to the
motion to admit the amended
petition, the respondent court
admitted the same.
"On October 31, 1989, petitioner
answered the amended petition;
contending, among others, that the
amended petition should be
dismissed on the ground of non-
payment of the requisite filing fees
therefor; and it being in the nature
of an ordinary civil action, a full
blown and regular trial is
necessary; so that respondent Yao's
proposition for a summary hearing
of the arbitration issue and
separate trial for his claim for
damages is procedurally untenable
and implausible.
"Invoking Section 5, Rule 16 of the
Rules of Court, petitioner presented
a 'Motion to Set Case for
Preliminary Hearing' of its special
and affirmative defenses, which are
grounds for a motion to dismiss.
"In its Order of November 14, 1989,
the respondent court announced
that the two arbitrators chose Mrs.
Eloisa R. Narciso as the third
arbitrator. And on November 21,
 1989, it ordered the parties to
submit their position papers on the
issue as to whether or not
respondent Yao's claim for
damages may be litigated upon in
the summary proceeding for
enforcement of arbitration
agreement. It likewise informed the
parties that petitioner's 'Motion to
Set Case for Preliminary Hearing' of
Special and Affirmative Defenses
would be resolved together with
the question of damages.
"On April 26, 1990, the aforequoted
assailed Order issued. In moving for
reconsideration of the said Order,
petitioner argued that in Special
Case No. 6024, the respondent
court sits as a special court
exercising limited jurisdiction and
is not competent to act on
respondent Yao's claim for
damages, which poses an issue
litigable in an ordinary civil action.
But the respondent court was not
persuaded by petitioner's
submission. On June 22, 1990, it
denied the motion for
reconsideration." (Rollo, pp. 89-93).
While the appellate court has agreed with petitioner that,
under Section 6 of Republic Act No. 876, a court, acting
within the limits of its special jurisdiction, may in this case
solely determine the issue of whether the litigants should
proceed or not to arbitration, it, however, considered
petitioner in estoppel from questioning the competence of
the court to additionally hear and decide in the summary
proceedings private respondent's claim for damages, it
(petitioner) having itself filed similarly its own
counterclaim with the courta quo. LLphil
It is hardly disputable that when a court is called upon to
exercise limited and special jurisdiction, that court cannot
stray to matters outside the area of its declared authority
or beyond what has been expressly invested by law
(Elumbaring vs. Elumbaring, 12 Phil. 384, 387), particularly,
such as in this instance, where the proceedings are
summary in nature.
Prefatorily, recalling the distinctions, pertinent to the case,
between the court's lack of jurisdiction over theperson of
the defendant, on the one hand, and its lack of jurisdiction
over the subject matter or the nature of the action, upon the
other hand, should be useful.
The lack of jurisdiction over the person of the defendant
may be waived either expressly or impliedly. When a
defendant voluntarily appears, he is deemed to have
submitted himself to the jurisdiction of the court. If he so
wishes not to waive this defense, he must do so seasonably
by motion for the purpose of objecting to the jurisdiction of
the court; otherwise, he shall be deemed to have submitted
himself to that jurisdiction. The decisions promulgated
heretofore by this Court would likewise seemingly apply
estoppel to bar the defendant from pursuing that defense
by alleging in his answer any other issue for dismissing the
action.
A citation of a few of our decisions might be apropos.
In Wang Laboratories, Inc., vs. Mendoza (156 SCRA 44), this
Court has ruled that if the defendant, besides setting up in a
motion to dismiss his objection to the jurisdiction of the
court, alleges at the same time any other ground for
dismissing the action, he is deemed to have submitted
himself to the jurisdiction of the court. In the process, it has
equated the matter to a situation where, such as
in Immaculata vs. Judge Navarro, et al. (146 SCRA 5), the
defendant invokes an affirmative relief against his
opponent.
In De Midgely vs. Judge Ferandos (64 SCRA 23, 31), the
Court elaborated thusly:
"We are of the opinion that the
lower court has acquired
jurisdiction over the person of Mrs.
Midgely by reason of her voluntary
appearance. The reservation in her
motion to dismiss that she was
making a special appearance to
contest the court's jurisdiction over
her person may be disregarded.
"It may be disregarded because it
was nullified by the fact that in her
motion to dismiss she relied not
only on the ground of lack of
jurisdiction over her person but
also on the ground that there was
no showing that earnest efforts
were exerted to compromise the
case and because she prayed 'for
such other relief as' may be deemed
'appropriate and proper.'
"xxx xxx xxx
"When the appearance is by motion
for the purpose of objecting to the
jurisdiction of the court over the
person, it must be for the sole and
separate purpose of objecting to
the jurisdiction of the court. If his
motion is for any other purpose
than to object to the jurisdiction of
the court over his person, he
thereby submits himself to the
jurisdiction of the court. A special
appearance by motion made for the
purpose of objecting to the
jurisdiction of the court over the
person will be held to be a general
appearance, if the party in said
motion should, for example, ask for
a dismissal of the action upon the
further ground that the court had
no jurisdiction over the subject
matter. (Syllabus, Flores vs.
Zurbito, supra, at page 751. That
rule was followed in Ocampo vs.
Mina and Arejola, 41 Phil. 308)."
The justification for the rule was expressed
in Republic vs. Ker and Company, Ltd. (18 SCRA 207,
213-214), in this wise: llcd
"We observe that the motion to
dismiss filed on April 14, 1962,
aside from disputing the lower
court's jurisdiction over
defendant's person, prayed for
dismissal of the complaint on the
ground that plaintiff's cause of
action has prescribed. By
interposing such second ground in
its motion to dismiss, Ker & Co., Ltd.
availed of an affirmative defense on
the basis of which it prayed the
court to resolve controversy in its
favor. For the court to validly
decide the said plea of defendant
Ker & Co., Ltd., it necessarily had to
acquire jurisdiction upon the
latter's person, who, being the
proponent of the affirmative
defense, should be deemed to have
abandoned its special appearance
and voluntarily submitted itself to
the jurisdiction of the court.
"Voluntary appearance cures
defects of summons, if any. Such
defect, if any, was further cured
when defendant filed its answer to
the complaint. A defendant can not
be permitted to speculate upon the
judgment of the court by objecting
to the court's jurisdiction over its
person if the judgment is adverse to
it, and acceding to jurisdiction over
its person if and when the
judgment sustains its defenses."
The doctrine of estoppel is predicated on, and has its origin
in, equity which, broadly defined, is justice according to
natural law and right. It is a principle intended to avoid a
clear case of injustice. The term is hardly distinguishable
from a waiver of right. Estoppel, like its said counterpart,
must be unequivocal and intentional for, when misapplied,
it can easily become a most convenient and effective means
of injustice. Estoppel is not understood to be a principle
that, as a rule, should prevalently apply but, such as it
concededly is, as a mere exception from the standard legal
norms of general application that can be invoked only in
highly exceptional and justifiable cases.
Tested by the above criteria, the Court sees it propitious to
re-examine specifically the question of whether or not the
submission of other issues in a motion to dismiss, or of an
affirmative defense (as distinguished from an affirmative
relief) in an answer, would necessarily foreclose, and have
the effect of a waiver of, the right of a defendant to set up
the court's lack of jurisdiction over the person of the
defendant. LLpr
Not inevitably.
Section 1, Rule 16, of the Rules of Court, provides that a
motion to dismiss may be made on the following grounds:
"(a) That the court has no
jurisdiction over the person of the
defendant or over the subject of the
action or suit;
"(b) That the court has no
jurisdiction over the nature of the
action or suit;
"(c) The venue is improperly laid;
"(d) That the plaintiff has no legal
capacity to sue;
"(e) That there is another action
pending between the same parties
for the same cause;
"(f) That the cause of action is
barred by a prior judgment or by
statute of limitations;
"(g) That the complaint states no
cause of action;
"(h) That the claim or demand set
forth in the plaintiff's pleading has
been paid, waived, abandoned, or
otherwise extinguished;
"(i) That the claim on which the
action or suit is founded is
unenforceable under the provisions
of the statute of frauds;
"(j) That the suit is between
members of the same family and no
earnest efforts towards a
compromise have been made."
Any ground for dismissal in a motion to dismiss,
except improper venue, may, as further set forth
inSection 5 of the same rule, be pleaded as an
affirmative defense and a preliminary hearing may be
had thereon as if a motion to dismiss had been filed.
An answer itself contains the negative, as well as
affirmative, defenses upon which the defendant may
rely (Section 4, Rule 6, Rules of Court). A negative
defense denies the material facts averred in the
complaint essential to establish the plaintiff's cause of
action, while an affirmative defense is an allegation of
a new matter which, while admitting the material
allegations of the complaint, would, nevertheless,
prevent or bar recovery by the plaintiff. Inclusive of
these defenses are those mentioned in Rule 16 of the
Rules of Court which would permit the filing of a
motion to dismiss. LLphil
In the same manner that a plaintiff may assert two or more
causes of action in a court suit, a defendant is likewise
expressly allowed, under Section 2, Rule 8, of the Rules of
Court, to put up his own defenses alternatively or even
hypothetically. Indeed, under Section 2, Rule 9, of the Rules
of Court, defenses and objections not pleaded either in a
motion to dismiss or in an answer, except for the failure to
state a cause of action, are deemed waived. We take this to
mean that a defendant may, in fact, feel enjoined to set up,
along with his objection to the court's jurisdiction over his
person, all other possible defenses. It thus appears that it is
not the invocation of any of such defenses, but the failure to
so raise them, that can result in waiver or estoppel. By
defenses, of course, we refer to the grounds provided for in
Rule 16 of the Rules of Court that must be asserted in a
motion to dismiss or by way of affirmative defenses in an
answer.
Mindful of the foregoing, in Signetics Corporation vs. Court
of Appeals and Freuhauf Electronics Phil., Inc.(225 SCRA
737, 738), we lately ruled:
"This is not to say, however, that
the petitioner's right to question
the jurisdiction of the court over its
person is now to be deemed a
foreclosed matter. If it is true, as
Signetics claims, that its only
involvement in the Philippines was
through a passive investment in
Sigfil, which it even later disposed
of, and that TEAM Pacific is not its
agent, then it cannot really be said
to be doing business in the
Philippines. It is a defense,
however, that requires the
contravention of the allegations of
the complaint, as well as a full
ventilation, in effect, of the main
merits of the case, which should not
thus be within the province of a
mere motion to dismiss. So, also,
the issue posed by the petitioner as
to whether a foreign corporation
which has done business in the
country, but which has ceased to do
business at the time of the filing of
a complaint, can still be made to
answer for a cause of action which
accrued while it was doing
business, is another matter that
would yet have to await the
reception and admission of
evidence. Since these points have
seasonably been raised by the
petitioner, there should be no real
cause for what may understandably
be its apprehension, i.e., that by its
participation during the trial on the
merits, it may, absent an invocation
of separate or independent reliefs
of its own, be considered to have
voluntarily submitted itself to the
court's jurisdiction."
Lack of jurisdiction over the subject matter of the suit is yet
another matter. Whenever it appears that the court has no
jurisdiction over the subject matter, the action shall be
dismissed (Section 2, Rule 9, Rules of Court). This defense
may be interposed at any time, during appeal (Roxas vs.
Rafferty, 37 Phil. 957) or even after final judgment
(Cruzcosa vs. Judge Concepcion, et al., 101 Phil. 146). Such is
understandable, as this kind of jurisdiction is conferred by
law and not within the courts, let alone the parties, to
themselves determine or conveniently set aside. In People
vs. Casiano (111 Phil. 73, 93-94), this Court, on the issue of
estoppel, held: LibLex
"The operation of the principle of
estoppel on the question of
jurisdiction seemingly depends
upon whether the lower court
actually had jurisdiction or not. If it
had no jurisdiction, but the case
was tried and decided upon the
theory that it had jurisdiction, the
parties are not barred, on appeal,
from assailing such jurisdiction, for
the same 'must exist as a matter of
law, and may not be conferred by
consent of the parties or by
estoppel' (5 C.J.S., 861-863).
However, if the lower court had
jurisdiction, and the case was heard
and decided upon a given theory,
such, for instance, as that the court
had no jurisdiction, the party who
induced it to adopt such theory will
not be permitted, on appeal, to
assume an inconsistent position —
that the lower court had
jurisdiction. Here, the principle of
estoppel applies. The rule that
jurisdiction is conferred by law, and
does not depend upon the will of
the parties, has no bearing
thereon."
The rule was reiterated in Calimlim vs. Ramirez (118 SCRA
399, 406), and quite recently, in Southeast Asian Fisheries
Development Center-Aquaculture Department vs. National
Labor Relations Commission (206 SCRA 283).
Jurisdiction over the nature of the action, in concept, differs
from jurisdiction over the subject matter. Illustrated, lack
of jurisdiction over the nature of the action is the situation
that arises when a court, which ordinarily would have the
authority and competence to take a case, is rendered
without it either because a special law has limited the
exercise of its normal jurisdiction on a particular matter or
because the type of action has been reposed by law in
certain other courts or quasi-judicial agencies for
determination. Nevertheless, it can hardly be questioned
that the rules relating to the effects of want of jurisdiction
over the subject matter should apply with equal vigor to
cases where the court is similarly bereft of jurisdiction over
the nature of the action. LibLex
In summary, it is our considered view, as we now so hereby
express, that —
(1) Jurisdiction over the person must be seasonably raised,
i.e., that it is pleaded in a motion to dismiss or by way of an
affirmative defense in an answer. Voluntary appearance
shall be deemed a waiver of this defense. The assertion,
however, of affirmative defenses shall not be construed as
an estoppel or as a waiver of such defense.
(2) Where the court itself clearly has no jurisdiction over
the subject matter or the nature of the action, the
invocation of this defense may be done at any time. It is
neither for the courts nor the parties to violate or disregard
that rule, let alone to confer that jurisdiction, this matter
being legislative in character. Barring highly meritorious
and exceptional circumstances, such as hereinbefore
exemplified, neither estoppel nor waiver shall apply.
In the case at bench, the want of jurisdiction by the court is
indisputable, given the nature of the controversy.The
arbitration law explicitly confines the court's authority only
to pass upon the issue of whether there is or there is no
agreement in writing providing for arbitration. In the
affirmative, the statute ordains that the court shall issue an
order "summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof." If the
court, upon the other hand, finds that no such agreement
exists, "the proceeding shall be dismissed." The
proceedings are summary in nature.
All considered, the court a quo must then refrain from
taking up the claims of the contending parties for damages,
which, upon the other hand, may be ventilated in separate
regular proceedings at an opportune time and venue. The
circumstances obtaining in this case are far, we hold, from
justifying the application of estoppel against either
party. cdll
WHEREFORE, the decision of the Court of Appeals and the
orders of the trial court in question are SET ASIDE. The
court a quo, in the instant proceedings, is ordered to
DESIST from further hearing private respondent's claim, as
well as petitioner's counterclaim, for damages. No costs.
SO ORDERED.
Narvasa, C.J., Cruz, Padilla, Bidin, Regalado, Davide, Jr.,
Romero, Bellosillo, Melo, Quiason, Puno,
Kapunan andMendoza, JJ., concur.
Separate Opinions
FELICIANO, J .,
I concur except that in respect of penultimate paragraph in
p. 17, I reserve my vote as to compulsory counterclaims for
damages.
||| (La Naval Drug Corp. v. Court of Appeals, G.R. No. 103200,
[August 31, 1994])
FIRST DIVISION
[G.R. No. 141818. June 22, 2006.]
INSULAR SAVINGS
BANK, petitioner, vs. FAR EAST
BANK AND TRUST
COMPANY, respondent.
DECISION
YNARES-SANTIAGO, J p:
This petition for review on certiorari 1 assails the
November 9, 1999 Order 2 of the Regional Trial Court of
Makati City, Branch 135, in Civil Case No. 92-145 which
dismissed the petition for review for lack of jurisdiction
and its February 1, 2000 Order 3 denying reconsideration
thereof.
The antecedent facts are as follows:
On December 11, 1991, Far East Bank and Trust Company
(Respondent) filed a complaint against Home Bankers
Trust and Company (HBTC) 4 with the Philippine Clearing
House Corporation's (PCHC) Arbitration Committee
docketed as Arbicom Case No. 91-069. 5 Respondent
sought to recover from the petitioner, the sum of
P25,200,000.00 representing the total amount of the three
checks drawn and debited against its clearing account.
HBTC sent these checks to respondent for clearing by
operation of the PCHC clearing system. Thereafter,
respondent dishonored the checks for insufficiency of
funds and returned the checks to HBTC. However, the latter
refused to accept them since the checks were returned by
respondent after the reglementary regional clearing
period. 6
Meanwhile, on January 17, 1992, before the termination of
the arbitration proceedings, respondent filed another
complaint but this time with the Regional Trial Court (RTC)
in Makati City docketed as Civil Case No. 92-145 for Sum of
Money and Damages with Preliminary Attachment. The
complaint was filed not only against HBTC but also against
Robert Young, Eugene Arriesgado and Victor Tancuan
(collectively known as Defendants), who were the
president and depositors of HBTC respectively. 7 Aware of
the arbitration proceedings between respondent and
petitioner, the RTC, in an Omnibus Order dated April 30,
1992, 8suspended the proceedings in the case against all
the defendants pending the decision of the Arbitration
Committee, to wit:
WHEREFORE, the Court hereby
orders:
(a) Home Bankers & Trust Co. to
produce and permit plaintiff to
inspect, copy and/or photograph
the checking account deposit ledger
of Victor Tancuan's Account No.
1803-00605-3;
(b) The Motions to Dismiss filed by
all defendants denied, for lack of
merit; and ITaCEc
(c) Proceedings in this case
against all defendants be
suspended pending
award/decision in the
arbitration proceedings against
Home Bankers and Trust Co.
SO ORDERED. 9 (Emphasis
supplied)
The above Omnibus Order was amended by the trial court
in its October 1, 1992 Order, 10 the dispositive portion of
which reads as follows:
 WHEREFORE, the Omnibus Order
dated 30 April 1992 is hereby
reconsidered by deleting the
phrase "since the complaint also
seeks exemplary damages,
attorney's fees, litigation expenses
and costs of suit against HBT," on
page 4 thereof and par. C of its
dispositive portion is amended to
read:
(c) "Procedings against Home
Bankers and Trust Co. are
suspended pending award/decision
in the arbitration proceedings
while those against individual
defendants be immediately
reinstated and continued."
HBT and Tancuan's separate
Motions for Reconsiderations are
hereby denied, for lack of merit.
SO ORDERED. 11
On February 2, 1998, the PCHC Arbitration Committee
rendered its decision in favor of respondent, 12 thus:
IN VIEW OF ALL THE FOREGOING,
judgment is hereby rendered in
favor of the plaintiff and against the
defendant sentencing the latter to
pay the plaintiff the sum of P25.2
million as principal. In view of the
fact, however, that this amount was
split between the plaintiff and the
defendant in the course of the
proceedings, the amount to be paid
by the defendant to the plaintiff
should only be P12,600,000.00 plus
interest on this latter amount at the
rate of 12% per annum from
February 11, 1992, the date when
the total amount of P25.2 Million
was split between plaintiff and
defendant up to the date of
payment.
In view of the facts found by the
committee, no attorney's fees nor
other damages are
awarded. cAaTED
SO ORDERED. 13
The motion for reconsideration filed by petitioner was
denied by the Arbitration Committee. 14Consequently, to
appeal the decision of the Arbitration Committee in
Arbicom Case No. 91-069, petitioner filed a petition for
review in the earlier case filed by respondent in Branch
135 of the RTC of Makati and docketed as Civil Case No.
92-145. 15 In an order dated January 20, 1999, the RTC
directed both petitioner and respondent to file their
respective memoranda, after which, said petition would be
deemed submitted for resolution. 16
Both parties filed several pleadings. On February 8, 1999,
respondent filed a Motion to Dismiss Petition for Review
for Lack of Jurisdiction, 17 which was opposed by the arbitration agreement embedded in their contract wherein
petitioner. 18 Respondent then filed its Reply to the they consent that any future dispute or controversy
opposition, 19 to which petitioner filed a Rejoinder. 20 On between its PCHC participants involving any check would
August 16, 1999, respondent submitted its Surrejoinder. 21 be submitted to the Arbitration Committee for arbitration.
On November 9, 1999, the RTC rendered the assailed Order Petitioner and respondent are members of PCHC, thus they
which held, thus: underwent arbitration proceedings.
Acting on plaintiff Far East Bank The PCHC has its own Rules of Procedure for Arbitration
and Trust Company's "Motion To (PCHC Rules). However, this is governed by Republic Act
Dismiss Petition For Review For No. 876, also known as The Arbitration Law 26 and
Lack Of Jurisdiction", considering supplemented by the Rules of Court. 27 Thus, we first
that the petition for review is a thresh out the remedy of petition for review availed of by
separate and distinct case, the same the petitioner to appeal the order of the Arbitration
must comply with all the Committee.
requirements for filing initiatory Sections 23, 24 and 29 of The Arbitration Law, and Section
pleadings for civil actions before 13 of the PCHC Rules, provide:
this Court so that since the SEC. 23. Confirmation of award. —
commencement of the subject At any time within one month after
petition lacks the mandatory the award is made, any party to the
requirements provided for, except controversy which was
the payment of docket fees, for lack arbitrated may apply to the court
of jurisdiction, the petition for having jurisdiction, as provided in
review is hereby dismissed. Section 28, for an order
SO ORDERED. 22 confirming the award; and
The RTC denied petitioner's motion for thereupon the court must grant
reconsideration, 23 hence, this petition on the sole ground, such order unless the award is
to wit: vacated, modified or corrected,
THE REGIONAL TRIAL COURT as prescribed herein. Notice of
ERRED IN DISMISSING THE such motion must be served upon
PETITION OF PETITIONER FOR the adverse party or his attorney as
LACK OF JURISDICTION ON THE prescribed by law for the service of
GROUND THAT IT SHOULD HAVE such notice upon an attorney in
BEEN DOCKETED AS A SEPARATE action in the same court.
CASE. 24 SEC. 24. Grounds for vacating
Petitioner contends that Civil Case No. 92-145 was merely award. — In any one of the
suspended to await the outcome of the arbitration case following cases, the court must
pending before the PCHC. Thus, any petition questioning make an order vacating the award
the decision of the Arbitration Committee must be filed in upon the petition of any party to
Civil Case No. 92-145 and should not be docketed as a the controversy when such party
separate action. Likewise, petitioner avers that had it filed a proves affirmatively that in the
separate action, "this would have resulted in a multiplicity arbitration proceedings:
of suits, which is abhorred in procedure." HSDIaC (a) The award was procured by
Meanwhile respondent avers that the RTC correctly corruption, fraud or other undue
dismissed the appeal from the award of private arbitrators means; or
since there is no statutory basis for such appeal. (b) That there was evident
Respondent argues that petitioner's claim that the parties partiality or corruption in the
by agreement had conferred on the RTC appellate arbitrators or any of them; or
jurisdiction over decisions of private arbitrators is (c) That the arbitrators were guilty
erroneous because they cannot confer a non-existent of misconduct in refusing to
jurisdiction on the RTC or any court. Furthermore, the postpone the hearing upon
petition for review filed by petitioner violated the rule on sufficient cause shown, or in
commencing an original action under Section 5, Rule 1, and refusing to hear evidence pertinent
the raffle of cases under Section 2, Rule 20 of the Rules of and material to the controversy;
Court, when it filed the same in Branch 135 of the RTC of that one or more of the arbitrators
Makati where there was already a pending original was disqualified to act as such
action, i.e., Civil Case No. 92-145. under section nine hereof, and
The petition lacks merit. willfully refrained from disclosing
The Philippine Clearing House Corporation was created to such disqualification or of any
facilitate the clearing of checks of member banks. Among other misbehavior by which the
these member banks exists a compromissoire, 25 or an
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. IEAaST
xxx xxx xxx
SEC. 25. Grounds for modifying or
correcting award. — In any one of
the following cases, the court must
make an order modifying or
correcting the award, upon the
application of any party to the
controversy which was arbitrated:
(a) Where there was an evident
miscalculation of figures, or an
evident mistake in the description
of any person, thing or property
referred to in the award; or
(b) Where the arbitrators have
awarded upon a matter not
submitted to them, not affecting the
merits of the decision upon the
matter submitted; or
(c) Where the award is imperfect in
a matter of form not affecting the
merits of the controversy, and if it
had been a commissioner's report,
the defect could have been
amended or disregarded by the
court.
The order may modify and correct
the award so as to effect the intent
thereof and promote justice
between the parties.
SEC. 29. Appeals. — An appeal
may be taken from an order made
in a proceeding under this Act, or
from judgment entered upon an
award
through certiorari proceedings, but
such appeals shall belimited to
questions of law. The proceedings
upon such an appeal, including the
judgment thereon shall be
governed by the Rules of Court
insofar as they are applicable.
AMENDED ARBITRATION RULES
OF PROCEDURE OF PCHC
Sec. 13. — The findings of facts of
the decision or award rendered
by the Arbitration Committee or
by the sole Arbitrator as the case
may be shall be final and
conclusive upon all the parties in
said arbitration dispute. The
 decision or award of the
Arbitration Committee or of the
Sole Arbitrator or of the Board of
Directors, as the case may be, shall
be appealable only on questions
of law to any of the Regional
Trial Courts in the National
Capital Region where the Head
Office of any of the parties is
located. The appellant shall perfect
his appeal by filing a notice of
appeal to the Arbitration
Secretariat and filing a Petition
with the Regional Trial Court of the
National Capital Region for the
review of the decision or award of
the committee or sole arbitrator or
of the Board of Directors, as the
case may be, within a non-
extendible period of fifteen (15)
days from and after its receipt of
the order denying or granting said
motion for reconsideration or new
trial had been filed, within a non-
extendible period of fifteen (15)
days from and after its receipt of
the order denying or granting said
motion for reconsideration or of
the decision rendered after the new
trial if one had been
granted. DEScaT
xxx xxx xxx (Emphasis supplied)
As provided in the PCHC Rules, the findings of facts of the
decision or award rendered by the Arbitration Committee
shall be final and conclusive upon all the parties in said
arbitration dispute. 28 Under Article 204429 of the New
Civil Code, the validity of any stipulation on the finality of
the arbitrators' award or decision is recognized. However,
where the conditions described in Articles
2038, 30 2039 31 and 2040 32 applicable to both
compromises and arbitrations are obtaining, the
arbitrators' award may be annulled or
rescinded. 33Consequently, the decision of the Arbitration
Committee is subject to judicial review.
Furthermore, petitioner had several judicial remedies
available at its disposal after the Arbitration Committee
denied its Motion for Reconsideration. It may petition the
proper RTC to issue an order vacating the award on the
grounds provided for under Section 24 of the Arbitration
Law. 34 Petitioner likewise has the option to file a petition
for review under Rule 43 of the Rules of Court with the
Court of Appeals on questions of fact, of law, or mixed
questions of fact and law. 35 Lastly, petitioner may file a
petition for certiorari under Rule 65 of the Rules of Court
on the ground that the Arbitrator Committee acted without
or in excess of its jurisdiction or with grave abuse of
discretion amounting to lack or excess of jurisdiction. Since
this case involves acts or omissions of a quasi-judicial
agency, the petition should be filed in and cognizable only
by the Court of Appeals. 36
In this instance, petitioner did not avail of any of the
abovementioned remedies available to it. Instead it filed a
petition for review with the RTC where Civil Case No. 92-
145 is pending pursuant to Section 13 of the PCHC Rules to
sustain its action. Clearly, it erred in the procedure it chose
for judicial review of the arbitral award.
Having established that petitioner failed to avail of the
abovementioned remedies, we now discuss the issue of the
jurisdiction of the trial court with respect to the petition for
review filed by petitioner.
Jurisdiction is the authority to hear and determine a cause
— the right to act in a case. 37 Jurisdiction over the subject
matter is the power to hear and determine the general class
to which the proceedings in question belong. Jurisdiction
over the subject matter is conferred by law and not by the
consent or acquiescence of any or all of the parties or by
erroneous belief of the court that it exists. 38
In the instant case, petitioner and respondent have agreed
that the PCHC Rules would govern in case of controversy.
However, since the PCHC Rules came about only as a result
of an agreement between and among member banks of
PCHC and not by law, it cannot confer jurisdiction to the
RTC. Thus, the portion of the PCHC Rules granting
jurisdiction to the RTC to review arbitral awards, only on
questions of law, cannot be given effect. HTDcCE
Consequently, the proper recourse of petitioner from the
denial of its motion for reconsideration by the Arbitration
Committee is to file either a motion to vacate the arbitral
award with the RTC, a petition for review with the Court of
Appeals under Rule 43 of the Rules of Court, or a petition
for certiorari under Rule 65 of the Rules of Court. In the
case at bar, petitioner filed a petition for review with the
RTC when the same should have been filed with the Court
of Appeals under Rule 43 of the Rules of Court. Thus, the
RTC of Makati did not err in dismissing the petition for
review for lack of jurisdiction but not on the ground that
petitioner should have filed a separate case from Civil Case
No. 92-145 but on the necessity of filing the correct petition
in the proper court. It is immaterial whether petitioner
filed the petition for review in Civil Case No. 92-145 as an
appeal of the arbitral award or whether it filed a separate
case in the RTC, considering that the RTC will only have
jurisdiction over an arbitral award in cases of motions to
vacate the same. Otherwise, as elucidated herein, the Court
of Appeals retains jurisdiction in petitions for review or in
petitions for certiorari. Consequently, petitioner's
arguments, with respect to the filing of separate action
from Civil Case No. 92-145 resulting in a multiplicity of
suits, cannot be given due course.
Alternative dispute resolution methods or ADRs — like
arbitration, mediation, negotiation and conciliation — are
encouraged by the Supreme Court. By enabling parties to
resolve their disputes amicably, they provide solutions that
are less time-consuming, less tedious, less confrontational,
and more productive of goodwill and lasting
relationships. 39 It must be borne in mind that arbitration
proceedings are mainly governed bythe Arbitration
Law and suppletorily by the Rules of Court.
WHEREFORE, in light of the foregoing, the petition is
DENIED. The November 9, 1999 Order of the Regional Trial
Court of Makati City, Branch 135, in Civil Case No. 92-145
which dismissed the petition for review for lack of
jurisdiction and the February 1, 2000 Order denying its
reconsideration, are AFFIRMED.
SO ORDERED.
||| (Insular Savings Bank v. Far East Bank & Trust Co., G.R.
No. 141818, [June 22, 2006], 525 PHIL 238-251)
FIRST DIVISION
[G.R. No. 168384. August 7, 2006.]
CHARLES BERNARD
H. REYES doing business under
the name and style
CBH REYESARCHITECTS, petitione
r, vs. ANTONIO YULO BALDE II,
PAULINO M. NOTO and ERNESTO J.
BATTAD, SR., in their capacities as
Arbitrators of the CONSTRUCTION
INDUSTRY ARBITRATION
COMMISSION, SPOUSES CESAR
and CARMELITA ESQUIG and
ROSEMARIE PAPAS, respondents.
DECISION
YNARES-SANTIAGO, J p:
This Petition for Review on Certiorari under Rule 45 of the
Rules of Court assails the Decision 1 of the Court of Appeals
dated February 18, 2005, which sustained the
Order 2 dated April 23, 2004 of the Arbitral Tribunal3 of
the Construction Industry Arbitration Commission (CIAC),
denying petitioner's Motion to Terminate Proceedings and
its Resolution 4 dated May 20, 2005 denying petitioner's
motion for reconsideration.
The facts of the case are as follows:
On October 20, 2002, respondent-spouses Cesar and
Carmelita Esquig entered into a Design-Build Construction
Agreement 5 with petitioner Charles Bernard H. Reyes,
doing business under the name and style of
CBH Reyes Architects, for the architectural design and
construction of a 2-storey residence in Tahanan Village,
Paranaque City.
In accordance with the contract, spouses Esquig paid the
amount of P1,050,000 as down payment. 6Thereafter,
construction commenced.
The relationship between petitioner and respondent
spouses went on smoothly until sometime in January 2003
when the latter left for the United States and designated
their co-respondent, Rosemarie Papas, as their
representative. According to petitioner, Papas meddled
with the construction works by demanding changes and
additional works which entailed additional cost. Papas also
refused to pay petitioner's progress billing and the salary of
the laborers. Petitioner thereafter prepared an accounting
report of all the additional works and their corresponding
costs, however, Papas denied all the items in the list and
refused to pay the same. Worse, on May 8, 2003, Papas
wrote the Board of Directors of Tahanan Village
Homeowner's Association requesting for the cancellation of
the contractor's work permit. EHITaS
Thus, on May 26, 2003, petitioner filed a complaint for
Accounting, Collection of Sum of Money, Rescission of
Contract with Damages against spouses Esquig and
Rosemarie Papas with the Regional Trial Court of
Muntinlupa City which was docketed as Civil Case No. 03-
110. In the complaint, petitioner prayed that an accounting
be rendered to determine the cost of the materials
purchased by Papas; that respondents be ordered to pay
the cost of the additional works done on the property; that
the Design-Build Construction Agreement be ordered
rescinded because respondents breached the same; and
that respondents be ordered to pay moral and exemplary
damages and litigation expenses.
On July 15, 2003, respondents filed a motion to dismiss
Civil Case No. 03-110 on the ground that the court has no
jurisdiction over the subject matter of the case. They
claimed that the Design-Build Construction Agreement
contained an arbitration clause, thus any dispute arising
therefrom should be brought before the CIAC.
On even date, respondents also filed a complaint before the
CIAC against the petitioner, docketed as CIAC Case No. 13-
2003. Respondents alleged that petitioner unreasonably
delayed the construction and refused to finish the project.
Thus, they prayed that petitioner be ordered to finish the
project or, in the alternative, to pay the cost to finish the
same; to reimburse the overpayments made by
respondents; and to pay liquidated damages, attorney's
fees and costs of the suit.
Instead of submitting an answer, petitioner filed with the
CIAC a motion to dismiss 7 on grounds of lack of
jurisdiction to hear and decide the case as well as the
pendency of the case before the trial court involving the
same subject matter.
In an Order dated October 17, 2003, CIAC denied
petitioner's motion to dismiss, holding that since the
Design-Build Construction Agreement contained an
arbitration clause, any dispute arising from said contract is
within CIAC's jurisdiction.
Petitioner filed a motion for reconsideration which was
denied by CIAC in its Order dated November 27, 2003.
Thus, petitioner filed his Answer Ad Cautelam. Thereafter,
CIAC constituted the Arbitral Tribunal and directed the
same to carry on with the arbitration proceedings in
accordance with CIAC Rules. CDEaAI
Meanwhile, on February 27, 2004, the Regional Trial Court
of Muntinlupa City, Branch 203 issued an Order 8denying
the motion to dismiss filed by respondents. The trial court
held that it has jurisdiction over the complaint for
accounting, rescission of contract and damages. Petitioner
then filed with the CIAC a motion to terminate proceedings
but the same was denied 9 in an Order dated April 23,
2004.
Thus, petitioner filed a petition for certiorari and
prohibition before the Court of Appeals which was
docketed as CA-G.R. SP No. 83816. On February 18, 2005,
the Court of Appeals rendered the assailed Decision
dismissing the petition for lack of merit. It held that CIAC Philippines, whether the dispute We agree with the findings of the Court of Appeals that the 2005 17 in Civil Case No. 03-110 in favor of herein
properly acquired jurisdiction over the subject property. arises before or after the Design-Build Construction Agreement mutually entered petitioner, the dispositive portion of which reads:
Petitioner's motion for reconsideration was denied hence completion of the contract, or after into by the parties contain an arbitration clause, to wit: WHEREFORE, judgment is
this petition raising the following issues: the abandonment or breach ARTICLE 10. ARBITRATION. rendered declaring a rescission of
I thereof. These disputes may All questions in dispute under the the Design Build Construction
THE COURT OF APPEALS ERRED involve government or private Agreement shall be submitted in Agreement dated 20 October 2002;
WHEN IT RULED THAT contracts. For the Board to acquire accordance with the provisions of ordering defendants to render an
PETITIONER AGREED TO HAVE jurisdiction, the parties to a dispute Philippine Law on Arbitration and accounting of all the construction
THE CASE SUBMITTED FOR must agree to submit the same to provided for in Article 2042 of the materials they bought for the
VOLUNTARY ARBITRATION. voluntary arbitration. New Civil Code of the Philippines construction of the project subject
II The jurisdiction of the CIAC may and the provisions of Republic Act matter of the present case; further
EVEN ASSUMING ARGUENDO include but is not limited to No. 876. ordering defendants, jointly and
THAT PETITIONER AGREED TO violation of specifications for Clearly, the presence of the arbitration clause in the parties' severally, to pay plaintiff as follows:
HAVE THE PRESENT CASE materials and workmanship; contract vests jurisdiction on the CIAC on all controversies a. P840,300.00
SUBMITTED FOR ARBITRATION, violation of the terms of agreement; arising from such contract. The arbitral clause in the representing
THE COURT OF APPEALS ERRED IN interpretation and/or application agreement is a commitment by the parties to submit to cost of
HOLDING THAT THE CIAC MAY of contractual provisions; amount arbitration the disputes covered therein. Because that additional
TAKE COGNIZANCE OF THE of damages and penalties; clause is binding, they are expected to abide by it in good works and
PRESENT CASE CONSIDERING commencement time and delays; faith. 14 Where the jurisdiction of CIAC is properly changes in the
THAT THE PRESENT CASE maintenance and defects; payment invoked, the failure or refusal of herein petitioner to project plus
INVOLVED ISSUES WHICH ARE default of employer or contractor arbitrate shall not affect the proceedings. Arbitration legal interest
OUTSIDE ITS JURISDICTION. and changes in contract cost. proceedings shall continue notwithstanding the absence or until fully
III Excluded from the coverage of this lack of participation of petitioner, and the award shall be paid;
THE COURT OF APPEALS ERRED IN law are disputes arising from made after receiving the evidence of the claimant. 15 b. P296,658.85
NOT HOLDING THAT ANY employer-employee relationships representing
PROCEEDING IN THE CIAC MUST which shall continue to be covered With respect to petitioner's contention that the action is balance of the
BE TERMINATED SINCE THE RTC by the Labor Code of the purely civil in nature hence, jurisdiction rests with the contract price
ALREADY ASSUMED JURISDICTION Philippines. Regional Trial Court, the same must fail. Since the action is plus legal
OVER THE SUBJECT In the case of Philrock, Inc. v. Construction Industry rooted on alleged violations of the agreement, it is interest until
CONTROVERSY AND HAD NOT Arbitration Commission, 13 the Court has ruled that CIAC embraced by the term "construction dispute". As CIAC aptly fully paid;
RELINQUISHED THE SAME TO has original and exclusive jurisdiction over disputes arising ruled: DIEAHc c. P500,000.00 as and by
CIAC. 10 from or connected with construction contracts entered into As regards Respondent's assertion way of moral
The primordial issue in the instant case is, which body has by parties that have agreed to submit their dispute to that the claims in the civil case are damages;
jurisdiction over the present controversy — the Regional voluntary arbitration. not arbitrable, this Commission d. P500,000.00 as and by
Trial Court or the CIAC? Section 1, Article III of the CIAC Rules of Procedure again begs to digress. A cursory way of
Petitioner contends that the CIAC has no jurisdiction to Governing Construction Arbitration likewise provides that perusal of the claims in civil case exemplary
entertain the case because it is purely civil in nature and recourse to the CIAC may be availed of whenever a contract would show that such fall within damages;
does not involve construction dispute nor require the contains a clause for the submission of a future controversy the scope of CIAC jurisdiction, to e. P500,000.00 as and by
resolution of highly technical issues. Moreover, petitioner to arbitration, thus: wit: (1) accounting of all payments way of
alleges that the trial court acquired jurisdiction prior to the SECTION 1. Submission to CIAC made for the purchase of attorney's
CIAC since petitioner's complaint was filed earlier thus, Jurisdiction. — An arbitration construction materials; (2) cost of fees;
rendering the arbitration clause moot, unenforceable and clause in a construction contract additional work; (3) balance on the f. Cost of suit.
revocable. IADaSE or a submission to arbitration of contract price; (4) interest; (5) SO ORDERED. 18
The petition lacks merit. a construction dispute shall be rescission of contract; (6) moral On June 29, 2006, the presiding judge ordered the
Executive Order (EO) No. 1008 entitled, "Construction deemed an agreement to submit damages; (7) exemplary damages; designated sheriff to implement the writ of execution dated
Industry Arbitration Law" 11 provided for an arbitration an existing or future controversy and (8) cost of suit. 16 May 17, 2006. Consequently, Sheriff Melvin T. Bagabaldo
mechanism for the speedy resolution of construction to CIAC jurisdiction, Besides, Section 23 of E.O. No. 1008 expressly provides that levied on the personal properties of respondent Papas.
disputes other than by court litigation. It recognized the notwithstanding the reference to a all provisions of existing laws, proclamations, decrees, Hence, respondents' manifestation with prayer for the
role of the construction industry in the country's economic different arbitration institution or letters of instructions and executive orders contrary to or issuance of a temporary restraining order (TRO). ISHCcT
progress as it utilizes a large segment of the labor force and arbitral body in such contract or inconsistent with E.O. No. 1008 are repealed or modified In the Resolution dated July 12, 2006, we issued a TRO
contributes substantially to the gross national product of submission. When a contract accordingly. E.O. No. 1008 which vests jurisdiction to the enjoining the Presiding Judge of Regional Trial Court of
the country. 12 contains a clause for the CIAC over construction disputes is a special law; hence, it Muntinlupa City, Branch 203, from continuing with any of
Section 4 of E.O. No. 1008 provides: submission of a future controversy takes precedence over Batas Pambansa Blg. 129 or the proceedings in Civil Case No. 03-110 and from
SECTION 4. Jurisdiction. — The to arbitration, it is not necessary for the Judiciary Reorganization Act of 1980, a general law enforcing the Order dated June 29, 2006 ordering the
CIAC shall have original and the parties to enter into a which vests jurisdiction to the Regional Trial Courts over sheriff to implement the writ.
exclusive jurisdiction over disputes submission agreement before the civil actions in which the subject of the litigation is Thus, considering our findings that the CIAC and not the
arising from, or connected with, claimant may invoke the incapable of pecuniary estimation. RTC which has jurisdiction over the instant controversy,
contracts entered into by parties jurisdiction of CIAC. (Emphasis Meanwhile, it appears that the Regional Trial Court of the injunction against the Presiding Judge of the Regional
involved in construction in the supplied) Muntinlupa City, Branch 203 rendered judgment on July 29, Trial Court of Muntinlupa City, Branch 203 from further
proceeding with Civil Case No. 03-110 must be made
permanent. All the proceedings therein are declared null
and void for lack of jurisdiction. The designated sheriff is
enjoined from proceeding with the sale of the levied
personal properties and is ordered to return the same to
respondents. Accordingly, Civil Case No. 03-110 must be
dismissed on the ground of lack of jurisdiction.
It bears to stress that being an inexpensive, speedy and
amicable method of settling disputes, arbitration — along
with mediation, conciliation and negotiation — is
encouraged by the Supreme Court. Aside from unclogging
judicial dockets, arbitration also hastens the resolution of
disputes, especially of the commercial kind. It is thus
regarded as the "wave of the future" in international civil
and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties
would be a step backward. 19
WHEREFORE, in view of the foregoing, the instant petition
is DENIED. The Decision of the Court of Appeals dated
February 18, 2005 in CA-G.R. SP No. 83816 which sustained
the Order of the Arbitral Tribunal of the Construction
Industry Arbitration Commission dated April 23, 2004
denying petitioner's Motion to Terminate Proceedings, and
its Resolution dated May 20, 2005 denying petitioner's
motion for reconsideration, are AFFIRMED. The Presiding
Judge of the Regional Trial Court of Muntinlupa City,
Branch 203 is PERMANENTLY ENJOINED from proceeding
with Civil Case No. 03-110 and all the proceedings therein
are DECLARED NULL AND VOID. Sheriff Melvin T.
Bagabaldo is ENJOINED from proceeding with the sale of
the levied personal properties and is ORDERED to return
them to the respondents. The Presiding Judge of the
Regional Trial Court of Muntinlupa City, Branch 203 is
further DIRECTED to dismiss Civil Case No. 03-110 for lack
of jurisdiction.
SO ORDERED.
||| (Reyes v. Balde II, G.R. No. 168384, [August 7, 2006])
THIRD DIVISION
[G.R. No. 141833. March 26, 2003.]
LM POWER ENGINEERING
CORPORATION, petitioner, vs.
CAPITOL INDUSTRIAL
CONSTRUCTION GROUPS,
INC., respondent.
E.G. Ferry Law Offices for petitioner.
Catindig Tiongko & Nibungco for private respondent.
SYNOPSIS
Petitioner LM Power Engineering
Corporation and respondent Capitol Industrial
Construction Groups, Inc. entered into a subcontract
agreement involving electrical work at the Third Port
of Zamboanga.
Due to petitioner's failure to complete the
work on schedule, respondent took over some of
petitioner's work items. Thus, when petitioner
completed its task under the contract, respondent
refused to pay petitioner's billings, and contested the
billable accomplishments. The petitioner sued the
respondent for collection of sum of money with the
RTC. The RTC subsequently ordered the respondent
to give full payment for the work completed by
petitioner. The CA, however, reversed the decision,
and ordered the parties to present their dispute to
arbitration in accordance with the arbitral clause
provided in their subcontract agreement.
The Supreme Court affirmed the CA
decision, ruling: that any doubt should be resolved in
favor of arbitration because aside from unclogging
judicial dockets, arbitration also hastens the
resolution of disputes; that the instant case involves
technical discrepancies in the application of their
agreement that are better left to an arbitral body that
has expertise in those areas; that under Sec. 1 Art. III
of the new Rules of Procedure, there is no more need
to file a request with the Construction Industry
Arbitration Commission (CIAC) in order to vest it with
jurisdiction to decide a construction dispute. As long
as the parties agree to submit to voluntary arbitration,
regardless of what forum they may choose, they may
invoke the CIAC jurisdiction; that parties are expected
to abide by the arbitral clause in the agreement in
good faith; and that since petitioner has already filed a
complaint with the RTC without prior recourse to
arbitration, the proper procedure is to request the
suspension of such action as provided under RA
876(the Arbitration Law) to enable the CIAC to decide
on the dispute.
SYLLABUS
1.LABOR AND SOCIAL LEGISLATION; LABOR RELATIONS;
VOLUNTARY ARBITRATION; ARBITRATION CLAUSES
SHOULD BE LIBERALLY CONSTRUED. — Being an
inexpensive, speedy and amicable method of settling
disputes, arbitration — along with mediation, conciliation
and negotiation — is encouraged by the Supreme Court.
Aside from unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of the
commercial kind. It is thus regarded as the "wave of the
future" in international civil and commercial disputes.
Brushing aside a contractual agreement calling for
arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging
alternative dispute resolution methods, courts should
liberally construe arbitration clauses. Provided such clause
is susceptible of an interpretation that covers the asserted
dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration. AHcCDI
2.ID.; ID.; ID.; ID.; RESOLUTION OF TECHNICAL
DISCREPANCIES ARE BETTER LEFT TO AN ARBITRAL
BODY; CASE AT BAR. — Clearly, the resolution of the
dispute between the parties herein requires a referral to
the provisions of their Agreement. Within the scope of the
arbitration clause are discrepancies as to the amount of
advances and billable accomplishments, the application of
the provision on termination, and the consequent set-off of
expenses. A review of the factual allegations of the parties
reveals that they differ on the following questions: (1) Did a
take-over/termination occur? (2) May the expenses
incurred by respondent in the take-over be set off against
the amounts it owed petitioner? (3) How much were the
advances and billable accomplishments? The resolution of
the foregoing issues lies in the interpretation of the
provisions of the Agreement. . . . The instant case involves
technical discrepancies that are better left to an arbitral
body that has expertise in those areas.
3.ID.; ID.; ID.; CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION (CIAC); HAS JURISDICTION TO DECIDE A
CONSTRUCTION DISPUTE WHEN CONSTRUCTION
CONTRACT HAS AN ARBITRAL CLAUSE; CASE AT BAR. —
Section 1 of Article II of the old Rules of Procedure
Governing Construction Arbitration indeed required the
submission of a request for arbitration. . . On the other
hand, Section 1 of Article III of the newRules of Procedure
Governing Construction Arbitration has dispensed with this
requirement and recourse to the CIAC may now be availed
of whenever a contract "contains a clause for the
submission of a future controversy to arbitration,". . .
Clearly, there is no more need to file a request with the
CIAC in order to vest it with jurisdiction to decide a
construction dispute.
4.ID.; ID.; ID.; PARTIES ARE EXPECTED TO ABIDE BY THE
ARBITRAL CLAUSE IN GOOD FAITH; CASE AT BAR. — The
arbitral clause in the Agreement is a commitment on the
part of the parties to submit to arbitration the disputes
covered therein. Because that clause is binding, they are
expected to abide by it in good faith. And because it covers
the dispute between the parties in the present case, either
of them may compel the other to arbitrate. Since petitioner
has already filed a Complaint with the RTC without prior
recourse to arbitration, the proper procedure to enable the
CIAC to decide on the dispute is to request the stay or
suspension of such action, as provided under RA 876 [the
Arbitration Law].
DECISION
PANGANIBAN, J p:
Alternative dispute resolution methods or ADRs — like
arbitration, mediation, negotiation and conciliation — are
encouraged by the Supreme Court. By enabling parties to
resolve their disputes amicably, they provide solutions that
are less time-consuming, less tedious, less confrontational,
and more productive of goodwill and lasting
relationships. 1
The Case
Before us is a Petition for Review on Certiorari 2 under
Rule 45 of the Rules of Court, seeking to set aside the
January 28, 2000 Decision of the Court of Appeals 3 (CA) in
CA-GR CV No. 54232. The dispositive portion of the
Decision reads as follows:
"WHEREFORE, the judgment
appealed from is REVERSED and
SET ASIDE. The parties are
ORDERED to present their dispute
to arbitration in accordance with
their Sub-contract Agreement. The
surety bond posted by
[respondent] is [d]ischarged." 4
The Facts
On February 22, 1983, Petitioner LM Power Engineering
Corporation and Respondent Capitol Industrial
Construction Groups Inc. entered into a "Subcontract
Agreement" involving electrical work at the Third Port of
Zamboanga. 5
On April 25, 1985, respondent took over some of the work
contracted to petitioner. 6 Allegedly, the latter had failed to
finish it because of its inability to procure materials. 7
Upon completing its task under the Contract, petitioner
billed respondent in the amount of
P6,711,813.90. 8Contesting the accuracy of the amount of
advances and billable accomplishments listed by the
former, the latter refused to pay. Respondent also took
refuge in the termination clause of the Agreement. 9 That
clause allowed it to set off the cost of the work that
petitioner had failed to undertake — due to termination or
take-over — against the amount it owed the latter.
Because of the dispute, petitioner filed with the Regional
Trial Court (RTC) of Makati (Branch 141) a
Complaint 10 for the collection of the amount representing
the alleged balance due it under the Subcontract. Instead of
submitting an Answer, respondent filed a Motion to
Dismiss, 11 alleging that the Complaint was premature,
because there was no prior recourse to arbitration.
In its Order 12 dated September 15, 1987, the RTC denied
the Motion on the ground that the dispute did not involve
the interpretation or the implementation of the Agreement
and was, therefore, not covered by the arbitral clause. 13
After trial on the merits, the RTC 14 ruled that the take-
over of some work items by respondent was not equivalent
to a termination, but a mere modification, of the
Subcontract. The latter was ordered to give full payment
for the work completed by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the
referral of the case to arbitration. The appellate court held
as arbitrable the issue of whether respondent's take-over
of some work items had been intended to be a termination
of the original contract under Letter "K" of the Subcontract.
It ruled likewise on two other issues: whether petitioner
was liable under the warranty clause of the Agreement, and
whether it should reimburse respondent for the work the
latter had taken over. 15
Hence, this Petition. 16
The Issues
In its Memorandum, petitioner raises the following issues
for the Court's consideration:
"A
Whether or not there exist[s] a
controversy/dispute between
petitioner and respondent
regarding the interpretation and
implementation of the Sub-Contract
Agreement dated February 22,
1983 that requires prior recourse
to voluntary arbitration;
"B
In the affirmative, whether or not
the requirements provided in
 Article III [1] of CIAC Arbitration in violation of the provision in the Agreement as to time
Rules regarding request for schedule:
arbitration ha[ve] been complied "G.TIME SCHEDULE
with[.]" 17 "[Petitioner] shall adhere strictly to
The Court's Ruling the schedule related to the WORK
The Petition is unmeritorious. and complete the WORK within the
First Issue: period set forth in Annex C hereof.
Whether Dispute Is Arbitrable NO time extension shall be granted
Petitioner claims that there is no conflict regarding the by [respondent] to [petitioner]
interpretation or the implementation of the Agreement. unless a corresponding time
Thus, without having to resort to prior arbitration, it is extension is granted by [the
entitled to collect the value of the services it rendered Ministry of Public Works and
through an ordinary action for the collection of a sum of Highways] to the
money from respondent. On the other hand, the latter CONSORTIUM." 20
contends that there is a need for prior arbitration as Because of the delay, respondent alleges that it took over
provided in the Agreement. This is because there are some some of the work contracted to petitioner, pursuant to the
disparities between the parties' positions regarding the following provision in the Agreement:
extent of the work done, the amount of advances and "K.TERMINATION OF AGREEMENT
billable accomplishments, and the set off of expenses "[Respondent] has the right to
incurred by respondent in its take-over of petitioner's terminate and/or take over this
work. TAIDHa Agreement for any of the following
causes:
We side with respondent. Essentially, the dispute arose xxx xxx xxx
from the parties' incongruent positions on whether certain '6.If despite previous
provisions of their Agreement could be applied to the facts. warnings by
The instant case involves technical discrepancies that are [respondent],
better left to an arbitral body that has expertise in those [petitioner] does not
areas. In any event, the inclusion of an arbitration clause in execute the WORK in
a contract does not ipso facto divest the courts of accordance with this
jurisdiction to pass upon the findings of arbitral bodies, Agreement,
because the awards are still judicially reviewable under or persistently or
certain conditions. 18 flagrantly neglects to
In the case before us, the Subcontract has the following carry out [its] obligations
arbitral clause: under this
"6.The Parties hereto agree that any Agreement." 21
dispute or conflict as regards to Supposedly, as a result of the "take-over," respondent
interpretation and implementation incurred expenses in excess of the contracted price. It
of this Agreement which cannot be sought to set off those expenses against the amount
settled between [respondent] and claimed by petitioner for the work the latter accomplished,
[petitioner] amicably shall be pursuant to the following provision:
settled by means of arbitration . . "If the total direct and indirect cost
." 19 of completing the remaining part of
Clearly, the resolution of the dispute between the parties the WORK exceed the sum which
herein requires a referral to the provisions of their would have been payable to
Agreement. Within the scope of the arbitration clause are [petitioner] had it completed the
discrepancies as to the amount of advances and billable WORK, the amount of such excess
accomplishments, the application of the provision on [may be] claimed by [respondent]
termination, and the consequent set-off of expenses. from either of the following:
A review of the factual allegations of the parties reveals '1.Any amount due [petitioner]
that they differ on the following questions: (1) Did a take- from [respondent] at the time of
over/termination occur? (2) May the expenses incurred by the termination of this
respondent in the take-over be set off against the amounts Agreement." 22
it owed petitioner? (3) How much were the advances and The issue as to the correct amount of petitioner's advances
billable accomplishments? and billable accomplishments involves an evaluation of the
The resolution of the foregoing issues lies in the manner in which the parties completed the work, the
interpretation of the provisions of the Agreement. extent to which they did it, and the expenses each of them
According to respondent, the take-over was caused by incurred in connection therewith. Arbitrators also need to
petitioner's delay in completing the work. Such delay was look into the computation of foreign and local costs of
materials, foreign and local advances, retention fees and
letters of credit, and taxes and duties as set forth in the
Agreement. These data can be gathered from a review of
the Agreement, pertinent portions of which are reproduced
hereunder:
"C.CONTRACT PRICE AND TERMS
OF PAYMENT
xxx xxx xxx
"All progress payments to be made
by [respondent] to [petitioner]
shall be subject to a retention sum
of ten percent (10%) of the value of
the approved quantities. Any claims
by [respondent] on [petitioner]
may be deducted by [respondent]
from the progress payments and/or
retained amount. Any excess from
the retained amount after
deducting [respondent's] claims
shall be released by [respondent] to
[petitioner] after the issuance of
[the Ministry of Public Works and
Highways] of the Certificate of
Completion and final acceptance of
the WORK by [the Ministry of
Public Works and Highways].
xxx xxx xxx
"D.IMPORTED MATERIALS AND
EQUIPMENT
"[Respondent shall open the letters
of credit for the importation of
equipment and materials listed in
Annex E hereof after the drawings,
brochures, and other technical data
of each items in the list have been
formally approved by [the Ministry
of Public Works and Highways].
However, petitioner will still be
fully responsible for all imported
materials and equipment.
"All expenses incurred by
[respondent], both in foreign and
local currencies in connection with
the opening of the letters of credit
shall be deducted from the Contract
Prices.
xxx xxx xxx
"N.OTHER CONDITIONS
xxx xxx xxx
"2.All customs duties, import
duties, contractor's taxes, income
taxes, and other taxes that may be
required by any government
agencies in connection with this
Agreement shall be for the sole
account of [petitioner]." 23
Being an inexpensive, speedy and amicable method of
settling disputes, 24 arbitration — along with mediation,
conciliation and negotiation — is encouraged by the
Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes,
especially of the commercial kind. 25 It is thus regarded as
the "wave of the future" in international civil and
commercial disputes. 26 Brushing aside a contractual
agreement calling for arbitration between the parties
would be a step backward. 27
Consistent with the above-mentioned policy of encouraging
alternative dispute resolution methods, courts should
liberally construe arbitration clauses. Provided such clause
is susceptible of an interpretation that covers the asserted
dispute, an order to arbitrate should be granted. 28 Any
doubt should be resolved in favor of arbitration. 29
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the
dispute is arbitrable, the failure to file a formal request for
arbitration with the Construction Industry Arbitration
Commission (CIAC) precluded the latter from acquiring
jurisdiction over the question. To bolster its position,
petitioner even cites our ruling in Tesco Services
Incorporated v. Vera. 30 We are not persuaded.
Section 1 of Article II of the old Rules of Procedure
Governing Construction Arbitration indeed required the
submission of a request for arbitration, as follows:
"SECTION 1.Submission to
Arbitration — Any party to a
construction contract wishing to
have recourse to arbitration by the
Construction Industry Arbitration
Commission (CIAC) shall submit its
Request for Arbitration in sufficient
copies to the Secretariat of the
CIAC; PROVIDED, that in the case of
government construction contracts,
all administrative remedies
available to the parties must have
been exhausted within 90 days
from the time the dispute arose."
Tesco was promulgated by this Court, using the foregoing
provision as reference.
On the other hand, Section 1 of Article III of the new Rules
of Procedure Governing Construction Arbitration has
dispensed with this requirement and recourse to the CIAC
may now be availed of whenever a contract "contains a
clause for the submission of a future controversy to
arbitration," in this wise:
"SECTION 1.Submission to CIAC
Jurisdiction — An arbitration clause
in a construction contract or a
submission to arbitration of a
construction dispute shall be
deemed an agreement to submit an
existing or future controversy to
CIAC jurisdiction, notwithstanding
the reference to a different
arbitration institution or arbitral
body in such contract or
submission. When a contract
contains a clause for the
 submission of a future controversy
to arbitration, it is not necessary for
the parties to enter into a
submission agreement before the
claimant may invoke the
jurisdiction of CIAC."
The foregoing amendments in the Rules were formalized
by CIAC Resolution Nos. 2-91 and 3-93. 31
The difference in the two provisions was clearly explained
in China Chang Jiang Energy Corporation (Philippines) v.
Rosal Infrastructure Builders et al. 32 (an extended
unsigned Resolution) and reiterated inNational Irrigation
Administration v. Court of Appeals, 33 from which we quote
thus:
"Under the present Rules of
Procedure, for a particular
construction contract to fall within
the jurisdiction of CIAC, it is merely
required that the parties agree to
submit the same to voluntary
arbitration Unlike in the original
version of Section 1, as applied in
the Tesco case, the law as it now
stands does not provide that the
parties should agree to submit
disputes arising from their
agreement specifically to the CIAC
for the latter to acquire jurisdiction
over the same. Rather, it is plain
and clear that as long as the parties
agree to submit to voluntary
arbitration, regardless of what
forum they may choose, their
agreement will fall within the
jurisdiction of the CIAC, such that,
even if they specifically choose
another forum, the parties will not
be precluded from electing to
submit their dispute before the
CIAC because this right has been
vested upon each party by
law, i.e., E.O. No. 1008." 34
Clearly, there is no more need to file a request with the
CIAC in order to vest it with jurisdiction to decide a
construction dispute.
The arbitral clause in the Agreement is a commitment on
the part of the parties to submit to arbitration the disputes
covered therein. Because that clause is binding, they are
expected to abide by it in good faith. 35And because it
covers the dispute between the parties in the present case,
either of them may compel the other to arbitrate. 36
Since petitioner has already filed a Complaint with the RTC
without prior recourse to arbitration, the proper procedure
to enable the CIAC to decide on the dispute is to request the
stay or suspension of such action, as provided under RA
876 [the Arbitration Law]. 37
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner. cEISAD
SO ORDERED.
||| (LM Power Engineering Corp. v. Capitol Industrial
Construction Groups Inc., G.R. No. 141833, [March 26, 2003],
447 PHIL 705-717)
THIRD DIVISION
[G.R. No. 120105. March 27, 1998.]
BF CORPORATION, petitioner, vs.
COURT OF APPEALS, SHANGRI-LA
PROPERTIES, INC., RUFO B.
COLAYCO, ALFREDO C. RAMOS,
MAXIMO G. LICAUCO III and
BENJAMIN C. RAMOS,respondents.
Ponce Enrile Reyes and Manalastas for petitioner.
Sunico, Malabanan and Associates, Law Offices for private
respondents.
Quisumbing Torres and Evangelista for private respondents.
SYNOPSIS
Petitioner BF Corporation and respondent Shangri-la
Properties, Inc. (SPI) executed an Article of Agreement for
the construction of a shopping mall complex. Delay
occurred in the construction of the mall and caused
disagreements between the parties regarding their
respective liabilities. The parties held a conference but
failed to settle. Petitioner then filed a complaint for
collection of the balance due against SPI and its co-
defendants which, however, moved to suspend the
proceedings claiming that their contract provided for an
arbitration clause embodied in the Conditions of Contract.
The validity of that document containing the arbitration
clause was assailed in that it was only initiated by
petitioner's representatives. The trial court, although
finding the existence of an arbitration clause, denied
petitioner's motion to suspend proceedings. SPI then filed a
petition for certiorari with the Court of Appeals which in
turn stayed the proceedings in the lower court. The Court
of Appeals, contrary to the findings of the lower court,
found that private respondents were not in default in
invoking the provisions of the arbitration clause and that
the absence of initials of one party or his representative
does not militate against its effectivity where the main
contract containing said arbitration clause had been duly
signed by the parties. Hence, this recourse, petitioner
further contending that the order of the lower court
denying the motion to suspend is a resolution on the merits
that can be elevated to a higher court in an ordinary appeal
and not by certiorari. CaATDE
The Supreme Court held that where a rigid application of
the rule that certiorari cannot be a substitute for appeal
will result in a manifest or miscarriage of justice, the
provisions of the Rules of Court which are technical rules
may be relaxed.
A contract need not be contained in a single writing and
may be encompassed in several instruments even though
every instrument is not signed by the parties, since it is
sufficient if the unsigned instruments are clearly identified
or referred to and made part of the signed instrument or
instruments.
"Reasonableness" is a relative term and it depends on the
attendant circumstances. Hence, a period of one month
from the time the parties held a conference to the time the
party invoked the arbitration clause is reasonable.
Republic Act No. 876 (Arbitration Law) merely suspends
proceedings and does not divest courts of its jurisdiction.
After arbitration, the lower court may confirm the award
made by the arbitrator. aHSCcE
SYLLABUS
1. REMEDIAL LAW; SPECIAL CIVIL ACTIONS; CERTIORARI;
NOT A SUBSTITUTE OF APPEAL. — The rule that the
special civil action of certiorari may not be invoked as a
substitute for the remedy of appeal.
2. ID.; ID.; ID.; WILL NOT BE USED TO CORRECT
ERRONEOUS CONCLUSIONS OF LAW OR FACT. — The
Court has likewise ruled that "certiorari will not be issued
to cure errors in proceedings or correct erroneous
conclusions of law or fact. As long as a court acts within its
jurisdiction, any alleged errors committed in the exercise of
its jurisdiction will amount to nothing more than errors of
judgment which are reviewable by timely appeal, and not
by a special civil action of certiorari." However, the question
of jurisdiction, which is a question of law defends on the
determination of the existence of the arbitration clause,
which is a question of fact.
3. ID.; ACTIONS; TECHNICAL RULES MAY BE RELAXED TO
PREVENT MISCARRIAGE OF JUSTICE. — Where a rigid
application of the rule that certiorari cannot be a substitute
for appeal will result in a manifest failure or miscarriage of
justice, the provisions of the Rules of Court which are
technical railed may be relaxed.
4. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
ARBITRATION AGREEMENT; FORMAL REQUISITES. — The
formal requirements of an agreement to arbitrate
under Republic Act No. 876 are the following: (a) it must be
in writing and (c) it must be subscribed by the parties or
their representatives. There is no denying that the parties
entered into a written contract that was submitted in
evidence before the lower court. To "subscribe" means to
write underneath, as one's name; to sign at the end of a
document. That word may sometimes be construed to
mean to give consent to or to attest.
5. ID.; ID.; ID.; MAY BE INCLUDED BY REFERENCE. — The
Court finds that, upon a scrutiny of the records of this case,
these requisites were complied with in the contract in
question. The Articles of Agreement, which incorporates all
the other contracts and agreements between the parties,
was signed by representatives of both parties and duly
notarized. The failure of the private respondent's
representative to initial the 'Conditions of Contract' would
therefor not affect compliance with the formal
requirements for arbitration agreements because that
particular portion of the covenants between the parties
was included by reference in the Articles of Agreement.
6. ID.; ID.; CONTRACT NEED NOT BE CONTAINED IN A
SINGLE WRITING BUT MAY BE ENCOMPASSED IN
SEVERAL DOCUMENTS. — A contract need not be
contained in a single writing. It may be collected from
several different writings which do not conflict with each
other and which, when connected, show the parties, subject
matter, terms and consideration, as in contracts entered
into by correspondence. A contract may be encompassed in
several instruments even though every instrument it not
signed by the parties, since it is sufficient if the unsigned
instruments are clearly identified or referred to and made
part of the signed instrument or instruments. Similarly, a
written agreement of which there are two copies, one
signed by each of the parties, is binding on both to the same
extent as though there had been only one copy of the
agreement and both had signed it.
7. ID.; ID.; ARBITRATION AGREEMENT; "REASONABLE
TIME" WITHIN WHICH THE PARTIES MAY AVAIL OF THE
RELIEF, CONSTRUED; ONE-MONTH PERIOD FROM TIME
OF CONFERENCE, REASONABLE. — The arbitration clause
provides for a "reasonable time" within which the parties
may avail, of the relief under that clause. "Reasonableness"
is a relative term and the question of whether the time
within which an act has to be done is reasonable depends
on attendant circumstances. This Court finds that under the
circumstances obtaining in this case, a one-month period
from the time the parties held a conference on July 12,
1993 until private respondent SPI notified petitioner that it
was invoking the arbitration clause, is a reasonable time.
Indeed, petitioner may not be faulted for resorting to the
court to claim what was due it under the contract.
However, we find its denial of the existence of the
arbitration clause as an attempt to cover up its misstep in
hurriedly filing the complaint before the lower court.
8. ID.; ID.; ID.; DOES NOT DEPRIVE COURT OF ITS
JURISDICTION. — 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.
9. ID.; ID.; ID.; HAS BEEN HELD VALID AND
CONSTITUTIONAL. — It should be noted that in this
jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19, 1953
ofRepublic Act No. 876, this Court has countenanced the
settlement of disputes through arbitration, Republic Act
No. 876 was adopted to supplement the New Civil Code's
provisions on arbitration. Its potentials as one of the
alternative dispute resolution methods that are now
rightfully vaunted as "the wave of the future" in
international relations, is recognized worldwide. To brush
aside a contractual agreement calling for arbitration in case
of disagreement between the parties would therefore be a
step backward.
DECISION
ROMERO, J p:
The basic issue in this petition for review on certiorari is
whether or not the contract for the construction of the
EDSA Plaza between petitioner BF Corporation and
respondent Shangri-la Properties, Inc. embodies an
arbitration clause in case of disagreement between the
parties in the implementation of contractual
provisions. aisadc
Petitioner and respondent Shangri-la Properties, Inc. (SPI)
entered into an agreement whereby the latter engaged the
former to construct the main structure of the "EDSA Plaza
Project," a shopping mall complex in the City of
Mandaluyong. The construction work was in progress
when SPI decided to expand the project by engaging the
services of petitioner again. Thus, the parties entered into
an agreement for the main contract works after which
construction work began.
However, petitioner incurred delay in the construction
work that SPI considered as "serious and substantial."1 On
the other hand, according to petitioner, the construction
works "progressed in faithful compliance with the First
Agreement until a fire broke out on November 30, 1990
damaging Phase I" of the Project. 2 Hence, SPI proposed the
re-negotiation of the agreement between them.
Consequently, on May 30, 1991, petitioner and SPI entered
into a written agreement denominated as "Agreement for
the Execution of Builder's Work for the EDSA Plaza
Project." Said agreement would cover the construction
work on said project as of May 1, 1991 until its eventual
completion.
According to SPI, petitioner "failed to complete the
construction works and abandoned the project." 3 This
resulted in disagreements between the parties as regards
their respective liabilities under the contract. On July 12,
1993, upon SPI's initiative, the parties' respective
representatives met in conference but they failed to come
to an agreement. 4
Barely two days later or on July 14, 1993, petitioner filed
with the Regional Trial Court of Pasig a complaint for
collection of the balance due under the construction
agreement. Named defendants therein were SPI and
members of its board of directors namely, Alfredo C.
Ramos, Rufo B. Colayco, Antonio B. Olbes, Gerardo O.
Lanuza, Jr., Maximo G. Licauco III and Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a motion
to suspend proceedings instead of filing an answer. The
motion was anchored on defendants' allegation that the
formal trade contract for the construction of the project
provided for a clause requiring prior resort to arbitration
before judicial intervention could be invoked in any dispute
arising from the contract. The following day, SPI submitted
a copy of the conditions of the contract containing the
arbitration clause that it failed to append to its motion to
suspend proceedings.
Petitioner opposed said motion claiming that there was no
formal contract between the parties although they entered
into an agreement defining their rights and obligations in
undertaking the project. It emphasized that the agreement
did not provide for arbitration and therefore the court
could not be deprived of jurisdiction conferred by law by
the mere allegation of the existence of an arbitration clause
in the agreement between the parties.
In reply to said opposition, SPI insisted that there was such
an arbitration clause in the existing contract between
petitioner and SPI. It alleged that suspension of
proceedings would not necessarily deprive the court of its
jurisdiction over the case and that arbitration would
expedite rather than delay the settlement of the parties'
respective claims against each other.
In a rejoinder to SPI's reply, petitioner reiterated that there
was no arbitration clause in the contract between the
parties. It averred that granting that such a clause indeed
formed part of the contract, suspension of the proceedings
was no longer proper. It added that defendants should be
declared in default for failure to file their answer within the
reglementary period.
In its sur-rejoinder, SPI pointed out the significance of
petitioner's admission of the due execution of the "Articles
of Agreement." Thus, on page D/6 thereof, the signatures of
Rufo B. Colayco, SPI president, and Bayani Fernando,
president of petitioner appear, while page D/7 shows that
the agreement is a public document duly notarized on
November 15, 1991 by Notary Public Nilberto R. Briones as
document No. 345, page 70, book No. LXX, Series of 1991 of
his notarial register. 5
Thereafter, upon a finding that an arbitration clause indeed
exists, the lower court 6 denied the motion to suspend
proceedings, thus:
"It appears from the said document
that in the letter-agreement dated
May 30, 1991 (Annex C, Complaint),
plaintiff BF and defendant Shangri-
La Properties, Inc. agreed upon the
terms and conditions of the
Builders Work for the EDSA Plaza
Project (Phases I, II and Carpark),
subject to the execution by the
parties of a formal trade contract.
Defendants have submitted a copy
of the alleged trade contract, which
is entitled 'Contract Documents For
Builder's Work Trade Contractor'
dated 01 May 1991, page 2 of which
is entitled 'Contents of Contract
Documents' with a list of the
documents therein contained, and
Section A thereof consists of the
abovementioned Letter-Agreement
dated May 30, 1991. Section C of
the said Contract Documents is
entitled 'Articles of Agreement and
Conditions of Contract' which, per
its Index, consists of Part A
(Articles of Agreement) and B
(Conditions of Contract). The said
Articles of Agreement appears to
have been duly signed by President
Rufo B. Colayco of Shangri-La
Properties, Inc. and President
Bayani F. Fernando of BF and their
witnesses, and was thereafter
acknowledged before Notary Public
Nilberto R. Briones of Makati,
Metro Manila on November 15,
1991. The said Articles of Agreement
also provides that the 'Contract
Documents' therein listed 'shall be
deemed an integral part of this
Agreement', and one of the said
documents is the 'Conditions of
Contract' which contains the
Arbitration Clause relied upon by
the defendants in their Motion to
Suspend Proceedings. aisadc
This Court notes, however, that the
'Conditions of Contract' referred to,
contains the following provisions:
'3. Contract Document.
Three copies of the
Contract Documents
referred to in the Articles
of Agreement shall be
signed by the parties to
the contract and
distributed to the Owner
and the Contractor for
their safe keeping.'
(emphasis supplied)
And it is significant to note further
that the said 'Conditions of
Contract' is not duly signed by the
parties on any page thereof —
although it bears the initials of BF's
representatives (Bayani F.
Fernando and Reynaldo M. de la
Cruz) without the initials thereon
of any representative of Shangri-La
Properties, Inc.
Considering the insistence of the
plaintiff that the said Conditions of
Contract was not duly executed or
signed by the parties, and the
failure of the defendants to submit
any signed copy of the said
document, this Court entertains
serious doubt whether or not the
arbitration clause found in the said
Conditions of Contract is binding
upon the parties to the Articles of
Agreement." (Emphasis supplied.)
The lower court then ruled that, assuming that the
arbitration clause was valid and binding, still, it was "too
late in the day for defendants to invoke arbitration." It
quoted the following provision of the arbitration clause:
"Notice of the demand for
arbitration of a dispute shall be
filed in writing with the other party
to the contract and a copy filed with
the Project Manager. The demand
for arbitration shall be made within
a reasonable time after the dispute
has arisen and attempts to settle
amicably have failed; in no case,
however, shall the demand he made
be later than the time of final
payment except as otherwise
expressly stipulated in the
contract."
Against the above backdrop, the lower court found that per
the May 30, 1991 agreement, the project was to be
completed by October 31, 1991. Thereafter, the contractor
would pay P80,000 for each day of delay counted from
November 1, 1991 with "liquified (sic) damages up to a
maximum of 5% of the total contract price."
The lower court also found that after the project was
completed in accordance with the agreement that
contained a provision on "progress payment billing," SPI
"took possession and started operations thereof by opening
the same to the public in November, 1991." SPI, having
failed to pay for the works, petitioner billed SPI in the total
amount of P110,883,101.52, contained in a demand letter
sent by it to SPI on February 17, 1993. Instead of paying the
amount demanded, SPI set up its own claim of
P220,000,000.00 and scheduled a conference on that claim
for July 12, 1993. The conference took place but it proved
futile.
Upon the above facts, the lower court concluded:
"Considering the fact that under the
supposed Arbitration Clause
invoked by defendants, it is
required that 'Notice of the demand
for arbitration of a dispute shall be
filed in writing with the other
party. . . in no case. . . later than the
time of final payment. . . " which
apparently, had elapsed, not only
because defendants had taken
possession of the finished works
and the plaintiff's billings for the
payment thereof had remained
pending since November, 1991 up
to the filing of this case on July 14,
1993, but also for the reason that
defendants have failed to file any
written notice of any demand for
arbitration during the said long
period of one year and eight
months, this Court finds that it
cannot stay the proceedings in this
case as required by Sec. 7
of Republic Act No. 876, because
defendants are in default in
proceeding with such arbitration."
The lower court denied SPI's motion for reconsideration
for lack of merit and directed it and the other defendants to
file their responsive pleading or answer within fifteen (15)
days from notice.
Instead of filing an answer to the complaint, SPI filed a
petition for certiorari under Rule 65 of the Rules of Court
before the Court of Appeals. Said appellate court granted
the petition, annulled and set aside the orders and stayed
the proceedings in the lower court. In so ruling, the Court of
Appeals held:
"The reasons given by the 26, 32 or 33 of these period of one year and eight DISCRETION IN THE FACTUAL
respondent Court in denying Conditions), the Owner months,. . . .' FINDINGS OF THE TRIAL COURT
petitioners' motion to suspend and the Contractor Respondent Court has overlooked THAT:
proceedings are untenable. hereby agree to exert all the fact that under the arbitration (i) THE PARTIES DID
1. The notarized copy of the articles efforts to settle their clause — NOT ENTER
of agreement attached as Annex A differences or dispute Notice of the demand for INTO AN
to petitioners' reply dated August amicably. Failing these arbitration dispute shall AGREEMENT
26, 1993, has been submitted by efforts then such dispute be filed in writing with TO
them to the respondent Court or difference shall be the other party to the ARBITRATE.
(Annex G, petition). It bears the referred to Arbitration in contract and a copy filed (ii) ASSUMING THAT
signature of petitioner Rufo B. accordance with the with the Project THE PARTIES
Colayco, president of petitioner rules and procedures of Manager. The demand for DID ENTER
Shangri-La Properties, Inc., and of the Philippine arbitration shall be made INTO THE
Bayani Fernando, president of Arbitration Law. within a reasonable time AGREEMENT
respondent Corporation (Annex G- after the dispute has TO
1, petition). At page D/4 of said The fact that said conditions of arisen and attempts to ARBITRATE,
articles of agreement it is expressly contract containing the arbitration settle amicably had RESPONDENT
provided that the conditions of clause bear only the initials of failed; in no case, S ARE
contract are 'deemed an integral respondent Corporation's however, shall the ALREADY IN
part' thereof (page 188, rollo). And representatives, Bayani Fernando demand be made later DEFAULT IN
it is at pages D/42 to D/44 of the and Reynaldo de la Cruz, without than the time of final INVOKING
conditions of contract that the that of the representative of payment except as THE
provisions for arbitration are found petitioner Shangri-La Properties, otherwise expressly AGREEMENT
(Annexes G-3 to G-5, petition, pp. Inc. does not militate against its stipulated in the contract TO
227-229). Clause No. 35 on effectivity. Said petitioner having (emphasis supplied) ARBITRATE."
arbitration specifically provides: categorically admitted that the quoted in its order (Annex A, On the first assigned error, petitioner contends that the
Provided always that in document, Annex A to its reply petition). As the respondent Court Order of the lower court denying the motion to suspend
case any dispute or dated August 26, 1993 (Annex G, there said, after the final demand to proceedings "is a resolution of an incident on the merits."
difference shall arise petition), is the agreement between pay the amount of As such, upon the continuation of the proceedings, the
between the Owner or the parties, the initial or signature P110,883,101.52, instead of paying, lower court would appreciate the evidence adduced in their
the Project Manager on of said petitioner's representative petitioners set up its own claim totality and thereafter render a decision on the merits that
his behalf and the to signify conformity to arbitration against respondent Corporation in may or may not sustain the existence of an arbitration
Contractor, either during is no longer necessary. The parties, the amount of P220,000,000.00 and clause. A decision containing a finding that the contract has
the progress or after the therefore, should be allowed to set a conference thereon on July 12, no arbitration clause can then be elevated to a higher court
completion or submit their dispute to arbitration 1993. Said conference proved futile. "in an ordinary appeal" where an adequate remedy could
abandonment of the in accordance with their The next day, July 14, 1993, be obtained. Hence, to petitioner, the Court of Appeals
Works as to the agreement. respondent Corporation filed its should have dismissed the petition for certiorari because
construction of this 2. The respondent Court held that complaint against petitioners. On the remedy of appeal would still be available to private
Contract or as to any petitioners 'are in default in August 13, 1993, petitioners wrote respondents at the proper time. 7
matter or thing of proceeding with such arbitration.' to respondent Corporation The above contention is without merit.
whatsoever nature It took note of 'the fact that under requesting arbitration. Under the The rule that the special civil action of certiorari may not be
arising thereunder or in the supposed Arbitration Clause circumstances, it cannot be said invoked as a substitute for the remedy of appeal is
connection therewith invoked by defendants, it is that petitioners' resort to succinctly reiterated in Ongsitco v. Court of Appeals 8 as
(including any matter or required that 'Notice of the demand arbitration was made beyond follows:
being left by this for arbitration of a dispute shall be reasonable time. Neither can they ". . . Countless times in the past, this
Contract to the filed in writing with the other be considered in default of their Court has held that 'where appeal is
discretion of the Project party. . . in no case. . . later than the obligation to respondent the proper remedy, certiorari will
Manager or the time of final payment," which Corporation." not lie.' The writs of certiorari and
withholding by the apparently, had elapsed, not only Hence, this petition before this Court. Petitioner assigns the prohibition are remedies to correct
Project Manager of any because defendants had taken following errors: lack or excess of jurisdiction or
certificate to which the possession of the finished works "A. grave abuse of discretion
Contractor may claim to and the plaintiff's billings for the THE COURT OF APPEALS ERRED IN equivalent to lack of jurisdiction
be entitled or the payment thereof had remained ISSUING THE EXTRAORDINARY committed by a lower court.
measurement and pending since November, 1991 up WRIT OF CERTIORARI ALTHOUGH 'Where the proper remedy is
valuation mentioned in to the filing of this case on July 14, THE REMEDY OF APPEAL WAS appeal, the action for certiorari will
clause 30 (5) (a) of these 1993, but also for the reason that AVAILABLE TO RESPONDENTS. not be entertained.. . . Certiorari is
Conditions or the rights defendants have failed to file any B. not a remedy for errors of
and liabilities of the written notice of any demand for THE COURT OF APPEALS ERRED IN judgment. Errors of judgment are
parties under clauses 25, arbitration during the said long FINDING GRAVE ABUSE OF correctible by appeal, errors of
 jurisdiction are reviewable by
certiorari.'
Rule 65 is very clear. The
extraordinary remedies of
certiorari, prohibition and
mandamus are available only when
'there is no appeal or any plain,
speedy and adequate remedy in the
ordinary course of law. . . ' That is
why they are referred to as
'extraordinary.'. . . "
The Court has likewise ruled that "certiorari will not be
issued to cure errors in proceedings or correct erroneous
conclusions of law or fact. As long as a court acts within its
jurisdiction, any alleged errors committed in the exercise of
its jurisdiction will amount to nothing more than errors of
judgment which are reviewable by timely appeal and not
by a special civil action of certiorari." 9
This is not exactly so in the instant case. While this Court
does not deny the eventual jurisdiction of the lower court
over the controversy, the issue posed basically is whether
the lower court prematurely assumed jurisdiction over it. If
the lower court indeed prematurely assumed jurisdiction
over the case, then it becomes an error of jurisdiction
which is a proper subject of a petition for certiorari before
the Court of Appeals. And if the lower court does not have
jurisdiction over the controversy, then any decision or
order it may render may be annulled and set aside by the
appellate court.
However, the question of jurisdiction, which is a question
of law depends on the determination of the existence of the
arbitration clause, which is a question of fact. In the instant
case, the lower court found that there exists an arbitration
clause. However, it ruled that in contemplation of law, said
arbitration clause does not exist.
The issue, therefore, posed before the Court of Appeals in a
petition for certiorari is whether the Arbitration Clause
does not in fact exist. On its face, the question is one of fact
which is not proper in a petition for certiorari.
The Court of Appeals found that an Arbitration Clause does
in fact exist. In resolving said question of fact, the Court of
Appeals interpreted the construction of the subject
contract documents containing the Arbitration Clause in
accordance with Republic Act No. 876 (Arbitration Law)
and existing jurisprudence which will be extensively
discussed hereunder. In effect, the issue posed before the
Court of Appeals was likewise a question of law. Being a
question of law, the private respondents rightfully invoked
the special civil action of certiorari.
It is that mode of appeal taken by private respondents
before the Court of Appeals that is being questioned by the
petitioners before this Court. But at the heart of said issue
is the question of whether there exists an Arbitration
Clause because if an Arbitration Clause does not exist, then
private respondents took the wrong mode of appeal before
the Court of Appeals.
For this Court to be able to resolve the question of whether
private respondents took the proper mode of appeal,
which, incidentally, is a question of law, then it has to
answer the core issue of whether there exists an
Arbitration Clause which, admittedly, is a question of fact.
Moreover, where a rigid application of the rule that
certiorari cannot be a substitute for appeal will result in a
manifest failure or miscarriage of justice, the provisions of
the Rules of Court which are technical rules may be
relaxed. 10 As we shall show hereunder, had the Court of
Appeals dismissed the petition for certiorari, the issue of
whether or not an arbitration clause exists in the contract
would not have been resolved in accordance with evidence
extant in the record of the case. Consequently, this would
have resulted in a judicial rejection of a contractual
provision agreed by the parties to the contract.
In the same vein, this Court holds that the question of the
existence of the arbitration clause in the contract between
petitioner and private respondents is a legal issue that
must be determined in this petition for review on
certiorari.
Petitioner, while not denying that there exists an
arbitration clause in the contract in question, asserts that in
contemplation of law there could not have been one
considering the following points. First, the trial court found
that the "conditions of contract" embodying the arbitration
clause is not duly signed by the parties.Second, private
respondents misrepresented before the Court of Appeals
that they produced in the trial court a notarized duplicate
original copy of the construction agreement because what
were submitted were mere photocopies thereof. The
contract(s) introduced in court by private respondents
were therefore "of dubious authenticity" because: (a) the
Agreement for the Execution of Builder's Work for the
EDSA Plaza Project does not contain an arbitration clause,
(b) private respondents "surreptitiously attached as
Annexes 'G-3' to 'G-5' to their petition before the Court of
Appeals but these documents are not parts of the
Agreement of the parties as "there was no formal trade
contract executed," (c ) if the entire compilation of
documents "is indeed a formal trade contract," then it
should have been duly notarized, (d) the certification from
the Records Management and Archives Office dated August
26, 1993 merely states that "the notarial record of Nilberto
Briones. . . is available in the files of (said) office as Notarial
Registry Entry only," (e) the same certification attests that
the document entered in the notarial registry pertains to
the Articles of Agreement only without any other
accompanying documents, and therefore, it is not a formal
trade contract, and (f) the compilation submitted by
respondents are a "mere hodge-podge of documents and do
not constitute a single intelligible agreement." LLcd
In other words, petitioner denies the existence of the
arbitration clause primarily on the ground that the
representatives of the contracting corporations did not sign
the "Conditions of Contract" that contained the said clause.
Its other contentions, specifically that insinuating fraud as
regards the alleged insertion of the arbitration clause, are
questions of fact that should have been threshed out below.
This Court may as well proceed to determine whether the
arbitration clause does exist in the parties'
contract. Republic Act No. 876 provides for the formal
requisites of an arbitration agreement as follows:
"Section 4. Form of arbitration
agreement. — A contract to
arbitrate a controversy thereafter
arising between the parties, as well
as a submission to arbitrate an
existing controversy, shall be in
writing and subscribed by the party
sought to be charged, or by his
lawful agent.
The making of a contract or
submission for arbitration
described in section two hereof,
providing for arbitration of any
controversy, shall be deemed a
consent of the parties of the
province or city where any of the
parties resides, to enforce such
contract of submission."(Emphasis
supplied.)
The formal requirements of an agreement to arbitrate are
therefore the following: (a) it must be in writing and (b) it
must be subscribed by the parties or their representatives.
There is no denying that the parties entered into a written
contract that was submitted in evidence before the lower
court. To "subscribe" means to write underneath, as one's
name; to sign at the end of a document. 11 That word may
sometimes be construed to mean to give consent to or to
attest. 12
The Court finds that, upon a scrutiny of the records of this
case, these requisites were complied with in the contract in
question. The articles of Agreement, which incorporates all
the other contracts and agreements between the parties,
was signed by representatives of both parties and duly
notarized. The failure of the private respondent's
representative to initial the 'Conditions of Contract' would
therefor not affect compliance with the formal
requirements for arbitration agreements because that
particular portion of the covenants between the parties
was included by reference in the Articles of Agreement.
Petitioner's contention that there was no arbitration clause
because the contract incorporating said provision is part of
a "hodge-podge" document, is therefore untenable. A
contract need not be contained in a single writing. It may
be collected from several different writings which do not
conflict with each other and which, when connected, show
the parties, subject matter, terms and consideration, as in
contracts entered into by correspondence. 13 A contract
may be encompassed in several instruments even though
every instrument is not signed by the parties, since it is
sufficient if the unsigned instruments are clearly identified
or referred to and made part of the signed instrument or
instruments. Similarly, a written agreement of which there
are two copies, one signed by each of the parties, is binding
on both to the same extent as though there had been only
one copy of the agreement and both had signed it. 14
The flaw in petitioner's contentions therefore lies in its
having segmented the various components of the whole
contract between the parties into several parts. This
notwithstanding, petitioner ironically admits the execution
of the Articles of Agreement. Notably, too, the lower court
found that the said Articles of Agreement "also provides
that the 'Contract Documents' therein listed 'shall be
deemed an integral part of this Agreement,' and one of the
said documents is the 'Conditions of Contract' which
contains the Arbitration Clause.'" It is this Articles of
Agreement that was duly signed by Rufo B. Colayco,
president of private respondent SPI, and Bayani F.
Fernando, president of petitioner corporation. The same
agreement was duly subscribed before notary public
Nilberto R. Briones. In other words, the subscription of the
principal agreement effectively covered the other
documents incorporated by reference therein.
This Court likewise does not find that the Court of Appeals
erred in ruling that private respondents were not in default
in invoking the provisions of the arbitration clause which
states that "(t)he demand for arbitration shall be made
within a reasonable time after the dispute has arisen and
attempts to settle amicably had failed." Under the factual
milieu, private respondent SPI should have paid its
liabilities under the contract in accordance with its terms.
However, misunderstandings appeared to have cropped up
between the parties ostensibly brought about by either
delay in the completion of the construction work or by
force majeure or the fire that partially gutted the project.
The almost two-year delay in paying its liabilities may not
therefore be wholly ascribed to private respondent SPI.
Besides, private respondent SPI's initiative in calling for a
conference between the parties was a step towards the
agreed resort to arbitration. However, petitioner posthaste
filed the complaint before the lower court. Thus, while
private respondent SPI's request for arbitration on August
13, 1993 might appear an afterthought as it was made after
it had filed the motion to suspend proceedings, it was
because petitioner also appeared to act hastily in order to
resolve the controversy through the courts.
The arbitration clause provides for a "reasonable time"
within which the parties may avail of the relief under that
clause. "Reasonableness" is a relative term and the
question of whether the time within which an act has to be
done is reasonable depends on attendant
circumstances. 15 This Court finds that under the
circumstances obtaining in this case, a one-month period
from the time the parties held a conference on July 12,
1993 until private respondent SPI notified petitioner that it
was invoking the arbitration clause, is a reasonable time.
Indeed, petitioner may not be faulted for resorting to the
court to claim what was due it under the contract.
However, we find its denial of the existence of the
arbitration clause as an attempt to cover up its misstep in
hurriedly filing the complaint before the lower court.
In this connection, it bears stressing that the lower court
has not lost its jurisdiction over the case. Section 7
of Republic Act No. 876 provides that proceedings therein
have only been stayed. After the special proceeding of
arbitration 16 has been pursued and completed, then the
lower court may confirm the award17 made by the
arbitrator.
It should be noted that in this jurisdiction, arbitration has
been held valid and constitutional. Even before the
approval on June 19, 1953 of Republic Act No. 876, this
Court has countenanced the settlement of disputes through
arbitration. 18 Republic Act No. 876 was adopted to
supplement the New Civil Code's provisions on
arbitration. 19 Its potentials as one of the alternative
dispute resolution methods that are now rightfully vaunted
as "the wave of the future" in international relations, is
recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement
between the parties would therefore be a step backward.
WHEREFORE, the questioned Decision of the Court of
Appeals is hereby AFFIRMED and the petition for certiorari
DENIED. This Decision is immediately executory. Costs
against petitioner.
SO ORDERED.
||| (BF Corp. v. Court of Appeals, G.R. No. 120105, [March 27,
1998], 351 PHIL 507-526)
SECOND DIVISION
[G.R. No. 143581. January 7, 2008.]
KOREA TECHNOLOGIES CO.,
LTD., petitioner, vs. HON.
ALBERTO A. LERMA, in his
capacity as Presiding Judge of
Branch 256 of Regional Trial
Court of Muntinlupa City, and
PACIFIC GENERAL STEEL
MANUFACTURING
CORPORATION, respondents.
DECISION
VELASCO, JR., J p:
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
Contract 1 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, 1997 2 amending the terms of
payment. The contract and its amendment stipulated that
KOGIES will ship the machinery and facilities necessary for
manufacturing LPG cylinders for which PGSMC would pay
USD 1,224,000. KOGIES would install and initiate the
operation of the plant for which PGSMC bound itself to pay
USD 306,000 upon the plant's production of the 11-kg. LPG
cylinder samples. Thus, the total contract price amounted
to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of
Lease 3 with Worth Properties, Inc. (Worth) for use of
Worth's 5,079-square meter property with a 4,032-square
meter warehouse building to house the LPG manufacturing
plant. The monthly rental was PhP322,560 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 Certificate 4 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. SDHacT
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 PhP4,500,000; and (2) BPI Check No.
0316413 dated March 30, 1998 for PhP4,500,000. 5
When KOGIES deposited the checks, these were dishonored
for the reason "PAYMENT STOPPED." Thus, on May 8,
1998, KOGIES sent a demand letter 6 to PGSMC threatening
criminal action for violation of Batas Pambansa Blg. 22 in
case of nonpayment. On the same date, the wife of PGSMC's
President faxed a letter dated May 7, 1998 to KOGIES'
President who was then staying at a Makati City hotel. She
complained that not only did KOGIES deliver a different
brand of hydraulic press from that agreed upon but it had
not delivered several equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it
issued KOGIES were fully funded but the payments were
stopped for reasons previously made known to KOGIES. 7
On June 1, 1998, PGSMC informed KOGIES that PGSMC was
canceling their Contract dated March 5, 1997 on the ground
that KOGIES had altered the quantity and lowered the
quality of the machineries and equipment it delivered to
PGSMC, and that PGSMC would dismantle and transfer the
machineries, equipment, and facilities installed in the
Carmona plant. Five days later, PGSMC filed before the
Office of the Public Prosecutor an Affidavit-Complaint
for Estafa docketed as I.S. No. 98-03813 against Mr. Dae
Hyun Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the
latter that PGSMC could not unilaterally rescind their
contract nor dismantle and transfer the machineries and
equipment on mere imagined violations by KOGIES. It also
insisted that their disputes should be settled by arbitration
as agreed upon in Article 15, the arbitration clause of their
contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating
the contents of its June 1, 1998 letter threatening that the
machineries, equipment, and facilities installed in the plant
would be dismantled and transferred on July 4, 1998. Thus,
on July 1, 1998, KOGIES instituted an Application for
Arbitration before the Korean Commercial Arbitration
Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the
Contract as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific
Performance, docketed as Civil Case No. 98-117 8against
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 PhP9,000,000
covered by the checks for failing to completely install and
make the plant operational; and that KOGIES was liable for
damages amounting to PhP4,500,000 for altering the
quantity and lowering the quality of the machineries and
equipment. Moreover, PGSMC averred that it has already
paid PhP2,257,920 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. EcaDCI
After the parties submitted their Memoranda, on July 23,
1998, the RTC issued an Order denying the application for a
writ of preliminary injunction, reasoning that PGSMC had
paid KOGIES USD 1,224,000, the value of the machineries
and equipment as shown in the contract such that KOGIES
no longer had proprietary rights over them. And finally, the
RTC held that Art. 15 of the Contract as amended was
invalid as it tended to oust the trial court or any other court
jurisdiction over any dispute that may arise between the
parties. KOGIES' prayer for an injunctive writ was
denied. 10 The dispositive portion of the Order stated:
WHEREFORE, in view of the
foregoing consideration, this Court
believes and so holds that no
cogent reason exists for this Court
to grant the writ of preliminary
injunction to restrain and refrain
defendant from dismantling the
machineries and facilities at the lot
and building of Worth Properties,
Incorporated at Carmona, Cavite
and transfer the same to another
site: and therefore denies plaintiff's
application for a writ of
preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and
Answer to Counterclaim. 11 KOGIES denied it had altered
the quantity and lowered the quality of the machinery,
equipment, and facilities it delivered to the plant. It claimed
that it had performed all the undertakings under the
contract and had already produced certified samples of LPG
cylinders. It averred that whatever was unfinished was
PGSMC's fault since it failed to procure raw materials due
to lack of funds. KOGIES, relying on Chung Fu Industries
(Phils.), Inc. v. Court of Appeals, 12 insisted that the
arbitration clause was without question valid.
After KOGIES filed a Supplemental Memorandum with
Motion to Dismiss 13 answering PGSMC's memorandum of
July 22, 1998 and seeking dismissal of PGSMC's
counterclaims, KOGIES, on August 4, 1998, filed its Motion
for Reconsideration 14 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 PGSMC's motion for inspection; (2) denying
KOGIES' motion for reconsideration of the July 23, 1998
RTC Order; and (3) denying KOGIES' motion to dismiss On the issue of nonpayment of docket fees and non-
PGSMC's compulsory counterclaims as these counterclaims attachment of a certificate of non-forum shopping by
fell within the requisites of compulsory counterclaims. PGSMC, the CA held that the counterclaims of PGSMC were
On October 2, 1998, KOGIES filed an Urgent Motion for compulsory ones and payment of docket fees was not
Reconsideration 17 of the September 21, 1998 RTC Order required since the Answer with counterclaim was not an
granting inspection of the plant and denying dismissal of initiatory pleading. For the same reason, the CA said a
PGSMC's compulsory counterclaims. certificate of non-forum shopping was also not required.
Ten days after, on October 12, 1998, without waiting for Furthermore, the CA held that the petition
the resolution of its October 2, 1998 urgent motion for for certiorari had been filed prematurely since KOGIES did
reconsideration, KOGIES filed before the Court of Appeals not wait for the resolution of its urgent motion for
(CA) a petition for certiorari 18 docketed as CA-G.R. SP No. reconsideration of the September 21, 1998 RTC Order
49249, seeking annulment of the July 23, 1998 and which was the plain, speedy, and adequate remedy
September 21, 1998 RTC Orders and praying for the available. According to the CA, the RTC must be given the
issuance of writs of prohibition, mandamus, and opportunity to correct any alleged error it has committed,
preliminary injunction to enjoin the RTC and PGSMC from and that since the assailed orders were interlocutory, these
inspecting, dismantling, and transferring the machineries cannot be the subject of a petition for certiorari.
and equipment in the Carmona plant, and to direct the RTC Hence, we have this Petition for Review on Certiorari under
to enforce the specific agreement on arbitration to resolve Rule 45.
the dispute. The Issues
In the meantime, on October 19, 1998, the RTC denied Petitioner posits that the appellate court committed the
KOGIES' urgent motion for reconsideration and directed following errors:
the Branch Sheriff to proceed with the inspection of the a. PRONOUNCING THE QUESTION
machineries and equipment in the plant on October 28, OF OWNERSHIP OVER THE
1998. 19 MACHINERY AND FACILITIES AS
Thereafter, KOGIES filed a Supplement to the Petition 20 in "A QUESTION OF FACT" "BEYOND
CA-G.R. SP No. 49249 informing the CA about the October THE AMBIT OF A PETITION
19, 1998 RTC Order. It also reiterated its prayer for the FOR CERTIORARI" INTENDED
issuance of the writs of prohibition,mandamus and ONLY FOR CORRECTION OF
preliminary injunction which was not acted upon by the ERRORS OF JURISDICTION OR
CA. KOGIES asserted that the Branch Sheriff did not have GRAVE ABUSE OF DISCRETION
the technical expertise to ascertain whether or not the AMOUNTING TO LACK OF (SIC)
machineries and equipment conformed to the EXCESS OF JURISDICTION, AND
specifications in the contract and were properly CONCLUDING THAT THE TRIAL
installed. TaISDA COURT'S FINDING ON THE SAME
On November 11, 1998, the Branch Sheriff filed his Sheriff's QUESTION WAS IMPROPERLY
Report 21 finding that the enumerated machineries and RAISED IN THE PETITION BELOW;
equipment were not fully and properly installed. b. DECLARING AS NULL AND VOID
The Court of Appeals affirmed the trial court and THE ARBITRATION CLAUSE IN
declared ARTICLE 15 OF THE CONTRACT
the arbitration clause against public policy BETWEEN THE PARTIES FOR
On May 30, 2000, the CA rendered the assailed BEING "CONTRARY TO PUBLIC
Decision 22 affirming the RTC Orders and dismissing the POLICY" AND FOR OUSTING THE
petition for certiorari filed by KOGIES. The CA found that COURTS OF JURISDICTION;
the RTC did not gravely abuse its discretion in issuing the c. DECREEING PRIVATE
assailed July 23, 1998 and September 21, 1998 Orders. RESPONDENT'S COUNTERCLAIMS
Moreover, the CA reasoned that KOGIES' contention that TO BE ALL COMPULSORY NOT
the total contract price for USD 1,530,000 was for the NECESSITATING PAYMENT OF
whole plant and had not been fully paid was contrary to the DOCKET FEES AND
finding of the RTC that PGSMC fully paid the price of USD CERTIFICATION OF NON-FORUM
1,224,000, which was for all the machineries and SHOPPING;
equipment. According to the CA, this determination by the d. RULING THAT THE PETITION
RTC was a factual finding beyond the ambit of a petition WAS FILED PREMATURELY
for certiorari. WITHOUT WAITING FOR THE
On the issue of the validity of the arbitration clause, the CA RESOLUTION OF THE MOTION FOR
agreed with the lower court that an arbitration clause RECONSIDERATION OF THE
which provided for a final determination of the legal rights ORDER DATED SEPTEMBER 21,
of the parties to the contract by arbitration was against 1998 OR WITHOUT GIVING THE
public policy. TRIAL COURT AN OPPORTUNITY
TO CORRECT ITSELF; aHIEcS
e. PROCLAIMING THE TWO
ORDERS DATED JULY 23 AND
SEPTEMBER 21, 1998 NOT TO BE
PROPER SUBJECTS
OF CERTIORARI AND PROHIBITION
FOR BEING "INTERLOCUTORY IN
NATURE;"
f. NOT GRANTING THE RELIEFS
AND REMEDIES PRAYED FOR IN
HE (SIC) PETITION AND, INSTEAD,
DISMISSING THE SAME FOR
ALLEGEDLY "WITHOUT
MERIT." 23
The Court's Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first
tackle the procedural issues.
The rules on the payment of
docket fees for counterclaims
and cross claims were amended
effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the
counterclaims, it should have paid docket fees and filed a
certificate of non-forum shopping, and that its failure to do
so was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were
incorporated in its Answer with Compulsory Counterclaim
dated July 17, 1998 in accordance with Section 8 of Rule 11,
1997 Revised Rules of Civil Procedure, the rule that was
effective at the time the Answer with Counterclaim was
filed. Sec. 8 on existing counterclaim or cross-claim states,
"A compulsory counterclaim or a cross-claim that a
defending party has at the time he files his answer shall be
contained therein."
On July 17, 1998, at the time PGSMC filed its Answer
incorporating its counterclaims against KOGIES, it was not
liable to pay filing fees for said counterclaims being
compulsory in nature. We stress, however, that effective
August 16, 2004 under Sec. 7, Rule 141, as amended
by A.M. No. 04-2-04-SC, docket fees are now required to be
paid in compulsory counterclaim or cross-claims.
As to the failure to submit a certificate of forum shopping,
PGSMC's Answer is not an initiatory pleading which
requires a certification against forum shopping under Sec.
5 24 of Rule 7, 1997 Revised Rules of Civil Procedure. It is a
responsive pleading, hence, the courts a quo did not
commit reversible error in denying KOGIES' motion to
dismiss PGSMC's compulsory counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz, 25 the CA also pronounced that
"certiorari and Prohibition are neither the remedies to
question the propriety of an interlocutory order of the trial
court." 26 The CA erred on its reliance
onGamboa. 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
counterproductiveping-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 HDcaAI
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 forcertiorari under Rule 65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum
shopping in filing the petition for certiorari. Note that
KOGIES' motion for reconsideration of the July 23, 1998
RTC Order which denied the issuance of the injunctive writ
had already been denied. Thus, KOGIES' only remedy was
to assail the RTC's interlocutory order via a petition
for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of
KOGIES of the September 21, 1998 RTC Order relating to
the inspection of things, and the allowance of the
compulsory counterclaims has not yet been resolved, the
circumstances in this case would allow an exception to the
rule that before certiorari may be availed of, the petitioner
must have filed a motion for reconsideration and said
motion should have been first resolved by the court a quo.
The reason behind the rule is "to enable the lower court, in
the first instance, to pass upon and correct its mistakes
without the intervention of the higher court." 30
The September 21, 1998 RTC Order directing the branch
sheriff to inspect the plant, equipment, and facilities when
he is not competent and knowledgeable on said matters is
evidently flawed and devoid of any legal support.
Moreover, there is an urgent necessity to resolve the issue
on the dismantling of the facilities and any further delay
would prejudice the interests of KOGIES. Indeed, there is
real and imminent threat of irreparable destruction or
substantial damage to KOGIES' equipment and
machineries. We find the resort tocertiorari 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 2040 33 abovecited refer to
instances where a compromise or an arbitral award, as
applied to Art. 2044 pursuant to Art. 2043, 34 may be
voided, rescinded, or annulled, but these would not
denigrate the finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed
upon by the parties. It has not been shown to be contrary to
any law, or against morals, good customs, public order, or
public policy. There has been no showing that the parties
have not dealt with each other on equal footing. We find no
reason why the arbitration clause should not be respected
and complied with by both parties. In Gonzales v. Climax
Mining Ltd., 35 we held that submission to arbitration is a
contract and that a clause in a contract providing that all
matters in dispute between the parties shall be referred to
arbitration is a contract. 36 Again in Del Monte
Corporation-USA v. Court of Appeals, we likewise ruled that
"[t]he provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of that
contract and is itself a contract."37 CAacTH
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration
must be done in Seoul, Korea in accordance with the
Commercial Arbitration Rules of the KCAB, and that the
arbitral award is final and binding, is not contrary to public
policy. This Court has sanctioned the validity of arbitration
clauses in a catena of cases. In the 1957 case of Eastboard
Navigation Ltd. v. Juan Ysmael and Co., Inc., 38 this Court
had occasion to rule that an arbitration clause to resolve
differences and breaches of mutually agreed contractual
terms is valid. In BF Corporation v. Court of Appeals, we held
that "[i]n this jurisdiction, arbitration has been held valid
and constitutional. Even before the approval on June 19,
1953 of Republic Act No. 876, this Court has countenanced
the settlement of disputes through arbitration. Republic Act
No. 876 was adopted to supplement the New Civil Code's
provisions on arbitration." 39 And in LM Power Engineering
Corporation v. Capitol Industrial Construction Groups, Inc.,
we declared that:
Being an inexpensive, speedy and
amicable method of settling
disputes, arbitration — along with
mediation, conciliation and
negotiation — is encouraged by the
Supreme Court. Aside from
unclogging judicial dockets,
arbitration also hastens the
resolution of disputes, especially of
the commercial kind. It is thus
regarded as the "wave of the
future" in international civil and
commercial disputes. Brushing
aside a contractual agreement
calling for arbitration between the
parties would be a step backward.
Consistent with the above-
mentioned policy of encouraging
alternative dispute resolution
methods, courts should liberally
construe arbitration clauses.
Provided such clause is susceptible
of an interpretation that covers the
asserted dispute, an order to
arbitrate should be granted. Any
doubt should be resolved in favor
of arbitration. 40
Having said that the instant arbitration clause is not against
public policy, we come to the question on what governs an
arbitration clause specifying that in case of any dispute
arising from the contract, an arbitral panel will be
constituted in a foreign country and the arbitration rules of
the foreign country would govern and its award shall be
final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
For domestic arbitration proceedings, we have particular
agencies to arbitrate disputes arising from contractual
relations. In case a foreign arbitral body is chosen by the
parties, the arbitration rules of our domestic arbitration
bodies would not be applied. As signatory to the
Arbitration Rules of the UNCITRAL Model Law on
International Commercial Arbitration 41 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". cEATSI
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
thetravaux 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.
xxx xxx xxx
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. IEHaSc
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.
xxx xxx xxx
SEC. 47. Venue and Jurisdiction. —
Proceedings for recognition and
enforcement of an arbitration
agreement or for vacations, setting
aside, correction or modification of
an arbitral award, and any
application with a court for
arbitration assistance and
supervision shall be deemed as
special proceedings and shall be
filed with the Regional Trial Court
(i) where arbitration proceedings
are conducted; (ii) where the asset
to be attached or levied upon, or
the act to be enjoined is located;
(iii) where any of the parties to the
dispute resides or has his place of
business; or (iv) in the National
Judicial Capital Region, at the
option of the applicant.
SEC. 48. Notice of Proceeding to
Parties. — In a special proceeding
for recognition and enforcement of
an arbitral award, the Court shall
send notice to the parties at their
address of record in the arbitration,
or if any part cannot be served
notice at such address, at such
party's last known address. The
notice shall be sent al least fifteen
(15) days before the date set for the
initial hearing of the application.
It is now clear that foreign arbitral awards when confirmed
by the RTC are deemed not as a judgment of a foreign court
but as a foreign arbitral award, and when confirmed, are
enforced as final and executory decisions of our courts of
law.
Thus, it can be gleaned that the concept of a final and
binding arbitral award is similar to judgments or awards
given by some of our quasi-judicial bodies, like the National
Labor Relations Commission and Mines Adjudication
Board, whose final judgments are stipulated to be final and
binding, but not immediately executory in the sense that
they may still be judicially reviewed, upon the instance of
any party. Therefore, the final foreign arbitral awards are
similarly situated in that they need first to be confirmed by
the RTC.
(3) The RTC has jurisdiction to review foreign
arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and
vested the RTC with specific authority and jurisdiction to
set aside, reject, or vacate a foreign arbitral award on
grounds provided under Art. 34 (2) of the UNCITRAL Model
Law. Secs. 42 and 45 provide:
SEC. 42. Application of the New York
Convention. — The New York
Convention shall govern the
recognition and enforcement of
arbitral awards covered by said
Convention.
The recognition and enforcement of
such arbitral awards shall be filed
with the Regional Trial Court in
accordance with the rules of
procedure to be promulgated by
the Supreme Court. Said procedural
rules shall provide that the party
relying on the award or applying
for its enforcement shall file with
the court the original or
authenticated copy of the award
and the arbitration agreement. If
the award or agreement is not
made in any of the official
languages, the party shall supply a
duly certified translation thereof
into any of such languages.
The applicant shall establish that
the country in which foreign
arbitration award was made is
party to the New York Convention.
If the application for rejection or
suspension of enforcement of an
award has been made, the Regional
Trial Court may, if it considers it
proper, vacate its decision and may
also, on the application of the party
claiming recognition or
enforcement of the award, order
the party to provide appropriate
security. ADHcTE
xxx xxx xxx
SEC. 45. Rejection of a Foreign
Arbitral Award. — A party to a
foreign arbitration proceeding may
oppose an application for
recognition and enforcement of the
arbitral award in accordance with
the 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
876 44and 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. aHSCcE
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
Angeles 47 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 Firstly, while the issue of the proper installation of the
contract as rescinded since whatever infractions or equipment and machineries might well be under the
breaches by a party or differences arising from the contract primary jurisdiction of the arbitral body to decide, yet the
must be brought first and resolved by arbitration, and not RTC under Sec. 28 of RA 9285 has jurisdiction to hear and
through an extrajudicial rescission or judicial action. grant interim measures to protect vested rights of the
parties. Sec. 28 pertinently provides:
The issues arising from the contract between PGSMC and SEC. 28. Grant of interim Measure of
KOGIES on whether the equipment and machineries Protection. — (a) It is not
delivered and installed were properly installed and incompatible with an arbitration
operational in the plant in Carmona, Cavite; the ownership agreement for a party to request,
of equipment and payment of the contract price; and before constitution of the
whether there was substantial compliance by KOGIES in tribunal, from a Court to grant
the production of the samples, given the alleged fact that such measure. After constitution
PGSMC could not supply the raw materials required to of the arbitral tribunal and during
produce the sample LPG cylinders, are matters proper for arbitral proceedings, a request for
arbitration. Indeed, we note that on July 1, 1998, KOGIES an interim measure of protection,
instituted an Application for Arbitration before the KCAB in or modification thereof, may be
Seoul, Korea pursuant to Art. 15 of the Contract as made with the arbitral or to the
amended. Thus, it is incumbent upon PGSMC to abide by its extent that the arbitral tribunal
commitment to arbitrate. has no power to act or is unable
Corollarily, the trial court gravely abused its discretion in to act effectivity, the request may
granting PGSMC's Motion for Inspection of Things on be made with the Court. The
September 21, 1998, as the subject matter of the motion is arbitral tribunal is deemed
under the primary jurisdiction of the mutually agreed constituted when the sole
arbitral body, the KCAB in Korea. arbitrator or the third arbitrator,
In addition, whatever findings and conclusions made by the who has been nominated, has
RTC Branch Sheriff from the inspection made on October accepted the nomination and
28, 1998, as ordered by the trial court on October 19, 1998, written communication of said
is of no worth as said Sheriff is not technically competent to nomination and acceptance has
ascertain the actual status of the equipment and been received by the party making
machineries as installed in the plant. the request.
For these reasons, the September 21, 1998 and October 19, (b) The following rules on interim
1998 RTC Orders pertaining to the grant of the inspection or provisional relief shall be
of the equipment and machineries have to be recalled and observed:
nullified. Any party may request that
Issue on ownership of plant proper for arbitration provisional relief be granted
Petitioner assails the CA ruling that the issue petitioner against the adverse party.
raised on whether the total contract price of USD 1,530,000 Such relief may be granted:
was for the whole plant and its installation is beyond the (i) to prevent
ambit of a Petition for Certiorari. irreparable
Petitioner's position is untenable. loss or
It is settled that questions of fact cannot be raised in an injury;
original action for certiorari. 49 Whether or not there was (ii) to provide security
full payment for the machineries and equipment and for the
installation is indeed a factual issue prohibited by Rule 65. performance
However, what appears to constitute a grave abuse of of any
discretion is the order of the RTC in resolving the issue on obligation;
the ownership of the plant when it is the arbitral body (iii) to produce or
(KCAB) and not the RTC which has jurisdiction and preserve any
authority over the said issue. The RTC's determination of evidence; or
such factual issue constitutes grave abuse of discretion and (iv) to compel any other
must be reversed and set aside. appropriate
RTC has interim jurisdiction to protect the rights act or
of the parties omission.
Anent the July 23, 1998 Order denying the issuance of the (c) The order granting provisional
injunctive writ paving the way for PGSMC to dismantle and relief may be conditioned upon the
transfer the equipment and machineries, we find it to be in provision of security or any act or
order considering the factual milieu of the instant omission specified in the order.
case. AcDaEH
(d) Interim or provisional relief is
requested by written application
transmitted by reasonable means
to the Court or arbitral tribunal as
the case may be and the party
against whom the relief is sought,
describing in appropriate detail the
precise relief, the party against
whom the relief is requested, the
grounds for the relief, and the
evidence supporting the request.
(e) The order shall be binding
upon the parties.
(f) Either party may apply with the
Court for assistance in
implementing or enforcing an
interim measure ordered by an
arbitral tribunal.
(g) A party who does not comply
with the order shall be liable for all
damages resulting from
noncompliance, including all
expenses, and reasonable
attorney's fees, paid in obtaining
the order's judicial enforcement.
(Emphasis ours.)
Art. 17 (2) of the UNCITRAL Model Law on ICA defines an
"interim measure" of protection as:
Article 17. Power of arbitral
tribunal to order interim measures
xxx xxx xxx
(2) An interim measure is
any temporary measure, whether
in the form of an award or in
another form, by which, at any time
prior to the issuance of the award
by which the dispute is finally
decided, the arbitral tribunal
orders a party to:
(a) Maintain or restore the status
quo pending determination of the
dispute;
(b) Take action that would prevent,
or refrain from taking action that is
likely to cause, current or imminent
harm or prejudice to the arbitral
process itself; DTISaH
(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 AacCIT
It is thus beyond cavil that the RTC has authority and
jurisdiction to grant interim measures of protection.
Secondly, considering that the equipment and machineries
are in the possession of PGSMC, it has the right to protect
and preserve the equipment and machineries in the best
way it can. Considering that the LPG plant was non-
operational, PGSMC has the right to dismantle and transfer
the equipment and machineries either for their protection
and preservation or for the better way to make good use of
them which is ineluctably within the management
discretion of PGSMC.
Thirdly, and of greater import is the reason that
maintaining the equipment and machineries in Worth's
property is not to the best interest of PGSMC due to the
prohibitive rent while the LPG plant as set-up is not
operational. PGSMC was losing PhP322,560 as monthly
rentals or PhP3.87M for 1998 alone without considering
the 10% annual rent increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on
motions or petitions relating to the preservation or transfer
of the equipment and machineries as an interim measure,
yet on hindsight, the July 23, 1998 Order of the RTC Court (RTC), Branch 267, Pasig City, and Linberg Philippines,
allowing the transfer of the equipment and machineries Inc., respondents."
given the non-recognition by the lower courts of the The facts of this case are:
arbitral clause, has accorded an interim measure of Fiesta World Mall Corporation, petitioner, owns and
protection to PGSMC which would otherwise been operates Fiesta World Mall located at Barangay Maraouy,
irreparably damaged. Lipa City; while Linberg Philippines, Inc., respondent, is a
Fifth, KOGIES is not unjustly prejudiced as it has already corporation that builds and operates power plants.
been paid a substantial amount based on the contract. On January 19, 2000, respondent filed with the Regional
Moreover, KOGIES is amply protected by the arbitral action Trial Court (RTC), Branch 267, Pasig City, a Complaint for
it has instituted before the KCAB, the award of which can Sum of Money against petitioner, docketed as Civil Case No.
be enforced in our jurisdiction through the RTC. Besides, by 67755. The complaint alleges that on November 12, 1997,
our decision, PGSMC is compelled to submit to arbitration petitioner and respondent executed a build-own-operate
pursuant to the valid arbitration clause of its contract with agreement, entitled "Contract Agreement for Power Supply
KOGIES. Services, 3.8 MW Base Load Power Plant" 4 (the Contract).
PGSMC to preserve the subject equipment and Under this Contract, respondent will construct, at its own
machineries cost, and operate as owner a power plant, and to supply
Finally, while PGSMC may have been granted the right to petitioner power/electricity at its shopping mall in Lipa
dismantle and transfer the subject equipment and City. Petitioner, on the other hand, will pay respondent
machineries, it does not have the right to convey or dispose "energy fees" to be computed in accordance with the
of the same considering the pending arbitral proceedings to Seventh Schedule of the Contract, the pertinent portions of
settle the differences of the parties. PGSMC therefore must which provide:
preserve and maintain the subject equipment and 2.1 . . .
machineries with the diligence of a good father of a E1 988,888 kw-hr x BER
family 51 until final resolution of the arbitral proceedings E2 (ED-988,888) x BER
and enforcement of the award, if any. Where:
WHEREFORE, this petition is PARTLY GRANTED, in that: E1 & E2 Energy fees in pesos for
the billing period. Where E1 is
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 based on the minimum energy off-
is REVERSED and SET ASIDE; take of 988,888 kw-hrs.
(2) The September 21, 1998 and October 19, 1998 RTC per month and E2 is based on the
Orders in Civil Case No. 98-117 are REVERSED and SET actual meter reading less
ASIDE; the minimum off-take.
(3) The parties are hereby ORDERED to submit themselves BER Base energy rate at Ps
to the arbitration of their dispute and differences arising 2.30/Kw-Hr billing rate based on
from the subject Contract before the KCAB; and the exchange rate of Ps 26.20 to
(4) PGSMC is hereby ALLOWED to dismantle and transfer the US dollar, and with
the equipment and machineries, if it had not done so, and fuel oil to be supplied by
ORDERED to preserve and maintain them until the finality LINBERG at its own cost.
of whatever arbitral award is given in the arbitration The base energy rate is subject to
proceedings. exchange rate adjustment
No pronouncement as to costs. IEAHca accordingly to the formula as
SO ORDERED. follows:
||| (Korea Technologies Co., Ltd. v. Lerma, G.R. No. 143581, BER 0.6426 + 0.3224 Pn + 1.345 Fn
[January 7, 2008], 566 PHIL 1-39) 26.40 4.00
WHERE:
SECOND DIVISION Pn is defined as the average of the
[G.R. No. 152471. August 18, 2006.] Bangko Sentral ng
FIESTA WORLD MALL Pilipinas' published dealing rates
CORPORATION, petitioner, vs. for thirty (30) trading
LINBERG PHILIPPINES, days immediately prior to the new
INC.,respondent. billing rate.
DECISION Fn Weighted average of fuel price
SANDOVAL-GUTIERREZ, J p: per liter based on the
For our resolution is the instant Petition for Review average of the last three (3)
on Certiorari 1 assailing the Decision 2 dated December 12, purchases made by LINBERG
2001 and Resolution 3 dated February 28, 2002 rendered as evidenced by purchase invoices.
by the Court of Appeals in CA-G.R. SP No. 63671, entitled ED Energy delivered in kw-hrs per
"Fiesta World Mall Corporation, petitioner, versus Hon. meter reading.
Florito S. Macalino, Presiding Judge of the Regional Trial 3. Minimum Energy Off-Take
The energy fees payable to choice, while the other two (2) to
LINBERG shall be on the basis of be each chosen by the parties
actual KWH generated by the plant. themselves, within fourteen (14)
However, if the actual KWH days after the due date for such
generated is less than the minimum invoice and all or any part of the
energy off-take level, the disputed amount paid to LINBERG
calculation of the energy fees shall shall be paid together with interest
be made as if LINBERG has pursuant to Article XXV from the
generated the minimum energy off- due date of the invoice. It is agreed,
take level of 988,888 KW-HR per however, that both parties must
month. SCaEcD resolve the disputes within thirty
The complaint further alleges that respondent constructed (30) days, otherwise any delay in
the power plant in Lipa City at a cost of about payment resulting to loss to
P130,000,000.00. In November 1997, the power plant LINBERG when converted to $US as
became operational and started supplying a result of depreciation of the Pesos
power/electricity to petitioner's shopping mall in Lipa City. shall be for the account of FIESTA
In December 1997, respondent started billing petitioner. As WORLD. Corollarily, in case of
of May 21, 1999, petitioner's unpaid obligation amounted erroneous billings, however,
to P15,241,747.58, exclusive of interest. However, LINBERG shall be liable to pay
petitioner questioned the said amount and refused to pay FIESTA WORLD for the cost of such
despite respondent's repeated demands. deterioration, plus interest
In its Answer with Compulsory Counterclaim, petitioner computed pursuant to Art. XXV
specifically denied the allegations in the complaint, from the date FIESTA WORLD paid
claiming that respondent failed to fulfill its obligations for the erroneous billing.
under the Contract by failing to supply all its power/fuel (Underscoring supplied)
needs. From November 10, 1998 until May 21, 1999, Thereafter, petitioner filed a Motion to Set Case for
petitioner personally shouldered the cost of fuel. Petitioner Preliminary Hearing on the ground that respondent
also disputed the amount of energy fees specified in the violated the arbitration clause provided in the Contract,
billings made by respondent because the latter failed to thereby rendering its cause of action premature.
monitor, measure, and record the quantities of This was opposed by respondent, claiming that paragraph
electricity delivered by taking photographs of the 7.4 of the Contract on arbitration is not the provision
electricity meter reading prior to the issuance of its applicable to this case; and that since the parties failed to
invoices and billings, also in violation of the settle their dispute, then respondent may resort to court
Contract. 5 Moreover, in the computation of the electrical action pursuant to paragraph 17.2 of the same Contract
billings, the minimum off-take of energy (E2) was based which provides:
solely on the projected consumption as computed by 17.2 Amicable Settlement
respondent. However, based on petitioner's actual The parties hereto agree that in the
experience, it could not consume the energy pursuant to event there is any dispute or
the minimum off-take even if it kept open all its lights difference between them arising
and operated all its machinery and equipment for out of this Agreement or in the
twenty-four hours a day for a month. This fact was interpretation of any of the
admitted by respondent. While both parties had provisions hereto, they shall
discussions on the questioned billings, however, "there endeavor to meet together in an
were no earnest efforts to resolve the differences in effort to resolve such dispute by
accordance with the arbitration clause provided for in the discussion between them but
Contract." failing such resolution the Chief
Finally, as a special affirmative defense in its answer, Executives of LINBERG and
petitioner alleged that respondent's filing of the complaint FIESTA WORLD shall meet to
is premature and should be dismissed on the ground of resolve such dispute or
non-compliance with paragraph 7.4 of the Contract which difference and the joint decision of
provides: such shall be binding upon the
7.4 Disputes parties hereto, and in the event
If FIESTA WORLD disputes the that a settlement of any such
amount specified by any invoice, dispute or difference is not
it shall pay the undisputed amount reached, then the provisions of
on or before such date(s), and the Article XXI shall apply.
disputed amount shall be Article XXI, referred to in paragraph 17.2 above, reads:
resolved by arbitration of three ARTICLE XXI
(3) persons, one (1) by mutual JURISDICTION
 The parties hereto submit to the
exclusive jurisdiction of the proper
courts of Pasig City, Republic of
the Philippines for the hearing
and determination of any action
or proceeding arising out of or in
connection with this
Agreement. IDScTE
In its Order dated October 3, 2000, the trial court denied
petitioner's motion for lack of merit.
Petitioner then filed a Motion for Reconsideration but it
was denied in an Order dated January 11, 2001.
Dissatisfied, petitioner elevated the matter to the Court of
Appeals via a Petition for Certiorari, docketed as CA-G.R. SP
No. 63671. On December 12, 2001, the appellate court
rendered its Decision dismissing the petition and affirming
the challenged Orders of the trial court.
Petitioner's Motion for Reconsideration of the above
Decision was likewise denied by the appellate court in its
Resolution 6 dated February 28, 2002.
Hence, the instant Petition for Review on Certiorari.
The sole issue for our resolution is whether the filing with
the trial court of respondent's complaint is premature.
Paragraph 7.4 of the Contract, quoted earlier, mandates
that should petitioner dispute any amount of energy fees in
the invoice and billings made by respondent, the same
"shall be resolved by arbitration of three (3) persons,
one (1) by mutual choice, while the other two (2) to be
each chosen by the parties themselves." The parties, in
incorporating such agreement in their Contract, expressly
intended that the said matter in dispute must first be
resolved by an arbitration panel before it reaches the
court. They made such arbitration mandatory.
It is clear from the records that petitioner disputed the
amount of energy fees demanded by respondent. However,
respondent, without prior recourse to arbitration as
required in the Contract, filed directly with the trial court
its complaint, thus violating the arbitration clause in the
Contract.
It bears stressing that such arbitration agreement is the law
between the parties. Since that agreement is binding
between them, they are expected to abide by it in good
faith. 7 And because it covers the dispute between them in
the present case, either of them may compel the other to
arbitrate. 8 Thus, it is well within petitioner's right to
demand recourse to arbitration.
We cannot agree with respondent that it can directly seek
judicial recourse by filing an action against petitioner
simply because both failed to settle their differences
amicably. Suffice it to state that there is nothing in the
Contract providing that the parties may dispense with
the arbitration clause. Article XXI on jurisdiction cited by
respondent, i.e., that "the parties hereto submit to the
exclusive jurisdiction of the proper courts of Pasig City"
merely provides for the venue of any action arising out of
or in connection with the stipulations of the parties in the
Contract.
Moreover, we note that the computation of the energy fees
disputed by petitioner also involves technical matters that
are better left to an arbitration panel who has expertise in
those areas. Alternative dispute resolution methods or
ADRs — like arbitration, mediation, negotiation and
conciliation — are encouraged by this Court. By enabling
the parties to resolve their disputes amicably, they provide
solutions that are less time-consuming, less tedious, less
confrontational, and more productive of goodwill and
lasting relationships. 9 To brush aside such agreement
providing for arbitration in case of disputes between the
parties would be a step backward. As we held in BF
Corporation v. Court of Appeals, 10
It should be noted that in this
jurisdiction, arbitration has been
held valid and constitutional. Even
before the approval on June 19,
1953 of Republic Act No. 876 (The
Arbitration Law), this Court has
countenanced the settlement of
disputes through arbitration
(Puromines, Inc. v. Court of Appeals,
G.R. No. 91228, March 22, 1993,
220 SCRA 281-290). Republic Act
No. 876 was adopted to supplement
the New Civil Code's provisions on
arbitration (Chung Fu Industries
Phils., Inc. v. Court of Appeals, G.R.
No. 92683, February 25, 1992, 206
SCRA 545, 551). Its potentials as
one of the alternative dispute
resolution methods that are now
rightfully vaunted as 'the wave of
the future' in international
relations, is recognized worldwide.
o brush aside a contractual
agreement calling for arbitration in
case of disagreement between the
parties would therefore be a step
backward. IECAaD
In this connection, since respondent has already filed a
complaint with the trial court without prior recourse to
arbitration, the proper procedure to enable an arbitration
panel to resolve the parties' dispute pursuant to their
Contract is for the trial court to stay the
proceedings. 11 After the arbitration proceeding has been
pursued and completed, then the trial court may confirm
the award made by the arbitration panel. 12
In sum, we hold that the Court of Appeals erred in
disregarding the arbitration clause in the parties'
Contract. 3upjur06
WHEREFORE, we GRANT the instant petition. The assailed
Decision and Resolution of the Court of Appeals in CA-G.R.
SP No. 63671 are REVERSED. The parties are ordered to
submit their controversy to the arbitration panel pursuant
to paragraph 7.4 of the Contract. The Regional Trial Court,
Branch 267, Pasig City is directed to suspend the
proceedings in Civil Case No. 67755 until after the
Arbitration Panel shall have resolved the controversy and
submitted its report to the trial court. Costs against original and exclusive jurisdiction over the case.
respondent. Respondents moved for reconsideration but their motion
SO ORDERED. was denied.
||| (Fiesta World Mall Corp. v. Linberg Phil., Inc., G.R. No. Aggrieved, the respondents questioned the dismissal of
152471, [August 18, 2006], 530 PHIL 729-738) their complaint in a petition for certiorari and prohibition
before the Court of Appeals.
SECOND DIVISION The Court of Appeals granted the petition in its Decision
[G.R. No. 171763. June 5, 2009.] dated August 31, 2005, the dispositive portion of which
MARIA LUISA PARK reads:
ASSOCIATION, INC., petitioner, vs. WHEREFORE, in view of all the
SAMANTHA MARIE T. foregoing, the petition
ALMENDRAS and PIA ANGELA T. is GRANTED and the assailed
ALMENDRAS, respondents. orders of the respondent trial court
DECISION are declared NULL AND VOID,
QUISUMBING, J p: and SET ASIDE. Respondent RTC is
This petition for review on certiorari assails the hereby ordered to take jurisdiction
Decision 1 dated August 31, 2005 and the of Civil Case No. CEB-29002.
Resolution 2 dated February 13, 2006 of the Court of SO ORDERED. 8
Appeals in CA-G.R. SP No. 81069. MLPAI filed a motion for reconsideration but it was denied
The facts, culled from the records, are as follows: by the Court of Appeals in its Resolution dated February 13,
On February 6, 2002, respondents Samantha Marie T. 2006.
Almendras and Pia Angela T. Almendras purchased from Hence, this petition raising the following issues:
MRO Development Corporation a residential lot located in I.
Maria Luisa Estate Park, Banilad, Cebu City. After some WHETHER THE HONORABLE
time, respondents filed with petitioner Maria Luisa Park COURT OF APPEALS HAS
Association, Incorporated (MLPAI) an application to DISREGARDED LAWS AND WELL-
construct a residential house, which was approved SETTLED JURISPRUDENCE IN
in * February 10, 2002. Thus, respondents commenced the HOLDING THAT JURISDICTION
construction of their house. OVER [THE] DISPUTE BETWEEN
Upon ocular inspection of the house, MLPAI found out that HOMEOWNERS AND
respondents violated the prohibition against multi- HOMEOWNERS' ASSOCIATION LIES
dwelling 3 stated in MLPAI's Deed of Restriction. WITH THE REGULAR COURTS AND
Consequently, on April 28, 2003, MLPAI sent a letter to the NOT WITH HLURB.
respondents, demanding that they rectify the structure; II.
otherwise, it will be constrained to forfeit respondents' WHETHER THERE IS NO OTHER
construction bond and impose stiffer penalties. RELIEF AND REMEDY AVAILABLE
In a Letter 4 dated April 29, 2003, respondents, as TO PETITIONER TO AVERT THE
represented by their father Ruben D. Almendras denied CONDUCT OF A VOID
having violated MLPAI's Deed of Restriction. IDSaEA [PROCEEDING] THAN THE
On May 5, 2003, MLPAI, in its reply, pointed out PRESENT RECOURSE. 9
respondents' specific violations of the subdivision rules, to Simply stated, the issue is whether the appellate court
wit: (a) installation of a second water meter and tapping erred in ruling that it was the trial court and not the HLURB
the subdivision's main water pipeline, and (b) construction that has jurisdiction over the case.
of "two separate entrances that are mutually exclusive of Petitioner MLPAI contends that the HLURB 10 has
each other". It likewise reiterated its warning that failure to exclusive jurisdiction over the present controversy, it being
comply with its demand will result in its exercise of more a dispute between a subdivision lot owner and a
stringent measures. subdivision association, where the latter aimed to compel
In view of these, respondents filed with the Regional Trial respondents to comply with the MLPAI's Deed of
Court of Cebu City, Branch 7, a Complaint 5 on June 2, 2003 Restriction, specifically the provision prohibiting multi-
for Injunction, Declaratory Relief, Annulment of Provisions dwelling.
of Articles and By-Laws with Prayer for Issuance of a Respondents, on the other hand, counter that the case they
Temporary Restraining Order (TRO)/Preliminary filed against MLPAI is one for declaratory relief and
Injunction. annulment of the provisions of the by-laws; hence, it is
MLPAI moved for the dismissal of the complaint on the outside the competence of the HLURB to resolve. They
ground of lack of jurisdiction and failure to comply with the likewise stated that MLPAI's rules and regulations are
arbitration clause 6 provided for in MLPAI's by-laws. discriminatory and violative of their basic rights as
In an Order 7 dated July 31, 2003, the trial court dismissed members of the association. They also argued that MLPAI's
the complaint for lack of jurisdiction, holding that it was the acts are illegal, immoral and against public policy and that
Housing and Land Use Regulatory Board (HLURB) that has
they did not commit any violation of the MLPAI's 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.
535provides:
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;
xxx xxx xxx
Moreover, by virtue of this amendatory law, the HIGC also
assumed the SEC's 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.) aCTcDH
xxx xxx xxx
Consequently, in Sta. Clara Homeowners' Association v.
Gaston 14 and Metro Properties, Inc. v. Magallanes Village
Association, Inc., 15 the Court recognized HIGC's "Revised
Rules of Procedure in the Hearing of Home Owner's
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:
xxx xxx xxx
(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.)
xxx xxx xxx
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. 18 Therefore, 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 administrative tribunal to determine technical and intricate
all questions regarding subdivisions and condominiums. matters of fact. 29
The intention was aimed at providing for an appropriate In the instant case, the HLURB has the expertise to resolve
government agency, the HLURB, to which all parties the basic technical issue of whether the house built by the
aggrieved in the implementation of provisions and the respondents violated the Deed of Restriction, specifically
enforcement of contractual rights with respect to said the prohibition against multi-dwelling.IcaHCS
category of real estate may take recourse. The business of As observed in C.T. Torres Enterprises, Inc. v. Hibionada: 30
developing subdivisions and corporations being imbued The argument that only courts of
with public interest and welfare, any question arising from justice can adjudicate claims
the exercise of that prerogative should be brought to the resoluble under the provisions of
HLURB which has the technical know-how on the the Civil Code is out of step with the
matter. 21 In the exercise of its powers, the HLURB must fast-changing times. There are
commonly interpret and apply contracts and determine the hundreds of administrative bodies
rights of private parties under such contracts. This ancillary now performing this function by
power is no longer a uniquely judicial function, exercisable virtue of a valid authorization from
only by the regular courts. 22 the legislature. This quasi-judicial
function, as it is called, is exercised
It is apparent that although the complaint was by them as an incident of the
denominated as one for declaratory relief/annulment of principal power entrusted to them
contracts, the allegations therein reveal otherwise. It of regulating certain activities
should be stressed that respondents neither asked for the falling under their particular
interpretation of the questioned by-laws nor did they allege expertise.
that the same is doubtful or ambiguous and require judicial In the Solid Homes case for
construction. In fact, what respondents really seek to example the Court affirmed
accomplish is to have a particular provision of the MLPAI's the competence of the Housing
by-laws nullified and thereafter absolve them from any and Land Use Regulatory Board
violations of the same. 23 InKawasaki Port Service to award damages although this
Corporation v. Amores, 24 the rule was stated: is an essentially judicial power
. . . where a declaratory judgment as exercisable ordinarily only by
to a disputed fact would be the courts of justice. This
determinative of issues rather than departure from the traditional
a construction of definite stated allocation of governmental powers
rights, status and other relations, is justified by expediency, or the
commonly expressed in written need of the government to respond
instrument, the case is not one for swiftly and competently to the
declaratory judgment. 25 pressing problems of the modern
Contrary to the observation of the Court of Appeals, world. 31
jurisdiction cannot be made to depend on the exclusive We also note that the parties failed to abide by the
characterization of the case by one of the parties. 26 While arbitration agreement in the MLPAI by-laws. Article XII of
respondents are questioning the validity or legality of the the MLPAI by-laws entered into by the parties provide:
MLPAI's articles of incorporation and its by-laws, they did Mode of Dispute Resolution
not, however, raise any legal ground to support its Mode of Dispute Resolution. Should
nullification. The legality of the by-laws in its entirety was any member of the Association
never an issue in the instant controversy but merely the have any grievance, dispute or
provision prohibiting multi-dwelling which respondents claim against the Association or any
assert they did not violate. 27 So to speak, there is no of the officers and governors
justiciable controversy here that would warrant thereof in connection with their
declaratory relief, or even an annulment of contracts. function and/or position in the
We reiterate that in jurisdictional issues, what determines Association, the parties shall
the nature of an action for the purpose of ascertaining endeavor to settle the same
whether a court has jurisdiction over a case are the amicably. In the event that efforts
allegations in the complaint and the nature of the relief at amicable settlement fail, such
sought. 28 dispute, difference or disagreement
Moreover, under the doctrine of primary administrative shall be brought by the member to
jurisdiction, courts cannot or will not determine a an arbitration panel composed of
controversy where the issues for resolution demand the three (3) arbitrators for final
exercise of sound administrative discretion requiring the settlement, to the exclusion of all
special knowledge, experience, and services of the 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 tribunal's 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. 32 Respondents, being members of
MLPAI, are bound by its by-laws, and are expected to abide carrier (with a negotiable bill of lading or other SUPREME COURT DECISIONS
by it in good faith. 33 contract of carriage with respect to cargo) or a HOLDING THAT ARBITRATION IS A
In the instant case, we observed that while both parties containership operator (owner, operator or CONDITION PRECEDENT TO SUIT
exchanged correspondence pertaining to the alleged charterer of containership on which the cargo is carried). WHERE SUCH AN AGREEMENT TO
violation of the Deed of Restriction, they, however, made no During the lifetime of the said Agreement, or on 18 May ARBITRATE EXISTS.
earnest effort to resolve their differences in accordance 1991, Florex International, Inc. (hereinafter referred to as II
with the arbitration clause provided for in their by-laws. "Florex") delivered to private respondent AMML THE COURT OF APPEALS HAS
Mere exchange of correspondence will not suffice much cargo of various foodstuffs, with Oakland, California as RULED IN A MANNER NOT IN
less satisfy the requirement of arbitration. Arbitration port of discharge and San Francisco as place of delivery. ACCORD WITH JURISPRUDENCE
being the mode of settlement between the parties expressly The corresponding Bill of Lading No. MAEU MNL110263 WHEN IT REFUSED TO HAVE THE
provided for in their by-laws, the same should be was issued to Florex by respondent AMML. Pursuant to the THIRD-PARTY COMPLAINT
respected. Unless an arbitration agreement is such as Agreement, respondent AMML loaded the subject cargo on DISMISSED FOR FAILURE TO
absolutely to close the doors of the courts against the MS Sealand Pacer, a vessel owned by petitioner. Under this STATE A CAUSE OFACTION AND
parties, the courts should look with favor upon such arrangement, therefore, respondent AMML was the FOR RULING THAT THE FAILURE
amicable arrangements. 34 principal carrier while petitioner was the containership TO STATE A CAUSE OF ACTION
Arbitration is one of the alternative methods of dispute operator. MAY BE REMEDIED BY
resolution that is now rightfully vaunted as "the wave of The consignee refused to pay for the cargo, alleging that REFERENCE TO ITS
the future" in international relations, and is recognized delivery thereof was delayed. Thus, on June 26, 1992, ATTACHMENTS. 8
worldwide. To brush aside a contractual agreement calling Florex filed a complaint against respondent Maersk- Resolving first the issue of failure to state a cause of action,
for arbitration in case of disagreement between the parties Tabacalera Shipping Agency (Filipinas), Inc. for respondent Court of Appeals did not err in reading the
would therefore be a step backward. 35 reimbursement of the value of the cargo and other Complaint of Florex and respondent AMML's Answer
WHEREFORE, the instant petition is GRANTED. The charges. 3 According to Florex, the cargo was received by together with the Third Party Complaint to determine
Decision dated August 31, 2005 and Resolution dated the consignee only on June 28, 1991, since it was whether a cause of action is properly alleged. In Fil-Estate
February 13, 2006 of the Court of Appeals in CA-G.R. SP No. discharged in Long Beach, California, instead of in Oakland, Golf and
81069 are SET ASIDE. The Order dated July 31, 2003 of the California on June 5, 1991 as stipulated. dctai Development, Inc. vs. Court ofAppeals, 9 this Court ruled that
Regional Trial Court of Cebu City, Branch 7, is Respondent AMML filed its Answer 4 alleging that even on in the determination of whether or not the complaint states
hereby REINSTATED. the assumption that Florex was entitled to reimbursement, a cause of action, the annexes attached to the complaint
SO ORDERED. it was petitioner who should be liable. Accordingly, may be considered, they being parts of the complaint. llcd
||| (Maria Luisa Park Ass'n, Inc. v. Almendras, G.R. No. respondent AMML filed a Third Party Complaint 5 against Coming now to the main issue of arbitration, the pertinent
171763, [June 5, 2009], 606 PHIL 670-686) petitioner on November 10, 1992, averring that whatever clauses of the "Co-operation in the Pacific" contract entered
damages sustained by Florex were caused by petitioner, into by the parties provide:
FIRST DIVISION which actually received and transported Florex's cargo on 16.2 For the purposes of this
[G.R. No. 126212. March 2, 2000.] its vessels and unloaded them. agreement the
SEA- On January 1, 1993, petitioner filed a Motion to Dismiss the Containership Operator
LAND SERVICE, INC., petitioner, vs. Third Party Complaint 6 on the ground of failure to state a shall be deemed to have
COURT OF APPEALS, A.P. cause of action and lack of jurisdiction, the issued to the Principal
MOLLER/MAERSK LINE and amount of damages not having been specified therein. Carrier for good
MAERSK-TABACALERA SHIPPING Petitioner also prayed either for dismissal or consideration and for
AGENCY suspension of the Third Party Complaint on the ground that both loaded and empty
(FILIPINAS), INC., respondents. there exists an arbitration agreement between it and containers its non-
DECISION respondent AMML. On September 27, 1993, the negotiable memo
YNARES-SANTIAGO, J p: lowercourt issued an Order denying petitioner's Motion to bills of lading in the form
This petition for review on certiorari seeks to annul and set Dismiss. Petitioner's Motion for Reconsideration was attached hereto as
aside the decision of the Court of Appeals dated September likewise denied by the lower court in its August 22, 1994 Appendix 6, consigned
29, 1995 in CA-G.R. SP No. 35777, 1 dismissing the petition Order. LLpr only to the Principal
for certiorari filed by petitioner to annul the two (2) orders Undaunted, petitioner filed a petition for certiorari 7 with Carrier or its agents,
issued by the Regional Trial Court of Quezon City, Branch the Court of Appeals on November 23, 1994. Meanwhile, provisions of which shall
216, in Civil Case No. Q-92-12593. petitioner also filed its Answer to the Third Party govern the liability
The facts are as follows: LLpr Complaint in the trial court. between the Principal
On April 29, 1991, petitioner Sea-Land Services, Inc. and On September 29, 1995, Carrier and the
private respondent A.P. Moller/Maersk Line (hereinafter respondent Court of Appeals rendered the assailed Containership Operator
referred to as "AMML"), both carriers of cargo in Decision dismissing the petition for certiorari. With the and that for the
containerships as well as common carriers, entered into a denial of its Motion for Reconsideration, petitioner filed the purpose of determining
contract entitled, "Co-operation in the instant petition for review, raising the following issues — the liability in
Pacific" 2 (hereinafter referred to as the "Agreement"), a I accordance with either
vessel sharing agreement whereby they mutually agreed to THE COURT OF APPEALS DISREGA Lines' memo
purchase, share and exchange needed space for cargo in RDED AN AGREEMENT TO bill of lading, the
their respective containerships. Under the Agreement, they ARBITRATE IN number of packages or
could be, depending on the occasion, either a principal VIOLATION OF STATUTE AND customary freight units
 shown on the to the Containership the appointment, the between the Principal Carrier and the Containership
bill of lading issued by Operator provided that party appointing the Operator arising from contracts of carriage shall be
the Principal Carrier to notice of any extension third Arbitrator shall, governed by the provisions of the bills of lading deemed
its shippers shall be so granted is given to the after application from issued to the Principal Carrier by the Containership
controlling. cdphil Containership Operator the party having Operator. On the other hand, to sustain the Third Party
16.3 The Principal Carrier shall use within 30 days of any appointed his Arbitrator, Complaint would be to allow private respondent to hold
all reasonable such extension being also appoint an petitioner liable under the provisions of the bill of lading
endeavours to defend granted. cdll Arbitrator in issued by the Principal Carrier to Florex, under which the
all in personam and in xxx xxx xxx behalf of the party latter is suing in its Complaint, not under the bill of lading
rem suits for loss of or 32. ARBITRATION making default. petitioner, as containership operator, issued to respondent
damage to cargo carried 32.1 If at any time a dispute or 32.5 Any such arbitration shall be AMML, as Principal Carrier, contrary to what is
pursuant to claim arises out of or in in accordance with contemplated in Clause 16.2.
bills of lading issued by connection with the the Arbitration Act 1950 The Court of Appeals ruled that the terms of the Agreement
it, or to settle such suits Agreement the Lines as amended by "explicitly required that the principal carrier's claim
for as low a figure as shall endeavour to settle theArbitration Act 1979 against the containership operator first be finally
reasonably possible. The such amicably, failing or any other subsequent determined by, among others, a court judgment, before the
Principal Carrier shall which it shall be referred legislation and the right to arbitration accrues." However,
have the right to seek to arbitration by a single arbitrator's award shall the Court of Appeals failed to consider that,
damages and/or an arbitrator in London, be final and binding precisely,arbitration is the mode by which the
indemnity from the such arbitrator to be upon Lines. To the extent liability of the Containership Operator may be finally
Containership Operator appointed by agreement permitted by determined. This is clear from the mandate of Clause 16.3
by arbitrationpursuant to between the Lines within the Arbitration Act 1979 that "(T)he Principal Carrier shall have the right to seek
Clause 32 14 days after service by the Lines hereto exclude damages and/or an indemnity from the Containership
hereof. Notwithstanding one Line upon the pursuant to S Operator by arbitration" and that it "shall be entitled to
the provisions of the other of a notice 3(1) of that Act the commence such arbitration at any time until one year after
Lines' memo specifying the jurisdiction of the its liability has been finally determined by
bills of lading or any nature of the dispute or English agreement, arbitration award or judgment."
statutory claim and requiring High Court of Justice to For respondent Court of Appeals to say that the
rules incorporated therei reference of such dispute entertain any appeal or terms of the contract do not require arbitration as a
n or applicable or claim application under condition precedent to judicial action is erroneous. In the
thereto, the Principal to arbitration pursuant Section 1 and light of the Agreement clauses aforequoted, it is clear
Carrier shall be entitled to this Article. 2 of the Arbitration Act 1 that arbitration is the mode provided by which respondent
to commence 32.2 Failing agreement upon an 979. 10 AMML as Principal Carrier can seek damages and/or
such arbitration at any arbitrator within such From the foregoing, the following matters are indemnity from petitioner, as Containership Operator.
time until one year after period of 14 days, the clear: First, disputes between the Principal Carrier and the Stated differently, respondent AMML is barred from taking
its liability has been dispute shall be settled Containership Operator arising from contracts of carriage judicial action against petitioner by the clear terms of their
finally determined by by three Arbitrators, shall be governed by the provisions of the bills oflading Agreement. LexLib
agreement, arbitration a each party appointing issued to the Principal Carrier by the Containership As the Principal Carrier with which Florex directly dealt
ward or judgment, such one Arbitrator, the third Operator. Second, the Principal Carrier shall use its best with, respondent AMML can and should be held
award or judgment not being appointed by the efforts to defend or settle all suits against it for loss of or accountable by Florex in the event that it has a valid claim
being the President of the London damage to cargo pursuant to bills of lading issued by against the former. Pursuant to Clause 16.3 of the
subject of appeal, Maritime Arbitrators it. Third, the Principal Carrier shall have the right to seek Agreement, respondent AMML, when faced with such a suit
provided that the Association. damages and/or indemnity from the Containership "shall use all reasonable endeavours to defend" itself or
Containership Operator 32.3 If either of the appointed Operator by arbitration, pursuant to Clause 32 of the "settle such suits for as low a figure as reasonably
has been given Arbitrators refuses or is agreement. Fourth, the Principal Carrier shall have the right possible." In turn, respondent AMML can seek damages
notice of the said claim in incapable of acting, the to commence such arbitration any time until one year after and/or indemnity from petitioner as Containership
writing by the Principal party who appointed its liability has been finally determined by Operator for whatever final judgment may be adjudged
Carrier within three him shall appoint a new agreement, arbitration award or judgment, provided that against it under the Complaint of Florex. The crucial point
months of the Principal Arbitrator in his place. the Containership Operator was given notice in writing by is that collection of said damages and/or indemnity from
Carrier receiving notice 32.4 If one of the parties fails to the Principal Carrier within three months of the Principal petitioner should be by arbitration.
in writing of the appoint an Arbitrator — Carrier receiving notice in writing of said claim. dctai All told, when the text of a contract is explicit and leaves no
claim. Further the either originally or by doubt as to its intention, the court may not read into it any
Principal Carrier shall way of substitution — Prescinding from the foregoing matters, we find that both other intention that would contradict its plain
have the right to grant for two weeks after the the trial court and the Court of Appeals erred in denying import. 11 Arbitration being the mode of settlement
extensionsof time for the other party having petitioner's prayer for arbitration. between the parties expressly provided for by their
commencement of suit to appointed his Arbitrator To begin with, allowing respondent AMML's Third Party Agreement, the Third Party Complaint should have been
any third party has sent the party Claim against petitioner to proceed would be in dismissed.
interested in the cargo making default notice by violation of Clause 16.2 of the Agreement. As summarized, This Court has previously held that arbitration is one of the
without prior reference mail, fax or telex to make the clause provides that whatever dispute there may be 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. 12
WHEREFORE, premises considered, the instant Petition for
Review on Certiorari is GRANTED. The
decision ofthe Court of Appeals in CA-G.R. SP No. 35777 is
REVERSED and SET ASIDE. The Regional
Trial Court of Quezon City, Branch 77, is ordered to
DISMISS Respondent AMML's Third Party Complaint in
Civil Case No. Q-92-12593. No pronouncement as to
costs. prcd
SO ORDERED.
||| (Sea-Land Service, Inc. v. Court of Appeals, G.R. No.
126212, [March 2, 2000], 383 PHIL 887-897)
SECOND DIVISION
[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 p:
The instant petition under Rule 65 of the Rules of Court
seeks the annulment of the December 2, 2002
Decision 1 and March 17, 2004 Resolution 2 of the
Department of Environment and Natural Resources-Mining
Adjudication Board (DENR-MAB) in MAB Case No. 0124-01
(Mines Administrative Case No. R-M-2000-01)
entitled Benguet Corporation (Benguet) v. J.G. Realty and
Mining Corporation (J.G. Realty). The December 2, 2002
Decision upheld the March 19, 2001 Decision 3 of the MAB
Panel of Arbitrators (POA) which canceled the Royalty
Agreement with Option to Purchase (RAWOP) dated June 1,
1987 4 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 Benguet's 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
Agreement 5 dated June 1, 1987. The mining claims were
covered by MPSA Application No. APSA-V-0009 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, Benguet's 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 PhP42.4 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 Benguet's
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 RAWOP 9 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 Appeal 11 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 Court's 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., 13ruling 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
thisConstitution 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 Court's 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 body's decisions, such
transfer relates only to procedure;
hence, it does not impair the
substantive and vested rights of the
parties. The aggrieved party's 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
quasi-judicial 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 rule-making. 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
quasi-judicial 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). 15 However, 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. 0124-01 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.
xxx xxx xxx
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 one's hand even if
there is a law which allows him to
do so. 17
The MAB, meanwhile, denied Benguet's 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-M-2000-
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. Realty's 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. TcHCIS
xxx xxx xxx
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 quasi-judicial 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. Realty's contention, that prior resort to arbitration is
unavailing in the instant case because the POA's 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 is not part of
the governmental unit or labor
department's 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. Realty's argument on this matter must
fail.
As to J.G. Realty's 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 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 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 POA's 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 MAB's 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 POA's 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) Benguet's failure to pay J.G. Realty's
royalties for the mining claims; and (2) Benguet's 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.
Benguet's 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 OWNER's 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, Benguet's 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 Benguet's right to prosecute MPSA
Application No. APSA-V-0009 and to further develop such own initiative, dismissed the complaint without prejudice
mining claims. for failure of petitioner to prosecute. However, upon
In Car Cool Philippines, Inc. v. Ushio Realty and Development motion of petitioner, the trial court issued an Order dated 8
Corporation, we defined unjust enrichment, as follows: September 2000 reconsidering the dismissal. It further
We have held that "[t]here is unjust directed the petitioner to submit the compromise
enrichment when a agreement within 15 days from receipt thereof and warned
person unjustly retains a benefit to that for failure on its part to submit the said agreement
the loss of another, or when a shall cause the imposition of payment of the required
person retains money or property docket fees for re-filing of the case. On 27 July 2000,
of another against the fundamental petitioner filed a Motion to Set Case for Pre-Trial
principles of justice, equity and Conference, but then it was denied by the trial court
good conscience." Article 22 of the because of its failure to submit a compromise agreement.
Civil Code provides that "[e]very Petitioner filed a Petition for Certiorari before the Court of
person who through an act of Appeals. It argued that the trial court had no authority to
performance by another, or any compel the parties to enter into an amicable settlement nor
other means, acquires or comes to deny the holding of a pre-trial conference on the ground
into possession of something at the that no compromise agreement was turned over to the
expense of the latter without just or courta quo: The appellate court affirmed the orders of the
legal ground, shall return the same trial court. Hence, this petition.
to him." The principle of unjust The Court saw no reason why the trial court should stop
enrichment under Article 22 short of hearing the civil case on the merits. There was no
requires two conditions: (1) that a substantial policy worth pursuing by requiring petitioner
person is benefited without a valid to pay again the docket fees when it had already discharged
basis or justification, and (2) that this obligation simultaneously with the filing of the
such benefit is derived at another's complaint for collection of a sum of money. The procedure
expense or damage. for dismissed cases when re-filed is the same as though it
There is no unjust enrichment was initially lodged, i.e., the filing of answer, reply, answer
when the person who will benefit to counterclaim, including other foot-dragging maneuvers,
has a valid claim to such except for the rigmarole of raffling cases which is
benefit. 28 (Emphasis supplied.) dispensed with since the re-filed complaint is automatically
Clearly, there is no unjust enrichment in the instant case as assigned to the branch to which the original case pertained.
the cancellation of the RAWOP, which left Benguet without A complaint that is re-filed leads to the re-enactment of the
any legal right to participate in further developing the past proceedings with the concomitant full attention of the
mining claims, was brought about by its violation of the same trial court exercising an immaculate slew of
RAWOP. Hence, Benguet has no one to blame but itself for jurisdiction and control over the case that was previously
its predicament. dismissed, which in the context of the instant case is a
WHEREFORE, we DISMISS the petition, and AFFIRM the waste of judicial time, capital and energy. Accordingly, the
December 2, 2002 Decision and March 17, 2004 Resolution instant petition was granted.
of the DENR-MAB in MAB Case No. 0124-01 upholding the SYLLABUS
cancellation of the June 1, 1987 RAWOP. No costs. 1. REMEDIAL LAW; CIVIL PROCEDURE; PROCEDURE FOR
SO ORDERED. REFILING OF DISMISSED CASES. — There is no substantial
||| (Benguet Corp. v. Department of Environment and policy worth pursuing by requiring petitioner to pay again
Natural Resources - Mines Adjudication Board, G.R. No. the docket fees when it has already discharged this
163101, [February 13, 2008], 568 PHIL 756-774) obligation simultaneously with the filing of the complaint
for collection of a sum of money. The procedure for
SECOND DIVISION dismissed cases when re-filed is the same as though it was
[G.R. No. 152878. May 5, 2003.] initially lodged, i.e., the filing of answer, reply, answer to
RIZAL COMMERCIAL BANKING counter-claim, including other foot-dragging maneuvers,
CORPORATION, petitioner, vs. except for the rigmarole of raffling cases which is
MAGWIN MARKETING dispensed with since the re-filed complaint is automatically
CORPORATION, NELSON TIU, assigned to the branch to which the original case pertained.
BENITO SY and ANDERSON A complaint that is re-filed leads to the re-enactment of
UY,respondents. past proceedings with the concomitant full attention of the
Siguion Reyna Montecillo & Ongsiako for petitioner. same trial court exercising an immaculate slew of
Sycip Salazar Hernandez & Gatmaitan for respondent A. Uy. jurisdiction and control over the case that was previously
Ernest S. Ang, Jr. for private respondents. dismissed, which in the context of the instant case is a
SYNOPSIS waste of judicial time, capital and energy.
In a complaint for recovery of sum of money filed by 2. ID.; ID.; DISMISSAL OF ACTION; FAILURE TO SUBMIT A
petitioner against the respondents, the trial court, on its COMPROMISE AGREEMENT WITHIN THE STIPULATED
NUMBER OF DAYS DOES NOT MEAN THAT THE CASE
WOULD BE DISMISSED. — Contrary to respondent Uy's
asseverations, the impact of the second paragraph upon the
first is simply to illustrate what the trial court would do
after setting aside the dismissal without prejudice:
submission of the compromise agreement for the
consideration of the trial court. Nothing in the second
paragraph do we read that the reconsideration is subject to
two (2) qualifications. Certainly far from it, for in Goldloop
Properties, Inc. v. Court of Appeals a similar directive, i.e.,
"[t]he parties are given a period of fifteen (15) days from
today within which to submit a Compromise Agreement,"
was held to mean that "should the parties fail in their
negotiations the proceedings would continue from where
they left off." Goldloop Properties, Inc. further said that its
order, or a specie of it, did not constitute an agreement or
even an expectation of the parties that should they fail to
settle their differences within the stipulated number of
days their case would be dismissed.
3. ID.; ID.; ID.; DOCKET FEES ARE DEFRAYED ONLY AFTER
THE DISMISSAL BECOMES FINAL AND EXECUTORY AND
WHEN THE CIVIL CASE IS RE-FILED. — It must be
emphasized however that once the dismissal attains the
attribute of finality, the trial court cannot impose legal fees
anew because a final and executory dismissal although
without prejudice divests the trial court of jurisdiction over
the civil case as well as any residual power to order
anything relative to the dismissed case; it would have to
wait until the complaint is docketed once again. On the
other hand, if we are to concede that the trial court retains
jurisdiction over Civil Case No. 99-518 for it to issue the
assailed Orders, a continuation of the hearing thereon
would not trigger a disbursement for docket fees on the
part of petitioner as this would obviously imply the setting
aside of the order of dismissal and the reinstatement of the
complaint.
4. ID.; ID.; ID.; ID.; CASE AT BAR. — The addition of the
second sentence in the second paragraph does not change
the absolute nullification of the dismissal without prejudice
decreed in the first paragraph. The sentence "[f]ailure on
the part of plaintiff to submit the said agreement shall
cause the imposition of payment of the required docket
fees for re-filing of this case" is not a directive to pay docket
fees but only a statement of the event that may result in its
imposition. The reason for this is that the trial court could
not have possibly made such payment obligatory in the
same civil case, i.e., Civil Case No. 99-518, since docket fees
are defrayed only after the dismissal becomes final and
executory and when the civil case is re-filed.
5. ID.; ID.; ID.; SUBSEQUENT ACTIONS OF THE TRIAL
COURT BELIE AN INTENTION TO REVIVE THE ORDER OF
DISMISSAL WITHOUT PREJUDICE IN THE EVENT THAT
PETITIONER FAILS TO SUBMIT A COMPROMISE
AGREEMENT; CASE AT BAR. — The subsequent actions of
the trial court also belie an intention to revive theOrder of
dismissal without prejudice in the event that petitioner
fails to submit a compromise agreement. The Orders of 6
and 16 November 2000 plainly manifest that it was
retaining jurisdiction over the civil case, a fact which would
not have been possible had the dismissal without prejudice
been resuscitated. Surely, the court a quo could not have
denied on 6 November 2000 petitioner's motion to
calendar Civil Case No. 99-518 for pre-trial if the dismissal
had been restored to life in the meantime. By then the
dismissal without prejudice would have already become
final and executory so as to effectively remove the civil case
from the docket of the trial court. The same is true with
the Order of 16 November 2000 denying due course to
petitioner's Notice of Appeal. There would have been no
basis for such exercise of discretion because the
jurisdiction of the court a quo over the civil case would
have been discharged and terminated by the presumed
dismissal thereof. Moreover, we note the ground for
denying due course to the appeal: the "Orders dated 8
September 2000 and 6 November 2000 are interlocutory
orders and therefore, no appeal may be taken from . . . ."
This declaration strongly suggests that something more
was to be accomplished in the civil case, thus negating the
claim that the Order of dismissal without prejudice was
resurrected upon the parties' failure to yield a compromise
agreement.
6. ID.; ID.; "FINAL ORDER" DIFFERENTIATED FROM
"INTERLOCUTORY ORDER." — A "final order" issued by a
court has been defined as one which disposes of the subject
matter in its entirety or terminates a particular proceeding
or action, leaving nothing else to be done but to enforce by
execution what has been determined by the court, while an
"interlocutory order" is one which does not dispose of a
case completely but leaves something more to be decided
upon.
7. ID.; ID.; DISMISSAL OF ACTION; GOLD LOOP PROPERTIES,
INC. vs. COURT OF APPEALS; APPLICABLE IN CASE AT BAR.
— Besides the semantic and consequential improbabilities
of respondent Uy's argument, our ruling in Goldloop
Properties, Inc., is decisive of the instant case. In Goldloop
Properties, Inc., we reversed the action of the trial court in
dismissing the complaint for failure of the plaintiff to
prosecute its case, which was in turn based on its inability
to forge a compromise with the other parties within fifteen
(15) days from notice of the order to do so and held —
"Since there is nothing in the Rules that imposes the
sanction of dismissal for failing to submit a compromise
agreement, then it is obvious that the dismissal of the
complaint on the basis thereof amounts no less to a gross
procedural infirmity assailable by certiorari. For such
submission could at most be directory and could not result
in throwing out the case for failure to effect a compromise.
While a compromise is encouraged, very strongly in fact,
failure to consummate one does not warrant any
procedural sanction, much less an authority to jettison a
civil complaint worth P4,000,000.00 . . . Plainly, submission
of a compromise agreement is never mandatory, nor is it
required by any rule."
8. ID.; ID.; PROPER COURSE OF ACTION TO BE TAKEN BY
THE COURT A QUO, UPON MANIFESTATION OF THE
PARTIES OF THEIR WILLINGNESS TO DISCUSS A
SETTLEMENT. — The proper course of action that should
have been taken by the court a quo, upon manifestation of
the parties of their willingness to discuss a settlement, was
to suspend the proceedings and allow them reasonable
time to come to terms (a) If willingness to discuss a
possible compromise is expressed by one or both parties;
or (b) If it appears that one of the parties, before the
commencement of the action or proceeding, offered to
discuss a possible compromise but the other party refused
the offer, pursuant to Art. 2030 of the Civil Code. If despite
efforts exerted by the trial court and the parties the
negotiations still fail, only then should the action continue
as if no suspension had taken place.
9. ID.; ID.; RULES ALLOW THE TRIAL COURT TO SUSPEND
ITS PROCEEDINGS TO ENCOURAGE THE USE OF
ALTERNATIVE MECHANISMS OF DISPUTE RESOLUTION.
— Ostensibly, while the rules allow the trial court to
suspend its proceedings consistent with the policy to
encourage the use of alternative mechanisms of dispute
resolution, in the instant case, the trial court only gave the
parties fifteen (15) days to conclude a deal. This was, to say
the least, a passive and paltry attempt of the court a quo in
its task of persuading litigants to agree upon a reasonable
concession. Hence, if only to inspire confidence in the
pursuit of a middle ground between petitioner and
respondents, we must not interpret the trial
court's Orders as dismissing the action on its own motion
because the parties, specifically petitioner, were anxious to
litigate their case as exhibited in their several
manifestations and motions.
10. ID.; ID.; DISMISSAL OF ACTION; GOLDLOOP
PROPERTIES, INC. vs. COURT OF APPEALS; COURT DOES
NOT TOLERATE A WRONGFUL DISMISSAL JUST BECAUSE
THE PARTIES FAILED TO SUBMIT COMPROMISE
AGREEMENT; APPLIED IN CASE AT BAR. — To begin with,
whether the dismissal is with or without prejudice if
grievously erroneous is detrimental to the cause of the
affected party; Goldloop Properties, Inc. does not tolerate a
wrongful dismissal just because it was without prejudice.
More importantly, the facts in Goldloop Properties, Inc.
involve, as in the instant case, a dismissal for failure to
prosecute on the ground of the parties' inability to come up
with a compromise agreement within fifteen (15) days
from notice of the court's order therein. All told, the
parallelism between them is unmistakable. Even if we are
to accept on face value respondent's understanding
of Goldloop Properties, Inc. as solely about the failure to
submit a compromise agreement, it is apparent that the
present case confronts a similar problem. Perhaps initially
the issue was one of failure to prosecute, as can be
observed from the Order dated 20 July 2000, although later
reversed and set aside. But thereafter, in the Order of 6
November 2000, the trial court refused to proceed to pre-
trial owing to the "failure of the plaintiff to submit a
compromise agreement pursuant to the Order dated 8
September 2000." When the civil case was stalled on
account of the trial court's refusal to call the parties to a
pre-trial conference, the reason or basis therefor was the
absence of a negotiated settlement — a circumstance that
takes the case at bar within the plain ambit of Goldloop
Properties, Inc. In any event, given that the instant case
merely revolves around the search for a reasonable
interpretation of the several Ordersof the trial court, i.e., as
to whether the dismissal without prejudice was revived
upon petitioner's helplessness to perfect an out-of-court
arrangement, with more reason must we employ the ruling
inGoldloop Properties, Inc. to resolve the parties' differences
of opinion.
11. ID.; ID.; ID.; GROUNDS FOR DISMISSAL DUE TO
PLAINTIFF'S FAULT. — A complaint may be dismissed due
to plaintiff's fault: (a) if he fails to appear during a
scheduled trial, especially on the date for the presentation
of his evidence in chief, or when so required at the pre-
trial; (b) if he neglects to prosecute his action for an
unreasonable length of time; or (c) if he does not comply
with the rules or any order of the court.
12. ID.; ID.; ID.; ID.; FAILURE TO PROSECUTE; NOT
PRESENT IN CASE AT BAR. — To constitute a sufficient
ground for dismissal, the inattention of plaintiff to pursue
his cause must not only be prolonged but also be
unnecessary and dilatory resulting in the trifling of judicial
processes. In the instant case, the adjournment was not
only fleeting as it lasted less than six (6) months but was
also done in good faith to accommodate respondents'
incessant pleas to negotiate. Although the dismissal of a
case for failure to prosecute is a matter addressed to the
sound discretion of the court, that judgment however must
not be abused. The availability of this recourse must be
determined according to the procedural history of each
case, the situation at the time of the dismissal, and the
diligence of plaintiff to proceed therein. Stress must also be
laid upon the official directive that courts must endeavor to
convince parties in a civil case to consummate a fair
settlement, and to mitigate damages to be paid by the
losing party who has shown a sincere desire for such give-
and-take. All things considered, we see no compelling
circumstances to uphold the dismissal of petitioner's
complaint regardless of its characterization as being
without prejudice.
13. ID.; ID.; ID.; COURTS SHOULD DECIDE TO DISPENSE
RATHER THAN WIELD THEIR AUTHORITY TO DISMISS. —
A court may dismiss a case on the ground of non
prosequitur but the real test of the judicious exercise of
such power is whether under the circumstances plaintiff is
chargeable with want of fitting assiduousness in not acting
on his complaint with reasonable promptitude. Unless a
party's conduct is so indifferent, irresponsible,
contumacious or slothful as to provide substantial grounds
for dismissal, i.e., equivalent to default or non-appearance
in the case, the courts should consider lesser sanctions
which would still amount to achieving the desired end. In
the absence of a pattern or scheme to delay the disposition
of the case or of a wanton failure to observe the mandatory
requirement of the rules on the part of the plaintiff, as in
the case at bar, courts should decide to dispense rather
than wield their authority to dismiss.
14. ID.; ID.; PRE-TRIAL CONFERENCE; BEST-SUITED
SOLUTION FOR FAILURE OF THE PARTIES TO SUBMIT A
COMPROMISE AGREEMENT; CASE AT BAR. — Clearly,
another creative remedy was available to the court a quo to
attain a speedy disposition of Civil Case No. 99-518 without
sacrificing the course of justice. Since the failure of
petitioner to submit a compromise agreement was the
refusal of just one of herein respondents,i.e., Benito Sy, to
sign his name on the conforme of the loan restructure
documents, and the common concern of the courts a
quo was dispatch in the proceedings, the holding of a pre-
trial conference was the best-suited solution to the
problem as this stage in a civil action is where issues are
simplified and the dispute quickly and genuinely
reconciled. By means of pre-trial, the trial court is fully
empowered to sway the litigants to agree upon some fair
compromise. EACIaT
15. ID.; ID.; DISMISSAL OF ACTION; INCONSIDERATE
DISMISSALS, EVEN IF WITHOUT PREJUDICE, DO NOT
CONSTITUTE A SOLUTION TO THE CONGESTION OF
COURT DOCKETS. — Dismissing the civil case and
compelling petitioner to re-file its complaint is a dangerous,
costly and circuitous route that may end up aggravating,
not resolving, the disagreement. This case management
strategy is frighteningly deceptive because it does so at the
expense of petitioner whose cause of action, perhaps, may
have already been admitted by its adverse parties as shown
by three (3) of four (4) defendants not willing to contest
petitioner's allegations, and more critically, since this
approach promotes the useless and thankless duplication
of hard work already undertaken by the trial court. As we
have aptly observed, "[i]nconsiderate dismissals, even if
without prejudice, do not constitute a panacea nor a
solution to the congestion of court dockets. While they lend
a deceptive aura of efficiency to records of individual
judges, they merely postpone the ultimate reckoning
between the parties. In the absence of clear lack of merit or
intention to delay, justice is better served by a brief
continuance, trial on the merits, and final disposition of the
cases before the court." HIAcCD
DECISION
BELLOSILLO, J p:
WE ARE PERTURBED that this case should drag this Court
in the banal attempts to decipher the hazy and confused
intent of the trial court in proceeding with what would
have been a simple, straightforward and hardly arguable
collection case. Whether the dismissal without prejudice for
failure to prosecute was unconditionally reconsidered,
reversed and set aside to reinstate the civil case and have it
ready for pre-trialare matters which should have been
clarified and resolved in the first instance by the court a
quo. Unfortunately, this feckless imprecision of the trial
court became the soup stock of the parties and their
lawyers to further delay the case below when they could
have otherwise put things in proper order efficiently and
effectively.
On 4 March 1999 petitioner Rizal Commercial Banking
Corporation (RCBC) filed a complaint for recovery of a sum
of money with prayer for a writ of preliminary attachment
against respondents Magwin Marketing Corporation,
Nelson Tiu, Benito Sy and Anderson Uy. 1 On 26 April 1999,
the trial court issued a writ of attachment. 2 On 4 June
1999 the writ was returned partially satisfied since only a
parcel of land purportedly owned by defendant Benito Sy
was attached. 3 In the meantime, summons was served on
each of the defendants, respondents herein, who filed their
respective answers, except for defendant Gabriel Cheng
who was dropped without prejudice as party-defendant as
his whereabouts could not be located. 4 On 21 September
1999 petitioner moved for an alias writ of attachment
which on 18 January 2000 the court a quodenied. 5
Petitioner did not cause the case to be set for pre-
trial. 6 For about six (6) months thereafter, discussions
between petitioner and respondents Magwin Marketing
Corporation, Nelson Tiu, Benito Sy and Anderson Uy, as
parties in Civil Case No. 99-518, were undertaken to
restructure the indebtedness of respondent Magwin
Marketing Corporation. 7 On 9 May 2000 petitioner
approved a debt payment scheme for the corporation
which on 15 May 2000 was communicated to the latter by
means of a letter dated 10 May 2000 for the conformity of
its officers, i.e., respondent Nelson Tiu as
President/General Manager of Magwin Marketing
Corporation and respondent Benito Sy as Director
thereof. 8 Only respondent Nelson Tiu affixed his signature
on the letter to signify his agreement to the terms and
conditions of the restructuring. 9
On 20 July 2000 the RTC of Makati City, on its own initiative,
issued an Order dismissing without prejudice Civil Case No.
99-518 for failure of petitioner as plaintiff therein to
"prosecute its action for an unreasonable length of time . .
." 10 On 31 July 2000 petitioner moved for reconsideration
of the Order by informing the trial court of
respondents' unremitting desire to settle the case amicably
through a loan restructuring program. 11On 22 August
2000 petitioner notified the trial court of the acquiescence
thereto of respondent Nelson Tiu as an officer of Magwin
Marketing Corporation and defendant in the civil case. 12
On 8 September 2000 the court a quo issued
an Order reconsidering the dismissal without prejudice of
Civil Case No. 99-518 —
Acting on plaintiff's "Motion for
Reconsideration" of the Order
dated 20 July 2000 dismissing this
case for failure to prosecute, it
appearing that there was already
conformity to the restructuring of
defendants' indebtedness with
plaintiff by defendant Nelson Tiu,
President of defendant corporation
per "Manifestation and Motion"
filed by plaintiff on 22 August 2000,
there being probability of
settlement among the parties, as
prayed for, the Order dated 20 July
2000 is hereby set aside.
Plaintiff is directed to submit the
compromise agreement within 15
days from receipt hereof. Failure on
the part of plaintiff to submit the
 said agreement shall cause the
imposition of payment of the
required docket fees for re-filing of
this case. 13
On 27 July 2000 petitioner filed in Civil Case No. 99-518
a Manifestation and Motion to Set Case for Pre-Trial
Conference alleging that "[t]o date, only defendant Nelson
Tiu had affixed his signature on the May 10, 2000 letter
which informed the defendants that plaintiff [herein
petitioner] already approved defendant Magwin Marketing
Corporations request for restructuring of its loan
obligations to plaintiff but subject to the terms and
conditions specified in said letter." 14 This motion was
followed on 5 October 2000 by petitioner'sSupplemental
Motion to Plaintiffs Manifestation and Motion to Set Case for
Pre-Trial Conference affirming that petitioner "could not
submit a compromise agreement because only defendant
Nelson Tiu had affixed his signature on the May 10, 2000
letter. . . ." 15 Respondent Anderson Uy opposed the
foregoing submissions of petitioner while respondents
Magwin Marketing Corporation, Nelson Tiu and Benito Sy
neither contested nor supported them. 16
The trial court, in an undated Order (although a date was
later inserted in the Order), denied petitioner's motion to
calendar Civil Case No. 99-518 for pre-trial stating that —
Acting on plaintiff's [herein
petitioner] "Manifestation and
Motion to Set Case for Pre-Trial
Conference," the "Opposition" filed
by defendant Uy and the
subsequent "Supplemental Motion"
filed by plaintiff; defendant Uy's
"Opposition," and plaintiff's
"Reply"; for failure of the plaintiff to
submit a compromise agreement
pursuant to the Order dated 8
September 2000 plaintiff's motion
to set case for pre-trial conference
is hereby denied. 17
On 15 November 2000 petitioner filed its Notice of
Appeal from the 8 September 2000 Order of the trial court
as well as its undated Order in Civil Case No. 99-518. On 16
November 2000 the trial court issued two (2) Orders, one
of which inserted the date "6 November 2000" in the
undated Order rejecting petitioner's motion for pre-trial in
the civil case, and the other denying due course to
the Notice of Appeal on the ground that the "Orders dated 8
September 2000 and 6 November 2000 are interlocutory
orders and therefore, no appeal may be taken. . . ." 18
On 7 December 2000 petitioner elevated the Orders dated 8
September 2000, 6 November 2000 and 16 November
2000 of the trial court to the Court of Appeals in a petition
for certiorari under Rule 65 of theRules of Civil
Procedure. 19 In the main, petitioner argued that the
court a quo had no authority to compel the parties in Civil
Case No. 99-518 to enter into an amicable settlement nor to
deny the holding of a pre-trial conference on the ground
that no compromise agreement was turned over to the
court a quo. 20
On 28 September 2001 the appellate court promulgated
its Decision dismissing the petition for lack of merit and
affirming the assailed Orders of the trial court 21 holding
that — EDHCSI
. . . although the language of the
September 8, 2000 Order may not
be clear, yet, a careful reading of
the same would clearly show that
the setting aside of the Order dated
July 20, 2000 which dismissed
petitioner's complaint . . . for failure
to prosecute its action for an
unreasonable length of time is
dependent on the following
conditions, to wit: a) The
submission of the compromise
agreement by petitioner within
fifteen (15) days from notice; and
b) Failure of petitioner to submit
the said compromise agreement
shall cause the imposition of the
payment of the required docket
fees for the re-filing of the case; so
much so that the non-compliance
by petitioner of condition no. 1
would make condition no. 2
effective, especially that
petitioner's manifestation and
motion to set case for pre-trial
conference and supplemental
motion . . . [were] denied by the
respondent judge in his Order
dated November 6, 2000, which in
effect means that the Order dated
July 20, 2000 was ultimately not set
aside considering that a party need
not pay docket fees for the re-filing
of a case if the original case has
been revived and reinstated. 22
On 2 April 2002 reconsideration of the Decision was
denied; hence, this petition.
In the instant case, petitioner maintains that the trial court
cannot coerce the parties in Civil Case No. 99-518 to
execute a compromise agreement and penalize their failure
to do so by refusing to go forward with the pre-trial
conference. To hold otherwise, so petitioner avers, would
violate Art. 2029 of the Civil Code which provides that
"[t]he court shall endeavor to persuade the litigants in a
civil case to agree upon some fair compromise," and this
Court's ruling in Goldloop Properties, Inc. v. Court of
Appeals 23 where it was held that the trial court cannot
dismiss a complaint for failure of the parties to submit a
compromise agreement.
On the other hand, respondent Anderson Uy filed his
comment after several extensions asserting that there are
no special and important reasons for undertaking this
review. He also alleges that petitioner's attack is limited to
the Order dated 8 September 2000 as to whether it is
conditional as the Court of Appeals so found and the
applicability to this case of the ruling in Goldloop Properties,
Inc. v. Court of Appeals. Respondent Uy claims that
the Order reconsidering the dismissal of Civil Case No. 99-
518 without prejudice is on its face contingent upon the
submission of the compromise agreement which in the first
place was the principal reason of petitioner to justify the
withdrawal of the Order declaring his failure to prosecute
the civil case. He further contends that the trial court did
not force the parties in the civil case to execute a
compromise agreement, the truth being that it dismissed
the complaint therein for petitioner's dereliction.
Finally, respondent Uy contests the relevance of Goldloop
Properties, Inc. v. Court of Appeals, and refers to its
incongruence with the instant case, i.e., that the complaint
of petitioner was dismissed for failure to prosecute and not
for its reckless disregard to present an amicable settlement
as was the situation inGoldloop Properties, Inc., and that the
dismissal was without prejudice, in contrast with the
dismissal with prejudice ordered in the cited case. For their
part, respondents Magwin Marketing Corporation, Nelson
Tiu and Benito Sy waived their right to file a comment on
the instant petition and submitted the same for resolution
of this Court. 24
The petition of Rizal Commercial Banking Corporation is
meritorious. It directs our attention to questions of
substance decided by the courts a quo plainly in a way not
in accord with applicable precedents as well as the
accepted and usual course of judicial proceedings; it offers
special and important reasons that demand the exercise of
our power of supervision and review. Furthermore,
petitioner's objections to the proceedings below
encompass not only the Order of 8 September 2000 but
include the cognate Orders of the trial court of 6 and 16
November 2000. This is evident from the prayer of the
instant petition which seeks to reverse and set aside
the Decision of the appellate court and to direct the trial
court to proceed with the pre-trial conference in Civil Case
No. 99-518. Evidently, the substantive issue involved
herein is whether the proceedings in the civil case should
progress, a question which at bottom embroils all
the Orders affirmed by the Court of Appeals.
On the task at hand, we see no reason why RTC-Br. 135 of
Makati City should stop short of hearing the civil case on
the merits. There is no substantial policy worth pursuing
by requiring petitioner to pay again the docket fees when it
has already discharged this obligation simultaneously with
the filing of the complaint for collection of a sum of money.
The procedure for dismissed cases when re-filed is the
same as though it was initially lodged, i.e., the filing of
answer, reply, answer to counter-claim, including other
foot-dragging maneuvers, except for the rigmarole of
raffling cases which is dispensed with since the re-filed
complaint is automatically assigned to the branch to which
the original case pertained. 25 A complaint that is re-filed
leads to the re-enactment of past proceedings with the
concomitant full attention of the same trial court exercising
an immaculate slew of jurisdiction and control over the
case that was previously dismissed, 26 which in the context
of the instant case is a waste of judicial time, capital and
energy.
What judicial benefit do we derive from starting the civil
case all over again, especially where three (3) of the four
(4) defendants, i.e., Magwin Marketing Corporation, Nelson
Tiu and Benito Sy, have not contested petitioner's plea
before this Court and the courts a quo to advance to pre-
trial conference? Indeed, to continue hereafter with the
resolution of petitioner's complaint without the usual
procedure for the re-filing thereof, we will save the court a
quo invaluable time and other resources far outweighing
the docket fees that petitioner would be forfeiting should
we rule otherwise.
Going over the specifics of this petition and the arguments
of respondent Anderson Uy, we rule that theOrder of 8
September 2000 did not reserve conditions on the
reconsideration and reversal of the Orderdismissing
without prejudice Civil Case No. 99-518. This is quite
evident from its text which does not use words to signal an
intent to impose riders on the dispositive portion —
Acting on plaintiff's "Motion for
Reconsideration" of the Order
dated 20 July 2000 dismissing this
case for failure to prosecute, it
appearing that there was already
conformity to the restructuring of
defendants' indebtedness with
plaintiff by defendant Nelson Tiu,
President of defendant corporation
per "Manifestation and Motion"
filed by plaintiff on 22 August 2000,
there being probability of
settlement among the parties, as
prayed for, the Order dated 20 July
2000 is hereby set aside.
Plaintiff is directed to submit the
compromise agreement within 15
days from receipt hereof. Failure on
the part of plaintiff to submit the
said agreement shall cause the
imposition of payment of the
required docket fees for re-filing of
this case. 27
Contrary to respondent Uy's asseverations, the impact of
the second paragraph upon the first is simply to illustrate
what the trial court would do after setting aside the
dismissal without prejudice: submission of the compromise
agreement for the consideration of the trial court. Nothing
in the second paragraph do we read that the
reconsideration is subject to two (2) qualifications.
Certainly far from it, for in Goldloop Properties, Inc. v. Court
of Appeals 28 a similar directive, i.e., "[t]he parties are
given a period of fifteen (15) days from today within which
to submit a Compromise Agreement," was held to mean
that "should the parties fail in their negotiations the
proceedings would continue from where they left
off." Goldloop Properties, Inc. further said that its order, or a
specie of it, did not constitute an agreement or even an
expectation of the parties that should they fail to settle
their differences within the stipulated number of days their
case would be dismissed.
The addition of the second sentence in the second
paragraph does not change the absolute nullification of the
dismissal without prejudice decreed in the first paragraph.
The sentence "[f]ailure on the part of plaintiff to submit the
said agreement shall cause the imposition of payment of
the required docket fees for re-filing of this case" is not a
directive to pay docket fees but only a statement of the
event that may result in its imposition. The reason for this
is that the trial court could not have possibly made such
payment obligatory in the same civil case, i.e., Civil Case No.
99-518, since docket fees are defrayed only after the
dismissal becomes final and executory and when the civil
case is re-filed.
It must be emphasized however that once the dismissal
attains the attribute of finality, the trial court cannot
impose legal fees anew because a final and executory
dismissal although without prejudice divests the trial court
of jurisdiction over the civil case as well as any residual
power to order anything relative to the dismissed case; it
would have to wait until the complaint is docketed once
again. 29 On the other hand, if we are to concede that the
trial court retains jurisdiction over Civil Case No. 99-518
for it to issue the assailedOrders, a continuation of the
hearing thereon would not trigger a disbursement for
docket fees on the part of petitioner as this would
obviously imply the setting aside of the order of dismissal
and the reinstatement of the complaint.
Indubitably, it is speculative to reckon the effectivity of
the Order of dismissal without prejudice to the
presentation of the compromise agreement. If we are to
admit that the efficacy of the invalidation of theOrder of
dismissal is dependent upon this condition, then we must
inquire: from what date do we count the fifteen (15)-day
reglementary period within which the alleged revival of the
order of dismissal began to run? Did it commence from the
lapse of the fifteen (15) days provided for in the Order of 8
September 2000? Or do we count it from the 6 November
2000 Orderwhen the trial court denied the holding of a pre-
trial conference? Or must it be upon petitioner's receipt of
the 16 November 2000 Order denying due course to
its Notice of Appeal? The court a quo could not have
instituted an Order that marked the proceedings before it
with a shadow of instability and chaos rather than a
semblance of constancy and firmness.
The subsequent actions of the trial court also belie an
intention to revive the Order of dismissal without prejudice
in the event that petitioner fails to submit a compromise
agreement. The Orders of 6 and 16 November 2000 plainly
manifest that it was retaining jurisdiction over the civil
case, a fact which would not have been possible had the
dismissal without prejudice been resuscitated. Surely, the
court a quo could not have denied on 6 November 2000
petitioner's motion to calendar Civil Case No. 99-518 for
pre-trial if the dismissal had been restored to life in the
meantime. By then the dismissal without prejudice would
have already become final and executory so as to effectively
remove the civil case from the docket of the trial court.
The same is true with the Order of 16 November 2000
denying due course to petitioner's Notice of Appeal. There
would have been no basis for such exercise of discretion
because the jurisdiction of the court a quoover the civil case
would have been discharged and terminated by the
presumed dismissal thereof. Moreover, we note the ground
for denying due course to the appeal: the "Orders dated 8
September 2000 and 6 November 2000 are interlocutory
orders and therefore, no appeal may be taken from . .
." 30 This declaration strongly suggests that something
more was to be accomplished in the civil case, thus
negating the claim that the Order of dismissal without
prejudice was resurrected upon the parties' failure to yield
a compromise agreement. A "final order" issued by a court
has been defined as one which disposes of the subject
matter in its entirety or terminates a particular proceeding
or action, leaving nothing else to be done but to enforce by
execution what has been determined by the court, while an
"interlocutory order" is one which does not dispose of a
case completely but leaves something more to be decided
upon. 31
Besides the semantic and consequential improbabilities of
respondent Uy's argument, our ruling in Goldloop
Properties, Inc., is decisive of the instant case. In Goldloop
Properties, Inc., we reversed the action of the trial court in
dismissing the complaint for failure of the plaintiff to
prosecute its case, which was in turn based on its inability
to forge a compromise with the other parties within fifteen
(15) days from notice of the order to do so and held —
Since there is nothing in the Rules
that imposes the sanction of
dismissal for failing to submit a
compromise agreement, then it is
obvious that the dismissal of the
complaint on the basis thereof
amounts no less to a gross
procedural infirmity assailable
by certiorari. For such submission
could at most be directory and
could not result in throwing out the
case for failure to effect a
compromise. While a compromise
is encouraged, very strongly in fact,
failure to consummate one does not
warrant any procedural sanction,
much less an authority to jettison a
civil complaint worth
P4,000,000.00 . . . Plainly,
submission of a compromise
agreement is never mandatory, nor
is it required by any rule. 32
As also explained therein, the proper course of action that
should have been taken by the court a quo, upon
manifestation of the parties of their willingness to discuss a
settlement, was to suspend the proceedings and allow them
reasonable time to come to terms (a) If willingness to
discuss a possible compromise is expressed by one or both
parties; or (b) If it appears that one of the parties, before
the commencement of the action or proceeding, offered to
discuss a possible compromise but the other party refused
the offer, pursuant to Art. 2030 of the Civil Code. If despite
efforts exerted by the trial court and the parties the
negotiations still fail, only then should the action continue
as if no suspension had taken place. 33
Ostensibly, while the rules allow the trial court to suspend
its proceedings consistent with the policy to encourage the
use of alternative mechanisms of dispute resolution, in the
instant case, the trial court only gave the parties fifteen
(15) days to conclude a deal. This was, to say the least, a
passive and paltry attempt of the court a quo in its task of
persuading litigants to agree upon a reasonable
concession. 34 Hence, if only to inspire confidence in the
pursuit of a middle ground between petitioner and
respondents, we must not interpret the trial
court's Orders as dismissing the action on its own motion
because the parties, specifically petitioner, were anxious to
litigate their case as exhibited in their several
manifestations and motions.
We reject respondent Uy's contention that Goldloop
Properties, Inc. v. Court of Appeals is irrelevant to the case at
bar on the dubious reasoning that the complaint of
petitioner was dismissed for failure to prosecute and not
for the non-submission of a compromise agreement which
was the bone of contention in that case, and that the
dismissal imposed in the instant case was without
prejudice, in contrast to the dismissal with prejudice
decreed in the cited case. To begin with, whether the
dismissal is with or without prejudice if grievously
erroneous is detrimental to the cause of the affected
party; Goldloop Properties, Inc. does not tolerate a wrongful
dismissal just because it was without prejudice. More
importantly, the facts in Goldloop Properties, Inc. involve, as
in the instant case, a dismissal for failure to prosecute on
the ground of the parties' inability to come up with a
compromise agreement within fifteen (15) days from
notice of the court's order therein. All told, the parallelism
between them is unmistakable.
Even if we are to accept on face value respondent's
understanding of Goldloop Properties, Inc. as solely about
the failure to submit a compromise agreement, it is
apparent that the present case confronts a similar problem.
Perhaps initially the issue was one of failure to prosecute,
as can be observed from the Orderdated 20 July 2000,
although later reversed and set aside. But thereafter, in
the Order of 6 November 2000, the trial court refused to
proceed to pre-trial owing to the "failure of the plaintiff to
submit a compromise agreement pursuant to the Order
dated 8 September 2000." When the civil case was stalled
on account of the trial court's refusal to call the parties to a
pre-trial conference, the reason or basis therefor was the
absence of a negotiated settlement — a circumstance that
takes the case at bar within the plain ambit ofGoldloop
Properties, Inc. In any event, given that the instant case
merely revolves around the search for a reasonable
interpretation of the several Orders of the trial court, i.e., as
to whether the dismissal without prejudice was revived
upon petitioner's helplessness to perfect an out-of-court
arrangement, with more reason must we employ the ruling
in Goldloop Properties, Inc. to resolve the parties'
differences of opinion.
We also find nothing in the record to support respondent
Uy's conclusion that petitioner has been mercilessly
delaying the prosecution of Civil Case No. 99-518 to
warrant its dismissal. A complaint may be dismissed due to
plaintiff's fault: (a) if he fails to appear during a scheduled
trial, especially on the date for the presentation of his
evidence in chief, or when so required at the pre-trial; (b) if
he neglects to prosecute his action for an unreasonable
length of time; or (c) if he does not comply with the rules or
any order of the court. None of these was obtaining in the
civil case.
While there was a lull of about six (6) months in the
prosecution of Civil Case No. 99-518, it must be
remembered that respondents themselves contributed
largely to this delay. They repeatedly asked petitioner to
consider re-structuring the debt of respondent Magwin
Marketing Corporation to which petitioner graciously
acceded. Petitioner approved a new debt payment scheme
that was sought by respondents, which it then
communicated to respondent Corporation through a letter
for the conformity of the latter's officers, i.e., respondent
Nelson Tiu as President/General Manager and respondent
Benito Sy as Director thereof. Regrettably, only respondent
Nelson Tiu affixed his signature on the letter to signify his
concurrence with the terms and conditions of the
arrangement. The momentary lag in the civil case was
aggravated when respondent Benito Sy for unknown and
unexplained reasons paid no heed to the adjustments in the
indebtedness although curiously he has not opposed before
this Court or the courts a quo petitioner's desire to go
ahead with the pre-trial conference. CSaITD
Admittedly, delay took place in this case but it was not an
interruption that should have entailed the dismissal of the
complaint even if such was designated as without
prejudice. To constitute a sufficient ground for dismissal,
the inattention of plaintiff to pursue his cause must not
only be prolonged but also be unnecessary and dilatory
resulting in the trifling of judicial processes. In the instant
case, the adjournment was not only fleeting as it lasted less
than six (6) months but was also done in good faith to
accommodate respondents' incessant pleas to negotiate.
Although the dismissal of a case for failure to prosecute is a
matter addressed to the sound discretion of the court, that
judgment however must not be abused. The availability of
this recourse must be determined according to the
procedural history of each case, the situation at the time of
the dismissal, and the diligence of plaintiff to proceed
therein. 35 Stress must also be laid upon the official
directive that courts must endeavor to convince parties in a
civil case to consummate a fair settlement 36 and to
mitigate damages to be paid by the losing party who has
shown a sincere desire for such give-and-take. 37 All things
considered, we see no compelling circumstances to uphold
the dismissal of petitioner's complaint regardless of its
characterization as being without prejudice.
In fine, petitioner cannot be said to have lost interest in
fighting the civil case to the end. A court may dismiss a case
on the ground of non prosequitur but the real test of the
judicious exercise of such power is whether under the
circumstances plaintiff is chargeable with want of fitting
assiduousness in not acting on his complaint with
reasonable promptitude. Unless a party's conduct is so
indifferent, irresponsible, contumacious or slothful as to
provide substantial grounds for dismissal, i.e., equivalent to
default or non-appearance in the case, the courts should
consider lesser sanctions which would still amount to
achieving the desired end. 38 In the absence of a pattern or
scheme to delay the disposition of the case or of a wanton
failure to observe the mandatory requirement of the rules
on the part of the plaintiff, as in the case at bar, courts
should decide to dispense rather than wield their authority
to dismiss. 39
Clearly, another creative remedy was available to the
court a quo to attain a speedy disposition of Civil Case No.
99-518 without sacrificing the course of justice. Since the
failure of petitioner to submit a compromise agreement
was the refusal of just one of herein respondents, i.e.,
Benito Sy, to sign his name on theconforme of the loan
restructure documents, and the common concern of the
courts a quo was dispatch in the proceedings, the holding of
a pre-trial conference was the best-suited solution to the
problem as this stage in a civil action is where issues are
simplified and the dispute quickly and genuinely
reconciled. By means of pre-trial, the trial court is fully
empowered to sway the litigants to agree upon some fair
compromise.
Dismissing the civil case and compelling petitioner to re-
file its complaint is a dangerous, costly and circuitous route
that may end up aggravating, not resolving, the
disagreement. This case management strategy is
frighteningly deceptive because it does so at the expense of
petitioner whose cause of action, perhaps, may have
already been admitted by its adverse parties as shown by
three (3) of four (4) defendants not willing to contest
petitioner's allegations, and more critically, since this
approach promotes the useless and thankless duplication
of hard work already undertaken by the trial court. As we
have aptly observed, "[i]nconsiderate dismissals, even if
without prejudice, do not constitute a panacea nor a
solution to the congestion of court dockets. While they lend
a deceptive aura of efficiency to records of individual
judges, they merely postpone the ultimate reckoning
between the parties. In the absence of clear lack of merit or
intention to delay, justice is better served by a brief
continuance, trial on the merits, and final disposition of the
cases before the court." 40
WHEREFORE, the Petition for Review is GRANTED.
The Decision dated 28 September 2001
and Resolutiondated 2 April 2002 of the Court of Appeals in
CA-G.R. SP No. 62102 are REVERSED and SET ASIDE.
The Orders dated 8 September 2000, 6 November 2000 and
16 November 2000 of the Regional Trial Court, Branch 135,
of Makati City, docketed as Civil Case No. 99-518, are also
REVERSED and SET ASIDE insofar as these Orders are
interpreted to impose upon and collect anew from
petitioner RIZAL COMMERCIAL BANKING CORPORATION
docket or legal fees for its complaint, or to dismiss without
prejudice Civil Case No. 99-518, or to preclude the trial
court from calling the parties therein to pre-trial
conference, or from proceeding thereafter with dispatch to
resolve the civil case.
Civil Case No. 99-518 is deemed REINSTATED in, as it was
never taken out from, the dockets of the Regional Trial
Court, Branch 135, of Makati City. The trial court is
ORDERED to exercise its jurisdiction over Civil Case No. 99-
518, to CONDUCT the pre-trial conference therein with
dispatch, and to UNDERTAKE thereafter such other
proceedings as may be relevant, without petitioner being
charged anew docket or other legal fees in connection with
its reinstatement. Costs against respondents.
SO ORDERED.
||| (Rizal Commercial Banking Corp. v. Magwin Marketing
Corp., G.R. No. 152878, [May 5, 2003], 450 PHIL 720-743)
THIRD DIVISION
[G.R. No. 126619. December 20, 2006.]
UNIWIDE SALES REALTY AND
RESOURCES
CORPORATION, petitioner, vs.
TITAN-IKEDA CONSTRUCTION
AND DEVELOPMENT
CORPORATION, respondent.
DECISION
TINGA, J p:
This Petition for Review on Certiorari under Rule 45 seeks
the partial reversal of the 21 February 1996 Decision 1 of
the Court of Appeals Fifteenth Division in CA-G.R. SP No.
37957 which modified the 17 April 1995 Decision 2 of the
Construction Industry Arbitration Commission (CIAC).
The case originated from an action for a sum of money filed
by Titan-Ikeda Construction and Development Corporation
(Titan) against Uniwide Sales Realty and Resources
Corporation (Uniwide) with the Regional Trial Court (RTC),
Branch 119, 3 Pasay City arising from Uniwide's non-
payment of certain claims billed by Titan after completion
of three projects covered by agreements they entered into
with each other. Upon Uniwide's motion to
dismiss/suspend proceedings and Titan's open court
manifestation agreeing to the suspension, Civil Case No. 98-
0814 was suspended for it to undergo arbitration. 4 Titan's
complaint was thus re-filed with the CIAC. 5 Before the
CIAC, Uniwide filed an answer which was later amended
and re-amended, denying the material allegations of the
complaint, with counterclaims for refund of overpayments,
actual and exemplary damages, and attorney's fees. The
agreements between Titan and Uniwide are briefly
described below.
PROJECT 1. 6
The first agreement (Project 1) was a written "Construction
Contract" entered into by Titan and Uniwide sometime in
May 1991 whereby Titan undertook to construct Uniwide's
Warehouse Club and Administration Building in Libis,
Quezon City for a fee of P120,936,591.50, payable in
monthly progress billings to be certified to by Uniwide's
representative. 7 The parties stipulated that the building
shall be completed not later than 30 November 1991. As
found by the CIAC, the building was eventually finished on
15 February 1992 8 and turned over to Uniwide.
PROJECT 2.
Sometime in July 1992, Titan and Uniwide entered into the
second agreement (Project 2) whereby the former agreed
to construct an additional floor and to renovate the latter's
warehouse located at the EDSA Central Market Area in
Mandaluyong City. There was no written contract executed
between the parties for this project. Construction was
allegedly to be on the basis of drawings and specifications
provided by Uniwide's structural engineers. The parties
proceeded on the basis of a cost estimate of P21,301,075.77
inclusive of Titan's 20% mark-up. Titan conceded in its
complaint to having received P15,000,000.00 of this
amount. This project was completed in the latter part of
October 1992 and turned over to Uniwide.
PROJECT 3. 9
The parties executed the third agreement (Project 3) in
May 1992. In a written "Construction Contract," Titan
undertook to construct the Uniwide Sales Department
Store Building in Kalookan City for the price of
P118,000,000.00 payable in progress billings to be certified
to by Uniwide's representative. 10 It was stipulated that
the project shall be completed not later than 28 February
1993. The project was completed and turned over to
Uniwide in June 1993. cCTAIE
Uniwide asserted in its petition that: (a) it overpaid Titan
for unauthorized additional works in Project 1 and Project
3; (b) it is not liable to pay the Value-Added Tax (VAT) for
Project 1; (c) it is entitled to liquidated damages for the
delay incurred in constructing Project 1 and Project 3; and
(d) it should not have been found liable for deficiencies in
the defectively constructed Project 2.
An Arbitral Tribunal consisting of a chairman and two
members was created in accordance with the CIAC Rules of
Procedure Governing Construction Arbitration. It
conducted a preliminary conference with the parties and
thereafter issued a Terms of Reference (TOR) which was
signed by the parties. The tribunal also conducted an ocular
inspection, hearings, and received the evidence of the
parties consisting of affidavits which were subject to cross-
examination. On 17 April 1995, after the parties submitted
their respective memoranda, the Arbitral Tribunal
promulgated a Decision, 11 the decretal portion of which is
as follows:
"WHEREFORE, judgment is hereby
rendered as follows:
On Project 1 — Libis:
[Uniwide] is absolved of any
liability for the claims made by
[Titan] on this Project.
Project 2 — Edsa Central:
[Uniwide] is absolved of any
liability for VAT payment on this
project, the same being for the
account of the [Titan]. On the other
hand, [Titan] is absolved of any
liability on the counterclaim for
defective construction of this
project.
[Uniwide] is held liable for the
unpaid balance in the amount of
P6,301,075.77 which is ordered to
be paid to the [Titan] with 12%
interest per annum commencing
from 19 December 1992 until the
date of payment.
On Project 3 — Kalookan:
[Uniwide] is held liable for the
unpaid balance in the amount of
P5,158,364.63 which is ordered to
be paid to the [Titan] with 12%
interest per annum commencing
from 08 September 1993 until the
date of payment.
[Uniwide] is held liable to pay in
full the VAT on this project, in such
amount as may be computed by the
Bureau of Internal Revenue to be
paid directly thereto. The BIR is
hereby notified that [Uniwide]
Sales Realty and Resources
Corporation has assumed
responsibility and is held liable for
VAT payment on this project. This
accordingly exempts Claimant
Titan-Ikeda Construction and
Development Corporation from this
obligation.
Let a copy of this Decision be
furnished the Honorable Aurora P.
Navarette Recina, Presiding Judge,
Branch 119, Pasay City, in Civil Case
No. 94-0814 entitled Titan-Ikeda
Construction Development
Corporation, Plaintiff — versus —
Uniwide Sales Realty and Resources
Corporation, Defendant, pending
before said court for information
and proper action.
SO ORDERED." 12
Uniwide filed a motion for reconsideration of the 17 April
1995 decision which was denied by the CIAC in its
Resolution dated 6 July 1995. Uniwide accordingly filed a
petition for review with the Court of Appeals, 13which
rendered the assailed decision on 21 February 1996.
Uniwide's motion for reconsideration was likewise denied
by the Court of Appeals in its assailed Resolution 14 dated
30 September 1996.
Hence, Uniwide comes to this Court via a petition for
review under Rule 45. The issues submitted for resolution
of this Court are as follows: 15 (1) Whether Uniwide is
entitled to a return of the amount it allegedly paid by
mistake to Titan for additional works done on Project 1; (2)
Whether Uniwide is liable for the payment of the Value-
Added Tax (VAT) on Project 1; (3) Whether Uniwide is
entitled to liquidated damages for Projects 1 and 3; and (4)
Whether Uniwide is liable for deficiencies in Project 2.
As a rule, findings of fact of administrative agencies and
quasi-judicial bodies, which have acquired expertise
because their jurisdiction is confined to specific matters,
are generally accorded not only respect, but also finality,
especially when affirmed by the Court of Appeals. 16 In
particular, factual findings of construction arbitrators are
final and conclusive and not reviewable by this Court on
appeal. 17 This rule, however admits of certain exceptions.
In David v. Construction Industry and Arbitration
Commission, 18 we ruled that, as exceptions, factual
findings of construction arbitrators may be reviewed by
this Court when the petitioner proves affirmatively that:
(1) the award was procured by corruption, fraud or other
undue means; (2) there was evident partiality or
corruption of the arbitrators or of any of them; (3) the
arbitrators were guilty of misconduct in refusing to hear
evidence pertinent and material to the controversy; (4) one
or more of the arbitrators were disqualified to act as such
under Section nine of Republic Act No. 876 and willfully
refrained from disclosing such disqualifications or of any
other misbehavior by which the rights of any party have
been materially prejudiced; or (5) the arbitrators exceeded
their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter
submitted to them was not made. 19
Other recognized exceptions are as follows: (1) when there
is a very clear showing of grave abuse of
discretion 20 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, 21 (2) when the findings of the Court of
Appeals are contrary to those of the CIAC, 22and (3) when
a party is deprived of administrative due process. 23
Thus, in Hi-Precision Steel Center, Inc. v. Lim Kim Builders,
Inc., 24 we refused to review the findings of fact of the CIAC
for the reason that petitioner was requiring the Court to go
over each individual claim and counterclaim submitted by
the parties in the CIAC. A review of the CIAC's findings of
fact would have had the effect of "setting at naught the
basic objective of a voluntary arbitration and would reduce
arbitration to a largely inutile institution." Further,
petitioner therein failed to show any serious error of law
amounting to grave abuse of discretion resulting in lack of
jurisdiction on the part of the Arbitral Tribunal, in either
the methods employed or the results reached by the
Arbitral Tribunal, in disposing of the detailed claims of the
respective parties. In Metro Construction, Inc. v. Chatham
Properties, Inc., 25 we reviewed the findings of fact of the
Court of Appeals because its findings on the issue of
whether petitioner therein was in delay were contrary to
the findings of the CIAC. Finally, in Megaworld Globus Asia,
Inc. v. DSM Construction and Development
Corporation, 26 we declined to depart from the findings of
the Arbitral Tribunal considering that the computations, as
well as the propriety of the awards, are unquestionably
factual issues that have been discussed by the Arbitral
Tribunal and affirmed by the Court of Appeals. SACEca
In the present case, only the first issue presented for
resolution of this Court is a question of law while the rest
are factual in nature. However, we do not hesitate to
inquire into these factual issues for the reason that the
CIAC and the Court of Appeals, in some matters, differed in
their findings.
We now proceed to discuss the issues in seriatim.
Payment by Mistake for Project 1
The first issue refers to the P5,823,481.75 paid by Uniwide
for additional works done on Project 1. Uniwide asserts
that Titan was not entitled to be paid this amount because
the additional works were without any written
authorization.
It should be noted that the contracts do not contain
stipulations on "additional works," Uniwide's liability for
"additional works," and prior approval as a requirement
before Titan could perform "additional works."
Nonetheless, Uniwide cites Article (Art.) 1724 of the New
Civil Code as basis for its claim that it is not liable to pay for
"additional works" it did not authorize or agree upon in
writing. The provision states:
Art. 1724. The contractor who
undertakes to build a structure or
any other work for a stipulated
price, in conformity with plans and
specifications agreed upon with the
landowner, can neither withdraw
from the contract nor demand an
increase in the price on account of
the higher cost of labor or
materials, save when there has
been a change in the plans and
specifications, provided:
(1) Such change has been
authorized by
the proprietor
in writing; and
(2) The additional price
to be paid to
the contractor
has been
determined in
writing by
both parties.
The Court of Appeals did take note of this provision, but
deemed it inapplicable to the case at bar because Uniwide
had already paid, albeit with unwritten reservations, for
the "additional works." The provision would have been
operative had Uniwide refused to pay for the costs of the
"additional works." Instead, the Court of Appeals applied
Art. 1423 27 of the New Civil Code and characterized
Uniwide's payment of the said amount as a voluntary
fulfillment of a natural obligation. The situation was
characterized as being akin to Uniwide being a debtor who
paid a debt even while it knew that it was not legally
compelled to do so. As such debtor, Uniwide could no
longer demand the refund of the amount already paid.
Uniwide counters that Art. 1724 makes no distinction as to
whether payment for the "additional works" had already
been made. It claims that it had made the payments, subject
to reservations, upon the false representation of Titan-
Ikeda that the "additional works" were authorized in
writing. Uniwide characterizes the payment as a "mistake,"
and not a "voluntary" fulfillment under Art. 1423 of the
Civil Code. Hence, it urges the application, instead, of the
principle of solutio indebiti under Arts. 2154 28 and
2156 29 of the Civil Code.
To be certain, this Court has not been wont to give an
expansive construction of Art. 1724, denying, for example,
claims that it applies to constructions made of ship
vessels, 30 or that it can validly deny the claim for payment
of professional fees to the architect. 31 The present
situation though presents a thornier problem. Clearly, Art.
1724 denies, as a matter of right, payment to the contractor
for additional works which were not authorized in writing
by the proprietor, and the additional price of which was not
determined in writing by the parties.
Yet the distinction pointed out by the Court of Appeals is
material. The issue is no longer centered on the right of the
contractor to demand payment for additional works
undertaken because payment, whether mistaken or not,
was already made by Uniwide. Thus, it would not anymore
be incumbent on Titan to establish that it had the right to
demand or receive such payment.
But, even if the Court accepts Art. 1724 as applicable in this
case, such recognition does not ipso facto accord Uniwide
the right to be reimbursed for payments already made,
since Art. 1724 does not effect such right of
reimbursement. It has to be understood that Art. 1724 does
not preclude the payment to the contractor who performs
additional works without any prior written authorization
or agreement as to the price for such works if the owner
decides anyway to make such payment. What the provision
does preclude is the right of the contractor to insist upon
payment for unauthorized additional works.
Accordingly, Uniwide, as the owner who did pay the
contractor for such additional works even if they had not
been authorized in writing, has to establish its own right to
reimbursement not under Art. 1724, but under a different
provision of law. Uniwide's burden of establishing its legal
right to reimbursement becomes even more crucial in the
light of the general presumption contained in Section 3(f),
Rule 131 of the Rules of Court that "money paid by one to
another was due to the latter."
Uniwide undertakes such a task before this Court, citing the
provisions on solutio indebiti under Arts. 2154 and 2156 of
the Civil Code. However, it is not enough to prove that the
payments made by Uniwide to Titan were "not due"
because there was no prior authorization or agreement
with respect to additional works. There is a further
requirement that the payment by the debtor was made
either through mistake or under a cloud of doubt. In short,
for the provisions on solutio indebiti to apply, there has to
be evidence establishing the frame of mind of the payor at
the time the payment was made. 32
The CIAC refused to acknowledge that the additional works
on Project 1 were indeed unauthorized by Uniwide. Neither
did the Court of Appeals arrive at a contrary determination.
There would thus be some difficulty for this Court to agree
with this most basic premise submitted by Uniwide that it
did not authorize the additional works on Project 1
undertaken by Titan. Still, Uniwide does cite testimonial
evidence from the record alluding to a concession by
employees of Titan that these additional works on Project 1
were either authorized or documented. 33
Yet even conceding that the additional works on Project 1
were not authorized or committed into writing, the
undisputed fact remains that Uniwide paid for these
additional works. Thus, to claim a refund of payments
made under the principle of solutio indebiti, Uniwide must
be able to establish that these payments were made
through mistake. Again, this is a factual matter that would
have acquired a mantle of invulnerability had it been
determined by both the CIAC and the Court of Appeals.
However, both bodies failed to arrive at such a conclusion.
Moreover, Uniwide is unable to direct our attention to any
pertinent part of the record that would indeed establish
that the payments were made by reason of
mistake. HEacAS
We note that Uniwide alleged in its petition that the CIAC
award in favor of Titan in the amount P5,158,364.63 as the
unpaid balance in Project 3 included claims for additional
works of P1,087,214.18 for which no written authorization
was presented. Unfortunately, this issue was not included
in its memorandum as one of the issues submitted for the
resolution of the Court.
Liability for the Value-Added Tax (VAT)
The second issue takes us into an inquiry on who, under
the law, is liable for the payment of the VAT, in the absence
of a written stipulation on the matter. Uniwide claims that
the VAT was already included in the contract price for
Project 1. Citing Secs. 99 and 102 of the National Internal
Revenue Code, Uniwide asserts that VAT, being an indirect
tax, may be shifted to the buyer by including it in the cash
or selling price and it is entirely up to the buyer to agree or
not to agree to absorb the VAT. 34 Thus, Uniwide
concludes, if there is no provision in the contract as to who
should pay the VAT, it is presumed that it would be the
seller. 35
The contract for Project 1 is silent on which party should
shoulder the VAT while the contract for Project 3 contained
a provision to the effect that Uniwide is the party
responsible for the payment of the VAT. 36 Thus, when
Uniwide paid the amount of P2,400,000.00 as billed by
Titan for VAT, it assumed that it was the VAT for Project 3.
However, the CIAC and the Court of Appeals found that the
same was for Project 1.
We agree with the conclusions of both the CIAC and the
Court of Appeals that the amount of P2,400,000.00 was
paid by Uniwide as VAT for Project 1. This conclusion was
drawn from an Order of Payment 37 dated 7 October 1992
wherein Titan billed Uniwide the amount of P2,400,000.00
as "Value Added Tax based on P60,000,000.00 Contract,"
computed on the basis of 4% of P60,000,000.00. Said
document which was approved by the President of Uniwide
expressly indicated that the project involved was the
"UNIWIDE SALES WAREHOUSE CLUB & ADMIN BLDG."
located at "90 E. RODRIGUEZ JR. AVE., LIBIS, Q.C." The
reduced base for the computation of the tax, according to
the Court of Appeals, was an indication that the parties
agreed to pass the VAT for Project 1 to Uniwide but based
on a lower contract price. Indeed, the CIAC found as
follows:
Without any documentary evidence
than Exhibit "H" to show the extent
of tax liability assumed by
[Uniwide], the Tribunal holds that
the parties is [sic] obliged to pay
only a share of the VAT payment up
to P60,000,000.00 out of the total
contract price of
P120,936,591.50. As explained by
Jimmy Gow, VAT is paid on labor
only for construction contracts
since VAT had already been paid
on the materials purchased.
Since labor costs is [sic]
proportionately placed at 60%-
40% of the contract price,
simplified accounting computes
VAT at 4% of the contract price.
Whatever is the balance for VAT
that remains to be paid on Project 1
— Libis shall remain the obligation
of [Titan]. (Emphasis supplied.) 38
Liquidated Damages
On the third issue of liquidated damages, the CIAC rejected
such claim while the Court of Appeals held that the matter
should be left for determination in future proceedings
where the issue has been made clear.
In rejecting Uniwide's claim for liquidated damages, the
CIAC held that there is no legal basis for passing upon and
resolving Uniwide's claim for the following reasons: (1) no
claim for liquidated damages arising from the alleged delay
was ever made by Uniwide at any time before the
commencement of Titan's complaint; (2) the claim for
liquidated damages was not included in the counterclaims
stated in Uniwide's answer to Titan's complaint; (3) the
claim was not formulated as an issue to be resolved by the
CIAC in the TOR; 39 and (4) no attempt was made to
modify the TOR to accommodate the same as an issue to be
resolved.
Uniwide insists that the CIAC should have applied Section
5, Rule 10 of the Rules of Court. 40 On this matter, the
Court of Appeals held that the CIAC is an arbitration body,
which is not necessarily bound by the Rules of Court. Also,
the Court of Appeals found that the issue has never been
made concrete enough to make Titan and the CIAC aware
that it will be an issue. In fact, Uniwide only introduced and
quantified its claim for liquidated damages in its
Memorandum submitted to the CIAC at the end of the
arbitration proceeding. The Court of Appeals also noted
that the only evidence on record to prove delay in the
construction of Project 1 is the testimony of Titan's
engineer regarding the date of completion of the project
while the only evidence of delay in the construction of
Project 3 is the affidavit of Uniwide's President.
According to Uniwide, the ruling of the Court of Appeals on
the issue of liquidated damages goes against the
established judicial policy that a court should always strive
to settle in one proceeding the entire controversy leaving
no root or branch to bear the seeds of future
litigations. 41 Uniwide claims that the required evidence
for an affirmative ruling on its claim is already on the
record. It cites the pertinent provisions of the written
contracts which contained deadlines for liquidated
damages. Uniwide also noted that the evidence show that
Project 1 was completed either on 15 February 1992, as
found by the CIAC, or 12 March 1992, as shown by Titan's
own evidence, while Project 3, according to Uniwide's
President, was completed in June 1993. Furthermore,
Uniwide asserts, the CIAC should have applied procedural
rules such as Section 5, Rule 10 with more liberality
because it was an administrative tribunal free from the
rigid technicalities of regular courts. 42
On this point, the CIAC held:
The Rule of Procedure Governing
Construction Arbitration
promulgated by the CIAC contains
no provision on the application of
the Rules of Court to arbitration
proceedings, even in a suppletory
capacity. Hypothetically admitting
that there is such a provision,
suppletory application is made only
if it would not contravene a specific
provision in the arbitration rules
and the spirit thereof. The Tribunal
holds that such importation of the
Rules of Court provision on
amendment to conform to
evidence would contravene the
spirit, if not the letter of the CIAC
rules. This is for the reason that the
formulation of the Terms of
Reference is done with the active
participation of the parties and
their counsel themselves. The TOR
is further required to be signed by
all the parties, their respective
counsel and all the members of the
Arbitral Tribunal. Unless the issues
thus carefully formulated in the
Terms of Reference were expressly
showed [sic] to be amended, issues
outside thereof may not be
resolved. As already noted in the
Decision, "no attempt was ever
made by the [Uniwide] to modify
the TOR in order to accommodate
the issues related to its belated
counterclaim" on this issue.
(Emphasis supplied.) THSaEC
Arbitration has been defined as "an arrangement for taking
and abiding by the judgment of selected persons in some
disputed matter, instead of carrying it to established
tribunals of justice, and is intended to avoid the formalities,
the delay, the expense and vexation of ordinary
litigation." 43 Voluntary arbitration, on the other hand,
involves the reference of a dispute to an impartial body, the
members of which are chosen by the parties themselves,
which parties freely consent in advance to abide by the
arbitral award issued after proceedings where both parties
had the opportunity to be heard. The basic objective is to
provide a speedy and inexpensive method of settling
disputes by allowing the parties to avoid the formalities,
delay, expense and aggravation which commonly
accompany ordinary litigation, especially litigation which
goes through the entire hierarchy of courts. 44 As an
arbitration body, the CIAC can only resolve issues brought
before it by the parties through the TOR which functions
similarly as a pre-trial brief. Thus, if Uniwide's claim for
liquidated damages was not raised as an issue in the TOR
or in any modified or amended version of it, the CIAC
cannot make a ruling on it. The Rules of Court cannot be
used to contravene the spirit of the CIAC rules, whose
policy and objective is to "provide a fair and expeditious
settlement of construction disputes through a non-judicial
process which ensures harmonious and friendly relations
between or among the parties." 45
Further, a party may not be deprived of due process of law
by an amendment of the complaint as provided in Section
5, Rule 10 of the Rules of Court. In this case, as noted by the
Court of Appeals, Uniwide only introduced and quantified
its claim for liquidated damages in its memorandum
submitted to the CIAC at the end of the arbitration
proceeding. Verily, Titan was not given a chance to present
evidence to counter Uniwide's claim for liquidated
damages.
Uniwide alludes to an alleged judicial admission made by
Engr. Luzon Tablante wherein he stated that Project 1 was
completed on 10 March 1992. It now claims that by virtue
of Engr. Tablante's statement, Titan had admitted that it
was in delay. We disagree. The testimony of Engr. Tablante
was offered only to prove that Project 1 was indeed
completed. It was not offered to prove the fact of delay. It
must be remembered that the purpose for which evidence
is offered must be specified because such evidence may be
admissible for several purposes under the doctrine of
multiple admissibility, or may be admissible for one
purpose and not for another, otherwise the adverse party
cannot interpose the proper objection. Evidence submitted
for one purpose may not be considered for any other
purpose. 46 Furthermore, even assuming, for the sake of
argument, that said testimony on the date of completion of
Project 1 is admitted, the establishment of the mere fact of
delay is not sufficient for the imposition of liquidated
damages. It must further be shown that delay was
attributable to the contractor if not otherwise justifiable.
Contrarily, Uniwide's belated claim constitutes an
admission that the delay was justified and implies a waiver
of its right to such damages.
Project 2: "as-built" plans, overpricing, defective
construction
To determine whether or not Uniwide is liable for the
unpaid balance of P6,301,075.77 for Project 2, we need to
resolve four sub-issues, namely: (1) whether or not it was
necessary for Titan to submit "as-built" plans before it can
be paid by Uniwide; (2) whether or not there was
overpricing of the project; (3) whether or not the
P15,000,000.00 paid by Uniwide to Titan for Project 2
constitutes full payment; and (4) whether or not Titan can
be held liable for defective construction of Project 2.
The CIAC, as affirmed by the Court of Appeals, held Uniwide
liable for deficiency relating to Project 2 in the amount of
P6,301,075.77. It is nonetheless alleged by Uniwide that
Titan failed to submit any "as-built" plans for Project 2,
such plans allegedly serving as a condition precedent for
payment. Uniwide further claims that Titan had
substantially overcharged Uniwide for Project 2, there
being uncontradicted expert testimony that the total cost of
Project 2 did not exceed P7,812,123.60. Furthermore,
Uniwide alleged that the works performed were
structurally defective, as evidenced by the structural
damage on four columns as observed on ocular inspection
by the CIAC and confirmed by Titan's project manager.
On the necessity of submitting "as-built" plans, this Court
rules that the submission of such plans is not a pre-
requisite for Titan to be paid by Uniwide. The argument
that said plans are required by Section 308 ofPresidential
Decree No. 1098 (National Building Code) and by Section
2.11 of its Implementing Rules before payment can be
made is untenable. The purpose of the law is "to safeguard
life, health, property, and public welfare, consistent with
the principles of sound environmental management and
control." The submission of these plans is necessary only in
furtherance of the law's purpose by setting minimum
standards and requirements to control the "location, site,
design, quality of materials, construction, use, occupancy,
and maintenance" of buildings constructed and not as a
requirement for payment to the contractor. 47 The
testimony of Engr. Tablante to the effect that the "as-built"
plans are required before payment can be claimed by Titan
is a mere legal conclusion which is not binding on this
Court.
Uniwide claims that, according to one of its consultants, the
true price for Project 2 is only P7,812,123.60. The CIAC and
the Court of Appeals, however, found the testimony of this
consultant suspect and ruled that the total contract price
for Project 2 is P21,301,075.77. The CIAC held:
The Cost Estimate
for Architectural and Site
Development Works for the EDSA
Central, Dau Branch Project
(Exhibit "2-A" for [Uniwide] and
made as a common exhibit by
[Titan] who had it marked at [sic]
 its own Exhibit "U"), which was
admittedly prepared by
Fermindoza and Associates,
[Uniwide]'s own architects, shows
that the amount of P17,750,896.48
was arrived at. Together with the
agreed upon mark-up of 20% on
said amount, the total project
cost was P21,301,075.77.
The Tribunal holds that the
foregoing document is binding
upon the [Uniwide], it being the
mode agreed upon by which its
liability for the project cost was to
be determined. 48 (Emphasis
supplied.) EAcHCI
Indeed, Uniwide is bound by the amount indicated in the
above document. Claims of connivance or fraudulent
conspiracy between Titan and Uniwide's representatives
which, it is alleged, grossly exaggerated the price may
properly be dismissed. As held by the CIAC:
The Tribunal holds that
[Uniwide] has not introduced any
evidence to sustain its charge of
fraudulent conspiracy. As a
matter of fact, [Uniwide]'s own
principal witness, Jimmy Gow,
admitted on cross-examination that
he does not have any direct
evidence to prove his charge of
connivance or complicity
between the [Titan] and his own
representatives. He only made
that conclusion by the process of
his own "logical reasoning" arising
from his consultation with other
contractors who gave him a much
lower estimate for the construction
of the Dau Project. There is thus
no reason to invalidate the
binding character of Exhibit "2-
A" which, it is significant to point
out, is [Uniwide]'s own
evidence. 49 (Emphasis supplied.)
Accordingly, deducting the P15,000,000.00 already paid by
Uniwide from the total contract price of P21,301,075.77,
the unpaid balance due for Project 2 is P6,301,075.77. This
is the same amount reflected in the Order of Payment
prepared by Uniwide's representative, Le Consultech, Inc.
and signed by no less than four top officers and architects
of Le Consultech, Inc. endorsing for payment by Uniwide to
Titan the amount of P6,301,075.77. 50
Uniwide asserts that Titan should not have been allowed to
recover on Project 2 because the said project was defective
and would require repairs in the amount of P800,000.00. It
claims that the CIAC and the Court of Appeals should have
applied Nakpil and Sons v. Court of Appeals 51 and Art.
1723 of the New Civil Code holding a contractor
responsible for damages if the edifice constructed falls
within fifteen years from completion on account of defects
in the construction or the use of materials of inferior
quality furnished by him or due to any violation of the
terms of the contract.
On this matter, the CIAC conducted an ocular inspection of
the premises on 30 January 1995. What transpired in the
said ocular inspection is described thus:
On 30 January 1995, an ocular
inspection was conducted by the
Arbitral Tribunal as requested by
[Uniwide]. Photographs were taken
of the alleged construction defects,
an actual ripping off of the plaster
of a certain column to expose the
alleged structural defect that is
claimed to have resulted in its
being "heavily damaged" was done,
clarificatory questions were asked
and manifestations on observations
were made by the parties and their
respective counsels. The entire
proceedings were recorded on tape
and subsequently transcribed. The
photographs and transcript of the
ocular inspection form part of the
records and considered as
evidence. 52
And, according to these evidence, the CIAC concluded as
follows:
It is likewise the holding of this
Tribunal that [Uniwide]'s
counterclaim of defective
construction has not been
sufficiently proven. The
credibility of Engr. Cruz,
[Uniwide]'s principal witness on
this issue, has been severely
impaired. During the ocular
inspection of the premises, he gave
such assurance of the soundness of
his opinion as an expert that a
certain column was heavily
damaged judging from the external
cracks that was readily apparent . . .
xxx xxx xxx
On insistence of the Tribunal, the
plaster was chipped off and
revealed a structurally sound
column . . .
Further, it turns out that what was
being passed off as a defective
construction by [Titan], was in
fact an old column, as admitted by
Mr. Gow himself . . . 53 (Emphasis
supplied.)
Uniwide had the burden of proving that there was defective
construction in Project 2 but it failed to discharge this
burden. Even the credibility of its own witness was
severely impaired. Further, it was found that the concrete
slab placed by Titan was not attached to the old columns
where cracks were discovered. The CIAC held that the post-
tensioning of the new concrete slab could not have caused
any of the defects manifested by the old columns. We are
bound by this finding of fact by the CIAC.
It is worthy to stress our ruling in Hi-Precision Steel Center,
Inc. v. Lim Kim Steel Builders, Inc. 54 which was reiterated
in David v. Construction Industry and Arbitration
Commission, 55 that:
. . . Executive Order No.
1008 created an arbitration facility
to which the construction industry
in the Philippines can have
recourse. The Executive Order
was enacted to encourage the
early and expeditious settlement
of disputes in the construction
industry, a public policy the
implementation of which is
necessary and important for the
realization of national
development goals.
Aware of the objective of voluntary
arbitration in the labor field, in the
construction industry, and in any
other area for that matter, the
Court will not assist one or the
other or even both parties in any
effort to subvert or defeat that
objective for their private
purposes. The Court will not
review the factual findings of an
arbitral tribunal upon the artful
allegation that such body had
"misapprehended facts" and will
not pass upon issues which are,
at bottom, issues of fact, no
matter how cleverly disguised
they might be as "legal
questions." The parties here had
recourse to arbitration and
chose the arbitrators
themselves; they must have had
confidence in such arbitrators.
The Court will not, therefore,
permit the parties to relitigate
before it the issues of facts
previously presented and argued
before the Arbitral Tribunal,
save only where a clear showing
is made that, in reaching its
factual conclusions, the Arbitral
Tribunal committed an error so
egregious and hurtful to one
party as to constitute a grave
abuse of discretion resulting in
lack or loss of jurisdiction.
Prototypical examples would be
factual conclusions of the Tribunal
which resulted in deprivation of
one or the other party of a fair
opportunity to present its position
before the Arbitral Tribunal, and an
award obtained through fraud or
the corruption of arbitrators. Any
other, more relaxed rule would
result in setting at naught the
basic objective of a voluntary
arbitration and would reduce
arbitration to a largely inutile
institution. (Emphasis supplied.)
WHEREFORE, premises considered, the petition is DENIED
and the Decision of the Court of Appeals dated 21 February
1996 in CA-G.R. SP No. 37957 is hereby
AFFIRMED. TSDHCc
SO ORDERED.
||| (Uniwide Sales Realty and Resources Corp. v. Titan-Ikeda
Construction and Development Corporation, G.R. No. 126619,
[December 20, 2006], 540 PHIL 350-376)
THIRD DIVISION
[G.R. Nos. 132848-49. June 26, 2001.]
PHILROCK, INC., petitioner, vs.
CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION and
Spouses VICENTE and NELIA
CID, respondents.
Ponce Enrile Reyes Manalastas for petitioner.
SYNOPSIS
A complaint for damages was filed with the RTC by the Cid
spouses against Philrock, Inc. and seven of its officers in
connection with the construction of the former's house.
The same was dismissed and referred to the CIAC pursuant
to the parties' Agreement to Arbitrate. Due to
disagreements on the inclusion of the seven officers therein
who are not parties to the Agreement to Arbitrate, the case
was remanded to the trial court who, however, declared
that it no longer had jurisdiction. The case was remanded
back to the CIAC and proceedings therein continued with
the exclusion of the seven officers. Terms of Reference to
settle the differences of the parties by an Arbitral Tribunal
was signed and later, the CIAC rendered a decision in favor
of the Cid spouses. Petitioner contested the jurisdiction of
the CIAC and assailed its decision, but the Court of Appeals
upheld the same. Hence, this petition.
Section 4 of Executive Order 1008 expressly vests in the
CIAC original and exclusive jurisdiction over disputes
arising from construction contracts entered into by parties
that have agreed to submit their dispute to voluntary
arbitration. Here, the parties agreed to arbitrate in the CIAC
with the issue of exclusion of the seven officers settled.
Petitioner continued participating in the arbitration
proceedings and even signed the Terms of Reference.
Petitioner was estopped in questioning the jurisdiction of
the CIAC.
SYLLABUS
1. ADMINISTRATIVE LAW; CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION; JURISDICTION THEREOF
UNDER SECTION 4 OF EXECUTIVE ORDER NO. 1008. —
Section 4 of Executive Order 1008 expressly vests in the
CIAC original and exclusive jurisdiction over disputes
arising from or connected with construction contracts
entered into by parties that have agreed to submit their
dispute to voluntary arbitration. TAESDH
2. CIVIL LAW; ESTOPPEL; AFTER SUBMITTING ITSELF TO
ARBITRATION PROCEEDINGS AND ACTIVELY
PARTICIPATING THEREIN, PETITIONER IN CASE AT BAR
IS ESTOPPED FROM ASSAILING JURISDICTION OF THE
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION,
MERELY BECAUSE LATTER RENDERED AN ADVERSE
DECISION. — As pointed out by the solicitor general,
petitioner maneuvered to avoid the RTC's final resolution
of the dispute by arguing that the regular court also lost
jurisdiction after the arbitral tribunal's April 13, 1994
Order referring the case back to the RTC. In so doing,
petitioner conceded and estopped itself from further
questioning the jurisdiction of the CIAC. The Court will not
countenance the effort of any party to subvert or defeat the
objective of voluntary arbitration for its own private
motives. After submitting itself to arbitration proceedings
and actively participating therein, petitioner is estopped
from assailing the jurisdiction of the CIAC, merely because
the latter rendered an adverse decision.
3. ID.; DAMAGES; PAYMENT OF INTEREST IN CASE AT BAR
BASED ON ARTICLE 2209 OF CIVIL CODE. — The payment
of interest is based on Article 2209 of the Civil Code, which
provides that if the obligation consists of the payment of a
sum of money, and the debtor incurs delay, the indemnity
for damages shall be the payment of legal interest which is
six per cent per annum, in the absence of a stipulation of
the rate.
4. ID.; ID.; MORAL DAMAGES; AWARD THEREOF, PROPER
IN CASE AT BAR. — Respondents were deprived of the
comfort and the safety of a house and were exposed to the
agony of witnessing the wastage and the decay of the
structure for more than seven years. In her Memorandum,
Respondent Nelia G. Cid describes her family's sufferings
arising from the unreasonable delay in the construction of
their residence, as follows: "The family lives separately for
lack of space to stay in. Mrs. Cid is staying in a small dingy
bodega, while her son occupies another makeshift room.
Their only daughter stayed with her aunt from 1992 until
she got married in 1996. . . . ." The Court also notes that
during the pendency of the case, Respondent Vicente Cid
died without seeing the completion of their home. Under
the circumstances, the award of moral damages is proper.
5. ID.; ID.; NOMINAL DAMAGES; WHEN RECOVERABLE. —
Nominal damages are recoverable only if no actual or
substantial damages resulted from the breach, or no
damage was or can be shown. Since actual damages have
been proven by private respondents for which they were
amply compensated, they are no longer entitled to nominal
damages.
6. ID.; ID.; ATTORNEY'S FEES; AWARDED IN CASE AT BAR.
— Petitioner protests the grant of attorney's fees, arguing
that respondent spouses did not engage the services of Before us is a Petition for Review under Rule 45 of the '. . .
legal counsel. Also, it contends that attorney's fees and Rules of Court. The Petition seeks the reversal of the July 9, the Arbitral
litigation expenses are awarded only if the opposing party 1997 Decision 1 and the February 24, 1998 Resolution of Tribunal
acted in gross and evident bad faith in refusing to satisfy the Court of Appeals (CA) in the consolidated cases hereby
plaintiff's valid, just and demandable claim. We disagree. docketed as CA-GR SP Nos. 39781 and 42443. The assailed formally
The award is not only for attorney's fees, but also for Decision disposed as follows: dismisses the
expenses of litigation. Hence, it does not matter if WHEREFORE, judgment is hereby above-
respondents represented themselves in court, because it is rendered DENYING the petitions captioned case
obvious that they incurred expenses in pursuing their and, accordingly, AFFIRMING in for referral to
action before the CIAC, as well as the regular and the totothe CIAC's decision. Costs Branch 82 of
appellate courts. We find no reason to disturb this award. against petitioner." 2 the Regional
7. REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; CAUSE The assailed Resolution ruled in this wise: Trial Court,
OF ACTION; DEFINED; WHEN COMPLAINT DEEMED TO "Considering that the matters Quezon City
HAVE STATED A CAUSE OF ACTION. — Cause of action is raised and discussed in the motion where it first
defined as an act or omission by which a party violates the for reconsideration filed by originated.
right of another. A complaint is deemed to have stated a appellant's counsel are SO ORDERED.'
cause of action provided it has indicated the following: (1) substantially the same arguments "The Cid spouses then filed with
the legal right of the plaintiff, (2) the correlative obligation which the Court had passed upon said Branch of the Regional Trial
of the defendant, and (3) the act or the omission of the and resolved in the decision sought Court of Quezon City a Motion To
defendant in violation of the said legal right. The cause of to be reconsidered, and there being Set Case for Hearing which motion
action against petitioner was clearly established. no new issue raised, the subject was opposed by Philrock.
Respondents were purchasers of ready-mix concrete from motion is hereby DENIED." 3
petitioner. The concrete delivered by the latter turned out The Facts "On June 13, 1995, the trial court
to be of substandard quality. As a result, respondents The undisputed facts of the consolidated cases are declared that it no longer had
sustained damages when the structures they built using summarized by the CA as follows: jurisdiction over the case and
such cement developed cracks and honeycombs. "On September 14, 1992, the Cid ordered the records of the case to
Consequently, the construction of their residence had to be spouses, herein private be remanded anew to the CIAC for
stopped. AHCcET respondents, filed a Complaint for arbitral proceedings.
8. ID.; EVIDENCE; DESPITE STATUTORY PROVISIONS damages against Philrock and "Pursuant to the aforementioned
MAKING DECISIONS OF CERTAIN ADMINISTRATIVE seven of its officers and engineers Order of the Regional Trial C[o]urt
AGENCIES "FINAL," COURT STILL TAKES COGNIZANCE OF with the Regional Trial Court of of Quezon City, the CIAC resumed
PETITIONS SHOWING WANT OF JURISDICTION, GRAVE Quezon City, Branch 82. conducting preliminary
ABUSE OF DISCRETION, VIOLATION OF DUE PROCESS, "On December 7, 1993, the initial conferences. On August 21, 1995,
DENIAL OF SUBSTANTIAL JUSTICE OR ERRONEOUS trial date, the trial court issued an herein [P]etitioner Philrock
INTERPRETATION OF THE LAW. — As pointed out earlier, Order dismissing the case and requested to suspend the
factual findings of quasi-judicial bodies that have acquired referring the same to the CIAC proceedings until the court clarified
expertise are generally accorded great respect and even because the Cid spouses and its ruling in the Order dated June
finality, if they are supported by substantial evidence. The Philrock had filed an Agreement to 13, 1995. Philrock argued that said
Court, however, has consistently held that despite statutory Arbitrate with the CIAC. Order was based on a mistaken
provisions making the decisions of certain administrative "Thereafter, preliminary premise that 'the proceedings in
agencies "final," it still takes cognizance of petitions conferences were held among the the CIAC fell through because of the
showing want of jurisdiction, grave abuse of discretion, parties and their appointed refusal of [Petitioner] Philrock to
violation of due process, denial of substantial justice or arbitrators. At these conferences, include the issue of damages
erroneous interpretation of the law. Voluntary arbitrators, disagreements arose as to whether therein,' whereas the true reason
by the nature of their functions, act in a quasi-judicial moral and exemplary damages and for the withdrawal of the case from
capacity, such that their decisions are within the scope of tort should be included as an issue the CIAC was due to Philrock's
judicial review. along with breach of contract, and opposition to the inclusion of its
DECISION whether the seven officers and seven officers and engineers, who
PANGANIBAN, J p: engineers of Philrock who are not did not give their consent to
Courts encourage the use of alternative methods of dispute parties to the Agreement to arbitration, as party defendants. On
resolution. When parties agree to settle their disputes Arbitrate should be included in the the other hand, private respondent
arising from or connected with construction contracts, the arbitration proceedings. No Nelia Cid manifested that she was
Construction Industry Arbitration Commission (CIAC) common ground could be reached willing to exclude the seven officers
acquires primary jurisdiction. It may resolve not only the by the parties, hence, on April 2, and engineers of Philrock as parties
merits of such controversies; when appropriate, it may also 1994, both the Cid spouses and to the case so as to facilitate or
award damages, interests, attorney's fees and expenses of Philrock requested that the case be expedite the proceedings. With
litigation. remanded to the trial court. On such manifestation from the Cid
The Case April 13, 1994, the CIAC issued an spouses, the Arbitral Tribunal
Order stating, thus: denied Philrock's request for the
suspension of the proceedings.
Philrock's counsel agreed to the
continuation of the proceedings but
reserved the right to file a pleading
elucidating the position he [had]
raised regarding the Court's Order
dated June 13, 1995. The parties
then proceeded to finalize, approve
and sign the Terms of Reference.
Philrock's counsel and
representative, Atty. Pericles C.
Consunji affixed his signature to
said Terms of Reference which
stated that 'the parties agree that
their differences be settled by an
Arbitral Tribunal . . .' (p. 9, Terms of
Reference, p. 200, Rollo).
"On September 12, 1995,
[P]etitioner Philrock filed its
Motion to Dismiss, alleging therein
that the CIAC had lost jurisdiction
to hear the arbitration case due to
the parties' withdrawal of their
consent to arbitrate. The motion
was denied by . . . CIAC per Order
dated September 22, 1995. On
November 8, public respondent
ordered the parties to appear
before it on November 28, 1995 for
the continuation of the arbitral
proceedings, and on February 7,
1996, public respondent directed
[P]etitioner Philrock to set two
hearing dates in the month of
February to present its evidence
and to pay all fees assessed by it,
otherwise . . . Philrock would be
deemed to have waived its right to
present evidence.
"Hence, petitioner instituted the
petition for certiorari but while said
petition was pending, the CIAC
rendered its Decision dated
September 24, 1996, the dispositive
portion of which reads, as follows:
'WHEREFORE, judgment is hereby
rendered in favor of the Claimant,
directing Respondent to pay
Claimant as follows:
1. P23,276.25 representing the
excess cash payment for
materials ordered by the
Claimants, (No. 7 of
admitted facts) plus
interests thereon at the
rate of 6% per annum
from September 26,
1995 to the date
payment is made.
2. P65,000.00 representing
retrofitting costs.
3. P13,404.54 representing refund
of the value of delivered
but unworkable concrete
mix that was laid to
waste.
4. P50,000.00 representing moral
damages.
5. P50,000.00 representing nominal
damages.
6. P50,000.00 representing
attorney's fees and
expenses of litigation.
7. P144,756.80 representing
arbitration fees, minus
such amount that may
already have been paid
to CIAC by respondent.
"Let a copy of this Decision be
furnished the Honorable Salvador
C. Ceguera, presiding judge, Branch
82 of Regional Trial Court of
Quezon City who referred this case
to the Construction Industry
Arbitration Commission for
arbitration and proper disposition.'
(pp. 44-45, Rollo, CA-G.R. SP No.
42443)"4
Before the CA, petitioner filed a Petition for Review,
docketed as CA-GR SP No. 42443, contesting the
jurisdiction of the CIAC and assailing the propriety of the
monetary awards in favor of respondent spouses. This
Petition was consolidated by the CA with CA-GR SP No.
39781, a Petition for Certiorari earlier elevated by
petitioner questioning the jurisdiction of the CIAC.
Ruling of the Court of Appeals
The CA upheld the jurisdiction of the CIAC 5 over the
dispute between petitioner and private respondent.
Under Executive Order No. 1008, the CIAC acquires
jurisdiction when the parties agree to submit their dispute
to voluntary arbitration. Thus, in the present case, its
jurisdiction continued despite its April 13, 1994 Order
referring the case back to the Regional Trial Court (RTC) of
Quezon City, Branch 82, the court of origin. The CIAC's
action was based on the principle that once acquired,
jurisdiction remains "until the full termination of the case
unless a law provides the contrary." No such "full
termination" of the case was evident in the said Order; nor
did the CIAC or private respondents intend to put an end to
the case. DTSaIc
Besides, according to Section 3 of the Rules of Procedure
Governing Construction Arbitration, technical rules of law
or procedure are not applicable in a single arbitration or
arbitral tribunal. Thus, the "dismissal" could not have
divested the CIAC of jurisdiction to ascertain the facts of the
case, arrive at a judicious resolution of the dispute and
enforce its award or decision.
Since the issues concerning the monetary awards were
questions of fact, the CA held that those awards were
inappropriate in a petition for certiorari. Such questions
are final and not appealable according to Section 19 of EO
1008, which provides that "arbitral awards shall be . . . final
and [u]nappealable except on questions of law which shall
be appealable to the Supreme Court . . . ." Nevertheless, the
CA reviewed the records and found that the awards were
supported by substantial evidence. In matters falling under
the field of expertise of quasi-judicial bodies, their findings
of fact are accorded great respect when supported by
substantial evidence.
Hence, this Petition. 6
Issues
The petitioner, in its Memorandum, raises the following
issues:
"A.
Whether or not the CIAC could take jurisdiction over the
case of Respondent Cid spouses against Petitioner Philrock
after the case had been dismissed by both the RTC and the
CIAC.
"B.
Whether or not Respondent Cid spouses have a cause of
action against Petitioner Philrock.
"C.
Whether or not the awarding of the amount of P23,276.75
for materials ordered by Respondent Spouses Cid plus
interest thereon at the rate of 6% from 26 September 1995
is proper.
"D.
Whether or not the awarding of the amount of P65,000.00
as retrofitting costs is proper.
"E.
Whether or not the awarding of the amount of P1,340,454
for the value of the delivered but the allegedly unworkable
concrete which was wasted is proper.
"F.
Whether or not the awarding o[f] moral and nominal
damages and attorney's fees and expenses of litigation in
favor of respondents is proper.
"G.
Whether or not Petitioner Philrock should be held liable for
the payment of arbitration fees." 7
In sum, petitioner imputes reversible error to the CA (1) for
upholding the jurisdiction of the CIAC after the latter had
dismissed the case and referred it to the regular court, (2)
for ruling that respondent spouses had a cause of action
against petitioner, and (3) for sustaining the award of
damages.
This Court's Ruling
The Petition has no merit.
First Issue:
Jurisdiction
Petitioner avers that the CIAC lost jurisdiction over the
arbitration case after both parties had withdrawn their
consent to arbitrate. The June 13, 1995 RTC Order
remanding the case to the CIAC for arbitration was
allegedly an invalid mode of referring a case for arbitration.
We disagree. Section 4 of Executive Order 1008 expressly
vests in the CIAC original and exclusive jurisdiction over
disputes arising from or connected with construction
contracts entered into by parties that have agreed to
submit their dispute to voluntary arbitration. 8
It is undisputed that the parties submitted themselves to
the jurisdiction of the Commission by virtue of their
Agreement to Arbitrate dated November 24, 1993.
Signatories to the Agreement were Atty. Ismael J. Andres
and Perry Y. Uy (president of Philippine Rock Products,
Inc.) for petitioner, and Nelia G. Cid and Atty. Esteban A.
Bautista for respondent spouses. 9
Petitioner claims, on the other hand, that this Agreement
was withdrawn by respondents on April 8, 1994, because
of the exclusion of the seven engineers of petitioners in the
arbitration case. This withdrawal became the basis for the
April 13, 1994 CIAC Order dismissing the arbitration case
and referring the dispute back to the RTC. Consequently,
the CIAC was divested of its jurisdiction to hear and decide
the case.
This contention is untenable. First, private respondents
removed the obstacle to the continuation of the arbitration,
precisely by withdrawing their objection to the exclusion of
the seven engineers. Second, petitioner continued
participating in the arbitration even after the CIAC Order
had been issued. It even concluded and signed the Terms of
Reference 10 on August 21, 1995, in which the parties
stipulated the circumstances leading to the dispute;
summarized their respective positions, issues, and claims;
and identified the composition of the tribunal of
arbitrators. The document clearly confirms both parties'
intention and agreement to submit the dispute to voluntary
arbitration. In view of this fact, we fail to see how the CIAC
could have been divested of its jurisdiction.
Finally, as pointed out by the solicitor general, petitioner
maneuvered to avoid the RTC's final resolution of the
dispute by arguing that the regular court also lost
jurisdiction after the arbitral tribunal's April 13, 1994
Order referring the case back to the RTC. In so doing,
petitioner conceded and estopped itself from further
questioning the jurisdiction of the CIAC. The Court will not
countenance the effort of any party to subvert or defeat the
objective of voluntary arbitration for its own private
motives. After submitting itself to arbitration proceedings
and actively participating therein, petitioner is estopped
from assailing the jurisdiction of the CIAC, merely because
the latter rendered an adverse decision. 11
Second Issue:
Cause of Action
Petitioner contends that respondent spouses were
negligent in not engaging the services of an engineer or
architect who should oversee their construction, in
violation of Section 308 of the National Building Code. It
adds that even if the concrete it delivered was defective,
respondent spouses should bear the loss arising from their
illegal operation. In short, it alleges that they had no cause
of action against it.
We disagree. Cause of action is defined as an act or
omission by which a party violates the right of
another.12 A complaint is deemed to have stated a cause of
action provided it has indicated the following: (1) the legal
right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or the omission of the defendant
in violation of the said legal right. 13 The cause of action
against petitioner was clearly established. Respondents
were purchasers of ready-mix concrete from petitioner.
The concrete delivered by the latter turned out to be of
substandard quality. As a result, respondents sustained
damages when the structures they built using such cement
developed cracks and honeycombs. Consequently, the
construction of their residence had to be stopped.
Further, the CIAC Decision clearly spelled out respondents'
cause of action against petitioner, as follows:
"Accordingly, this Tribunal finds
that the mix was of the right
proportions at the time it left the
plant. This, however, does not
necessarily mean that all of the
concrete mix delivered had
remained workable when it
reached the jobsite. It should be
noted that there is no evidence to
show that all the transit mixers
arrived at the site within the
allowable time that would ensure
the workability of the concrete mix
delivered.
"On the other hand, there is
sufficiently strong evidence to
show that difficulties were
encountered in the pouring of
concrete mix from certain transit
mixers necessitating the [addition]
of water and physically pushing the
mix, obviously because the same
[was] no longer workable. This
Tribunal holds that the
unworkability of said concrete mix
has been firmly established.
"There is no dispute, however, to
the fact that there are defects in
some areas of the poured
structures. In this regard, this
Tribunal holds that the only logical
reason is that the unworkable
concrete was the one that was
poured in the defective
sections." 14
Third Issue:
Monetary Awards
Petitioner assails the monetary awards given by the
arbitral tribunal for alleged lack of basis in fact and in law.
The solicitor general counters that the basis for petitioner's
assigned errors with regard to the monetary awards is
purely factual and beyond the review of this Court. Besides,
Section 19, EO 1008, expressly provides that monetary
awards by the CIAC are final and unappealable.
We disagree with the solicitor general. As pointed out
earlier, factual findings of quasi-judicial bodies that have
acquired expertise are generally accorded great respect
and even finality, if they are supported by substantial
evidence. 15 The Court, however, has consistently held that
despite statutory provisions making the decisions of
certain administrative agencies "final," it still takes
cognizance of petitions showing want of jurisdiction, grave
abuse of discretion, violation of due process, denial of
substantial justice or erroneous interpretation of the
law. 16 Voluntary arbitrators, by the nature of their
functions, act in a quasi-judicial capacity, such that their
decisions are within the scope of judicial review. 17
Petitioner protests the award to respondent spouses of
P23,276.25 as excess payment with six percent interest
beginning September 26, 1995. It alleges that this item was
neither raised as an issue by the parties during the
arbitration case, nor was its justification discussed in the
CIAC Decision. It further contends that it could not be held
liable for interest, because it had earlier tendered a check
in the same amount to respondent spouses, who refused to
receive it.
Petitioner's contentions are completely untenable.
Respondent Nelia G. Cid had already raised the issue of
overpayment even prior to the formal arbitration. In
paragraph 9 of the Terms of Reference, she stated:
"9. Claimants were assured that the
problem and her demands had
been the subject of several staff
meetings and that Arteche was very
much aware of it, a memorandum
having been submitted citing all the
demands of [c]laimants. This
assurance was made on July 31,
1992 when Respondents Secillano,
Martillano and Lomibao came to
see Claimant Nelia Cid and offered
to refund P23,276.25, [t]he
difference between the billing by
Philrock's Marketing Department in
the amount of P125,586.25 and the
amount charged by Philrock's
Batching Plant Department in the
amount of only P102,586.25, which
[c]laimant refused to accept by
saying, 'Saka na lang'." 18
The same issue was discussed during the hearing before
the arbitration tribunal on December 19, 1995. 19 It was
also mentioned in that tribunal's Decision dated September
24, 1996. 20
The payment of interest is based on Article 2209 of the
Civil Code, which provides that if the obligation consists of
the payment of a sum of money, and the debtor incurs
delay, the indemnity for damages shall be the payment of
legal interest which is six per cent per annum, in the
absence of a stipulation of the rate.
Awards for Retrofitting Costs, Wasted Unworkable
But Delivered Concrete, and Arbitration Fees
Petitioner maintains that the defects in the concrete
structure were due to respondent spouses' failure to secure
the services of an engineer or architect to supervise their
project. Hence, it claims that the award for retrofitting cost
was without legal basis. It also denies liability for the
wasted unworkable but delivered concrete, for which the
arbitral court awarded P13,404.54. Finally, it complains
against the award of litigation expenses, inasmuch as the
case should not have been instituted at all had respondents
complied with the requirements of the National Building
Code.
We are unconvinced. Not only did respondents disprove
the contention of petitioner; they also showed that they
sustained damages due to the defective concrete it had
delivered. These were items of actual damages they
sustained due to its breach of contract.
Moral and Nominal Damages, Attorney's Fees and Costs
Petitioner assails the award of moral damages, claiming no
malice or bad faith on its part.
We disagree. Respondents were deprived of the comfort
and the safety of a house and were exposed to the agony of
witnessing the wastage and the decay of the structure for
more than seven years. In her Memorandum, Respondent
Nelia G. Cid describes her family's sufferings arising from
the unreasonable delay in the construction of their
residence, as follows: "The family lives separately for lack
of space to stay in. Mrs. Cid is staying in a small dingy
bodega, while her son occupies another makeshift room.
Their only daughter stayed with her aunt from 1992 until
she got married in 1996. . . ." 21 The Court also notes that
during the pendency of the case, Respondent Vicente Cid
died without seeing the completion of their home.22 Under
the circumstances, the award of moral damages is proper.
Petitioner also contends that nominal damages should not
have been granted, because it did not breach its obligation
to respondent spouses.
Nominal damages are recoverable only if no actual or
substantial damages resulted from the breach, or no
damage was or can be shown. 23 Since actual damages
have been proven by private respondents for which they
were amply compensated, they are no longer entitled to
nominal damages.
Petitioner protests the grant of attorney's fees, arguing that
respondent spouses did not engage the services of legal
counsel. Also, it contends that attorney's fees and litigation
expenses are awarded only if the opposing party acted in
gross and evident bad faith in refusing to satisfy plaintiff's
valid, just and demandable claim.
We disagree. The award is not only for attorney's fees, but
also for expenses of litigation. Hence, it does not matter if
respondents represented themselves in court, because it is
obvious that they incurred expenses in pursuing their
action before the CIAC, as well as the regular and the
appellate courts. We find no reason to disturb this award.
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED; however, the award of nominal
damages is DELETED for lack of legal basis. Costs against
petitioner.
SO ORDERED.
||| (Philrock, Inc. v. Construction Industry Arbitration
Commission, G.R. Nos. 132848-49, [June 26, 2001], 412 PHIL
236-251)
FIRST DIVISION
[G.R. No. 141897. September 24, 2001.]
METRO CONSTRUCTION,
INC., petitioner, vs. CHATHAM
PROPERTIES, INC., respondent.
Abello Concepcion Regala & Cruz for petitioner.
Picazo Buyco Tan Fider & Santos for respondent.
SYNOPSIS
On April 21, 1994, respondent and
petitioner entered into a contract for the construction
of the Chatham House in Makati City. In April 1998,
petitioner sought to collect from respondent a sum of
money for unpaid progress billings and other charges
and instituted a request for adjudication of its claims
with the Construction Industry Arbitration
Commission (CIAC). Among others, the parties
submitted for CIAC's resolution the issue on whether
or not petitioner failed to complete and/or deliver the
project within the approved completion date and, if
so, whether petitioner was liable for liquidated
damages. After due hearing, the CIAC rendered
judgment in favor of petitioner and directed the
respondent to pay petitioner P16,126,922.91. The
CIAC held that the provision of the contract insofar as
the Overall Schedule is concerned cannot be
justifiably applied in the instant case in view of the
implied takeover of the project by respondent.
Accordingly, the CIAC found it unnecessary to rule on
whether MCI completed and/or delivered the project
within the approved completion schedule of the
project since respondent failed to observe the
antecedent acts required for the termination of the
contract, as set forth in the Construction Agreement.
The CIAC, however, found petitioner liable for
liquidated damages. Based on the CIAC's assessment,
petitioner's responsibility was based on its delay in
the concreting milestone. Respondent instituted a
petition for review with the Court of Appeals. The
Court of Appeals upheld the decision of the CIAC
except on the matter of liquidated damages. In its
decision, the appellate court held that there was no
takeover by respondent and that petitioner exercised
complete control, authority and responsibility over
the construction. The appellate court also found
petitioner liable for liquidated damages but made a
contrary conclusion and declared that petitioner was
in delay based on the overall schedule of completion
of the project. Thus, it directed petitioner to pay
respondent the sum of P4,935,578.31. Petitioner
moved for reconsideration, but the appellate court
denied the same for lack of merit. IHTASa
 Hence, this instant petition for review.
Petitioner alleged that the Court of Appeals, in
reviewing and reversing the CIAC's factual findings,
contravened Section 19 of Executive Order (E.O.) No.
1008, which provides that the arbitral award of the
CIAC is final and unappealable, except on questions of
law, which are appealable to the Supreme Court.
The Court rejected petitioner's contention
holding that under Circular No. 1-91, appeals from the
arbitral awards of the CIAC may be brought to the
Court of Appeals, and not to the Supreme Court alone.
The grounds for the appeal are likewise broadened to
include appeals on questions of facts and appeals
involving mixed questions of fact and law. The
jurisdiction of the Court of Appeals over appeals from
final orders or decisions of the CIAC is further fortified
by the amendments to B.P. Blg. 129, as introduced
byR.A. No. 7902.
The Court affirmed the CIAC's findings and
arbitral award. The Court found that the evidence
taken as a whole or in their totality revealed that
there was an implied takeover by respondent on the
completion of the project.
SYLLABUS
1. ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCY;
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION
(CIAC); COVERED BY CIRCULAR NO. 1-91; QUASI-JUDICIAL
AGENCY, DEFINED. — Through Circular No. 1-91, the
Supreme Court intended to establish a uniform procedure
for the review of the final orders or decisions of the Court
of Tax Appeals and other quasi-judicial agencies provided
that an appeal therefrom is then allowed under existing
statutes to either the Court of Appeals or the Supreme
Court. The Circular designated the Court of Appeals as the
reviewing body to resolve questions of fact or of law or
mixed questions of fact and law. It is clear that Circular No.
1-91 covers the CIAC. In the first place, it is a quasi-judicial
agency. A quasi-judicial agency or body has been defined as
an organ of government other than a court and other than a
legislature, which affects the rights of private parties
through either adjudication or rule-making. The very
definition of an administrative agency includes its being
vested with quasi-judicial powers. The ever increasing
variety of powers and functions given to administrative
agencies recognizes the need for the active intervention of
administrative agencies in matters calling for technical
knowledge and speed in countless controversies which
cannot possibly be handled by regular courts. The CIAC's
primary function is that of a quasi-judicial agency, which is
to adjudicate claims and/or determine rights in accordance
with procedures set forth in E.O. No. 1008. In the second
place, the language of Section 1 of Circular No. 1-91
emphasizes the obvious inclusion of the CIAC even if it is
not named in the enumeration of quasi-judicial agencies.
The introductory words "[a]mong these agencies are"
preceding the enumeration of specific quasi-judicial
agencies only highlight the fact that the list is not exclusive
or conclusive. Further, the overture stresses and
acknowledges the existence of other quasi-judicial agencies
not included in the enumeration but should be deemed
included. In addition, the CIAC is obviously excluded in the
catalogue of cases not covered by the Circular and
mentioned in Section 2 thereof for the reason that at the
time the Circular took effect, E.O. No. 1008 allows appeals
to the Supreme Court on questions of law.
2. ID.; ID.; ID.; ARBITRAL AWARDS THEREOF MAY BE
BROUGHT TO THE COURT OF APPEALS AND NOT TO THE
SUPREME COURT. — Under Circular No. 1-91, appeals from
the arbitral awards of the CIAC may be brought to the Court
of Appeals, and not to the Supreme Court alone. The
grounds for the appeal are likewise broadened to include
appeals on questions of facts and appeals involving mixed
questions of fact and law. AacCIT
3. ID.; ID.; ID.; REVIEW OF AWARD THEREOF MAY
INVOLVE EITHER QUESTIONS OF FACT, OF LAW, OR OF
FACT AND LAW. — Any remaining doubt on the procedural
mutation of the provisions on appeal in E.O. No. 1008, vis-à-
vis Circular No. 1-91 and R.A. No. 7902, was completely
removed with the issuance by the Supreme Court of
Revised Administrative Circular No. 1-95 and the 1997
Rules of Civil Procedure. Both categorically include the
CIAC in the enumeration of quasi-judicial agencies
comprehended therein. Section 3 of the former and Section
3, Rule 43 of the latter, explicitly expand the issues that
may be raised in an appeal from quasi-judicial agencies or
instrumentalities to the Court of Appeals within the period
and in the manner therein provided. Indisputably, the
review of the CIAC award may involve either questions of
fact, of law, or of fact and law.
4. REMEDIAL LAW; COURTS; COURT OF APPEALS;
APPELLATE JURISDICTION OVER QUASI-JUDICIAL
AGENCIES. — The jurisdiction of the Court of Appeals over
appeals from final orders or decisions of the CIAC is further
fortified by the amendments to B.P. Blg. 129, as introduced
by R.A. No. 7902. With the amendments, the Court of
Appeals is vested with appellate jurisdiction over all final
judgments, decisions, resolutions, orders or awards of
Regional Trial Courts and quasi-judicial agencies,
instrumentalities, boards or commissions, except "those
within the appellate jurisdiction of the Supreme Court in
accordance with theConstitution, 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."
While, again, the CIAC was not specifically named in said
provision, its inclusion therein is irrefutable. The CIAC was
not expressly covered in the exclusion. Further, it is a
quasi-judicial agency or instrumentality.
5. ID.; APPEAL; PROCEDURE FOR THE EXERCISE OF THE
RIGHT TO APPEAL MAY BE ALTERED AND MODIFIED
PROVIDED THAT VESTED RIGHTS ARE NOT IMPAIRED. —
There is no controversy on the principle that the right to
appeal is statutory. However, the mode or manner by
which this right may be exercised is a question of
procedure which may be altered and modified provided
that vested rights are not impaired. The Supreme Court is
bestowed by the Constitution with the power and
prerogative, inter alia, to promulgate rules concerning Joven B. Joaquin as Chairman, and Beda G. Fajardo and
pleadings, practice and procedure in all courts, as well as to Loreto C. Aquino as members. .
review rules of procedure of special courts and quasi- The preliminary conference before the CIAC started in June
judicial bodies, which, however, shall remain in force until 1998 and was concluded a month after with the signing of
disapproved by the Supreme Court. This power is the Terms of Reference (TOR) of the Case. 1 The hearings
constitutionally enshrined to enhance the independence of immediately started with the presentation of MCI's
the Supreme Court. witnesses, namely: Ms. Ma. Suzette S. Nucum, Chief
6. ID.; ID.; A LITIGANT HAS NO VESTED RIGHT IN A Accountant; Ms. Isabela Redito, Office Engineer; Mr. John
PARTICULAR REMEDY. — The right to appeal from Romulo, Field Manager; and Dr. John Y. Lai, President.
judgments, awards, or final orders of the CIAC is granted CHATHAM's witnesses were: Engr. Ruperto Kapunan III,
in E.O. No. 1008. The procedure for the exercise or Managing Director of RK Development and Construction
application of this right was initially outlined in E.O. No. Co., Inc. (RKDCCI), which was the Construction Manager
1008. While R.A. No. 7902 and circulars subsequently firm hired by CHATHAM to oversee the construction work
issued by the Supreme Court and its amendments to the of the Chatham House; Engr. Alex Bautista, Area Manager of
1997 Rules on Procedure effectively modified the manner RKDCCI; Mr. Avelino M. Mercado, CHATHAM's Project
by which the right to appeal ought to be exercised, nothing Manager; and Engr. Jose T. Infante.
in these changes impaired vested rights. The new rules do In the meantime, the TOR was amended and finalized on 19
not take away the right to appeal allowed in E.O. No. 1008. August 1998. 2
They only prescribe a new procedure to enforce the right. The facts, as admitted by the parties before the CIAC and
No litigant has a vested right in a particular remedy, which incorporated in the original TOR, are as follows:
may be changed by substitution without impairing vested 1. On 21 April 1994, the parties
rights; hence, he can have none in rules of procedure which formally entered into a . .
relate to remedy." . contract for the
7. ID.; RULES OF PROCEDURE; CANNOT BE ALTERED, construction of the
CHANGED OR MODIFIED BY AGREEMENTS OR "Chatham House" . . . for
STIPULATIONS OF THE PARTIES. — The TOR, any contract the contract price of
or agreement of the parties cannot amend, modify, limit, P50,000,000.00 inclusive
restrict or circumscribe legal remedies or the jurisdiction of value-added tax,
of courts. Rules of procedure are matters of public order subject to adjustments in
and interest and unless the rules themselves so allow, they accordance with Article
cannot be altered, changed or regulated by agreements 9 of the contract.
between or stipulations of the parties for their singular Construction of the
convenience. aCSEcA project, however,
commenced on 15 April
8. ID.; EVIDENCE; FINDINGS OF FACTS OF THE COURT OF 1994 upon the release by
APPEALS ARE BINDING ON THE SUPREME COURT; CHATHAM of the
EXCEPTION. — Settled is the general rule that the findings downpayment.
of facts of the Court of Appeals are binding on us. There are 2. On 12 July 1994, a Supplemental
recognized exceptions to the rule, such as when the Contract was executed
findings are contrary to those of the trial court, as in this by and between the
case. Hence, we have to take a closer reexamination of this parties whereby
case. CHATHAM authorized
DECISION MCI to procure in behalf
DAVIDE, JR., C.J p: of the former materials,
The core issue in this case is whether under existing law equipment, tools,
and rules the Court of Appeals can also review findings of fixtures, refurbishing,
facts of the Construction Industry Arbitration Commission furniture, and
(CIAC). accessories necessary for
Respondent Chatham Properties, Inc. (CHATHAM) and the completion of the
petitioner Metro Construction, Inc. (MCI) entered into a project.
contract for the construction of a multi-storey building 3. Under Section 1.04 of the
known as the Chatham House located at the corner of Supplemental Contract,
Herrera and Valero Streets, Salcedo Village, Makati City, the total amount of
Metro Manila. In April 1998, MCI sought to collect from procurement and
CHATHAM a sum of money for unpaid progress billings and transportation cost[s]
other charges and instituted a request for adjudication of and expenses which may
its claims with the CIAC. The case was docketed as CIAC be reimbursed by MCI
Case No. 10-98. The arbitral tribunal was composed of from CHATHAM shall not
 exceed the amount of
P75,000,000.00.
4. In the course of the construction,
Change Orders No. 1, 4,
8A, 11, 12 and 13 were
implemented, payment
of which were
recommended by . . .
RKDCCI and approved by
one of CHATHAM's
Project Managers,
Romulo F. Sugay.
5. On 15 September 1995,
CHATHAM through its
Project Manager, Romulo
F. Sugay, agreed to give
P20,000 per floor for five
(5) floors, or a total of
P100,000.00 as
bonus/incentive pay to
MCI's construction
workers for the
completion of each floor
on schedule. CHATHAM
reimbursed MCI the
amount of P60,000.00
corresponding to
bonuses advanced to its
workers by the latter for
the 14th, 16th, and 17th
floors.
6. CHATHAM's payments to MCI
totaled P104,875,792.37,
representing payments
for portions of MCI's
progress billings and . . .
additional charges.
The parties then stipulated on the following issues, again,
as set forth in the TOR:
1. Is MCI entitled to its claims for
unpaid progress billings
amounting to
P21,062,339.76?
2. Were the approved Change
Orders 1, 4, 8a, 11, 12
and 13 fully paid by
CHATHAM? If not, is MCI
entitled to its claim for
the unpaid balance?
3. Is CHATHAM liable for Change
Orders 7a, 7b, 10, 14, 15,
16, 17, 19 and 20?
4. Were the CHB works from the
8th to the 31st floors
part of the original
contract or in the nature
of extra/additional
works? Is CHATHAM
liable for the same? If so, attorney's fees and cost agreement for a lump sum contract
how much? of litigation? If so, how amount of P125,000,000.00.
5. Is MCI entitled to an additional much? 3 xxx xxx xxx
reimbursement of In the resolution of these issues, the CIAC discovered There was also the admitted fact
P40,000.00 for bonuses significant data, which were not evident or explicit in the that the contract was negotiated
granted to workers as an documents and records but otherwise revealed or elicited and awarded in the absence of a
incentive for the early during the hearings, which the CIAC deemed material and complete construction plan. In any
completion of each floor? relevant to the complete adjudication of the case. In its case, in support of the total contract
6. Were the deductions in the decision of 19 October 1998, 4 the CIAC made the following amount of P125 MILLION, is a Cost
amount of P1,393,458.84 findings and conclusions: Breakdown (Exh. 17-L), where the
made by CHATHAM in It was established during the estimated quantities of owner
MCI's progress billing hearing that the contract was furnished materials (OFM) are
reasonable? awarded to MCI through indicated. It is however,
7. Is MCI's claim of P1,646,502.00 negotiation as no bidding was understood that these quantities
for labor escalation conducted. . . . It was also revealed are estimates, based on (an)
valid? that two agreements were entered incomplete set of construction
8. Is MCI entitled to payment of into, one is labeled Construction plans. It is likewise understood that
attendance fee? To what Contract for the total fixed amount except for the OFM, all the other
extent and how much? of P50,000,000.00 and the other a costs in the Cost Breakdown form
9. Did MCI fail to complete and/or Supplemental Contract for an the basis for the lump-sum
deliver the project amount not to exceed agreement under the contract,
within the approved P75,000,000.00. The latter is subject to adjustment only if there
completion period? If so, supposed to cover the procurement are any significant changes in the
is MCI liable for of materials for the project. The contract plans.
liquidated damages and Construction Contract provides for RKDCCI in its letter to MCI dated 15
how much? monthly progress billings and Feb. 1995 (Exh. 4), informed MCI
10. Whether or not CHATHAM is payments based on actual that it was confirming the
entitled to claim . . . accomplishments of the various agreement allegedly accepted by
actual damages? If so, to phases of work. The Supplemental Dr. Lai that the Building Committee
what extent and how Contract provides for will take over the management of
much? reimbursement of [the] total the construction operations (of the
11. Whether or not CHATHAM is amount of procurement and project) albeit under certain
entitled to . . . additional transportation costs and expenses, conditions. Specifically, the take
counterclaims as follows: upon MCI's presentation of over was for an interim period and
11.1. Core testing suppliers' invoices/receipts. will extend only after concreting of
expenses and However, from testimonies of up to basement level 5 or up to 30
penalty for witnesses from both parties, it was May 1995 whichever is later. The
concrete revealed that the two distinct letter also stated that the Building
strength manner(s) of payment to MCI was Committee . . . will be responsible
failure set aside. The earlier attempt by for management and direction
P3,630,587.38 CHATHAM to prove that MCI was including management of MCI
. remiss in submitting suppliers' engineers at the site, sequencing of
11.2. Expenses to rectify invoices and/or receipts in support work, additional labor, additional
structural of its billings against the equipment and management of the
steel works Supplemental Contract was in fact yard and staging area. The letter,
for the later on abandoned when however, emphasized that the
foundation CHATHAM's witness Mercado intent is not a take over of the
P1,331,139.74 admitted that the matter of contract or take over of the entire
. adherence to the payment work and in fact, it was mentioned
11.3. Cost of additional provision of the Supplemental that MCI will still be responsible for
materials Contract is a 'non-issue.' This was earth anchoring and steel
(concrete & borne out by the fact that progress fabrication work.
rebars) billings and payments under both CHATHAM claims that the interim
supplied by contracts were made on the basis of take-over was necessitated by
CPI percentage of project completion. MCI's delay in the progress of its
P5,761,457.91 Both documentary and testimonial work, due allegedly to MCI's lack of
. evidence prove that, effectively, the manpower and equipment. During
12. Are the parties entitled to their construction contract and the hearings of this case, this claim
respective claims for supplemental contract is but one of MCI's lack of manpower,
necessary equipment, qualified
engineers and inefficient
construction management was
testified to by both Mr. Mercado [of
CHATHAM] and Engr. Kapunan of
RKDCCI. CHATHAM's witnesses,
however, testified that in spite of
these alleged deficiencies, MCI was
nevertheless allowed to continue to
take full control of the operations.
When asked why termination of the
contract was not resorted to if
truly, MCI was not performing its
contracted obligations, witnesses
Mercado and Kapunan cited
"special relations" between the
owner of MCI (Dr. John Lai) and the
president of CHATHAM (Mr.
Lamberto UnOcampo) as the
reason.
On the other hand, Dr. Lai contends
that, as explained in his letter to
CHATHAM dated 17 February
1995, (Exh. 4-A) MCI's work was on
schedule. During the hearings, Dr.
Lai also insisted that beginning 15
February 1995, MCI was relieved of
full control of the construction
operations, that it was relegated to
(be) a mere supplier of labor,
materials and equipment, and that
the alleged interim takeover
actually extended through the
completion of the project. Dr. Lai
cited CHATHAM's purchases of
materials, fielding labor force and
sub-contracting works allegedly for
the project without his knowledge
and consent as proof that
CHATHAM had taken full control of
the project.
To the above allegation of MCI that
CHATHAM went ahead and
procured materials, hired labor and
entered into sub-contract
agreements with the intention of
eventually charging the costs
thereof to MCI, witness Mercado
countered, that CHATHAM has the
right to do this under the
provisions of Article 27 of the
contract, dealing with 'Recission,
Cancellation, Termination of
Contract.'
By way of responding to the
various counterclaims of
CHATHAM, MCI referred to a letter
of [the former] addressed to MCI
dated 18 January 1997 (Exhibit E-
1) the first paragraph of which
reads as follows:
After evaluating all the
documents issued and
received from both
Chatham Properties Inc.
and Metro Construction,
Inc., the Building
Committee of Chatham
Properties, Inc.
evaluated them. The
Building Committee
finds the total receivable
of Metro Construction is
in the amount of EIGHT
MILLION PESOS
(P8,000,000.00)
only. DSETcC
When queried by the Tribunal if the
said amount already took into
account the costs and expenses
(Chatham) claims to have incurred
for the account of MCI, Mr. Mercado
answered in the affirmative. When
queried further how the amount
was arrived at, Mr. Mercado replied
that it was the sum the Building
Committee figured it was willing to
pay MCI simply to close the issue.
Mr. Mercado even added that while
MCI is not actually entitled to this
amount, it was out of a "friendship"
that CHATHAM offered this sum to
MCI as final settlement under the
contract.
It is with the above attendant
circumstances that this Tribunal
will be guided in the resolution of
issues brought before it for
adjudication. From what this
Tribunal finds as peculiar
circumstances surrounding the
contracting and implementation of
the CHATHAM House Project, it
arrived at the following
fundamental conclusions:
1. That indeed 'special friendly
relations' were present
between the parties in
this case, although
decisions by either party
on any particular issue
were made not purely on
the basis of such special
relations. For example,
this Tribunal believes
that, contrary to the
allegation of
(CHATHAM's) witnesses,
the decision not to
terminate the contract
was not due to the
admitted 'special
relations' only, but also
due to the greater
problems the project
would be faced with by
terminating the MCI
contract and mobilizing
another contractor.
2. That while there was no official
termination of the
contract, the manner by
which CHATHAM had
taken upon themselves
the procurement of
materials, the fielding of
labor, the control over
MCI's engineers, and the
subcontracting of
various phases of work
on its own, is considered
by this Tribunal as
implied termination of
the contract. The idea of
allowing MCI to remain
on the project in spite of
what CHATHAM claims
(to be) MCI's
shortcomings, and MCI's
agreement to stay on the
project under conditions
set by CHATHAM, is
believed a matter of
mutual benefit to both
parties.
3. That CHATHAM's invoking its
rights under the
provisions of Article 27
of the construction
contract is believed out
of place, as it failed to
observe the required
antecedent acts before it
can exercise its
prerogative under the
said contract provision.
4. That there is no reason to
believe, either party was
in any way guilty of bad
faith in acting as it did on
certain relevant matters.
However, this Tribunal is
of the belief that due
perhaps to the eagerness
on the part particularly
of CHATHAM's
representatives to take
such steps it considered
necessary to insure
completion of the project
within the period
desired by CHATHAM, it
deviated from some
generally accepted
procedures in the
construction industry in
dealing with MCI. One
example was not giving
MCI the opportunity to
rectify some of what
CHATHAM considered as
construction deficiencies
and instead engaging the
services of other parties
to undertake the
corrective works and
later on charging the
costs thereof to MCI.
In addition to the above
conclusions resulting from what
this Tribunal considered peculiar of
circumstances surrounding the
implementation of the project that
were revealed during the
proceedings of this case, this
Tribunal finds the necessity of
establishing a cut-off date with
regard to the fiscal liability of one
party towards the other.
Mr. Avelino Mercado of CHATHAM
presented a list of what he claims
as its Payments to MCI (Exhibit 7)
summarized as follows:
a. Down payment (Paid in two
equal trances) P20,000,000.00
b. Cash Advance for
Mobilization 800,000.00
c. Payments of Progress Billings up
to
Billing No.
19 71,081,183.44
d. Other Payments (Mar. 1994 to
Apr. 1996) 5,474,419.67
e. Advances on MCI Payrolls (April
1996 to March
1997) 8,196,755.51
————————
Total P104,752,358.42
The records of this case show that
the last progress payment to MCI
was in January 1996 representing
payment of Progress Billing No. 19
for the period ending 31 December
1995. The percentage of
completion claimed then by MCI
was 80.02%, the amount evaluated
and eventually paid to MCI was the
equivalent of 77.15% work
accomplishment. No further
progress payments were made
thereafter, other than for advances
to cover MCI payrolls from April
1996 to March 1997 in the amount
of P8,196,755.51 and for various
advances and payments of
approved change orders in the
amount of P5,474,419.67.
In the meantime, up to Billing No.
23 for the period ending 30 April
1996, MCI billed CHATHAM a total
accomplishment of 95.29%. This
billing was however, evaluated by
CHATHAM, and in its letter to MCI
dated 27 May 1996 (Exhibit E) it
confirmed that MCI's remaining
balance of work stands at
P7,374,201.15 as of 23 May 1996.
This amount, percentage-wise,
equals roughly 5.88% of the
contract amount as testified to by
Engr. Jose Infante. (Exhibit 22-B).
Therefore, what was computed as
MCI's work accomplishment as of
23 May 1996 was 94.12% and it is
this evaluation which this Tribunal
believes MCI is entitled to as of said
date.
Applying this percentage of
completion of 94.12% to the
P125,000,000.00 contract amount
gives a total accomplishment
equivalent to P117,650,000.00 as of
23 May 1996. Add to this amount
the sum of P5,353,091.08
representing the total of approved
Change Orders as of 31 December
1995 gives a total MCI
accomplishment of
P123,003,091.08, as CHATHAM
saw it. Of this amount, CHATHAM
admitted having paid MCI the total
sum of P104,752,358.42 only
(Exhibit 7) up to March 15, 1997,
leaving a balance of
P18,250,732.66. It should be noted
that of the total payment of
P104,752,358.42, the sum of
P5,750,000.00 was paid after May
1996 so that as of 23 May 1996,
CHATHAM's total payment to MCI
was P99,002,358.42.
Effectively, therefore, the amount
due MCI as of 23 May 1996
amounted to P24,005,732.66
computed as follows:
Total accomplishment as
of 23 May 1996 at
94.12% 117,655,000.00
Add approved change
orders 5,353,091.08
———————
Total P123,008,091.08
Less payments up to 23
May 1996 99,002,358.42
Balance due MCI as of 23
May 1996 P24,005,732.66
Of the above balance of
P24,005,732.66 as of 23 May 1996,
the only payments made by
CHATHAM to MCI is the sum of
P5,750,000.00 from June 1996
onwards, allegedly to cover MCI
payrolls. It is of course noted that
CHATHAM's suspension of further
payments to MCI was because it
had been undertaking on its own,
the further procurement of
materials and sub-contracting of
various phases of works on the
project.
In consideration of the above facts,
this Tribunal's conclusion that
there was in fact an implied take
over of the project is further
confirmed. Furthermore, this
Tribunal additionally concludes
that the cut-off date for purposes of
delineating the financial obligations
of the parties between them should
be 23 May 1996, the date when
CHATHAM evaluated MCI's
accomplishment at 94.10% but
nevertheless suspended all further
progress payments to MCI.
MCI presented further
documentary evidence (Exhibit E-
6) the subject of which is a
"PUNCHLISTING-CIVIL
STRUCTURAL." In this particular
document which bears the
signatures of representatives of
both MCI and RKDCCI, MCI tried to
prove that as of 30 August 1996 it
had actually attained 99.16% work
accomplishment. While it may be
true that as of that date the project
had reached 99.16% completion,
there is no incontrovertible
evidence showing that MCI was
responsible for such
accomplishment. This was in fact
actually testified to by Engr. Alex
Bautista of RKDCCI, when he said such projected delay was included
that it was an evaluation of the in Exh. 3-I as it should be.
project's completion stage, not This Tribunal holds that Exh. 3-I
necessarily MCI's work showing a delay of 294 days in
accomplishment. This Tribunal concreting milestones should
therefore stands firm on its rightfully be used in computing
conclusion that MCI's liquidated damages. Accordingly,
accomplishment is only up to the this Tribunal holds that MCI is
extent of 94.10%. 5 liable for liquidated damages in the
With those findings, the CIAC disposed of the specific amount of P3,062,498.78 as
money claims by either granting or reducing them. On Issue follows:
No. 9, i.e., whether CHATHAM failed to complete and/or 1/4 x 1/3[(1/10 x
deliver the project within the approved completion period P125,000,000.00) 1%] x 294 =
and, if so, whether CHATHAM is liable for liquidated P3,062,498.78. 6
damages and how much, the CIAC ruled in this wise: The CIAC then decreed:
This Tribunal holds that the Accordingly, as presented below, all
provision of the contract insofar as the amounts due MCI are first listed
the Overall Schedule is concerned and added up and the total
cannot justifiably be applied in the payment is deducted therefrom.
instant case in view of the implied The admitted total payment figure
take-over of the Chatham House as reflected in the Terms of
project by CHATHAM. Accordingly, Reference is the amount applied
this Tribunal finds no necessity to instead of the total reflected in
resolve whether or not MCI CHATHAM's Summary of Payments
complete[d] and/or deliver[ed] the which incidentally reflected a lesser
project within the approved amount. From the 'Balance Due
completion period. In fact, Mr. MCI' the 'Amounts CPI is Held
Mercado testified that it was Entitled To' is deducted and the
CHATHAM who ultimately 'Net Amount Due MCI' is arrived at.
completed the project, with A. AMOUNTS HELD MCI IS
assistance of the construction ENTITLED TO:
managers. A.1. From the original contract:
In any case, this Tribunal finds 94.12% of
merit in RKDCCI's claim that MCI P125,000,000.00
was in delay in the concreting P117,650,000.0
milestone and that [it] is liable for 0
liquidated damages therefor. This, A.2. Approved Change
notwithstanding MCI's invoking Orders 5,353,091.08
that Chatham is estopped from A.3. Pending Change
claiming liquidated damages after it Orders 1,648,560.46
failed to deduct the alleged A.4. CHB Works 1,248,654.71
liquidated damages from MCI's A.5. Workers Bonus -0-
progress billings. This Tribunal A.6. Disputed
holds that such failure to deduct, Deductions 909,484.70
which CHATHAM claims it did in A.7. Labor
order not to hamper progress of Escalation 1,076,256.00
work in the project, is an option A.8. Attendance
which [it] may or may not exercise. Fee 508,162.73
——————
However, this Tribunal finds that Total P128,394,209.68
CHATHAM's Exh. 11-A where the ———————
liquidated damages on delays in Less: Total payments-
concreting milestone was applied is Item II-6 of TOR 104,875,792.37
not consistent with [its] own ———————
Exhibit 3-I. This Tribunal notes that Balance Due MCI P23,518,417.31
in Exh. 11-A, CHATHAM included a B. AMOUNTS HELD CPI IS
projected delay of 85 days for the ENTITLED TO:
Helipad Concreting works, while no B.1. Liquidated
Damages P3,062,498.78
 B.2. Actual
Damages 335,994.50
B.3. Penalties 1,778,285.
44
B.4. Cash Payments in
Behalf of MCI 2,214,715.68
——————
Total Amount Due
CPI P7,391,494.40
C. NET AMOUNT DUE MCI (A minus
B) P16,126,922.91
WHEREFORE, judgment is hereby
rendered in favor of the Claimant
[MCI] directing Respondent
[CHATHAM] to pay Claimant [MCI]
the net sum of SIXTEEN MILLION
ONE HUNDRED TWENTY SIX
THOUSAND NINE HUNDRED
TWENTY TWO & 91/100
(16,126,922.91) PESOS.
SO ORDERED. 7
Impugning the decision of the CIAC, CHATHAM instituted a
petition for review with the Court of Appeals, which was
docketed as CA-G.R. SP No. 49429. In its petition,
CHATHAM alleged that:
The Arbitral Tribunal grossly erred
in failing to indicate specific
reference to the evidence presented
or to the transcript of stenographic
notes in arriving at its questioned
Decision, in violation of the cardinal
rule under Section 1, Rule 36 of the
Revised Rules of Civil Procedure
that a judgment must state clearly
and definitely the facts and the law
on which it is based.
The Tribunal's conclusions are
grounded entirely on speculations,
surmises and conjectures.
The Arbitral Tribunal grossly erred
in failing to consider the evidence
presented by CHATHAM and the
testimony of its witnesses.
The Arbitral Tribunal gravely
abused its discretion in considering
arbitrarily that there was an
implied takeover contrary to the
facts and evidence submitted.
The Arbitral Tribunal committed
grave error and gross
misapprehension of facts in holding
that CHATHAM is not entitled to
liquidated damages despite failure
of MCI to meet the over-all
schedule of completion.
The Arbitral Tribunal manifestly
erred in holding that MCI is entitled
to its claim for unpaid progress
billings.
The Arbitral Tribunal committed with the schedule of completion, Ruiz of RKDCCI to Dr. Lai
gross and reversible error in since at that time the project was containing the reasons
equating the percentage of MCI's very much delayed; thereafter, the for the takeover. HAEIac
work accomplishment with the MCI was back in full control of the Exhibit "8A" — Letter
entire work in place, despite project. 12 dated 5 September 1995
evidence to the contrary. 2. Testimony of Engr. Bautista that written by Dr. E.G.
The Arbitral Tribunal gravely erred the takeover was only partial and Tabujara to Dr.
in making 23 May 1996 as the cut- temporary and limited to the Lai/Romy Laron (Project
off date for purposes of delineating management portion on the Manager of MCI)
the financial obligations of the basement only and that MCI was requesting for an
parties. always in control of the project. 13 engineer of MCI to
The Arbitral Tribunal erred in 3. Testimony of Engr. Infante that accompany the inspector
denying CHATHAM its claim for MCI personnel were constantly of RKDCCI to witness
actual damages pursuant to Article present in the project and the batching procedures. By
27.8 of the Construction Contract. "intervention" (not takeover) by so doing, Dr. E.G.
The facts set forth in CHATHAM's CHATHAM was justified to ensure Tabujara acknowledged
Answer with Compulsory completion of the project on that Dr. Lai was in
Counterclaim as well as its time. 14 control of the project.
documentary and testamentary 4. Documentary exhibits evincing Exhibit "8" — Letter
evidence were not overturned or the nature and extent of MCI's work dated 4 September 1995
controverted by any contrary during the takeover period which by Engr. Romulo R Sugay
evidence. 8 belied its claims that it was not in to Dr. Lai offering an
In its decision of 30 September 1999, 9 the Court of control of the project because of the incentive to the workers
Appeals simplified the assigned errors into one core issue, takeover thus: of MCI to exert (their)
namely, the "propriety" of the CIAC's factual findings and Exhibit "4" — Letter best effort for topping off
conclusions. In upholding the decision of the CIAC, the dated 15 February 1995 by the end of December;
Court of Appeals confirmed the jurisprudential principle of Engr. Kapunan of another clear indication
that absent any showing of arbitrariness, the CIAC's RKDCCI to John Lai of that Dr. Lai was in
findings as an administrative agency and quasi-judicial MCI stating that the control of the project.
body should not only be accorded great respect but also takeover of directions or Exhibit "4-D" — Letter
given the stamp of finality. However, the Court of Appeals management of the field dated 4 January 1996
found exception in the CIAC's disquisition of Issue No. 9 on operations is indicating that Mr. H.T.
the matter of liquidated damages. interim, i.e. while the Go offered Dr. Lai an
The Court of Appeals disagreed with the CIAC's finding that takeover is effective incentive of P1,800,000
there was an implied takeover by CHATHAM of the project immediately it will on the condition that
and that it was unnecessary for the CIAC to rule on whether extend only after MCI meets the new
MCI completed and/or delivered the project within the concreting Level B-1 or schedule/milestones.
approved completion schedule of the project since approximately until 30 MCI's acceptance of the
CHATHAM failed to observe the antecedent acts required May 1995 which ever is incentive offer likewise
for the termination of the contract, as set forth in the later. shows that MCI was in
Construction Agreement. Exhibit "4-A" — Letter control of the Project.
The Court of Appeals ascertained that the evidence dated 17 February 1995 Exhibits "3", "3-I", "3-M",
overwhelmingly proved that there was no takeover by written by Dr. Lai of MCI "3-N", "3-W-1", 3-X", "3-
CHATHAM and that MCI exercised complete control, to Engr. Kapunan in Y", and "3-Z" — among
authority and responsibility over the construction. In response to the latter's others containing
support of this conclusion, the appellate court pointed to 15 February 1995 letter reminders to MCI of its
the following evidentiary bases: 10 stating that "[A]lso we duties and shortcomings,
1. Testimony of CHATHAM's Engr. were assured that we likewise attest to the fact
Kapunan that the interim takeover will not be responsible that MCI was in control
for the works on the basement was for any errors or (of) and responsible for
triggered by lack of manpower and accidents that may occur the Project, although
delays as early as February 1995, during this INTERIM markedly deficient.
as evidenced by their period," indicating that Exhibits "5", "5-A", "5-B",
assessment 11 and that the interim Dr. Lai was very much "5-C", "5-D", "5-E", "5-F",
takeover was only with respect to aware of the interim "5-O", "C-7", and "E-9" —
the direction or management of the period. evidencing that MCI
field operations and was limited Exhibit "4-C" — Letter continued to manage
only to works on the basement and dated 18 February 1995 other works on the
intended to assist MCI to catch up written by Engr. Ben C. project even during the
 time of the interim
takeover of the basement
works, as seen in the
series of
communications
between CHATHAM or
RKDCCI and MCI within
the period beginning
February 1995 to 30 May
1995.
5. Respondent's Request for
Adjudication, Annex G, Records,
Folder No. 6 — which incorporated
Change Order No. 12, among
others, dated 28 August 1995,
recommended by the RKDCCI and
accepted by Dr. Lai, and which
request for an extension of 25 days
readily showed that even after 30
May 1995, after the close of the
supposed takeover period, MCI was
still the contractor in complete
control of the project for it would
not have otherwise accepted the
said change order if it (were) no
longer the Contractor of the project
due to the termination of the
Construction agreement as of said
date on account of the alleged
takeover.
6. Exhibits "3-J", "3-M", "3-Q", "3-R",
"3-V", "3-W-1", "3-W-2", "5-F", "5-
1", "6", "12-II", "12-JJ", "12-MM",
and "12-NN" — tending to prove
that RKDCCI monitored the work
from start to finish and had
zealously pointed out to MCI the
defects or improper execution of
the construction works, and gave
MCI all the opportunity to rectify
the construction deficiencies and
complete the works of the project.
The Court of Appeals concluded that the interim takeover
was necessitated by CHATHAM's insistence to meet its own
turnover dates with the buyers of the project's units. Thus,
CHATHAM was constrained to hire subcontractors with
sufficient manpower and supervision and incur various
expenses to facilitate the completion of the project and/or
assist MCI in making up for its delay.
The Court of Appeals then considered it imperative to
determine whether MCI failed to complete the project on
time for which it may be held liable for liquidated damages
based on the delays in the overall schedule of completion
pursuant to Art. 13.5 of the Construction Agreement, to wit:
13.5. Over-All Schedule — For not
meeting the final completion date
of the PROJECT, the OWNER will
deduct from the Contract Sum or
amounts due the CONTRACTOR,
the amount equivalent to 1/10 of
1% of the Contract Sum for every
calendar day of delay, provided,
however, that the maximum
penalty should not exceed 25% of
the fee payable to the
CONTRACTOR as stipulated in the
Bill of Quantities. Penalties from
concreting milestones shall be
deducted from the penalty of Over-
All Schedule. 15
The Court of Appeals disposed of the controversy in this
wise:
As is extant from the records, the
completion date of the Project
under the Construction Contract or
under the revised construction
schedule was never met by reason
of [MCI's] lack of manpower,
necessary equipment, qualified
engineers and inefficient
management of construction works
on the Project. Thus, under the
Contract (Exhibit '1'), [MCI] had
780 days, or until 22 January 1996,
from starting date, or April 12,
1994, to finish the project. The
completion date, however, was not
followed and was revised as early
as December 17, 1994, extending
the milestone dates up to March 15,
1996 (Exhibits '3-G' and '3-H'). As
of December 25, 1995, the number
of days delayed was already 294
days. Thus, on February 22, 1996,
the contract milestones were again
revised, inclusive of 53 days
extension, to May 23, 1996
(Exhibits '3-I' and '3-O'). The May
23, 1996 turnover milestone nor
the July 22, 1996 turnover of the
whole project were neither met
(Exhibits '3-P', '3-R', '3-S' and '3-T'
but [CHATHAM] was again
constrained to allow [MCI] to
continue working on the Project to
complete the balance of the works
(Exhibit 'M'). And all throughout
the construction of the Project,
[CHATHAM] had to assist [MCI]
along the way to expedite the
execution and completion of the
Project (Exhibits '3-K' and '3-V').
From the foregoing disquisitions, it
is clear that [MCI] is liable for
liquidated damages, as per Article
13.5 of the Construction Contract,
for its failure to complete the
project within the period stipulated
in the Construction Contract and
even despite an extension of 53
days from the original schedule or
of the overall schedule of
completion. [MCI] should therefore
pay [CHATHAM] the amount of
liquidated damages equivalent to
P24,125,000.00 for 193 days of
delay in the overall schedule of
completion counted from overall
completion date on July 22, 1996
up to the date of completion on
February 15, 1997, as stated in the
Certificate of Occupancy, computed
as follows, to wit:
1/10[1%(P125,000,000.00)] per
day x 193 days
= [1/10 (P1,250,000.00)] per day x
193 days
= P125,000.00 per day x 193 days
= P24,125,000.00
IN VIEW OF ALL THE FOREGOING,
judgment is hereby rendered
partially granting [CHATHAM's]
claim for liquidated damages. The
Tribunal's Decision dated 19
October 1998 is hereby AFFIRMED
with the modification on [MCI's]
liability for liquidated damages in
the amount of P24,125,000.00.
Thus,
A. AMOUNTS [MCI] IS ENTITLED TO:
A.1. From the original
contract: 94.12%
of
P125,000,000.00
P117,650,000.0
0 The arbitral award shall be binding
A.2. Approved Change
Orders 5,353,091.08
A.3. Pending Change
Orders 1,648,560.46
A.4. CHB Works 1,248,654.71
A.5. Workers Bonus -0-
A.6. Disputed
Deductions 909,484.70
A.7. Labor
Escalation 1,076,256.00
A.8. Attendance
Fee 508,162.73
——————
Total P128,394,209.68
——————
Less: Total payments-
Item II-6 of
TOR 104,875,792.37
Balance Due
Respondent P23,518,417.31
B. AMOUNTS [CHATHAM] IS
ENTITLED TO:
B.1. Liquidated
Damages P24,125,000.00
B.2. Actual
Damages 335,994.50
B.3. Penalties 1,778,285.
44
B.4. Cash Payments in
Behalf of
MCI 2,214,715.68
———————
Total Amount Due
CPI P28,453,995.62
C. NET AMOUNT DUE [CHATHAM]
(B minus
A) P4,935,578.31
Correspondingly, Respondent [MCI] is hereby directed to
pay the Petitioner [CHATHAM] the net sum of FOUR
MILLION NINE HUNDRED THIRTY-FIVE THOUSAND FIVE
HUNDRED SEVENTY-EIGHT & 31/100 (P4,935,578.31)
PESOS. 16
MCI promptly filed on 25 October 1999 a motion for
reconsideration. In its Resolution of 4 February 2000, the
Court of Appeals denied MCI's motion for reconsideration
for lack of merit, as well as CHATHAM's Motion to Lift
Garnishment and Levy Pending Appeal, filed on 13 October
1999, for being premature. 17
Thus, MCI filed the instant petition for review to challenge
the decision of the Court of Appeals. MCI alleges that the
Court of Appeals erred in reviewing and reversing the
CIAC's factual findings, that there was an implied takeover
by CHATHAM of the project, and that MCI was not in delay
in the overall schedule. In so doing, the Court of Appeals
contravened Section 19 of Executive Order (E.O.) No.
1008, 18 which limits the review of an Arbitral Award to
only questions of law, thus:
SECTION 19. Finality of Awards —
upon the parties. It shall be final
and inappealable (sic) except on
questions of law which shall be
appealable to the Supreme Court.
MCI then asserts that as signatories to the contract, it and
CHATHAM complied with this legal provision when they
included as part of their TOR the stipulation that "[t]he
decision of the Arbitral Tribunal shall be final and non-
appealable except on questions of law." Accordingly, the
binding character of this provision upon the parties is
conclusive and final.
MCI also contends that while it may be argued that recent
(1) issuances by the Supreme Court, specifically, Circular
No. 1-91, which eventually became Revised Administrative
Circular No. 1-95; (2) legislation, in particular, Republic Act
No. 7902, which amended Batas Pambansa Blg. 129; and
(3) amendments to the Rules on Civil Procedure,
modifying E.O. No. 1008 in the sense that "questions of
facts, of law, or mixed questions of facts and law may be the
subject of an appeal of the CIAC's decision to the Court of
Appeals," it is still E.O. No. 1008 which remains to be the same in the Court of Appeals, and whether appeals from
fundamental and substantive law that endows parties to an CIAC awards are no longer confined to questions of law.
arbitral controversy the right to appeal. Hence, the On 27 February 1991, this Court issued Circular No. 1-91,
provisions on appeal of E.O. No. 1008 should be which prescribes the Rules Governing Appeals to the Court
controlling, i.e., only questions of law should be of Appeals from Final Orders or Decisions of the Court of
entertained. Therefore, the only effect of these rules on E.O. Tax Appeals and Quasi-Judicial Agencies. Pertinent
No. 1008 is the transfer of the appeal forum from the portions thereof read as follows:
Supreme Court to the Court of Appeals. aEAIDH 1. Scope. — These rules shall apply
MCI further asserts that, even assuming that the CIAC's to appeals from final orders or
findings of facts are reviewable on appeal, the Court of decisions of the Court of Tax
Appeals gravely abused its discretion when it accepted Appeals. They shall also apply to
"hook, line and sinker" CHATHAM's contention that MCI appeals from final orders or
was in delay, and ignored competent, clear and substantial decisions of any quasi-judicial
evidence that prove the contrary, and that CHATHAM is not agency from which an appeal is
entitled to liquidated damages. now allowed by statute to the Court
For its part, CHATHAM avers that the evolution on the rules of Appeals or the Supreme Court.
governing appeals from judgments, decisions, resolutions, Among these agencies are the
orders or awards of the CIAC convincingly discloses Securities and Exchange
that E.O. No. 1008 has already been superseded. With the Commission, Land Registration
power of the Supreme Court to promulgate rules Authority, Social Security
concerning the protection and enforcement of Commission, Civil Aeronautics
constitutional rights, pleadings, practice, and procedure in Board, Bureau of Patents,
all courts, its issuances and amendments to the Rules on Trademarks and Technology
Civil Procedure, not to mention R.A. No. 7902, as enacted by Transfer, National Electrification
Congress, effectively modified E.O. No. 1008. Accordingly, Administration, Energy Regulatory
the judgments, awards, decisions, resolutions, orders or Board, National
awards of the CIAC are now appealable to the Court of Telecommunications Commission,
Appeals on questions of facts, mixed questions of facts and Secretary of Agrarian Reform and
law, and questions of law, and no longer with the Supreme Special Agrarian Courts under R.A.
Court on exclusively questions of law. Further, the TOR No. 6657, Government Service
cannot limit the expanded jurisdiction of the Court of Insurance System, Employees
Appeals based on the latest rules. Thus, the Court of Compensation Commission,
Appeals did not err in reviewing the factual findings of the Agricultural Inventions Board,
CIAC. Insurance Commission and
CHATHAM also contends that, even if the Court of Appeals Philippine Atomic Energy
can only review questions of law, said court did not err in Commission.
rendering the questioned decision as the conclusions
therein, drawn as they were from factual determinations, 2. Cases not Covered. — These rules
can be considered questions of law. shall not apply to decisions and
Finally, CHATHAM asseverates that the Court of Appeals interlocutory orders of the National
did not commit grave abuse of discretion in reversing the Labor Relations Commission or the
CIAC's ascertainment on the implied take-over and Secretary of Labor and
liquidated damages. Employment under the Labor
This Court shall now resolve the primary issue raised in Codeof the Philippines, the Central
this case. Board of Assessment Appeals, and
E.O. No. 1008 vests upon the CIAC original and exclusive other quasi-judicial agencies from
jurisdiction over disputes arising from, or connected with, which no appeal to the courts is
contracts entered into by parties involved in construction prescribed or allowed by statute.
in the Philippines, whether the dispute arises before or 3. Who may appeal and where to
after the completion of the contract, or after the appeal. — The appeal of a party
abandonment or breach thereof. 19 By express provision of affected by a final order, decision,
Section 19 thereof, the arbitral award of the CIAC is final or judgment of the Court of Tax
and unappealable, except on questions of law, which are Appeals or a quasi-judicial agency
appealable to the Supreme Court. shall be taken to the Court of
The parties, however, disagree on whether the subsequent Appeals within the period and in
Supreme Court issuances on appellate procedure and R.A. the manner herein provided,
No. 7902 removed from the Supreme Court its appellate whether the appeal involves
jurisdiction in Section 19 of E.O. No. 1008and vested the questions of fact or of law or mixed
questions of fact and law. From
final judgments or decisions of the
Court of Appeals, the aggrieved
party may appeal by certiorari to
the Supreme Court as provided in
Rule 45 of the Rules of Court.
Subsequently, on 23 February 1995, R.A. No. 7902 was
enacted. It expanded the jurisdiction of the Court of
Appeals and amended for that purpose Section 9 of B.P. Blg.
129, otherwise known as the Judiciary Reorganization Act
of 1980. 20
Section 9(3) thereof reads:
SECTION 9. Jurisdiction. — 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 Social Security
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.
The Court of Appeals shall have the
power to try cases and conduct
hearings, receive evidence and
perform any and all acts necessary
to resolve factual issues raised in
cases falling within its original and
appellate jurisdiction, including the
power to grant and conduct new
trials or further proceedings. . . .
Then this Court issued Administrative Circular No. 1-
95, 21 which revised Circular No. 1-91. Relevant portions
of the former reads as follows:
1. Scope. — These rules shall apply
to appeals from judgments or final
orders of the Court of Tax Appeals
and from awards, judgments, final
orders or resolutions of any quasi-
judicial agency from which an
appeal is authorized to be taken to
the Court of Appeals or the
Supreme Court. Among these
agencies are the Securities and
Exchange Commission, Land
Registration Authority, Social
Security Commission, Civil
Aeronautics Board, Bureau of
Patents, Trademarks and
Technology Transfer, National
Electrification Administration,
Energy Regulatory Board, National
Telecommunication Commission,
Department of Agrarian Reform
under Republic Act No. 6657,
Government Service Insurance
System, Employees Compensation
Commission, Agricultural
Inventions Board, Insurance
Commission, Philippine Atomic
Energy Commission, Board of
Investments, and Construction
Industry Arbitration Commission.
SECTION 2. Cases Not Covered. —
These rules shall not apply to
judgments or final orders issued
under the Labor Code of the
Philippines, Central Board of
Assessment Appeals, and by other
quasi-judicial agencies from which
no appeal to the court is prescribed
or allowed.
SECTION 3. Where to Appeal. — An
appeal under these rules 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.
Thereafter, this Court promulgated the 1997 Rules on Civil
Procedure. Sections 1, 2 and 3 of Rule 43 thereof provides:
SECTION 1. Scope. — This Rule
shall apply to appeals from
judgments or final orders of the
Court of Tax Appeals and from
awards, judgments, final orders or
resolutions of or authorized by any
quasi-judicial agency in the
exercise of its quasi-judicial
functions. Among these agencies
are the Civil Service Commission,
Central Board of Assessment
Appeals, Securities and Exchange
Commission, Office of the
President, Land Registration
Authority, Social Security
Commission, Civil Aeronautics
Board, Bureau of Patents,
Trademarks and Technology
Transfer, National Electrification
Administration, Energy Regulatory
Board, National
Telecommunications Commission,
 Department of Agrarian Reform
under Republic Act No. 6657,
Government Service Insurance
System, Employees Compensation
Commission, Agricultural
Inventions Board, Insurance
Commission, Philippine Atomic
Energy Commission, Board of
Investments, Construction Industry
Arbitration Commission, and
voluntary arbitrators authorized by
law.
SECTION 2. Cases Not Covered. —
This Rule shall not apply to
judgments or final orders issued
under the Labor Code of the
Philippines.
SECTION 3. Were to Appeal. — An
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 question of fact,
of law, or mixed questions of fact
and law. acHDTA
Through Circular No. 1-91, the Supreme Court intended to
establish a uniform procedure for the review of the final
orders or decisions of the Court of Tax Appeals and other
quasi-judicial agencies provided that an appeal therefrom
is then allowed under existing statutes to either the Court
of Appeals or the Supreme Court. The Circular designated
the Court of Appeals as the reviewing body to resolve
questions of fact or of law or mixed questions of fact and
law.
It is clear that Circular No. 1-91 covers the CIAC. In the first
place, it is a quasi-judicial agency. A quasi-judicial agency
or body has been defined as an organ of government other
than a court and other than a legislature, which affects the
rights of private parties through either adjudication or
rule-making. 22 The very definition of an administrative
agency includes its being vested with quasi-judicial powers.
The ever increasing variety of powers and functions given
to administrative agencies recognizes the need for the
active intervention of administrative agencies in matters
calling for technical knowledge and speed in countless
controversies which cannot possibly be handled by regular
courts. 23 The CIAC's primary function is that of a quasi-
judicial agency, which is to adjudicate claims and/or
determine rights in accordance with procedures set forth
in E.O. No. 1008.
In the second place, the language of Section 1 of Circular
No. 1-91 emphasizes the obvious inclusion of the CIAC even
if it is not named in the enumeration of quasi-judicial
agencies. The introductory words "[a]mong these agencies
are" preceding the enumeration of specific quasi-judicial
agencies only highlight the fact that the list is not exclusive
or conclusive. Further, the overture stresses and
acknowledges the existence of other quasi-judicial agencies
not included in the enumeration but should be deemed
included. In addition, the CIAC is obviously excluded in the
catalogue of cases not covered by the Circular and
mentioned in Section 2 thereof for the reason that at the
time the Circular took effect, E.O. No. 1008 allows appeals
to the Supreme Court on questions of law.
In sum, under Circular No. 1-91, appeals from the arbitral
awards of the CIAC may be brought to the Court of Appeals,
and not to the Supreme Court alone. The grounds for the
appeal are likewise broadened to include appeals on
questions of facts and appeals involving mixed questions of
fact and law.
The jurisdiction of the Court of Appeals over appeals from
final orders or decisions of the CIAC is further fortified by
the amendments to B.P. Blg. 129, as introduced by R.A. No.
7902. With the amendments, the Court of Appeals is vested
with appellate jurisdiction over all final judgments,
decisions, resolutions, orders or awards of Regional Trial
Courts and quasi-judicial agencies, instrumentalities,
boards or commissions, except "those within the appellate
jurisdiction of the Supreme Court in accordance with
the Constitution, theLabor 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."
While, again, the CIAC was not specifically named in said
provision, its inclusion therein is irrefutable. The CIAC was
not expressly covered in the exclusion. Further, it is a
quasi-judicial agency or instrumentality. The decision
in Luzon Development Bank v. Luzon Development Bank
Employees 24 sheds light on the matter, thus:
Assuming arguendo that the
voluntary arbitrator or the panel of
voluntary arbitrators may not
strictly be considered as a quasi-
judicial agency, board or
commission, still both he and the
panel are comprehended within the
concept of a 'quasi-judicial
instrumentality.' It may even be
stated that it was to meet the very
situation presented by the quasi-
judicial functions of the voluntary
arbitrators here, as well as the
subsequent arbitrator/arbitral
tribunal operating under the
Construction Industry Arbitration
Commission, that the broader term
'instrumentalities' was purposely
included in [Section 9 of B.P. Blg.
129 as amended by R.A. No. 7902].
An 'instrumentality' is anything
used as a means or agency. Thus,
the terms governmental 'agency' or
'instrumentality' are synonymous
in the sense that either of them is a
means by which a government acts,
or by which a certain government
act or function is performed. The
word 'instrumentality,' with
respect to a state, contemplates an
authority to which the state
delegates governmental power for
the performance of a state function.
Any remaining doubt on the procedural mutation of the
provisions on appeal in E.O. No. 1008, vis-à-visCircular No.
1-91 and R.A. No. 7902, was completely removed with the
issuance by the Supreme Court of Revised Administrative
Circular No. 1-95 and the 1997 Rules of Civil Procedure.
Both categorically include the CIAC in the enumeration of
quasi-judicial agencies comprehended therein. Section 3 of
the former and Section 3, Rule 43 of the latter, explicitly
expand the issues that may be raised in an appeal from
quasi-judicial agencies or instrumentalities to the Court of
Appeals within the period and in the manner therein
provided. Indisputably, the review of the CIAC award may
involve either questions of fact, of law, or of fact and law.
In view of all the foregoing, we reject MCI's submission that
Circular No. 1-91, B.P. Blg. 129, as amended byR.A. 7902,
Revised Administrative Circular 1-95, and Rule 43 of the
1997 Rules of Civil Procedure failed to efficaciously modify
the provision on appeals in E.O. No. 1008. We further
discard MCI's claim that these amendments have the effect
of merely changing the forum for appeal from the Supreme
Court to the Court of Appeals.
There is no controversy on the principle that the right to
appeal is statutory. However, the mode or manner by
which this right may be exercised is a question of
procedure which may be altered and modified provided
that vested rights are not impaired. The Supreme Court is
bestowed by the Constitution with the power and
prerogative, inter alia, to promulgate rules concerning
pleadings, practice and procedure in all courts, as well as to
review rules of procedure of special courts and quasi-
judicial bodies, which, however, shall remain in force until
disapproved by the Supreme Court. 25 This power is
constitutionally enshrined to enhance the independence of
the Supreme Court. 26
The right to appeal from judgments, awards, or final orders
of the CIAC is granted in E.O. No. 1008. The procedure for
the exercise or application of this right was initially
outlined in E.O. No. 1008. While R.A. No. 7902 and circulars
subsequently issued by the Supreme Court and its
amendments to the 1997 Rules on Procedure effectively
modified the manner by which the right to appeal ought to
be exercised, nothing in these changes impaired vested
rights. The new rules do not take away the right to appeal
allowed in E.O. No. 1008. They only prescribe a new
procedure to enforce the right. 27 No litigant has a vested
right in a particular remedy, which may be changed by
substitution without impairing vested rights; hence, he can
have none in rules of procedure which relate to
remedy." 28
The foregoing discussion renders academic MCI's assertion
on the binding effect of its stipulation with CHATHAM in
the TOR that the decision of the CIAC shall be final and non-
appealable except on questions of law. The agreement
merely adopted Section 19 of E.O. No. 1008, which, as
shown above, had been modified.
The TOR, any contract or agreement of the parties cannot
amend, modify, limit, restrict or circumscribe legal
remedies or the jurisdiction of courts. Rules of procedure
are matters of public order and interest and unless the
rules themselves so allow, they cannot be altered, changed
or regulated by agreements between or stipulations of the
parties for their singular convenience. 29
Having resolved the existence of the authority of the Court
of Appeals to review the decisions, awards, or final orders
of the CIAC, the Court shall now determine whether the
Court of Appeals erred in rendering the questioned
decision of 30 September 1999.
Settled is the general rule that the findings of facts of the
Court of Appeals are binding on us. There are recognized
exceptions to the rule, such as when the findings are
contrary to those of the trial court, 30 as in this case.
Hence, we have to take a closer reexamination of this case.
The CIAC is certain that the evidence overwhelmingly
tended to prove that the manner by which CHATHAM took
charge in the procurement of materials, fielding of labor,
control of MCI engineers and the subcontracting of various
phases of the work, constituted an implied takeover of the
project. The CIAC then concludes that the cut-off date for
delineating the fiscal liabilities of the parties is 23 May
1996 when CHATHAM evaluated MCI's work
accomplishment at 94.12% and then suspended all further
progress payments to MCI. For these reasons, the CIAC
found it trifling to determine whether MCI was in delay
based on the Overall Schedule. However, the CIAC
discovered that MCI was in delay for 294 days in the
concreting milestone and held the latter liable for
liquidated damages in the amount of P3,062,498.78.
The Court of Appeals made a contrary conclusion and
declared that MCI was in delay for 193 days based on the
overall schedule of completion of the project and should
incur liquidated damages in the amount of P24,125,000.00.
It is undisputed that the CIAC and the Court of Appeals
found MCI liable for liquidated damages but on different
premises. Based on the CIAC's assessment, MCI's
responsibility was anchored on its delay in theconcreting
milestone, while the Court of Appeal's evaluation
concentrated on MCI's delay in completing the project
based on the overall schedule of work. The variance in the
evaluation spells a staggering difference in the party who
should ultimately be held liable and the net amount
involved.
A study of the final computation of the net amount due in
both the final disquisitions of the CIAC and the Court of
Appeals shows that all the other figures therein are
constant, save for the amount of liquidated damages for
which MCI should be accountable. If this Court concurs
with the CIAC's conclusions, MCI's responsibility for
liquidated damages is, as already stated, P3,062,498.78.
Setting this off against CHATHAM's overall fiscal
accountability would bring the latter's total liability to MCI
to P16,126,922.91. If the Court of Appeals is correct, MCI
would be held liable for a much higher P24,125,000
liquidated damages. Setting this off against CHATHAM's
monetary responsibilities, MCI would still have to pay
CHATHAM P4,935,578.31.
After painstakingly combing through the voluminous
records, we affirm the findings of the CIAC. The evidence
taken as a whole or in their totality reveals that there was
an implied takeover by CHATHAM on the completion of the
project. The evidence that appears to accentuate the Court
of Appeals' decision ironically bolstered the CIAC's
conclusion. The testimonies of Engr. Kapunan, Engr.
Bautista, Dr. Lai, and the letter of Engr.
Ruiz, 31 acknowledging the "temporary takeover" by
CHATHAM of the project, underscore the palpable fact that
there was indeed a takeover. We confer particular credit to
Dr. Lai's testimony that as of 15 February 1995, MCI was
relieved of full control of the construction operations, that
it was relegated to a mere supplier of labor, materials and
equipment, and that the alleged interim takeover actually
extended through the completion of the project. Even
CHATHAM admits the takeover but sugarcoated the same
with words like "interim" and "charging the costs to MCI."
With these glaring admissions, we can even consider that
the takeover was not implied but blatant.
Exhibits "4", "4-A", "4-C", "8A", "8", "4-D", "3", "3-I", "3-M",
"3-N", "3-W-1", "3-X", "3-Y", "3-Z", "5", "5-A", "5-B", "5-C",
"5-D", "5-E", "5-F", "5-O", "C-7", "E-9", etc., 32 relied upon
by the Court of Appeals when considered by themselves
and singly, seemingly and initially evince MCI's control
over the project. However, they eventually lose evidentiary
puissance to support the Court of Appeals' conclusion when
reckoned against the totality of the evidence that
CHATHAM took charge of the completion of the project,
particularly, the fact that CHATHAM suspended all progress
billing payments to MCI. The continued presence and
participation of MCI in the project was, as found by the
CIAC, a matter of mutual benefit to and convenience of the
parties.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the
assailed 30 September 1999 decision of the Court of
Appeals in CA-G.R. SP No. 49429 is hereby PARTIALLY
MODIFIED by setting aside the order directing Metro
Construction, Inc. to pay Chatham Properties, Inc. the
amount of P4,935,578.31. The arbitral award of the
Construction Industry Arbitration Commission in CIAC
Case 10-98, promulgated on 19 October 1998, directing
Chatham Properties, Inc. to pay Metro Construction, Inc.
the sum of SIXTEEN MILLION ONE HUNDRED TWENTY-SIX
THOUSAND NINE HUNDRED TWENTY-TWO & 91/100
(P16,126,922.91) PESOS, is accordingly REINSTATED.
No pronouncement as to costs.
SO ORDERED.
||| (Metro Construction, Inc. v. Chatham Properties, Inc., G.R.
No. 141897, [September 24, 2001], 418 PHIL 176-208)
FIRST DIVISION
[G.R. No. 169332. February 11, 2008.]
ABS-CBN BROADCASTING
CORPORATION, petitioner, vs.
WORLD INTERACTIVE NETWORK
SYSTEMS (WINS) JAPAN CO.,
LTD., respondent.
DECISION
CORONA, J p:
This petition for review on certiorari under Rule 45 of the
Rules of Court seeks to set aside the February 16, 2005
decision 1 and August 16, 2005 resolution 2 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. aTHCSE
A dispute arose between the parties when petitioner
accused respondent of inserting nine episodes of WINS
WEEKLY, a weekly 35-minute community news program
for Filipinos in Japan, into the TFC programming from
March to May 2002. 3 Petitioner claimed that these were
"unauthorized insertions" constituting a material breach of
their agreement. Consequently, on May 9,
2002, 4 petitioner notified respondent of its intention to
terminate the agreement effective June 10, 2002.
Thereafter, respondent filed an arbitration suit pursuant to
the arbitration clause of its agreement with petitioner. It
contended that the airing of WINS WEEKLY was made with
petitioner's prior approval. It also alleged that petitioner
only threatened to terminate their agreement because it
wanted to renegotiate the terms thereof to allow it to
demand higher fees. Respondent also prayed for damages
for petitioner's alleged grant of an exclusive distribution
license to another entity, NHK (Japan Broadcasting
Corporation). 5
The parties appointed Professor Alfredo F. Tadiar to act as
sole arbitrator. They stipulated on the following issues in
their terms of reference (TOR): 6 HIETAc
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 trial for the Petition for
between the parties. He also ruled that, had there really Confirmation of Arbitral Award.
been a material breach of the agreement, petitioner should SO ORDERED.
have terminated the same instead of sending a mere notice Petitioner moved for reconsideration. The same was
to terminate said agreement. The arbitrator found that denied. Hence, this petition.
petitioner threatened to terminate the agreement due to its Petitioner contends that the CA, in effect, ruled that: (a) it
desire to compel respondent to re-negotiate the terms should have first filed a petition to vacate the award in the
thereof for higher fees. He further stated that even if RTC and only in case of denial could it elevate the matter to
respondent committed a breach of the agreement, the same the CA via a petition for review under Rule 43 and (b) the
was seasonably cured. He then allowed respondent to assailed decision implied that an aggrieved party to an
recover temperate damages, attorney's fees and one-half of arbitral award does not have the option of directly filing a
the amount it paid as arbitrator's fee. SHADcT petition for review under Rule 43 or a petition for
Petitioner filed in the CA a petition for review under Rule certiorari under Rule 65 with the CA even if the issues
43 of the Rules of Court or, in the alternative, a petition for raised pertain to errors of fact and law or grave abuse of
certiorari under Rule 65 of the same Rules, with application discretion, as the case may be, and not dependent upon
for temporary restraining order and writ of preliminary such grounds as enumerated under Section 24 (petition to
injunction. It was docketed as CA-G.R. SP No. 81940. It vacate an arbitral award) of RA 876 (the Arbitration Law).
alleged serious errors of fact and law and/or grave abuse of Petitioner alleged serious error on the part of the
discretion amounting to lack or excess of jurisdiction on the CA. HTAIcD
part of the arbitrator. The issue before us is whether or not an aggrieved party in
Respondent, on the other hand, filed a petition for a voluntary arbitration dispute may avail of, directly in the
confirmation of arbitral award before the Regional Trial CA, a petition for review under Rule 43 or a petition for
Court (RTC) of Quezon City, Branch 93, docketed as Civil certiorari under Rule 65 of the Rules of Court, instead of
Case No. Q-04-51822. filing a petition to vacate the award in the RTC when the
Consequently, petitioner filed a supplemental petition in grounds invoked to overturn the arbitrator's decision are
the CA seeking to enjoin the RTC of Quezon City from other than those for a petition to vacate an arbitral award
further proceeding with the hearing of respondent's enumerated under RA 876.
petition for confirmation of arbitral award. After the RA 876 itself mandates that it is the Court of First Instance,
petition was admitted by the appellate court, the RTC of now the RTC, which has jurisdiction over questions relating
Quezon City issued an order holding in abeyance any to arbitration, 9 such as a petition to vacate an arbitral
further action on respondent's petition as the assailed award.
decision of the arbitrator had already become the subject of Section 24 of RA 876 provides for the specific grounds for a
an appeal in the CA. Respondent filed a motion for petition to vacate an award made by an arbitrator:
reconsideration but no resolution has been issued by the Sec. 24. Grounds for vacating award.
lower court to date. 8 — In any one of the following
On February 16, 2005, the CA rendered the assailed cases, the court must make an
decision dismissing ABS-CBN's petition for lack of order vacating the award upon
jurisdiction. It stated that as the TOR itself provided that the petition of any party to the
the arbitrator's decision shall be final and unappealable controversy when such party
and that no motion for reconsideration shall be filed, then proves affirmatively that in the
the petition for review must fail. It ruled that it is the RTC arbitration proceedings:
which has jurisdiction over questions relating to (a) The award was procured by
arbitration. It held that the only instance it can exercise corruption, fraud, or other undue
jurisdiction over an arbitral award is an appeal from the means; or
trial court's decision confirming, vacating or modifying the (b) That there was evident
arbitral award. It further stated that a petition for certiorari partiality or corruption in the
under Rule 65 of the Rules of Court is proper in arbitration arbitrators or any of them;
cases only if the courts refuse or neglect to inquire into the or THEDcS
facts of an arbitrator's award. The dispositive portion of the (c) That the arbitrators were guilty
CA decision read: TSIEAD of misconduct in refusing to
WHEREFORE, the instant petition is postpone the hearing upon
hereby DISMISSED for lack of sufficient cause shown, or in
jurisdiction. The application for a refusing to hear evidence pertinent
writ of injunction and temporary and material to the controversy;
restraining order is that one or more of the arbitrators
likewise DENIED. The Regional was disqualified to act as such
Trial Court of Quezon City, Branch under section nine hereof, and
93 is directed to proceed with the 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 Appeals 10 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 . . .
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. AEIHCS
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, board
s 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. 12Thus: cICHTD
SEC. 1. Scope. — This Rule shall
apply to appeals from judgments or
final orders of the Court of Tax there has been a grave abuse of
Appeals and from awards, discretion amounting to lack or
judgments, final orders or excess of jurisdiction on the part
resolutions of or authorized by any of any branch or instrumentality
quasi-judicial agency in the of the Government. (Emphasis
exercise of its quasi-judicial supplied) DHTECc
functions. Among these agencies As may be gleaned from the above stated provision, it is
are the Civil Service Commission, well within the power and jurisdiction of the Court to
Central Board of Assessment inquire whether any instrumentality of the Government,
Appeals, Securities and Exchange such as a voluntary arbitrator, has gravely abused its
Commission, Office of the discretion in the exercise of its functions and prerogatives.
President, Land Registration Any agreement stipulating that "the decision of the
Authority, Social Security arbitrator shall be final and unappealable" and "that no
Commission, Civil Aeronautics further judicial recourse if either party disagrees with the
Board, Bureau of Patents, whole or any part of the arbitrator's award may be availed
Trademarks and Technology of" cannot be held to preclude in proper cases the power of
Transfer, National Electrification judicial review which is inherent in courts. 16 We will not
Administration, Energy Regulatory hesitate to review a voluntary arbitrator's award where
Board, National there is a showing of grave abuse of authority or discretion
Telecommunications Commission, and such is properly raised in a petition
Department of Agrarian Reform for certiorari 17 and there is no appeal, nor any plain,
underRepublic Act Number 6657, speedy remedy in the course of law. 18
Government Service Insurance Significantly, Insular Savings Bank v. Far East Bank and
System, Employees Compensation Trust Company 19 definitively outlined several judicial
Commission, Agricultural remedies an aggrieved party to an arbitral award may
Inventions Board, Insurance undertake:
Commission, Philippine Atomic (1) a petition in the proper RTC to
Energy Commission, Board of issue an order to vacate the award
Investments, Construction Industry on the grounds provided for in
Arbitration Commission, Section 24 of RA 876; ASCTac
and voluntary arbitrators (2) a petition for review in the CA
authorized by law. (Emphasis under Rule 43 of the Rules of Court
supplied) on questions of fact, of law, or
This rule was cited in Sevilla Trading Company v. mixed questions of fact and law;
Semana, 13 Manila Midtown Hotel v. and
Borromeo, 14 andNippon Paint Employees Union-Olalia v. (3) a petition for certiorari under
Court of Appeals. 15 These cases held that the proper Rule 65 of the Rules of Court should
remedy from the adverse decision of a voluntary arbitrator, the arbitrator have acted without
if errors of fact and/or law are raised, is a petition for or in excess of his jurisdiction or
review under Rule 43 of the Rules of Court. Thus, with grave abuse of discretion
petitioner's contention that it may avail of a petition for amounting to lack or excess of
review under Rule 43 under the circumstances of this case jurisdiction.
is correct. Nevertheless, although petitioner's position on the judicial
As to petitioner's arguments that a petition remedies available to it was correct, we sustain the
for certiorari under Rule 65 may also be resorted to, we dismissal of its petition by the CA. The remedy petitioner
hold the same to be in accordance with availed of, entitled "alternative petition for review under
the Constitution and jurisprudence. Rule 43 or petition for certiorari under Rule 65," was
Section 1 of Article VIII of the 1987 Constitution provides wrong. CcTHaD
that: Time and again, we have ruled that the remedies of appeal
SEC. 1. The judicial power shall be and certiorari are mutually exclusive and not alternative or
vested in one Supreme Court and in successive. 20
such lower courts as may be Proper issues that may be raised in a petition for review
established by law. under Rule 43 pertain to errors of fact, law or mixed
Judicial power includes the duty questions of fact and law. 21 While a petition for certiorari
of the courts of justice to settle under Rule 65 should only limit itself to errors of
actual controversies involving jurisdiction, that is, grave abuse of discretion amounting to
rights which are legally a lack or excess of jurisdiction. 22 Moreover, it cannot be
demandable and enforceable, availed of where appeal is the proper remedy or as a
and to determine whether or not substitute for a lapsed appeal. 23
In the case at bar, the questions raised by petitioner in TANTAMOUNT TO LACK Before the Court is a special civil action not belong to any association the 1% share,
its alternative petition before the CA were the following: OR EXCESS OF for certiorari assailing the Decision 1 dated December 7, instead of reverting said share to the centrals. Petitioners
A. THE SOLE ARBITRATOR JURISDICTION. 2001 and the Resolution dated October 30, contended that respondents unduly accorded the
COMMITTED SERIOUS A careful reading of the assigned errors reveals that the 2002 of the Court of Appeals (CA) in CA-G.R. SP No. 56166 independent Planters more benefits and thus prayed that
ERROR AND/OR real issues calling for the CA's resolution were less the which set aside the Joint Orders 2 dated August 26, 1999 an order be issued directing the parties to commence with
GRAVELY ABUSED HIS alleged grave abuse of discretion exercised by the and October 29, 1999 issued by the Regional arbitration in accordance with the terms of the milling
DISCRETION IN RULING arbitrator and more about the arbitrator's appreciation of Trial Court (RTC) ofOrmoc City, Branch 12 upholding contracts. They also demanded that respondents be
THAT THE BROADCAST the issues and evidence presented by the parties. petitioners' legal personality to demand arbitration from penalized by increasing their member Planters' 65% share
OF "WINS WEEKLY" Therefore, the issues clearly fall under the classification of respondents and directing respondents to nominate two provided in the milling contract by 1%, to 66%.
WAS DULY AUTHORIZED errors of fact and law — questions which may be passed arbitrators to represent them in the Respondents filed a motion to dismiss on
BY ABS-CBN. upon by the CA via a petition for review under Rule 43. Board of Arbitrators. cHaADC ground of lack of cause of action because petitioners had no
B. THE SOLE ARBITRATOR Petitioner cleverly crafted its assignment of errors in such a Petitioners are associations organized by and whose milling contract with respondents. According to
COMMITTED SERIOUS way as to straddle both judicial remedies, that is, by members are individual sugar planters (Planters). The respondents, only some eighty (80) Planters who were
ERROR AND/OR alleging serious errors of fact and law (in which case a membership of each association follows: 264 Planters were members of OSPA, one of the petitioners, executed milling
GRAVELY ABUSED HIS petition for review under Rule 43 would be proper) and members of OSPA; 533 Planters belong to OLFAMCA; contracts. Respondents and these 80 Planterswere the
DISCRETION IN RULING grave abuse of discretion (because of which a petition for 617 Planters joined UNIFARM; 760 Planters enlisted with signatories of the milling contracts. Thus, it was the
THAT THE certiorari under Rule 65 would be permissible). ITaESD ONDIMCO; and the rest belong to BAP-MPC which did not individual Planters, and not petitioners, who had legal
UNAUTHORIZED It must be emphasized that every lawyer should be familiar join the lawsuit. standing to invoke the arbitration clause in the milling
BROADCAST DID NOT with the distinctions between the two remedies for it is not Respondents Hideco Sugar Milling Co., Inc. (Hideco) contracts. Petitioners, not being privy to the milling
CONSTITUTE MATERIAL the duty of the courts to determine under which rule the and Ormoc Sugar Milling Co., Inc. (OSCO) are sugar centrals contracts, had no legal standing whatsoever to demand or
BREACH OF THE petition should fall. 24 Petitioner's ploy was fatal to its engaged in grinding and milling sugarcane delivered to sue for arbitration. HcACTE
AGREEMENT. cause. An appeal taken either to this Court or the CA by the them by numerous individual sugar planters, who may or On August 26, 1999, the RTC issued a Joint Order 5 denying
C. THE SOLE ARBITRATOR wrong or inappropriate mode shall be dismissed. 25 Thus, may not be members of an association such as petitioners. the motion to dismiss, declaring the existence ofa milling
COMMITTED SERIOUS the alternative petition filed in the CA, being an Petitioners assert that the relationship between contract between the parties, and directing respondents to
ERROR AND/OR inappropriate mode of appeal, should have been dismissed respondents and the individual sugar planters is governed nominate two arbitrators to the Boardof Arbitrators, to wit:
GRAVELY ABUSED HIS outright by the CA. by milling contracts. To buttress this claim, petitioners When these cases were called for
DISCRETION IN RULING WHEREFORE, the petition is hereby DENIED. The February presented representative samples of the milling hearing today, counsels for the
THAT WINS 16, 2005 decision and August 16, 2005 resolution of the contracts. 3 petitioners and respondents argued
SEASONABLY CURED Court of Appeals in CA-G.R. SP No. 81940 directing the Notably, Article VII of the milling contracts provides that their respective stand. The Court is
THE BREACH. CaDATc Regional Trial Court of Quezon City, Branch 93 to proceed 34% of the sugar and molasses produced from milling the convinced that there is an existing
D. THE SOLE ARBITRATOR with the trial of the petition for confirmation of arbitral Planter's sugarcane shall belong to the centrals milling contract between the
COMMITTED SERIOUS award is AFFIRMED. (respondents) as compensation, 65% thereof shall go to the petitioners and respondents and
ERROR AND/OR Costs against petitioner. SaETCI Planter and the remaining 1% shall go the association to these planters are represented by
GRAVELY ABUSED HIS SO ORDERED. which the Planter concerned belongs, as aid to the the officers of the associations. The
DISCRETION IN RULING ||| (ABS-CBN Broadcasting Corp. v. World Interactive said association. The 1% aid shall be used by petitioners have the right to sue in
THAT TEMPERATE Network Systems Japan Co., Ltd., G.R. No. 169332, [February the association for any purpose that it may deem fit for its behalf of the planters.
DAMAGES IN THE 11, 2008], 568 PHIL 282-296) members, laborers and their dependents. If the Planter was This Court, acting on the petitions,
AMOUNT OF not a member of any association, then the said 1% shall directs the respondents to
P1,166,955.00 MAY BE FIRST DIVISION revert to the centrals. Article XIV, paragraph B 4 states that nominate two arbitrators to
AWARDED TO WINS. [G.R. No. 156660. August 24, 2009.] the centrals may not, during the life of the milling contract, represent HIDECO/HISUMCO and
E. THE SOLE ARBITRATOR ORMOC SUGARCANE PLANTERS' sign or execute any contract or agreement that will provide OSCO in the Board of Arbitrators
COMMITTED SERIOUS ASSOCIATION, INC. (OSPA), better or more benefits to a Planter, without the written within fifteen (15) days from
ERROR AND/OR OCCIDENTAL LEYTE FARMERS consent of the existing and recognized associations except receipt of this Order. . . .
GRAVELY ABUSED HIS MULTI-PURPOSE COOPERATIVE, toPlanters whose plantations are situated in areas beyond However, if the respondents fail to
DISCRETION IN INC. (OLFAMCA), UNIFARM thirty (30) kilometers from the mill. Article XX provides nominate their two arbitrators,
AWARDING MULTI-PURPOSE COOPERATIVE, that all differences and controversies which may arise upon proper motion by the
ATTORNEY'S FEES IN INC. (UNIFARM) between the parties concerning the agreement shall be petitioners, then the Court will be
THE UNREASONABLE and ORMOC NORTH DISTRICT submitted for discussion to a Board of Arbitration, compelled to use its discretion to
AMOUNT AND IRRIGATION MULTI-PURPOSE consisting of five (5) members — two (2) of which shall be appoint the two (2) arbitrators, as
UNCONSCIONABLE COOPERATIVE, INC. appointed by the centrals, two (2) by the Planter and the embodied in the Milling Contract
AMOUNT OF (ONDIMCO), petitioners, vs. fifth to be appointed by the four appointed by the parties. and R.A. 876.
P850,000.00. THE COURT OF APPEALS (Special On June 4, 1999, petitioners, without impleading xxx xxx xxx
F. THE ERROR COMMITTED BY Former Sixth Division), HIDECO any of their individual members, filed twin petitions with Their subsequent motion for reconsideration having been
THE SOLE ARBITRATOR SUGAR MILLING CO., INC., the RTC for Arbitration under R.A. 876, Recovery of Equal denied by the RTC in its Joint Order 6 dated October 29,
IS NOT A SIMPLE ERROR and ORMOC SUGAR MILLING CO., Additional Benefits, Attorney's Fees and Damages,against 1999, respondents elevated the case to the CA through
OF JUDGMENT OR INC., respondents. HIDECO and OSCO, docketed as Civil Case Nos. 3696-O and a Petition for Certiorari with Prayer for the
ABUSE OF DISCRETION. DECISION 3697-O, respectively. Issuance of Temporary Restraining Order and/or
IT IS GRAVE ABUSE OF LEONARDO-DE CASTRO, J p: Petitioners claimed that respondents violated the Milling Writ of Preliminary Injunction.
DISCRETION Contract when they gave to independent planterswho do
On December 7, 2001, the CA rendered its challenged
Decision, setting aside the assailed Orders of the RTC.
The CA held that petitioners neither had an existing
contract with respondents nor were they privy to the
milling contracts between respondents and the
individual Planters. In the main, the CA concluded that
petitioners had no legal personality to bring the action
against respondents or to demand for arbitration.
Petitioners filed a motion for reconsideration, but it too
was denied by the CA in its Resolution 7 dated October 30,
2002. Thus, the instant petition.
At the outset, it must be noted that petitioners filed the
instant petition for certiorari under Rule 65 of the
Rules of Court, to challenge the judgment of the CA. Section
1 of Rule 65 states: ESaITA
Section 1.Petition for Certiorari. —
When any tribunal, board or officer
exercising judicial or quasi-judicial
functions has acted without or in
excess of its jurisdiction, or with
grave abuse of discretion
amounting to lack or excess of its or
his jurisdiction and there is no
appeal, or any plain, speedy and
adequate remedy in the
course of law, a person aggrieved
thereby may file a verified petition
in the proper court, alleging the
facts with certainty and praying
that judgment be rendered
annulling or modifying the
proceedings of such tribunal, board
or officer, and granting such
incidental relief as law and justice
require. . . . (emphasis ours)
The instant recourse is improper because the
resolution of the CA was a final order from which the
remedyof appeal was available under Rule 45 in relation to
Rule 56. The existence and availability of the right ofappeal
proscribes resort to certiorari because one of the
requirements for availment of the latter is precisely that
there should be no appeal. It is elementary that
for certiorari to prosper, it is not enough that the
trialcourt committed grave abuse of discretion amounting
to lack or excess of jurisdiction; the requirement that there
is no appeal, nor any plain, speedy and adequate remedy in
the ordinary course of law must likewise be satisfied. 8 The
proper mode of recourse for petitioners was to file a
petition for review of the CA's decision under Rule 45.
Petitioners principally argue that the CA committed a grave
error in setting aside the challenged Joint Ordersof the RTC
which allegedly unduly curtailed the right of petitioners to
represent their planters-members and enforce the milling
contracts with respondents. Petitioners assert the said
which orders were issued in accordance with Article
XX of the Milling Contract and the applicable
provisions of Republic Act (R.A.) No. 876.
Where the issue or question involved affects the wisdom or
legal soundness of the decision — not the
jurisdiction of the court to render said decision — the same
is beyond the province of a special civil action forcertiorari.
Erroneous findings and conclusions do not render the
appellate court vulnerable to the corrective
writ of certiorari. For where the court has jurisdiction over
the case, even if its findings are not correct, they would, at
most constitute errors of law and not abuse of discretion
correctable by certiorari. 9
Moreover, even if this Court overlooks the procedural lapse
committed by petitioners and decides this matter on the
merits, the present petition will still not prosper.
Stripped to the core, the pivotal issue here is whether or
not petitioners — sugar planters' associations — are
clothed with legal personality to file a suit against, or
demand arbitration from, respondents in their own name
without impleading the individual Planters. aTEHIC
On this point, we agree with the findings of the CA.
Section 2 of R.A. No. 876 (the Arbitration
Law) 10 pertinently provides:
Sec. 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
timeof 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. . . .
(Emphasis ours)
The foregoing provision speaks of two
modes of arbitration: (a) an agreement to submit to
arbitration some future dispute, usually stipulated upon in
a civil contract between the parties, and known as
an agreement to submit to arbitration, and (b) an
agreement submitting an existing matter of difference to
arbitrators, termed the submission agreement. Article
XX of the milling contract is an agreement to submit to
arbitrationbecause it was made in anticipation of a dispute
that might arise between the parties after the contract's
execution.
Except where a compulsory arbitration is provided by
statute, the first step toward the settlement of a difference
by arbitration is the entry by the parties into a valid
agreement to arbitrate. An agreement to arbitrate is a
contract, the relation of the parties is contractual, and the
rights and liabilities of the parties are controlled by the
law of contracts. 11 In an agreement for arbitration, the
ordinary elements of a valid contract must appear,
including an agreement to arbitrate some specific thing,
and an agreement to abide by the award, either in express
language or by implication.
The requirements that an arbitration agreement must be
written and subscribed by the parties thereto were
enunciated by the Court in B.F. Corporation v. CA. 12
During the proceedings before the CA, it was established
that there were more than two thousand (2,000)Planters in
the district at the time the case was commenced at the RTC
in 1999. The CA further found that ofthose 2,000 Planters,
only about eighty (80) Planters, who were all
members of petitioner OSPA, in fact individually executed
milling contracts with respondents. No milling contracts
signed by members of the other petitioners were presented
before the CA. aIcDCA
By their own allegation, petitioners are associations duly
existing and organized under Philippine law, i.e.,they have
juridical personalities separate and distinct from
that of their member Planters. It is likewise undisputed that
the eighty (80) milling contracts that were presented were
signed only by the member Planter concerned and
one of the Centrals as parties. In other words, none of the
petitioners were parties or signatories to the milling
contracts. This circumstance is fatal to petitioners' cause
since they anchor their right to demand arbitration from
the respondent sugar centrals upon the arbitration clause
found in the milling contracts. There is no legal basis for
petitioners' purported right to demand arbitration when
they are not parties to the milling contracts, especially
when the language of the arbitration clause expressly
grants the right to demand arbitration only to the parties to
the contract.
Simply put, petitioners do not have any agreement to
arbitrate with respondents. Only eighty (80) Planterswho
were all members of OSPA were shown to have such an
agreement to arbitrate, included as a stipulation in their
individual milling contracts. The other petitioners failed to
prove that any of their members had milling contracts with
respondents, much less, that respondents had an
agreement to arbitrate with the petitioner associations
themselves.
Even assuming that all the petitioners were able to present
milling contracts in favor of their members, it is undeniable
that under the arbitration clause in these contracts it is the
parties thereto who have the right to submit a controversy
or dispute to arbitration.
Section 4 of R.A. 876 provides:
Section 4.Form of Arbitration
Agreement. — A contract to
arbitrate a controversy thereafter
arising between the parties, as well
as a submission to arbitrate an
existing controversy, shall be in
writing and subscribed by the party
sought to be charged, or by his
lawful agent.
The making of a contract or
submission for arbitration
described in section two hereof,
providing for arbitration of any
controversy, shall be deemed a
consent of the parties to the
jurisdiction of the Courtof First
Instance of the province or city
where any of the parties resides, to
enforce such contract ofsubmission.
The formal requirements of an agreement to arbitrate are
therefore the following: (a) it must be in writing and (b) it
must be subscribed by the parties or their representatives.
To subscribe means to write underneath, as one's name; to
sign at the end of a document. That word may sometimes
be construed to mean to give consent to or to
attest. 13 aTDcAH
Petitioners would argue that they could sue respondents,
notwithstanding the fact that they were not signatories in
the milling contracts because they are the
recognized representatives of the Planters.
This claim has no leg to stand on since petitioners did not
sign the milling contracts at all, whether as a party or as a
representative of their member Planters. The individual
Planter and the appropriate central were the only
signatories to the contracts and there is no provision in the
milling contracts that the individual Planter is authorizing
the association to represent him/her in a legal action in
case of a dispute over the milling contracts.
Moreover, even assuming that petitioners are indeed
representatives of the member Planters who have milling
contracts with the respondents and assuming further that
petitioners signed the milling contracts
asrepresentatives of their members, petitioners could not
initiate arbitration proceedings in their own nameas they
had done in the present case. As mere agents, they should
have brought the suit in the name of the principals that
they purportedly represent. Even if Section 4 of R.A. No.
876 allows the agreement to arbitrate to be signed by a
representative, the principal is still the one who has the
right to demand arbitration.
Indeed, Rule 3, Section 2 of the Rules of Court requires suits
to be brought in the name of the real party in interest, to
wit:
Sec. 2.Parties in interest. — 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.
We held in Oco v. Limbaring 14 that:
As applied to the present case, this
provision has two requirements: 1)
to institute an action, the plaintiff
must be the real party in interest;
and 2) the action must be
prosecuted in the name of the real
party in interest. Necessarily, the
purposes of this provision are 1) to
 prevent the prosecution of actions
by persons without any right, title
or interest in the case; 2) to require
that the actual party entitled to
legal relief be the one to prosecute
the action; 3) to avoid a
multiplicity of suits; and 4) to
discourage litigation and keep it
within certain bounds, pursuant to
sound public policy.
Interest within the
meaning of the Rules means
material interest or an interest
in issue to be affected by the
decree or judgment of the
case, as distinguished from mere
curiosity about the question
involved. One having no material
interest to protect cannot invoke
the jurisdiction of the courtas the
plaintiff in an action. When the
plaintiff is not the real party in
interest, the case is dismissible
on the
ground of lack of cause of action.
DHcTaE
xxx xxx xxx
The parties to a contract are the
real parties in interest in an
action upon it, as consistently
held by the Court. Only the
contracting parties are bound by
the stipulations in the
contract; they are the ones who
would benefit from and could
violate it. Thus, one who is not a
party to a contract, and for whose
benefit it was not expressly
made, cannot maintain an action
on it. One cannot do so, even if the
contract performed by the
contracting parties would
incidentally inure to one's
benefit. (emphasis ours)
In Uy v. Court of Appeals, 15 this Court held that the
agents of the parties to a contract do not have the right to
bring an action even if they rendered some service on
behalf of their principals. To quote from that decision:
. . .[Petitioners] are mere
agents of the owners of the land
subject of the sale. As agents, they
only render some service or do
something in representation or on
behalf of their principals. The
renderingof such service did not
make them parties to the
contracts of sale executed in
behalf of the latter. Since a contract
may be violated only by the parties
thereto as against each other, the The heir is not liable beyond the
real parties-in-interest, either as value of the property he received
plaintiff or defendant, in an from the decedent.
action upon that contract must, If a contract should contain some
generally, either be parties to stipulation in favor of a third
said contract. (emphasis and person, he may demand its
words in brackets ours) fulfillment provided he
The main cause of action of petitioners in their request for communicated his acceptance to
arbitration with the RTC is the alleged violation ofthe the obligor before its revocation. A
clause in the milling contracts involving the proportionate mere incidental benefit or
sharing in the proceeds of the harvest. Petitioners interest of a person is not sufficient.
essentially demand that respondents increase the The contracting parties must have
share of the member Planters to 66% to equalize their clearly and deliberately conferred a
situation with those of the non-member Planters. Verily, favor upon a third person.
from petitioners' own allegations, the party who would be To summarize, the requisites of a stipulation pour autrui or
injured or benefited by a decision in the arbitration a stipulation in favor of a third person are the following: (1)
proceedings will be the memberPlanters involved and not there must be a stipulation in favor of a third person, (2)
petitioners. In sum, petitioners are not the real parties in the stipulation must be a part, not the whole, of the
interest in the present case. contract, (3) the contracting parties must have clearly and
Assuming petitioners had properly brought the case in the deliberately conferred a favor upon a third person, not a
name of their members who had existing milling contracts mere incidental benefit or interest, (4) the third person
with respondents, petitioners must still prove that they must have communicated his acceptance to the obligor
were indeed authorized by the said members to institute an before its revocation, and (5) neither of the contracting
action for and on the members' behalf. In the same manner parties bears the legal representation or
that an officer of the corporation cannot bring action in authorization of the third party. 17 These requisites are not
behalf of a corporation unless it is clothed with a board present in this case.
resolution authorizing an officer to do so, an authorization Article VI of the Milling Contract is the solitary provision
from the individual member planter is a sine qua non for that mentions some benefit in
theassociation or any of its officers to bring an action favor of theassociation of which the planter is a member
before the court of law. The mere fact that petitioners were and we quote:
organized for the purpose of advancing the interests and VI
welfare of their members does not necessarily mean that SHARE IN THE SUGAR
petitioners have the authority to represent their members Thirty four per centrum *
in legal proceedings, including the present arbitration (34%) of the sugar ad * molasses
proceedings. resulting from the milling of the
PLANTER's sugarcane, as computed
As we see it, petitioners had no intention to litigate the case from the weight and
in a representative capacity, as they contend. All the analysis of the sugarcane delivered
pleadings from the RTC to this Court belie this claim. Under by the PLANTER, shall belong to the
Section 3 of Rule 3, where the action is allowed to be CENTRAL; sixty five per centum
prosecuted by a representative, the beneficiary shall be (65%) thereof to the PLANTER, and
included in the title of the case and shall be deemed to be one per centum (1%) as aid to
the real party in interest. As repeatedly pointed out earlier, the association of the PLANTER;
the individual Planterswere not even impleaded as parties provided that, if the PLANTER is
to this case. In addition, petitioners need a power-of- not a CORPORATION, respondents.
attorney to represent the Planters whether in the lawsuit member of any association recogniz
or to demand arbitration. 16 None was ever presented ed by the CENTRAL, said one per
here. TIADCc centum (1%) shall revert to the
Lastly, petitioners theorize that they could demand and sue CENTRAL. The 1% aid shall be used
for arbitration independently of the Plantersbecause the by the association for any purpose
milling contract is a contract pour autrui under Article that it may deem fit for its
1311 of the Civil Code. members, laborers and their
ART. 1311.Contracts take effect dependents, or for its other socio-
only between the parties, their economic projects.
assigns and heirs, except in case The foregoing provision cannot, by any stretch of the
where the rights and obligations imagination, be considered as a stiputation * pour autrui or
arising from the contract are not for the benefit of the petitioners. The primary rationale for
transmissible by their nature, or by the said stipulation is to ensure a just share in the
stipulation or by provision of law. proceeds of the harvest to the Planters. In other words, it is
a stipulation meant to benefit thePlanters. Even the 1%
share to be given to the association as aid does not redound
to the benefit of theassociation but is intended to be used
for its member Planters. Not only that, it is explicit that said
share reverts back to respondent sugar centrals if the
contracting Planter is not affiliated with any
recognizedassociation. TCIDSa
To be considered a pour autrui provision, an incidental
benefit or interest, which another person gains, is not
sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.18 Even
the clause stating that respondents must secure the
consent of the association if respondents grant better
benefits to a Planter has for its rationale the
protection of the member Planter. The only
interest ofthe association therein is that its member Planter
will not be put at a disadvantage vis a vis other Planters.
Thus, the associations' interest in these milling contracts is
only incidental to their avowed purpose ofadvancing the
welfare and rights of their member Planters.
In all, the Court finds no grave abuse of discretion nor
reversible error committed by the CA in setting aside the
Joint Orders issued by the RTC.
WHEREFORE, petition is hereby DISMISSED.
Costs against petitioners.
SO ORDERED.
||| (Ormoc Sugarcane Planters' Ass'n, Inc. v. Court of Appeals,
G.R. No. 156660, [August 24, 2009], 613 PHIL 240-256)
SPECIAL SECOND DIVISION
[G.R. No. 161957. January 22, 2007.]
JORGE GONZALES and PANEL OF
ARBITRATORS, petitioners, vs.
CLIMAX MINING LTD., CLIMAX-
ARIMCO MINING CORP., and
AUSTRALASIAN PHILIPPINES
MINING INC.,respondents.
[G.R. No. 167994. January 22, 2007.]
JORGE GONZALES, petitioner, vs.
HON. OSCAR B. PIMENTEL, in his
capacity as PRESIDING JUDGE of
BR. 148 of the REGIONAL TRIAL
COURT of MAKATI CITY, and
CLIMAX-ARIMCO MINING
RESOLUTION
TINGA, J p:
This is a consolidation of two petitions rooted in the same
disputed Addendum Contract entered into by the parties. In
G.R. No. 161957, the Court in its Decision of 28 February
2005 1 denied the Rule 45 petition of petitioner Jorge
Gonzales (Gonzales). It held that the DENR Panel of
Arbitrators had no jurisdiction over the complaint for the
annulment of the Addendum Contract on grounds of fraud
and violation of the Constitution and that the action should
have been brought before the regular courts as it involved
judicial issues. Both parties filed separate motions for
reconsideration. Gonzales avers in his Motion for
Reconsideration 2 that the Court erred in holding that the
DENR Panel of Arbitrators was bereft of jurisdiction,
reiterating its argument that the case involves a mining
dispute that properly falls within the ambit of the Panel's
authority. Gonzales adds that the Court failed to rule on
other issues he raised relating to the sufficiency of his
complaint before the DENR Panel of Arbitrators and the
timeliness of its filing.
Respondents Climax Mining Ltd., et al., (respondents) filed
their Motion for Partial Reconsideration and/or
Clarification 3 seeking reconsideration of that part of the
Decision holding that the case should not be brought for
arbitration under Republic Act (R.A.) No. 876, also known
as the Arbitration Law. 4 Respondents, citing American
jurisprudence 5 and the UNCITRAL Model Law, 6 argue
that the arbitration clause in the Addendum Contract
should be treated as an agreement independent of the
other terms of the contract, and that a claimed rescission of
the main contract does not avoid the duty to arbitrate.
Respondents add that Gonzales's argument relating to the
alleged invalidity of the Addendum Contract still has to be
proven and adjudicated on in a proper proceeding; that is,
an action separate from the motion to compel arbitration.
Pending judgment in such separate action, the Addendum
Contract remains valid and binding and so does the
arbitration clause therein. Respondents add that the
holding in the Decision that "the case should not be brought
under the ambit of the Arbitration Law" appears to be
premised on Gonzales's having "impugn[ed] the existence
or validity" of the addendum contract. If so, it supposedly
conveys the idea that Gonzales's unilateral repudiation of
the contract or mere allegation of its invalidity is all it takes
to avoid arbitration. Hence, respondents submit that the
court's holding that "the case should not be brought under
the ambit ofthe Arbitration Law" be understood or clarified
as operative only where the challenge to the arbitration
agreement has been sustained by final judgment.
Both parties were required to file their respective
comments to the other party's motion for
reconsideration/clarification. 7 Respondents filed their
Comment on 17 August 2005, 8 while Gonzales filed his
only on 25 July 2006. 9
On the other hand, G.R. No. 167994 is a Rule 65 petition
filed on 6 May 2005, or while the motions for
reconsideration in G.R. No. 161957 10 were pending,
wherein Gonzales challenged the orders of the Regional
Trial Court (RTC) requiring him to proceed with the
arbitration proceedings as sought by Climax-Arimco Mining
Corporation (Climax-Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and
167994, were consolidated upon the recommendation of
the Assistant Division Clerk of Court since the cases are
rooted in the same Addendum Contract.
We first tackle the more recent case which is G.R. No.
167994. It stemmed from the petition to compel arbitration
filed by respondent Climax-Arimco before the RTC of
Makati City on 31 March 2000 while the complaint for the
nullification of the Addendum Contract was pending before
the DENR Panel of Arbitrators. On 23 March 2000, Climax-
Arimco had sent Gonzales a Demand for Arbitration
pursuant to Clause 19.1 11 of the Addendum Contract and
also in accordance with Sec. 5 of R.A. No. 876. The petition
for arbitration was subsequently filed and Climax-Arimco
sought an order to compel the parties to arbitrate pursuant
to the said arbitration clause. The case, docketed as Civil
Case No. 00-444, was initially raffled to Br. 132 of the RTC
of Makati City, with Judge Herminio I. Benito as Presiding
Judge. Respondent Climax-Arimco filed on 5 April 2000 a
motion to set the application to compel arbitration for
hearing.
On 14 April 2000, Gonzales filed a motion to dismiss which
he however failed to set for hearing. On 15 May 2000, he
filed an Answer with Counterclaim, 12 questioning the
validity of the Addendum Contract containing the
arbitration clause. Gonzales alleged that the Addendum
Contract containing the arbitration clause is void in view of
Climax-Arimco's acts of fraud, oppression and violation of
the Constitution. Thus, the arbitration clause, Clause 19.1,
contained in the Addendum Contract is also null and
void ab initio and legally inexistent.
On 18 May 2000, the RTC issued an order declaring
Gonzales's motion to dismiss moot and academic in view of
the filing of his Answer with Counterclaim. 13
On 31 May 2000, Gonzales asked the RTC to set the case for
pre-trial. 14 This the RTC denied on 16 June 2000, holding
that the petition for arbitration is a special proceeding that
is summary in nature. 15 However, on 7 July 2000, the RTC
granted Gonzales's motion for reconsideration of the 16
June 2000 Order and set the case for pre-trial on 10 August
2000, it being of the view that Gonzales had raised in his
answer the issue of the making of the arbitration
agreement. 16
Climax-Arimco then filed a motion to resolve its pending
motion to compel arbitration. The RTC denied the same in
its 24 July 2000 order.
On 28 July 2000, Climax-Arimco filed a Motion to Inhibit
Judge Herminio I. Benito for "not possessing the cold
neutrality of an impartial judge." 17 On 5 August 2000,
Judge Benito issued an Order granting the Motion to Inhibit
and ordered the re-raffling of the petition for
arbitration. 18 The case was raffled to the sala of public
respondent Judge Oscar B. Pimentel of Branch 148. HSTAcI
On 23 August 2000, Climax-Arimco filed a motion for
reconsideration of the 24 July 2000 Order. 19 Climax-
Arimco argued that R.A. No. 876 does not authorize a pre-
trial or trial for a motion to compel arbitration but directs
the court to hear the motion summarily and resolve it
within ten days from hearing. Judge Pimentel granted the
motion and directed the parties to arbitration. On 13
February 2001, Judge Pimentel issued the first assailed
order requiring Gonzales to proceed with arbitration
proceedings and appointing retired CA Justice Jorge Coquia
as sole arbitrator. 20
Gonzales moved for reconsideration on 20 March 2001 but
this was denied in the Order dated 7 March 2005.21
Gonzales thus filed the Rule 65 petition assailing the Orders
dated 13 February 2001 and 7 March 2005 of Judge
Pimentel. Gonzales contends that public respondent Judge
Pimentel acted with grave abuse of discretion in
immediately ordering the parties to proceed with
arbitration despite the proper, valid, and timely raised
argument in his Answer with Counterclaim that the
Addendum Contract, containing the arbitration clause, is
null and void. Gonzales has also sought a temporary
restraining order to prevent the enforcement of the
assailed orders directing the parties to arbitrate, and to
direct Judge Pimentel to hold a pre-trial conference and the
necessary hearings on the determination of the nullity of
the Addendum Contract. HSCAIT
In support of his argument, Gonzales invokes Sec. 6 of R.A.
No. 876:
Sec. 6. Hearing by court. — A party
aggrieved by the failure, neglect or
refusal of another to perform under
an agreement in writing providing
for arbitration may petition the
court for an order directing that
such arbitration proceed in the
manner provided for in such
agreement. Five days notice in
writing of the hearing of such
application shall be served either
personally or by registered mail
upon the party in default. The court
shall hear the parties, and upon
being satisfied that the making of
the agreement or such failure to
comply therewith is not in issue,
shall make an order directing the
parties to proceed to arbitration in
accordance with the terms of the
agreement. If the making of the
agreement or default be in issue the
court shall proceed to summarily
hear such issue. If the finding be
that no agreement in writing
providing for arbitration was made,
or that there is no default in the
proceeding thereunder, the
proceeding shall be dismissed. If
the finding be that a written
provision for arbitration was made
and there is a default in proceeding
thereunder, an order shall be made
summarily directing the parties to
proceed with the arbitration in
accordance with the terms thereof.
The court shall decide all motions,
petitions or applications filed under
the provisions of this Act, within
ten (10) days after such motions,
petitions, or applications have been
heard by it.
Gonzales also cites Sec. 24 of R.A. No. 9285 or the
"Alternative Dispute Resolution Act of 2004:"
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.
According to Gonzales, the above-quoted provisions of law
outline the procedure to be followed in petitions to compel
arbitration, which the RTC did not follow. Thus, referral of
the parties to arbitration by Judge Pimentel despite the
timely and properly raised issue of nullity of the Addendum
Contract was misplaced and without legal basis. Both R.A.
No. 876 and R.A. No. 9285 mandate that any issue as to the
nullity, inoperativeness, or incapability of performance of
the arbitration clause/agreement raised by one of the
parties to the alleged arbitration agreement must be
determined by the court prior to referring it to arbitration.
They require that the trial court first determine or resolve
the issue of nullity, and there is no other venue for this
determination other than a pre-trial and hearing on the
issue by the trial court which has jurisdiction over the case.
Gonzales adds that the assailed 13 February 2001 Order
also violated his right to procedural due process when the
trial court erroneously ruled on the existence of the
arbitration agreement despite the absence of a hearing for
the presentation of evidence on the nullity of the
Addendum Contract.
Respondent Climax-Arimco, on the other hand, assails the
mode of review availed of by Gonzales. Climax-Arimco cites
Sec. 29 of R.A. No. 876:
Sec. 29. Appeals. — An appeal may
be taken from an order made in a
proceeding under this Act, or from
a judgment entered upon an award
through certiorari proceedings, but
such appeals shall be limited to
questions of law. The proceedings
upon such an appeal, including the
judgment thereon shall be
governed by the Rules of Court in
so far as they are applicable.
Climax-Arimco mentions that the special civil action
for certiorari employed by Gonzales is available only where
there is no appeal or any plain, speedy, and adequate
remedy in the ordinary course of law against the
challenged orders or acts. Climax-Arimco then points out
that R.A. No. 876 provides for an appeal from such orders,
which, under the Rules of Court, must be filed within 15
days from notice of the final order or resolution appealed
from or of the denial of the motion for reconsideration filed
in due time. Gonzales has not denied that the relevant 15-
day period for an appeal had elapsed long before he filed
this petition forcertiorari. He cannot use the special civil
action of certiorari as a remedy for a lost appeal.
Climax-Arimco adds that an application to compel
arbitration under Sec. 6 of R.A. No. 876 confers on the trial
court only a limited and special jurisdiction, i.e., a
jurisdiction solely to determine (a) whether or not the
parties have a written contract to arbitrate, and (b) if the
defendant has failed to comply with that contract. Climax-
Arimco cites La Naval Drug Corporation v. Court of
Appeals, 22 which holds that in a proceeding to compel
arbitration, "[t]he arbitration law explicitly confines the
court's authority only to pass upon the issue of whether
there is or there is no agreement in writing providing for
arbitration," and "[i]n the affirmative, the statute ordains
that the court shall issue an order 'summarily directing the
parties to proceed with the arbitration in accordance with
the terms thereof.'" 23 Climax-Arimco argues that R.A. No.
876 gives no room for any other issue to be dealt with in
such a proceeding, and that the court presented with an
application to compel arbitration may order arbitration or
dismiss the same, depending solely on its finding as to
those two limited issues. If either of these matters is
disputed, the court is required to conduct a summary
hearing on it. Gonzales's proposition contradicts both the
trial court's limited jurisdiction and the summary nature of
the proceeding itself.
Climax-Arimco further notes that Gonzales's attack on or
repudiation of the Addendum Contract also is not a ground
to deny effect to the arbitration clause in the Contract. The
arbitration agreement is separate and severable from the
contract evidencing the parties' commercial or economic
transaction, it stresses. Hence, the alleged defect or failure
of the main contract is not a ground to deny enforcement of
the parties' arbitration agreement. Even the party who has
repudiated the main contract is not prevented from
enforcing its arbitration provision. R.A. No. 876 itself treats
the arbitration clause or agreement as a contract separate
from the commercial, economic or other transaction to be
arbitrated. The statute, in particular paragraph 1 of Sec. 2
thereof, considers the arbitration stipulation an
independent contract in its own right whose enforcement
may be prevented only on grounds which legally make the
arbitration agreement itself revocable, thus:
Sec. 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.
xxx xxx xxx
The grounds Gonzales invokes for the revocation of the
Addendum Contract — fraud and oppression in the
execution thereof — are also not grounds for the
revocation of the arbitration clause in the Contract, Climax-
Arimco notes. Such grounds may only be raised by way of
defense in the arbitration itself and cannot be used to
frustrate or delay the conduct of arbitration proceedings.
Instead, these should be raised in a separate action for
rescission, it continues.
Climax-Arimco emphasizes that the summary proceeding
to compel arbitration under Sec. 6 of R.A. No. 876should
not be confused with the procedure in Sec. 24 of R.A. No.
9285. Sec. 6 of R.A. No. 876 refers to an application to
compel arbitration where the court's authority is limited to
resolving the issue of whether there is or there is no
agreement in writing providing for arbitration, while Sec.
24 of R.A. No. 9285 refers to an ordinary action which
covers a matter that appears to be arbitrable or subject to
arbitration under the arbitration agreement. In the latter
case, the statute is clear that the court, instead of trying the
case, may, on request of either or both parties, refer the
parties to arbitration, unless it finds that the arbitration
agreement is null and void, inoperative or incapable of
being performed. Arbitration may even be ordered in the
same suit brought upon a matter covered by an arbitration
agreement even without waiting for the outcome of the
issue of the validity of the arbitration agreement. Art. 8 of
the UNCITRAL Model Law 24 states that where a court
before which an action is brought in a matter which is
subject of an arbitration agreement refers the parties to
arbitration, the arbitral proceedings may proceed even
while the action is pending.
Thus, the main issue raised in the Petition for Certiorari is
whether it was proper for the RTC, in the proceeding to
compel arbitration under R.A. No. 876, to order the parties
to arbitrate even though the defendant therein has raised
the twin issues of validity and nullity of the Addendum
Contract and, consequently, of the arbitration clause
therein as well. The resolution of both Climax-Arimco's
Motion for Partial Reconsideration and/or Clarification in
G.R. No. 161957 and Gonzales's Petition for Certiorari in
G.R. No. 167994 essentially turns on whether the question
of validity of the Addendum Contract bears upon the
applicability or enforceability of the arbitration clause
contained therein. The two pending matters shall thus be
jointly resolved.
We address the Rule 65 petition in G.R. No. 167994 first
from the remedial law perspective. It deserves to be
dismissed on procedural grounds, as it was filed in lieu of
appeal which is the prescribed remedy and at that far
beyond the reglementary period. It is elementary in
remedial law that the use of an erroneous mode of appeal is
cause for dismissal of the petition for certiorari and it has
been repeatedly stressed that a petition for certiorari is not
a substitute for a lost appeal. As its nature, a petition
for certiorari lies only where there is "no appeal," and "no
plain, speedy and adequate remedy in the ordinary course
of law." 25 The Arbitration Law specifically provides for an
appeal by certiorari, i.e., a petition for review
under certiorari under Rule 45 of the Rules of Court that
raises pure questions of law. 26 There is no merit to
Gonzales's argument that the use of the permissive term
"may" in Sec. 29, R.A. No. 876 in the filing of appeals does
not prohibit nor discount the filing of a petition
for certiorari under Rule 65. 27 Proper interpretation of
the aforesaid provision of law shows that the term "may"
refers only to the filing of an appeal, not to the mode of
review to be employed. Indeed, the use of "may" merely
reiterates the principle that the right to appeal is not part
of due process of law but is a mere statutory privilege to be
exercised only in the manner and in accordance with law.
Neither can BF Corporation v. Court of Appeals 28 cited by
Gonzales support his theory. Gonzales argues that said case
recognized and allowed a petition for certiorari under Rule
65 "appealing the order of the Regional Trial Court
disregarding the arbitration agreement as an acceptable
remedy." 29 The BF Corporation case had its origins in a
complaint for collection of sum of money filed by therein
petitioner BF Corporation against Shangri-la Properties,
Inc. (SPI). SPI moved to suspend the proceedings alleging
that the construction agreement or the Articles of
Agreement between the parties contained a clause
requiring prior resort to arbitration before judicial
intervention. The trial court found that an arbitration
clause was incorporated in the Conditions of Contract
appended to and deemed an integral part of the Articles of
Agreement. Still, the trial court denied the motion to
suspend proceedings upon a finding that the Conditions of
Contract were not duly executed and signed by the parties.
The trial court also found that SPI had failed to file any
written notice of demand for arbitration within the period
specified in the arbitration clause. The trial court denied
SPI's motion for reconsideration and ordered it to file its
responsive pleading. Instead of filing an answer, SPI filed a
petition for certiorari under Rule 65, which the Court of
Appeals, favorably acted upon. In a petition for review
before this Court, BF Corporation alleged, among others,
that the Court of Appeals should have dismissed the
petition for certiorari since the order of the trial court
denying the motion to suspend proceedings "is a resolution
of an incident on the merits" and upon the continuation of
the proceedings, the trial court would eventually render a
decision on the merits, which decision could then be
elevated to a higher court "in an ordinary appeal." 30
The Court did not uphold BF Corporation's argument. The
issue raised before the Court was whether SPI had taken
the proper mode of appeal before the Court of Appeals. The
question before the Court of Appeals was whether the trial
court had prematurely assumed jurisdiction over the
controversy. The question of jurisdiction in turn depended
on the question of existence of the arbitration clause which
is one of fact. While on its face the question of existence of
the arbitration clause is a question of fact that is not proper
in a petition for certiorari, yet since the determination of
the question obliged the Court of Appeals as it did to
interpret the contract documents in accordance with R.A.
No. 876 and existing jurisprudence, the question is likewise
a question of law which may be properly taken cognizance
of in a petition for certiorari under Rule 65, so the Court
held. 31
The situation in BF Corporation is not availing in the
present petition. The disquisition in BF Corporation led to
the conclusion that in order that the question of
jurisdiction may be resolved, the appellate court had to
deal first with a question of law which could be addressed
in a certiorari proceeding. In the present case, Gonzales's
petition raises a question of law, but not a question of
jurisdiction. Judge Pimentel acted in accordance with the
procedure prescribed in R.A. No. 876 when he ordered
Gonzales to proceed with arbitration and appointed a sole
arbitrator after making the determination that there was
indeed an arbitration agreement. It has been held that as
long as a court acts within its jurisdiction and does not
gravely abuse its discretion in the exercise thereof, any
supposed error committed by it will amount to nothing
more than an error of judgment reviewable by a timely
appeal and not assailable by a special civil action
of certiorari. 32 Even if we overlook the employment of the
wrong remedy in the broader interests of justice, the
petition would nevertheless be dismissed for failure of
Gonzalez to show grave abuse of discretion.
Arbitration, as an alternative mode of settling disputes, has
long been recognized and accepted in our jurisdiction. The
Civil Code is explicit on the matter. 33 R.A. No. 876 also
expressly authorizes arbitration of domestic disputes.
Foreign arbitration, as a system of settling commercial
disputes of an international character, was likewise
recognized when the Philippines adhered to the United
Nations "Convention on the Recognition and the
Enforcement of Foreign Arbitral Awards of 1958," under
the 10 May 1965 Resolution No. 71 of the Philippine
Senate, giving reciprocal recognition and allowing
enforcement of international arbitration agreements
between parties of different nationalities within a
contracting state. 34 The enactment of R.A. No. 9285 on 2
April 2004 further institutionalized the use of alternative
dispute resolution systems, including arbitration, in the
settlement of disputes.
Disputes do not go to arbitration unless and until the
parties have agreed to abide by the arbitrator's decision.
Necessarily, a contract is required for arbitration to take
place and to be binding. R.A. No. 876recognizes the
contractual nature of the arbitration agreement, thus:
Sec. 2. Persons and matters subject
to arbitration. — Two or more
persons or parties may submit to
the arbitration of one or more
arbitrators any controversy
existing, between them at the
time of the submission and which
may be the subject of an action, or
the parties to any contract may in
such contract agree to settle by
arbitration a controversy
thereafter arising between
them. Such submission or
 contract shall be valid,
enforceable and irrevocable,
save upon such grounds as exist
at law for the revocation of any
contract.
Such submission or contract may
include question arising out of
valuations, appraisals or other
controversies which may be
collateral, incidental, precedent or
subsequent to any issue between
the parties.
A controversy cannot be arbitrated
where one of the parties to the
controversy is an infant, or a
person judicially declared to be
incompetent, unless the
appropriate court having
jurisdiction approve a petition for
permission to submit such
controversy to arbitration made by
the general guardian or
guardian ad litem of the infant or of
the incompetent. [Emphasis
added.]
Thus, we held in Manila Electric Co. v. Pasay Transportation
Co. 35 that a submission to arbitration is a contract. A
clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a
contract, 36 and in Del Monte Corporation-USA v. Court of
Appeals 37 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. As a
rule, contracts are respected as the law between the
contracting parties and produce effect as between them,
their assigns and heirs." 38
The special proceeding under Sec. 6 of R.A. No.
876 recognizes the contractual nature of arbitration
clauses or agreements. It provides:
Sec. 6. Hearing by court. — A party
aggrieved by the failure, neglect or
refusal of another to perform under
an agreement in writing
providing for arbitration may
petition the court for an order
directing that such arbitration
proceed in the manner provided for
in such agreement. Five days notice
in writing of the hearing of such
application shall be served either
personally or by registered mail
upon the party in default. The court
shall hear the parties, and upon
being satisfied that the making of
the agreement or such failure to
comply therewith is not in issue,
shall make an order directing the
parties to proceed to arbitration in
accordance with the terms of the
agreement. If the making of the
agreement or default be in issue the
court shall proceed to summarily
hear such issue. If the finding be
that no agreement in writing
providing for arbitration was
made, or that there is no default in
the proceeding thereunder, the
proceeding shall be dismissed. If
the finding be that a written
provision for arbitration was
made and there is a default in
proceeding thereunder, an order
shall be made summarily directing
the parties to proceed with the
arbitration in accordance with the
terms thereof.
The court shall decide all motions,
petitions or applications filed under
the provisions of this Act, within
ten days after such motions,
petitions, or applications have been
heard by it. [Emphasis added.]
This special proceeding is the procedural mechanism for
the enforcement of the contract to arbitrate. The
jurisdiction of the courts in relation to Sec. 6 of R.A. No.
876 as well as the nature of the proceedings therein was
expounded upon in La Naval Drug Corporation v. Court of
Appeals. 39 There it was held that R.A. No. 876explicitly
confines the court's authority only to the determination of
whether or not there is an agreement in writing providing
for arbitration. In the affirmative, the statute ordains that
the court shall issue an order "summarily directing the
parties to proceed with the arbitration in accordance with
the terms thereof." If the court, upon the other hand, finds
that no such agreement exists, "the proceeding shall be
dismissed." 40 The cited case also stressed that the
proceedings are summary in nature. 41 The same thrust
was made in the earlier case of Mindanao Portland Cement
Corp. v. McDonough Construction Co. of Florida 42 which
held, thus:
Since there obtains herein a written
provision for arbitration as well as
failure on respondent's part to
comply therewith, the court a
quo rightly ordered the parties to
proceed to arbitration in
accordance with the terms of their
agreement (Sec. 6, Republic Act
876). Respondent's arguments
touching upon the merits of the
dispute are improperly raised
herein. They should be addressed
to the arbitrators. This proceeding
is merely a summary remedy to
enforce the agreement to arbitrate.
The duty of the court in this case is
not to resolve the merits of the
parties' claims but only to
determine if they should proceed to
arbitration or not. . . . 43
Implicit in the summary nature of the judicial proceedings
is the separable or independent character of the arbitration
clause or agreement. This was highlighted in the cases
of Manila Electric Co. v. Pasay Trans. Co. 44and Del Monte
Corporation-USA v. Court of Appeals. 45
The doctrine of separability, or severability as other
writers call it, enunciates that an arbitration agreement is
independent of the main contract. The arbitration
agreement is to be treated as a separate agreement and the
arbitration agreement does not automatically terminate
when the contract of which it is part comes to an end. 46
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. 47
The separability of the arbitration clause is confirmed in
Art. 16 (1) of the UNCITRAL Model Law and Art. 21 (2) of
the UNCITRAL Arbitration Rules. 48
The separability doctrine was dwelt upon at length in the
U.S. case of Prima Paint Corp. v. Flood & Conklin
Manufacturing Co. 49 In that case, Prima Paint and Flood
and Conklin (F & C) entered into a consulting agreement
whereby F & C undertook to act as consultant to Prima
Paint for six years, sold to Prima Paint a list of its customers
and promised not to sell paint to these customers during
the same period. The consulting agreement contained an
arbitration clause. Prima Paint did not make payments as
provided in the consulting agreement, contending that F &
C had fraudulently misrepresented that it was solvent and
able for perform its contract when in fact it was not and
had even intended to file for bankruptcy after executing the
consultancy agreement. Thus, F & C served Prima Paint
with a notice of intention to arbitrate. Prima Paint sued in
court for rescission of the consulting agreement on the
ground of fraudulent misrepresentation and asked for the
issuance of an order enjoining F & C from proceeding with
arbitration. F & C moved to stay the suit pending
arbitration. The trial court granted F & C's motion, and the
U.S. Supreme Court affirmed.
The U.S. Supreme Court did not address Prima Paint's
argument that it had been fraudulently induced by F & C to
sign the consulting agreement and held that no court
should address this argument. Relying on Sec. 4 of the
Federal Arbitration Act — which provides that "if a party
[claims to be] aggrieved by the alleged failure . . . of another
to arbitrate . . . , [t]he court shall hear the parties, and upon
being satisfied that the making of the agreement for
arbitration or the failure to comply therewith is not in
issue, the court shall make an order directing the parties to
proceed to arbitration . . . . If the making of the arbitration
agreement or the failure, neglect, or refusal to perform the
same be in issue, the court shall proceed summarily to the
trial thereof" — the U.S. High Court held that the court
should not order the parties to arbitrate if the making of
the arbitration agreement is in issue. The parties should be
ordered to arbitration if, and only if, they have contracted
to submit to arbitration. Prima Paint was not entitled to
trial on the question of whether an arbitration agreement
was made because its allegations of fraudulent inducement
were not directed to the arbitration clause itself, but only to
the consulting agreement which contained the arbitration
agreement. 50Prima Paint held that "arbitration clauses are
'separable' from the contracts in which they are embedded,
and that where no claim is made that fraud was directed to
the arbitration clause itself, a broad arbitration clause will
be held to encompass arbitration of the claim that the
contract itself was induced by fraud." 51
There is reason, therefore, to rule against Gonzales when
he alleges that Judge Pimentel acted with grave abuse of
discretion in ordering the parties to proceed with
arbitration. Gonzales's argument that the Addendum
Contract is null and void and, therefore the arbitration
clause therein is void as well, is not tenable. First, the
proceeding in a petition for arbitration under R.A. No.
876 is limited only to the resolution of the question of
whether the arbitration agreement exists. Second, the
separability of the arbitration clause from the Addendum
Contract means that validity or invalidity of the Addendum
Contract will not affect the enforceability of the agreement
to arbitrate. Thus, Gonzales's petition for certiorari should
be dismissed.
This brings us back to G.R. No. 161957. The adjudication of
the petition in G.R. No. 167994 effectively modifies part of
the Decision dated 28 February 2005 in G.R. No. 161957.
Hence, we now hold that the validity of the contract
containing the agreement to submit to arbitration does not
affect the applicability of the arbitration clause itself. A
contrary ruling would suggest that a party's mere
repudiation of the main contract is sufficient to avoid
arbitration. That is exactly the situation that the
separability doctrine, as well as jurisprudence applying it,
seeks to avoid. We add that when it was declared in G.R.
No. 161957 that the case should not be brought for
arbitration, it should be clarified that the case referred to is
the case actually filed by Gonzales before the DENR Panel
of Arbitrators, which was for the nullification of the main
contract on the ground of fraud, as it had already been
determined that the case should have been brought before
the regular courts involving as it did judicial issues.
The Motion for Reconsideration of Gonzales in G.R.
No. 161957 should also be denied. In the motion, Gonzales
raises the same question of jurisdiction, more particularly
that the complaint for nullification of the Addendum
Contract pertained to the DENR Panel of Arbitrators, not
the regular courts. He insists that the subject of his
complaint is a mining dispute since it involves a dispute
concerning rights to mining areas, the Financial and
Technical Assistance Agreement (FTAA) between the
parties, and it also involves claimowners. He adds that the
Court failed to rule on other issues he raised, such as
whether he had ceded his claims over the mineral deposits
located within the Addendum Area of Influence; whether
the complaint filed before the DENR Panel of Arbitrators
alleged ultimate facts of fraud; and whether the action to
declare the nullity of the Addendum Contract on the ground
of fraud has prescribed.
These are the same issues that Gonzales raised in his Rule
45 petition in G.R. No. 161957 which were resolved against
him in the Decision of 28 February 2005. Gonzales does not
raise any new argument that would sway the Court even a
bit to alter its holding that the complaint filed before the
DENR Panel of Arbitrators involves judicial issues which
should properly be resolved by the regular courts. He
alleged fraud or misrepresentation in the execution of the
Addendum Contract which is a ground for the annulment of
a voidable contract. Clearly, such allegations entail legal
questions which are within the jurisdiction of the courts.
The question of whether Gonzales had ceded his claims
over the mineral deposits in the Addendum Area of
Influence is a factual question which is not proper for
determination before this Court. At all events, moreover,
the question is irrelevant to the issue of jurisdiction of the
DENR Panel of Arbitrators. It should be pointed out that the
DENR Panel of Arbitrators made a factual finding in its
Order dated 18 October 2001, which it reiterated in its
Order dated 25 June 2002, that Gonzales had, "through the
various agreements, assigned his interest over the mineral
claims all in favor of [Climax-Arimco]" as well as that
without the complainant [Gonzales] assigning his interest
over the mineral claims in favor of [Climax-Arimco], there
would be no FTAA to speak of." 52 This finding was
affirmed by the Court of Appeals in its Decision dated 30
July 2003 resolving the petition for certiorari filed by
Climax-Arimco in regard to the 18 October 2001 Order of
the DENR Panel. 53
The Court of Appeals likewise found that Gonzales's
complaint alleged fraud but did not provide any particulars
to substantiate it. The complaint repeatedly mentioned
fraud, oppression, violation of the Constitution and similar
conclusions but nowhere did it give any ultimate facts or
particulars relative to the allegations. 54
Sec. 5, Rule 8 of the Rules of Court specifically provides that
in all averments of fraud, the circumstances constituting
fraud must be stated with particularity. This is to enable
the opposing party to controvert the particular facts
allegedly constituting the same. Perusal of the complaint
indeed shows that it failed to state with particularity the
ultimate facts and circumstances constituting the alleged
fraud. It does not state what particulars about Climax-
Arimco's financial or technical capability were
misrepresented, or how the misrepresentation was done.
Incorporated in the body of the complaint are verbatim
reproductions of the contracts, correspondence and
government issuances that reportedly explain the
allegations of fraud and misrepresentation, but these are, at
best, evidentiary matters that should not be included in the
pleading.
As to the issue of prescription, Gonzales's claims of fraud
and misrepresentation attending the execution of the
Addendum Contract are grounds for the annulment of a
voidable contract under the Civil Code. 55 Under Art. 1391
of the Code, an action for annulment shall be brought
within four years, in the case of fraud, beginning from the
time of the discovery of the same. However, the time of the
discovery of the alleged fraud is not clear from the
allegations of Gonzales's complaint. That being the
situation coupled with the fact that this Court is not a trier
of facts, any ruling on the issue of prescription would be
uncalled for or even unnecessary.
WHEREFORE, the Petition for Certiorari in G.R. No. 167994
is DISMISSED. Such dismissal effectively renders
superfluous formal action on the Motion for Partial
Reconsideration and/or Clarification filed by Climax Mining
Ltd., et al. in G.R. No. 161957.
The Motion for Reconsideration filed by Jorge Gonzales in
G.R. No. 161957 is DENIED WITH FINALITY. TEacSA
SO ORDERED.
||| (Gonzales v. Climax Mining Ltd., G.R. No. 161957, 167994,
[January 22, 2007], 541 PHIL 143-171)
**CASE OF: Agan, Jr. v. Philippine International Air
Terminals Co., Inc., (SEPARATE PAGE)
SECOND DIVISION
[G.R. No. 135362. December 13, 1999.]
HEIRS OF AUGUSTO L. SALAS, JR.,
namely: TERESITA D. SALAS for
herself and as legal guardian of
the minor FABRICE CYRILL D.
SALAS, MA. CRISTINA S. LESACA,
and KARINA TERESA D.
SALAS, petitioners, vs. LAPERAL
REALTY CORPORATION,
ROCKWAY REAL ESTATE
CORPORATION, SOUTH RIDGE
VILLAGE, INC., MAHARAMI
DEVELOPMENT CORPORATION,
Spouses THELMA D. ABRAJANO
and GREGORIO ABRAJANO,
OSCAR DACILLO, Spouses
VIRGINIA D. LAVA and RODEL
LAVA, EDUARDO A. VACUNA,
FLORANTE DE LA CRUZ, JESUS
VICENTE B. CAPELLAN, and the
REGISTER OF DEEDS FOR LIPA
CITY, respondents.
Corpus & Associates for petitioners.
Jesus Vicente V. Capellan for private respondents.
Horacio M. Pascual and Vicente P. Acsay for Maharami
Development Corp. and Florante de la Cruz.
Luis A. Ilagan, Jr. for Rockway Real Estate Corp. and South
Ridge Village Inc.
Santiago Cruz & Sarte Law Offices for Laperal Realty Corp.
Jano P. Liu Chaing for Abrajano, Spouses Lava and Dacillo.
SYNOPSIS
Petitioners filed a complaint for rescission of several sale
transactions involving land owned by Augusto L. Salas, Jr.,
their predecessor-in-interest, claiming they
suffered lesion of more than one-fourth (1/4) of the value
of Salas, Jr.'s land when respondent Laperal Realty
subdivided it and sold portions thereof to respondent lot
buyers. The trial court dismissed the case because they
failed to resort to arbitration which was required in the
original agreement entered into by and between Salas, Jr.
and Laperal Realty Corporation.
Petitioners, however, claimed that their causes of action
did not emanate from the original agreement, hence, their
failure to arbitrate should not be a ground for dismissal of
the case.
On appeal, the Supreme Court held that petitioners-heirs of
Salas, Jr., and Laperal Realty are certainly bound by the
arbitration provision unlike respondent lot buyers who are
neither parties to the Agreement nor the latter's assigns or
heirs. However, to hold trial in abeyance for respondent lot
buyers pending arbitration between petitioners and
Laperal Realty would result in multiplicity of suits.
The Supreme Court, therefore, granted the petition and
ordered the trial court to proceed with the hearing of the
suit for rescission.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
ARBITRATION AGREEMENTS; VALID, BINDING,
ENFORCEABLE AND NOT CONTRARY TO PUBLIC POLICY.
— In a catena of cases inspired by Justice Malcolm's
provocative dissent in Vega v. San Carlos Milling Co., this
Court has recognized arbitration agreements as valid,
binding, enforceable and not contrary to public policy so
much so that when there obtains a written provision for
arbitration which is not complied with, the trial court
should suspend the proceedings and order the parties to
proceed to arbitration in accordance with the terms of their
agreement. Arbitration is the "wave of the future" in
dispute resolution. To brush aside a contractual agreement
calling for arbitration in case of disagreement between
parties would be a step backward.
2. ID.; ID.; ID.; BINDS PARTIES THERETO AS WELL AS
THEIR ASSIGNS AND HEIRS; CASE AT BAR. — A
submission to arbitration is a contract. As such, the
Agreement, containing the stipulation on arbitration, binds
the parties thereto, as well as their assigns and heirs. But
only they. Petitioners, as heirs of Salas, Jr., and respondent
Laperal Realty are certainly bound by the Agreement. If
respondent Laperal Realty had assigned its rights under the
Agreement to a third party, making the former, the
assignor, and the latter, the assignee, such assignee would
also be bound by the arbitration provision since
assignment involves such transfer of rights as to vest in the
assignee the power to enforce them to the same extent as
the assignor could have enforced them against the debtor
or in this case, against the heirs of the original party to the
Agreement.
3. ID.; ID.; ID.; ID.; LOT BUYERS IN CASE AT BAR NOT
BOUND BY CONTRACT. — However, respondents Rockway
Real Estate Corporation, South Ridge Village, Inc.,
Maharami Development Corporation, spouses Abrajano,
spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la
Cruz and Jesus Vicente Capellan arenot assignees of the
rights of respondent Laperal Realty under the Agreement
to develop Salas, Jr.'s land and sell the same. They are,
rather, buyers of the land that respondent Laperal Realty
was given the authority to develop and sell under the
Agreement. As such, they are not "assigns" contemplated in
Art. 1311 of the New Civil Code which provides that
"contracts take effect only between the parties, their
assigns and heirs." For while rescission, as a general rule, is
an arbitrable issue, they impleaded in the suit for rescission
the respondent lot buyers who are neither parties to the
Agreement nor the latter's assigns or heirs. Consequently,
the right to arbitrate as provided in Article VI of the
Agreement was never vested in respondent lot buyers.
4. REMEDIAL LAW; ACTIONS; TRIAL COURT, IN INTEREST
OF JUSTICE, SHOULD ADJUDICATE ALL ISSUES RAISED IN
A SINGLE AND COMPLETE PROCEEDING. — Respondent
Laperal Realty, as a contracting party to the Agreement, has
the right to compel petitioners to first arbitrate before
seeking judicial relief. However, to split the proceedings
into arbitration for respondent Laperal Realty and trial for
the respondent lot buyers, or to hold trial in abeyance
pending arbitration between petitioners and respondent
Laperal Realty, would in effect result in multiplicity of suits,
duplicitous procedure and unnecessary delay. On the other
hand, it would be in the interest of justice if the trial court
hears the complaint against all herein respondents and
adjudicates petitioners' rights as against theirs in a single
and complete proceeding. DCASEc
DECISION
DE LEON, JR., J p:
Before us is a petition for review on certiorari of the
Order 1 of Branch 85 of the Regional Trial Court of Lipa
City 2 dismissing petitioners' complaint 3 for rescission of
several sale transactions involving land owned by Augusto
L. Salas, Jr., their predecessor-in-interest, on the ground
that they failed to first resort to arbitration.LexLib
Salas, Jr. was the registered owner of a vast tract of land in
Lipa City, Batangas spanning 1,484,354 square meters.
On May 15, 1987, he entered into an Owner-Contractor
Agreement 4 (hereinafter referred to as the Agreement)
with respondent Laperal Realty Corporation (hereinafter
referred to as Laperal Realty) to render and provide
complete (horizontal) construction services on his land.
On September 23, 1988, Salas, Jr. executed a Special Power
of Attorney in favor of respondent Laperal Realty to
exercise general control, supervision and management of
the sale of his land, for cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the morning for
a business trip to Nueva Ecija. He never returned.prcd
On August 6, 1996, Teresita Diaz Salas filed with the
Regional Trial Court of Makati City a verified petition for
the declaration of presumptive death of her husband, Salas,
Jr., who had then been missing for more than seven (7)
years. It was granted on December 12, 1996. 5
Meantime, respondent Laperal Realty subdivided the land
of Salas, Jr. and sold subdivided portions thereof to
respondents Rockway Real Estate Corporation and South
Ridge Village, Inc. on February 22, 1990; to respondent
spouses Abrajano and Lava and Oscar Dacillo on June 27,
1991; and to respondents Eduardo Vacuna, Florante de la
Cruz and Jesus Vicente Capalan on June 4, 1996 (all of heirs. 17 But only they. Petitioners, as heirs of Salas, Jr., and ASIDE. Said court is hereby ordered to proceed with the request for arbitration
whom are hereinafter referred to as respondent lot respondent Laperal Realty are certainly bound by the hearing of Civil Case No. 98-0047. dated 3 November 2000
buyers). Agreement. If respondent Laperal Realty had assigned its Costs against private respondents. prLL pursuant to the Turnkey
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in rights under the Agreement to a third party, making the SO ORDERED. Contract between LHC
the Regional Trial Court of Lipa City a Complaint6 for former, the assignor, and the latter, the assignee, such ||| (Heirs of Salas, Jr. v. Laperal Realty Corp., G.R. No. 135362, and TPI;
declaration of nullity of sale, reconveyance, cancellation of assignee would also be bound by the arbitration provision [December 13, 1999], 378 PHIL 369-376) 3. G.R. No. 146717, Transfield
contract, accounting and damages against herein since assignment involves such transfer of rights as to vest Philippines, Inc. v. Luzon
respondents which was docketed as Civil Case No. 98- in the assignee the power to enforce them to the same SPECIAL SECOND DIVISION Hydro Corporation,
0047. LLpr extent as the assignor could have enforced them against the [G.R. No. 146717. May 19, 2006.] Australia and New
On April 24, 1998, respondent Laperal Realty filed a Motion debtor 18 or in this case, against the heirs of the original TRANSFIELD PHILIPPINES, Zealand Banking Group
to Dismiss 7 on the ground that petitioners failed to submit party to the Agreement. However, respondents Rockway INC., petitioner, vs. LUZON HYDRO Limited and Security
their grievance to arbitration as required under Article VI Real Estate Corporation, South Ridge Village, Inc., CORPORATION, AUSTRALIA AND Bank Corp. filed on 5
of the Agreement which provides: Maharami Development Corporation, spouses Abrajano, NEW ZEALAND BANKING GROUP February 2001, which
"ARTICLE VI. ARBITRATION. spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la LIMITED and SECURITY BANK was an appeal
All cases of dispute between Cruz and Jesus Vicente Capellan are not assignees of the CORPORATION,respondents. by certiorari with prayer
CONTRACTOR and OWNER'S rights of respondent Laperal Realty under the Agreement RESOLUTION for TRO/preliminary
representative shall be referred to to develop Salas, Jr.'s land and sell the same. They are, TINGA, J p: prohibitory and
the committee represented by: rather, buyers of the land that respondent Laperal Realty The adjudication of this case proved to be a two-stage mandatory injunction, of
a. One representative of the was given the authority to develop and sell under the process as its constituent parts involve two segregate but the Court of Appeals
OWNER; Agreement. As such, they are not"assigns" contemplated equally important issues. The first stage relating to the Decision dated 31
b. One representative of the in Art. 1311 of the New Civil Code which provides that merits of the case, specifically the question of the propriety January 2001 in CA-G.R.
CONTRACTOR; "contracts take effect only between the parties, their of calling on the securities during the pendency of the SP No. 61901. AHEDaI
c. One representative acceptable to assigns and heirs". arbitral proceedings, was resolved in favor of Luzon Hydro a. CA-G.R. SP No. 61901
both OWNER and CONTRACTOR." 8 Corporation (LHC) with the Court's Decision 1 of 22 was a petition
On May 5, 1998, respondent spouses Abrajano and Lava Petitioners claim that they suffered lesion of more than November 2004. The second stage involving the issue of for review of
and respondent Dacillo filed a Joint Answer with one-fourth (1/4) of the value of Salas, Jr.'s land when forum-shopping on which the Court required the parties to the Decision in
Counterclaim and Crossclaim 9 praying for dismissal of respondent Laperal Realty subdivided it and sold portions submit their respective memoranda 2 is disposed of in this Civil Case No.
petitioners' Complaint for the same reason. thereof to respondent lot buyers. Thus, they instituted Resolution. 00-1312,
On August 9, 1998, the trial court issued the herein assailed action 19 against both respondent Laperal Realty and The disposal of the forum-shopping charge is crucial to the wherein TPI
Order dismissing petitioners' Complaint for non- respondent lot buyers for rescission of the sale parties to this case on account of its profound effect on the claimed that
compliance with the foregoing arbitration clause. transactions and reconveyance to them of the subdivided final outcome of the international arbitral proceedings LHC's call on
Hence this petition. prcd lots. They argue that rescission, being their cause of action, which they have chosen as their principal dispute the securities
Petitioners argue, thus: falls under the exception clause in Sec. 2 of Republic Act No. resolution mechanism. 3 was
"The petitioners' causes of action 876 which provides that "such submission [to] or contract LHC claims that Transfield Philippines, Inc. (TPI) is guilty of premature
did not emanate from the Owner- [of arbitration] shall be valid, enforceable and forum-shopping when it filed the following suits: considering
Contractor Agreement." irrevocable, save, upon such grounds as exist at law for 1. Civil Case No. 04-332 filed on 19 that the issue
"The petitioners' causes of action the revocation of any contract". March 2004, pending of default has
for cancellation of contract and The petitioners' contention is without merit. For while before the Regional Trial not yet been
accounting are covered by the rescission, as a general rule, is an arbitrable issue, 20they Court (RTC) of Makati, resolved with
exception under the Arbitration impleaded in the suit for rescission the respondent lot Branch 56 for finality; the
Law." buyers who are neither parties to the Agreement nor the confirmation, petition was
"Failure to arbitrate is not a ground latter's assigns or heirs. Consequently, the right to arbitrate recognition and however
for dismissal." 10 as provided in Article VI of the Agreement was never enforcement of the Third denied by the
In a catena of cases 11 inspired by Justice Malcolm's vested in respondent lot buyers. dctai Partial Award in case Court of
provocative dissent in Vega v. San Carlos Milling Co. 12 , Respondent Laperal Realty, as a contracting party to the 11264 TE/MW, ICC Appeals;
this Court has recognized arbitration agreements as valid, Agreement, has the right to compel petitioners to first International Court of b. Civil Case No. 00-1312
binding, enforceable and not contrary to public policy so arbitrate before seeking judicial relief. However, to split the Arbitration, was a
much so that when there obtains a written provision for proceedings into arbitration for respondent Laperal Realty entitled Transfield complaint for
arbitration which is not complied with, the trial court and trial for the respondent lot buyers, or to hold trial in Philippines, Inc. v.Luzon injunction
should suspend the proceedings and order the parties to abeyance pending arbitration between petitioners and Hydro Corporation. 4 with prayer
proceed to arbitration in accordance with the terms of their respondent Laperal Realty, would in effect result in 2. ICC Case No. for temporary
agreement. 13 Arbitration is the "wave of the future" in multiplicity of suits, duplicitous procedure and 11264/TE/MW, Transfiel restraining
dispute resolution. 14 To brush aside a contractual unnecessary delay. On the other hand, it would be in the d Philippines, order and/or
agreement calling for arbitration in case of disagreement interest of justice if the trial court hears the complaint Inc. v. Luzon Hydro writ of
between parties would be a step backward. 15 against all herein respondents and adjudicates petitioners' Corporation filed before preliminary
Nonetheless, we grant the petition. LexLib rights as against theirs in a single and complete proceeding. the International Court injunction
A submission to arbitration is a contract. 16 As such, the WHEREFORE, the instant petition is hereby GRANTED. The of Arbitration, dated 5
Agreement, containing the stipulation on arbitration, binds Order dated August 19, 1998 of Branch 85 of the Regional International Chamber of November
the parties thereto, as well as their assigns and Trial Court of Lipa City is hereby NULLIFIED and SET Commerce (ICC) a 2000, which
 sought to
restrain LHC
from calling
on the
securities and
respondent
banks from
transferring
or paying of
the securities;
the complaint
was denied by
the RTC.
On the other hand, TPI claims that it is LHC which is guilty
of forum-shopping when it raised the issue of forum-
shopping not only in this case, but also in Civil Case No. 04-
332, and even asked for the dismissal of the other case
based on this ground. Moreover, TPI argues that LHC is
relitigating in Civil Case No. 04-332 the very same causes of
action in ICC Case No. 11264/TE/MW, and even
manifesting therein that it will present evidence earlier
presented before the arbitral tribunal. 5
Meanwhile, ANZ Bank and Security Bank moved to be
excused from filing a memorandum. They claim that with
the finality of the Court's Decision dated 22 November
2004, any resolution by the Court on the issue of forum-
shopping will not materially affect their role as the banking
entities involved are concerned. 6 The Court granted their
respective motions.
On 1 August 2005, TPI moved to set the case for oral
argument, positing that the resolution of the Court on the
issue of forum-shopping may have significant implications
on the interpretation of the Alternative Dispute Resolution
Act of 2004, as well as the viability of international
commercial arbitration as an alternative mode of dispute
resolution in the country. 7 Said motion was opposed by
LHC in its opposition filed on 2 September 2005, with LHC
arguing that the respective memoranda of the parties are
sufficient for the Court to resolve the issue of forum-
shopping. 8 On 28 October 2005, TPI filed its Manifestation
and Reiterative Motion 9 to set the case for oral argument,
where it manifested that the International Chamber of
Commerce (ICC) arbitral tribunal had issued its Final
Award ordering LHC to pay TPI US$24,533,730.00
(including the US$17,977,815.00 proceeds of the two
standby letters of credit). TPI also submitted a copy thereof
with a Supplemental Petition 10 to the Regional Trial Court
(RTC), seeking recognition and enforcement of the said
award. 11
The essence of forum-shopping is the filing of multiple suits
involving the same parties for the same cause of action,
either simultaneously or successively, for the purpose of
obtaining a favorable judgment. 12 Forum-shopping has
likewise been defined as the act of a party against whom an
adverse judgment has been rendered in one forum, seeking
and possibly getting a favorable opinion in another forum,
other than by appeal or the special civil action of certiorari,
or the institution of two or more actions or proceedings
grounded on the same cause on the supposition that one or
the other court would make a favorable disposition. 13
Thus, for forum-shopping to exist, there must be (a)
identity of parties, or at least such parties as represent the
same interests in both actions; (b) identity of rights
asserted and relief prayed for, the relief being founded on
the same facts; and (c) the identity of the two preceding
particulars is such that any judgment rendered in the other
action will, regardless of which party is successful, amount
to res judicata in the action under consideration. 14
There is no identity of causes of action between and among
the arbitration case, the instant petition, and Civil Case No.
04-332.
The arbitration case, ICC Case No. 11264 TE/MW, is an
arbitral proceeding commenced pursuant to the Turnkey
Contract between TPI and LHC, to determine the primary
issue of whether the delays in the construction of the
project were excused delays, which would consequently
render valid TPI's claims for extension of time to finish the
project. Together with the primary issue to be settled in the
arbitration case is the equally important question of
monetary awards to the aggrieved party. DHaEAS
On the other hand, Civil Case No. 00-1312, the precursor of
the instant petition, was filed to enjoin LHC from calling on
the securities and respondent banks from transferring or
paying the securities in case LHC calls on them. However, in
view of the fact that LHC collected the proceeds, TPI, in its
appeal and petition for review asked that the same be
returned and placed in escrow pending the resolution of
the disputes before the ICC arbitral tribunal. 15
While the ICC case thus calls for a thorough review of the
facts which led to the delay in the construction of the
project, as well as the attendant responsibilities of the
parties therein, in contrast, the present petition puts in
issue the propriety of drawing on the letters of credit
during the pendency of the arbitral case, and of course,
absent a final determination by the ICC Arbitral tribunal.
Moreover, as pointed out by TPI, it did not pray for the
return of the proceeds of the letters of credit. What it asked
instead is that the said moneys be placed in escrow until
the final resolution of the arbitral case. Meanwhile, in Civil
Case No. 04-332, TPI no longer seeks the issuance of a
provisional relief, but rather the issuance of a writ of
execution to enforce the Third Partial Award.
Neither is there an identity of parties between and among
the three (3) cases. The ICC case only involves TPI and LHC
logically since they are the parties to the Turnkey Contract.
In comparison, the instant petition includes Security Bank
and ANZ Bank, the banks sought to be enjoined from
releasing the funds of the letters of credit. The Court agrees
with TPI that it would be ineffectual to ask the ICC to issue
writs of preliminary injunction against Security Bank and
ANZ Bank since these banks are not parties to the
arbitration case, and that the ICC Arbitral tribunal would
not even be able to compel LHC to obey any writ of
preliminary injunction issued from its end. 16 Civil Case
No. 04-322, on the other hand, logically involves TPI and
LHC only, they being the parties to the arbitration
agreement whose partial award is sought to be
enforced. ACDTcE
As a fundamental point, the pendency of arbitral
proceedings does not foreclose resort to the courts for
provisional reliefs. The Rules of the ICC, which governs the
parties' arbitral dispute, allows the application of a party to
a judicial authority for interim or conservatory
measures. 17 Likewise, Section 14 of Republic Act (R.A.)
No. 876 (The Arbitration Law) 18 recognizes the rights of
any party to petition the court to take measures to
safeguard and/or conserve any matter which is the subject
of the dispute in arbitration. In addition, R.A. 9285,
otherwise known as the "Alternative Dispute Resolution
Act of 2004," allows the filing of provisional or interim
measures with the regular courts whenever the arbitral
tribunal has no power to act or to act effectively. 19
TPI's verified petition in Civil Case No. 04-332, filed on 19
March 2004, was captioned as one "For: Confirmation,
Recognition and Enforcement of Foreign Arbitral Award in
Case 11264 TE/MW, ICC International Court of Arbitration,
'Transfield Philippines, Inc. v. Luzon Hydro
Corporation (Place of arbitration: Singapore)." 20 In the
said petition, TPI prayed:
1. That the THIRD PARTIAL
AWARD dated February 18, 2004 in
Case No. 11264/TE/MW made by
the ICC International Court of
Arbitration, the signed original
copy of which is hereto attached as
Annex "H" hereof, be confirmed,
recognized and enforced in
accordance with law.
2. That the corresponding writ of
execution to enforce Question 31 of
the said Third Partial Award, be
issued, also in accordance with law.
3. That TPI be granted such other
relief as may be deemed just and
equitable, and allowed, in
accordance with law. 21
The pertinent portion of the Third Partial Award 22 relied
upon by TPI were the answers to Questions 10 to 26, to wit:
"Question 30
Did TPI [LHC] wrongfully draw
upon the security?
Yes
"Question 31
Is TPI entitled to have returned to
it any sum wrongfully
taken by LHC for
liquidated damages?
Yes
"Question 32
Is TPI entitled to any acceleration
costs? TPI is entitled to
the reasonable costs TPI
incurred after Typhoon
Zeb as a result of LHC's 5
February 1999 Notice to
Correct. 23
According to LHC, the filing of the above case constitutes
forum-shopping since it is the same claim for the return of
US$17.9 Million which TPI made before the ICC Arbitral
Tribunal and before this Court. LHC adds that while Civil
Case No. 04-332 is styled as an action for money, the Third
Partial Award used as basis of the suit does not authorize
TPI to seek a writ of execution for the sums drawn on the
letters of credit. Said award does not even contain an order
for the payment of money, but instead has reserved the
quantification of the amounts for a subsequent
determination, LHC argues. In fact, even the Fifth Partial
Award, 24 dated 30 March 2005, does not contain such
orders. LHC insists that the declarations or the partial
awards issued by the ICC Arbitral Tribunal do not
constitute orders for the payment of money and are not
intended to be enforceable as such, but merely constitute
amounts which will be included in the Final Award and will
be taken into account in determining the actual amount
payable to the prevailing party. 25
R.A. No. 9825 provides that international commercial
arbitrations shall be governed shall be governed by the
Model Law on International Commercial Arbitration
("Model Law") adopted by the United Nations Commission
on International Trade Law (UNCITRAL). 26 The
UNCITRAL Model Law provides:
ARTICLE 35. Recognition and
enforcement
(1) An arbitral award, irrespective
of the country in which it was
made, shall be recognized as
binding and, upon application in
writing to the competent court,
shall be enforced subject to the
provisions of this article and of
article 36. ADHcTE
(2) The party relying on an award
or applying for its enforcement
shall supply the duly authenticated
original award or a duly certified
copy thereof, and the original
arbitration agreement referred to
in article 7 or a duly certified copy
thereof. If the award or agreement
is not made in an official language
of this State, the party shall supply
a duly certified translation thereof
into such language.
Moreover, the New York Convention, 27 to which the
Philippines is a signatory, governs the recognition and
enforcement of foreign arbitral awards. The applicability of
the New York Convention in the Philippines was confirmed
in Section 42 of R.A. 9285. Said law also provides that the
application for the recognition and enforcement of such
awards shall be filed with the proper RTC. While TPI's
resort to the RTC for recognition and enforcement of the
Third Partial Award is sanctioned by both the New York
Convention and R.A. 9285, its application for enforcement,
however, was premature, to say the least. True, the ICC
Arbitral Tribunal had indeed ruled that LHC wrongfully
drew upon the securities, yet there is no order for the
payment or return of the proceeds of the said securities. In
fact, Paragraph 2142, which is the final paragraph of the
Third Partial Award, reads:
2142. All other issues, including
any issues as to quantum and costs,
are reserved to a future award. 28
Meanwhile, the tribunal issued its Fifth Partial
Award 29 on 30 March 2005. It contains, among others, a
declaration that while LHC wrongfully drew on the
securities, the drawing was made in good faith, under the
mistaken assumption that the contractor, TPI, was in
default. Thus, the tribunal ruled that while the amount
drawn must be returned, TPI is not entitled to any damages
or interests due to LHC's drawing on the securities. 30 In
the Fifth Partial Award, the tribunal ordered:
6. Order
6.1 General
166. This Fifth Partial Award deals
with many issues of
quantum. However, it
does not resolve them
all. The outstanding
quantum issues will be
determined in a future
award. It will contain a
reconciliation of the
amounts awarded to
each party and a
determination of the net
amount payable to
Claimant or Respondent,
as the case may be.
167. In view of this the Tribunal
will make no orders for
payment in this Fifth
Partial Award. The
Tribunal will make a
number of declarations
concerning the quantum
issues it has resolved in
this Award together with
the outstanding liability
issues. The declarations
do not constitute
orders for the payment
of money and are not
intended to be
enforceable as such.
They merely constitute
amounts which will be
included in the Final
Award and will be
taken into account in
determining the actual
amount
payable. 31 (Emphasis
Supplied.)
Further, in the Declarations part of the award, the tribunal
held:
6.2 Declarations
168. The Tribunal makes the
following declarations:
xxx xxx xxx
3. LHC is liable to repay TPI the face
value of the securities drawn
claimed by TPI in respect of the
drawdown of the
securities. EIDTAa
xxx xxx xxx. 32
Finally, on 9 August 2005, the ICC Arbitral tribunal issued
its Final Award, in essence awarding US$24,533,730.00,
which included TPI's claim of U$17,977,815.00 for the
return of the securities from LHC. 33
The fact that the ICC Arbitral tribunal included the
proceeds of the securities shows that it intended to make a
final determination/award as to the said issue only in the
Final Award and not in the previous partial awards. This
supports LHC's position that when the Third Partial Award
was released and Civil Case No. 04-332 was filed, TPI was
not yet authorized to seek the issuance of a writ of
execution since the quantification of the amounts due to
TPI had not yet been settled by the ICC Arbitral tribunal.
Notwithstanding the fact that the amount of proceeds
drawn on the securities was not disputed the application
for the enforcement of the Third Partial Award was
precipitately filed. To repeat, the declarations made in the
Third Partial Award do not constitute orders for the
payment of money.
Anent the claim of TPI that it was LHC which committed
forum-shopping, suffice it to say that its bare allegations
are not sufficient to sustain the charge.
WHEREFORE, the Court RESOLVES to DISMISS the charges
of forum-shopping filed by both parties against each other.
No pronouncement as to costs.
SO ORDERED.
||| (Transfield Phil., Inc. v. Luzon Hydro Corp., G.R. No.
146717, [May 19, 2006], 523 PHIL 374-390)
SECOND DIVISION
[G.R. No. 182248. December 18, 2008.]
EQUITABLE PCI BANKING CORPO
RATION, 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 CAPI throughout the period indicated
TALCORPORATION, respondent. and:
DECISION i) the balance sheet of
VELASCO, JR., J p: Bankard as of 31
The Case December 1999, as
This Petition for Review on Certiorari under Rule 45 seeks prepared and certified
the reversal of the January 8, 2008 2 and March 17, by SGV & Co. ("SGV"),
2008 3 Orders of the Regional Trial Court (RTC), Branch and the unaudited
148 in Makati City in SP Proc. Case No. 6046, entitledIn the balance sheet for the
Matter of ICC Arbitration Ref. No. 13290/MS/JB/JEM first quarter ended 31
Between RCBC Capital Corporation, (Claimant), March 2000, present a
andEquitable PCI Banking Corporation, Inc. et al., fair and accurate
(Respondents). The assailed January 8, 2008 Order statement as of those
confirmed the Partial Award dated September 27, dates, of Bankard's
2007 4 rendered by the International Chamber of financial condition and
Commerce-International Court of Arbitration (ICC-ICA) in of all its assets and
Case No. 13290/MS/JB/JEM, liabilities, and is
entitled RCBC Capital Corporation(Philippines) v. Equitable complete in all material
PCI Bank, Inc. & Others (Philippines). The March 17, 2008 respects; and
Order denied petitioners' motion for reconsideration of the ii) the statements of
January 8, 2008 Order. cADEHI Bankard's profit and loss
The Facts accounts for the fiscal
On May 24, 2000, petitioners Equitable PCI Bank, Inc. years 1996 to 1999, as
(EPCIB) and the individual shareholders of Bankard, Inc., as prepared and certified
sellers, and respondent RCBC Capital Corporation (RCBC), by SGV, and the
as buyer, executed a Share Purchase Agreement 5 (SPA) for unaudited profit and loss
the purchase of petitioners' interests in Bankard, accounts for the first
representing 226,460,000 shares, for the price of quarter ended 31 March
PhP1,786,769,400. To expedite the purchase, RCBC agreed 2000, fairly and
to dispense with the conduct of a due diligence audit on the accurately present the
financial status of Bankard. results of the operations
Under the SPA, RCBC undertakes, on the date of contract of Bankard for the
execution, to deposit, as downpayment, 20% of the periods indicated, and
purchase price, or PhP357,353,880, in an escrow account. are complete in all
The escrowed amount, the SPA stated, should be released material respects.
to petitioners on an agreed-upon release date and the h. Except as disclosed in the
balance of the purchase price shall be delivered to the Disclosures, and except to the
share buyers upon the fulfillment of certain conditions extent set forth or reserved in the
agreed upon, in the form of a manager's check. audited financial statements of
The other relevant provisions of the SPA are: Bankard as of 31 December 1999
Section 5. Sellers' Representations and its unaudited financial
and Warranties. — statements as of 31 March 2000,
The SELLERS jointly and severally Bankard, as of such dates and up to
represent and warrant to the 31 May 2000, had and shall have no
BUYER that: liabilities, omissions or mistakes in
xxx xxx xxx its records which will have material
The Financial Condition of Bankard adverse effect on the net worth or
g. The audited financial statements financial condition of Bankard to
of Bankard for the three (3) fiscal the extent of more than One
years ended December 31, 1997, Hundred Million Pesos
1998 and 1999, and the unaudited (P100,000,000.00) in the aggregate.
financial statements for the first In the event such material adverse
quarter ended 31 March 2000, are effect on the net worth or financial
fair and accurate, and complete in condition of Bankard exceeds One
all material respects, and have been Hundred Million Pesos
prepared in accordance with (P100,000,000.00), the Purchase
generally accepted accounting Price shall be reduced in
principles consistently followed 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
xxx xxx xxx
Section 7. Remedies for Breach of
Warranties. —
a. If any of the representations and
warranties of any or all of the
SELLERS or the BUYER (the
"Defaulting Party") contained in
Sections 5 and 6 shall be found to
be untrue when made and/or as of
the Closing Date, the other
party, i.e., the BUYER if the
Defaulting Party is any or all of the
SELLERS and the SELLERS if the
Defaulting Party is the BUYER
(hereinafter referred to as the
"Non-Defaulting Party") shall have
the right to require the Defaulting
Party, at the latter's expense, to
cure such breach, and/or seek
damages, by providing notice or
presenting a claim to the Defaulting
Party, reasonably specifying
therein the particulars of the
breach. The foregoing remedies
shall be available to the Non-
Defaulting Party only if the demand
therefor is presented in writing to
the Defaulting Party within three
(3) years from the Closing Date
except that the remedy for a breach
of the SELLERS' representation and
warrant in Section 5 (h) shall be
available only if the demand
therefor is presented to the
Defaulting Party in writing together
with schedules and to substantiate
such demand, within six (6) months
from the Closing Date. 6 CIaHDc
On June 2, 2000, RCBC deposited the stipulated
downpayment amount in an escrow account after which it
was given full management and operational control of
Bankard. June 2, 2000 is also considered by the parties as
the Closing Date referred to in the SPA.
Thereafter, the parties executed an Amendment to Share
Purchase Agreement (ASPA) dated September 19,
2000. 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 entitled to rescission having had ample opportunity and (e) The Claimant is not entitled to
Parties hereby agree that: reasonable time to file a claim against petitioners; RCBC is rescission of the SPA.
xxx xxx xxx not entitled to its alternative prayer of damages, being (f) All other issues, including any
e) Notwithstanding the provisions guilty of laches and failing to set out the details of the issue relating to costs, will be dealt
of Sec. 7 of the Share Purchase breach as required under Sec. 7. with in a further or final award.
Agreement to the contrary, the Arbitration in the ICC-ICA proceeded after the formation of 15.2 A further Procedural Order
remedy for a breach of the the arbitration tribunal consisting of retired Justice will be necessary subsequent to the
SELLERS' representation and Santiago M. Kapunan, nominated by petitioners; Neil delivery of this Partial Award to
warranty in Section 5 (h) of the Kaplan, RCBC's nominee; and Sir Ian Barker, appointed by deal with the determination of
Share Purchase Agreement shall be the ICC-ICA. quantum and in particular, whether
available if the demand therefor After drawn out proceedings with each party alleging there should be an Expert
is presented to the SELLERS in deviation and non-compliance by the other with arbitration appointed by the Tribunal under
writing together with schedules rules, the tribunal, with Justice Kapunan dissenting, Article 20(4) of the ICC Rules to
and data to substantiate such rendered a Partial Award dated September 27, assist the Tribunal in this regard.
demand, on or before 31 2007, 10 the dispositive portion of which states: 15.3 This Award is delivered by a
December 2000. (Emphasis 15 AWARD AND DIRECTIONS majority of the Tribunal (Sir Ian
added.) 15.1 The Tribunal makes the Barker and Mr. Kaplan). Justice
Sometime in September 2000, RCBC had Bankard's following declarations by way of Kapunan is unable to agree with
accounts audited, creating for the purpose an audit team Partial Award: the majority's conclusion on the
led by a certain Rubio, the Vice-President for Finance claim of estoppel brought by the
of RCBC at the time. Rubio's conclusion was that the (a) The Claimant's claim is not respondents.
warranty, as contained in Section 5 (h) of the SPA (simply time-barred under the provisions On the matter of prescription, the tribunal held
Sec. 5 [h] hereinafter), was correct. of this SPA. that RCBC's claim is not time-barred, the claim properly
On December 28, 2000, RCBC paid the balance of the (b) The Claimant is not estopped by falling under the contemplation of Sec. 5 (g) and not Sec. 5
contract price. The corresponding deeds of sale for the its conduct or (h). As such, the tribunal concluded, RCBC's claim was filed
shares in question were executed in January 2001. the equitable doctrine of laches within the three (3)-year period under Sec. 5 (g) and that
Thereafter, in a letter of May 5, 2003, RCBC informed from pursuing its claim. the six (6)-month period under Sec. 5 (h) did not apply.
petitioners of its having overpaid the purchase price of the (c) As detailed in the Partial Award, The tribunal also exonerated RCBC from laches, the latter
subject shares, claiming that there was an overstatement of the Claimant has established the having sought relief within the three (3)-year period
valuation of accounts amounting to PhP478 million, following breaches by the prescribed in the SPA. On the matter of estoppel suggested
resulting in the overpayment of over PhP616 million. Respondents of clause 5(g) of the in petitioners' answer, the tribunal stated in par. 10.27 of
Thus, RCBC claimed that petitioners violated their SPA: the Partial Award the following:
warranty, as sellers, embodied in Sec. 5 (g) of the SPA (Sec. i) the assets, revenue and 10.27 Clearly, there has to be both
5 [g] hereinafter). net worth of Bankard an admission or representation by
Following unsuccessful attempts at settlement, RCBC, in were overstated by (in this case) the Claimant [RCBC],
accordance with Sec. 10 of the SPA, filed a Request for reason of its policy on plus reliance upon it by (in this
Arbitration dated May 12, 2004 8 with the ICC-ICA. In the and recognition of Late case) the Respondents [herein
request, RCBC charged Bankard with deviating from, Payment Fees; petitioners]. The Tribunal cannot
contravening and not following generally accepted ii) reported receivables find as proved any
accounting principles and practices in maintaining their were higher than their admission/representation that the
books. Due to these improper accounting realizable values by Claimant was abandoning a 5(g)
practices, RCBC alleged that both the audited and reason of the 'bucketing' claim, any reliance by the
unaudited financial statements of Bankard prior to the method, thus overstating Respondents on an admission, and
stock purchase were far from fair and accurate and, hence, Bankard's assets; any detriment to the Respondents
violated the representations and warranties of petitioners and EaISTD such as would entitle them to have
in the SPA. Per RCBC, its overpayment amounted to PhP556 iii) the relevant Bankard the Claimant deprived of the
million. It thus prayed for the rescission of the SPA, statements were benefit of clause 5(g). These
restitution of the purchase price, payment of actual inadequate and aspects of the claim for estoppels
damages in the amount of PhP573,132,110, legal interest misleading in that their are rejected. 11
on the purchase price until actual restitution, moral disclosures caused Notably, the tribunal considered the rescission of the SPA
damages, and litigation and attorney's fees. As alternative readers to be and ASPA as impracticable and "totally out of the
to rescission and restitution,RCBC prayed for damages in misinformed about question". 12
the amount of at least PhP809,796,092 plus legal Bankard's accounting In his Dissenting Opinion 13 which he submitted to and
interest. DcCEHI policies on revenue and which was received on September 24, 2007 by the ICC-ICA,
To the Request for Arbitration, petitioners filed an Answer receivables. Justice Kapunan stated the observation that RCBC's claim is
dated July 28, 2004, 9 denying RCBC's inculpatory (d) Subject to proof of loss the time-barred, falling as such claim did under Sec. 5 (h),
averments and setting up the following affirmative Claimant is entitled to damages for which prescribes a comparatively shorter prescriptive
allegations: the period for filing of the asserted claim had the foregoing breaches. period, not 5 (g) as held by the majority of the tribunal, to
already lapsed by force of Sec. 7 of the SPA; RCBC is not wit:
 Claimant admits that the Claim is
for recovery of P431 million on
account of alleged "overvaluation of
the net worth of Bankard",
allegedly for "improper accounting
practices" resulting in "its book
value per share as of 31 December
1999 [being] overstated."
Claimant's witness, Dean Echanis
asserts that "the inadequate
provisioning for Bankard's doubtful
accounts result[ed] in an
overstatement of its December 31,
1999 total assets and net worth of
by [sic] least P418.2 million."
In addition, Claimant's demand
letter addressed to the
Respondents alleged that "we
overpaid for the Shares to the
extent of the impact of the said
overstatement on the Book Value
per share".
These circumstances establish
beyond dispute that the Claim is
based on the alleged overstatement
of the 1999 net worth of Bankard,
which the parties relied on in
setting the purchase price of the
shares. Moreover, it is clear that
there was an overstatement
because of "improper accounting
practices" which led Claimant to
overpay for the shares. cdasia
Ultimately, the Claim is one for
recovery of overpayment in the
purchase price of the shares. . . .
As to the issue of estoppel, Justice Kapunan stated:
Moreover, Mr. Rubio's findings
merely corroborated the
disclosures made in the
Information Memorandum that
Claimant received from the
Respondents prior to the execution
of the SPA. In this connection, I note
that Bankard's policy on
provisioning and setting of
allowances using the Bucketed
Method and income recognition
from AR/Principal, AR/Interest and
AR/LPFs were disclosed in the
Information Memorandum. Thus,
these alleged improper accounting
practices were known to the
Claimant even prior to the
execution of the SPA.
Thus, when Claimant paid the
balance of the purchase price, it did
so with full knowledge of these
accounting practices of Bankard
that it now assails. By paying the This petition seeks the review,
balance of the purchase price reversal and setting aside of the
without taking exception or orders Annexes A and B and, in lieu
objecting to the accounting of them, it seeks judgment vacating
practices disclosed through Mr. the arbitrators' liability award,
Rubio's review and the Information Annex C, on these grounds:
Memorandum, Claimant is deemed (a) The trial court acted
to have accepted such practices as contrary to law and
correctly reporting the 1999 net judicial authority in
worth. . . . refusing to vacate the
xxx xxx xxx arbitral award,
As last point, I note that my notwithstanding it was
colleagues invoke a principle that rendered in plain
for estoppels to apply there must disregard of the parties'
be positive indication that the right contract and applicable
to sue was waived. I am of the view Philippine law, under
that there is no such principle which the claim in
under Philippine law. What is arbitration was
applicable is the holding in Knecht indubitably time-
and in Coca-Cola that prior barred. aSCHcA
knowledge of an unfavorable fact is (b) The trial court acted
binding on the party who has such contrary to law and
knowledge; "when the purchaser judicial authority in
proceeds to make investigations by refusing to vacate and in
himself, and the vendor does confirming the arbitral
nothing to prevent such award, notwithstanding
investigation from being as that the arbitrators had
complete as the former might wish, plainly and admittedly
the purchaser cannot later allege failed to accord
that the vendor made false petitioners' due process
representations to him" (Cf. by denying them a
Songco v. Sellner, 37 Phil. 254 hearing on the basic
citations omitted). factual matter upon
Applied to this case, the Claimant which their liability is
cannot seek relief on the basis that predicated.
when it paid the purchase price in (c) The trial court
December 2000, it was unaware committed grave error in
that the accounting practices that confirming the
went into the reporting of the 1999 arbitrators' award,
net worth as amounting to which held petitioners-
P1,387,275,847 were not in sellers liable for an
conformity with GAAP [generally alleged improper
accepted accounting principles]. recording of accounts,
(Emphasis added.) allegedly affecting the
On October 26, 2007, RCBC filed with the RTC a Motion to value of the shares they
Confirm Partial Award. On the same day, petitioners sold, notwithstanding
countered with a Motion to Vacate the Partial Award. On that the respondent-
November 9, 2007, petitioners again filed a Motion to buyer knew before
Suspend and Inhibit Barker and Kaplan. contracting that the
On January 8, 2008, the RTC issued the first assailed order accounts were kept in
confirming the Partial Award and denying the adverted the manner complained
separate motions to vacate and to suspend and inhibit. of, and in fact ratified
From this order, petitioners sought reconsideration, but and adopted the
their motion was denied by the RTC in the equally assailed questioned accounting
second order of March 17, 2008. practice and policies. 14
From the assailed orders, petitioners came directly to this The Court's Ruling
Court through this petition for review. The petition must be denied.
The Issues On Procedural Misstep of Direct Appeal to This
Court
As earlier recited, the ICC-ICA's Partial Award dated
September 27, 2007 was confirmed by the RTC in its first
assailed order of January 8, 2008. Thereafter, the RTC, by
order of March 17, 2008, denied petitioners' motion for
reconsideration. Therefrom, petitioners came directly to
this Court on a petition for review under Rule 45 of the
Rules of Court.
This is a procedural miscue for petitioners who
erroneously bypassed the Court of Appeals (CA) in pursuit
of its appeal. While this procedural gaffe has not been
raised by RCBC, still we would be remiss in not pointing out
the proper mode of appeal from a decision of the RTC
confirming, vacating, setting aside, modifying, or correcting
an arbitral award.
Rule 45 is not the remedy available to petitioners as the
proper mode of appeal assailing the decision of the RTC
confirming as arbitral award is an appeal before the CA
pursuant to Sec. 46 of Republic Act No. (RA) 9285,
otherwise known as the Alternative Dispute Resolution Act
of 2004, or completely, An Act to Institutionalize the Use of
an Alternative Dispute Resolution System in the Philippines
and to Establish the Office for Alternative Dispute Resolution,
and for other Purposes, promulgated on April 2, 2004 and
became effective on April 28, 2004 after its publication on
April 13, 2004.
In Korea Technologies Co., Ltd. v. Lerma, we explained, inter
alia, that the RTC decision of an assailed arbitral award is
appealable to the CA and may further be appealed to this
Court, thus:
Sec. 46 of RA 9285 provides for an
appeal before the CA as the remedy
of an aggrieved party in cases
where the RTC sets aside, rejects,
vacates, modifies, or corrects an
arbitral award, thus:
SEC. 46. Appeal from Court Decision
or Arbitral Awards. — A decision of
the Regional Trial Court confirming,
vacating, setting aside, modifying or
correcting an arbitral award may
be appealed to the Court of
Appeals in accordance with the
rules and procedure to be
promulgated by the Supreme Court.
The losing party who appeals from
the judgment of the court
confirming an arbitral award shall
be required by the appellate court
to post a counterbond executed in
favor of the prevailing party equal
to the amount of the award in
accordance with the rules to be
promulgated by the Supreme Court.
Thereafter, the CA decision may
further be appealed or reviewed
before this Court through a petition
for review under Rule 45 of the
Rules of Court. 15
It is clear from the factual antecedents that RA 9285 applies conformity thereto. Thus, Sections must clearly and unequivocally violate an established legal quarter ended
to the instant case. This law was already effective at the 24 and 25 of the Arbitration precedent. Anything less would not suffice. 31 March
time the arbitral proceedings were commenced Lawprovide grounds for vacating, In the present case, petitioners, in a bid to establish that the 2000,present
by RCBC through a request for arbitration filed before the rescinding or modifying an arbitral award was issued in manifest disregard of the law, a fair and
ICC-ICA on May 12, 2004. Besides, the assailed arbitration award. Where the allege that the Partial Award violated the principles of accurate
confirmation order of the RTC was issued on March 17, conditions described in Articles prescription, due process, and estoppel. A review of statement as
2008. Thus, petitioners clearly took the wrong mode of 2038, 2039 and 2040 of the Civil petitioners' arguments would, however, show that their of those
appeal and the instant petition can be outright rejected and Code applicable to compromises arguments are bereft of merit. Thus, the Partial Award dates, of
dismissed. HDIaET and arbitration are attendant, the dated September 27, 2007 cannot be vacated. Bankard's
Even if we entertain the petition, the outcome will be the arbitration award may also be RCBC's Claim Is Not Time-Barred financial
same. annulled. Petitioners argue that RCBC's claim under Sec. 5 (g) is condition
The Court Will Not Overturn an Arbitral Award xxx xxx xxx based on overvaluation of Bankard's revenues, assets, and and of all its
Unless it Was Made in Manifest Disregard of the Finally, it should be stressed that net worth, hence, for price reduction falling under Sec. 5 assets and
Law while a court is precluded from (h), in which case it was belatedly filed, forRCBC presented liabilities,
In Asset Privatization Trust v. Court of Appeals, 16 the Court overturning an award for errors in the claim to petitioners on May 5, 2003, when the period and is
passed on similar issues as the ones tendered in the instant determination of factual issues, for presenting it under Sec. 5 (h) expired on December 31, complete in
petition. In that case, the arbitration committee issued an nevertheless, if an examination of 2000. As a counterpoint, RCBC asserts that its claim clearly all material
arbitral award which the trial court, upon due proceedings, the record reveals no support comes under Sec. 5 (g) in relation to Sec. 7 which thus gave respects; and
confirmed despite the opposition of the losing party. whatever for the arbitrators' it three (3) years from the closing date of June 2, 2000, or ii) the statements of
Motions for reconsideration by the losing party were determinations, their award must until June 1, 2003, within which to make its Bankard's
denied. An appeal interposed by the losing party to the CA be vacated. In the same manner, an claim. RCBC contends having acted within the required profit and
was denied due course. On appeal to this Court, we award must be vacated if it was period, having presented its claim-demand on May 5, loss accounts
established the parameters by which an arbitral award may made in "manifest disregard of 2003. TcIAHS for the fiscal
be set aside, to wit: the law." 17 (Emphasis To make clear the issue at hand, we highlight the pertinent years 1996 to
As a rule, the award of an supplied.)cADEHI portions of Secs. 5 (g), 5 (h), and 7 bearing on what 1999, as
arbitrator cannot be set aside for Following Asset Privatization Trust, errors in law and fact petitioners warranted relative to the financial condition of prepared and
mere errors of judgment either would not generally justify the reversal of an arbitral Bankard and the remedies available to RCBCin case of certified by
as to the law or as to the facts. award. A party asking for the vacation of an arbitral award breach of warranty: SGV, and the
Courts are without power to must show that any of the grounds for vacating, rescinding, g. The audited financial unaudited
amend or overrule merely or modifying an award are present or that the arbitral statements of Bankard profit and
because of disagreement with award was made in manifest disregard of the law. for the three (3) fiscal loss accounts
matters of law or facts Otherwise, the Court is duty-bound to uphold an arbitral years ended December for the first
determined by the arbitrators. award. 31, 1997, 1998 and quarter
They will not review the findings The instant petition dwells on the alleged manifest 1999, and the ended 31
of law and fact contained in an disregard of the law by the ICC-ICA. unaudited financial March 2000,
award, and will not undertake to The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. statements for the first fairly and
substitute their judgment for Jaros 18 expounded on the phrase "manifest disregard of quarter ended 31 accurately
that of the arbitrators, since any the law" in the following wise: March 2000, are fair present the
other rule would make an award This court has emphasized that and accurate, and results of the
the commencement, not the end, manifest disregard of the law is a complete in all operations of
of litigation. Errors of law and very narrow standard of material respects, and Bankard for
fact, or an erroneous decision of review.Anaconda Co. v. District have been prepared in the periods
matters submitted to the Lodge No. 27, 693 F.2d 35 (6th Cir. accordance with indicated,
judgment of the arbitrators, are 1982). A mere error in generally accepted and are
insufficient to invalidate an interpretation or application of the accounting complete in
award fairly and honestly made. law is insufficient. Anaconda, 693 principlesconsistently all material
Judicial review of an arbitration F.2d at 37-38. Rather, the decision followed throughout the respects.
is, thus, more limited than must fly in the face of clearly period indicated and: h. Except as disclosed in the
judicial review of a trial. established legal precedent. When i) the balance sheet of Disclosures, and except
Nonetheless, the arbitrators' faced with questions of law, an Bankard as of to the extent set forth or
awards is not absolute and without arbitration panel does not act in 31 December reserved in the audited
exceptions. The arbitrators cannot manifest disregard of the law 1999, as financial statements of
resolve issues beyond the scope of unless (1) the applicable legal prepared and Bankard as of 31
the submission agreement. The principle is clearly defined and not certified by December 1999 and its
parties to such an agreement are subject to reasonable debate; and SGV & Co. unaudited financial
bound by the arbitrators' award (2) the arbitrators refused to heed ("SGV"), and statements for the first
only to the extent and in the that legal principle. the unaudited quarter ended 31 March
manner prescribed by the contract Thus, to justify the vacation of an arbitral award on account balance sheet 2000, Bankard, as of
and only if the award is rendered in of "manifest disregard of the law", the arbiter's findings for the first 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
(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: IAcTaC
xxx xxx xxx
Section 7. Remedies for Breach of
Warranties. —
If any of the representations and
warranties of any or all of the
SELLERS or the BUYER (the
"Defaulting Party") contained in
Sections 5 and 6 shall be found to
be untrue when made and/or as of
the Closing Date, the other
party, i.e., the BUYER if the
Defaulting is any of the SELLERS
and the SELLERS if the Defaulting
Party is the BUYER (hereinafter
referred to as the "Non-Defaulting
Party") shall have the right to
require the Defaulting Party, at
the latter's expense, to cure such
breach, and/or seek damages, by
providing notice or presenting a
claim to the Defaulting Party,
reasonably specifying therein the
particulars of the breach. The
foregoing remedies shall be
available to the Non-Defaulting
Party only if the demand therefor
is presented in writing to the
Defaulting Party within three (3)
years from the Closing Date,
except that the remedy for a
breach of the SELLERS'
representation and warranty in
Section 5 (h) shall be available
only if the demand therefor is
presented to the Defaulting Party
in writing together with schedules
and data to substantiate such
demand, within six (6) months
from the Closing Date. (Emphasis
supplied.)
Before we address the issue put forward by petitioners,
there is a necessity to determine the nature and application
of the reliefs provided under Sec. 5 (g) and Sec. 5 (h) in
conjunction with Sec. 7, thus:
(1) The relief under Sec. 5 (h) is specifically for price
reduction as said section explicitly states that the
"Purchase Price shall be reduced in accordance with the
following formula . . . ." In addition, Sec. 7 gives the
aggrieved party the right to ask damages based on the
stipulation that the non-defaulting party "shall have the
right to require the Defaulting Party, at the latter's expense,
to cure such breach and/or seek damages."
On the other hand, the remedy under Sec. 5 (g) in
conjunction with Sec. 7 can include specific performance,
damages, and other reliefs excluding price reduction.
(2) Sec. 5 (g) warranty covers the audited financial
statements (AFS) for the three (3) years ending December
31, 1997 to 1999 and the unaudited financial statements
(UFS) for the first quarter ending March 31, 2000. On the
other hand, the Sec. 5 (h) warranty refers only to the AFS
for the year ending December 31, 1999 and the UFS up to
May 31, 2000. It is undenied that Sec. 5 (h) refers to price
reduction as it covers "only the most up-to-date audited
and unaudited financial statements upon which the price
must have been based." 19
(3) Under Sec. 5 (h), the responsibility of petitioners for its
warranty shall exclude the disclosures and reservations
made in AFS of Bankard as of December 31, 1999 and its
UFS up to May 31, 2000. No such exclusions were made
under Sec. 5 (g) with respect to the warranty of petitioners
in the AFS and UFS of Bankard.
(4) Sec. 5 (h) gives relief only if there is material adverse
effect in the net worth in excess of PhP100 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
PhP100 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: CAHaST
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 PhP100M and the
written demand is presented
within six (6) months from closing
date (extended to 31 December
2000); and
2. An action to cure the breach like
specific performance and/or
damages under Sec. 5(g) based on
Bankard's breach of warranty
involving its AFS for the three (3)
fiscal years ending 31 December
1997, 1998, and 1999 and the UFS
for the first quarter ending 31
March 2000 provided that the
written demand shall be presented
within three (3) years from closing
date.
Has RCBC the option to choose between Sec. 5 (g) or Sec. 5
(h)?
The answer is yes. Sec. 5 and Sec. 7 are clear that it is
discretionary on the aggrieved parties to avail themselves
of any remedy mentioned above. They may choose one and
dispense with the other. Of course, the relief for price
reduction under Sec. 5 (h) will have to conform to the
prerequisites and time frame of six (6) months; otherwise,
it is waived.
Preliminarily, petitioners' basic posture that RCBC's claim
is for the recovery of overpayment is specious. The records
show that in its Request for Arbitration dated May 12,
2004, RCBC prayed for the rescission of the SPA, restitution
of the whole purchase price, and damages not for reduction
of price or for the return of any overpayment. Even in its
May 5, 2000 letter, 21 RCBC did not ask for the recovery of
any overpayment or reduction of price, merely stating in it
that the accounts of Bankard, as reflected in its AFS for
1999, were overstated which, necessarily, resulted in an
overpayment situation. RCBC was emphatic and
unequivocal that petitioners violated their warranty
covered by Sec. 5 (g) of the SPA.
It is thus evident that RCBC did not avail itself of the option
under Sec. 5 (h), i.e., for price reduction or the return of any
overpayment arising from the overvaluation of Bankard's
financial condition. Clearly, RCBCinvoked Sec. 5 (g) to claim
damages from petitioners which is one of the alternative
reliefs granted under Sec. 7 in addition to rescission and
restitution of purchase price.
Petitioners do not deny that RCBC formally filed its claim
under Sec. 5 (g) which is anchored on the material
overstatement or overvaluation of Bankard's revenues,
assets, and net worth and, hence, the overstatement of the
purchase price. They, however, assert that such claim for
overpayment is actually a claim under Sec. 5 (h) of the SPA
for price reduction which it forfeited after December 31,
2000.
We cannot sustain petitioners' position.
It cannot be disputed that an overstatement or
overvaluation of Bankard's financial condition as of closing
date translates into a misrepresentation not only of the
accuracy and truthfulness of the financial statements under
Sec. 5 (g), but also as to Bankard's actual net worth
mentioned in Sec. 5 (h). Overvaluation presupposes
mistakes in the entries in the financial statements and
amounts to a breach of petitioners' representations and
warranties under Sec. 5. Consequently, such error in the
financial statements would impact on the figure
representing the net worth of Bankard as of closing date.
An overvaluation means that the financial condition of
Bankard as of closing date, i.e., June 2, 2000, is overstated, a
situation that will definitely result in a breach of EPCIB's
representations and warranties.
A scrutiny of Sec. 5 (g) and Sec. 5 (h) in relation to Sec. 7 of
the SPA would indicate the following remedies available
to RCBC should it be discovered, as of closing date, that
there is overvaluation which will constitute breach of the
warranty clause under either Sec. 5 (g) or (h), to wit:
(1) An overvaluation of Bankard's actual financial condition
as of closing date taints the veracity and accuracy of the
AFS for 1997, 1998, and 1999 and the UFS for the first
quarter of 2000 and is an actionable breach of petitioners'
warranties under Sec. 5 (g). acCDSH
(2) An overvaluation of Bankard's financial condition as of
May 31, 2000, encompassing the warranted financial
condition as of December 31, 1999 through the AFS for
1999 and as of March 31, 2000 through the UFS for the first
quarter of 2000, is a breach of petitioners' representations
and warranties under Sec. 5 (h).
Thus, RCBC has two distinct alternative remedies in case of
an overvaluation of Bankard's financial condition. It may
invoke Sec. 5 (h) when the conditions of the threshold
aggregate overvaluation and the claim made within the six-
month time-bar are present. In the alternative, it may
invoke Sec. 5 (g) when it finds that a claim for "curing the
breach" and/or damages will be more advantageous to its
interests provided it is filed within three (3) years from
closing date. Since it has two remedies, RCBC may opt to
exercise either one. Of course, the exercise of either one
will preclude the other.
Moreover, the language employed in Sec. 5 (g) and Sec. 5
(h) is clear and bereft of any ambiguity. The SPA's
stipulations reveal that the non-use or waiver of Sec. 5 (h)
does not preclude RCBC from availing itself of the second
relief under Sec. 5 (g). Article 1370 of the Civil Code is
explicit that "if terms of a contract are clear and leave no
doubt upon the intention of the contracting parties the
literal meaning of its stipulations shall control." Since the
terms of a contract have the force of law between the
parties, 22 then the parties must respect and strictly
conform to it. Lastly, it is a long held cardinal rule that
when the terms of an agreement are reduced to writing, it
is deemed to contain all the terms agreed upon and no
evidence of such terms can be admitted other than the
contents of the agreement itself. 23 Since the SPA is
unambiguous, and petitioners failed to adduce evidence to
the contrary, then they are legally bound to comply with it.
Petitioners agreed ultimately to the stipulation that:
Each of the representations and
warranties of the SELLERS is
deemed to be a separate
representation and warranty,
and the BUYER has placed complete
reliance thereon in agreeing to the
Purchase Price and in entering into
this Agreement. The
representations and warranties of
the SELLERS shall be correct as of
the date of this Agreement and as of
the Closing Date with the same
force and effect as though such
representations and warranties had
been made as of the Closing
Date.24 (Emphasis supplied.)
The Court sustains the finding in the Partial Award that Sec.
5 (g) of the SPA is a free standing warranty and not
constricted by Sec. 5 (h) of the said agreement.
Upon the foregoing premises and in the light of the
undisputed facts on record, RCBC's claim for rescission of
the SPA and damages due to overvaluation of Bankard's
accounts was properly for a breach of the warranty under
Sec. 5 (g) and was not time-barred. To
repeat, RCBC presented its written claim on May 5, 2003, or
a little less than a month before closing date, well within
the three (3)-year prescriptive period provided under Sec.
7 for the exercise of the right provided under Sec. 5
(g). STaHIC
Petitioners bemoan the fact that "the arbitrators' liability
award (a) disregarded the 6-month contractual limitation
for RCBC's 'overprice' claim, and [b] substituted in its
place the 3-year limitation under the contract for other
claims," 25 adopting 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
xxx xxx xxx
True, without Section 5(h), the
Claim for price recovery would fall
under Section 5(g). The recovery of
the pecuniary loss of the Claimant
in the form of the excess price paid
would be in the nature of a claim
for actual damages by way of
compensation. In that situation, all
the accounts in the 1999 financial
statements would be the subject of
the warranty in Section 5(g).
However, since the parties
explicitly included Section 5(h) in
their SPA, which assures the
Claimant that there were no
"omissions or mistakes in the
records" that would misstate the
1999 net worth account, I am left
with no other conclusion but that
the accuracy of the net worth
was the subject of the warranty
in Section 5(h), while the
accuracy or correctness of
the other accounts that did not
bear on, or affect Bankard's net
worth, were guaranteed by
Section 5(g).
xxx xxx xxx
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, G.R. No. L-
41861, dated March 23, 1987 . . . .
xxx xxx xxx
The Claim is for recovery of the
excess price by way of actual
damages. 27 . . . (Emphasis
supplied.)AHDTIE
Justice Kapunan noted that without Sec. 5 (h), RCBC's claim
would fall under Sec. 5 (g), impliedly admitting that both
provisions could very well cover RCBC's claim, except that
Sec. 5 (h) excludes the situation contemplated in it from the
general terms of Sec. 5 (g).
Such view is incorrect.
While it is true that Sec. 5 (h), as couched, is a warranty on
the accuracy of the Bankard's net worth while Sec. 5 (g), as
also couched, is a warranty on the veracity, accuracy, and
completeness of the AFS in all material respects as
prepared in accordance with generally accepted accounting
principles consistently followed throughout the period
audited, yet both warranties boil down to the same thing
and stem from the same accounts as summarized in the
AFS. Since the net worth is the balance of Bankard's
assets less its liabilities, it necessarily includes all the
accounts under the AFS. In short, there are no accounts
in the AFS that do not bear on the net worth of
Bankard. Moreover, as earlier elucidated, any
overvaluation of Bankard's net worth is necessarily a
misrepresentation of the veracity, accuracy, and
completeness of the AFS and also a breach of the warranty
under Sec. 5 (g). Thus, the subject of the warranty in Sec. 5
(h) is also covered by the warranty in Sec. 5 (g), and Sec. 5
(h) cannot exclude such breach from the ambit of Sec. 5 (g).
There is no need to rely on Sec. 12, Rule 130 of the Rules of
Court for both Sec. 5 (g) and Sec. 5 (h) as alternative
remedies are of equal footing and one need not categorize
one section as a general provision and the other a
particular provision.
More importantly, a scrutiny of the four corners of the SPA
does not explicitly reveal any stipulation nor even
impliedly that the parties intended to limit the scope of the
warranty in Sec. 5 (g) or gave priority to Sec. 5 (h) over Sec.
5 (g).
The arbitral tribunal did not find any legal basis in the SPA
that Sec. 5 (h) "somehow cuts down" the scope of Sec. 5 (g),
thus:
9.10 In the opinion of the
Tribunal, there is nothing in the
wording used in the SPA to give
priority to one warranty over the
other. There is nothing in the
wording used to indicate that the
parties intended to limit the
scope of the warranty in 5(g). If it
be contended that, on a true
construction of the two warranties,
5(h) somehow cuts down the scope
of 5(g), the Tribunal can find no
justification for such conclusion
on the wording used.
Furthermore, the Tribunal is of the
view that very clear words would
be needed to cut down the scope of
the 5(g) warranty. 28
The Court upholds the conclusion of the tribunal and rules
that the claim of RCBC under Sec. 5 (g) is not time-
barred. HTDCAS
Petitioners Were Not Denied Due Process
Petitioners impute on RCBC the act of creating summaries
of the accounts of Bankard which "in turn were used by its
experts to conclude that Bankard improperly recorded its
receivables and committed material deviations from GAAP
requirements." 29 Later, petitioners would assert that "the
arbitrators' partial award admitted and used the
Summaries as evidence, and held on the basis of the
'information' contained in them that petitioners were in
breach of their warranty in GAAP compliance."
To petitioners, the ICC-ICA's use of such summaries but
without presenting the source documents violates their
right to due process. Pressing the point, petitioners had
moved, but to no avail, for the exclusion of the said
summaries. Petitioners allege that they had reserved the
right to cross-examine the witnesses of RCBCwho testified
on the summaries, pending the resolution of their motion
to exclude. But, according to them, they were effectively
denied the right to cross-examine RCBC's witnesses when
the ICC-ICA admitted the summaries of RCBC as evidence.
Petitioners' position is bereft of merit.
Anent the use but non-presentation of the source
documents as the jumping board for a claim of denial of
due process, petitioners cite Compania Maritima v. Allied
Free Worker's Union. 30 It may be stated, however, that
such case is not on all fours with the instant case and,
therefore, cannot be applied here considering that it does
not involve an administrative body exercising quasi-judicial
function but rather the regular court.
In a catena of cases, we have ruled that "[t]he essence of
due process is the opportunity to be heard. What the law
prohibits is not the absence of previous notice but the
absolute absence thereof and the lack of opportunity to be
heard." 31
We also explained in Lastimoso v. Asayo that "[d]ue process
in an administrative context does not require trial type
proceedings similar to those in courts of justice. Where an
opportunity to be heard either through oral arguments or
through pleadings is accorded, there is no denial of
procedural due process." 32 ScAHTI
Were petitioners afforded the opportunity to refute the
summaries and pieces of evidence submitted
byRCBC 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 USD300,000 for actual and exemplary
damages.
RCBC filed its Reply 33 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 timetable 35 for the
arbitration.
On October 25, 2004, as previously agreed upon in the
meeting on October 4, 2004, petitioners filed a Motion to
Dismiss 36 while RCBC filed a "Claimant's Position Paper
(Re: [Petitioners'] Assertion
that RCBCCAPITAL CORPORATION's Present Claim Is Time
Barred)." 37
Then, the tribunal issued Procedural Order No. 1 dated
January 12, 2005, 38 denying the motion to dismiss and
setting the initial hearing of the case on April 11, 2005.
In a letter dated February 9, 2005, 39 petitioners requested
that the tribunal direct RCBC to produce certain
documents. At the same time, petitioners sought the
postponement of the hearing on April 11, 2005 to March
21, 2005, in light of their own request.
On February 11, 2005, petitioners received RCBC's brief of
evidence and supporting documentation in accordance
with the provisional timetable. 40 In the brief of
evidence, RCBC provided summaries of the accounts of
Bankard, which petitioners now question. aSTAHD
Later, in a letter dated February 14, 2005, 41 petitioners
complained to the tribunal with regard to their lack of
access to RCBC's external auditor. Petitioners sought an
audit by an accounting firm of the records of Bankard with
respect to the claims of RCBC. By virtue of such requests,
petitioners also sought a rescheduling of the provisional
timetable, despite their earlier assurance to the tribunal
that if they received the documents that they requested on
February 9, 2005 on or before February 21, 2005, they
would abide by the provisional timetable.
Thereafter, the tribunal issued Procedural Order No. 2
dated February 18, 2005, 42 in which it allowed the
discovery and inspection of the documents requested by
petitioners that were also scheduled on February 18, 2005.
The request for an audit of Bankard's accounts was denied
without prejudice to the conduct of such audit during the
course of the hearings. Consequently, the tribunal amended
the provisional timetable, extending the deadline for
petitioners to file their brief of evidence and documents to
March 21, 2005. The date of the initial hearing, however,
remained on April 11, 2005.
On February 18, 2005, petitioners were furnished the
documents that they requested RCBC. 43 The parties also
agreed to meet again on February 23, 2005 to provide
petitioners with a "walk-through" of Bankard's Statistical
Analysis System and to provide petitioners with a soft copy
of all of Bankard's cardholders. 44
During the February 23, 2005 meeting, EPCIB's
counsels/representatives were accompanied to the
Bankard's Credit-MIS Group. There, Bankard's
representative, Amor Lazaro, described and explained to
petitioners' representatives the steps involved in procuring
and translating raw data on customer transactions. Lazaro
explained that Bankard captures cardholder information
and transactions through encoding or electronic data
capture. Thereafter, such data are transmitted to its main
credit card administration system. Such raw data are then
sent to Bankard's Information Technology Group. Using a
proprietary software called SAS, the raw data is then
converted into SAS files which may be viewed, handled, and
converted into Excel files for reporting purposes. During
the walk-through, petitioners' representatives asked
questions which were answered in detail by Lazaro.
At the same time, another Bankard representative, Felix L.
Sincoñegue, accompanied two auditors/representatives of
petitioners to examine the journal vouchers and supporting
documents of Bankard consisting of several boxes. The
auditors randomly sifted through the boxes which they had
earlier requested to be inspected. DAaIHT
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 letter 46 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. CHTcSE
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 Later, petitioners moved to vacate the said award before
24, 2006. the RTC. Such motion was denied by the trial court in the
Thereafter, in a letter dated January 18, first assailed order dated January 8, 2008. Petitioners then
2006, 57 petitioners wrote the tribunal requesting moved for a reconsideration of such order, but their motion
that RCBC be directed to: (1) provide petitioners with was also denied in the second assailed order dated March
information identifying the journal vouchers and other 17, 2008.
supporting documents that RCBC used to arrive at the The foregoing events unequivocally demonstrate ample
figures set out in the summaries and other relevant opportunity for petitioners to verify and
information necessary to enable them to reconstruct examineRCBC's summaries, accounting records, and
and/or otherwise understand the figures or amounts in reports. The pleadings reveal that RCBC granted
each summary; and (2) submit to petitioners the requested petitioners' requests for production of documents and
pieces of information as soon as these are or have become accounting records. More so, they had more than three (3)
available, or in any case not later than five days. years to prepare for their defense after RCBC's submission
In response to such letter, RCBC addressed a letter dated of its brief of evidence. Finally, it must be emphasized that
January 31, 2006 58 to the tribunal claiming that the pieces petitioners had the opportunity to appeal the Partial Award
of information that petitioners requested are already to the RTC, which they in fact did. Later, petitioners even
known to petitioners considering that RCBCmerely moved for the reconsideration of the denial of their appeal.
maintained the systems that they inherited when it bought Having been able to appeal and move for a reconsideration
Bankard from petitioners. RCBC added that the documents of the assailed rulings, petitioners cannot claim a denial of
that EPCIB originally transmitted to it when RCBC bought due process. 65 THIECD
Bankard were all being made available to petitioners; thus, Petitioners' right to due process was not breached.
any missing supporting documents from these files were As regards petitioners' claim that its right to due process
never transmitted to them in the first place. was violated when they were allegedly denied the right to
Later, petitioners sent to the tribunal a letter dated cross-examine RCBC's witnesses, their claim is also bereft
February 10, 2006, 59 asking that it direct RCBC to provide of merit.
petitioners with the supporting documents Sec. 15 of RA 876 or the Arbitration Law provides that:
that RCBC mentioned in its letter dated January 31, 2006. Section 15. Hearing by arbitrators.
Petitioners wrote that should RCBC fail to present such — Arbitrators may, at the
documents, RCBC's summaries should be excluded from commencement of the hearing, ask
the records. SIEHcA both parties for brief statements of
In a letter dated March 10, 2006, 60 petitioners requested the issues in controversy and/or an
that they be given an additional period of at least 47 days agreed statement of facts.
within which to submit their evidence-in-chief with the Thereafter the parties may offer
corresponding request for the cancellation of the hearing such evidence as they desire, and
on April 24, 2006. Petitioners submit that should such shall produce such additional
request be denied, RCBC's summaries should be excluded evidence as the arbitrators shall
from the records. require or deem necessary to an
On April 6, 2006, petitioners filed their arbitration briefs understanding and determination
and witness statements. By way of reply, on April 17, of the dispute. The arbitrators
2006, RCBC submitted Volumes IV and V of its exhibits and shall be the sole judge of the
Volume II of its evidence-in-chief. 61 relevancy and materiality of the
On April 18, 2006, petitioners requested the tribunal that evidence offered or produced,
they be allowed to file rejoinder briefs, or otherwise and shall not be bound to
exclude RCBC's reply brief and witness statements. 62 In conform to the Rules of Court
this request, petitioners also requested that the hearing set pertaining to evidence.
for April 24, 2006 be moved. These requests were denied. Arbitrators shall receive as
Consequently, on April 24 to 27, 2006, the arbitral tribunal exhibits in evidence any
conducted hearings on the case. 63 document which the parties may
On December 4, 2006, petitioners submitted rejoinder wish to submit and the exhibits
affidavits, raising new issues for the first time, to shall be properly identified at
which RCBC submitted Volume III of its evidence-in-chief the time of submission. All
by way of a reply. exhibits shall remain in the custody
On January 16, 2007, both parties simultaneously of the Clerk of Court during the
submitted their memoranda. On January 26, 2007, both course of the arbitration and shall
parties simultaneously filed their reply to the other's be returned to the parties at the
memorandum. 64 time the award is made. The
Thus, on September 27, 2007, the Partial Award was arbitrators may make an ocular
rendered by the Tribunal. inspection of any matter or
premises which are in dispute, but
 such inspection shall be made only
in the presence of all parties to the
arbitration, unless any party who
shall have received notice thereof
fails to appear, in which event such
inspection shall be made in the
absence of such party. (Emphasis
supplied.)
The well-settled rule is that administrative agencies
exercising quasi-judicial powers shall not be fettered by the
rigid technicalities of procedure, albeit they are, at all times
required, to adhere to the basic concepts of fair play. The
Court wrote in CMP Federal Security Agency, Inc. v. NLRC:
While administrative tribunals
exercising quasi-judicial powers,
like the NLRC and Labor Arbiters,
are free from the rigidity of certain
procedural requirements, they are
nonetheless bound by law and
practice to observe the
fundamental and essential
requirements of due process. The
standard of due process that must
be met in administrative tribunals
allows a certain degree of latitude
as long as fairness is not ignored.
Hence, it is not legally
objectionable, for being violative of
due process, for the Labor Arbiter
to resolve a case based solely on
the position papers, affidavits or
documentary evidence submitted
by the parties. The affidavits of
witnesses in such case may take the
place of their direct testimony. 66
Of the same tenor is our holding in Quiambao v. Court of
Appeals:
In resolving administrative cases,
conduct of full-blown trial is not
indispensable to dispense justice to
the parties. The requirement of
notice and hearing does not
connote full adversarial
proceedings. Submission of
position papers may be sufficient
for as long as the parties thereto
are given the opportunity to be
heard. In administrative
proceedings, the essence of due
process is simply an opportunity
to be heard, or an opportunity to
explain one's side or opportunity
to seek a reconsideration of the
action or ruling complained of.
This constitutional mandate is
deemed satisfied if a person is
granted an opportunity to seek
reconsideration of an action or a
ruling. It does not require trial-
type proceedings similar to those in
the courts of justice. Where
opportunity to be heard either
through oral arguments or through
pleadings is accorded, there is no
denial of procedural due
process. 67 (Emphasis
supplied.) ITCcAD
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 cross-
examine is impliedly
waived. 70 (Emphasis supplied.)
And later in Velez v. De Vera, the Court En Banc expounded
on the above rulings, adding that in administrative
proceedings, cross-examination is not indispensable, thus:
Due process of law in
administrative cases is not identical
with "judicial process" for a trial in
court is not always essential to due
process. While a day in court is a
matter of right in judicial
proceedings, it is otherwise in
administrative proceedings since
they rest upon different principles.
The due process clause guarantees
no particular form of procedure
and its requirements are not
technical. Thus, in certain
proceedings of administrative
character, the right to a notice or
hearing [is] not essential to due
process of law. The constitutional
requirement of due process is met
by a fair hearing before a regularly
established administrative agency
or tribunal. It is not essential that
hearings be had before the making
of a determination if thereafter,
there is available trial and tribunal
before which all objections and
defenses to the making of such
determination may be raised and
considered. One adequate hearing
is all that due process requires.
What is required for "hearing" may
differ as the functions of the
administrative bodies
differ. HSEIAT
The right to cross-examine is not
an indispensable aspect of due
process. 71 . . . (Emphasis
supplied.)
Clearly, the right to cross-examine a witness, although a
fundamental right of a party, may be waived. Petitioners
themselves admit having had the opportunity to cross-
examine RCBC's witnesses during the hearings before the
tribunal, but declined to do so by reserving such right at a
later time. Having had the opportunity to cross-
examine RCBC's witnesses, petitioners were not denied
their right to due process.
RCBC is Not Estopped from Questioning the
Financial Condition of Bankard
On estoppel, petitioners contend that RCBC already knew
the recording of the Bankard accounts before it paid the
balance of the purchase price and could no longer challenge
the financial statements of Bankard.RCBC, they claim, had
full control of the operations of Bankard since June 2, 2000
and RCBC's audit team reviewed the accounts in September
2000. Thus, RCBC is now precluded from denying the
fairness and accuracy of said accounts since it did not seek
price reduction under Sec. 5 (h). Lastly, they asseverate
thatRCBC continued with Bankard's accounting policies
and practices and found them to conform to the generally
accepted accounting principles, contrary
to RCBC's allegations.
It also bears stating that in his dissent, retired Justice
Kapunan, an arbitral tribunal member, argued that
Bankard's accounting practices were disclosed in the
information memorandum provided to RCBC;
hence,RCBC was supposed to know such accounting
practices and to have accepted their propriety even before
the execution of the SPA. He then argued that when it paid
the purchase price on December 29, 2000, RCBCcould 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." IAETSC
The doctrine of estoppel is based upon the grounds of
public policy, fair dealing, good faith, and justice; and its
purpose is to forbid one to speak against one's own acts,
representations, or commitments to the injury of one to
whom they were directed and who reasonably relied on
them. 72
We explained the principle of estoppel in Philippine Savings
Bank v. Chowking Food Corporation:
. . . 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 "RCBC was aware of the manner in which the Bankard claim of overvaluation to petitioners. RCBC, therefore, had which would have given
act upon such belief, he accounts were recorded, well before it consummated the no sufficient knowledge of the correctness of Bankard's the Respondents the
cannot, in any litigation SPA by taking delivery of the shares and paying the accounts. impression that they
arising out of such outstanding 80% balance of the contract price." 75 On another issue, RCBC could not have immediately were being relieved over
declaration, act, or Petitioners, therefore, theorize that in this case, the first changed the Bankard accounting practices until it had the next three years of
omission, be permitted element of estoppel in relation to the party sought to be conducted a more extensive and thorough audit of susceptibility to a claim
to falsify it. estopped is that RCBC made a false representation that it Bankard's voluminous records and transactions to uncover under clause 5(g). Maybe
The principle received further considered Bankard's accounts to be in order and, any irregularities. That would be the only logical the TC could have been
elaboration in Maneclang v. Baun: thus, RCBC abandoned any claim under Sec. 5 (g) and 5 (h) explanation why Bankard's alleged irregular practices were more proactive in
In estoppel by pais, as related to the by its inaction. maintained for more than two (2) years from closing date. commissioning further
party sought to be estopped, it is Such contention is incorrect. The fact that RCBC continued with the audit of Bankard's or more in-depth audits
necessary that there be a It must be emphasized that it was only after a second audit AFS and records after the termination of the Rubio audit but it was not. It did not
concurrence of the following that RCBC presented its claim to petitioners for violation of can only send the clear message to petitioners that RCBC is have to be. It is
requisites: (a) conduct amounting Sec. 5 (g), within the three (3)-year period prescribed. In still entertaining the possibility of filing a claim under Sec. commercially unlikely
to false representation or other words, RCBC, prior to such second audit, did not have 5 (g). It cannot then be said that petitioners' reliance that it have been done
concealment of material facts or at full and thorough knowledge of the correctness of on RCBC's acts after full payment of the price could have so, with the necessary
least calculated to convey the Bankard's accounts, in relation to Sec. 5 (g). RCBC, misled them into believing that no more claim will be degree of attention to
impression that the facts are therefore, could not have misrepresented itself considering presented by RCBC. detail, within the
otherwise than, and inconsistent that it was still in the process of verifying the warranties The Arbitral Tribunal explained in detail why estoppel is relatively short time
with, those which the party covered under Sec. 5 (g). Considering that there must be a not present in the case at bar, thus: EDHCSI between the
subsequently attempts to assert; concurrence of the elements of estoppel for it to arise, on 10.18 The audit exercise conducted appointment of the TC
(b) intent, or at least expectation this ground alone such claim is already negated. As will be by Mr. Legaspi and Mr. and the ultimate
that this conduct shall be acted shown, however, all the other elements of estoppel are Rubio was clearly not settlement date of the
upon, or at least influenced by the likewise absent in the case at bar. one comprehensive purchase — a period of
other party; and (c) knowledge, As to the second element, in order to establish enough to have some three months. An
actual or constructive of the actual estoppel, RCBC must have intended that petitioners would discovered the problems interim arrangement
facts. act upon its actions. This element is also missing. RCBC by later unearthed by Dr. was obviously sensible
Estoppel may vary somewhat in its actions did not mislead petitioners into believing that it Laya and Dean Ledesma. to enable the Claimant
definition, but all authorities agree waived any claim for violation of a warranty. The periods ... and its staff to become
that a party invoking the doctrine under Sec. 5 (g) and 5 (h) were still available 10.19 Although the powers of the familiar with the
must have been misled to one's to RCBC. CDHSac TC [Transition practices and procedures
prejudice. That is the final and, in The element that petitioners relied on the acts and conduct Committee] may have of Bankard.
reality, most important of the of RCBC is absent. The Court finds that there was no been widely expressed in 10.21 The core consideration
elements of equitable estoppel. It is reliance on the part of petitioners on the acts of RCBC that the view of Mr. Rogelio weighing with the
this element that is lacking would lead them to believe that the RCBC will forego the Chua, then in charge of Tribunal in assessing
here. 73 (Emphasis supplied.) filing of a claim under Sec. 5 (g). The allegation Bankard . . . the TC these claims for estoppel
The elements of estoppel pertaining to the party estopped that RCBC knew that the Bankard accounts did not comply conducted meetings only is that the SPA allowed
are: with generally accepted accounting principles before to get updated on the two types of claim; one
(1) conduct which amounts to a payment and, hence, it cannot question the financial status and progress of within six months under
false representation or statements of Bankard is meritless. Precisely, the SPA Bankard's operations. 5(h) and one within
concealment of material facts, or, at explicitly provides that claims for violation of the Commercially, one would three years under 5(g).
least, which calculated to convey warranties under Sec. 5 (g) can still be filed within three expect that an unpaid The Tribunal has already
the impression that the facts are (3) years from the closing date. Petitioners' contention vendor expecting to held the present claim is
otherwise than, and inconsistent that RCBC had full control of Bankard operations after receive 80% of a large not barred by clause
with, those which the party payment of the price and that an audit undertaken by the purchase price would 5(h). It must therefore
subsequently attempts to assert; Rubio team did not find anything wrong with the accounts not be receptive to a have been within the
(2) intention, or at least could not have plausibly misled petitioners into believing purchaser making vast reasonable
expectation, that such conduct shall that RCBC will waive its right to file a claim under Sec. 5 (g). policy changes in the contemplation of the
be acted upon by the other party; After all, the period to file a claim under Sec. 5 (g) is three operation of the business parties that a 5(g) claim
and (3) knowledge, actual or (3) years under Sec. 7, much longer than the six (6)-month until the purchaser has could surface within the
constructive, of the actual period under Sec. 5 (h). Petitioners are fully aware that the paid up its money. It is three-year period and
facts. 74 DHETIS warranties under Sec. 5 (g) (1997 up to March 2000) are of more likely that, until the that it could be
a wider scope than that of Sec. 5 (h) (AFS of 1999 and UFS settlement date, there somewhat differently
In the case at bar, the first element of estoppel in relation to up to May 31, 2000), necessitating a longer audit period was a practice of assessed than the claim
the party sought to be estopped is not present. Petitioners than the six (6)-month period under Sec. 5 (h). maintaining the status under 5(h). The Tribunal
claim that RCBC misrepresented itself when RCBC made it The third element of estoppel in relation to the party quo at Bankard. cannot find estoppel by
appear that they considered petitioners to have sufficiently sought to be estopped is also absent considering that, as 10.20 But neither the Claimant nor conduct either from the
complied with its warranties under Sec. 5 (g) and 5 (h), in stated, RCBC was still in the process of verifying the the TC did anything, in formation of the TC or
relation to Sec. 7 of the SPA. Petitioners' position is that correctness of Bankard's accounts prior to presenting its the Tribunal's view, 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. CSTDEH
10.23 The three-year limitation
period obviously
contemplated that it
could take some time to
ascertain whether there
had been a breach of the
GAAP standards, etc.
Such was the case. A six-
month limitation period
under Clause 5(h), in
contrast, presaged a
somewhat less stringent
enquiry of the kind
carried out by Mr. Rubio
and Mr. Legaspi.
10.24 Clause 2(3) of the
Amendment to the SPA
strengthens the
conclusion that the
parties were concerned
only with a 5(h) claim
during the TC's reign.
The focus of the 'audit'
— however intense it
was — conducted by Mr.
Rubio and Mr. Legaspi,
was on establishing
possible liability under
that section and thus as a
possible reduction in the
price to be paid on
settlement.
10.25 The fact that the purchase
price was paid over in
full without any
deduction in terms of
clause 5(h) is not a bar to
the Claimant bringing a
claim under 5(g) within
the three-year period.
The fact that payment
was made can be, as the
Tribunal has held, a
barrier to a claim for
rescission and restitution
ad inegrum. A claim for
estoppel needs a finding
of representation by
words of conduct or a
shared presumption that
a right would not be
relied upon. The party
relying on estoppel has
to show reliance to its
detriment or that,
otherwise, it would be
unconscionable to resile
from the provision.
10.26 Article 1431 of the Civil Code
states:
"Through estoppel an admission or
representation is
rendered conclusive
upon the person making
it, and cannot be denied
or disproved as against
the person relying
thereon."
10.27 Clearly, there has to both an
admission or
representation by (in
this case) the Claimant,
plus reliance upon it by
(in this case) the
Respondents. The
Tribunal cannot find as
proved any
admission/representatio
n 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 proof of the necessary
aspects of the claim of representation to the
estoppel are rejected. Respondent, nor any
xxx xxx xxx detriment to the
10.42 The Tribunal is not the Respondent proved. The
appropriate forum for grounds of delay and
deciding whether there laches are not
have been any regulatory substantiated.
or ethical infractions by In summary, the tribunal properly ruled that petitioners
Bankard and/or the failed to prove that the formation of the Transition
Claimant in setting the Committee and the conduct of the audit by Rubio and
'buy-back' price. It has Legaspi were admissions or representations by RCBCthat it
no bearing on whether would not pursue a claim under Sec. 5 (g) and that
the Claimant must be petitioners relied on such representation to their
considered as having detriment. We agree with the findings of the tribunal that
waived its right to claim estoppel is not present in the situation at bar.
against the Additionally, petitioners claim that in Knecht v. Court of
Respondents. HCSEIT Appeals 76 and Coca-Cola Bottlers Philippines, Inc. v. Court
10.43 In the Tribunal's view, of Appeals (Coca-Cola), 77 this Court ruled that the absence
neither any infraction by of the element of reliance by a party on the representation
Bankard in failing to of another does not negate the principle of estoppel. Those
advise the Central Bank cases are, however, not on all fours with and cannot be
of the experts' findings, applied to this case.
nor a failure to put a tag In Knecht, the buyer had the opportunity of knowing the
on the accounts nor to conditions of the land he was buying early on in the
have said something to transaction, but proceeded with the sale anyway. According
the shareholders in the to the Court, the buyer was estopped from claiming that the
buy-back exercise vendor made a false representation as to the condition of
operates as a "technical the land. This is not true in the instant case. RCBC did not
knock-out" of Claimant's conduct a due diligence audit in relation to Sec. 5 (g) prior
claim. to the sale due to petitioners' express representations and
warranties. The examination conducted by RCBC, through
10.44 The Tribunal notes that the Rubio, after the execution of the SPA on June 2, 2000, was
conciliation process confined to finding any breach under Sec. 5 (h) for a
mandated by the SPA possible reduction of the purchase price prior to the
took most of 2003 and payment of its balance on December 31, 2000. Further, the
this may explain a part of parties clearly agreed under Sec. 7 of the SPA to a three (3)-
the delay in commencing year period from closing date within which to present a
arbitral proceedings. claim for damages for violation of the warranties under the
10.45 Whatever the status of Mr. SPA. Hence, Knecht is not a precedent to the case at bar.
Rubio's and Mr. So is Coca-Cola. As lessee, Coca-Cola Bottlers was well
Legaspi's enquiries in aware of the nature and situation of the land relative to its
late 2000, the Claimant intended use prior to the signing of the contract. Its
was quite entitled to subsequent assertion that the land was not suited for the
commission subsequent purpose it was leased was, therefore, cast aside for being
reports from Dr. Laya unmeritorious. Such circumstance does not obtain in the
and Dr. Echanis and, on instant case. There was no prior due diligence audit
the basis of those conducted by RCBC, it having relied, as earlier stated, on
reports, make a timeous the warranties of petitioners with regard to the financial
claim under clause 5(g) condition of Bankard under Sec. 5 (g). As such, Sec. 5 (g)
of the SPA. guaranteed RCBC that it could file a claim for damages for
10.46 In the Tribunal's view, any mistakes in the AFS and UFS of Bankard. Clearly, Coca-
therefore, there is no Cola also cannot be applied to the instant case.
merit in Respondents' It becomes evident from all of the foregoing findings that
various submissions that the ICC-ICA is not guilty of any manifest disregard of the
the Claimant is debarred law on estoppel. As shown above, the findings of the ICC-
from prosecuting its ICA in the Partial Award are well-supported in law and
claims on the grounds of grounded on facts. The Partial Award must be upheld.
estoppel. There is just no
We close this disposition with the observation that a
member of the three-person arbitration panel was selected
by petitioners, while another was respondent's choice. The
respective interests of the parties, therefore, are very much
safeguarded in the arbitration proceedings. Any suggestion,
therefore, on the partiality of the arbitration tribunal has to
be dismissed. DCcSHE
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.
Costs against petitioners.
SO ORDERED.
||| (Equitable PCI Banking Corp. v. RCBC Capital Corp., G.R.
No. 182248, [December 18, 2008], 595 PHIL 537-589)
SECOND DIVISION
[G.R. No. 148318. November 22, 2004.]
NATIONAL POWER
CORPORATION, petitioner, vs.
HON. ROSE MARIE ALONZO-
LEGASTO, as Presiding Judge,
RTC of Quezon City, Branch 99,
JOSE MARTINEZ, Deputy Sheriff,
RTC of Quezon City, CARMELO V.
SISON, Chairman, Arbitration
Board, and FIRST UNITED
CONSTRUCTORS
CORPORATION, respondents.
DECISION
TINGA, J p:
National Power Corporation (NPC) filed the instant Petition
for Review 1 dated July 19, 2001, assailing theDecision 2 of
the Court of Appeals dated May 28, 2001 which affirmed
with modification the Order 3 and Writ of
Execution 4 respectively dated May 22, 2000 and June 9,
2000 issued by the Regional Trial Court. In its
assailed Decision, the appellate court declared respondent
First United Constructors Corporation (FUCC) entitled to
just compensation for blasting works it undertook in
relation to a contract for the construction of power
facilities it entered into with petitioner. The Court of
Appeals, however, deleted the award for attorney's fees
having found no basis therefor.
The facts culled from the Decision of the Court of Appeals
are undisputed:
On April 14, 1992, NPC and FUCC
entered into a contract for the
construction of power facilities
(civil works) — Schedule 1 — 1x20
MW Bacon-Manito II Modular
Geothermal Power Plant (Cawayan
area) and Schedule 1A — 1x20 MW
Bacon-Manito II Modular
Geothermal Power Plant (Botong
area) in Bacon, Sorsogon (BACMAN
II). The total contract price for the
two schedules is P108,493,966.30,
broken down as follows:
SCHEDULE
1 — Cawayan area
P52,081,421.00
1A — Botong area
P56,412,545.30
––––––––––––––
P108,493,966.30
Appended with the Contract is the
contract price schedule which was
submitted by the respondent FUCC
during the bidding. The price for
grading excavation was P76.00 per
cubic meter.
Construction activities commenced
in August 1992. In the latter part of
September 1992 and after
excavating 5.0 meters above the
plant elevation, FUCC requested
NPC that it be allowed to blast to
the design grade of 495 meters
above sea level as its dozers and
rippers could no longer excavate. It
further requested that it be paid
P1,346.00 per cubic meter similar
to the rate of NPC's project in
Palinpinon.
While blasting commenced on
October 6, 1992, NPC and FUCC
were discussing the propriety of an
extra work order and if such is in
order, at what price should FUCC be
paid.
Sometime in March 1993, NPC Vice
President for Engineering
Construction, Hector Campos,
created a task force to review
FUCC's blasting works. The
technical task force recommended
that FUCC be paid P458.07 per
cubic meter as such being the price
agreed upon by FUCC.
The matter was further referred to
the Department of Public [W]orks
and Highways (DPWH), which in a
letter dated May 19, 1993,
recommended the price range of
P500.00 to P600.00 per cubic
meter as reasonable. It further
opined that the price of P983.75
per cubic meter proposed by Lauro
R. Umali, Project Manager of
BACMAN II was high. A copy of the
DPWH letter is attached as Annex
"C", FUCC's Exhibit EEE-Arbitration.
In a letter dated June 28, 1993,
FUCC formally informed NPC that it
is accepting the proposed price of
P458.07 per cubic meter. A copy of
the said letter is attached as Annex
"D", FUCC's Exhibit L Arbitration.
In the meantime, by March 1993,
the works in Botong area were in
considerable delay. By May 1993,
civil works in Botong were kept at a
minimum until on November 1,
1993, the entire operation in the
area completely ceased and FUCC
abandoned the project.
Several written and verbal
warnings were given by NPC to
FUCC. On March 14, 1994, NPC's
Board of Directors passed
Resolution No. 94-63 approving the
recommendation of President
Francisco L. Viray to take over the
contract. President Viray's
recommendation to take over the
project was compelled by the need
to stave-off huge pecuniary and
non-monetary losses, namely:
(a) Generation loss estimated to be
at P26,546,400/month;
(b) Payment of steam penalties to
PNOC-EDC the amount
estimated to be at
P10,206,048.00/month;
(c) Payment of liquidated damages
due to the standby of
electromechanical
contractor;
(d) Loss of guaranteed protection
(warranties) of all
delivered plant
equipment and
accessories as Mitsubishi
Corporation,
electromechanical
contractor, will not be
liable after six months of
delivery.
To prevent NPC from taking over
the project, on March 28, 1994,
FUCC filed an action for Specific
Performance and Damages with
Preliminary Injunction and
Temporary Restraining Order
before Branch 99, Regional Trial
Court, Quezon City.
Under paragraph 19 of its
Complaint, FUCC admitted that it
agreed to pay the price of P458.07
per cubic meter.
On April 5, 1994, Judge de Guzman
issued a temporary restraining
order and on April 21, 1994, the
trial court resolved to grant the
application for issuance of a writ of
preliminary injunction.
On July 7, 1994, NPC filed a Petition
for Certiorari with Prayer for
Temporary Restraining Order and
Preliminary Injunction before the
First Division of the Court of
Appeals asserting that no
injunction may issue against any
government projects pursuant
to Presidential Decree
1818. HCITAS
On July 8, 1994, the Court of
Appeals through then Associate
Justice Bernardo Pardo issued a
temporary restraining order and on
October 20, 1994, the said court
rendered a Decision granting NPC's
Petition for Certiorari and setting
aside the lower court's Order dated
April 21, 1994 and the Writ of
Preliminary Injunction dated May
5, 1994.
However, notwithstanding the
dissolution by the Court of Appeals
of the said injunction, on July 15,
1995, FUCC filed a Complaint
before the Office of the
Ombudsman against several NPC
employees for alleged violation of
Republic Act No. 3019, otherwise
known as the Anti-Graft and
Corrupt Practices Act. Together
with the complaint was an
Urgent Ex-Parte Motion for the
issuance of a cease and [d]esist
[o]rder to restrain NPC and other
NPC officials involved in the
BACMAN II project from canceling
and/or from taking over FUCC's
contract for civil works of said
project.
Then on November 16, 1994, FUCC
filed before the Supreme Court a
Petition for Review assailing the
Decision of the Court of [A]ppeals
dated October 20, 1994. In its
Comment, NPC raised the issue that
FUCC resorted to forum shopping
as it applied for a cease and desist
order before the National
Ombudsman despite the
dissolution of the injunction by the
Court of Appeals.
Pending the petition filed by FUCC
before the Supreme Court, on April
20, 1995 the NPC and FUCC entered
into a Compromise Agreement.
Under the Compromise Agreement,
the parties agreed on the following:
1. Defendant shall process and pay the parties shall and sign this which the
the undisputed unpaid immediately execute the Compromise arbitrable
billings of Plaintiff in proper documents Agreement issues shall be
connection with the mutually terminating which they referred to the
entire project fifteen Plaintiff's contract for will submit for Arbitration
(15) days after a the civil works of the approval by Board. The
reconciliation of BACMAN II Project this Court. terms of
accounts by both (Contract No. Sp90DLM- Under this reference shall
Plaintiff and Defendant 918 (I & A); Compromise form part of
or thirty (30) days from 6. Such mutual termination of Agreement the
the date of approval of Plaintiff's contract shall both parties Compromise
this Compromise have the following agree that: Agreement
Agreement by the Court effects and/or xxx xxx xxx and shall be
whichever comes first. consequences: (a) the STAGE 2 submitted by
Both parties agree to construction works of 7.1 The parties shall the parties to
submit and include those Plaintiff at the Kawayan submit for the Honorable
accounts which could not and Bolong sites, at its arbitration to Court within a
be reconciled among the present stage of settle: (a) the period of
issues to be arbitrated as completion, shall be price of seven (7) days
hereunder provided; accepted and/or deemed blasting, (b) from the
2. Plaintiff accepts and to have been accepted by both parties' signing of the
acknowledges that defendant; (b) Plaintiff claims for Compromise
Defendant shall have the shall have no more damages, Agreement;
right to proceed with the obligation to Defendant delays,
works by re-bidding or in respect of the interests, and 7.4 The Arbitration
negotiating the project BACMAN II Project (c) all other Board shall
immediately upon the except as provided in unresolved have a non-
signing of herein clause (e) below; (c) claims of both extendible
Compromise Agreement; Defendant shall release parties, period of
3. This Compromise Agreement all retention moneys of including the three (3)
shall serve as the plaintiff within a exact volume months within
Supplemental maximum period of of blasted which to
Agreement for payment thirty (30) days from the rocks; complete the
of plaintiff's blasting date of final Resolution 7.2 The arbitration shall arbitration
works at the Botong site; of the Arbitration; (d) no be through a process and
4. Upon approval of this retention money shall three-member submit its
Compromise Agreement thenceforth be withheld commission to Decision to
by the Court or Plaintiff's by Defendant in its be appointed the Honorable
receipt of payment of payment to Plaintiff by the Court;
this undisputed unpaid under this Compromise Honorable 7.5 The parties agree
billings from Defendant Agreement, and (e) Court. Each that the
whichever comes first, Plaintiff shall put up a party shall Decision of the
the parties shall one-year guaranty bond nominate one Arbitration
immediately file a Joint for its completed civil member. The Board shall be
Manifestation and works at the Kawayan Chairman of final and
Motion for the site, retroactive to the the executory;
withdrawal of the date of actual use of the Arbitration 7.6 By virtue of this
following Plaintiff's plant by defendant; Board shall be Compromise
petition from the 7. Plaintiff's blasting works claims [a] person Agreement,
Supreme Court, and other unresolved mutually except as
Plaintiff's Complaint claims, as well as the acceptable to herein
from the National claims of damages of both parties, provided, the
Ombudsman, the both parties shall be preferably parties shall
Complaint and Amended settled through a two from the mutually
Complaint from the RTC, stage process to wit: academe; waive, forego
Br. 99 of Quezon City; STAGE 1 7.3 The parties shall and dismiss all
5. Upon final resolution of the 7.1 Plaintiff and likewise agree of their other
Arbitration, as Defendant upon the claims and/or
hereunder prescribed, shall execute terms under counterclaim
 in this case. Arbitration Board shall right to question said Decision of before the Court of Appeals. It claims that the appellate
Plaintiff and be final and executory. the Board. Hence, they agreed in court failed to pass upon the following issues:
defendant SO ORDERED. clear and unequivocal terms in the 1. The Chairman of the Arbitration
warrant that On December 10, 1999 plaintiff Compromise Agreement that said Board showed extreme
after approval FUCC filed a Motion for Execution Decision would be immediately bias in prejudging the
by the Court of while defendant NPC filed a Motion final and executory. Plaintiff relied case.
this to Vacate Award by the Arbitration upon this stipulation in complying 2. The Chairman of the Arbitration
Compromise Board on December 20, 1999. with its various obligations under Board greatly exceeded
Agreement On May 22, 2000 Presiding Judge the agreement. To allow defendant his powers when he
neither party Rose Marie Alonzo Legasto issued to now go back on its word and mediated for settlement
shall file an order the dispositive portion of start questioning the Decision in the court of
Criminal or which states: would be grossly unfair considering arbitration proceedings.
Administrativ "WHEREFORE, the that the latter was also a party to 3. The Chairman of the Arbitration
e cases or Arbitration Award the Compromise Agreement Board committed serious
suits against issued by the Arbitration entered into part of which dealt irregularity in hastily
each other or Board is hereby with the creation of the Arbitration convening the Board in
its Board or APPROVED and the Board. 6 two days, which
member of its Motion for Execution The appellate court likewise held that petitioner failed to thereafter released its
officials on filed by plaintiff hereby present evidence to prove its claim of bias and partiality on report.
grounds GRANTED. The Motion to the part of the Chairman of the Arbitration Board, Mr. 4. The Arbitration Board
arising from Vacate Award filed by Carmelo V. Sison (Mr. Sison). aIcCTA Committed manifest
the case. defendant is hereby Further, the Court of Appeals found that blasting is not part injustice prejudicial to
The Compromise Agreement was DENIED for lack of merit. of the unit price for grading and structural excavation petitioner based on the
subsequently approved by the Accordingly, let a writ of provided for in the contract for the BACMAN II Project, and following:
Court on May 24, 1995. execution be issued to that there was no perfected contract between the parties a. It rendered an award
The case was subsequently referred enforce the Arbitration for an extra work order for blasting. Nonetheless, since based on
by the parties to the arbitration Award. FUCC relied on the representation of petitioner's officials equity despite
board pursuant to their SO that the extra work order would be submitted to its Board the mandatory
Compromise Agreement. On ORDERED." 5 (Bracketed of Directors for approval and that the blasting works would provision of
December 9, 1999 the Arbitration words supplied) be paid, the Court of Appeals ruled that FUCC is entitled to the law.
Board rendered its ruling the NPC went to the Court of Appeals on the lone issue of just compensation on grounds of equity and promissory b. The Board's decision
dispositive portion of which states: whether respondent judge acted with grave abuse of estoppel. to justify that
WHEREFORE, claimant is discretion in issuing the Order dated May 22, 2000 and Anent the issue of just compensation, the appellate court equity applies
hereby declared entitled directing the issuance of a Writ of Execution. took into account the estimate prepared by a certain Mr. herein despite
to an award of In its assailed Decision, the appellate court declared that the Lauro R. Umali (Mr. Umali), Project Manager of the the fact
P118,681,328.28 as just court a quo did not commit grave abuse of discretion BACMAN II Project, which itemized the various costs that FUCC
compensation for considering that the Arbitration Board acted pursuant to its involved in blasting works and came up with P1,310.82 per never
blasting works, plus ten powers under the Compromise Agreement and that its cubic meter, consisting of the direct cost for drilling, submitted its
percent (10%) thereof award has factual and legal bases. blasting excavation, stockpiling and hauling, and a 30% own actual
for attorney's fees and The Court of Appeals gave primacy to the court-approved mark up for overhead, contractor's tax and contingencies. costs for
expenses of litigation. Compromise Agreement entered into by the parties and This estimate was later changed to P983.75 per cubic blasting and
Considering that concluded that they intended the decision of the arbitration meter to which FUCC agreed. The Court of Appeals, PHESCO, INC.,
payment in the total panel to be final and executory. Said the court: however, held that just compensation should cover only the the succeeding
amount of For one, what the price agreed to direct costs plus 10% for overhead expenses. Thus, it contractor, did
P36,550,000.00 had be submitted for arbitration are declared that the amount of P763.00 7 per cubic meter is not employ
previously been made, pure issues of fact (i.e., the price of sufficient. Since the total volume of blasted rocks as blasting but
respondent is hereby blasting; both parties' claims for computed by Dr. Benjamin Buensuceso, Jr. 8 of the U.P. used ordinary
ordered to pay claimant damages, delay, interests and all College of Engineering is 97,032.16 cubic meters, FUCC is excavation
the remaining sum of other unresolved claims of both entitled to the amount of P74,035,503.50 as just method at
P82,131,328.28 for parties, including the exact volume compensation. P75.59 per
attorney's fees and of blasted rocks). Also, the manner Although the Court of Appeals adjudged FUCC entitled to cubic meter
expenses of litigation. by which the Arbitration Board was interest, 9 the dispositive portion of the which is
Pursuant to the formed and the terms under which assailedDecision 10 did not provide for the payment of approximately
Compromise Agreement the arbitrable issues were referred interest. Moreover, the award of attorney's fees was the same unit
approved by this to said Board are specified in the deleted as there was no legal and factual ground for its price of
Honorable Court, the agreement. Clearly, the parties had imposition. plaintiff
parties have agreed that left to the Arbitration Board the Petitioner, represented by the Office of the Solicitor (FUCC).
the decision of the final adjudication of their General in the instant Petition, rehashes its submissions c. It gravely erred when
remaining claims and waived their the Board
 claimed that meter. 11 [Emphasis in possession. In any event, the unit price of P430.00 per hear evidence pertinent
an award of the original] cubic meter appearing in the sub-contract represents only and material to the
just Specifically, petitioner asserts that Mr. Sison exhibited bias a fraction of the costs incurred by FUCC for the blasting controversy; that one or
compensation and prejudgment when he exhorted it to pay FUCC for the works. more of the arbitrators
must be given blasting works after concluding that the latter was allowed Petitioner filed a Reply 14 dated March 18, 2002 reiterating was disqualified to act as
to respondent to blast. Moreover, Mr. Sison allegedly attempted to its earlier submissions. such under section nine
FUCC for what mediate the conflict between the parties in violation The parties in the present case mutually agreed to submit hereof, and willfully
it has actually of Section 20, 12 paragraph 2 ofRepublic Act No. 876 (R.A. to arbitration the settlement of the price of blasting, the refrained from disclosing
spent and yet 876) otherwise known as the Arbitration Law. Petitioner parties' claims for damages, delay and interests and all such disqualifications or
instead of also questions the abrupt manner by which the decision of other unresolved claims including the exact volume of of any other misbehavior
using as basis the Arbitration Board was released. blasted rocks. 15 They further mutually agreed that the by which the rights of
P458.07 Petitioner avers that FUCC's claim for blasting works was decision of the Arbitration Board shall be final and any party have been
which is the not approved by authorized officials in accordance immediately executory. 16 materially prejudiced; or
price agreed with Presidential Decree No. 1594 (P.D. 1594) and its A stipulation submitting an ongoing dispute to arbitration (d) That the arbitrators exceeded
upon by FUCC, implementing rules which specifically require the approval is valid. As a rule, the arbitrator's award cannot be set aside their powers, or so
it chose of the extra work by authorized officials before an extra for mere errors of judgment either as to the law or as to the imperfectly executed
an estimate m work order may be issued in favor of the contractor. Thus, facts. Courts are generally without power to amend or them, that a mutual, final
ade by an NPC it should not be held liable for the claim. If at all, only the overrule merely because of disagreement with matters of and definite award upon
employee. erring officials should be held liable. Further, FUCC did not law or facts determined by the arbitrators. They will not the subject matter
d. It gravely erred when present evidence to prove the actual expenses it incurred review the findings of law and fact contained in an award, submitted to them was
it relied for the blasting works. What the Arbitration Board relied and will not undertake to substitute their judgment for that not made.
heavily on the upon was the memorandum of Mr. Umali which was of the arbitrators. A contrary rule would make an When an award is vacated, the
purported neither identified or authenticated during the arbitration arbitration award the commencement, not the end, of court, in its discretion, may direct a
letter of NPC proceedings nor marked as evidence for FUCC. Moreover, litigation. Errors of law and fact, or an erroneous decision new hearing either before the same
Project the figures indicated in Mr. Umali's memorandum were on matters submitted to the judgment of the arbitrators, arbitrators or before a new
Manager allegedly mere estimates and were recommendatory at are insufficient to invalidate an award fairly and honestly arbitrator or arbitrators to be
Lauro R. most. made. Judicial review of an arbitration award is, thus, more chosen in the manner provided in
Umali, when Petitioner likewise claims that its succeeding contractor, limited than judicial review of a trial. 17 the submission or contract for the
the same has Phesco, Inc. (Phesco), was able to excavate the same rock However, an arbitration award is not absolute and without selection of the original arbitrator
not been formation without blasting. exceptions. Where the conditions described inArticles or arbitrators, and any provision
identified nor Finally, it asserts that the award of P763.00 per cubic meter 2038, 2039 and 2040 of the Civil Code 18 applicable to limiting the time in which the
were the has no factual and legal basis as the sub-contract between both compromises and arbitrations are obtaining, the arbitrators may make a decision
handwritten FUCC and its blasting sub-contractor, Dynamic Blasting arbitrators' award may be annulled or shall be deemed applicable to the
entries in Specialists of the Philippines (Dynamic), was only P430.00 rescinded. 19 Additionally, judicial review of an arbitration new arbitration to commence from
Annex ii per cubic meter. award is warranted when the complaining party has the date of the court's order.
established to presented proof of the existence of any of the grounds for Where the court vacates an award,
be made by In its Comment 13 dated October 15, 2001, FUCC points out vacating, modifying or correcting an award outlined costs not exceeding fifty pesos and
him. that petitioner's arguments are exactly the same as the under Sections 24 and 25 of R.A. 876,viz: disbursements may be awarded to
5. The Arbitration Board gravely ones it raised before the Arbitration Board, the trial court Section 24. Grounds for vacating an the prevailing party and the
erred in computing and the Court of Appeals. Moreover, in the Compromise award. — In any of the following payment thereof may be enforced
interest at 12% and from Agreement between the parties, petitioner committed to cases, the court must make an in like manner as the payment of
the time of plaintiff's abide by the decision of the Arbitration Board. It should not order vacating the award upon the costs upon the motion in an action.
extrajudicial claim now be allowed to question the decision. petition of any party to the Section 25. Grounds for modifying or
despite the fact that FUCC likewise notes that Atty. Jose G. Samonte (Atty. controversy when such party correcting an award. — In any one
herein case is an action Samonte), one of the members of the Arbitration Board, proves affirmatively that in the of the following cases, the court
for specific performance was nominated by petitioner itself. If there was any arbitration proceedings: must make an order modifying or
and not for payment of irregularity in its proceedings such as the bias and (a) The award was procured by correcting the award, upon the
loan or forbearance of prejudgment petitioner imputes upon Mr. Sison, Atty. corruption, fraud, or application of any party to the
money, and despite the Samonte would have complained. As it is, Atty. Samonte other undue means; controversy which was arbitrated:
fact that it has resolved concurred in the decision of the Arbitration Board and or cSATEH (a) Where there was an evident
that there was no dissented only as to the award of attorney's fees. (b) That there was evident miscalculation of figures,
perfected contract and As regards the issue of interest, FUCC claims that the case partiality or corruption or an evident mistake in
there was no bad faith on involves forbearance of money and not a claim for damages in the arbitrators or any the description of any
the part of defendant. for breach of an obligation in which case interest on the of them; or person, thing or property
6. On June 25, 2000, NPC discovered amount of damages awarded may be imposed at the rate of (c) That the arbitrators were guilty referred to in the award;
the Sub-Contract six percent (6%) per annum. of misconduct in refusing or
Agreement of FUCC with Finally, FUCC asserts that its sub-contract agreement with to postpone the hearing (b) Where the arbitrators have
a unit price of only Dynamic is not newly-discovered evidence. Petitioner's upon sufficient cause awarded upon a matter
P430/per cubic lawyers allegedly had a copy of the sub-contract in their shown, or in refusing to not submitted to them,
 not affecting the merits Minister of Public Works,
of the decision upon the Transportation and
matter submitted; or Communications, the Minister of
(c) Where the award is imperfect in Public Highways, or the Minister of
a matter of form not Energy, as the case may be.
affecting the merits of The pertinent portions of the Implementing Rules and
the controversy, and if it Regulations of P.D. 1594 provide:
had been a CI — Contract Implementation:
commissioner's report, These Provisions Refer to Activities
the defect could have During Project Construction, i.e.,
been amended or After Contract Award Until
disregarded by the court. Completion, Except as May
The order may modify and correct Otherwise be Specifically Referred
the award so as to effect the intent to Provisions Under Section II. IB —
thereof and promote justice Instructions to Bidders.
between the parties. CI 1 — Variation Orders — Change
In this case, petitioner does not specify which of the Order/Extra Work
foregoing grounds it relies upon for judicial review. Order/Supplemental Agreement
Petitioner avers that "if and when the factual circumstances 4. An Extra Work Order may be
referred to in the provisions aforementioned are present, issued by the implementing official
judicial review of the award is warranted." 20 From its to cover the introduction of new
presentation of issues, however, it appears that the alleged work items after the same has been
evident partiality of Mr. Sison is singled out as a ground to found to strictly comply with Section
vacate the board's decision. CI-1-1 and approved by the
We note, however, that the Court of Appeals found that appropriate official if the amount of
petitioner did not present any proof to back up its claim of the Extra Work Order is within the
evident partiality on the part of Mr. Sison. Its averments to limits of the former's authority to
the effect that Mr. Sison was biased and had prejudged the approve original contracts and
case do not suffice to establish evident partiality. Neither under the following conditions:
does the fact that a party was disadvantaged by the a. Where there are additional
decision of the arbitration committee prove evident works needed and necessary for
partiality. 21 the completion, improvement or
According to the appellate court, "[p]etitioner was never protection of the project which
deprived of the right to present evidence nor was there any were not included as items of work
showing that the Board showed signs of any bias in favor of in the original contract.
FUCC. As correctly found by the trial court, this Court b. Where there are subsurface or
cannot find its way to support petitioner's contention that latent physical conditions at the
there was evident partiality in the assailed Award of the site differing materially from those
Arbitrator in favor of the respondent because the indicated in the contract.
conclusion of the Board, which the Court found to be well- c. Where there are duly unknown
founded, is fully supported by substantial evidence." 22 physical conditions at the site of an
There is no reason to depart from this conclusion. unusual nature differing materially
However, we take exception to the arbitrators' from those ordinarily encountered
determination that based on promissory estoppel per se or and generally recognized as
alone, FUCC is entitled to just compensation for blasting inherent in the work or character
works for the reasons discussed hereunder. provided for in the contract.
Section 9 of P.D. No. 1594, entitled Prescribing Policies, d. Where there are duly approved
Guidelines, Rules and Regulations for Government construction drawings or any
Infrastructure Contracts, provides: instruction issued by the
SECTION 9. Change Order and Extra implementing office/agency during
Work Order. — A change order or the term of contract which involve
extra work order may be issued extra cost.
only for works necessary for the xxx xxx xxx
completion of the project and, 6. A separate Supplemental
therefore, shall be within the Agreement may be entered into for
general scope of the contract as all Change Orders and Extra Work
bid[ded] and awarded. All change Orders if the aggregate amount
orders and extra work orders shall exceeds 25% of the escalated
be subject to the approval of the original contract price. All change
orders/extra work orders beyond
100% of the escalated original
contract cost shall be subject to
public bidding except where the
works involved are inseparable from
the original scope of the project in
which case negotiation with the
incumbent contractor may be
allowed, subject to approval by the
appropriate authorities.
7. Any Variation Order (Change
Order, Extra Work Order or
Supplemental Agreement) shall be
subject to the escalation formula
used to adjust the original contract
price less the cost of mobilization.
In claiming for any Variation Order,
the contractor shall, within seven
(7) calendar days after such work
has been commenced or after the
circumstances leading to such
condition(s) leading to the extra
cost, and within 28 calendar days
deliver a written communication
giving full and detailed particulars
of any extra cost in order that it
may be investigated at that time.
Failure to provide either of such
notices in the time stipulated shall
constitute a waiver by the
contractor for any claim. The
preparation and submission of
Change Orders, Extra Work Orders
or Supplemental Agreements are as
follows:
a. If the Project Engineer believes
that a Change Order, Extra Work
Order or Supplemental Agreement
should be issued, he shall prepare
the proposed Order or
Supplemental Agreement
accompanied with the notices
submitted by the contractor, the
plans therefore, his computations
as to the quantities of the
additional works involved per item
indicating the specific stations
where such works are needed, the
date of his inspections and
investigations thereon, and the log
book thereof, and a detailed
estimate of the unit cost of such
items of work, together with his
justifications for the need of such
Change Order, Extra Work Order or
Supplemental Agreement, and shall
submit the same to the Regional
Director of
office/agency/corporation
concerned.
b. The Regional Director concerned,
upon receipt of the proposed
Change Order, Extra Work Order or
Supplemental Agreement shall
immediately instruct the technical
staff of the Region to conduct an
on-the-spot investigation to verify
the need for the work to be
prosecuted. A report of such
verification shall be submitted
directly to the Regional Director
concerned.
c. The Regional Director concerned
after being satisfied that such
Change Order, Extra Work Order or
Supplemental Agreement is
justified and necessary, shall
review the estimated quantities
and prices and forward the
proposal with the supporting
documentation to the head of
office/agency/corporation for
consideration. aEDCSI
d. If, after review of the plans,
quantities and estimated unit cost
of the items of work involved, the
proper office/agency/corporation
committee empowered to review
and evaluate Change Orders, Extra
Work Orders or Supplemental
Agreements recommends approval
thereof, the head of
office/agency/corporation,
believing the Change Order, Extra
Work Order or Supplemental
Agreement to be in order, shall
approve the same. The limits of
approving authority for any
individual, and the aggregate of,
Change Orders, Extra Work Orders
or Supplemental Agreements for
any project of the head of
office/agency/corporation shall not
be greater than those granted for
an original project.
CI 3 — Conditions under which
Contractor is to Start Work under
Variation Orders and Receive
Payments
1. Under no circumstances shall a
contractor proceed to commence
work under any Change Order, Extra
Work Order or Supplemental
Agreement unless it has been
approved by the Secretary or his
duly authorized representative.
 Exceptions to the preceding rule
are the following:
a. The Regional Director, or its
equivalent position in
agencies/offices/corporations
without plantilla position for the
same, may, subject to the
availability of funds, authorize the
immediate start of work under any
Change or Extra Work Order under
any or all of the following
conditions:
(1) In the event of an emergency
where the prosecution of the work
is urgent to avoid detriment to
public service, or damage to life
and/or property; and/or
(2) When time is of the essence;
provided, however, that such
approval is valid on work done up
to the point where the cumulative
increase in value of work on the
project which has not yet been duly
fully approved does not exceed five
percent (5%) of the adjusted
original contract price, or P500,000
whichever is less; provided, further,
that immediately after the start of
work, the corresponding
Change/Extra Work Order shall be
prepared and submitted for
approval in accordance with the
above rules herein set. Payments
for works satisfactorily
accomplished on any Change/Extra
Work Order may be made only
after approval of the same by the
Secretary or his duly authorized
representative.
b. For a Change/Extra Work Order
involving a cumulative amount
exceeding five percent (5%) of the
original contract price or original
adjusted contract price no work
thereon may be commenced unless
said Change/Extra Work Order has
been approved by the Secretary or
his duly authorized representative.
[Emphasis supplied]
It is petitioner's submission, and FUCC does not deny, that
the claim for payment of blasting works in Botong alone
was approximately P170,000,000.00, a figure which far
exceeds the original contract price of P80,000,000.00 for
two (2) project sites. Under the foregoing implementing
rules, for an extra work order which exceeds 5% of the
original contract price, no blasting work may be
commenced without the approval of the Secretary or his
duly authorized representative. Moreover, the procedure
for the preparation and approval of the extra work order
outlined under Contract Implementation (CI) 1(7) above
should have been complied with. Accordingly, petitioner's
officials should not have authorized the commencement of
blasting works nor should FUCC have proceeded with the
same.
The following events, culled from the decision of the
Arbitration Board and the assailed Decision, are made the
bases for the finding of promissory estoppel on the part of
petitioner:
1. After claimant [respondent
herein] encountered what it claimed
to be massive hard rock
formation (Testimony of witness
Dumaliang, TSN, 28 October 1996,
pp. 41–42; Testimony of witness
Lataquin, 28 November 1996, pp.
2–3; 20–23; Exh. "JJJ" and sub-
markings) and informed
respondent[petitioner herein] about
it, respondent's own geologists went
to the Botong site to investigate and
confirmed the rock formation and
recommended blasting (Cf.
Memorandum of Mr. Petronilo E.
Pana, Acting Manager of the
Geoscience Services Department
and the report of the geologists
who conducted the site
investigation; Exhs. "F" and "F-1").
2. Claimant asked for clearance to
blast the rock formation to the
design grade (Letter dated 28
September 1992; Exh. "UU"). The
engineers of respondent at the
project site advised claimant to
proceed with its suggested method
of extraction (Order/Instruction
given by Mr. Reuel R. Declaro and
Mr. Francis A. Paderna dated 29
September 1992; Exh. "C").
3. Claimant requested that the
intended blasting works be
confirmed as extra work order by
responsible officials of
respondent directly involved in the
BACMAN II Project (i.e., then
BACMAN II Project Manager, Mr.
Lauro R. Umali and Mr. Angelito G.
Senga, Section Chief, Civil
Engineering Design of respondent's
Design Department which bidded
the project). These officials issued
verbal instructions to the effect: (a)
that claimant could blast the rock
formation down to the design grade
of 495 masl; (b) that said blasting
works would be an extra work
order; and (c) that claimant would
be paid for said blasting works using
the price per cubic meter for similar
blasting works at Palinpinon, or at
P1,346.00 per cubic meter.
4. Claimant sent two (2)
confirmatory letters to respondent,
both addressed to its President, one
dated 30 September 1992, and sent
through Mr. Angelito Senga, Chief
Civil Design — Thermal, the other
dated 02 October 1992, and sent
through Mr. Lauro R. Umali, Project
Manager-BacMan II (Exhs. "D" and
"E"; Testimony of witness
Dumaliang, TSN, 28 October 1996,
pp. 43–49). The identical letters
read:
We wish to confirm your
instruction for us to
proceed with the
blasting of the Botong
Plant site to the design
grade pending issuance
of the relevant variation
order. This is to avoid
delay in the
implementation of this
critical project due to the
urgent need to blast
rocks on the plant site.
We are confirming
further your statement
that the said blasting
works is an extra work
order and that we will be
paid using the price
established in your
Palinpinon contract with
Phesco.
Thank you for your
timely action and we
look forward to the
immediate issuance of
the extra work order.
We are now mobilizing
equipment and
manpower for the said
work and hope to start
blasting next week.
5. Respondent received the letters
but did not reply thereto nor
countermand the earlier
instructions given to claimant to
proceed with the blasting works.
The due execution and authenticity
of these letters (Exhs. "D-1" and "E-
1") and the fact of receipt (Exhs. "D-
2" and "E-2") were duly proved by
claimant (Testimony of witness
Dumaliang, TSN, 28 October 1996,
43–49).
6. In mid-October 1992, three (3)
Vice-Presidents of respondent visited
the project site and were informed of
claimant's blasting activities. While
respondent claims that one of the
Vice-Presidents, Mr.Rodrigo Falcon,
raised objections to claimant's
blasting works as an extra work
order, they instructed claimant to
speed up the works because of the
power crisis then hounding the
country. Stipulation no. 24 of the
Joint Stipulation of Facts of the
parties which reads: "24. In mid-
October 1992, three (3) Vice-
Presidents of respondent, namely:
Mr. Hector N. Campos, Sr., of
Engineering Construction, Mr. C.A.
Pastoral of Engineering Design, and
Mr. Rodrigo P. Falcon, visited the
project site and were likewise
apprised of claimant's blasting
activities. They never complained
about the blasting works, much less
ordered its cessation. In fact, no
official of respondent ever ordered
that the blasting works be stopped."
7. After visiting Botong, Mr. Hector
N. Campos, Sr., then Vice President
of Engineering Construction,
instructed Mr. Fernando A.
Magallanes then Manager of the
Luzon Engineering Projects
Department, to evaluate claimant's
blasting works and to submit his
recommendations on the proper
price therefor. In a memorandum
dated 17 November 1992 (Exh. "G"
and sub-markings), Mr. Magallanes
confirmed that claimant's blasting
works was an extra work order and
recommended that it be paid at the
price for similar blasting works at
Palinpinon, or at P1,346.00 per
cubic meter. Mr. Campos concurred
with the findings and
recommendations of Mr. Magallanes
and instructed Mr. Lauro R. Umali,
then Project Manager of BacMan II,
to implement the same as shown by
his instructions scribbled on the
memorandum.
8. Mr. Umali and the project team
prepared proposed Extra Work
Order No. 2 — Blasting (Exh."DDD"
— Memorandum of Mr. Umali to
Mr. Campos dated 20 January 1993
forwarding proposed Extra Work
Order No. 2), recommending a price
of P983.75 per cubic meter for
claimant's blasting works.Claimant
agreed to this price (Testimony of
witness Dumaliang, 7 November
1996, p. 48).
9. On 19 February 1993, claimant
brought the matter of its unpaid
blasting works to the attention of
the then NPC Chairman [also
Secretary of the Department of
Energy then] Delfin L. Lazaro
during a meeting with the multi-
sectoral task force monitoring the
implementation of power plant
projects, who asked then NPC
President Pablo B. Malixi what he
was doing about the
problem. President Malixi thereafter
convened respondent's vice-
presidents and ordered them to
quickly document the variation
order and pay claimant. The vice-
president, and specifically
Mr. Campos, pledged that the
variation order for claimant's
blasting works would be submitted
for the approval of the NPC Board
during the first week of March
1993. Claimant thereafter sent
respondent a letter dated 22
February 1993 (Ex. "K") to confirm
this pledge (Testimony of witness
Dumaliang, 7 November 1996, pp.
28–30).
10. Mr. Campos created a task force
(i.e., the Technical Task Force on
the Study and Review of Extra
Work Order No. 2; Exh. "FFF") to
review claimant's blasting
works. After several meetings with
the task force, claimant agreed to
the lower price of P458.07 per cubic
meter, in exchange for quick
payment(Testimony of witness
Dumaliang, 7 November 1996, p.
30). aSITDC
11. However, no variation order was
issued and no payment came,
although it appears from two (2)
radiograms sent by Mr. Campos to
Mr. Paderna at the project site that
the variation order was being
processed and that payment to
claimant was forthcoming (Exhs.
"AAA" and "BBB").
12. Respondent asked the
Department of Public Works and
Highways (DPWH) about the
standard prices for blasting in the
projects of the DPWH. The DPWH
officially replied to respondent's
query in a letter dated 19 May 1993
but the task force still failed to seek
Board approval for claimant's
variation order. The task force
eventually recommended that the
issue of grading excavation and
structural excavation and the unit
prices therefor be brought into
voluntary arbitration (Testimony of
witness Dumaliang, 7 November
1996, pp. 30–57).
13. Claimant thereafter saw
Mr. Francisco L. Viray, the new NPC
President, who proposed that
claimant accept the price of P458.07
per cubic meter for its blasting
works with the balance of its claim
to be the subject of
arbitration. Claimant accepted the
offer and sent the letter dated 28
September 1993 (Exh. "O") to
formalize said acceptance. However,
no variation order was issued and
the promised payment never came.
(Testimony of witness Dumaliang,
7 November 1996, p. 58).
14. After some time, claimant met
Mr. Viray on 19 October 1993 at the
project site, and with some NPC
officers in attendance, particularly
Mr. Gilberto A. Pastoral, Vice-
President for Engineering Design,
who was instructed by Mr. Viray to
prepare the necessary memorandum
(i.e., that claimant would be paid
P458.07 per cubic meter with the
balance of its claim to be the subject
of arbitration) for the approval of
the NPC Board. Claimant formalized
what transpired during this meeting
in its letter to Mr.Pastoral dated 22
October 1993 (Exhibit "R"). But no
action was taken by Mr. Pastoral
and no variation order was issued by
respondent (Testimony of witness
Dumaliang, 7 November 1996, pp.
57–58). 23[Emphasis supplied and
bracketed words]
Promissory estoppel "may arise from the making of a
promise, even though without consideration, if it was
intended that the promise should be relied upon and in fact
it was relied upon, and if a refusal to enforce it would be
virtually to sanction the perpetration of fraud or would
result in other injustice." 24 Promissory estoppel
presupposes the existence of a promise on the part of one
against whom estoppel is claimed. The promise must be
plain and unambiguous and sufficiently specific so that the
court can understand the obligation assumed and enforce
the promise according to its terms. 25
In the present case, the foregoing events clearly evince that
the promise that the blasting works would be paid was
predicated on the approval of the extra work order by
petitioner's Board. Even FUCC acknowledged that the
blasting works should be an extra work order and
requested that the extra work order be confirmed as such
and approved by the appropriate officials. Notably, even as
the extra work order allegedly promised to it was not yet
forthcoming, FUCC commenced blasting.
The alleged promise to pay was therefore conditional and
up to this point, promissory estoppel cannot be established
as the basis of petitioner's liability especially in light of P.D.
1594 and its implementing rules of which both parties are
presumed to have knowledge. In Mendoza v. Court of
Appeals, supra, we ruled that "[a] cause of action for
promissory estoppel does not lie where an alleged oral
promise was conditional, so that reliance upon it was not
reasonable. It does not operate to create liability where it
does not otherwise exist."
Petitioner's argument that it is not bound by the acts of its
officials who acted beyond the scope of their authority in
allowing the blasting works is correct. Petitioner is a
government agency with a juridical personality separate
and distinct from the government. It is not a mere agency of
the government but a corporate entity performing
proprietary functions. It has its own assets and liabilities
and exercises corporate powers, including the power to
enter into all contracts, through its Board of Directors.
In this case, petitioner's officials exceeded the scope of
their authority when they authorized FUCC to commence
blasting works without an extra work order properly
approved in accordance with P.D. 1594. Their acts cannot
bind petitioner unless it has ratified such acts or is
estopped from disclaiming them. 26
However, the Compromise Agreement entered into by the
parties, petitioner, being represented by its President, Mr.
Guido Alfredo A. Delgado, acting pursuant to its Board
Resolution No. 95-54 dated April 3, 1995, is a confirmatory
act signifying petitioner's ratification of all the prior acts of
its officers. Significantly, the parties agreed that "[t]his
Compromise Agreement shall serve as the Supplemental
Agreement for the payment of plaintiff's blasting works at
the Botong site" 27 in accordance with CI 1(6) afore-
quoted. In other words, it is primarily by the force of this
Compromise Agreement that the Court is constrained to
declare FUCC entitled to payment for the blasting works it
undertook.
Moreover, since the blasting works were already rendered
by FUCC and accepted by petitioner and in the absence of
proof that the blasting was done gratuitously, it is but
equitable that petitioner should make compensation
therefor, pursuant to the principle that no one should be
permitted to enrich himself at the expense of another. 28
This brings us to the issue of just compensation.
The parties proposed in the terms of reference jointly
submitted to the Arbitration Board that should FUCC be
adjudged entitled to just compensation for its blasting
works, the price therefor should be determined based on
the payment for blasting works in similar projects of FUCC
and the amount it paid to its blasting
subcontractor. 29 They agreed further that "the price of the
blasting at the Botong site . . . shall range from Defendant's
position of P76.00 per cubic meter as per contract to a
maximum of P1,144.00". 30
Petitioner contends that the Arbitration Board, trial court
and the appellate court unduly relied on the memorandum
of Mr. Umali which was allegedly not marked as an exhibit.
We note, however, that this memorandum actually forms
part of the record of the case as Exhibit
"DDD." 31 Moreover, both the Arbitration Board and the
Court of Appeals found that Mr. Umali's proposal is the best
evidence on record as it is supported by detailed cost
estimates that will serve as basis to determine just
compensation.
While the Arbitration Board found that FUCC did not
present evidence showing the amount it paid to its blasting
sub-contractor, it did present testimony to the effect that it
incurred other costs and expenses on top of the actual
blasting cost. Hence, the amount of P430.00 per cubic
meter indicated in FUCC's Contract of Agreement with
Dynamic is not controlling.
Moreover, FUCC presented evidence showing that in two
(2) other projects where blasting works were undertaken,
petitioner paid the contractors P1,346 per cubic meter for
blasting and disposal of solid rocks in the Palinpinon
project and P1,144.51 per cubic meter for rock excavation
in the Hermosa Balintawak project. Besides, while
petitioner claims that in a contract with Wilper
Construction for the construction of the Tayabas sub-
station, the price agreed for blasting was only P96.13,
petitioner itself did not present evidence in support of this
claim. 32
Parenthetically, the point raised by petitioner that its
subsequent contractor, Phesco, did not undertake blasting
works in excavating the same rock formation is extraneous
and irrelevant. The fact is that petitioner allowed FUCC to
blast and undertook to pay for the blasting works.
At this point, we hearken to the rule that the findings of the
Arbitration Board, affirmed by the trial court and the Court
of Appeals and supported as they are by substantial
evidence, should be accorded not only respect but
finality. 33 Accordingly, the amount of P763.00 per cubic
meter fixed by the Arbitration Board and affirmed by the
appellate court as just compensation should stand.
As regards the issue of interest, while the appellate court
declared in the body of its Decision "that interest which
would represent the cost of the money spent be imposed
on the money actually spent by claimant for the blasting
works," 34 there is no pronouncement as to the payment of
interest in the dispositive portion of the Decision even as it
specifically deleted the award of attorney's fees.
Despite its knowledge of the appellate court's omission,
FUCC did not file a motion for reconsideration or appeal
from its Decision. In failing to do so, FUCC allowed
the Decision to become final as to it.
In Edwards v. Arce, 35 we ruled that in a case decided by a
court, the true judgment of legal effect is that entered by
the clerk of said court pursuant to the dispositive part of its
decision. The only portion of the decision that may be the
subject of execution is that which is ordained or decreed in
the dispositive portion. Whatever may be found in the body
of the decision can only be considered as part of the
reasons or conclusions of the court and serve only as
guides to determine the ratio decidendi. 36
Even so, the Court allows a judgment which had become
final and executory to be clarified when there is an
ambiguity caused by an omission or mistake in the
dispositive portion of the decision. 37 In Reinsurance
Company of the Orient, Inc. v. Court of Appeals, 38 we held:
In Republic Surety and Insurance
Company, Inc. v. Intermediate
Appellate Court, the Court applying
the above doctrine said:
". . . We clarify, in other
words, what we did
affirm. What is involved
here is not what is
ordinarily regarded as a
clerical error in the
dispositive part of the
decision of the Court of
First Instance, which
type of error is perhaps
best typified by an error
in arithmetical
computation. At the
same time, what is
involved here is not a
correction of an
erroneous judgment or
dispositive portion of a
judgment. What we
believe is involved here
is in the nature of
an inadvertent omission
on the part of the Court of
First Instance (which
should have been
noticed by private
respondent's counsel
who had prepared the
complaint), of what
might be described as a
logical follow-through of
something set forth both
in the body of the decision
and in the dispositive
portion thereof : the
inevitable follow-
through, or translation
into, operational or
behavioral terms, of the
annulment of the Deed of
Sale with Assumption of
Mortgage, from which
petitioners' title or claim
of title embodied in TCT
133153 flows." (Italics
supplied) 39
In this case, the omission of the award of interest was
obviously inadvertent. Correction is therefore in order.
However, we do not agree with the Arbitration Board that
the interest should be computed at 12%. Since the case
does not involve a loan or forbearance of money, goods or
credit and court judgments thereon, the interest due shall
be computed at 6% per annum computed from the time the
claim was made in 1992 as determined by the Arbitration
Board and in accordance with Articles 2209 and 1169 of
the Civil Code. The actual base for the computation of legal
interest shall be on the amount finally
adjudged. 40 Further, when the judgment awarding a sum
of money becomes final and executory, the rate of legal
interest 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. 41
WHEREFORE, the petition is GRANTED in part. The
appealed decision is MODIFIED in that the amount of
P74,035,503.50 shall earn legal interest of six percent (6%)
from 1992. A twelve percent (12%) interest, in lieu of six
percent (6%), shall be imposed on such amount upon
finality of this decision until the payment thereof.SIDEaA
SO ORDERED.
||| (National Power Corp. v. Alonzo-Legasto, G.R. No. 148318,
[November 22, 2004], 485 PHIL 732-763)
SECOND DIVISION
[G.R. No. 175404. January 31, 2011.]
CARGILL PHILIPPINES,
INC., petitioner, vs. SAN
FERNANDO REGALA TRADING,
INC.,respondent.
DECISION
PERALTA, J p:
Before us is a petition for review on certiorari seeking to
reverse and set aside the Decision 1 dated July 31, 2006
and the Resolution 2 dated November 13, 2006 of the Court
of Appeals (CA) in CA G.R. SP No. 50304.
The factual antecedents are as follows:
On June 18, 1998, respondent San Fernando Regala
Trading, Inc. filed with the Regional Trial Court (RTC) of
Makati City a Complaint for Rescission of Contract with
Damages 3 against petitioner Cargill Philippines, Inc. In its
Complaint, respondent alleged that it was engaged in
buying and selling of molasses and petitioner was one of its
various sources from whom it purchased molasses.
Respondent alleged that it entered into a contract dated
July 11, 1996 with petitioner, wherein it was agreed upon
that respondent would purchase from petitioner 12,000
metric tons of Thailand origin cane blackstrap molasses at
the price of US$192 per metric ton; that the delivery of the
molasses was to be made in January/February 1997 and
payment was to be made by means of an Irrevocable Letter
of Credit payable at sight, to be opened by September 15,
1996; that sometime prior to September 15, 1996, the
parties agreed that instead of January/February 1997, the
delivery would be made in April/May 1997 and that
payment would be by an Irrevocable Letter of Credit
payable at sight, to be opened upon petitioner's advice.
Petitioner, as seller, failed to comply with its obligations
under the contract, despite demands from respondent,
thus, the latter prayed for rescission of the contract and
payment of damages.
On July 24, 1998, petitioner filed a Motion to
Dismiss/Suspend Proceedings and to Refer Controversy to
Voluntary Arbitration, 4 wherein it argued that the alleged
contract between the parties, dated July 11, 1996, was
never consummated because respondent never returned
the proposed agreement bearing its written acceptance or
conformity nor did respondent open the Irrevocable Letter
of Credit at sight. Petitioner contended that the controversy
between the parties was whether or not the alleged
contract between the parties was legally in existence and
the RTC was not the proper forum to ventilate such issue. It
claimed that the contract contained an arbitration clause,
to wit: EDACSa
ARBITRATION
Any dispute which the Buyer and
Seller may not be able to settle by
mutual agreement shall be settled
by arbitration in the City of New
York before the American
Arbitration Association. The
Arbitration Award shall be final and
binding on both parties. 5
that respondent must first comply with the
arbitration clause before resorting to court, thus, the
RTC must either dismiss the case or suspend the
proceedings and direct the parties to proceed with
arbitration, pursuant to Sections 6 6 and 7 7 of
Republic Act (R.A.) No. 876, or the Arbitration Law.
Respondent filed an Opposition, wherein it argued that the
RTC has jurisdiction over the action for rescission of
contract and could not be changed by the subject
arbitration clause. It cited cases wherein arbitration
clauses, such as the subject clause in the contract, had been
struck down as void for being contrary to public policy
since it provided that the arbitration award shall be final
and binding on both parties, thus, ousting the courts of
jurisdiction.
In its Reply, petitioner maintained that the cited decisions
were already inapplicable, having been rendered prior to
the effectivity of the New Civil Code in 1950 and the
Arbitration Law in 1953.
In its Rejoinder, respondent argued that the arbitration
clause relied upon by petitioner is invalid and
unenforceable, considering that the requirements imposed
by the provisions of the Arbitration Law had not been
complied with. aCHDST
By way of Sur-Rejoinder, petitioner contended that
respondent had even clarified that the issue boiled down to
whether the arbitration clause contained in the contract
subject of the complaint is valid and enforceable; that the
arbitration clause did not violate any of the cited provisions
of the Arbitration Law.
On September 17, 1998, the RTC rendered an Order, 8 the
dispositive portion of which reads:
Premises considered, defendant's
"Motion to Dismiss/Suspend
Proceedings and to Refer
Controversy to Voluntary
Arbitration" is hereby DENIED.
Defendant is directed to file its
answer within ten (10) days from
receipt of a copy of this order. 9
In denying the motion, the RTC found that there was no
clear basis for petitioner's plea to dismiss the case,
pursuant to Section 7 of the Arbitration Law. The RTC said
that the provision directed the court concerned only to stay
the action or proceeding brought upon an issue arising out
of an agreement providing for the arbitration thereof, but
did not impose the sanction of dismissal. However, the RTC
did not find the suspension of the proceedings warranted,
since the Arbitration Law contemplates an arbitration
proceeding that must be conducted in the Philippines
under the jurisdiction and control of the RTC; and before an
arbitrator who resides in the country; and that the arbitral
award is subject to court approval, disapproval and
modification, and that there must be an appeal from the
judgment of the RTC. The RTC found that the arbitration
clause in question contravened these procedures, i.e., the
arbitration clause contemplated an arbitration proceeding
in New York before a non-resident arbitrator (American
Arbitration Association); that the arbitral award shall be
final and binding on both parties. The RTC said that to
apply Section 7 of the Arbitration Law to such an
agreement would result in disregarding the other sections
of the same law and rendered them useless and mere
surplusages.
Petitioner filed its Motion for Reconsideration, which the
RTC denied in an Order 10 dated November 25, 1998.
Petitioner filed a petition for certiorari with the CA raising
the sole issue that the RTC acted in excess of jurisdiction or
with grave abuse of discretion in refusing to dismiss or at
least suspend the proceedings a quo, despite the fact that
the party's agreement to arbitrate had not been complied
with.
Respondent filed its Comment and Reply. The parties were
then required to file their respective Memoranda.
On July 31, 2006, the CA rendered its assailed Decision
denying the petition and affirming the RTC Orders.
In denying the petition, the CA found that stipulation
providing for arbitration in contractual obligation is both
valid and constitutional; that arbitration as an alternative
mode of dispute resolution has long been accepted in our
jurisdiction and expressly provided for in the Civil Code;
that R.A. No. 876 (the Arbitration Law) also expressly
authorized the arbitration of domestic disputes. The CA
found error in the RTC's holding that Section 7 of R.A. No.
876 was inapplicable to arbitration clause simply because
the clause failed to comply with the requirements
prescribed by the law. The CA found that there was nothing
in the Civil Code, or R.A. No. 876, that require that
arbitration proceedings must be conducted only in the
Philippines and the arbitrators should be Philippine
residents. It also found that the RTC ruling effectively
invalidated not only the disputed arbitration clause, but all
other agreements which provide for foreign arbitration.
The CA did not find illegal or against public policy the
arbitration clause so as to render it null and void or
ineffectual. CTSDAI
Notwithstanding such findings, the CA still held that the
case cannot be brought under the Arbitration Lawfor the
purpose of suspending the proceedings before the RTC,
since in its Motion to Dismiss/Suspend proceedings,
petitioner alleged, as one of the grounds thereof, that the
subject contract between the parties did not exist or it was
invalid; that the said contract bearing the arbitration clause
was never consummated by the parties, thus, it was proper
that such issue be first resolved by the court through an
appropriate trial; that the issue involved a question of fact
that the RTC should first resolve. Arbitration is not proper
when one of the parties repudiated the existence or validity
of the contract.
Petitioner's motion for reconsideration was denied in a
Resolution dated November 13, 2006.
Hence, this petition.
Petitioner alleges that the CA committed an error of law in
ruling that arbitration cannot proceed despite the fact that:
(a) it had ruled, in its assailed decision, that the arbitration
clause is valid, enforceable and binding on the parties; (b)
the case of Gonzales v. Climax Mining Ltd. 11 is inapplicable
here; (c) parties are generally allowed, under the Rules of
Court, to adopt several defenses, alternatively or
hypothetically, even if such defenses are inconsistent with
each other; and (d) the complaint filed by respondent with
the trial court is premature.
Petitioner alleges that the CA adopted inconsistent
positions when it found the arbitration clause between the
parties as valid and enforceable and yet in the same breath
decreed that the arbitration cannot proceed because
petitioner assailed the existence of the entire agreement
containing the arbitration clause. Petitioner claims the
inapplicability of the cited Gonzales case decided in 2005,
because in the present case, it was respondent who had
filed the complaint for rescission and damages with the
RTC, which based its cause of action against petitioner on
the alleged agreement dated July 11, 2006 between the
parties; and that the same agreement contained the
arbitration clause sought to be enforced by petitioner in
this case. Thus, whether petitioner assails the genuineness
and due execution of the agreement, the fact remains that
the agreement sued upon provides for an arbitration
clause; that respondent cannot use the provisions favorable
to him and completely disregard those that are
unfavorable, such as the arbitration clause.
Petitioner contends that as the defendant in the RTC, it provisions contained thereunder, including the arbitration
presented two alternative defenses, i.e., the parties had not clause; that if respondent relies on said contract for its
entered into any agreement upon which respondent as cause of action against petitioner, it must also consider
plaintiff can sue upon; and, assuming that such agreement itself bound by the rest of the terms and conditions
existed, there was an arbitration clause that should be contained thereunder notwithstanding that respondent
enforced, thus, the dispute must first be submitted to may find some provisions to be adverse to its position; that
arbitration before an action can be instituted in court. respondent's citation of theGonzales case, decided in 2005,
Petitioner argues that under Section 1 (j) of Rule 16 of the to show that the validity of the contract cannot be the
Rules of Court, included as a ground to dismiss a complaint subject of the arbitration proceeding and that it is the RTC
is when a condition precedent for filing the complaint has which has the jurisdiction to resolve the situation between
not been complied with; and that submission to arbitration the parties herein, is not correct since in the resolution of
when such has been agreed upon is one such condition the Gonzales' motion for reconsideration in 2007, it had
precedent. Petitioner submits that the proceedings in the been ruled that an arbitration agreement is effective
RTC must be dismissed, or at least suspended, and the notwithstanding the fact that one of the parties thereto
parties be ordered to proceed with arbitration. IaAHCE repudiated the main contract which contained it. DEIHAa
On March 12, 2007, petitioner filed a We first address the procedural issue raised by respondent
Manifestation 12 saying that the CA's rationale in declining that petitioner's petition for certiorari under Rule 65 filed
to order arbitration based on the 2005 Gonzales ruling had in the CA against an RTC Order denying a Motion to
been modified upon a motion for reconsideration decided Dismiss/Suspend Proceedings and to Refer Controversy to
in 2007; that the CA decision lost its legal basis, because it Voluntary Arbitration was a wrong remedy invoking
had been ruled that the arbitration agreement can be Section 29 of R.A. No. 876, which provides:
implemented notwithstanding that one of the parties Section 29.
thereto repudiated the contract which contained such . . . An appeal may be taken from an
agreement based on the doctrine of separability. order made in a proceeding under
In its Comment, respondent argues that certiorari under this Act, or from a judgment
Rule 65 is not the remedy against an order denying a entered upon an award
Motion to Dismiss/Suspend Proceedings and To Refer through certiorari proceedings, but
Controversy to Voluntary Arbitration. It claims thatthe such appeals shall be limited to
Arbitration Law which petitioner invoked as basis for its question of law. . . . .
Motion prescribed, under its Section 29, a remedy, i.e., To support its argument, respondent cites the case
appeal by a petition for review on certiorari under Rule 45. of Gonzales v. Climax Mining Ltd. 13 (Gonzales case),
Respondent contends that theGonzales case, which was wherein we ruled the impropriety of a petition
decided in 2007, is inapplicable in this case, especially as to for certiorari under Rule 65 as a mode of appeal from
the doctrine of separability enunciated therein. Respondent an RTC Order directing the parties to arbitration.
argues that even if the existence of the contract and the We find the cited case not in point.
arbitration clause is conceded, the decisions of the RTC and In the Gonzales case, Climax-Arimco filed before the RTC of
the CA declining referral of the dispute between the parties Makati a petition to compel arbitration underR.A. No. 876,
to arbitration would still be correct. This is so because pursuant to the arbitration clause found in the Addendum
respondent's complaint filed in Civil Case No. 98-1376 Contract it entered with Gonzales. Judge Oscar Pimentel of
presents the principal issue of whether under the facts the RTC of Makati then directed the parties to arbitration
alleged in the complaint, respondent is entitled to rescind proceedings. Gonzales filed a petition for certiorari with Us
its contract with petitioner and for the latter to pay contending that Judge Pimentel acted with grave abuse of
damages; that such issue constitutes a judicial question or discretion in immediately ordering the parties to proceed
one that requires the exercise of judicial function and with arbitration despite the proper, valid and timely raised
cannot be the subject of arbitration. argument in his Answer with counterclaim that the
Respondent contends that Section 8 of the Rules of Court, Addendum Contract containing the arbitration clause was
which allowed a defendant to adopt in the same action null and void. Climax-Arimco assailed the mode of review
several defenses, alternatively or hypothetically, even if availed of by Gonzales, citing Section 29 of R.A. No.
such defenses are inconsistent with each other refers to 876 contending that certiorari under Rule 65 can be availed
allegations in the pleadings, such as complaint, of only if there was no appeal or any adequate remedy in
counterclaim, cross-claim, third-party complaint, answer, the ordinary course of law; that R.A. No. 876 provides for
but not to a motion to dismiss. Finally, respondent claims an appeal from such order. We then ruled that Gonzales'
that petitioner's argument is premised on the existence of a petition for certiorari should be dismissed as it was filed in
contract with respondent containing a provision for lieu of an appeal bycertiorari which was the prescribed
arbitration. However, its reliance on the contract, which it remedy under R.A. No. 876 and the petition was filed far
repudiates, is inappropriate. beyond the reglementary period. HIEAcC
In its Reply, petitioner insists that respondent filed an We found that Gonzales' petition for certiorari raises a
action for rescission and damages on the basis of the question of law, but not a question of jurisdiction; that
contract, thus, respondent admitted the existence of all the Judge Pimentel acted in accordance with the procedure
prescribed in R.A. No. 876 when he ordered Gonzales to
proceed with arbitration and appointed a sole arbitrator
after making the determination that there was indeed an
arbitration agreement. It had been held that as long as a
court acts within its jurisdiction and does not gravely abuse
its discretion in the exercise thereof, any supposed error
committed by it will amount to nothing more than an error
of judgment reviewable by a timely appeal and not
assailable by a special civil action of certiorari. 14
In this case, petitioner raises before the CA the issue that
the respondent Judge acted in excess of jurisdiction or with
grave abuse of discretion in refusing to dismiss, or at least
suspend, the proceedings a quo, despite the fact that the
party's agreement to arbitrate had not been complied with.
Notably, the RTC found the existence of the arbitration
clause, since it said in its decision that "hardly disputed is
the fact that the arbitration clause in question contravenes
several provisions of the Arbitration Law . . . and to apply
Section 7 of the Arbitration Law to such an agreement
would result in the disregard of the afore-cited sections
of the Arbitration Law and render them useless and mere
surplusages." However, notwithstanding the finding that an
arbitration agreement existed, the RTC denied petitioner's
motion and directed petitioner to file an answer.
In La Naval Drug Corporation v. Court of Appeals, 15 it was
held that R.A. No. 876 explicitly confines the court's
authority only to the determination of whether or not there
is an agreement in writing providing for arbitration. In the
affirmative, the statute ordains that the court shall issue an
order summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof. If the
court, upon the other hand, finds that no such agreement
exists, the proceedings shall be dismissed.
In issuing the Order which denied petitioner's Motion to
Dismiss/Suspend Proceedings and to Refer Controversy to
Voluntary Arbitration, the RTC went beyond its authority of
determining only the issue of whether or not there is an
agreement in writing providing for arbitration by directing
petitioner to file an answer, instead of ordering the parties
to proceed to arbitration. In so doing, it acted in excess of
its jurisdiction and since there is no plain, speedy, and
adequate remedy in the ordinary course of law, petitioner's
resort to a petition for certiorari is the proper remedy.
We now proceed to the substantive issue of whether the CA
erred in finding that this case cannot be brought under the
arbitration law for the purpose of suspending the
proceedings in the RTC.
We find merit in the petition.
Arbitration, as an alternative mode of settling disputes, has
long been recognized and accepted in our
jurisdiction. 16 R.A. No. 876 17 authorizes arbitration of
domestic disputes. Foreign arbitration, as a system of
settling commercial disputes of an international character,
is likewise recognized. 18 The enactment of R.A. No.
9285 on April 2, 2004 further institutionalized the use of
alternative dispute resolution systems, including
arbitration, in the settlement of disputes. 19 DaCEIc
A contract is required for arbitration to take place and to be
binding. 20 Submission to arbitration is a contract 21 and a
clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a
contract. 22 The provision to submit to arbitration any
dispute arising therefrom and the relationship of the
parties is part of the contract and is itself a contract. 23
In this case, the contract sued upon by respondent provides
for an arbitration clause, to wit:
ARBITRATION
Any dispute which the Buyer and
Seller may not be able to settle by
mutual agreement shall be settled
by arbitration in the City of New
York before the American
Arbitration Association, The
Arbitration Award shall be final and
binding on both parties.
The CA ruled that arbitration cannot be ordered in this
case, since petitioner alleged that the contract between the
parties did not exist or was invalid and arbitration is not
proper when one of the parties repudiates the existence or
validity of the contract. Thus, said the CA:
Notwithstanding our ruling on the
validity and enforceability of the
assailed arbitration clause
providing for foreign arbitration, it
is our considered opinion that the
case at bench still cannot be
brought underthe Arbitration
Law for the purpose of suspending
the proceedings before the trial
court. We note that in its Motion to
Dismiss/Suspend Proceedings, etc.,
petitioner Cargill alleged, as one of
the grounds thereof, that the
alleged contract between the
parties do not legally exist or is
invalid. As posited by petitioner, it
is their contention that the said
contract, bearing the arbitration
clause, was never consummated by
the parties. That being the case, it is
but proper that such issue be first
resolved by the court through an
appropriate trial. The issue
involves a question of fact that the
trial court should first resolve.
Arbitration is not proper when one
of the parties repudiates the
existence or validity of the contract.
Apropos is Gonzales v. Climax
Mining Ltd., 452 SCRA 607, (G.R. No.
161957), where the Supreme Court
held that:
The question of
validity of the contract
containing the
agreement to submit to
arbitration will affect
the applicability of the
arbitration clause
itself. A party cannot
rely on the contract
and claim rights or
obligations under it
and at the same time
impugn its existence or
validity. Indeed,
litigants are enjoined
from taking
inconsistent positions. .
..
Consequently, the petitioner herein
cannot claim that the contract was
never consummated and, at the
same time, invokes the arbitration
clause provided for under the
contract which it alleges to be non-
existent or invalid. Petitioner
claims that private respondent's
complaint lacks a cause of action
due to the absence of any valid
contract between the parties.
Apparently, the arbitration clause is
being invoked merely as a fallback
position. The petitioner must first
adduce evidence in support of its
claim that there is no valid contract
between them and should the court
a quo find the claim to be
meritorious, the parties may then
be spared the rigors and expenses
that arbitration in a foreign land
would surely entail. 24 IcESaA
However, the Gonzales case, 25 which the CA relied upon
for not ordering arbitration, had been modified upon a
motion for reconsideration in this wise:
. . . The adjudication of the
petition in G.R. No. 167994
effectively modifies part of the
Decision dated 28 February 2005
in G.R. No. 161957. Hence, we
now hold that the validity of the
contract containing the
agreement to submit to
arbitration does not affect the
applicability of the arbitration
clause itself. A contrary ruling
would suggest that a party's
mere repudiation of the main
contract is sufficient to avoid
arbitration. That is exactly the
situation that the separability
doctrine, as well as
jurisprudence applying it, seeks
to avoid. We add that when it was
declared in G.R. No. 161957 that
the case should not be brought for
arbitration, it should be clarified
that the case referred to is the case
actually filed by Gonzales before
the DENR Panel of Arbitrators,
which was for the nullification of
the main contract on the ground of
fraud, as it had already been
determined that the case should
have been brought before the
regular courts involving as it did
judicial issues. 26
In so ruling that the validity of the contract containing the
arbitration agreement does not affect the applicability of
the arbitration clause itself, we then applied the doctrine of
separability, thus:
The doctrine of separability, or
severability as other writers call it,
enunciates that an arbitration
agreement is independent of the
main contract. The arbitration
agreement is to be treated as a
separate agreement and the
arbitration agreement does not
automatically terminate when the
contract of which it is a part comes
to an end.
The separability of the arbitration
agreement is especially significant
to the determination of whether the
invalidity of the main contract also
nullifies the arbitration clause.
Indeed, the doctrine denotes that
the invalidity of the main contract,
also referred to as the "container"
contract, does not affect the validity
of the arbitration agreement.
Irrespective of the fact that the
main contract is invalid, the
arbitration clause/agreement still
remains valid and enforceable. 27
Respondent argues that the separability doctrine is not
applicable in petitioner's case, since in the Gonzalescase,
Climax-Arimco sought to enforce the arbitration clause of
its contract with Gonzales and the former's move was
premised on the existence of a valid contract; while
Gonzales, who resisted the move of Climax-Arimco for
arbitration, did not deny the existence of the contract but
merely assailed the validity thereof on the ground of fraud
and oppression. Respondent claims that in the case before
Us, petitioner who is the party insistent on arbitration also
claimed in their Motion to Dismiss/Suspend Proceedings
that the contract sought by respondent to be rescinded did
not exist or was not consummated; thus, there is no room
for the application of the separability doctrine, since there
is no container or main contract or an arbitration clause to
speak of. SDTcAH
We are not persuaded.
Applying the Gonzales ruling, an arbitration agreement
which forms part of the main contract shall not be regarded
as invalid or non-existent just because the main contract is
invalid or did not come into existence, since the arbitration
agreement shall be treated as a separate agreement
independent of the main contract. To reiterate a contrary
ruling would suggest that a party's mere repudiation of the
main contract is sufficient to avoid arbitration and that is
exactly the situation that the separability doctrine sought
to avoid. Thus, we find that even the party who has
repudiated the main contract is not prevented from
enforcing its arbitration clause.
Moreover, it is worthy to note that respondent filed a
complaint for rescission of contract and damages with the
RTC. In so doing, respondent alleged that a contract exists
between respondent and petitioner. It is that contract
which provides for an arbitration clause which states that
"any dispute which the Buyer and Seller may not be able to
settle by mutual agreement shall be settled before the City
of New York by the American Arbitration Association. The
arbitration agreement clearly expressed the parties'
intention that any dispute between them as buyer and
seller should be referred to arbitration. It is for the
arbitrator and not the courts to decide whether a contract
between the parties exists or is valid.
Respondent contends that assuming that the existence of
the contract and the arbitration clause is conceded, the CA's
decision declining referral of the parties' dispute to
arbitration is still correct. It claims that its complaint in the
RTC presents the issue of whether under the facts alleged,
it is entitled to rescind the contract with damages; and that
issue constitutes a judicial question or one that requires the
exercise of judicial function and cannot be the subject of an
arbitration proceeding. Respondent cites our ruling
inGonzales, wherein we held that a panel of arbitrators is
bereft of jurisdiction over the complaint for declaration of
nullity/or termination of the subject contracts on the
grounds of fraud and oppression attendant to the execution
of the addendum contract and the other contracts
emanating from it, and that the complaint should have been
filed with the regular courts as it involved issues which are
judicial in nature.
Such argument is misplaced and respondent cannot rely on
the Gonzales case to support its argument.
In Gonzales, petitioner Gonzales filed a complaint before
the Panel of Arbitrators, Region II, Mines and Geosciences
Bureau, of the Department of Environment and Natural
Resources (DENR) against respondents Climax-Mining Ltd.,
Climax-Arimco and Australasian Philippines Mining, Inc.,
seeking the declaration of nullity or termination of the
addendum contract and the other contracts emanating
from it on the grounds of fraud and oppression. The Panel
dismissed the complaint for lack of jurisdiction. However,
the Panel, upon petitioner's motion for reconsideration,
ruled that it had jurisdiction over the dispute maintaining
that it was a mining dispute, since the subject complaint
arose from a contract between the parties which involved
the exploration and exploitation of minerals over the
disputed area. Respondents assailed the order of the Panel
of Arbitrators via a petition for certiorari before the CA. The
CA granted the petition and declared that the Panel of
Arbitrators did not have jurisdiction over the complaint,
since its jurisdiction was limited to the resolution of mining
disputes, such as those which raised a question of fact or
matter requiring the technical knowledge and experience
of mining authorities and not when the complaint alleged
fraud and oppression which called for the interpretation
and application of laws. The CA further ruled that the
petition should have been settled through arbitration
under R.A. No. 876 — the Arbitration Law — as provided
under the addendum contract. cCSDaI
On a review on certiorari, we affirmed the CA's finding that
the Panel of Arbitrators who, under R.A. No. 7942of the
Philippine Mining Act of 1995, has exclusive and original
jurisdiction to hear and decide mining disputes, such as
mining areas, mineral agreements, FTAAs or permits and
surface owners, occupants and
claimholders/concessionaires, is bereft of jurisdiction over
the complaint for declaration of nullity of the addendum
contract; thus, the Panels' jurisdiction is limited only to
those mining disputes which raised question of facts or
matters requiring the technical knowledge and experience
of mining authorities. We then said:
In Pearson v. Intermediate Appellate
Court, this Court observed that the
trend has been to make the
adjudication of mining cases a
purely administrative matter.
Decisions of the Supreme Court on
mining disputes have recognized a
distinction between (1) the
primary powers granted by
pertinent provisions of law to the
then Secretary of Agriculture and
Natural Resources (and the bureau
directors) of an executive or
administrative nature, such as
granting of license, permits, lease
and contracts, or approving,
rejecting, reinstating or canceling
applications, or deciding conflicting
applications, and (2) controversies
or disagreements of civil or
contractual nature between
litigants which are questions of a
judicial nature that may be
adjudicated only by the courts of
justice. This distinction is carried
on even in Rep. Act No. 7942. 28
We found that since the complaint filed before the DENR
Panel of Arbitrators charged respondents with
disregarding and ignoring the addendum contract, and
acting in a fraudulent and oppressive manner against
petitioner, the complaint filed before the Panel was not a
dispute involving rights to mining areas, or was it a dispute
involving claimholders or concessionaires, but essentially
judicial issues. We then said that the Panel of Arbitrators
did not have jurisdiction over such issue, since it does not
involve the application of technical knowledge and
expertise relating to mining. It is in this context that we
said that:
Arbitration before the Panel of
Arbitrators is proper only when
there is a disagreement between
the parties as to some provisions of
the contract between them, which
needs the interpretation and the
application of that particular
knowledge and expertise possessed
by members of that Panel. It is not
proper when one of the parties
repudiates the existence or validity
of such contract or agreement on
the ground of fraud or oppression
as in this case. The validity of the
contract cannot be subject of
arbitration proceedings. Allegations
of fraud and duress in the execution
of a contract are matters within the
jurisdiction of the ordinary courts
of law. These questions are legal in
nature and require the application
and interpretation of laws and
jurisprudence which is necessarily
a judicial function. 29
In fact, We even clarified in our resolution on Gonzales'
motion for reconsideration that "when we declared that the
case should not be brought for arbitration, it should be
clarified that the case referred to is the case actually filed
by Gonzales before the DENR Panel of Arbitrators, which
was for the nullification of the main contract on the ground
of fraud, as it had already been determined that the case
should have been brought before the regular courts
involving as it did judicial issues." We made such
clarification in our resolution of the motion for
reconsideration after ruling that the parties in that case can
proceed to arbitration under the Arbitration Law, as
provided under the Arbitration Clause in their Addendum
Contract. AaSIET
WHEREFORE, the petition is GRANTED. The Decision dated
July 31, 2006 and the Resolution dated November 13, 2006
of the Court of Appeals in CA-G.R. SP No. 50304
are REVERSED and SET ASIDE. The parties are
hereby ORDERED to SUBMIT themselves to the arbitration
of their dispute, pursuant to their July 11, 1996 agreement.
SO ORDERED.
||| (Cargill Philippines, Inc. v. San Fernando Regala Trading,
Inc., G.R. No. 175404, [January 31, 2011])