ORMOC SUGARCANE

PLANTERS ASSOCIATION,
INC. (OSPA),OCCIDENTAL
LEYTE FARMERS MULTIPURPOSE COOPERATIVE, INC.
(OLFAMCA), UNIFARM MULTIPURPOSE COOPERATIVE, INC.
(UNIFARM) and ORMOC
NORTH DISTRICT
IRRIGATION MULTI-PURPOSE
COOPERATIVE, INC.
(ONDIMCO),

G.R. No. 156660

Present:
PUNO, C.J., Chairperson,
CARPIO,
CORONA,
LEONARDO-DE CASTRO, and
BERSAMIN, JJ.

Petitioners,

-versus-

Promulgated:
August 24, 2009

THE COURT OF APPEALS

(Special Former Sixth Division),
HIDECO SUGAR MILLING CO.,
INC., and ORMOC SUGAR
MILLING CO., INC.,
Respondents.
x----------------------------------------------------------------------------------------x

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a special civil action for certiorari assailing the
Decision1[1] 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[2] 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.

1
2

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[3]

Notably, Article VII of the milling contracts provides that 34% of the sugar
and molasses produced from milling the Planters 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[4] 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) memberstwo (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.

3
4

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, Attorneys 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[5] 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[6] 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.

5
6

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[7] dated October 30, 2002. Thus, the instant petition.

At the outset, it must be noted that petitioners filed the instant petition for
certiorari under Rule 65 of the Rules of Court, to challenge the judgment of the
CA. Section 1 of Rule 65 states:

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[8] The proper mode of recourse for petitioners was to file a petition for
review of the CAs 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
8

are not correct, they would, at most constitute errors of law and not abuse of
discretion correctable by certiorari.9[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[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
9
10

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 contracts 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[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.

11

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[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

12

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 ones 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[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
13

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[14] that:

As applied to the present case, this provision has two requirements: 1) to institute
an action, the plaintiff must be the real party in interest; and 2) the action must be
prosecuted in the name of the real party in interest. Necessarily, the purposes of
this provision are 1) to prevent the prosecution of actions by persons without any
right, title or interest in the case; 2) to require that the actual party entitled to legal
relief be the one to prosecute the action; 3) to avoid a multiplicity of suits; and 4)
to discourage litigation and keep it within certain bounds, pursuant to sound
public policy.
Interest within the meaning of the Rules means material interest or an
interest in issue to be affected by the decree or judgment of the case, as
distinguished from mere curiosity about the question involved. One having no
material interest to protect cannot invoke the jurisdiction of the 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.
14

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 ones benefit. (emphasis ours)

In Uy v. Court of Appeals,15[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 partiesin-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
15

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[16] None was ever presented here.
16

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[17] These requisites are not present in this case.

17

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 PLANTERs 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[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.

G.R. No. 179537

October 23, 2009

PHILIPPINE ECONOMIC ZONE AUTHORITY, Petitioner,

vs.
EDISON (BATAAN) COGENERATION CORPORATION, Respondent.
DECISION
CARPIO MORALES, J.:
18

Petitioner Philippine Economic Zone Authority (PEZA) and Edison (Bataan) Cogeneration
Corporation (respondent) entered into a Power Supply and Purchase Agreement (PSPA or
agreement) for a 10-year period effective October 25, 1997 whereby respondent undertook to
construct, operate, and maintain a power plant which would sell, supply and deliver electricity to
PEZA for resale to business locators in the Bataan Economic Processing Zone.
In the course of the discharge of its obligation, respondent requested from PEZA a tariff increase
with a mechanism for adjustment of the cost of fuel and lubricating oil, which request it
reiterated on March 5, 2004.
PEZA did not respond to both requests, however, drawing respondent to write PEZA on May 3,
2004. Citing a tariff increase which PEZA granted to the East Asia Utilities Corporation
(EAUC), another supplier of electricity in the Mactan Economic Zone, respondent informed
PEZA of a violation of its obligation under Clause 4.9 of the PSPA not to give preferential
treatment to other power suppliers.
After the lapse of 90 days, respondent terminated the PSPA, invoking its right thereunder, and
demanded P708,691,543.00 as pre-termination fee. PEZA disputed respondents right to
terminate the agreement and refused to pay the pre-termination fee, prompting respondent to
request PEZA to submit the dispute to arbitration pursuant to the arbitration clause of the PSPA.
Petitioner refused to submit to arbitration, however, prompting respondent to file a Complaint1
against PEZA for specific performance before the Regional Trial Court (RTC) of Pasay, alleging
that, inter alia:
xxxx
4. Under Clauses 14.1 and 14.2 of the Agreement, the dispute shall be resolved through
arbitration before an Arbitration Committee composed of one representative of each party and a
third member who shall be mutually acceptable to the parties: x x x
xxx
5. Conformably with the Agreement, plaintiff notified defendant in a letter dated September 6,
2004 requesting that the parties submit their dispute to arbitration. In a letter dated September 8,
2004, which defendant received on the same date, defendant unjustifiably refused to comply with
the request for arbitration, in violation of its undertaking under the Agreement. Defendant
likewise refused to nominate its representative to the Arbitration Committee as required by the
Agreement.
6. Under Section 8 of Republic Act No. 876 (1953), otherwise known as the Arbitration Law, (a)
if either party to the contract fails or refuses to name his arbitrator within 15 days after receipt of

the demand for arbitration; or (b) if the arbitrators appointed by each party to the contract, or
appointed by one party to the contract and by the proper court, shall fail to agree upon or to
select the third arbitrator, then this Honorable Court shall appoint the arbitrator or
arbitrators.2 (Emphasis and underscoring supplied)
Respondent accordingly prayed for judgment
x x x (a) designating (i) an arbitrator to represent defendant; and (ii) the third arbitrator who shall
act as Chairman of the Arbitration Committee; and (b) referring the attached Request for
Arbitration to the Arbitration Committee to commence the arbitration.3
and for other just and equitable reliefs.
In its Answer,4 PEZA (hereafter petitioner):
1. ADMIT[TED] the allegations in paragraphs 1, 2, 3, 4, and 6 of the complaint, with the
qualification that the alleged dispute subject of the plaintiffs Request for Arbitration
dated October 20, 2004 is not an arbitrable issue, considering that the provision on pretermination fee in the Power Sales and Purchase Agreement (PSPA), is gravely onerous,
unconscionable, greatly disadvantageous to the government, against public policy and
therefore invalid and unenforceable.
2. ADMIT[TED] the allegation in paragraph 5 of the complaint with the qualification that
the refusal of the defendant to arbitrate is justified considering that the provision on the
pre-termination fee subject of the plaintiffs Request for Arbitration is invalid and
unenforceable. Moreover, the pre-termination of the PSPA is whimsical, has no valid
basis and in violation of the provisions thereof, constituting breach of contract on the part
of the plaintiff.5 (Emphasis and underscoring supplied)
Xxxx
Respondent thereafter filed a Reply and Motion to Render Judgment on the Pleadings,6
contending that since petitioner
x x x does not challenge the fact that (a) there is a dispute between the parties; (b) the dispute
must be resolved through arbitration before a three-member arbitration committee; and (c)
defendant refused to submit the dispute to arbitration by naming its representative in the
arbitration committee,
judgment may be rendered directing the appointment of the two other members to complete the
composition of the arbitration committee that will resolve the dispute of the parties.71avvphi1

By Order of April 5, 2005, Branch 118 of the Pasay City RTC granted respondents Motion to
Render Judgment on the Pleadings, disposing as follows:
WHEREFORE, all the foregoing considered, this Court hereby renders judgment in favor of the
plaintiff and against the defendant. Pursuant to Section 8 of RA 876, also known as the
Arbitration Law, and Power Sales and Purchase Agreement, this Court hereby appoints, subject
to their agreement as arbitrators, retired Supreme Court Chief Justice Andres Narvasa, as
chairman of the committee, and retired Supreme Court Justices Hugo Gutierrez, and Justice Jose
Y. Feria, as defendants and plaintiffs representative, respectively, to the arbitration committee.
Accordingly, let the Request for Arbitration be immediately referred to the Arbitration
Committee so that it can commence with the arbitration.
SO ORDERED.8 (Underscoring supplied)
On appeal,9 the Court of Appeals, by Decision of April 10, 2007, affirmed the RTC Order.10 Its
Motion for Reconsideration11 having been denied,12 petitioner filed the present Petition for
Review on Certiorari,13 faulting the appellate court
I
. . . WHEN IT DISMISSED PETITIONERS APPEAL AND AFFIRMED THE 05 APRIL 2004
ORDER OF THE TRIAL COURT WHICH RENDERED JUDGMENT ON THE PLEADINGS,
DESPITE THE FACT THAT PETITIONERS ANSWER TENDERED AN ISSUE.
II
. . . WHEN IT AFFIRMED THE ORDER OF THE TRIAL COURT WHICH REFERRED
RESPONDENTS REQUEST FOR ARBITRATION DESPITE THE FACT THAT THE ISSUE
PRESENTED BY THE RESPONDENT IS NOT AN ARBITRABLE ISSUE.14 (Underscoring
supplied)
The petition fails.
The dispute raised by respondent calls for a proceeding under Section 6 of Republic Act No. 876,
"An Act to Authorize the Making of Arbitration and Submission Agreements, to Provide for the
Appointment of Arbitrators and the Procedure for Arbitration in Civil Controversies, and for
Other Purposes" which reads:
SECTION 6. Hearing by court. A party aggrieved by the failure, neglect or refusal of another
to perform under 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.
x x x x (Underscoring supplied)
R.A. No. 876 "explicitly confines the courts authority only to the determination of whether or
not there is an agreement in writing providing for arbitration."15 Given petitioners admission of
the material allegations of respondents complaint including the existence of a written agreement
to resolve disputes through arbitration, the assailed appellate courts affirmance of the trial
courts grant of respondents Motion for Judgment on the Pleadings is in order.
Petitioner argues that it tendered an issue in its Answer as it disputed the legality of the pretermination fee clause of the PSPA. Even assuming arguendo that the clause is illegal, it would
not affect the agreement between petitioner and respondent to resolve their dispute by arbitration.
The doctrine of separability, or severability as other writers call it, enunciates that an arbitration
agreement is independent of the main contract. The arbitration agreement is to be treated as a
separate agreement and the arbitration agreement does not automatically terminate when the
contract of which it is a part comes to an end.
The separability of the arbitration agreement is especially significant to the determination of
whether the invalidity of the main contract also nullifies the arbitration clause. Indeed, the
doctrine denotes that the invalidity of the main contract, also referred to as the "container"
contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that the
main contract is invalid, the arbitration clause/agreement still remains valid and enforceable.16
(Emphasis in the original; underscoring supplied)
Petitioner nevertheless contends that the legality of the pre-termination fee clause is not
arbitrable, citing Gonzales v. Climax Mining Ltd. 17 which declared that the therein complaint
should be brought before the regular courts, and not before an arbitral tribunal, as it involved a
judicial issue. Held the Court:
We agree that the case should not be brought under the ambit of the Arbitration Law xxx. The
question of validity of the contract containing the agreement to submit to arbitration will affect

the applicability of the arbitration clause itself. A party cannot rely on the contract and claim
rights or obligations under it and at the same time impugn its existence or validity. Indeed,
litigants are enjoined from taking inconsistent positions. As previously discussed, the complaint
should have been filed before the regular courts as it involved issues which are judicial in
nature.18
The ruling in Gonzales was, on motion for reconsideration filed by the parties, modified,
however, in this wise:
x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the
Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the validity of
the contract containing the agreement to submit to arbitration does not affect the applicability of
the arbitration clause itself. A contrary ruling would suggest that a partys mere repudiation of
the main contract is sufficient to avoid arbitration. That is exactly the situation that the
separability doctrine, as well as jurisprudence applying it, seeks to avoid. We add that when it
was declared in G.R. No. 161957 that the case should not be brought for arbitration, it should be
clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of
Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it had
already been determined that the case should have been brought before the regular courts
involving as it did judicial issues.19 (Emphasis and underscoring supplied)
It bears noting that respondent does not seek to nullify the main contract. It merely submits these
issues for resolution by the arbitration committee, viz:
a. Whether or not the interest of Claimant in the project or its economic return in its
investment was materially reduced as a result of any laws or regulations of the Philippine
Government or any agency or body under its control;
b. Whether or not the parties failed to reach an agreement on the amendments to the
Agreement within 90 days from notice to respondent on May 3, 2004 of the material
reduction in claimants economic return under the Agreement;
c. Whether or not as a result of (a) and (b) above, Claimant is entitled to terminate the
Agreement;
d. Whether or not Respondent accorded preferential treatment to EAUC in violation of
the Agreement;
e. Whether or not as a result of (d) above, Claimant is entitled to terminate the
Agreement;

f. Whether or not Claimant is entitled to a termination fee equivalent to P708,691,543.00;

and
g. Who between Claimant and Respondent shall bear the cost and expenses of the
arbitration, including arbitrators fees, administrative expenses and legal fees.20
In fine, the issues raised by respondent are subject to arbitration in accordance with the
arbitration clause in the parties agreement.
WHEREFORE, the petition is DENIED.
G.R. No. 143581

January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,

vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional
Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING
CORPORATION, respondents.
DECISION
VELASCO, JR., J.:
In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in
civil and commercial disputes. Arbitration along with mediation, conciliation, and negotiation,
being inexpensive, speedy and less hostile methods have long been favored by this Court. The
petition before us puts at issue an arbitration clause in a contract mutually agreed upon by the
parties stipulating that they would submit themselves to arbitration in a foreign country.
Regrettably, instead of hastening the resolution of their dispute, the parties wittingly or
unwittingly prolonged the controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in
the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants,
while private respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic
corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract1 whereby KOGIES would set up
an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the
Philippines. On April 7, 1997, the parties executed, in Korea, an Amendment for Contract No.
KLP-970301 dated March 5, 19972 amending the terms of payment. The contract and its
amendment stipulated that KOGIES will ship the machinery and facilities necessary for
manufacturing LPG cylinders for which PGSMC would pay USD 1,224,000. KOGIES would

install and initiate the operation of the plant for which PGSMC bound itself to pay USD 306,000
upon the plants production of the 11-kg. LPG cylinder samples. Thus, the total contract price
amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of Lease3 with Worth Properties, Inc.
(Worth) for use of Worths 5,079-square meter property with a 4,032-square meter warehouse
building to house the LPG manufacturing plant. The monthly rental was PhP 322,560
commencing on January 1, 1998 with a 10% annual increment clause. Subsequently, the
machineries, equipment, and facilities for the manufacture of LPG cylinders were shipped,
delivered, and installed in the Carmona plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate4 executed by the parties on January 22, 1998, after the
installation of the plant, the initial operation could not be conducted as PGSMC encountered
financial difficulties affecting the supply of materials, thus forcing the parties to agree that
KOGIES would be deemed to have completely complied with the terms and conditions of the
March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and initial operation of the plant,
PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for
PhP 4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000.5
When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT
STOPPED." Thus, on May 8, 1998, KOGIES sent a demand letter6 to PGSMC threatening
criminal action for violation of Batas Pambansa Blg. 22 in case of nonpayment. On the same
date, the wife of PGSMCs President faxed a letter dated May 7, 1998 to KOGIES President
who was then staying at a Makati City hotel. She complained that not only did KOGIES deliver a
different brand of hydraulic press from that agreed upon but it had not delivered several
equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but
the payments were stopped for reasons previously made known to KOGIES.7
On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated
March 5, 1997 on the ground that KOGIES had altered the quantity and lowered the quality of
the machineries and equipment it delivered to PGSMC, and that PGSMC would dismantle and
transfer the machineries, equipment, and facilities installed in the Carmona plant. Five days later,
PGSMC filed before the Office of the Public Prosecutor an Affidavit-Complaint for Estafa
docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not
unilaterally rescind their contract nor dismantle and transfer the machineries and equipment on

mere imagined violations by KOGIES. It also insisted that their disputes should be settled by
arbitration as agreed upon in Article 15, the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998
letter threatening that the machineries, equipment, and facilities installed in the plant would be
dismantled and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an
Application for Arbitration before the Korean Commercial Arbitration Board (KCAB) in Seoul,
Korea pursuant to Art. 15 of the Contract as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case
No. 98-1178 against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC
granted a temporary restraining order (TRO) on July 4, 1998, which was subsequently extended
until July 22, 1998. In its complaint, KOGIES alleged that PGSMC had initially admitted that the
checks that were stopped were not funded but later on claimed that it stopped payment of the
checks for the reason that "their value was not received" as the former allegedly breached their
contract by "altering the quantity and lowering the quality of the machinery and equipment"
installed in the plant and failed to make the plant operational although it earlier certified to the
contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIES averred that PGSMC
violated Art. 15 of their Contract, as amended, by unilaterally rescinding the contract without
resorting to arbitration. KOGIES also asked that PGSMC be restrained from dismantling and
transferring the machinery and equipment installed in the plant which the latter threatened to do
on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled
to the TRO since Art. 15, the arbitration clause, was null and void for being against public policy
as it ousts the local courts of jurisdiction over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim9 asserting that it had
the full right to dismantle and transfer the machineries and equipment because it had paid for
them in full as stipulated in the contract; that KOGIES was not entitled to the PhP 9,000,000
covered by the checks for failing to completely install and make the plant operational; and that
KOGIES was liable for damages amounting to PhP 4,500,000 for altering the quantity and
lowering the quality of the machineries and equipment. Moreover, PGSMC averred that it has
already paid PhP 2,257,920 in rent (covering January to July 1998) to Worth and it was not
willing to further shoulder the cost of renting the premises of the plant considering that the LPG
cylinder manufacturing plant never became operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying
the application for a writ of preliminary injunction, reasoning that PGSMC had paid KOGIES
USD 1,224,000, the value of the machineries and equipment as shown in the contract such that
KOGIES no longer had proprietary rights over them. And finally, the RTC held that Art. 15 of

the Contract as amended was invalid as it tended to oust the trial court or any other court
jurisdiction over any dispute that may arise between the parties. KOGIES prayer for an
injunctive writ was denied.10 The dispositive portion of the Order stated:
WHEREFORE, in view of the foregoing consideration, this Court believes and so holds
that no cogent reason exists for this Court to grant the writ of preliminary injunction to
restrain and refrain defendant from dismantling the machineries and facilities at the lot
and building of Worth Properties, Incorporated at Carmona, Cavite and transfer the same
to another site: and therefore denies plaintiffs application for a writ of preliminary
injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim.11 KOGIES
denied it had altered the quantity and lowered the quality of the machinery, equipment, and
facilities it delivered to the plant. It claimed that it had performed all the undertakings under the
contract and had already produced certified samples of LPG cylinders. It averred that whatever
was unfinished was PGSMCs fault since it failed to procure raw materials due to lack of funds.
KOGIES, relying on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,12 insisted that the
arbitration clause was without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to Dismiss13 answering
PGSMCs memorandum of July 22, 1998 and seeking dismissal of PGSMCs counterclaims,
KOGIES, on August 4, 1998, filed its Motion for Reconsideration14 of the July 23, 1998 Order
denying its application for an injunctive writ claiming that the contract was not merely for
machinery and facilities worth USD 1,224,000 but was for the sale of an "LPG manufacturing
plant" consisting of "supply of all the machinery and facilities" and "transfer of technology" for a
total contract price of USD 1,530,000 such that the dismantling and transfer of the machinery
and facilities would result in the dismantling and transfer of the very plant itself to the great
prejudice of KOGIES as the still unpaid owner/seller of the plant. Moreover, KOGIES points out
that the arbitration clause under Art. 15 of the Contract as amended was a valid arbitration
stipulation under Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries
(Phils.), Inc.15
In the meantime, PGSMC filed a Motion for Inspection of Things16 to determine whether there
was indeed alteration of the quantity and lowering of quality of the machineries and equipment,
and whether these were properly installed. KOGIES opposed the motion positing that the queries
and issues raised in the motion for inspection fell under the coverage of the arbitration clause in
their contract.
On September 21, 1998, the trial court issued an Order (1) granting PGSMCs motion for
inspection; (2) denying KOGIES motion for reconsideration of the July 23, 1998 RTC Order;

and (3) denying KOGIES motion to dismiss PGSMCs compulsory counterclaims as these
counterclaims fell within the requisites of compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration17 of the September 21,
1998 RTC Order granting inspection of the plant and denying dismissal of PGSMCs compulsory
counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998
urgent motion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for
certiorari18 docketed as CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and
September 21, 1998 RTC Orders and praying for the issuance of writs of prohibition, mandamus,
and preliminary injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and
transferring the machineries and equipment in the Carmona plant, and to direct the RTC to
enforce the specific agreement on arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES urgent motion for
reconsideration and directed the Branch Sheriff to proceed with the inspection of the machineries
and equipment in the plant on October 28, 1998.19
Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249 informing the
CA about the October 19, 1998 RTC Order. It also reiterated its prayer for the issuance of the
writs of prohibition, mandamus and preliminary injunction which was not acted upon by the CA.
KOGIES asserted that the Branch Sheriff did not have the technical expertise to ascertain
whether or not the machineries and equipment conformed to the specifications in the contract
and were properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriffs Report21 finding that the
enumerated machineries and equipment were not fully and properly installed.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC Orders and
dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC did not
gravely abuse its discretion in issuing the assailed July 23, 1998 and September 21, 1998 Orders.
Moreover, the CA reasoned that KOGIES contention that the total contract price for USD
1,530,000 was for the whole plant and had not been fully paid was contrary to the finding of the
RTC that PGSMC fully paid the price of USD 1,224,000, which was for all the machineries and
equipment. According to the CA, this determination by the RTC was a factual finding beyond the
ambit of a petition for certiorari.

On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an
arbitration clause which provided for a final determination of the legal rights of the parties to the
contract by arbitration was against public policy.
On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum
shopping by PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones and
payment of docket fees was not required since the Answer with counterclaim was not an
initiatory pleading. For the same reason, the CA said a certificate of non-forum shopping was
also not required.
Furthermore, the CA held that the petition for certiorari had been filed prematurely since
KOGIES did not wait for the resolution of its urgent motion for reconsideration of the September
21, 1998 RTC Order which was the plain, speedy, and adequate remedy available. According to
the CA, the RTC must be given the opportunity to correct any alleged error it has committed, and
that since the assailed orders were interlocutory, these cannot be the subject of a petition for
certiorari.
Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following errors:
a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY
AND FACILITIES AS "A QUESTION OF FACT" "BEYOND THE AMBIT OF A
PETITION FOR CERTIORARI" INTENDED ONLY FOR CORRECTION OF ERRORS
OF JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE TRIAL
COURTS FINDING ON THE SAME QUESTION WAS IMPROPERLY RAISED IN
THE PETITION BELOW;
b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE
15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING "CONTRARY TO
PUBLIC POLICY" AND FOR OUSTING THE COURTS OF JURISDICTION;
c. DECREEING PRIVATE RESPONDENTS COUNTERCLAIMS TO BE ALL
COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;
d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT
WAITING FOR THE RESOLUTION OF THE MOTION FOR RECONSIDERATION

OF THE ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT GIVING THE

TRIAL COURT AN OPPORTUNITY TO CORRECT ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21,
1998 NOT TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION FOR
BEING "INTERLOCUTORY IN NATURE;"
f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC)
PETITION AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY
"WITHOUT MERIT."23
The Courts Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first tackle the procedural issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket
fees and filed a certificate of non-forum shopping, and that its failure to do so was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with
Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of Rule 11, 1997
Revised Rules of Civil Procedure, the rule that was effective at the time the Answer with
Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim states, "A compulsory
counterclaim or a cross-claim that a defending party has at the time he files his answer shall be
contained therein."
On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against
KOGIES, it was not liable to pay filing fees for said counterclaims being compulsory in nature.
We stress, however, that effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M.
No. 04-2-04-SC, docket fees are now required to be paid in compulsory counterclaim or crossclaims.
As to the failure to submit a certificate of forum shopping, PGSMCs Answer is not an initiatory
pleading which requires a certification against forum shopping under Sec. 524 of Rule 7, 1997
Revised Rules of Civil Procedure. It is a responsive pleading, hence, the courts a quo did not

commit reversible error in denying KOGIES motion to dismiss PGSMCs compulsory

counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are neither the
remedies to question the propriety of an interlocutory order of the trial court."26 The CA erred on
its reliance on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal case
which was not assailable in an action for certiorari since the denial of a motion to quash required
the accused to plead and to continue with the trial, and whatever objections the accused had in
his motion to quash can then be used as part of his defense and subsequently can be raised as
errors on his appeal if the judgment of the trial court is adverse to him. The general rule is that
interlocutory orders cannot be challenged by an appeal.27 Thus, in Yamaoka v. Pescarich
Manufacturing Corporation, we held:
The proper remedy in such cases is an ordinary appeal from an adverse judgment on the
merits, incorporating in said appeal the grounds for assailing the interlocutory orders.
Allowing appeals from interlocutory orders would result in the sorry spectacle of a case
being subject of a counterproductive ping-pong to and from the appellate court as often as
a trial court is perceived to have made an error in any of its interlocutory rulings.
However, where the assailed interlocutory order was issued with grave abuse of
discretion or patently erroneous and the remedy of appeal would not afford adequate and
expeditious relief, the Court allows certiorari as a mode of redress.28
Also, appeals from interlocutory orders would open the floodgates to endless occasions for
dilatory motions. Thus, where the interlocutory order was issued without or in excess of
jurisdiction or with grave abuse of discretion, the remedy is certiorari.29
The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in
the issuance of the two assailed orders coupled with the fact that there is no plain, speedy, and
adequate remedy in the ordinary course of law amply provides the basis for allowing the resort to
a petition for certiorari under Rule 65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum shopping in filing the petition for
certiorari. Note that KOGIES motion for reconsideration of the July 23, 1998 RTC Order which
denied the issuance of the injunctive writ had already been denied. Thus, KOGIES only remedy
was to assail the RTCs interlocutory order via a petition for certiorari under Rule 65.

While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998
RTC Order relating to the inspection of things, and the allowance of the compulsory
counterclaims has not yet been resolved, the circumstances in this case would allow an exception
to the rule that before certiorari may be availed of, the petitioner must have filed a motion for
reconsideration and said motion should have been first resolved by the court a quo. The reason
behind the rule is "to enable the lower court, in the first instance, to pass upon and correct its
mistakes without the intervention of the higher court."30
The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment,
and facilities when he is not competent and knowledgeable on said matters is evidently flawed
and devoid of any legal support. Moreover, there is an urgent necessity to resolve the issue on the
dismantling of the facilities and any further delay would prejudice the interests of KOGIES.
Indeed, there is real and imminent threat of irreparable destruction or substantial damage to
KOGIES equipment and machineries. We find the resort to certiorari based on the gravely
abusive orders of the trial court sans the ruling on the October 2, 1998 motion for reconsideration
to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It
provides:
Article 15. Arbitration.All disputes, controversies, or differences which may arise
between the parties, out of or in relation to or in connection with this Contract or for the
breach thereof, shall finally be settled by arbitration in Seoul, Korea in accordance with
the Commercial Arbitration Rules of the Korean Commercial Arbitration Board. The
award rendered by the arbitration(s) shall be final and binding upon both parties
concerned. (Emphasis supplied.)
Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the place where the contract is made
governs. Lex loci contractus. The contract in this case was perfected here in the Philippines.
Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the
validity of mutually agreed arbitral clause or the finality and binding effect of an arbitral award.
Art. 2044 provides, "Any stipulation that the arbitrators award or decision shall be final, is
valid, without prejudice to Articles 2038, 2039 and 2040." (Emphasis supplied.)

Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or an arbitral
award, as applied to Art. 2044 pursuant to Art. 2043,34 may be voided, rescinded, or annulled, but
these would not denigrate the finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been
shown to be contrary to any law, or against morals, good customs, public order, or public policy.
There has been no showing that the parties have not dealt with each other on equal footing. We
find no reason why the arbitration clause should not be respected and complied with by both
parties. In Gonzales v. Climax Mining Ltd.,35 we held that submission to arbitration is a contract
and that a clause in a contract providing that all matters in dispute between the parties shall be
referred to arbitration is a contract.36 Again in Del Monte Corporation-USA v. Court of Appeals,
we likewise ruled that "[t]he provision to submit to arbitration any dispute arising therefrom and
the relationship of the parties is part of that contract and is itself a contract."37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in
accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is
final and binding, is not contrary to public policy. This Court has sanctioned the validity of
arbitration clauses in a catena of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan
Ysmael and Co., Inc.,38 this Court had occasion to rule that an arbitration clause to resolve
differences and breaches of mutually agreed contractual terms is valid. In BF Corporation v.
Court of Appeals, we held that "[i]n this jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this Court
has countenanced the settlement of disputes through arbitration. Republic Act No. 876 was
adopted to supplement the New Civil Codes provisions on arbitration."39 And in LM Power
Engineering Corporation v. Capitol Industrial Construction Groups, Inc., we declared that:
Being an inexpensive, speedy and amicable method of settling disputes, arbitration
along with mediation, conciliation and negotiationis encouraged by the Supreme Court.
Aside from unclogging judicial dockets, arbitration also hastens the resolution of
disputes, especially of the commercial kind. It is thus regarded as the "wave of the future"
in international civil and commercial disputes. Brushing aside a contractual agreement
calling for arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution
methods, courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate
should be granted. Any doubt should be resolved in favor of arbitration.40

Having said that the instant arbitration clause is not against public policy, we come to the
question on what governs an arbitration clause specifying that in case of any dispute arising from
the contract, an arbitral panel will be constituted in a foreign country and the arbitration rules of
the foreign country would govern and its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising
from contractual relations. In case a foreign arbitral body is chosen by the parties, the arbitration
rules of our domestic arbitration bodies would not be applied. As signatory to the Arbitration
Rules of the UNCITRAL Model Law on International Commercial Arbitration41 of the United
Nations Commission on International Trade Law (UNCITRAL) in the New York Convention on
June 21, 1985, the Philippines committed itself to be bound by the Model Law. We have even
incorporated the Model Law in Republic Act No. (RA) 9285, otherwise known as the Alternative
Dispute Resolution Act of 2004 entitled An Act to Institutionalize the Use of an Alternative
Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute
Resolution, and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4
of the Model Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model Law on International Commercial Arbitration.
International commercial arbitration shall be governed by the Model Law on
International Commercial Arbitration (the "Model Law") adopted by the United Nations
Commission on International Trade Law on June 21, 1985 (United Nations Document
A/40/17) and recommended for enactment by the General Assembly in Resolution No.
40/72 approved on December 11, 1985, copy of which is hereto attached as Appendix
"A".
SEC. 20. Interpretation of Model Law.In interpreting the Model Law, regard shall be
had to its international origin and to the need for uniformity in its interpretation and resort
may be made to the travaux preparatories and the report of the Secretary General of the
United Nations Commission on International Trade Law dated March 25, 1985 entitled,
"International Commercial Arbitration: Analytical Commentary on Draft Trade identified
by reference number A/CN. 9/264."
While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a
procedural law which has a retroactive effect. Likewise, KOGIES filed its application for
arbitration before the KCAB on July 1, 1998 and it is still pending because no arbitral award has
yet been rendered. Thus, RA 9285 is applicable to the instant case. Well-settled is the rule that

procedural laws are construed to be applicable to actions pending and undetermined at the time
of their passage, and are deemed retroactive in that sense and to that extent. As a general rule, the
retroactive application of procedural laws does not violate any personal rights because no vested
right has yet attached nor arisen from them.42
Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model
Law are the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of
arbitration pursuant to an arbitration clause, and mandates the referral to arbitration in such
cases, thus:
SEC. 24. Referral to Arbitration.A court before which an action is brought in a matter
which is the subject matter of an arbitration agreement shall, if at least one party so
requests not later than the pre-trial conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is
null and void, inoperative or incapable of being performed.
(2) Foreign arbitral awards must be confirmed by the RTC
Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be
final and binding are not immediately enforceable or cannot be implemented immediately. Sec.
3543 of the UNCITRAL Model Law stipulates the requirement for the arbitral award to be
recognized by a competent court for enforcement, which court under Sec. 36 of the UNCITRAL
Model Law may refuse recognition or enforcement on the grounds provided for. RA 9285
incorporated these provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention.The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed with the Regional
Trial Court in accordance with the rules of procedure to be promulgated by the Supreme
Court. Said procedural rules shall provide that the party relying on the award or applying
for its enforcement shall file with the court the original or authenticated copy of the
award and the arbitration agreement. If the award or agreement is not made in any of the
official languages, the party shall supply a duly certified translation thereof into any of
such languages.
The applicant shall establish that the country in which foreign arbitration award was
made in party to the New York Convention.

xxxx
SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the
New York Convention.The recognition and enforcement of foreign arbitral awards not
covered by the New York Convention shall be done in accordance with procedural rules
to be promulgated by the Supreme Court. The Court may, on grounds of comity and
reciprocity, recognize and enforce a non-convention award as a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A foreign arbitral award when
confirmed by a court of a foreign country, shall be recognized and enforced as a foreign
arbitral award and not as a judgment of a foreign court.
A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced
in the same manner as final and executory decisions of courts of law of the Philippines
xxxx
SEC. 47. Venue and Jurisdiction.Proceedings for recognition and enforcement of an
arbitration agreement or for vacations, setting aside, correction or modification of an
arbitral award, and any application with a court for arbitration assistance and supervision
shall be deemed as special proceedings and shall be filed with the Regional Trial Court (i)
where arbitration proceedings are conducted; (ii) where the asset to be attached or levied
upon, or the act to be enjoined is located; (iii) where any of the parties to the dispute
resides or has his place of business; or (iv) in the National Judicial Capital Region, at the
option of the applicant.
SEC. 48. Notice of Proceeding to Parties.In a special proceeding for recognition and
enforcement of an arbitral award, the Court shall send notice to the parties at their address
of record in the arbitration, or if any part cannot be served notice at such address, at such
partys last known address. The notice shall be sent al least fifteen (15) days before the
date set for the initial hearing of the application.
It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a
judgment of a foreign court but as a foreign arbitral award, and when confirmed, are enforced as
final and executory decisions of our courts of law.
Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to
judgments or awards given by some of our quasi-judicial bodies, like the National Labor
Relations Commission and Mines Adjudication Board, whose final judgments are stipulated to
be final and binding, but not immediately executory in the sense that they may still be judicially

reviewed, upon the instance of any party. Therefore, the final foreign arbitral awards are
similarly situated in that they need first to be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority
and jurisdiction to set aside, reject, or vacate a foreign arbitral award on grounds provided under
Art. 34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide:
SEC. 42. Application of the New York Convention.The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed with the Regional
Trial Court in accordance with the rules of procedure to be promulgated by the Supreme
Court. Said procedural rules shall provide that the party relying on the award or applying
for its enforcement shall file with the court the original or authenticated copy of the
award and the arbitration agreement. If the award or agreement is not made in any of the
official languages, the party shall supply a duly certified translation thereof into any of
such languages.
The applicant shall establish that the country in which foreign arbitration award was
made is party to the New York Convention.
If the application for rejection or suspension of enforcement of an award has been made,
the Regional Trial Court may, if it considers it proper, vacate its decision and may also,
on the application of the party claiming recognition or enforcement of the award, order
the party to provide appropriate security.
xxxx
SEC. 45. Rejection of a Foreign Arbitral Award.A party to a foreign arbitration
proceeding may oppose an application for recognition and enforcement of the arbitral
award in accordance with the procedures and rules to be promulgated by the Supreme
Court only on those grounds enumerated under Article V of the New York Convention.
Any other ground raised shall be disregarded by the Regional Trial Court.
Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually
agreed upon by the parties, still the foreign arbitral award is subject to judicial review by the
RTC which can set aside, reject, or vacate it. In this sense, what this Court held in Chung Fu
Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar as the foreign arbitral
awards, while final and binding, do not oust courts of jurisdiction since these arbitral awards are
not absolute and without exceptions as they are still judicially reviewable. Chapter 7 of RA 9285

has made it clear that all arbitral awards, whether domestic or foreign, are subject to judicial
review on specific grounds provided for.
(4) Grounds for judicial review different in domestic and foreign arbitral awards
The differences between a final arbitral award from an international or foreign arbitral tribunal
and an award given by a local arbitral tribunal are the specific grounds or conditions that vest
jurisdiction over our courts to review the awards.
For foreign or international arbitral awards which must first be confirmed by the RTC, the
grounds for setting aside, rejecting or vacating the award by the RTC are provided under Art.
34(2) of the UNCITRAL Model Law.
For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23
of RA 87644 and shall be recognized as final and executory decisions of the RTC,45 they may only
be assailed before the RTC and vacated on the grounds provided under Sec. 25 of RA 876.46
(5) RTC decision of assailed foreign arbitral award appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in
cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of the Regional
Trial Court confirming, vacating, setting aside, modifying or correcting an arbitral award
may be appealed to the Court of Appeals in accordance with the rules and procedure to be
promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court confirming an arbitral
award shall be required by the appellate court to post a counterbond executed in favor of
the prevailing party equal to the amount of the award in accordance with the rules to be
promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before this Court through a
petition for review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign
arbitration as it bound itself through the subject contract. While it may have misgivings on the
foreign arbitration done in Korea by the KCAB, it has available remedies under RA 9285. Its
interests are duly protected by the law which requires that the arbitral award that may be
rendered by KCAB must be confirmed here by the RTC before it can be enforced.

With our disquisition above, petitioner is correct in its contention that an arbitration clause,
stipulating that the arbitral award is final and binding, does not oust our courts of jurisdiction as
the international arbitral award, the award of which is not absolute and without exceptions, is
still judicially reviewable under certain conditions provided for by the UNCITRAL Model Law
on ICA as applied and incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject Contract which provides that the
parties may dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid and binding on the parties,
and not contrary to public policy; consequently, being bound to the contract of arbitration, a
party may not unilaterally rescind or terminate the contract for whatever cause without first
resorting to arbitration.
What this Court held in University of the Philippines v. De Los Angeles47 and reiterated in
succeeding cases,48 that the act of treating a contract as rescinded on account of infractions by the
other contracting party is valid albeit provisional as it can be judicially assailed, is not applicable
to the instant case on account of a valid stipulation on arbitration. Where an arbitration clause in
a contract is availing, neither of the parties can unilaterally treat the contract as rescinded since
whatever infractions or breaches by a party or differences arising from the contract must be
brought first and resolved by arbitration, and not through an extrajudicial rescission or judicial
action.
The issues arising from the contract between PGSMC and KOGIES on whether the equipment
and machineries delivered and installed were properly installed and operational in the plant in
Carmona, Cavite; the ownership of equipment and payment of the contract price; and whether
there was substantial compliance by KOGIES in the production of the samples, given the alleged
fact that PGSMC could not supply the raw materials required to produce the sample LPG
cylinders, are matters proper for arbitration. Indeed, we note that on July 1, 1998, KOGIES
instituted an Application for Arbitration before the KCAB in Seoul, Korea pursuant to Art. 15 of
the Contract as amended. Thus, it is incumbent upon PGSMC to abide by its commitment to
arbitrate.
Corollarily, the trial court gravely abused its discretion in granting PGSMCs Motion for
Inspection of Things on September 21, 1998, as the subject matter of the motion is under the
primary jurisdiction of the mutually agreed arbitral body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the
inspection made on October 28, 1998, as ordered by the trial court on October 19, 1998, is of no

worth as said Sheriff is not technically competent to ascertain the actual status of the equipment
and machineries as installed in the plant.
For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the
grant of the inspection of the equipment and machineries have to be recalled and nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price
of USD 1,530,000 was for the whole plant and its installation is beyond the ambit of a Petition
for Certiorari.
Petitioners position is untenable.
It is settled that questions of fact cannot be raised in an original action for certiorari.49 Whether or
not there was full payment for the machineries and equipment and installation is indeed a factual
issue prohibited by Rule 65.
However, what appears to constitute a grave abuse of discretion is the order of the RTC in
resolving the issue on the ownership of the plant when it is the arbitral body (KCAB) and not the
RTC which has jurisdiction and authority over the said issue. The RTCs determination of such
factual issue constitutes grave abuse of discretion and must be reversed and set aside.
RTC has interim jurisdiction to protect the rights of the parties
Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for
PGSMC to dismantle and transfer the equipment and machineries, we find it to be in order
considering the factual milieu of the instant case.
Firstly, while the issue of the proper installation of the equipment and machineries might well be
under the primary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA
9285 has jurisdiction to hear and grant interim measures to protect vested rights of the parties.
Sec. 28 pertinently provides:
SEC. 28. Grant of interim Measure of Protection.(a) It is not incompatible with an
arbitration agreement for a party to request, before constitution of the tribunal,
from a Court to grant such measure. After constitution of the arbitral tribunal and
during arbitral proceedings, a request for an interim measure of protection, or
modification thereof, may be made with the arbitral or to the extent that the arbitral
tribunal has no power to act or is unable to act effectivity, the request may be made
with the Court. The arbitral tribunal is deemed constituted when the sole arbitrator or the
third arbitrator, who has been nominated, has accepted the nomination and written

communication of said nomination and acceptance has been received by the party making
the request.
(b) The following rules on interim or provisional relief shall be observed:
Any party may request that provisional relief be granted against the adverse party.
Such relief may be granted:
(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
(c) The order granting provisional relief may be conditioned upon the provision of
security or any act or omission specified in the order.
(d) Interim or provisional relief is requested by written application transmitted by
reasonable means to the Court or arbitral tribunal as the case may be and the party against
whom the relief is sought, describing in appropriate detail the precise relief, the party
against whom the relief is requested, the grounds for the relief, and the evidence
supporting the request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance in implementing or enforcing an
interim measure ordered by an arbitral tribunal.
(g) A party who does not comply with the order shall be liable for all damages resulting
from noncompliance, including all expenses, and reasonable attorney's fees, paid in
obtaining the orders judicial enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of protection as:
Article 17. Power of arbitral tribunal to order interim measures
xxx xxx xxx

(2) An interim measure is any temporary measure, whether in the form of an award or in
another form, by which, at any time prior to the issuance of the award by which the
dispute is finally decided, the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of the dispute;
(b) Take action that would prevent, or refrain from taking action that is likely to cause,
current or imminent harm or prejudice to the arbitral process itself;
(c) Provide a means of preserving assets out of which a subsequent award may be
satisfied; or
(d) Preserve evidence that may be relevant and material to the resolution of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue
interim measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an interim measure in relation to arbitration
proceedings, irrespective of whether their place is in the territory of this State, as it has in
relation to proceedings in courts. The court shall exercise such power in accordance with
its own procedures in consideration of the specific features of international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we were
explicit that even "the pendency of an arbitral proceeding does not foreclose resort to the courts
for provisional reliefs." We explicated this way:
As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to
the courts for provisional reliefs. The Rules of the ICC, which governs the parties
arbitral dispute, allows the application of a party to a judicial authority for interim or
conservatory measures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The
Arbitration Law) recognizes the rights of any party to petition the court to take measures
to safeguard and/or conserve any matter which is the subject of the dispute in arbitration.
In addition, R.A. 9285, otherwise known as the "Alternative Dispute Resolution Act of
2004," allows the filing of provisional or interim measures with the regular courts
whenever the arbitral tribunal has no power to act or to act effectively.50
It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of
protection.

Secondly, considering that the equipment and machineries are in the possession of PGSMC, it
has the right to protect and preserve the equipment and machineries in the best way it can.
Considering that the LPG plant was non-operational, PGSMC has the right to dismantle and
transfer the equipment and machineries either for their protection and preservation or for the
better way to make good use of them which is ineluctably within the management discretion of
PGSMC.
Thirdly, and of greater import is the reason that maintaining the equipment and machineries in
Worths property is not to the best interest of PGSMC due to the prohibitive rent while the LPG
plant as set-up is not operational. PGSMC was losing PhP322,560 as monthly rentals or
PhP3.87M for 1998 alone without considering the 10% annual rent increment in maintaining the
plant.
Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the
preservation or transfer of the equipment and machineries as an interim measure, yet on
hindsight, the July 23, 1998 Order of the RTC allowing the transfer of the equipment and
machineries given the non-recognition by the lower courts of the arbitral clause, has accorded an
interim measure of protection to PGSMC which would otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based
on the contract. Moreover, KOGIES is amply protected by the arbitral action it has instituted
before the KCAB, the award of which can be enforced in our jurisdiction through the RTC.
Besides, by our decision, PGSMC is compelled to submit to arbitration pursuant to the valid
arbitration clause of its contract with KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to dismantle and transfer the subject
equipment and machineries, it does not have the right to convey or dispose of the same
considering the pending arbitral proceedings to settle the differences of the parties. PGSMC
therefore must preserve and maintain the subject equipment and machineries with the diligence
of a good father of a family51 until final resolution of the arbitral proceedings and enforcement of
the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117 are
REVERSED and SET ASIDE;

(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute
and differences arising from the subject Contract before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it
had not done so, and ORDERED to preserve and maintain them until the finality of whatever
arbitral award is given in the arbitration proceedings.
No pronouncement as to costs.

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-CBNs petition for
lack of jurisdiction. It stated that as the TOR itself provided that the arbitrator's decision shall be
final and unappealable and that no motion for reconsideration shall be filed, then the petition for
review must fail. It ruled that it is the RTC which has jurisdiction over questions relating to
arbitration. It held that the only instance it can exercise jurisdiction over an arbitral award is an
appeal from the trial court's decision confirming, vacating or modifying the arbitral award. It
further stated that a petition for certiorari under Rule 65 of the Rules of Court is proper in
arbitration cases only if the courts refuse or neglect to inquire into the facts of an arbitrator's
award. The dispositive portion of the CA decision read:
WHEREFORE, the instant petition is hereby DISMISSED for lack of jurisdiction. The
application for a writ of injunction and temporary restraining order is likewise DENIED.
The Regional Trial Court of Quezon City Branch 93 is directed to proceed with the trial
for the Petition for Confirmation of Arbitral Award.
SO ORDERED.
Petitioner moved for reconsideration. The same was denied. Hence, this petition.
Petitioner contends that the CA, in effect, ruled that: (a) it should have first filed a petition to
vacate the award in the RTC and only in case of denial could it elevate the matter to the CA via a
petition for review under Rule 43 and (b) the assailed decision implied that an aggrieved party to
an arbitral award does not have the option of directly filing a petition for review under Rule 43 or
a petition for certiorari under Rule 65 with the CA even if the issues raised pertain to errors of
fact and law or grave abuse of discretion, as the case may be, and not dependent upon such
grounds as enumerated under Section 24 (petition to vacate an arbitral award) of RA 876 (the
Arbitration Law). Petitioner alleged serious error on the part of the CA.

The issue before us is whether or not an aggrieved party in a voluntary arbitration dispute may
avail of, directly in the CA, a petition for review under Rule 43 or a petition for certiorari under
Rule 65 of the Rules of Court, instead of filing a petition to vacate the award in the RTC when
the grounds invoked to overturn the arbitrators decision are other than those for a petition to
vacate an arbitral award enumerated under RA 876.
RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has jurisdiction
over questions relating to arbitration,9 such as a petition to vacate an arbitral award.
Section 24 of RA 876 provides for the specific grounds for a petition to vacate an award made by
an arbitrator:
Sec. 24. Grounds for vacating award. - In any one of the following cases, the court
must make an order vacating the award upon the petition of any party to the
controversy when such party proves affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in the arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing
upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was disqualified to act as such under
section nine hereof, and willfully refrained from disclosing such disqualifications or of
any other misbehavior by which the rights of any party have been materially prejudiced;
or
(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not made.
Based on the foregoing provisions, the law itself clearly provides that the RTC must issue an
order vacating an arbitral award only "in any one of the . . . cases" enumerated therein. Under the
legal maxim in statutory construction expressio unius est exclusio alterius, the explicit mention
of one thing in a statute means the elimination of others not specifically mentioned. As RA 876
did not expressly provide for errors of fact and/or law and grave abuse of discretion (proper
grounds for a petition for review under Rule 43 and a petition for certiorari under Rule 65,
respectively) as grounds for maintaining a petition to vacate an arbitral award in the RTC, it
necessarily follows that a party may not avail of the latter remedy on the grounds of errors of fact
and/or law or grave abuse of discretion to overturn an arbitral award.
Adamson v. Court of Appeals10 gave ample warning that a petition to vacate filed in the RTC
which is not based on the grounds enumerated in Section 24 of RA 876 should be dismissed. In

that case, the trial court vacated the arbitral award seemingly based on grounds included in
Section 24 of RA 876 but a closer reading thereof revealed otherwise. On appeal, the CA
reversed the decision of the trial court and affirmed the arbitral award. In affirming the CA, we
held:
The Court of Appeals, in reversing the trial court's decision held that the nullification of
the decision of the Arbitration Committee was not based on the grounds provided by the
Arbitration Law and that xxx private respondents (petitioners herein) have failed to
substantiate with any evidence their claim of partiality. Significantly, even as respondent
judge ruled against the arbitrator's award, he could not find fault with their impartiality
and integrity. Evidently, the nullification of the award rendered at the case at bar was
not made on the basis of any of the grounds provided by law.
xxx

xxx

xxx

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

xxx

xxx

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

xxx

xxx

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders
or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards

or commissions, including the Securities and Exchange Commission, the Employees

Compensation Commission and the Civil Service Commission, except those falling
within the appellate jurisdiction of the Supreme Court in accordance with the
Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as
amended, the provisions of this Act and of subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.
(Emphasis supplied)
As such, decisions handed down by voluntary arbitrators fall within the exclusive appellate
jurisdiction of the CA. This decision was taken into consideration in approving Section 1 of Rule
43 of the Rules of Court.12 Thus:
SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of
the Court of Tax Appeals and from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions.
Among these agencies are the Civil Service Commission, Central Board of Assessment
Appeals, Securities and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications Commission, Department of
Agrarian Reform under Republic Act Number 6657, Government Service Insurance
System, Employees Compensation Commission, Agricultural Inventions Board,
Insurance Commission, Philippine Atomic Energy Commission, Board of Investments,
Construction Industry Arbitration Commission, and voluntary arbitrators authorized
by law. (Emphasis supplied)
This rule was cited in Sevilla Trading Company v. Semana,13 Manila Midtown Hotel v.
Borromeo,14 and Nippon Paint Employees Union-Olalia v. Court of Appeals.15 These cases held
that the proper remedy from the adverse decision of a voluntary arbitrator, if errors of fact and/or
law are raised, is a petition for review under Rule 43 of the Rules of Court. Thus, petitioner's
contention that it may avail of a petition for review under Rule 43 under the circumstances of
this case is correct.
As to petitioner's arguments that a petition for certiorari under Rule 65 may also be resorted to,
we hold the same to be in accordance with the Constitution and jurisprudence.
Section 1 of Article VIII of the 1987 Constitution provides that:
SECTION 1. The judicial power shall be vested in one Supreme Court and in such lower
courts as may be established by law.

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the
Government. (Emphasis supplied)
As may be gleaned from the above stated provision, it is well within the power and jurisdiction
of the Court to inquire whether any instrumentality of the Government, such as a voluntary
arbitrator, has gravely abused its discretion in the exercise of its functions and prerogatives. Any
agreement stipulating that "the decision of the arbitrator shall be final and unappealable" and
"that no further judicial recourse if either party disagrees with the whole or any part of the
arbitrator's award may be availed of" cannot be held to preclude in proper cases the power of
judicial review which is inherent in courts.16 We will not hesitate to review a voluntary
arbitrator's award where there is a showing of grave abuse of authority or discretion and such is
properly raised in a petition for certiorari17 and there is no appeal, nor any plain, speedy remedy
in the course of law.18
Significantly, Insular Savings Bank v. Far East Bank and Trust 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 petitioners position on the judicial remedies available to it was correct,
we sustain the dismissal of its petition by the CA. The remedy petitioner availed of, entitled
"alternative petition for review under Rule 43 or petition for certiorari under Rule 65," was
wrong.
Time and again, we have ruled that the remedies of appeal and certiorari are mutually exclusive
and not alternative or successive.20
Proper issues that may be raised in a petition for review under Rule 43 pertain to errors of fact,
law or mixed questions of fact and law.21 While a petition for certiorari under Rule 65 should
only limit itself to errors of jurisdiction, that is, grave abuse of discretion amounting to a lack or

excess of jurisdiction.22 Moreover, it cannot be availed of where appeal is the proper remedy or
as a substitute for a lapsed appeal.23
In the case at bar, the questions raised by petitioner in its alternative petition before the CA were
the following:
A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY
ABUSED HIS DISCRETION IN RULING THAT THE BROADCAST OF "WINS
WEEKLY" WAS DULY AUTHORIZED BY ABS-CBN.
B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY
ABUSED HIS DISCRETION IN RULING THAT THE UNAUTHORIZED
BROADCAST DID NOT CONSTITUTE MATERIAL BREACH OF THE
AGREEMENT.
C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY
ABUSED HIS DISCRETION IN RULING THAT WINS SEASONABLY CURED THE
BREACH.
D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY
ABUSED HIS DISCRETION IN RULING THAT TEMPERATE DAMAGES IN THE
AMOUNT OF P1,166,955.00 MAY BE AWARDED TO WINS.
E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY
ABUSED HIS DISCRETION IN AWARDING ATTORNEY'S FEES IN THE
UNREASONABLE AMOUNT AND UNCONSCIONABLE AMOUNT 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
arbitrators appreciation of the issues and evidence presented by the parties. Therefore, the issues
clearly fall under the classification of errors of fact and law questions which may be passed
upon by the CA via a petition for review under Rule 43. Petitioner cleverly crafted its assignment
of errors in such a way as to straddle both judicial remedies, that is, by alleging serious errors of
fact and law (in which case a petition for review under Rule 43 would be proper) and grave
abuse of discretion (because of which a petition for certiorari under Rule 65 would be
permissible).

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

G.R. No. 106879 May 27, 1994

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

ROMERO, J.:
Before us is a petition for review on certiorari of a decision of the Court of Appeals, the dispositive portion of which is quoted hereunder:
WHEREFORE, judgment is hereby rendered setting aside respondent judge's questioned order dated 23 August 1991
and confirming the subject arbitration award. Costs against private respondents.
SO ORDERED.
The antecedents of this case are as follows:
On June 15, 1990, the parties, Adamson Management Corporation and Lucas Adamson on the one hand, and APAC Holdings Limited on the
other, entered into a contract whereby the former sold 99.97% of outstanding common shares of stocks of Adamson and Adamson, Inc. to
the latter for P24,384,600.00 plus the Net Asset Value (NAV) of Adamson and Adamson, Inc. as of June 19, 1990. But the parties failed to
agree on a reasonable Net Asset Value. This prompted them to submit the case for arbitration in accordance with Republic Act No. 876,
otherwise known as the Arbitration Law.
On May 15, 1991, the Arbitration Committee rendered a decision finding the Net Asset Value of the Company to be P167,118.00 which was
computed on the basis of a pro-forma balance sheet submitted by SGV and which was the difference between the total assets of the
Company amounting to P65,554,258.00 (the sum of the balance sheet asset amounting to P65,413,978.00 and the increase in Cuevo
appraisal amounting to P140,280.00) and total liabilities amounting to P65,387,140.00 (the difference between current liabilities and long
term debt amounting to P68,356,132.00 and Tax Savings for 1987 amounting to P2,968,992).

In so holding that NAV equals P167,118.00, the Arbitration Committee disregarded petitioners' argument that there was a fixed NAV
amounting to P5,146,000.00 as of February 28, 1990 to which should be added the value of intangible assets (P19,116,000.00), the
increment of tangible assets excluding land (P17,003,976.00), the 1987 tax savings (P2,968,992.00), and estimated net income from
February 28, 1990 to June 19, 1990 (P1,500,000.00, later increased to P3,949,772.00). According to the Committee, however, the amount of
P5,146,000.00 which was claimed as initial NAV by petitioners, was merely an estimate of the Company's NAV as of February 28, 1990
which was still subject to financial developments until June 19, 1990, the cut-off date. The basis for this ruling was Clause 3(B) of the
Agreement which fixed the said amount; Clause 1(A) which defined NAV and provided that it should be computed in accordance with Clause
7(A); Clause 7(A) which directed the auditors to prepare in accordance with good accounting principles a balance sheet as of cut-off date
which would include the goodwill and intangible assets (P19,116,000.00), the value of tangible assets excluding the land as per Cuervo
appraisal, the adjustment agreed upon by the parties, and the cost of redeeming preferred shares; and Clause 5(E). Furthermore, the
Committee held that the parties used the figures in the pro-forma balance sheet to arrive at the said amount of P5,146,000.00; that the same
had already included the value of the intangible assets and of the Cuervo appraisal of the tangible assets so that the latter items could not be
added again to what Vendor claimed to be the initial NAV; and that apart from being an estimate, the amount of P5,146,000.00 was tentative
as it was still subject to the adjustments to be made thereto to reflect subsequent financial events up to the cut-off date.
In the computation of the NAV, the Committee deemed it proper to appreciate in favor of petitioners the 1987 tax savings because as of the
date of the proceedings, no assessment was ever made by the BIR and the three-year prescriptive period had already expired. However, it
did not consider the estimated net income for the period beginning February 28, 1990 to June 19, 1990 as part of the NAV because it found
that as of June 1990, the books of the company carried a net loss of P4,678,627.00 which increased to P8,547,868.00 after the proposed
adjustments were included in the computation of the NAV. The Committee pointed out that although petitioners herein contested the
adjustments, they were, however, not able to prove that these were not valid, except with respect to the tax savings.
Aside from deciding the amount of NAV, the Committee also held that any ambiguity in the contract should not necessarily be interpreted
against herein private respondents because the parties themselves had stipulated that the draft of the agreement was submitted to
petitioners for approval and that the latter even proposed changes which were eventually incorporated in the final form of the Agreement.
Thereafter, APAC Holdings Ltd. filed a petition for confirmation of the arbitration award before the Regional Trial Court of Makati. Herein
petitioners opposed the petition and prayed for the nullification, modification and/or correction of the same, alleging that the arbitrators
committed evident partiality and grave abuse of discretion as shown by the following errors:
a. In creating an entirely new contract for the parties that contradicts the essence of their agreement and results in the
absurd situation where a seller incurs enormous expense to sell his property;
b. In treating the provisions in the Agreement independently of one another and thereby nullifying the simple, clear and
express stipulations therein;
c. In interpreting the Agreement although it is couched in plain, simple and clear language, contrary to the well
established principle that if the terms of a contract are clear, the literal meaning of its stipulations shall control;
d. In accepting SGV's proposed adjustments, contrary to the parties' stipulation that the final adjustment items shall
pertain to a specific period and subject to their agreement; and in giving full reliance on SGV report despite SGV's
disclosure of its lack of independence because it acted solely to assist petitioner and its report was intended solely for
petitioner's information;
e. In not applying the "suppressed evidence" rule against petitioner inspite of its refusal to present the Company's
income statement or any other similar report for the adjustment period; and in disregarding respondent's estimate of
the net income for the period as "Adjustment" using SGV's figures and ratios;
f. In not awarding damages and attorney's fee to respondents despite petitioner's bad faith in violating the contract.

The Regional Trial Court rendered a decision vacating the arbitration award. The dispositive portion of the
decision reads as follows:
WHEREFORE, the Decision/Arbitration Award in question is hereby VACATED, and
APAC (herein petitioner) is hereby ordered to pay ADAMSON (herein respondents) the
final NAV of Forty-seven Million One Hundred Twenty-One Thousand Four Hundred
Sixty-Eight Pesos (P47,121,468.00), Philippine Currency, in accordance with the
pertinent stipulations expressed in the Agreement as discussed above, plus twelve (12)

percent interest on the above amount which ADAMSON should have earned had the
balance of the final NAV been paid to the Escrow Agent after offset on August 2, 1990.
ADAMSON's claim for moral and exemplary damages and attorney's fees are (sic)
dismissed for lack of sufficient merit.
SO ORDERED. 2
On appeal, the above decision was reversed and a petition for review was filed in this Court. Petitioners
allege that the Court of Appeals erred and acted in excess of jurisdiction or with grave abuse of discretion
in holding that: (a) the trial judge reversed the arbitration award solely on the basis of the pleadings
submitted by the parties; (b) petitioners failed to substantiate with proofs their imputation of partiality to
the members of the arbitration committee; (c) the nullification by the trial court of the award was not based
on any of the grounds provided by law; (d) to allow the trial judge to substitute his own findings in lieu of
the arbitrators' would defeat the object of arbitration which is to avoid litigation; and (e) if there really was
a ground for vacating the award, it was improper for trial judge to reverse the decision because it
contravened Section 25 of R.A. No. 876.
Did the Court of Appeals err in affirming the arbitration award and in reversing the decision of the trial
court?
The Court of Appeals, in reversing the trial court's decision held that the nullification of the decision of the
Arbitration Committee was not based on the grounds provided by the Arbitration Law and that ". . . private
respondents [petitioners herein] have failed to substantiate with any evidence their claim of partiality.
Significantly, even as respondent judge ruled against the arbitrators' award, he could not find fault with
their impartiality and integrity. Evidently, the nullification of the award rendered at the case at bar was
made not on the basis of any of the grounds provided by law." 3
Assailing the above conclusion, petitioners argue that ". . . evident partiality is a state of mind that need
not be proved by direct evidence but may be inferred from the circumstances of the case (citations
omitted). It is related to intention which is a mental process, an internal state of mind that must be judged
by the person's conduct and acts which are the best index of his intention (citations omitted)." 4 They
pointed out that from the following circumstances may be inferred the arbitrators' evident partiality:
1. the material difference between the results of the arbitrators' computation of the NAV
and that of petitioners;
2. the alleged piecemeal interpretation by the arbitrators of the Agreement which went
beyond the clear provisions of the contract and negated the obvious intention of the
parties;
3. reliance by the arbitrators on the financial statements and reports submitted by SGV
which, according to petitioners, acted solely for the interests of private respondents; and
4. the finding of the trial court that "the arbitration committee has advanced no valid
justification to warrant a departure from the well-settled rule in contract interpretation that
if the terms of the contract are clear and leave no doubt upon the intention of the
contracting parties the literal meaning of its interpretation shall control." 5

We find no reason to depart from the Court of Appeal's conclusion.

Section 24 of the Arbitration Law provides as follows:
Sec. 24. Grounds for vacating award. In any one of the following cases, the court must
make an order vacating the award upon the petition of any party to the controversy when
such party proves affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud or other
undue means; or
(b) That there was evident partiality or corruption in the
arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in
refusing to postpone the hearing upon sufficient cause
shown, or in refusing to hear evidence pertinent and
material to the controversy; that one or more of the
arbitrators was disqualified to act as such under section
nine hereof, and willfully refrained from disclosing such
disqualifications or any other misbehavior by which the
rights of any party 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. . . .
Petitioners herein failed to prove their allegation of partiality on the part of the arbitrators. Proofs other
than mere inferences are needed to establish evident partiality. That they were disadvantaged by the
decision of the Arbitration Committee does not prove evident partiality.
Too much reliance has been accorded by petitioners on the decision of the trial court. However, we find
that the same is but an adaptation of the arguments of petitioners to defeat the petition for confirmation of
the arbitral award in the trial court by herein private respondent. The trial court itself stated as follows:
In resolving the issues in favor of respondents, the Court has no alternative but to agree
with the contention of said party, as supported by their exhaustive and very convincing
arguments contained in more than twenty-one (21) pages, doubled-spaced, which are
adopted and reproduced herein by reference. Said arguments may be CAPSULIZED as
follows:
The penultimate paragraph of its decision reads, thus:
To allay any fear of petitioner that its reply and opposition, dated 11 June
1991, has not been taken into account in resolving this case, it will be
well to state that the court has carefully read the same and, what is more,
it has also read respondents' comment, dated 19 June 1991, wherein

they made convincing arguments which are likewise adopted and

incorporated herein by reference. 6
The justifications advanced by the trial court for vacating the arbitration award are the following: (a) ". . .
that the arbitration committee had advanced no valid justification to warrant a departure from the wellsettled rule in contract interpretation that if the terms of the contract are clear and leave no doubt upon the
intention of the contracting parties the literal meaning of its interpretation shall control; (b) that the final
NAV of P47,121,468.00 as computed by herein petitioners was well within APAC's normal investment
level which was at least US$1 million and to say that the NAV was merely P167,118.00 would negate
Clause 6 of the Agreement which provided that the purchaser would deposit in escrow P5,146,000.00 to
be held for two (2) years and to be used to satisfy any actual or contingent liability of the vendor under the
Agreement; (c) that the provision for an escrow account negated any idea of the NAV being less than
P5,146,000.00; and (d) that herein private respondent, being the drafter of the Agreement could not avoid
performance of its obligations by raising ambiguity of the contract, or its failure to express the intention of
the parties, or the difficulty of performing the same.
It is clear therefore, that the award was vacated not because of evident partiality of the arbitrators but
because the latter interpreted the contract in a way which was not favorable to herein petitioners and
because it considered that herein private respondents, by submitting the controversy to arbitration, was
seeking to renege on its obligations under the contract.96
That the award was unfavorable to petitioners herein did not prove evident partiality. That the arbitrators
resorted to contract interpretation neither constituted a ground for vacating the award because under the
circumstances, the same was necessary to settle the controversy between the parties regarding the
amount of the NAV. In any case6, this Court finds that the interpretation made by the arbitrators did not
create a new contract, as alleged by herein petitioners but was a faithful application of the provisions of
the Agreement. Neither was the award arbitrary for it was based on the statements prepared by the SGV
which was chosen by both parties to be the "auditors."
The trial court held that herein private respondent could not shirk from performing its obligations on
account of the difficulty of complying with the terms of the contract. It said further that the contract may be
harsh but private respondent could not excuse itself from performing its obligations on account of the
ambiguity of the contract because as its drafter, private respondent was well aware of the implications of
the Agreement. We note herein that during the arbitration proceedings, the parties agreed that the
contract as prepared by private respondent, was submitted to petitioners for approval. Petitioners,
therefore, are presumed to have studied the provisions of the Agreement and agreed to its import when
they approved and signed the same. When it was submitted to arbitration to settle the issue regarding the
computation of the NAV, petitioners agreed to be bound by the judgment of the arbitration committee,
except in cases where the grounds for vacating the award existed. Petitioners cannot now refuse to
perform its obligation after realizing that it had erred in its understanding of the Agreement.
Petitioners also assailed the arbitrator's reliance upon the financial statements submitted by SGV as they
allegedly served the interests of private respondents and did not reflect the true intention of the parties.
We agree with the observation made by the arbitrators that SGV, being a reputable firm, it should be
presumed to have prepared the statements in accordance with sound accounting principles. Petitioners
have presented no proof to establish that SGV's computation was erroneous and biased.

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

The Court of Appeals, in its decision stated, thus:

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

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
Panels authority. Gonzales adds that the Court failed to rule on other issues he raised relating to
the sufficiency of his complaint before the DENR Panel of Arbitrators and the timeliness of its
filing.
Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial
Reconsideration and/or 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
Gonzaless 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 Gonzaless having "impugn[ed] the existence or validity" of the
addendum contract. If so, it supposedly conveys the idea that Gonzaless unilateral repudiation of
the contract or mere allegation of its invalidity is all it takes to avoid arbitration. Hence,
respondents submit that the courts holding that "the case should not be brought under the ambit
of the Arbitration Law" be understood or clarified as operative only where the challenge to the
arbitration agreement has been sustained by final judgment.

Both parties were required to file their respective comments to the other partys 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-Arimcos 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 Gonzaless 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 Gonzaless 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 courts 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. Gonzaless proposition
contradicts both the trial courts limited jurisdiction and the summary nature of the proceeding
itself.
Climax-Arimco further notes that Gonzaless 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 Contractfraud and
oppression in the execution thereofare 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 courts 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-Arimcos Motion for Partial Reconsideration and/or Clarification in G.R. No. 161957
and Gonzaless 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 Gonzaless
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 Corporations 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, Gonzaless 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
arbitrators decision. Necessarily, a contract is required for arbitration to take place and to be
binding. R.A. No. 876 recognizes the contractual nature of the arbitration agreement, 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 & Cs motion, and the U.S.
Supreme Court affirmed.

The U.S. Supreme Court did not address Prima Paints 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 Actwhich 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. Gonzaless
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, Gonzaless 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
partys mere repudiation of the main contract is sufficient to avoid arbitration. That is exactly the
situation that the separability doctrine, as well as jurisprudence applying it, seeks to avoid. We
add that when it was declared in G.R. No. 161957 that the case should not be brought for
arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales
before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the
ground of fraud, as it had already been determined that the case should have been brought before
the regular courts involving as it did judicial issues.
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 Gonzaless 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-Arimcos 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, Gonzaless 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 Gonzaless
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.