[G.R. No. 115213. December 19, 1995.

WILSON DIU and DORCITA DIU, Petitioners, v. COURT OF APPEALS, PETER LYNDON BUSHNELL and
PATRICIA PAGBA, Respondents.

DECISION

REGALADO, J.:

Before us is an appeal by certiorari from the judgment of the Court of Appeals 1 setting aside the
decision of the Regional Trial Court of Naval, Biliran, Branch 16, 2 without prejudice to the refiling of the
case by petitioners after due compliance with the provisions of Presidential Decree No. 1508, otherwise
known as the "Katarungang Pambarangay Law."cralaw virtua1aw library

Prefatorily, the Court desires to digress and call attention to the lamentable saga of delay in the
dispensation of justice and the regrettable abuse of judicial processes exemplified by this case. For, if
just to collect an indebtedness of P7,862.55 incurred way back in 1988, the proceedings had to go
through all the rungs of the judicial ladder and still present the prospect of hereafter infringing again
upon the time of this Court and three other courts, such protraction being manipulated by trifling with
the very law which ironically was intended to prevent such delay, then the bench and the bar should
soberly reflect thereon and now take stock of themselves. Indeed, it is not improbable that there are
other cases agonizing under the same ennui created by our courts.

Coming now to the case at hand, it appears that on several occasions from January 8, 1988 up to and
until April 18, 1989, private respondent Patricia Pagba purchased on credit various articles of
merchandise from petitioners’ store at Naval, Biliran, all valued at P7,862.55, as evidenced by receipts of
goods marked as Annexes "A" to "O" of petitioner’s Manifestation filed in the trial court, dated August 9,
1991. Private respondents failed to pay despite repeated demands.
Petitioners brought the matter before the Barangay Chairman of Naval and the latter set the case for
hearing, but private respondents failed to appear. When the case was again set for hearing, the parties
appeared but they failed to reach an amicable settlement. Accordingly, the barangay chairman issued a
Certification to File Action. 3 Petitioners then filed their complaint for a sum of money before the
Municipal Trial Court of Naval.

Private respondents, in their Answer, 4 while admitting the indebtedness to petitioner, interposed two
counterclaims, namely, (1) one for P6,227.00 as alleged expenses for maintenance and repair of the
boat belonging to petitioners, and (b) another for P12,000.00 representing the cost of the two tires
which petitioners allegedly misappropriated. Private respondents likewise alleged that despite the
confrontations before the barangay chairman, petitioners refused to pay their just and valid obligations
to private respondent and her husband.

Aside from petitioners claim and private respondents’ counterclaims, the Municipal Trial Court of Naval
also resolved the issue on whether or not there was compliance with the provisions of Presidential
Decree No. 1508 on conciliation. In resolving the said issue, the trial court relied on the case of Tijam v.
Sibonghanoy 5 which held that:jgc:chanrobles.com.ph

"While petitioners could have prevented the trial court from exercising jurisdiction over the case by
seasonably taking exception thereto, they instead invoked the very same jurisdiction by filing an answer
and seeking affirmative relief from it. What is more, they participated in the trial of the case by cross-
examining the Respondent. Upon this premise, petitioner cannot now be allowed belatedly to adopt an
inconsistent posture by attacking the jurisdiction of the court to which they had submitted themselves
voluntarily. 6

However, said lower court dismissed the complaint by ruling against the admissibility of Exhibits "E-l" to
"E-15", which are the receipts of good marked as Annexes "A" to "O" of petitioners’ manifestation
therein, for not having been properly identified in court. 7

On private respondents’ counterclaims, said trial court also ruled that the same had been settled when
the contending parties entered into a compromise agreement which was approved on January 9, 1989
by the Regional Trial Court of Naval, Branch 16, in another action between them, that is, Civil Case No. B-
0719. 8
Due to the dismissal of the complaint, petitioners appealed to the aforementioned Regional Trial Court
pursuant to Section 22 of Batas Pambansa Blg. 129. Said appellate court, however, did not find it
necessary to pass upon the issue of the alleged non-compliance with Presidential Decree No. 1508 but,
instead, decided the appeal on the merits. Modifying the decision of the lower court, the Regional Trial
Court held that :jgc:chanrobles.com.ph

"The case should have proceeded to its conclusion under the Revised Rules on Summary Procedure and
the regular procedure prescribed in the Rules of Court applies to the special cases only in a suppletory
capacity insofar as they are not inconsistent. . . .

"The claim of the plaintiff is less than P10,000.00. It properly falls under the Rule on Summary
Procedure. The only pleadings allowed are complaints, compulsory counterclaims and cross claims
pleaded in the answer, and the answers thereto. The case could have been decided based on affidavits
of the witnesses and other evidence on the factual issues defined in the order of the Court, after the
preliminary conference, together with the position papers setting forth the law and the facts relied upon
by the parties.

"The need for a formal offer, identification and cross-examination on Exhibits ‘E-1 ‘ to ‘E-15 ‘ was not
necessary. The said exhibits were inadmissible (sic). The receipts constituted evidence of indebtedness
and their possession by the plaintiff at the commencement of the suit gives rise to the legal presumption
that the debts in the total amount of P7,862.66 have not been paid.

"Where, under the contract of sale, the ownership of the goods has passed to the buyer and he
wrongfully neglects or refuses to pay for the goods according to the terms of the contract of sale, the
seller may maintain an action against him for the price of the goods." 9

Accordingly, it rendered judgment in favor of herein petitioners and ordered private respondent Patricia
Pagba to pay the former the amount of P7,862.55 plus legal interest from July, 1991, P1,000.00 as
attorney fees, and the costs of suit.

Private respondents then went to the Court of Appeals, raising just two issues, viz.: (1) whether or not
the Regional Trial Court erred in not making a factual finding that herein petitioners did not comply with
Presidential Decree No. 1508; and (2) whether or not said Regional Trial Court erred in not dismissing
the appeal or case for non-compliance with the mandatory provisions of Presidential Decree No. 1508.
10

Respondent Court of Appeals set aside the judgment of the Regional Trial Court, on the ground that
there had been no compliance with Presidential Decree No. 1508, with this
ratiocination:jgc:chanrobles.com.ph

"It is, therefore, clear that if efforts of the barangay captain to settle the dispute fails, the Pangkat ng
Tagapagkasundo shall be constituted with the end in view of exploring all possibilities of amicable
settlement. If-no conciliation or settlement has been reached pursuant to the aforesaid rules, the matter
may then be brought to the regular courts.

"In the case at bar, it has been established that there was no valid conciliation proceeding between the
parties. The efforts of the barangay captain of Catmon, Naval, Biliran to mediate the dispute between
the parties having failed, the Pangkat ng Tagapamayapa should have been constituted for purposes of
settling the matter. However, the Pangkat was not constituted, instead, a Certification to File Action was
issued by the barangay captain in favor of respondent spouses Diu. In the same case of Ramos v. Court
of Appeals, 174 SCRA 690, the Supreme Court ruled that the ‘Punong Barangay has no right to say that
referral to the Pangkat was no longer necessary merely because he himself has failed to work out an
agreement between the petitioner and private Respondent. Dispute should not end with the mediation
proceeding before the Punong Barangay because of his failure to effect a settlement . . ..’ In Bejer v.
Court of Appeals, 169 SCRA 566, it was held that ‘failure to avail of conciliation process under P.D.
1508, . . . renders the complaint vulnerable to a timely motion to dismiss.’ Inasmuch as petitioner has
pleaded in his answer the lack of cause of action of respondent, objection to the complaint has been
timely made." 11

The basic issue to be resolved in the instant petition is whether or not the confrontations before the
Barangay Chairman of Naval satisfied the requirement therefor in Presidential Decree No. 1508. This
Court finds, for Petitioners.

It must be noted that Presidential Decree No. 1508 has been repealed by codification in the Local
Government Code of 1991 12 which took effect on January 1, 1992. The basic complaint was filed by
petitioners before the trial court on July 10, 1991 before the effectivity of the Local Government Code.
Nevertheless, Sections 4 and 6 of the former law have been substantially reproduced in Sections 410(b)
and 412, respectively, of the latter law. The pertinent provisions read as follows:jgc:chanrobles.com.ph

"SEC. 410. PROCEDURE FOR AMICABLE SETTLEMENT. — (b) . . . . If he (lupon chairman) fails in his
mediation effort within fifteen (15) days from the first meeting of the parties before him, he shall
forthwith set a date for the constitution of the pangkat in accordance with the provisions of this
chapter."cralaw virtua1aw library

"SEC. 412. CONCILIATION. — (a) Precondition to filing of Complaint in Court. -- No complaint . . .

shall be filed or instituted in court . . . unless there has been a confrontation of the parties before the
lupon chairman or the pangkat, and that no conciliation or settlement has been reached as certified by
the lupon secretary or pangkat secretary as attested to by the lupon or pangkat chairman . . .."cralaw
virtua1aw library

In the case at bar, it is admitted that the parties did have confrontations before the Barangay Chairman
although they were sent to the pangkat as the same was not constituted. Their meetings with said
barangay chairman were not fruitful as no amicable settlement was reached This prompted the issuance
of the following Certification to File Action: 13

"This is to certify that:chanrob1es virtual 1aw library

Respondent, Patricia Pagba admitted her indebtedness with complainant but she refused to pay
because according to her, complainant has also an unsettled accounts (sic) with her husband. Hence no
settlement/conciliation was reached and therefore the corresponding complaint for the dispute may
now be filed in court .

Date(d) this 10th day of July 1991

(Sgd.) JHONY C. JEREZ

Lupon Pangkat Chairman

Attested :chanrob1es virtual 1aw library

(Sgd.) IRENEO DOCALLOS

Lupon/Pangkat Secretary"

According to private respondent, however, the above certification is "falsified" since no pangkat was
constituted. She, therefore, insists that petitioners have not complied with the mandatory provision of
Presidential Decree No. 1508 on compulsory arbitration. We disagree.

While no pangkat was constituted, it is not denied that the parties met at the office of the barangay
chairman for possible settlement. 14 The efforts of the barangay chairman, however, proved futile as no
agreement was reached. Although no pangkat was formed, we believe that there was substantial
compliance with the law. It is noteworthy that under Section 412 of the Local Government Code
aforequoted, the confrontation before the lupon chairman OR the pangkat is sufficient compliance with
the pre-condition for filing the case in court.

This is true notwithstanding the mandate of Section 410(b) of the same law that the barangay chairman
shall constitute a pangkat if he fails in his mediation efforts. Section 410(b) should be construed together
with Section 412, as well as the circumstances obtaining in and peculiar to the case. On this score, it is
significant that the barangay chairman or punong barangay is himself the chairman of he lupon under
the Local Government Code. 15

From the foregoing facts, it is undeniable that there was substantial compliance with Presidential Decree
No. 1508 which does not require strict technical compliance with its procedural requirements. Under
the factual antecedents, it cannot be said that the failure of the parties to appear before the pangkat
caused any prejudice to the case for private respondents considering that they already refused
conciliation before the barangay chairman and, as will hereafter be discussed, their sham insistence for
a meeting before the pangkat is merely a ploy for further delay. We are thus forced to remind them that
technicalities should not be made to desert their true role in our justice system, and should not be used
as obstructions therein.
The court a quo was likewise correct in invoking the doctrine in Tijam and, as indicated by the factual
scenario in this case, private respondents are clearly in estoppel to assail the jurisdiction of the two
lower courts. It is also worth stressing that while the case was filed when Presidential Decree No. 1508
was still in force, the procedural provisions of the Local Government Code, which we have earlier noted
as being supportive of the validity of the conciliation proceedings, are also applicable to this case.
Statutes regulating procedure in courts are applicable to actions pending and undetermined at the time
of their passage. Procedural laws are retrospective in that sense. 16

To indulge private respondents in their stratagem will not only result in a circuitous procedure but will
necessarily entail undue and further delay and injustice. This is inevitable if this Court should dismiss the
complaint and require the parties to meet before the pangkat, only to bring the case all over again
through the hierarchy of courts and ultimately back to us for decision on the merits. Obviously, this is
the game plan of private respondents. For, when private respondents appealed to respondent court,
they did not at all assail the propriety or correctness of the judgment of the Regional Trial Court holding
them liable to petitioners for the sum of money involved. Such primary substantive issue, therefore, has
been laid to rest, but private respondents would wish to keep the case alive merely on a conjured
procedural issue invoking their supposed right to confrontation before the pangkat.

However, from the very start of this action, private respondents failed to show or evince any honest
indication that they were willing to settle their obligations with petitioners, notwithstanding the efforts
of the latter to submit the matter to conciliation. It is, therefore, quite obvious that their insistence on
technical compliance with the requirements of the barangay conciliation process is a dilatory maneuver.
This is an evident and inevitable conclusion since the main argument of respondents in this petition is
only the supposed failure of petitioners to comply with the barangay conciliatory procedure and not the
denial or repudiation of their indebtedness.

We do not agree with the findings of respondent appellate court that inasmuch as private respondents
pleaded in their answer the alleged lack of cause of action of petitioners, an objection to the complaint
had been timely made. It will be readily observed that said defense was only one of the six affirmative
defenses cryptically alleged in short single sentences in private respondents’ Answer in the court a quo,
running the implausible gamut from supposed defects in parties to res judicata and up to capacity to
sue, without any statement of the facts on which they would rely to support such drivel. This calculated
travesty of the rules on pleadings betrays the ulterior motives of private respondents and cannot be
countenanced.
The failure of private respondents to specifically allege that there was no compliance with the barangay
conciliation procedure constitutes a waiver of that defense. All that they alleged in their Answer in the
trial court was that "the complaint states no cause of action" without giving even the semblance of any
reason to support or explain that allegation. On the other hand, they admitted the confrontations
before the barangay chairman in paragraph 13 of their Answer. 17

Since private respondents failed to duly raise that issue, their defense founded thereon is deemed
waived, especially since they actually did not pursue the issue before the case was set for hearing. Also,
the conciliation procedure under Presidential Decree No. 1508 is not a jurisdictional requirement and
non-compliance therewith cannot affect the jurisdiction which the lower courts had already acquired
over the subject matter and private respondents as defendants therein. 18

ACCORDINGLY, the instant petition is GRANTED. The judgment of respondent Court of Appeals in C.A.-
G.R. SP No. 30962 is hereby SET ASIDE, and the judgment of the Regional Trial Court of Naval, Biliran,
Branch REINSTATED, with costs against private respondents.

SO ORDERED.

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Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION
G.R. No. 191336 January 25, 2012

CRISANTA ALCARAZ MIGUEL, Petitioner,

vs.

JERRY D. MONTANEZ, Respondent.

DECISION

REYES, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. Petitioner
Crisanta Alcaraz Miguel (Miguel) seeks the reversal and setting aside of the September 17, 2009
Decision1 and February 11, 2010 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 100544,
entitled "Jerry D. Montanez v. Crisanta Alcaraz Miguel."

Antecedent Facts

On February 1, 2001, respondent Jerry Montanez (Montanez) secured a loan of One Hundred Forty-
Three Thousand Eight Hundred Sixty-Four Pesos (₱143,864.00), payable in one (1) year, or until February
1, 2002, from the petitioner. The respondent gave as collateral therefor his house and lot located at
Block 39 Lot 39 Phase 3, Palmera Spring, Bagumbong, Caloocan City.

Due to the respondent’s failure to pay the loan, the petitioner filed a complaint against the respondent
before the Lupong Tagapamayapa of Barangay San Jose, Rodriguez, Rizal. The parties entered into a
Kasunduang Pag-aayos wherein the respondent agreed to pay his loan in installments in the amount of
Two Thousand Pesos (₱2,000.00) per month, and in the event the house and lot given as collateral is
sold, the respondent would settle the balance of the loan in full. However, the respondent still failed to
pay, and on December 13, 2004, the Lupong Tagapamayapa issued a certification to file action in court
in favor of the petitioner.
On April 7, 2005, the petitioner filed before the Metropolitan Trial Court (MeTC) of Makati City, Branch
66, a complaint for Collection of Sum of Money. In his Answer with Counterclaim,3 the respondent
raised the defense of improper venue considering that the petitioner was a resident of Bagumbong,
Caloocan City while he lived in San Mateo, Rizal.

After trial, on August 16, 2006, the MeTC rendered a Decision,4 which disposes as follows:

WHEREFORE, premises considered[,] judgment is hereby rendered ordering defendant Jerry D.

Montanez to pay plaintiff the following:

1. The amount of [Php147,893.00] representing the obligation with legal rate of interest from February
1, 2002 which was the date of the loan maturity until the account is fully paid;

2. The amount of Php10,000.00 as and by way of attorney’s fees; and the costs.

SO ORDERED. 5

On appeal to the Regional Trial Court (RTC) of Makati City, Branch 146, the respondent raised the same
issues cited in his Answer. In its March 14, 2007 Decision,6 the RTC affirmed the MeTC Decision,
disposing as follows:

WHEREFORE, finding no cogent reason to disturb the findings of the court a quo, the appeal is hereby
DISMISSED, and the DECISION appealed from is hereby AFFIRMED in its entirety for being in accordance
with law and evidence.

SO ORDERED.7
Dissatisfied, the respondent appealed to the CA raising two issues, namely, (1) whether or not venue
was improperly laid, and (2) whether or not the Kasunduang Pag-aayos effectively novated the loan
agreement. On September 17, 2009, the CA rendered the assailed Decision, disposing as follows:

WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed Decision dated March
14, 2007 of the Regional Trial Court (RTC) of Makati City, Branch 146, is REVERSED and SET ASIDE. A new
judgment is entered dismissing respondent’s complaint for collection of sum of money, without
prejudice to her right to file the necessary action to enforce the Kasunduang Pag-aayos.

SO ORDERED.8

Anent the issue of whether or not there is novation of the loan contract, the CA ruled in the negative. It
ratiocinated as follows:

Judging from the terms of the Kasunduang Pag-aayos, it is clear that no novation of the old obligation
has taken place.1âwphi1 Contrary to petitioner’s assertion, there was no reduction of the term or period
originally stipulated. The original period in the first agreement is one (1) year to be counted from
February 1, 2001, or until January 31, 2002. When the complaint was filed before the barangay on
February 2003, the period of the original agreement had long expired without compliance on the part of
petitioner. Hence, there was nothing to reduce or extend. There was only a change in the terms of
payment which is not incompatible with the old agreement. In other words, the Kasunduang Pag-aayos
merely supplemented the old agreement.9

The CA went on saying that since the parties entered into a Kasunduang Pag-aayos before the Lupon ng
Barangay, such settlement has the force and effect of a court judgment, which may be enforced by
execution within six (6) months from the date of settlement by the Lupon ng Barangay, or by court
action after the lapse of such time.10 Considering that more than six (6) months had elapsed from the
date of settlement, the CA ruled that the remedy of the petitioner was to file an action for the execution
of the Kasunduang Pag-aayos in court and not for collection of sum of money.11 Consequently, the CA
deemed it unnecessary to resolve the issue on venue.12

The petitioner now comes to this Court.

Issues

(1) Whether or not a complaint for sum of money is the proper remedy for the petitioner,
notwithstanding the Kasunduang Pag-aayos;13 and

(2) Whether or not the CA should have decided the case on the merits rather than remand the case for
the enforcement of the Kasunduang Pag-aayos.14

Our Ruling

Because the respondent failed to comply with the terms of the Kasunduang Pag-aayos, said agreement
is deemed rescinded pursuant to Article 2041 of the New Civil Code and the petitioner can insist on his
original demand. Perforce, the complaint for collection of sum of money is the proper remedy.

The petitioner contends that the CA erred in ruling that she should have followed the procedure for
enforcement of the amicable settlement as provided in the Revised Katarungang Pambarangay Law,
instead of filing a collection case. The petitioner points out that the cause of action did not arise from
the Kasunduang Pag-aayos but on the respondent’s breach of the original loan agreement.15

This Court agrees with the petitioner.

It is true that an amicable settlement reached at the barangay conciliation proceedings, like the
Kasunduang Pag-aayos in this case, is binding between the contracting parties and, upon its perfection,
is immediately executory insofar as it is not contrary to law, good morals, good customs, public order
and public policy.16 This is in accord with the broad precept of Article 2037 of the Civil Code, viz:

A compromise has upon the parties the effect and authority of res judicata; but there shall be no
execution except in compliance with a judicial compromise.
Being a by-product of mutual concessions and good faith of the parties, an amicable settlement has the
force and effect of res judicata even if not judicially approved.17 It transcends being a mere contract
binding only upon the parties thereto, and is akin to a judgment that is subject to execution in
accordance with the Rules.18 Thus, under Section 417 of the Local Government Code,19 such amicable
settlement or arbitration award may be enforced by execution by the Barangay Lupon within six (6)
months from the date of settlement, or by filing an action to enforce such settlement in the appropriate
city or municipal court, if beyond the six-month period.

Under the first remedy, the proceedings are covered by the Local Government Code and the
Katarungang Pambarangay Implementing Rules and Regulations. The Punong Barangay is called upon
during the hearing to determine solely the fact of non-compliance of the terms of the settlement and to
give the defaulting party another chance at voluntarily complying with his obligation under the
settlement. Under the second remedy, the proceedings are governed by the Rules of Court, as amended.
The cause of action is the amicable settlement itself, which, by operation of law, has the force and effect
of a final judgment.20

It must be emphasized, however, that enforcement by execution of the amicable settlement, either
under the first or the second remedy, is only applicable if the contracting parties have not repudiated
such settlement within ten (10) days from the date thereof in accordance with Section 416 of the Local
Government Code. If the amicable settlement is repudiated by one party, either expressly or impliedly,
the other party has two options, namely, to enforce the compromise in accordance with the Local
Government Code or Rules of Court as the case may be, or to consider it rescinded and insist upon his
original demand. This is in accord with Article 2041 of the Civil Code, which qualifies the broad
application of Article 2037, viz:

If one of the parties fails or refuses to abide by the compromise, the other party may either enforce the
compromise or regard it as rescinded and insist upon his original demand.

In the case of Leonor v. Sycip,21 the Supreme Court (SC) had the occasion to explain this provision of
law. It ruled that Article 2041 does not require an action for rescission, and the aggrieved party, by the
breach of compromise agreement, may just consider it already rescinded, to wit:

It is worthy of notice, in this connection, that, unlike Article 2039 of the same Code, which speaks of "a
cause of annulment or rescission of the compromise" and provides that "the compromise may be
annulled or rescinded" for the cause therein specified, thus suggesting an action for annulment or
rescission, said Article 2041 confers upon the party concerned, not a "cause" for rescission, or the right
to "demand" the rescission of a compromise, but the authority, not only to "regard it as rescinded", but,
also, to "insist upon his original demand". The language of this Article 2041, particularly when
contrasted with that of Article 2039, denotes that no action for rescission is required in said Article 2041,
and that the party aggrieved by the breach of a compromise agreement may, if he chooses, bring the
suit contemplated or involved in his original demand, as if there had never been any compromise
agreement, without bringing an action for rescission thereof. He need not seek a judicial declaration of
rescission, for he may "regard" the compromise agreement already "rescinded".22 (emphasis supplied)

As so well stated in the case of Chavez v. Court of Appeals,23 a party's non-compliance with the
amicable settlement paved the way for the application of Article 2041 under which the other party may
either enforce the compromise, following the procedure laid out in the Revised Katarungang
Pambarangay Law, or consider it as rescinded and insist upon his original demand. To quote:

In the case at bar, the Revised Katarungang Pambarangay Law provides for a two-tiered mode of
enforcement of an amicable settlement, to wit: (a) by execution by the Punong Barangay which is quasi-
judicial and summary in nature on mere motion of the party entitled thereto; and (b) an action in regular
form, which remedy is judicial. However, the mode of enforcement does not rule out the right of
rescission under Art. 2041 of the Civil Code. The availability of the right of rescission is apparent from
the wording of Sec. 417 itself which provides that the amicable settlement "may" be enforced by
execution by the lupon within six (6) months from its date or by action in the appropriate city or
municipal court, if beyond that period. The use of the word "may" clearly makes the procedure provided
in the Revised Katarungang Pambarangay Law directory or merely optional in nature.

Thus, although the "Kasunduan" executed by petitioner and respondent before the Office of the
Barangay Captain had the force and effect of a final judgment of a court, petitioner's non-compliance
paved the way for the application of Art. 2041 under which respondent may either enforce the
compromise, following the procedure laid out in the Revised Katarungang Pambarangay Law, or regard
it as rescinded and insist upon his original demand. Respondent chose the latter option when he
instituted Civil Case No. 5139-V-97 for recovery of unrealized profits and reimbursement of advance
rentals, moral and exemplary damages, and attorney's fees. Respondent was not limited to claiming
₱150,000.00 because although he agreed to the amount in the "Kasunduan," it is axiomatic that a
compromise settlement is not an admission of liability but merely a recognition that there is a dispute
and an impending litigation which the parties hope to prevent by making reciprocal concessions,
adjusting their respective positions in the hope of gaining balanced by the danger of losing. Under the
"Kasunduan," respondent was only required to execute a waiver of all possible claims arising from the
lease contract if petitioner fully complies with his obligations thereunder. It is undisputed that herein
petitioner did not.24 (emphasis supplied and citations omitted)
In the instant case, the respondent did not comply with the terms and conditions of the Kasunduang
Pag-aayos. Such non-compliance may be construed as repudiation because it denotes that the
respondent did not intend to be bound by the terms thereof, thereby negating the very purpose for
which it was executed. Perforce, the petitioner has the option either to enforce the Kasunduang Pag-
aayos, or to regard it as rescinded and insist upon his original demand, in accordance with the provision
of Article 2041 of the Civil Code. Having instituted an action for collection of sum of money, the
petitioner obviously chose to rescind the Kasunduang Pag-aayos. As such, it is error on the part of the
CA to rule that enforcement by execution of said agreement is the appropriate remedy under the
circumstances.

Considering that the Kasunduang Pag-aayos is deemed rescinded by the non-compliance of the
respondent of the terms thereof, remanding the case to the trial court for the enforcement of said
agreement is clearly unwarranted.

The petitioner avers that the CA erred in remanding the case to the trial court for the enforcement of
the Kasunduang Pag-aayos as it prolonged the process, "thereby putting off the case in an indefinite
pendency."25 Thus, the petitioner insists that she should be allowed to ventilate her rights before this
Court and not to repeat the same proceedings just to comply with the enforcement of the Kasunduang
Pag-aayos, in order to finally enforce her right to payment.26

The CA took off on the wrong premise that enforcement of the Kasunduang Pag-aayos is the proper
remedy, and therefore erred in its conclusion that the case should be remanded to the trial court. The
fact that the petitioner opted to rescind the Kasunduang Pag-aayos means that she is insisting upon the
undertaking of the respondent under the original loan contract. Thus, the CA should have decided the
case on the merits, as an appeal before it, and not prolong the determination of the issues by remanding
it to the trial court. Pertinently, evidence abounds that the respondent has failed to comply with his loan
obligation. In fact, the Kasunduang Pag-aayos is the well nigh incontrovertible proof of the respondent’s
indebtedness with the petitioner as it was executed precisely to give the respondent a second chance to
make good on his undertaking. And since the respondent still reneged in paying his indebtedness, justice
demands that he must be held answerable therefor.

WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals is SET ASIDE and
the Decision of the Regional Trial Court, Branch 146, Makati City, dated March 14, 2007 is REINSTATED.
SO ORDERED.

BIENVENIDO L. REYES

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice MARIA LOURDES P. A. SERENO

Associate Justice

ESTELA M. PERLAS-BERNABE*

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson, Second Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

Footnotes

* Additional Member in lieu of Associate Justice Arturo D. Brion per Special Order No. 1174 dated
January 9, 2012.

1 Penned by Associate Justice Rosalinda Asuncion-Vicente, with Associate Justices Normandie B. Pizarro
and Ricardo R. Rosario, concurring; rollo, pp. 37-45.

2 Id. at 34-35.

3 Id. at 63-69.

4 Id. at 70-74.

5 Id. at 73.

6 Id. at 75-77.
7 Id. at 77.

8 Id. at 45.

9 Id. at 41.

10 Id. at 42.

11 Id. at 43.

12 Id. at 44.

13 Id. at 13.

14 Id. at 14.

15 Id. at 20.

16 New Civil Code, Article 1306.

17 Republic v. Sandiganbayan, G.R. No.108292, September 10, 1993,, 226 SCRA 314; 468 Phil 1000
(2004).

18 Manila International Airport Authority (MIAA) v. ALA Industries Corporation, G.R. No. 147349,
February 13, 2004, 422 SCRA 603, 611.
19 R.A. No. 7160, Book III, Title One, Chapter VII, Section, 417. Execution. — The amicable settlement or
arbitration award may be enforced by execution by the [L]upon within six (6) months from the date of
the settlement. After the lapse of such time, the settlement may be enforced by action in the proper city
or municipal court.

20 Vidal v. Escueta, 463 Phil 314 (2003).

21 111 Phil 859 (1961).

22 Id. at 865.

23 493 Phil 945 (2005).

24 Id. at 954-955.

25 Rollo, p. 26.

26 Id. at 27.

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Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 156660 August 24, 2009

ORMOC SUGARCANE PLANTERS' ASSOCIATION, INC. (OSPA),OCCIDENTAL LEYTE FARMERS MULTI-

PURPOSE COOPERATIVE, INC. (OLFAMCA), UNIFARM MULTI-PURPOSE COOPERATIVE, INC. (UNIFARM)
and ORMOC NORTH DISTRICT IRRIGATION MULTI-PURPOSE COOPERATIVE, INC. (ONDIMCO), Petitioners,

vs.

THE COURT OF APPEALS (Special Former Sixth Division), HIDECO SUGAR MILLING CO., INC., and ORMOC
SUGAR MILLING CO., INC., Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a special civil action for certiorari assailing the Decision1 dated December 7, 2001
and the Resolution dated October 30, 2002 of the Court of Appeals (CA) in CA-G.R. SP No. 56166 which
set aside the Joint Orders2 dated August 26, 1999 and October 29, 1999 issued by the Regional Trial
Court (RTC) of Ormoc City, Branch 12 upholding petitioners’ legal personality to demand arbitration
from respondents and directing respondents to nominate two arbitrators to represent them in the
Board of Arbitrators.

Petitioners are associations organized by and whose members are individual sugar planters (Planters).
The membership of each association follows: 264 Planters were members of OSPA; 533 Planters belong
to OLFAMCA; 617 Planters joined UNIFARM; 760 Planters enlisted with ONDIMCO; and the rest belong
to BAP-MPC which did not join the lawsuit.

Respondents Hideco Sugar Milling Co., Inc. (Hideco) and Ormoc Sugar Milling Co, Inc. (OSCO) are sugar
centrals engaged in grinding and milling sugarcane delivered to them by numerous individual sugar
planters, who may or may not be members of an association such as petitioners.

Petitioners assert that the relationship between respondents and the individual sugar planters is
governed by milling contracts. To buttress this claim, petitioners presented representative samples of
the milling contracts.3

Notably, Article VII of the milling contracts provides that 34% of the sugar and molasses produced from
milling the Planter’s sugarcane shall belong to the centrals (respondents) as compensation, 65% thereof
shall go to the Planter and the remaining 1% shall go the association to which the Planter concerned
belongs, as aid to the said association. The 1% aid shall be used by the association for any purpose that it
may deem fit for its members, laborers and their dependents. If the Planter was not a member of any
association, then the said 1% shall revert to the centrals. Article XIV, paragraph B4 states that the
centrals may not, during the life of the milling contract, sign or execute any contract or agreement that
will provide better or more benefits to a Planter, without the written consent of the existing and
recognized associations except to Planters whose plantations are situated in areas beyond thirty (30)
kilometers from the mill. Article XX provides that all differences and controversies which may arise
between the parties concerning the agreement shall be submitted for discussion to a Board of
Arbitration, consisting of five (5) members—two (2) of which shall be appointed by the centrals, two (2)
by the Planter and the fifth to be appointed by the four appointed by the parties.

On June 4, 1999, petitioners, without impleading any of their individual members, filed twin petitions
with the RTC for Arbitration under R.A. 876, Recovery of Equal Additional Benefits, Attorney’s Fees and
Damages, against HIDECO and OSCO, docketed as Civil Case Nos. 3696-O and 3697-O, respectively.
Petitioners claimed that respondents violated the Milling Contract when they gave to independent
planters who do not belong to any association the 1% share, instead of reverting said share to the
centrals. Petitioners contended that respondents unduly accorded the independent Planters more
benefits and thus prayed that an order be issued directing the parties to commence with arbitration in
accordance with the terms of the milling contracts. They also demanded that respondents be penalized
by increasing their member Planters’ 65% share provided in the milling contract by 1%, to 66%.

Respondents filed a motion to dismiss on ground of lack of cause of action because petitioners had no
milling contract with respondents. According to respondents, only some eighty (80) Planters who were
members of OSPA, one of the petitioners, executed milling contracts. Respondents and these 80
Planters were the signatories of the milling contracts. Thus, it was the individual Planters, and not
petitioners, who had legal standing to invoke the arbitration clause in the milling contracts. Petitioners,
not being privy to the milling contracts, had no legal standing whatsoever to demand or sue for
arbitration.

On August 26, 1999, the RTC issued a Joint Order5 denying the motion to dismiss, declaring the
existence of a milling contract between the parties, and directing respondents to nominate two
arbitrators to the Board of Arbitrators, to wit:

When these cases were called for hearing today, counsels for the petitioners and respondents argued
their respective stand. The Court is convinced that there is an existing milling contract between the
petitioners and respondents and these planters are represented by the officers of the associations. The
petitioners have the right to sue in behalf of the planters.

This Court, acting on the petitions, directs the respondents to nominate two arbitrators to represent
HIDECO/HISUMCO and OSCO in the Board of Arbitrators within fifteen (15) days from receipt of this
Order. xxx

However, if the respondents fail to nominate their two arbitrators, upon proper motion by the
petitioners, then the Court will be compelled to use its discretion to appoint the two (2) arbitrators, as
embodied in the Milling Contract and R.A. 876.
xxx

Their subsequent motion for reconsideration having been denied by the RTC in its Joint Order6 dated
October 29, 1999, respondents elevated the case to the CA through a Petition for Certiorari with Prayer
for the Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction.

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 Resolution7 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:

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. xxx xxx xxx (emphasis ours)

The instant recourse is improper because the resolution of the CA was a final order from which the
remedy of appeal was available under Rule 45 in relation to Rule 56. The existence and availability of the
right of appeal 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 trial court 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
Orders of 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
for certiorari. 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.

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 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 (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 arbitration because 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 of those 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.

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)
Planters who 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 Court
of First Instance of the province or city where any of the parties resides, to enforce such contract of
submission.

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

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
as representatives of their members, petitioners could not initiate arbitration proceedings in their own
name as 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. Limbaring14 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 court as 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.

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 rendering of 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 real parties-in-interest,
either as plaintiff or defendant, in an action upon that contract must, generally, either be parties to said
contract. (emphasis and words in brackets ours)

The main cause of action of petitioners in their request for arbitration with the RTC is the alleged
violation of the clause in the milling contracts involving the proportionate sharing in the proceeds of the
harvest. Petitioners essentially demand that respondents increase the share of the member Planters to
66% to equalize their situation with those of the non-member Planters. Verily, from petitioners' own
allegations, the party who would be injured or benefited by a decision in the arbitration proceedings will
be the member Planters involved and not petitioners. In sum, petitioners are not the real parties in
interest in the present case.

Assuming petitioners had properly brought the case in the name of their members who had existing
milling contracts with respondents, petitioners must still prove that they were indeed authorized by the
said members to institute an action for and on the members' behalf. In the same manner that an officer
of the corporation cannot bring action in behalf of a corporation unless it is clothed with a board
resolution authorizing an officer to do so, an authorization from the individual member planter is a sine
qua non for the association or any of its officers to bring an action before the court of law. The mere fact
that petitioners were organized for the purpose of advancing the interests and welfare of their members
does not necessarily mean that petitioners have the authority to represent their members in legal
proceedings, including the present arbitration proceedings.
As we see it, petitioners had no intention to litigate the case in a representative capacity, as they
contend. All the pleadings from the RTC to this Court belie this claim. Under Section 3 of Rule 3, where
the action is allowed to be prosecuted by a representative, the beneficiary shall be included in the title
of the case and shall be deemed to be the real party in interest. As repeatedly pointed out earlier, the
individual Planters were not even impleaded as parties to this case. In addition, petitioners need a
power-of-attorney to represent the Planters whether in the lawsuit or to demand arbitration.16 None
was ever presented here.

Lastly, petitioners theorize that they could demand and sue for arbitration independently of the Planters
because the milling contract is a contract pour autrui under Article 1311 of the Civil Code.

ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he received
from the decedent.

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.

To summarize, the requisites of a stipulation pour autrui or a stipulation in favor of a third person are
the following: (1) there must be a stipulation in favor of a third person, (2) the stipulation must be a
part, not the whole, of the contract, (3) the contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental benefit or interest, (4) the third person
must have communicated his acceptance to the obligor before its revocation, and (5) neither of the
contracting parties bears the legal representation or authorization of the third party.17 These requisites
are not present in this case.

Article VI of the Milling Contract is the solitary provision that mentions some benefit in favor of the
association of which the planter is a member and we quote:
VI

SHARE IN THE SUGAR

Thirty four per centrum (34%) of the sugar ad molasses resulting from the milling of the PLANTER’s
sugarcane, as computed from the weight and analysis of the sugarcane delivered by the PLANTER, shall
belong to the CENTRAL; sixty five per centum (65%) thereof to the PLANTER, and one per centum (1%)
as aid to the association of the PLANTER; provided that, if the PLANTER is not a member of any
association recognized by the CENTRAL, said one per centum (1%) shall revert to the CENTRAL. The 1%
aid shall be used by the association for any purpose that it may deem fit for its members, laborers and
their dependents, or for its other socio-economic projects.

The foregoing provision cannot, by any stretch of the imagination, be considered as a stiputation pour
autrui or for the benefit of the petitioners. The primary rationale for the said stipulation is to ensure a
just share in the proceeds of the harvest to the Planters. In other words, it is a stipulation meant to
benefit the Planters. Even the 1% share to be given to the association as aid does not redound to the
benefit of the association 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 recognized association.

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 of the 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 of advancing 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.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

REYNATO S. PUNO

Chief Justice

Chairperson

ANTONIO T. CARPIO

Associate Justice RENATO C. CORONA

Associate Justice

LUCAS P. BERSAMIN

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer of the opinion
of the Court’s Division.

REYNATO S. PUNO

Chief Justice
Footnotes

1 Penned by Associate Justice Eloy R. Bello, Jr. (ret.), with Associate Justices Godardo A. Jacinto (ret.) and
Josefina Guevarra-Salonga concurring; rollo, pp. 43-55.

2 Id. at 153-156.

3 Id. at 88-105.

4 In the sample Milling Contract with OSCO, this provision is found in Article XV, paragraph B.

5 Rollo, p. 153.

6 Id. at 154-156.

7 Id. at 57-59.

8 Manacop, Jose F. v. Equitable PCIBank, G.R. Nos. 162814-17, August 25, 2005, 468 SCRA 256, 270-271.

9 New York Marine Manager v. CA, et al., G.R. No. 111837, Oct. 24, 1995, 249 SCRA 416, 420.

10 Otherwise known as AN ACT TO AUTHORIZE THE MAKING OF ARBITRATION AND SUBMISSION

AGREEMENTS, TO PROVIDE FOR THE APPOINTMENT OF ARBITRATORS AND THE PROCEDURE FOR
ARBITRATION IN CIVIL CONTROVERSIES, AND FOR OTHER PURPOSES.
11 5 Am Jur 2d Appeal and Error, Arbitration and Award, p. 527.

12 G.R. No. 120105, March 27, 1998, 288 SCRA 267.

13 BF Corporation v. CA, supra note 12, p. 283.

14 G.R. No. 161298, January 31, 2006, 481 SCRA 348, 358-359.

15 G.R. No. 120465, September 9, 1999, 314 SCRA 76, 77.

16 Article 1878. Special Powers of Attorney are necessary in the following cases:

xxx

(3) To compromise, to submit questions to arbitration, xxx.

17 South Pachem Development, Inc v. CA and Makati Commercial Estate Association, Inc., G.R. No.
126260, December 16, 2004, 447 SCRA 85, 94.

18 Associated Bank v. CA, G.R. No. 123793, June 29, 1998, 291 SCRA 511, 526.

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Republic of the Philippines

SUPREME COURT

Manila

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.

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

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 CORPORATION, Respondents.

RESOLUTION

TINGA, J.:

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 20051 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 Reconsideration2 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 Clarification3 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 jurisprudence5 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 of the 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. 16195710 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 19.111 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.1awphi1.net
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.

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.

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 them 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 for certiorari. 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. Respondent 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.

xxxx

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.
876 should 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 Law24 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 Appeals28 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 B.F. Corporation is not availing in the present petition. The disquisition in B.F.
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. 876
recognizes 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 Appeals37 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. 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
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 Florida42 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. x x x x43

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.44 and 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 x x x of another to arbitrate x x x, [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 x x x. 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.50 Prima 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.1avvphi1.net

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.

SO ORDERED.

DANTE O. TINGA

Associate Justice
WE CONCUR:

REYNATO S. PUNO

Chief Justice

Chairperson

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice ROMEO J. CALLEJO, SR.

Asscociate Justice

MINITA V. CHICO-NAZARIO

Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the
above Resolution were reached in consultation before the case was assigned to the writer of the opinion
of the Court.

REYNATO S. PUNO

Chief Justice

Footnotes

1 Gonzales v. Climax Mining Ltd., G.R. No. 161957, 28 February 2005.

2 Rollo (G.R. No. 161957), pp. 715-741.

3 Id. at 700-706.

4 The pertinent portion of the assailed decision reads:

Petitioner also disagrees with the Court of Appeals’ ruling that the case should be brought for arbitration
under Rep. Act [No.] 876, pursuant to the arbitration clause in the Addendum Contract which states that
"[a]ll disputes arising out of or in connection with the Contract, which cannot be settled amicably among
the Parties, shall finally be settled under R.A. No. 876." He points out that respondents Climax and APMI
are not parties to the Addendum Contract and are thus not bound by the arbitration clause in said
contract.

We agree that the case should not be brought under the ambit of the Arbitration Law, but for a different
reason. The question of validity of the contract containing the agreement to submit to arbitration will
affect the applicability of the arbitration clause itself. A party cannot rely on the contract and claim
rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are
enjoined from taking inconsistent positions. As previously discussed, the complaint should have been
filed before the regular courts as it involved issues which are judicial in nature. Rollo [G.R. No. 161957],
p. 695

5 4 Am Jur 2d, at 136, and American Law Reports, Annotated, 3 ALR2d 425 to 426.

6Art. 16(1) thereof states: "The arbitral tribunal may rule on its own jurisdiction, including any
objections with respect to the existence or validity of the arbitration agreement. For that purpose, an
arbitration clause which forms part of a contract shall be treated as an agreement independent of the
other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not
entail ipso jure the invalidity of the arbitration clause." The Model Law was adopted in Republic Act No.
9285 or the "Alternative Dispute Resolution Act of 2004" (in Sec. 19 thereof).

7 Resolution of 15 June 2005, rollo (G.R. No. 161957), p. 767.

8 Id. at 780-790.

9 Id. at 832-838.

10 Rollo (G.R. No. 167994), pp. 3-24.

11 Clause 19.1 of the Addendum Contract, rollo (G.R. No. 167994), p. 87. It reads: "All disputes arising
out of or in connection with the Contract, which cannot be settled amicable among the Parties, shall be
finally settled under Republic Act No. 876, otherwise known as ‘The Arbitration Law," as may be
amended from time to time. It is agreed, however, that at all events and notwithstanding any provision
of Republic Act No. 876, only one arbitrator shall be appointed by all the Parties. For purposes of such
appointment and at all proceedings hereunder, each of the CLAIMOWNER and ARIMCO shall have one
vote. AUMEX, GEOPHILIPPINES and INMEX shall jointly have only one vote and, for purposes hereof,
GEOPHILIPPINES and INMEX hereby irrevocably constitute AUMEX as their attorney-in-fact, in their
place, name and stead, to exercise the voting right granted hereunder. If the CLAIMOWNER, ARIMCO
and AUMEX fail to agree on an arbitrator within 30 days from the date they first begin considering
persons to act as arbitrator, such arbitrator shall be appointed by the appropriate court in accordance
with Republic Act No. 876. The Parties agree that the venue of the arbitration and all actions under the
Contract shall be Metro Manila, Philippines. The Parties further agree that the decision of the arbitrator
shall be binding and enforceable upon the Parties and that no judicial action may be instituted by any
Party against any other Party under the Contract except as provided in this Clause 19.1."

12 Rollo (G.R. No. 167994), pp. 250-322.

13 Id. at 517.

14 Id. at 518-520.

15 Id. at 525.

16 Id. at 526.
17 Id. at 381.

18 Id.

19 Id. at 527-530.

20 Id. at 30-35.

21Id. at 39.

22 G.R. No. 103200, 31 August 1994, 236 SCRA 78.

23 Id. at 91.

24 Sec. 19 of R.A. No. 9258 adopts the UNCITRAL Model Law for international commercial arbitration,
while Sec. 33 of R.A. No. 9258 makes certain portions of the UNCITRAL Model Law, including Art. 8,
applicable to domestic arbitration.

25 Nippon Paint Employees Union-Olalia v. Court of Appeals, G.R. No. 159010, 19 November 2004, 443
SCRA 286, 291.

26 Justice Romero, in his dissenting opinion in Asset Privatizatoin Trust v. Court of Appeals, 360 Phil.
768, 824-825 (1998), had occasion to discuss the mode of review under Sec. 29 of R.A. No. 876:

The term "certiorari" in [Sec. 29 of R.A. No. 876] refers to an ordinary appeal under Rule 45, not the
special action of certiorari under Rule 65. It is an "appeal," as Section 29 proclaims. The proper forum for
this action is, under the old and the new rules of procedure, the Supreme Court. Thus, Section 2(c) of
Rule 41 of the 1997 Rules of Civil Procedure states that, "In all cases where only questions of law are
raised or involved, the appeal shall be to the Supreme Court by petition for review on certiorari in
accordance with Rule 45." Moreover, Section 29 limits the appeal to "questions of law," another
indication that it is referring to an appeal by certiorari under Rule 45 which, indeed, is the customary
manner of reviewing such issues. On the other hand, the extraordinary remedy of certiorari under Rule
65 may be availed of by a party where there is "no appeal, nor any plain, speedy, and adequate remedy
in the course of law," and under circumstances where "a tribunal, board or officer exercising judicial
functions, has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion."

27 Rollo (G.R. No. 167994), pp. 364-365.

28 351 Phil. 508 (1998).

29 Rollo (G.R. No. 167994), p. 365.

30 Supra note 28, at 518-519.

31 Supra note 28 at 520-521.

32 Estate of Salud Jimenez v. Philippine Export Processing Zone, 402 Phil. 271, 284 (2001).

33 Civil Code, Book IV, Title XIV, Chapter 2.

34 National Union Fire Insurance Company of Pittsburgh v. Stolt-Nielsen Philippines, Inc., G.R. No.
87958, 26 April 1990, 184 SCRA 682.

35 57 Phil. 600 (1932).

36 Id. at 603.
37 404 Phil. 192 (2001).

38 Id. at 201.

39 Supra note 22.

40 Supra note 22 at 91.

41Id.

42 126 Phil. 78 (1967).

43 Id. at 84-85.

44 Supra note 35.

45 Supra note 37.

46 P. Capper, International arbitration: A Handbook (3rd ed., 2004), p. 12.

47 Id. Accordingly, the termination or avoidance (for example, following a fraudulent misrepresentation)
of a contract which was initially valid will not affect the validity of the arbitration agreement. The
doctrine also recognizes in this way the wish of the parties to have disputes arising out of their contract
settled by arbitration, even if that contract is no longer in existence. Id. at 81.
In the U.S., a distinction has been drawn between legal doctrines relating to enforceability of contracts
and legal doctrines relating to whether a contract is formed. Making this distinction, some courts have
applied Prima Paint Corp. v. Flood and ConKlin, infra note 49, to voidable-contract arguments, but not to
no-contract agreements involving for example forgery. S.J. Ware, infra note 50 at 49.

48 Supra note 46, at 81.

49 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967).

50 S.J. Ware, Alternative Dispute Resolution (2001 ed.), pp. 45-46, citing Prima Paint,supra.

51 Supra note 49, 380 U.S., at 404.

52 Order of 25 June 2002, rollo (G.R. No. 161957), p. 612.

53 Rollo (G.R. No. 161957), pp. 194-201.

54 Id. at 199.

55 See Civil Code, Art. 1390.

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SECOND DIVISION

G.R. No. 161957 February 28, 2005

JORGE GONZALES and PANEL OF ARBITRATORS, petitioners,

vs.

CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES MINING INC.,
respondents.

DECISION

TINGA, J.:

Petitioner Jorge Gonzales, as claimowner of mineral deposits located within the Addendum Area of
Influence in Didipio, in the provinces of Quirino and Nueva Vizcaya, entered into a co-production, joint
venture and/or production-sharing letter-agreement designated as the May 14, 1987 Letter of Intent
with Geophilippines, Inc, and Inmex Ltd. Under the agreement, petitioner, as claimowner, granted to
Geophilippines, Inc. and Inmex Ltd. collectively, the exclusive right to explore and survey the mining
claims for a period of thirty-six (36) months within which the latter could decide to take an operating
agreement on the mining claims and/or develop, operate, mine and otherwise exploit the mining claims
and market any and all minerals that may be derived therefrom.

On 28 February 1989, the parties to the May 14, 1987 Letter of Intent renegotiated the same into the
February 28, 1989 Agreement whereby the exploration of the mining claims was extended for another
period of three years.

On 9 March 1991, petitioner Gonzales, Arimco Mining Corporation, Geophilippines Inc., Inmex Ltd., and
Aumex Philippines, Inc. signed a document designated as the Addendum to the May 14, 1987 Letter of
Intent and February 28, 1989 Agreement with Express Adhesion Thereto (hereafter, the Addendum
Contract).1 Under the Addendum Contract, Arimco Mining Corporation would apply to the Government
of the Philippines for permission to mine the claims as the Government’s contractor under a Financial
and Technical Assistance Agreement (FTAA). On 20 June 1994, Arimco Mining Corporation obtained the
FTAA2 and carried out work under the FTAA.

Respondents executed the Operating and Financial Accommodation Contract3 (between Climax-Arimco
Mining Corporation and Climax Mining Ltd., as first parties, and Australasian Philippines Mining Inc., as
second party) dated 23 December 1996 and Assignment, Accession Agreement4 (between Climax-
Arimco Mining Corporation and Australasian Philippines Mining Inc.) dated 3 December 1996.
Respondent Climax Mining Corporation (Climax) and respondent Australasian Philippines Mining Inc.
(APMI) entered into a Memorandum of Agreement5 dated 1 June 1991 whereby the former transferred
its FTAA to the latter.

On 8 November 1999, petitioner Gonzales filed before the Panel of Arbitrators, Region II, Mines and
Geosciences Bureau of the Department of Environment and Natural Resources, against respondents
Climax-Arimco Mining Corporation (Climax-Arimco), Climax, and APMI,6 a Complaint7 seeking the
declaration of nullity or termination of the Addendum Contract, the FTAA, the Operating and Financial
Accommodation Contract, the Assignment, Accession Agreement, and the Memorandum of Agreement.
Petitioner Gonzales prayed for an unspecified amount of actual and exemplary damages plus attorney’s
fees and for the issuance of a temporary restraining order and/or writ of preliminary injunction to
restrain or enjoin respondents from further implementing the questioned agreements. He sought said
releifs on the grounds of "FRAUD, OPPRESSION and/or VIOLATION of Section 2, Article XII of the
CONSTITUTION perpetrated by these foreign RESPONDENTS, conspiring and confederating with one
another and with each other…."8
On 21 February 2001, the Panel of Arbitrators dismissed the Complaint for lack of jurisdiction. Petitioner
moved for reconsideration and this was granted on 18 October 2001, the Panel believing that the case
involved a dispute involving rights to mining areas and a dispute involving surface owners, occupants
and claim owners/concessionaires. According to the Panel, although the issue raised in the Complaint
appeared to be purely civil in nature and should be within the jurisdiction of the regular courts, a ruling
on the validity of the assailed contracts would result to the grant or denial of mining rights over the
properties; therefore, the question on the validity of the contract amounts to a mining conflict or
dispute. Hence, the Panel granted the Motion for Reconsideration with regard to the issues of nullity,
termination, withdrawal or damages, but with regard to the constitutionality of the Addendum
Agreement and FTAA, it held that it had no jurisdiction.9

Respondents filed their motion for reconsideration but this was denied on 25 June 2002. The Panel of
Arbitrators maintained that there was a mining dispute between the parties since the subject matter of
the Complaint arose from contracts between the parties which involve the exploration and exploitation
of minerals over the disputed area.10

Respondents assailed the orders of the Panel of Arbitrators via a petition for certiorari before the Court
of Appeals.1ªvvphi1.nét

On 30 July 2003, the Court of Appeals granted the petition, declaring that the Panel of Arbitrators did
not have jurisdiction over the complaint filed by petitioner.11 The jurisdiction of the Panel of
Arbitrators, said the Court of Appeals, is limited only to the resolution of mining disputes, defined as
those which raise a question of fact or matter requiring the technical knowledge and experience of
mining authorities. It was found that the complaint alleged fraud, oppression and violation of the
Constitution, which called for the interpretation and application of laws, and did not involve any mining
dispute. The Court of Appeals also observed that there were no averments relating to particular acts
constituting fraud and oppression. It added that since the Addendum Contract was executed in 1991,
the action to annul it should have been brought not later than 1995, as the prescriptive period for an
action for annulment is four years from the time of the discovery of the fraud.12 When petitioner filed
his complaint before the Panel in 1999, his action had already prescribed. Also, the Court of Appeals
noted that fraud and duress only make a contract voidable,13 not inexistent, hence the contract
remains valid until annulled. The Court of Appeals was of the opinion that the petition should have been
settled through arbitration under Republic Act No. 876 (The Arbitration Law) as stated in Clause 19.1 of
the Addendum Contract. The Court of Appeals therefore declared as invalid the orders dated 18 October
2001 and 25 June 2002 issued by the Panel of Arbitrators. On 28 January 2004, the Court of Appeals
denied petitioner’s motion for reconsideration for lack of merit.14
Petitioner filed on 22 March 2004 this Petition for Review on Certiorari Under Rule 45 assailing the
decision and resolution of the Court of Appeals. Petitioner raises the following issues:

A. PROCEDURAL GROUND

THE HONORABLE COURT OF APPEALS SHOULD HAVE SUMMARILY DISMISSED RESPONDENTS’ PETITION
A QUO FOR FAILURE TO COMPLY WITH PROCEDURAL REQUIREMENTS.

I.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED
JURISPRUDENCE WHEN IT DID NOT DISMISS THE PETITION A QUO DESPITE RESPONDENTS’ FAILURE TO
COMPLY WITH THE RULES ON DISCLOSURE IN THE "VERIFICATION AND CERTIFICATION" PORTION OF
THEIR PETITION A QUO.

II.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED
JURISPRUDENCE WHEN IT DID NOT DISMISS THE PETITION A QUO FILED BY RESPONDENT CLIMAX
DESPITE THE LACK OF THE REQUISITE AUTHORITY TO FILE THE PETITION A QUO.

B. SUBSTANTIVE GROUND

THE HONORABLE COURT OF APPEALS ERRED IN GRANTING THE PETITION A QUO FILED BY
RESPONDENTS AND IN DENYING MOTION FOR RECONSIDERATION FILED BY PETITIONER FOR UTTER
LACK OF BASIS IN FACT AND IN LAW.

I.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED
JURISPRUDENCE WHEN IT HELD THAT PETITIONER CEDED HIS CLAIMS OVER THE MINERAL DEPOSITS
LOCATED WITHIN THE ADDENDUM AREA OF INFLUENCE.

II.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED
JURISPRUDENCE WHEN IT HELD THAT THE PANEL OF ARBITRATORS IS BEREFT OF JURISDICTION OVER
THE SUBJECT MATTER OF CASE NO. 058.

III.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED
JURISPRUDENCE WHEN IT HELD THAT THE COMPLAINT FILED BY THE PETITIONER FAILED TO ALLEGE
ULTIMATE FACTS OR PARTICULARS OF FRAUD.

IV.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED
JURISPRUDENCE WHEN IT HELD THAT PETITIONER AND RESPONDENTS SHOULD SUBMIT TO
ARBITRATION UNDER R.A. 876.

V.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED
JURISPRUDENCE WHEN IT HELD THAT THE ACTION TO DECLARE THE NULLITY OF THE ADDENDUM
CONTRACT, FTAA, OFAC AND AAAA ON THE GROUND OF FRAUD HAS PRESCRIBED.

The issues for resolution in this petition for review are:

(a) Whether there was forum-shopping on the part of respondents for their failure to disclose to this
Court their filing of a Petition to Compel for Arbitration before the Regional Trial Court of Makati City,
Branch 148, which is currently pending.

(b) Whether counsel for respondent Climax had authority to file the petition for certiorari before the
Court of Appeals considering that the signor of the petition for certiorari’s Verification and Certification
of Non-forum Shopping was not authorized to sign the same in behalf of respondent Climax.

(c) Whether the complaint filed by petitioner raises a mining dispute over which the Panel of Arbitrators
has jurisdiction, or a judicial question which should properly be brought before the regular courts.

(d) Whether the dispute between the parties should be brought for arbitration under Rep. Act No. 876.

Let us deal first with procedural matters.

Petitioner claims that respondents are guilty of forum-shopping for failing to disclose before this Court
that they had filed a Petition to Compel for Arbitration before the RTC of Makati City. However, it cannot
be determined from petitioner’s mere allegations in the Petition that the Petition to Compel for
Arbitration instituted by respondent Climax-Arimco, involves related causes of action and the grant of
the same or substantially the same reliefs as those involved in the instant case. Petitioner did not attach
copies of the Petition to Compel for Arbitration or any order or resolution of the RTC of Makati City
related to that case.

Furthermore, it can be gleaned from the nature of the two actions that the issues in the case before the
RTC of Makati City and in the petition for certiorari before the Court of Appeals are different. A petition
for certiorari raises the issue of whether or not there was grave abuse of discretion, while the Petition to
Compel for Arbitration seeks the implementation of the arbitration clause in the agreement between
the parties.

Petitioner next alleges that there was no authority granted by respondent Climax to the law firm of Sycip
Salazar Hernandez & Gatmaitan to file the petition before the Court of Appeals. There is allegedly no
Secretary’s Certificate from respondent Climax attached to the petition. The Verification and
Certification only contains a statement made by one Marianne M. Manzanas that she is "also the
authorized representative of [respondent Climax]" without presenting further proof of such authority.
Hence, it is argued that as to respondent Climax, the petition filed before the Court of Appeals is an
unauthorized act and the assailed orders of the Panel of Arbitrators have become final.

Under Section 3, Rule 46 of the Rules of Court, a petitioner is required to submit, together with the
petition, a sworn certification of non-forum shopping, and failure to comply with this requirement is
sufficient ground for dismissal of the petition. The requirement that petitioner should sign the certificate
of non-forum shopping applies even to corporations, the Rules of Court making no distinction between
natural and juridical persons. The signatory in the case of the corporation should be "a duly authorized
director or officer of the corporation" who has knowledge of the matter being certified.15 If, as in this
case, the petitioner is a corporation, a board resolution authorizing a corporate officer to execute the
certification against forum-shopping is necessary. A certification not signed by a duly authorized person
renders the petition subject to dismissal.16

On this point, we have to agree with petitioner.l^vvphi1.net There appears to be no subsequent

compliance with the requirement to attach a board resolution authorizing the signor Marianne M.
Manzanas to file the petition in behalf of respondent Climax. Respondent also failed to refute this in its
Comment.17 However, this latter issue becomes irrelevant in the light of our decision to deny this
petition for review for lack of jurisdiction by the Panel of Arbitrators over the complaint filed by
petitioner, as will be discussed below.

We now come to the meat of the case which revolves mainly around the question of jurisdiction by the
Panel of Arbitrators: Does the Panel of Arbitrators have jurisdiction over the complaint for declaration of
nullity and/or termination of the subject contracts on the ground of fraud, oppression and violation of
the Constitution? This issue may be distilled into the more basic question of whether the Complaint
raises a mining dispute or a judicial question.

A judicial question is a question that is proper for determination by the courts, as opposed to a moot
question or one properly decided by the executive or legislative branch.18 A judicial question is raised
when the determination of the question involves the exercise of a judicial function; that is, the question
involves the determination of what the law is and what the legal rights of the parties are with respect to
the matter in controversy.19 1a\^/phi1.net
On the other hand, a mining dispute is a dispute involving (a) rights to mining areas, (b) mineral
agreements, FTAAs, or permits, and (c) surface owners, occupants and claimholders/concessionaires.20
Under Republic Act No. 7942 (otherwise known as the Philippine Mining Act of 1995), the Panel of
Arbitrators has exclusive and original jurisdiction to hear and decide these mining disputes.21 The Court
of Appeals, in its questioned decision, correctly stated that the Panel’s jurisdiction is limited only to
those mining disputes which raise questions of fact or matters requiring the application of technological
knowledge and experience.22

In Pearson v. Intermediate Appellate Court,23 this Court observed that the trend has been to make the
adjudication of mining cases a purely administrative matter.24 Decisions25 of the Supreme Court on
mining disputes have recognized a distinction between (1) the primary powers granted by pertinent
provisions of law to the then Secretary of Agriculture and Natural Resources (and the bureau directors)
of an executive or administrative nature, such as granting of license, permits, lease and contracts, or
approving, rejecting, reinstating or canceling applications, or deciding conflicting applications, and (2)
controversies or disagreements of civil or contractual nature between litigants which are questions of a
judicial nature that may be adjudicated only by the courts of justice. This distinction is carried on even in
Rep. Act No. 7942.

The Complaint charged respondents with disregarding and ignoring the provisions of the Addendum
Contract, violating the purpose and spirit of the May 14, 1987 Letter of Intent and February 28, 1989
Agreement, and acting in a fraudulent and oppressive manner against petitioner and practicing fraud
and deception against the Government.26 Petitioner alleged in his Complaint that under the original
agreements (the May 14, 1987 Letter of Intent and February 28, 1989 Agreement) respondent Climax-
Arimco had committed to complete the Bankable Feasibility Study by 28 February 1992, but the same
was not accomplished. Instead, respondent Climax-Arimco, through false and insidious representations
and machinations by alleging technical and financial capacity, induced petitioner to enter into the
Addendum Contract and the FTAA in order to repeatedly extend the option period within which to
conduct the feasibility study. In essence, petitioner alleges that respondents, conspiring and
confederating with one another, misrepresented under the Addendum Contract and FTAA that
respondent Climax-Arimco possessed financial and technical capacity to put the project into commercial
production, when in truth it had no such qualification whatsoever to do so. By so doing, respondents
have allegedly caused damage not only to petitioner but also to the Republic of the Philippines.27

It is apparent that the Panel of Arbitrators is bereft of jurisdiction over the Complaint filed by petitioner.
The basic issue in petitioner’s Complaint is the presence of fraud or misrepresentation allegedly
attendant to the execution of the Addendum Contract and the other contracts emanating from it, such
that the contracts are rendered invalid and not binding upon the parties. It avers that petitioner was
misled by respondents into agreeing to the Addendum Contract. This constitutes fraud which vitiated
petitioner’s consent, and under Article 1390 of the Civil Code, is one of the grounds for the annulment of
a voidable contract. Voidable or annullable contracts, before they are set aside, are existent, valid, and
binding, and are effective and obligatory between the parties.28 They can be ratified.29

Petitioner insists that the Complaint is actually one for the declaration of nullity of void contracts. He
argues that respondents, by their lack of financial and technical competence to carry out the mining
project, do not qualify to enter into a co-production, joint venture or production sharing agreement with
the Government, in circumvention of and in patent violation of the spirit and purpose of the
Constitution, particularly Section 2, Article XII thereof. Petitioner relies on the Civil Code for support:30

Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or
public policy;

....

(7) Those expressly prohibited or declared void by law.

....

Petitioner asserts that for circumventing and being in patent violation of the Constitution, the
Addendum Contract, the FTAA and the other contracts are void contracts. As such, they do not produce
any effect and cannot be ratified.

However, whether the case involves void or voidable contracts is still a judicial question. It may, in some
instances, involve questions of fact especially with regard to the determination of the circumstances of
the execution of the contracts. But the resolution of the validity or voidness of the contracts remains a
legal or judicial question as it requires the exercise of judicial function. It requires the ascertainment of
what laws are applicable to the dispute, the interpretation and application of those laws, and the
rendering of a judgment based thereon. Clearly, the dispute is not a mining conflict. It is essentially
judicial. The complaint was not merely for the determination of rights under the mining contracts since
the very validity of those contracts is put in issue.

The Complaint is not about a dispute involving rights to mining areas, nor is it a dispute involving
claimholders or concessionaires. The main question raised was the validity of the Addendum Contract,
the FTAA and the subsequent contracts. The question as to the rights of petitioner or respondents to the
mining area pursuant to these contracts, as well as the question of whether or not petitioner had ceded
his mining claims in favor of respondents by way of execution of the questioned contracts, is merely
corollary to the main issue, and may not be resolved without first determining the main issue.

The Complaint is also not what is contemplated by Rep. Act No. 7942 when it says the dispute should
involve FTAAs. The Complaint is not exclusively within the jurisdiction of the Panel of Arbitrators just
because, or for as long as, the dispute involves an FTAA. The Complaint raised the issue of the
constitutionality of the FTAA, which is definitely a judicial question. The question of constitutionality is
exclusively within the jurisdiction of the courts to resolve as this would clearly involve the exercise of
judicial power. The Panel of Arbitrators does not have jurisdiction over such an issue since it does not
involve the application of technical knowledge and expertise relating to mining. This the Panel of
Arbitrators has even conceded in its Orders dated 18 October 2001 and 25 June 2002. At this juncture, it
is worthy of note that in a case,31 which was resolved only on 1 December 2004, this Court upheld the
validity of the FTAA entered into by the Republic of the Philippines and WMC (Philippines), Inc. and
constitutionality of Rep. Act No. 7942 and DENR Administrative Order 96-40.32 In fact, the Court took
the case on an original petition, recognizing "the exceptional character of the situation and the
paramount public interest involved, as well as the necessity for a ruling to put an end to the
uncertainties plaguing the mining industry and the affected communities as a result of doubts case upon
the constitutionality and validity of the Mining Act, the subject FTAA and future FTAAs, and the need to
avert a multiplicity of suits."33

Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the
parties as to some provisions of the contract between them, which needs the interpretation and the
application of that particular knowledge and expertise possessed by members of that Panel. It is not
proper when one of the parties repudiates the existence or validity of such contract or agreement on
the ground of fraud or oppression as in this case. The validity of the contract cannot be subject of
arbitration proceedings. Allegations of fraud and duress in the execution of a contract are matters within
the jurisdiction of the ordinary courts of law. These questions are legal in nature and require the
application and interpretation of laws and jurisprudence which is necessarily a judicial function.
Petitioner also disagrees with the Court of Appeals’ ruling that the case should be brought for arbitration
under Rep. Act 876, pursuant to the arbitration clause in the Addendum Contract which states that "[a]ll
disputes arising out of or in connection with the Contract, which cannot be settled amicably among the
Parties, shall finally be settled under R.A. 876." He points out that respondents Climax and APMI are not
parties to the Addendum Contract and are thus not bound by the arbitration clause in said contract.

We agree that the case should not be brought under the ambit of the Arbitration Law, but for a different
reason. The question of validity of the contract containing the agreement to submit to arbitration will
affect the applicability of the arbitration clause itself. A party cannot rely on the contract and claim
rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are
enjoined from taking inconsistent positions. As previously discussed, the complaint should have been
filed before the regular courts as it involved issues which are judicial in nature.

WHEREFORE, in view of the foregoing, the Petition for Review on Certiorari Under Rule 45 is DENIED.
The Orders dated 18 October 2001 and 25 June 2002 of the Panel of Arbitrators are SET ASIDE. Costs
against petitioner Jorge Gonzales.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Footnotes

1 Rollo, pp. 389-421.

2 Id. at 422-474.

3 Id. at 475-479.
4 Id. at 480-483.

5 Id. at 484-490.

6 Herein respondent Climax-Arimco is the predecessor-in-interest of Arimco Mining Corporation.

Respondents Climax-Arimco and APMI are wholly owned and controlled subsidiaries of respondent
Climax. Id. at 330-331.

7 Id. at 521-596.

8 Id. at 521.

9 Id. at 605-610.

10 Id. at 611-619.

11 Penned by Justice Eliezer R. de los Santos, concurred in by Justices Romeo A. Brawner and Jose C.
Mendoza of the Twelfth division. Id. at 492-499.

12 See Article 1391, Civil Code.

13 See Article 1390 (2), Civil Code.

14 Rollo, p. 501.

15 Zulueta v. Asia Brewery, Inc., G.R. No. 138137, 8 March 2001, 354 SCRA 100.
16 MC Engineering, Inc. v. NLRC, 412 Phil. 614 (2001).

17 Rollo, pp. 669-670.

18 Black’s Law Dictionary, 8th Ed. (2004), p. 864.

19 Jose Agaton R. Sibal, Philippine Legal Encyclopedia (1986), p. 472.

20 Section 77, Rep. Act No. 7942, as amended.

21 Ibid.

22 Citing Philex Mining Corporation v. Zaldivia, 150 Phil. 547 (1972).

23 356 Phil. 341.

24 Citing Twin Peaks Mining Association v. Philex Mining Corporation, No. L-49835, 18 December 1979,
94 SCRA 768.

25 Pio v. Marcos, 155 Phil. 668 (1974); Philex Mining Corporation v. Zaldivia, supra at note 22; Espinosa
v. Makalintal, 79 Phil. 134.

26 Rollo, p. 651.

27 Id. at 367, 590-591.

28 IV Tolentino, 1991 ed., p. 596.

29 Ibid.

30 Rollo, p. 380.

31 La Bugal-B’laan Tribal Association, Inc. et. al v. Victor O. Ramos, et al., G.R. No. 127882, 1 December
2004.

32 The Implementing Rules and Regulations of Rep. Act No. 7942.

33 Supra at note 31.

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Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 169332 February 11, 2008

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.

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

DECISION

CORONA, J.:

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

On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation entered into a licensing
agreement with respondent World Interactive Network Systems (WINS) Japan Co., Ltd., a foreign
corporation licensed under the laws of Japan. Under the agreement, respondent was granted the
exclusive license to distribute and sublicense the distribution of the television service known as "The
Filipino Channel" (TFC) in Japan. By virtue thereof, petitioner undertook to transmit the TFC
programming signals to respondent which the latter received through its decoders and distributed to its
subscribers.
A dispute arose between the parties when petitioner accused respondent of inserting nine episodes of
WINS WEEKLY, a weekly 35-minute community news program for Filipinos in Japan, into the TFC
programming from March to May 2002.3 Petitioner claimed that these were "unauthorized insertions"
constituting a material breach of their agreement. Consequently, on May 9, 2002,4 petitioner notified
respondent of its intention to terminate the agreement effective June 10, 2002.

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

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

1. Was the broadcast of WINS WEEKLY by the claimant duly authorized by the respondent [herein
petitioner]?

2. Did such broadcast constitute a material breach of the agreement that is a ground for termination of
the agreement in accordance with Section 13 (a) thereof?

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

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

xxx xxx xxx

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

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

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

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

On February 16, 2005, the CA rendered the assailed decision dismissing ABS-CBN’s petition for lack of
jurisdiction. It stated that as the TOR itself provided that the arbitrator's decision shall be final and
unappealable and that no motion for reconsideration shall be filed, then the petition for review must
fail. It ruled that it is the RTC which has jurisdiction over questions relating to arbitration. It held that the
only instance it can exercise jurisdiction over an arbitral award is an appeal from the trial court's
decision confirming, vacating or modifying the arbitral award. It further stated that a petition for
certiorari under Rule 65 of the Rules of Court is proper in arbitration cases only if the courts refuse or
neglect to inquire into the facts of an arbitrator's award. The dispositive portion of the CA decision read:

WHEREFORE, the instant petition is hereby DISMISSED for lack of jurisdiction. The application for a writ
of injunction and temporary restraining order is likewise DENIED. The Regional Trial Court of Quezon
City Branch 93 is directed to proceed with the trial for the Petition for Confirmation of Arbitral Award.
SO ORDERED.

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

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

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

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

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

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

(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in the arbitrators or any of them; or

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient
cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or
more of the arbitrators was disqualified to act as such under section nine hereof, and willfully refrained
from disclosing such disqualifications or of any other misbehavior by which the rights of any party have
been materially prejudiced; or

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

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

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

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

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

xxx xxx xxx

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

In cases not falling under any of the aforementioned grounds to vacate an award, the Court has already
made several pronouncements that a petition for review under Rule 43 or a petition for certiorari under
Rule 65 may be availed of in the CA. Which one would depend on the grounds relied upon by petitioner.

In Luzon Development Bank v. Association of Luzon Development Bank Employees,11 the Court held
that a voluntary arbitrator is properly classified as a "quasi-judicial instrumentality" and is, thus, within
the ambit of Section 9 (3) of the Judiciary Reorganization Act, as amended. Under this section, the Court
of Appeals shall exercise:

xxx xxx xxx

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

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

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

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

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

SECTION 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be
established by law.

Judicial power includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government. (Emphasis supplied)

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

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

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

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

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

Nevertheless, although petitioner’s position on the judicial remedies available to it was correct, we
sustain the dismissal of its petition by the CA. The remedy petitioner availed of, entitled "alternative
petition for review under Rule 43 or petition for certiorari under Rule 65," was wrong.

Time and again, we have ruled that the remedies of appeal and certiorari are mutually exclusive and not
alternative or successive.20
Proper issues that may be raised in a petition for review under Rule 43 pertain to errors of fact, law or
mixed questions of fact and law.21 While a petition for certiorari under Rule 65 should only limit itself to
errors of jurisdiction, that is, grave abuse of discretion amounting to a lack or excess of jurisdiction.22
Moreover, it cannot be availed of where appeal is the proper remedy or as a substitute for a lapsed
appeal.23

In the case at bar, the questions raised by petitioner in its alternative petition before the CA were the
following:

A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN
RULING THAT THE BROADCAST OF "WINS WEEKLY" WAS DULY AUTHORIZED BY ABS-CBN.

B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN
RULING THAT THE UNAUTHORIZED BROADCAST DID NOT CONSTITUTE MATERIAL BREACH OF THE
AGREEMENT.

C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN
RULING THAT WINS SEASONABLY CURED THE BREACH.

D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN
RULING THAT TEMPERATE DAMAGES IN THE AMOUNT OF P1,166,955.00 MAY BE AWARDED TO WINS.

E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN
AWARDING ATTORNEY'S FEES IN THE UNREASONABLE AMOUNT AND UNCONSCIONABLE AMOUNT OF
P850,000.00.

F. THE ERROR COMMITTED BY THE SOLE ARBITRATOR IS NOT A SIMPLE ERROR OF JUDGMENT OR ABUSE
OF DISCRETION. IT IS GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF
JURISDICTION.
A careful reading of the assigned errors reveals that the real issues calling for the CA's resolution were
less the alleged grave abuse of discretion exercised by the arbitrator and more about the arbitrator’s
appreciation of the issues and evidence presented by the parties. Therefore, the issues clearly fall under
the classification of errors of fact and law — questions which may be passed upon by the CA via a
petition for review under Rule 43. Petitioner cleverly crafted its assignment of errors in such a way as to
straddle both judicial remedies, that is, by alleging serious errors of fact and law (in which case a petition
for review under Rule 43 would be proper) and grave abuse of discretion (because of which a petition
for certiorari under Rule 65 would be permissible).

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

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

Costs against petitioner.

SO ORDERED.

RENATO C. CORONA

Associate Justice

WE CONCUR:

REYNATO S. PUNO

Chief Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ

Associate Justice

ADOLFO S. AZCUNA

Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision
had been reached in consultation before the case was assigned to the writer of the opinion of the
Court's Division.

REYNATO S. PUNO

Chief Justice

Footnotes

1 Penned by Associate Justice Bienvenido L. Reyes and concurred in by Associate Justices Godardo A.
Jacinto (retired) and Rosalinda Asuncion-Vicente of the Second Division of the Court of Appeals. Rollo,
pp. 59-71.
2 Id., pp. 73-74.

3 The CA erroneously stated that the "unauthorized insertions" took place only sometime in May 2002.

4 The CA erroneously indicated the date as May 9, 2000.

5 Not a party to this case.

6 In arbitration proceedings, the TOR functions like a Pre-Trial Order in judicial proceedings, i.e. it
controls the course of the trial, unless it is corrected for manifest and palpable errors.

7 Decision dated January 9, 2004. Rollo, pp. 108-142.

8 Per petition for review on certiorari, id., p. 18; and petitioner’s memorandum filed with this Court, p.
343.

9 Section 4 of RA 876 provides:

Sec. 4. Form of arbitration agreement. –

xxx

The making of a contract or submission for arbitration of any controversy, shall be deemed a consent of
the parties to the jurisdiction of the Court of First Instance of the province or city where any of the
parties resides, to enforce such contract or submission.
10 G.R. No. 106879, 27 May 1994, 232 SCRA 602.

11 G.R. No. 120319, 6 October 1995, 249 SCRA 162, 168-169.

12 Nippon Paint Employees Union-Olalia v. Court of Appeals, G.R. No. 159010, 19 November 2004, 443
SCRA 286, 290.

13 G.R. No. 152456, 28 April 2004, 428 SCRA 239, 243-244.

14 G.R. No. 138305, 22 September 2004, 438 SCRA 653, 656-657.

15 Supra at 290-291.

16 Chung Fu Industries (Phils.) v. Court of Appeals, G.R. No. 96283, 25 February 1992, 206 SCRA 545,
552-555.

17 Id., p. 556, citing Oceanic Bic Division (FFW) v. Romero, No. L-43890, 16 July 1984, 130 SCRA 392. See
also Maranaw Hotels and Resorts Corp. v. Court of Appeals, G.R. No. 103215, 6 November 1992, 215
SCRA 501, where we sustained the CA decision dismissing the petition for certiorari filed before it as the
voluntary arbitrator did not gravely abuse his discretion in deciding the arbitral case before him. We
emphasized therein that decisions of voluntary arbitrators are final and unappealable except when
there is want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial
justice, or erroneous interpretation of the law.

18 Asset Privatization Trust v. Court of Appeals, G.R. No. 121171, 29 December 1998, 300 SCRA 579,
600-601.

19 G.R. No. 141818, 22 June 2006, 492 SCRA 145, 156.

20 Sebastian v. Morales, G.R. No. 141116, 17 February 2003, 397 SCRA 549, 561; Oriental Media, Inc. v.
Court of Appeals, G.R. No. 80127, 6 December 1995, 250 SCRA 647, 653; Hipolito v. Court of Appeals,
G.R. Nos. 108478-79, 21 February 1994, 230 SCRA 191, 204; Federation of Free Workers v. Inciong, G.R.
No. 49983, 20 April 1992, 208 SCRA 157, 164; and Manila Electric Company v. Court of Appeals, G.R. No.
88396, 4 July 1990, 187 SCRA 200, 205.

21 Rules of Court, Rule 43, Sec. 3.

22 Rules of Court, Rule 65, Sec. 1.

23 Oriental Media, Inc. v. Court of Appeals, Hipolito v. Court of Appeals, Federation of Free Workers v.
Inciong, and Manila Electric Company v. Court of Appeals, supra.

24 Chua v. Santos, G.R. No. 132467, 18 October 2004, 440 SCRA 365, 372-373, citing paragraph 4 (e) of
Supreme Court Circular No. 2-90 dated March 9, 1990, Guidelines to be Observed in Appeals to the
Court of Appeals and the Supreme Court, to wit:

e) Duty of counsel. - It is, therefore, incumbent upon every attorney who would seek review of a
judgment or order promulgated against his client to make sure of the nature of the errors he proposes
to assign, whether these be of fact or law; then upon such basis to ascertain carefully which Court has
appellate jurisdiction; and finally, to follow scrupulously the requisites for appeal prescribed by law, ever
aware that any error or imprecision in compliance may well be fatal to his client's cause.

25 Ybañez v. Court of Appeals, G.R. No. 117499, 9 February 1996, 253 SCRA 540, 547, citing paragraph 4
of Supreme Court Circular No. 2-90 dated March 9, 1990, Guidelines to be Observed in Appeals to the
Court of Appeals and the Supreme Court. Thus:

4. Erroneous Appeals. - An appeal taken to either the Supreme Court or the Court of Appeals by the
wrong or inappropriate mode shall be dismissed.
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