Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION
KOREA TECHNOLOGIES CO., G.R. No. 143581
LTD.,
Petitioner,
Present:
- versus - QUISUMBING, J., Chairperson,
CARPIO,
CARPIO MORALES,
HON. ALBERTO A. LERMA, in TINGA, and
his capacity as Presiding Judge of VELASCO, JR., JJ.
Branch 256 of Regional Trial
Court of Muntinlupa City, and
PACIFIC GENERAL STEEL Promulgated:
MANUFACTURING
CORPORATION,
Respondents. January 7, 2008
x-----------------------------------------------------------------------------------------x
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 Contract [1] whereby
KOGIES would set up an LPG Cylinder Manufacturing Plant in
Carmona, Cavite. The contract was executed in the Philippines. On April 7, 1997,
the parties executed, in Korea, an Amendment for Contract No. KLP-970301
dated March 5, 1997[2] amending the terms of payment. The contract and its
amendment stipulated that KOGIES will ship the machinery and facilities
necessary for manufacturing LPG cylinders for which PGSMC would pay USD
1,224,000. KOGIES would install and initiate the operation of the plant for which
PGSMC bound itself to pay USD 306,000 upon the 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 Lease [3] 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 Certificate[4] executed by the parties on January
22, 1998, after the installation of the plant, the initial operation could not be
conducted as PGSMC encountered financial difficulties affecting the supply of
materials, thus forcing the parties to agree that KOGIES would be deemed to have
completely complied with the terms and conditions of the March 5, 1997 contract.
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
letter[6] to PGSMC threatening criminal action for violation of Batas Pambansa
Blg. 22 in case of nonpayment. On the same date, the wife of 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. 98-117[8] against PGSMC before the Muntinlupa City
Regional Trial Court (RTC). The RTC granted a temporary restraining order (TRO)
on July 4, 1998, which was subsequently extended until July 22, 1998. In its
complaint, KOGIES alleged that PGSMC had initially admitted that the checks
that were stopped were not funded but later on claimed that it stopped payment of
the checks for the reason that their value was not received as the former allegedly
breached their contract by altering the quantity and lowering the quality of the
machinery and equipment installed in the plant and failed to make the plant
operational although it earlier certified to the contrary as shown in a January 22,
1998 Certificate. Likewise, KOGIES averred that PGSMC violated Art. 15 of their
Contract, as amended, by unilaterally rescinding the contract without resorting to
arbitration. KOGIES also asked that PGSMC be restrained from dismantling and
transferring the machinery and equipment installed in the plant which the latter
threatened to do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that
KOGIES was not entitled to the TRO since Art. 15, the arbitration clause, was null
and void for being against public policy as it ousts the local courts of jurisdiction
over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory
Counterclaim[9] asserting that it had the full right to dismantle and transfer the
machineries and equipment because it had paid for them in full as stipulated in the
contract; that KOGIES was not entitled to the PhP 9,000,000 covered by the
checks for failing to completely install and make the plant operational; and that
KOGIES was liable for damages amounting to PhP 4,500,000 for altering the
quantity and lowering the quality of the machineries and equipment. Moreover,
PGSMC averred that it has already paid PhP 2,257,920 in rent (covering January to
July 1998) to Worth and it was not willing to further shoulder the cost of renting
the premises of the plant considering that the LPG cylinder manufacturing plant
never became operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC
issued an Order denying the application for a writ of preliminary injunction,
reasoning that PGSMC had paid KOGIES USD 1,224,000, the value of the

machineries and equipment as shown in the contract such that KOGIES no longer
had proprietary rights over them.And finally, the RTC held that Art. 15 of the
Contract as amended was invalid as it tended to oust the trial court or any other
court jurisdiction over any dispute that may arise between the parties. KOGIES
prayer for an injunctive writ was denied.[10] The dispositive portion of the Order
stated:
WHEREFORE, in view of the foregoing consideration, this Court believes and so
holds that no cogent reason exists for this Court to grant the writ of preliminary
injunction to restrain and refrain defendant from dismantling the machineries and
facilities at the lot and building of Worth Properties, Incorporated at Carmona,
Cavite and transfer the same to another site: and therefore denies plaintiffs
application for a writ of preliminary injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and Answer to
Counterclaim.[11] KOGIES denied it had altered the quantity and lowered the
quality of the machinery, equipment, and facilities it delivered to the plant. It
claimed that it had performed all the undertakings under the contract and had
already produced certified samples of LPG cylinders. It averred that whatever was
unfinished was PGSMCs fault since it failed to procure raw materials due to lack
of funds. KOGIES, relying on Chung Fu Industries (Phils.), Inc. v. Court of
Appeals,[12] insisted that the arbitration clause was without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to
Dismiss[13] answering PGSMCs memorandum of July 22, 1998 and seeking
dismissal of PGSMCs counterclaims, KOGIES, on August 4, 1998, filed its Motion
for Reconsideration[14] of the July 23, 1998 Order denying its application for
an injunctive writ claiming that the contract was not merely for machinery and
facilities worth USD 1,224,000 but was for the sale of an LPG manufacturing plant
consisting of supply of all the machinery and facilities and transfer of technology
for a total contract price of USD 1,530,000 such that the dismantling and transfer
of the machinery and facilities would result in the dismantling and transfer of the
very plant itself to the great prejudice of KOGIES as the still unpaid owner/seller
of the plant. Moreover, KOGIES points out that the arbitration clause under Art. 15

of the Contract as amended was a valid arbitration stipulation under Art. 2044 of
the Civil Code and as held by this Court in Chung Fu Industries (Phils.), Inc.[15]
In the meantime, PGSMC filed a Motion for Inspection of Things [16] to
determine whether there was indeed alteration of the quantity and lowering of
quality of the machineries and equipment, and whether these were properly
installed. KOGIES opposed the motion positing that the queries and issues raised
in the motion for inspection fell under the coverage of the arbitration clause in their
contract.
On September 21, 1998, the trial court issued an Order (1) granting
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
Reconsideration[17] 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 certiorari[18] 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 Petition [20] 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
Report[21] 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 Decision[22] 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-claimstates, 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. 04-204-SC, docket fees are now required to be paid in compulsory counterclaim or
cross-claims.

As to the failure to submit a certificate of forum shopping, PGSMCs Answer

is not an initiatory pleading which requires a certification against forum shopping
under Sec. 5[24] of Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive
pleading, hence, the courts a quo did not commit reversible error in denying
KOGIES motion to dismiss 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 2040[33] abovecited refer to instances where a
compromise or an arbitral award, as applied to Art. 2044 pursuant to Art. 2043,
[34]
may be voided, rescinded, or annulled, but these would not denigrate the finality
of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon by the
parties. It has not been shown to be contrary to any law, or against morals, good
customs, public order, or public policy. There has been no showing that the parties
have not dealt with each other on equal footing. We find no reason why the
arbitration clause should not be respected and complied with by both
parties. In Gonzales v. Climax Mining Ltd.,[35] we held that submission to
arbitration is a contract and that a clause in a contract providing that all matters in
dispute between the parties shall be referred to arbitration is a contract. [36] Again
in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled that [t]he

provision to submit to arbitration any dispute arising therefrom and the relationship
of the parties is part of that contract and is itself a contract.[37]
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be done
in Seoul, Korea in accordance with the Commercial Arbitration Rules of the
KCAB, and that the arbitral award is final and binding, is not contrary to public
policy. This Court has sanctioned the validity of arbitration clauses in a catena of
cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,
[38]
this Court had occasion to rule that an arbitration clause to resolve differences
and breaches of mutually agreed contractual terms is valid. In BF Corporation v.
Court of Appeals, we held that [i]n this jurisdiction, arbitration has been held valid
and constitutional. Even before the approval on June 19, 1953 of Republic Act No.
876, this Court has countenanced the settlement of disputes through
arbitration. Republic Act No. 876 was adopted to supplement the New Civil Codes
provisions on arbitration.[39] And in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc., we declared that:
Being an inexpensive, speedy and amicable method of settling
disputes, arbitrationalong with mediation, conciliation and negotiationis
encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the commercial
kind. It is thus regarded as the wave of the future in international civil and
commercial disputes. Brushing aside a contractual agreement calling for
arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative
dispute resolution methods, courts should liberally construe arbitration clauses.
Provided such clause is susceptible of an interpretation that covers the asserted
dispute, an order to arbitrate should be granted. Any doubt should be resolved in
favor of arbitration.[40]

Having said that the instant arbitration clause is not against public policy, we
come to the question on what governs an arbitration clause specifying that in case
of any dispute arising from the contract, an arbitral panel will be constituted in a
foreign country and the arbitration rules of the foreign country would govern and
its award shall be final and binding.

RA 9285 incorporated the UNCITRAL Model law

to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to
arbitrate disputes arising from contractual relations. In case a foreign arbitral body
is chosen by the parties, the arbitration rules of our domestic arbitration bodies
would not be applied. As signatory to the Arbitration Rules of the UNCITRAL
Model Law on International Commercial Arbitration[41] of the United Nations
Commission on International Trade Law (UNCITRAL) in the New York
Convention on June 21, 1985, the Philippines committed itself to be bound by the
Model Law. We have even incorporated the Model Law in Republic Act No. (RA)
9285, otherwise known as the Alternative Dispute Resolution Act of
2004 entitled An Act to Institutionalize the Use of an Alternative Dispute
Resolution System in the Philippines and to Establish the Office for Alternative
Dispute Resolution, and for Other Purposes, promulgated on April 2, 2004. Secs.
19 and 20 of Chapter 4 of the Model Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model Law on International Commercial
Arbitration.International commercial arbitration shall be governed by the Model
Law on International Commercial Arbitration (the Model Law) adopted by the
United Nations Commission on International Trade Law on June 21, 1985 (United
Nations Document A/40/17) and recommended for enactment by the General
Assembly in Resolution No. 40/72 approved on December 11, 1985, copy of
which is hereto attached as Appendix A.
SEC. 20. Interpretation of Model Law.In interpreting the Model Law,
regard shall be had to its international origin and to the need for uniformity in its
interpretation and resort may be made to the travaux preparatories and the report
of the Secretary General of the United Nations Commission on International
Trade Law dated March 25, 1985 entitled, International Commercial Arbitration:
Analytical Commentary on Draft Trade identified by reference number A/CN.
9/264.

While RA 9285 was passed only in 2004, it nonetheless applies in the instant
case since it is a procedural law which has a retroactive effect. Likewise, KOGIES

filed its application for arbitration before the KCAB on July 1, 1998 and it is still
pending because no arbitral award has yet been rendered. Thus, RA 9285 is
applicable to the instant case. Well-settled is the rule that procedural laws are
construed to be applicable to actions pending and undetermined at the time of their
passage, and are deemed retroactive in that sense and to that extent. As a general
rule, the retroactive application of procedural laws does not violate any personal
rights because no vested right has yet attached nor arisen from them.[42]
Among the pertinent features of RA 9285 applying and incorporating the
UNCITRAL Model Law are the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over disputes that are
properly the subject of arbitration pursuant to an arbitration clause, and mandates
the referral to arbitration in such cases, thus:
SEC. 24. Referral to Arbitration.A court before which an action is brought
in a matter which is the subject matter of an arbitration agreement shall, if at least
one party so requests not later than the pre-trial conference, or upon the request of
both parties thereafter, refer the parties to arbitration unless it finds that the
arbitration agreement is null and void, inoperative or incapable of being
performed.

(2) Foreign arbitral awards must be confirmed by the RTC

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

SEC. 42. Application of the New York Convention.The New York

Convention shall govern the recognition and enforcement of arbitral awards
covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed
with the Regional Trial Court in accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural rules shall provide that the
party relying on the award or applying for its enforcement shall file with the court
the original or authenticated copy of the award and the arbitration agreement. If
the award or agreement is not made in any of the official languages, the party
shall supply a duly certified translation thereof into any of such languages.
The applicant shall establish that the country in which foreign arbitration
award was made in party to the New York Convention.
xxxx
SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not
Covered by the New York Convention.The recognition and enforcement of foreign
arbitral awards not covered by the New York Convention shall be done in
accordance with procedural rules to be promulgated by the Supreme Court. The
Court may, on grounds of comity and reciprocity, recognize and enforce a nonconvention 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 876[44] 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
Angeles[47] and reiterated in succeeding cases,[48] that the act of treating a contract as
rescinded on account of infractions by the other contracting party is valid albeit
provisional as it can be judicially assailed, is not applicable to the instant case on
account of a valid stipulation on arbitration. Where an arbitration clause in a
contract is availing, neither of the parties can unilaterally treat the 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 nonoperational, 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
family[51] 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.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice

WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson

ANTONIO T. CARPIO CONCHITA CARPIO MORALES

Associate Justice Associate Justice

DANTE O. TINGA
Associate Justice
AT T E S TAT I O N

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

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

[1]

Id. at 58-65; signed by KOGIES President Dae Hyun Kang and PGSMC President Honorio Santiago.
Id. at 94.
[3]
Id. at 208-218; signed by PGSMC President Honorio Santiago and Worth President Wilson L. Chua.
[4]
Id. at 95; signed by KOGIES President Dae Hyun Kang and PGSMC President Honorio Santiago.
[2]

[5]

Id. at 207.
Id. at 221.
[7]
Id. at 222.
[8]
Id. at 47-51; dated July 1, 1998.
[9]
Id. at 66-82.
[10]
Id. at 97.
[11]
Id. at 83-89.
[12]
G.R. No. 96283, February 25, 1992, 206 SCRA 545.
[13]
Rollo, pp. 108-111.
[14]
Id. at 98-100.
[15]
Supra note 12.
[16]
Rollo, pp. 101-105.
[17]
Id. at 113-115.
[18]
Id. at 120-146; dated October 9, 1998.
[6]

[19]

Id. at 119.
Id. at 116-118.
[21]
Id. at 266-268.
[22]
Id. at 40. Penned by Associate Justice Elvi John S. Asuncion and concurred in by Associate Justices Ma.
Alicia Austria-Martinez and Portia Alio-Hormachuelos.
[23]
Id. at 16-17; original in boldface.
[20]

[24]

SEC. 5. Certification against forum shopping.The plaintiff or principal party shall certify under oath in
the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto
and simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim
involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such
other action or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of
the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed
or is pending, he shall report that fact within five (5) days therefrom to the court where his aforesaid complaint or
initiatory pleading has been filed. (Emphasis supplied.)
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless
otherwise provided, upon motion and after hearing. The submission of a false certification or non-compliance with
any of the undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding
administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate
forum shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct
contempt, as well as a cause for administrative sanctions.
[25]
G.R. No. L-56291, June 27, 1988, 162 SCRA 642.
[26]
Rollo, p. 45.
[27]
La Tondea Distillers, Inc. v. Ponferrada, G.R. No. 109656, November 21, 1996, 264 SCRA
540; Mendoza v. Court of Appeals, G.R. No. 81909, September 5, 1991, 201 SCRA 343; MB Finance Corporation v.
Abesamis, G.R. No. 93875, March 22, 1991, 195 SCRA 592; Quisumbing v. Gumban, G.R. No. 85156, February 5,
1991, 193 SCRA 520.
[28]
G.R. No. 146079, July 20, 2001, 361 SCRA 672, 680-681, citing Go v. Court of Appeals, G.R. No.
128954, October 8, 1998, 297 SCRA 574.
[29]
I Regalado, REMEDIAL LAW COMPENDIUM 502 (2002).
[30]
Id. at 721 (8th rev. ed.).
[31]
Art. 2038. A compromise in which there is mistake, fraud, violence, intimidation, undue influence, or
falsity of documents is subject to the provisions of Article 1330 [voidable] of this Code.
However, one of the parties cannot set up a mistake of fact as against the other if the latter, by virtue of the
compromise, has withdrawn from a litigation already commenced.
[32]
Art. 2039. When the parties compromise generally on all differences which they might have with each
other, the discovery of documents referring to one or more but not to all of the questions settled shall not itself be a
cause for annulment or rescission of the compromise, unless said documents have been concealed by one of the
parties.
But the compromise may be annulled or rescinded if it refers only to one thing to which one of the parties
has no right, as shown by the newly-discovered documents.
[33]
Art. 2040. If after a litigation has been decided by a final judgment, a compromise should be agreed
upon, either or both parties being unaware of the existence of the final judgment, the compromise may be rescinded.
Ignorance of a judgment which may be revoked or set aside is not a valid ground for attacking a
compromise.
[34]
Art. 2043. The provisions of the preceding Chapter upon compromises shall also be applicable to
arbitrations.
[35]
G.R. No. 161957 and G.R. No. 167994, January 22, 2007, 512 SCRA 148; citing Manila Electric Co. v.
Pasay Transportation Co., 57 Phil. 600 (1932).
[36]
Id. at 603.
[37]
G.R. No. 136154, February 7, 2001, 351 SCRA 373, 381.
[38]
102 Phil. 1 (1957).
[39]
G.R. No. 120105, March 27, 1998, 288 SCRA 267, 286.
[40]
G.R. No. 141833, March 26, 2003, 399 SCRA 562, 569-570; citations omitted.

[41]

Adopted by the UNCITRAL 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 11 December
1985. Subsequently amended on July 7, 2006.
[42]
In the Matter to Declare in Contempt of Court Hon. Simeon A. Datumanong, Secretary of DPWH, G.R.
No. 150274, August 4, 2006, 497 SCRA 626, 636-637; citing Calacala v. Republic, G.R. No. 154415, July 28, 2005,
464 SCRA 438, 446.
[43]
Id. Art. 35(1) provides:
Article 35. Recognition and enforcement
(1) An arbitral award, irrespective of the country in which it was made, shall be recognized as binding and,
upon application in writing to the competent court, shall be enforced subject to the provisions of this article and of
article 36.
[44]
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 (1953).
[45]
RA 9285, Sec. 40.
[46]
Id., Sec. 41.
[47]
G.R. No. L-28602, September 29, 1970, 35 SCRA 102.
[48]
See Lorenzo Shipping Corp. v. BJ Marthel International, Inc., G.R. No. 145483. November 19, 2004,
443 SCRA 163; Subic Bay Metropolitan Authority v. Universal International Group of Taiwan, G.R. No. 131680,
September 14, 2000, 340 SCRA 359; Philippine National Construction Corp. v. Mars Construction Enterprises,
Inc., G.R. No. 133909, February 15, 2000, 325 SCRA 624; Cheng v. Genato, G.R. No. 129760, December 29, 1998,
300 SCRA 722; Goldenrod, Inc. v. Court of Appeals, G.R. No. 126812, November 24, 1998, 299 SCRA 141; Adelfa
Properties, Inc. v. Court of Appeals, G.R. No. 111238, January 25, 1995; 240 SCRA 565; Bowe v. Court of Appeals,
G.R. No. 95771, March 19, 1993, 220 SCRA 158; Lim v. Court of Appeals, G.R. No. 85733, February 23, 1990, 182
SCRA 564.
[49]
Suarez v. NLRC, G.R. No. 124723, July 31, 1998, 293 SCRA 496, 502.
[50]
G.R. No. 146717, May 19, 2006, 490 SCRA 14, 20-21.
[51]

Cf. Article 1173 of the Civil Code.

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

G.R. No. 156660

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

-versusTHE COURT OF APPEALS

(Special Former Sixth Division),
HIDECO SUGAR MILLING CO., Promulgated:
INC., and ORMOC SUGAR
MILLING CO., INC.,
August 24, 2009
Respondents.
x----------------------------------------------------------------------------------------x
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a special civil action for certiorari assailing the
Decision[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
Orders[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.
Petitioners assert that the relationship between respondents and the
individual sugar planters is governed by milling contracts. To buttress this claim,
petitioners presented representative samples of the milling contracts.[3]
Notably, Article VII of the milling contracts provides that 34% of the sugar
and molasses produced from milling the 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 B[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.

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 Order[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 Order[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.
On December 7, 2001, the CA rendered its challenged Decision, setting
aside the assailed Orders of the RTC. The CA held that petitioners neither had an
existing contract with respondents nor were they privy to the milling contracts
between respondents and the individual Planters. In the main, the CA concluded
that petitioners had no legal personality to bring the action against respondents or
to demand for arbitration.
Petitioners filed a motion for reconsideration, but it too was denied by the
CA in its Resolution[7] dated October 30, 2002. Thus, the instant petition.
At the outset, it must be noted that petitioners filed the instant petition for
certiorari under Rule 65 of the Rules of Court, to challenge the judgment of the
CA. Section 1 of Rule 65 states:
Section 1. Petition for Certiorari. When any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted without or in excess of its
jurisdiction, or with grave abuse of discretion amounting to lack or excess of its or
his jurisdiction and there is no appeal, or any plain, speedy and adequate
remedy in the course of law, a person aggrieved thereby may file a verified
petition in the proper court, alleging the facts with certainty and praying that
judgment be rendered annulling or modifying the proceedings of such tribunal,
board or officer, and granting such incidental relief as law and justice require. xxx
xxx xxx (emphasis ours)

The instant recourse is improper because the resolution of the CA was a final order
from which the remedy of appeal was available under Rule 45 in relation to Rule
56. The existence and availability of the right of appeal proscribes resort to
certiorari because one of the requirements for availment of the latter is precisely

that there should be no appeal. It is elementary that for certiorari to prosper, it is

not enough that the trial court committed grave abuse of discretion amounting to
lack or excess of jurisdiction; the requirement that there is no appeal, nor any plain,
speedy and adequate remedy in the ordinary course of law must likewise be
satisfied.[8] The proper mode of recourse for petitioners was to file a petition for
review of the 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 are
not correct, they would, at most constitute errors of law and not abuse of discretion
correctable by certiorari.[9]
Moreover, even if this Court overlooks the procedural lapse committed by
petitioners and decides this matter on the merits, the present petition will still not
prosper.
Stripped to the core, the pivotal issue here is whether or not
petitioners sugar planters associations are clothed with legal personality to
file a suit against, or demand arbitration from, respondents in their own name
without impleading the individual Planters.
On this point, we agree with the findings of the CA.
Section 2 of R.A. No. 876 (the Arbitration Law)[10] pertinently provides:

Sec. 2. Persons and matters subject to arbitration. Two or more persons

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

The foregoing provision speaks of two modes of arbitration: (a) an

agreement to submit to arbitration some future dispute, usually stipulated upon in a
civil contract between the parties, and known as an agreement to submit to
arbitration, and (b) an agreement submitting an existing matter of difference to
arbitrators, termed the submission agreement. Article XX of the milling contract is
an agreement to submit to arbitration because it was made in anticipation of a
dispute that might arise between the parties after the 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] In an agreement for arbitration, the ordinary elements of
a valid contract must appear, including an agreement to arbitrate some specific
thing, and an agreement to abide by the award, either in express language or by
implication.
The requirements that an arbitration agreement must be written and
subscribed by the parties thereto were enunciated by the Court in B.F. Corporation
v. CA.[12]
During the proceedings before the CA, it was established that there were
more than two thousand (2,000) Planters in the district at the time the case was
commenced at the RTC in 1999. The CA further found that of those 2,000 Planters,
only about eighty (80) Planters, who were all members of petitioner OSPA, in fact
individually executed milling contracts with respondents. No milling contracts
signed by members of the other petitioners were presented before the CA.

By their own allegation, petitioners are associations duly existing and

organized under Philippine law, i.e. they have juridical personalities separate and
distinct from that of their member Planters. It is likewise undisputed that the eighty
(80) milling contracts that were presented were signed only by the member Planter
concerned and one of the Centrals as parties. In other words, none of the
petitioners were parties or signatories to the milling contracts. This circumstance is
fatal to petitioners' cause since they anchor their right to demand arbitration from
the respondent sugar centrals upon the arbitration clause found in the milling
contracts. There is no legal basis for petitioners' purported right to demand
arbitration when they are not parties to the milling contracts, especially when the
language of the arbitration clause expressly grants the right to demand arbitration
only to the parties to the contract.
Simply put, petitioners do not have any agreement to arbitrate with
respondents. Only eighty (80) Planters who were all members of OSPA were
shown to have such an agreement to arbitrate, included as a stipulation in their
individual milling contracts. The other petitioners failed to prove that any of their
members had milling contracts with respondents, much less, that respondents had
an agreement to arbitrate with the petitioner associations themselves.
Even assuming that all the petitioners were able to present milling contracts
in favor of their members, it is undeniable that under the arbitration clause in these
contracts it is the parties thereto who have the right to submit a controversy or
dispute to arbitration.
Section 4 of R.A. 876 provides:
Section 4. Form of Arbitration Agreement A contract to arbitrate a controversy
thereafter arising between the parties, as well as a submission to arbitrate an
existing controversy, shall be in writing and subscribed by the party sought to be
charged, or by his lawful agent.
The making of a contract or submission for arbitration described in section
two hereof, providing for arbitration of any controversy, shall be deemed a
consent of the parties to the jurisdiction of the Court of First Instance of the
province or city where any of the parties resides, to enforce such contract of
submission.

The formal requirements of an agreement to arbitrate are therefore the

following: (a) it must be in writing and (b) it must be subscribed by the parties or
their representatives. To subscribe means to write underneath, as 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]
Petitioners would argue that they could sue respondents, notwithstanding the
fact that they were not signatories in the milling contracts because they are the
recognized representatives of the Planters.
This claim has no leg to stand on since petitioners did not sign the milling
contracts at all, whether as a party or as a representative of their member
Planters. The individual Planter and the appropriate central were the only
signatories to the contracts and there is no provision in the milling contracts that
the individual Planter is authorizing the association to represent him/her in a legal
action in case of a dispute over the milling contracts.
Moreover, even assuming that petitioners are indeed representatives of the
member Planters who have milling contracts with the respondents and assuming
further that petitioners signed the milling contracts as representatives of their
members, petitioners could not initiate arbitration proceedings in their own
name as they had done in the present case. As mere agents, they should have
brought the suit in the name of the principals that they purportedly represent. Even
if Section 4 of R.A. No. 876 allows the agreement to arbitrate to be signed by a
representative, the principal is still the one who has the right to demand arbitration.
Indeed, Rule 3, Section 2 of the Rules of Court requires suits to be brought
in the name of the real party in interest, to wit:
Sec. 2. Parties in interest. A real party in interest is the party who stands to
be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit. Unless otherwise authorized by law or these Rules, every action
must be prosecuted or defended in the name of the real party in interest.

We held in Oco v. Limbaring[14] that:

As applied to the present case, this provision has two requirements: 1) to institute
an action, the plaintiff must be the real party in interest; and 2) the action must be
prosecuted in the name of the real party in interest. Necessarily, the purposes of
this provision are 1) to prevent the prosecution of actions by persons without any
right, title or interest in the case; 2) to require that the actual party entitled to legal
relief be the one to prosecute the action; 3) to avoid a multiplicity of suits; and 4)
to discourage litigation and keep it within certain bounds, pursuant to sound
public policy.
Interest within the meaning of the Rules means material interest or an
interest in issue to be affected by the decree or judgment of the case, as
distinguished from mere curiosity about the question involved. One having no
material interest to protect cannot invoke the jurisdiction of the court as the
plaintiff in an action. When the plaintiff is not the real party in interest, the
case is dismissible on the ground of lack of cause of action.
xxx xxx xxx
The parties to a contract are the real parties in interest in an action
upon it, as consistently held by the Court. Only the contracting parties are
bound by the stipulations in the contract; they are the ones who would benefit
from and could violate it. Thus, one who is not a party to a contract, and for
whose benefit it was not expressly made, cannot maintain an action on it. One
cannot do so, even if the contract performed by the contracting parties would
incidentally inure to ones benefit. (emphasis ours)

In Uy v. Court of Appeals,[15] this Court held that the agents of the parties to a
contract do not have the right to bring an action even if they rendered some service
on behalf of their principals. To quote from that decision:
[Petitioners] are mere agents of the owners of the land subject of the sale. As
agents, they only render some service or do something in representation or on
behalf of their principals. The rendering of such service did not make them
parties to the contracts of sale executed in behalf of the latter. Since a contract
may be violated only by the parties thereto as against each other, the real 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
arbitration proceedings will be the member Planters involved and not
petitioners. In sum, petitioners are not the real parties in interest in the present
case.
Assuming petitioners had properly brought the case in the name of their members
who had existing milling contracts with respondents, petitioners must still prove
that they were indeed authorized by the said members to institute an action for and
on the members' behalf. In the same manner that an officer of the corporation
cannot bring action in behalf of a corporation unless it is clothed with a board
resolution authorizing an officer to do so, an authorization from the individual
member planter is a sine qua non for the association or any of its officers to bring
an action before the court of law. The mere fact that petitioners were organized for
the purpose of advancing the interests and welfare of their members does not
necessarily mean that petitioners have the authority to represent their members in
legal proceedings, including the present arbitration proceedings.
As we see it, petitioners had no intention to litigate the case in a
representative capacity, as they contend. All the pleadings from the RTC to this
Court belie this claim.Under Section 3 of Rule 3, where the action is allowed to be
prosecuted by a representative, the beneficiary shall be included in the title of the
case and shall be deemed to be the real party in interest. As repeatedly pointed out
earlier, the individual Planters were not even impleaded as parties to this case. In
addition, petitioners need a power-of-attorney to represent the Planters whether in
the lawsuit or to demand arbitration.[16] None was ever presented here.
Lastly, petitioners theorize that they could demand and sue for arbitration
independently of the Planters because the milling contract is a contract pour
autrui under Article 1311 of the Civil Code.
ART. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is
not liable beyond the value of the property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he

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

To summarize, the requisites of a stipulation pour autrui or a stipulation in

favor of a third person are the following: (1) there must be a stipulation in favor of
a third person, (2) the stipulation must be a part, not the whole, of the contract, (3)
the contracting parties must have clearly and deliberately conferred a favor upon a
third person, not a mere incidental benefit or interest, (4) the third person must
have communicated his acceptance to the obligor before its revocation, and (5)
neither of the contracting parties bears the legal representation or authorization of
the third party.[17] These requisites are not present in this case.
Article VI of the Milling Contract is the solitary provision that mentions
some benefit in favor of the association of which the planter is a member and we
quote:
VI
SHARE IN THE SUGAR
Thirty four per centrum (34%) of the sugar ad molasses resulting from the
milling of the 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] Even the clause
stating that respondents must secure the consent of the association if respondents
grant better benefits to a Planter has for its rationale the protection of the member
Planter. The only interest of the association therein is that its member Planter will
not be put at a disadvantage vis a vis other Planters. Thus, the associations interest
in these milling contracts is only incidental to their avowed purpose of advancing
the welfare and rights of their member Planters.
In all, the Court finds no grave abuse of discretion nor reversible error
committed by the CA in setting aside the Joint Orders issued by the RTC.
WHEREFORE, petition is hereby DISMISSED.
Costs against petitioners.
SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

ANTONIO T. CARPIO
Associate Justice

RENATO C. CORONA
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified
that the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

[1]

Penned by Associate Justice Eloy R. Bello, Jr. (ret.), with Associate Justices Godardo A. Jacinto (ret.) and Josefina
Guevarra-Salonga concurring; rollo, pp. 43-55.
[2]
Id. at 153-156.
[3]
Id. at 88-105.
[4]
In the sample Milling Contract with OSCO, this provision is found in Article XV, paragraph B.
[5]
Rollo, p. 153.
[6]
Id. at 154-156.
[7]
Id. at 57-59.
[8]
Manacop, Jose F. v. Equitable PCIBank, G.R. Nos. 162814-17, August 25, 2005, 468 SCRA 256, 270-271.
[9]
New York Marine Manager v. CA, et al., G.R. No. 111837, Oct. 24, 1995, 249 SCRA 416, 420.
[10]
Otherwise known as AN ACT TO AUTHORIZE THE MAKING OF ARBITRATION AND SUBMISSION
AGREEMENTS, TO PROVIDE FOR THE APPOINTMENT OF ARBITRATORS AND THE PROCEDURE FOR
ARBITRATION IN CIVIL CONTROVERSIES, AND FOR OTHER PURPOSES.
[11]
5 Am Jur 2d Appeal and Error, Arbitration and Award, p. 527.
[12]
G.R. No. 120105, March 27, 1998, 288 SCRA 267.
[13]
BF Corporation v. CA, supra note 12, p. 283.
[14]
G.R. No. 161298, January 31, 2006, 481 SCRA 348, 358-359.

[15]

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

Article 1878. Special Powers of Attorney are necessary in the following cases:
xxx
(3) To compromise, to submit questions to arbitration, xxx.
[17]
South Pachem Development, Inc v. CA and Makati Commercial Estate Association, Inc., G.R. No. 126260,
December 16, 2004, 447 SCRA 85, 94.
[18]
Associated Bank v. CA, G.R. No. 123793, June 29, 1998, 291 SCRA 511, 526.
[16]

SPECIAL SECOND DIVISION

JORGE GONZALES and G.R. No. 161957
PANEL OF ARBITRATORS,
Petitioners, Present:
PUNO, C. J.,
Chairperson,
- versus AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
NAZARIO, JJ.
CLIMAX MINING LTD.,
CLIMAX-ARIMCO MINING CORP.,
and AUSTRALASIAN PHILIPPINES Promulgated:
MINING INC.,
Respondents. January 22, 2007
x--------------------------------------------------------------------------------- x
JORGE GONZALES, G.R. No. 167994
Petitioner,
-

versus

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.

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

R E S O L U T I ON
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 2005[1] denied the Rule 45 petition of petitioner Jorge Gonzales
(Gonzales). It held that the DENR Panel of Arbitrators had no jurisdiction over the
complaint for the annulment of the Addendum Contract on grounds of fraud and
violation of the Constitution and that the action should have been brought before
the regular courts as it involved judicial issues. Both parties filed separate motions
for reconsideration. Gonzales avers in his Motion for Reconsideration [2] that the
Court erred in holding that the DENR Panel of Arbitrators was bereft of
jurisdiction, reiterating its argument that the case involves a mining dispute that
properly falls within the ambit of the 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 Clarification[3] seeking reconsideration of that part of the
Decision holding that the case should not be brought for arbitration under Republic
Act (R.A.) No. 876, also known as the Arbitration Law.[4] Respondents, citing
American jurisprudence[5] and the UNCITRAL Model Law,[6] argue that the
arbitration clause in the Addendum Contract should be treated as an agreement
independent of the other terms of the contract, and that a claimed rescission of the
main contract does not avoid the duty to arbitrate. Respondents add that 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. 161957 [10] were pending,
wherein Gonzales challenged the orders of the Regional Trial Court (RTC)
requiring him to proceed with the arbitration proceedings as sought by ClimaxArimco Mining Corporation (Climax-Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated
upon the recommendation of the Assistant Division Clerk of Court since the cases
are rooted in the same Addendum Contract.
We first tackle the more recent case which is G.R. No. 167994. It stemmed from
the petition to compel arbitration filed by respondent Climax-Arimco before the
RTC of Makati City on 31 March 2000 while the complaint for the nullification of
the Addendum Contract was pending before the DENR Panel of Arbitrators. On 23
March 2000, Climax-Arimco had sent Gonzales a Demand for Arbitration pursuant
to Clause 19.1[11] of the Addendum Contract and also in accordance with Sec. 5 of
R.A. No. 876. The petition for arbitration was subsequently filed and ClimaxArimco 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.
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 15day 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
Law[24]states that where a court before which an action is brought in a matter which

is subject of an arbitration agreement refers the parties to arbitration, the arbitral

proceedings may proceed even while the action is pending.
Thus, the main issue raised in the Petition for Certiorari is whether it was proper
for the RTC, in the proceeding to compel arbitration under R.A. No. 876, to order
the parties to arbitrate even though the defendant therein has raised the twin issues
of validity and nullity of the Addendum Contract and, consequently, of the
arbitration clause therein as well.The resolution of both Climax-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 Appeals[28] cited by Gonzales
support his theory. Gonzales argues that said case recognized and allowed a
petition for certiorari under Rule 65 appealing the order of the Regional Trial Court

disregarding the arbitration agreement as an acceptable remedy.[29] The BF

Corporation case had its origins in a complaint for collection of sum of money
filed by therein petitioner BF Corporation against Shangri-la Properties, Inc.
(SPI). SPI moved to suspend the proceedings alleging that the construction
agreement or the Articles of Agreement between the parties contained a clause
requiring prior resort to arbitration before judicial intervention. The trial court
found that an arbitration clause was incorporated in the Conditions of Contract
appended to and deemed an integral part of the Articles of Agreement. Still, the
trial court denied the motion to suspend proceedings upon a finding that the
Conditions of Contract were not duly executed and signed by the parties. The trial
court also found that SPI had failed to file any written notice of demand for
arbitration within the period specified in the arbitration clause. The trial court
denied SPI's motion for reconsideration and ordered it to file its responsive
pleading. Instead of filing an answer, SPI filed a petition for certiorari under Rule
65, which the Court of Appeals, favorably acted upon. In a petition for review
before this Court, BF Corporation alleged, among others, that the Court of Appeals
should have dismissed the petition for certiorari since the order of the trial court
denying the motion to suspend proceedings is a resolution of an incident on the
merits and upon the continuation of the proceedings, the trial court would
eventually render a decision on the merits, which decision could then be elevated
to a higher court in an ordinary appeal.[30]
The Court did not uphold BF 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 Appeals[37] that [t]he provision
to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract. As a rule, contracts are
respected as the law between the contracting parties and produce effect as between
them, their assigns and heirs.[38]
The special proceeding under Sec. 6 of R.A. No. 876 recognizes the
contractual nature of arbitration clauses or agreements. It provides:
SEC. 6. Hearing by court.A party aggrieved by the failure, neglect or
refusal of another to perform under an agreement in writing providing for
arbitration may petition the court for an order directing that such arbitration
proceed in the manner provided for in such agreement. Five days notice in
writing of the hearing of such application shall be served either personally or by
registered mail upon the party in default. The court shall hear the parties, and
upon being satisfied that the making of the agreement or such failure to
comply therewith is not in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the agreement. If the
making of the agreement or default be in issue the court shall proceed to
summarily hear such issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no default in the
proceeding thereunder, the proceeding shall be dismissed. If the finding be that
a written provision for arbitration was made and there is a default in

proceeding thereunder, an order shall be made summarily directing the parties to

proceed with the arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or applications filed under
the provisions of this Act, within ten days after such motions, petitions, or
applications have been heard by it.[Emphasis added.]

This special proceeding is the procedural mechanism for the enforcement of the
contract to arbitrate. The jurisdiction of the courts in relation to Sec. 6 of R.A. No.
876 as well as the nature of the proceedings therein was expounded upon in La
Naval Drug Corporation v. Court of Appeals.[39] There it was held that R.A. No.
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 Florida[42] which held, thus:
Since there obtains herein a written provision for arbitration as well as
failure on respondent's part to comply therewith, the court a quo rightly ordered
the parties to proceed to arbitration in accordance with the terms of their
agreement (Sec. 6, Republic Act 876). Respondent's arguments touching upon
the merits of the dispute are improperly raised herein. They should be addressed
to the arbitrators. This proceeding is merely a summary remedy to enforce the
agreement to arbitrate. The duty of the court in this case is not to resolve the
merits of the parties' claims but only to determine if they should proceed to
arbitration or not. x x x x[43]

Implicit in the summary nature of the judicial proceedings is the separable or

independent character of the arbitration clause or agreement. This was highlighted
in the cases of Manila Electric Co. v. Pasay Trans. Co.[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 thereofthe 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.

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 2003resolving 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.

DANTE O. TINGA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

C E R T I F I C AT I O N
PURSUANT TO ARTICLE VIII, SECTION 13 OF THE CONSTITUTION, IT IS
HEREBY CERTIFIED THAT THE CONCLUSIONS IN THE ABOVE RESOLUTION WERE
REACHED IN CONSULTATION BEFORE THE CASE WAS ASSIGNED TO THE WRITER
OF THE OPINION OF THE

COURT.

REYNATO S. PUNO
CHIEF JUSTICE

[1]

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

[2]

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

[3]

Id. at 700-706.

[4]

The pertinent portion of the assailed decision reads:

Petitioner also disagrees with the Court of Appeals ruling that the case should be
brought for arbitration under Rep. Act [No.] 876, pursuant to the arbitration clause in
the Addendum Contract which states that [a]ll disputes arising out of or in connection with the
Contract, which cannot be settled amicably among the Parties, shall finally be settled under R.A.
No. 876. He points out that respondents Climax and APMI are not parties to the Addendum
Contract and are thus not bound by the arbitration clause in said contract.
We agree that the case should not be brought under the ambit of the Arbitration Law,
but for a different reason. The question of validity of the contract containing the agreement to
submit to arbitration will affect the applicability of the arbitration clause itself. A party cannot
rely on the contract and claim rights or obligations under it and at the same time impugn its
existence or validity. Indeed, litigants are enjoined from taking inconsistent positions. As
previously discussed, the complaint should have been filed before the regular courts as it
involved issues which are judicial in nature. Rollo [G.R. No. 161957], p. 695
[5]

[6]

4 AM JUR 2d, at 136, and AMERICAN LAW REPORTS, ANNOTATED, 3 ALR2d 425 to 426.

Art. 16(1) thereof states: The arbitral tribunal may rule on its own jurisdiction, including any objections
with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which
forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision
by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration

clause. The Model Law was adopted in Republic Act No. 9285 or the Alternative Dispute Resolution Act of 2004 (in
Sec. 19 thereof).
[7]

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

[8]

Id. at 780-790.

[9]

Id. at 832-838.

[10]

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

[11]

Clause 19.1 of the Addendum Contract, rollo (G.R. No. 167994), p. 87. It reads: All disputes arising out
of or in connection with the Contract, which cannot be settled amicable among the Parties, shall be finally settled
under Republic Act No. 876, otherwise known as The Arbitration Law, as may be amended from time to time. It is
agreed, however, that at all events and notwithstanding any provision of Republic Act No. 876, only one arbitrator
shall be appointed by all the Parties. For purposes of such appointment and at all proceedings hereunder, each of the
CLAIMOWNER and ARIMCO shall have one vote. AUMEX, GEOPHILIPPINES and INMEX shall jointly have
only one vote and, for purposes hereof, GEOPHILIPPINES and INMEX hereby irrevocably constitute AUMEX as
their attorney-in-fact, in their place, name and stead, to exercise the voting right granted hereunder. If the
CLAIMOWNER, ARIMCO and AUMEX fail to agree on an arbitrator within 30 days from the date they first begin
considering persons to act as arbitrator, such arbitrator shall be appointed by the appropriate court in accordance
with Republic Act No. 876. The Parties agree that the venue of the arbitration and all actions under the Contract
shall be Metro Manila, Philippines. The Parties further agree that the decision of the arbitrator shall be binding and
enforceable upon the Parties and that no judicial action may be instituted by any Party against any other Party under
the Contract except as provided in this Clause 19.1.
[12]

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

[13]

Id. at 517.

[14]

Id. at 518-520.

[15]

Id. at 525.

[16]

Id. at 526.

[17]

Id. at 381.

[18]

Id.

[19]

Id. at 527-530.

[20]

Id. at 30-35.

[21]

Id. at 39.

[22]

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

[23]

Id. at 91.

[24]
Sec. 19 of R.A. No. 9258 adopts the UNCITRAL Model Law for international commercial arbitration,
while Sec. 33 of R.A. No. 9258 makes certain portions of the UNCITRAL Model Law, including Art. 8, applicable
to domestic arbitration.
[25]

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

[26]

Justice Romero, in his dissenting opinion in Asset Privatizatoin Trust v. Court of Appeals, 360 Phil. 768,
824-825 (1998), had occasion to discuss the mode of review under Sec. 29 of R.A. No. 876:
The term certiorari in [Sec. 29 of R.A. No. 876] refers to an ordinary appeal under Rule
45, not the special action of certiorari under Rule 65. It is an appeal, as Section 29
proclaims. The proper forum for this action is, under the old and the new rules of procedure, the
Supreme Court. Thus, Section 2(c) of Rule 41 of the 1997 Rules of Civil Procedure states that,
In all cases where only questions of law are raised or involved, the appeal shall be to the
Supreme Court by petition for review on certiorari in accordance with Rule 45. Moreover,
Section 29 limits the appeal to questions of law, another indication that it is referring to an
appeal by certiorari under Rule 45 which, indeed, is the customary manner of reviewing such
issues. On the other hand, the extraordinary remedy of certiorari under Rule 65 may be availed
of by a party where there is no appeal, nor any plain, speedy, and adequate remedy in the course
of law, and under circumstances where a tribunal, board or officer exercising judicial functions,
has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion.
[27]

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

[28]

351 Phil. 508 (1998).

[29]

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

[30]

Supra note 28, at 518-519.

[31]

Supra note 28 at 520-521.

[32]

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

[33]

CIVIL CODE, Book IV, Title XIV, Chapter 2.

[34]

National Union Fire Insurance Company of Pittsburgh v. Stolt-Nielsen Philippines, Inc., G.R. No. 87958,
26 April 1990, 184 SCRA 682.
[35]

57 Phil. 600 (1932).

[36]

Id. at 603.

[37]

404 Phil. 192 (2001).

[38]

Id. at 201.

[39]

Supra note 22.

[40]

Supra note 22 at 91.

[41]

Id.

[42]

126 Phil. 78 (1967).

[43]

Id. at 84-85.

[44]

Supra note 35.

[45]

Supra note 37.

[46]

P. CAPPER, INTERNATIONAL ARBITRATION: A HANDBOOK (3rd ed., 2004), p. 12.

[47]

Id. Accordingly, the termination or avoidance (for example, following a fraudulent misrepresentation) of
a contract which was initially valid will not affect the validity of the arbitration agreement. The doctrine also
recognizes in this way the wish of the parties to have disputes arising out of their contract settled by arbitration, even
if that contract is no longer in existence. Id. at 81.
In the U.S., a distinction has been drawn between legal doctrines relating to enforceability of contracts and
legal doctrines relating to whether a contract is formed. Making this distinction, some courts have applied Prima
Paint Corp. v. Flood and ConKlin, infra note 49, to voidable-contract arguments, but not to no-contract agreements
involving for example forgery. S.J. Ware, infra note 50 at 49.
[48]

Supra note 46, at 81.

[49]

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

[50]

S.J. WARE, ALTERNATIVE DISPUTE RESOLUTION (2001 ed.), pp. 45-46, citing Prima Paint,supra.

[51]

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

[52]

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

[53]

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

[54]

Id. at 199.

[55]

See CIVIL CODE, Art. 1390.