1
THIRD DIVISION [G.R. No. 141833. March 26, 2003]
LM POWER ENGINEERING CORPORATION, petitioner,
vs. CAPITOL INDUSTRIAL CONSTRUCTION GROUPS,
INC., respondent.
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs -- like
arbitration, mediation, negotiation and conciliation -- are
encouraged by the Supreme Court. By enabling parties to
resolve their disputes amicably, they provide solutions that are
less time-consuming, less tedious, less confrontational, and
more productive of goodwill and lasting relationships. [1]
The Case
Before us is a Petition for Review on Certiorari[2] under Rule
45 of the Rules of Court, seeking to set aside the January 28,
2000 Decision of the Court of Appeals[3] (CA) in CA-GR CV No.
54232. The dispositive portion of the Decision reads as follows:
WHEREFORE, the judgment appealed from is REVERSED and SET
ASIDE. The parties are ORDERED to present their dispute to
arbitration in accordance with their Sub-contract
Agreement. The surety bond posted by [respondent] is
[d]ischarged.[4]
The Facts
On February 22, 1983, Petitioner LM Power Engineering
Corporation and Respondent Capitol Industrial Construction
Groups Inc. entered into a Subcontract Agreement involving
electrical work at the Third Port of Zamboanga.[5]
On April 25, 1985, respondent took over some of the work
contracted to petitioner.[6] Allegedly, the latter had failed to
finish it because of its inability to procure materials.[7]
Upon completing its task under the Contract, petitioner
billed respondent in the amount of P6,711,813.90.[8] Contesting
the accuracy of the amount of advances and billable
accomplishments listed by the former, the latter refused to
pay. Respondent also took refuge in the termination clause of
the Agreement.[9] That clause allowed it to set off the cost of the
work that petitioner had failed to undertake -- due to
termination or take-over -- against the amount it owed the latter.
Because of the dispute, petitioner filed with the Regional
Trial Court (RTC) of Makati (Branch 141) a Complaint [10] for the
collection of the amount representing the alleged balance due it
under the Subcontract. Instead of submitting an Answer,
respondent filed a Motion to Dismiss, [11]alleging that the
Complaint was premature, because there was no prior recourse
to arbitration.
In its Order[12] dated September 15, 1987, the RTC denied
the Motion on the ground that the dispute did not involve the
interpretation or the implementation of the Agreement and was,
therefore, not covered by the arbitral clause.[13]
After trial on the merits, the RTC [14] ruled that the take-over
of some work items by respondent was not equivalent to a
termination, but a mere modification, of the Subcontract. The
latter was ordered to give full payment for the work completed
by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the
referral of the case to arbitration. The appellate court held as
arbitrable the issue of whether respondents take-over of some
work items had been intended to be a termination of the original
contract under Letter K of the Subcontract. It ruled likewise on
two other issues: whether petitioner was liable under the
warranty clause of the Agreement, and whether it should
reimburse respondent for the work the latter had taken over. [15]
Hence, this Petition.[16]
The Issues
In its Memorandum, petitioner raises the following issues
for the Courts consideration:
A
Whether or not there exist[s] a controversy/dispute between
petitioner and respondent regarding the interpretation and
implementation of the Sub-Contract Agreement dated February
22, 1983 that requires prior recourse to voluntary arbitration;
B
In the affirmative, whether or not the requirements provided in
Article III [1] of CIAC Arbitration Rules regarding request for
arbitration ha[ve] been complied with[.] [17]
The Courts Ruling
The Petition is unmeritorious.
First Issue: Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the
interpretation or the implementation of the Agreement. Thus,
without having to resort to prior arbitration, it is entitled to
collect the value of the services it rendered through an ordinary
action for the collection of a sum of money from respondent. On
the other hand, the latter contends that there is a need for prior
arbitration as provided in the Agreement. This is because there
are some disparities between the parties positions regarding the
extent of the work done, the amount of advances and billable
accomplishments, and the set off of expenses incurred by
respondent in its take-over of petitioners work.
We side with respondent. Essentially, the dispute arose
from the parties ncongruent positions on whether certain
provisions of their Agreement could be applied to the facts. The
instant case involves technical discrepancies that are better left
to an arbitral body that has expertise in those areas. In any
event, the inclusion of an arbitration clause in a contract does
not ipso facto divest the courts of jurisdiction to pass upon the
findings of arbitral bodies, because the awards are still judicially
reviewable under certain conditions.[18]
In the case before us, the Subcontract has the following
arbitral clause:
6. The Parties hereto agree that any dispute or
conflict as regards to interpretation and
implementation of this Agreement which cannot be
settled between [respondent] and [petitioner]
amicably shall be settled by means of arbitration x x
x.[19]
Clearly, the resolution of the dispute between the parties
herein requires a referral to the provisions of their
Agreement. Within the scope of the arbitration clause are
discrepancies as to the amount of advances and billable
accomplishments, the application of the provision on
termination, and the consequent set-off of expenses.

A review of the factual allegations of the parties reveals
that they differ on the following questions: (1) Did a take-
over/termination occur? (2) May the expenses incurred by
respondent in the take-over be set off against the amounts it
owed petitioner? (3) How much were the advances and billable
accomplishments?
The resolution of the foregoing issues lies in the
interpretation of the provisions of the Agreement. According to
respondent, the take-over was caused by petitioners delay in
completing the work. Such delay was in violation of the
provision in the Agreement as to time schedule:
G. TIME SCHEDULE
[Petitioner] shall adhere strictly to the schedule
related to the WORK and complete the WORK within
the period set forth in Annex C hereof. NO time
extension shall be granted by [respondent] to
[petitioner] unless a corresponding time extension is
granted by [the Ministry of Public Works and
Highways] to the CONSORTIUM.[20]
Because of the delay, respondent alleges that it took over
some of the work contracted to petitioner, pursuant to the
following provision in the Agreement:
K. TERMINATION OF AGREEMENT
[Respondent] has the right to terminate and/or take
over this Agreement for any of the following causes:
xxxxxxxxx
6. If despite previous warnings by [respondent],
[petitioner] does not execute the WORK in
accordance with this Agreement, or persistently
or flagrantly neglects to carry out [its]
obligations under this Agreement.[21]
Supposedly, as a result of the take-over, respondent
incurred expenses in excess of the contracted price. It sought to
set off those expenses against the amount claimed by petitioner
for the work the latter accomplished, pursuant to the following
provision:
If the total direct and indirect cost of completing the remaining
part of the WORK exceed the sum which would have been
payable to [petitioner] had it completed the WORK, the amount
of such excess [may be] claimed by [respondent] from either of
the following:
1. Any amount due [petitioner] from [respondent] at the time of
the termination of this Agreement.[22]
The issue as to the correct amount of petitioners advances
and billable accomplishments involves an evaluation of the
manner in which the parties completed the work, the extent to
which they did it, and the expenses each of them incurred in
connection therewith. Arbitrators also need to look into the
computation of foreign and local costs of materials, foreign and
local advances, retention fees and letters of credit, and taxes
and duties as set forth in the Agreement. These data can be
gathered from a review of the Agreement, pertinent portions of
which are reproduced hereunder:
C. CONTRACT PRICE AND TERMS OF PAYMENT
xxxxxxxxx
All progress payments to be made by [respondent] to
[petitioner] shall be subject to a retention sum of ten
2
percent (10%) of the value of the approved
quantities. Any claims by [respondent] on [petitioner]
may be deducted by [respondent] from the progress
payments and/or retained amount. Any excess from
the retained amount after deducting [respondents]
claims shall be released by [respondent] to
[petitioner] after the issuance of [the Ministry of Public
Works and Highways] of the Certificate of Completion
and final acceptance of the WORK by [the Ministry of
Public Works and Highways].
xxxxxxxxx
D. IMPORTED MATERIALS AND EQUIPMENT
[Respondent shall open the letters of credit for the
importation of equipment and materials listed in
Annex E hereof after the drawings, brochures, and
other technical data of each items in the list have
been formally approved by [the Ministry of Public
Works and Highways]. However, petitioner will still be
fully responsible for all imported materials and
equipment.
All expenses incurred by [respondent], both in foreign
and local currencies in connection with the opening
of the letters of credit shall be deducted from the
Contract Prices.
xxxxxxxxx
N. OTHER CONDITIONS
xxxxxxxxx
2. All customs duties, import duties, contractors
taxes, income taxes, and other taxes that may be
required by any government agencies in connection
with this Agreement shall be for the sole account of
[petitioner].[23]
Being an inexpensive, speedy and amicable method of
settling disputes,[24] arbitration -- along with mediation,
conciliation and negotiation -- is encouraged by the Supreme
Court. Aside from unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of the commercial
kind.[25] It is thus regarded as the wave of the future in
international civil and commercial disputes. [26] Brushing aside a
contractual agreement calling for arbitration between the
parties would be a step backward.[27]
Consistent with the above-mentioned policy of
encouraging alternative dispute resolution methods, courts
should liberally construe arbitration clauses. Provided such
clause is susceptible of an interpretation that covers the
asserted dispute, an order to arbitrate should be granted. [28] Any
doubt should be resolved in favor of arbitration.[29]
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the
dispute is arbitrable, the failure to file a formal request for
arbitration with the Construction Industry Arbitration
Commission (CIAC) precluded the latter from acquiring
jurisdiction over the question. To bolster its position, petitioner
even cites our ruling in Tesco Services Incorporated v. Vera.
[30]
We are not persuaded.
Section 1 of Article II of the old Rules of Procedure
Governing Construction Arbitration indeed required the
submission of a request for arbitration, as follows:

SECTION. 1. Submission to Arbitration -- Any party to a
construction contract wishing to have recourse to arbitration by
the Construction Industry Arbitration Commission (CIAC) shall
submit its Request for Arbitration in sufficient copies to the
Secretariat of the CIAC; PROVIDED, that in the case of
government construction contracts, all administrative remedies
available to the parties must have been exhausted within 90
days from the time the dispute arose.
Tesco was promulgated by this Court, using the foregoing
provision as reference.
On the other hand, Section 1 of Article III of the new Rules
of Procedure Governing Construction Arbitration has dispensed
with this requirement and recourse to the CIAC may now be
availed of whenever a contract contains a clause for the
submission of a future controversy to arbitration, in this wise:
SECTION 1. Submission to CIAC Jurisdiction An arbitration clause
in a construction contract or a submission to arbitration of a
construction dispute shall be deemed an agreement to submit
an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission. When
a contract contains a clause for the submission of a future
controversy to arbitration, it is not necessary for the parties to
enter into a submission agreement before the claimant may
invoke the jurisdiction of CIAC.
The foregoing amendments in the Rules were formalized
by CIAC Resolution Nos. 2-91 and 3-93.[31]
The difference in the two provisions was clearly explained
in China Chang Jiang Energy Corporation (Philippines) v. Rosal
Infrastructure Builders et al.[32] (an extended unsigned
Resolution) and reiterated in National Irrigation Administration v.
Court of Appeals,[33] from which we quote thus:
Under the present Rules of Procedure, for a particular
construction contract to fall within the jurisdiction of CIAC, it is
merely required that the parties agree to submit the same to
voluntary arbitration Unlike in the original version of Section 1,
as applied in the Tesco case, the law as it now stands does not
provide that the parties should agree to submit disputes arising
from their agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain and clear
that as long as the parties agree to submit to voluntary
arbitration, regardless of what forum they may choose, their
agreement will fall within the jurisdiction of the CIAC, such that,
even if they specifically choose another forum, the parties will
not be precluded from electing to submit their dispute before
the CIAC because this right has been vested upon each party by
law, i.e., E.O. No. 1008.[34]
Clearly, there is no more need to file a request with the
CIAC in order to vest it with jurisdiction to decide a construction
dispute.
The arbitral clause in the Agreement is a commitment on
the part of the parties to submit to arbitration the disputes
covered therein. Because that clause is binding, they are
expected to abide by it in good faith. [35] And because it covers
the dispute between the parties in the present case, either of
them may compel the other to arbitrate.[36]
Since petitioner has already filed a Complaint with the RTC
without prior recourse to arbitration, the proper procedure to enable
the CIAC to decide on the dispute is to request the stay or
suspension of such action, as provided under RA 876 [the
Arbitration Law].[37]
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
3
SO ORDERED.
THIRD DIVISION [G.R. No. 121171. December 29, 1998]
ASSET PRIVATIZATION TRUST, petitioner, vs., COURT OF
APPEALS, JESUS S. CABARRUS, SR., JESUS S.
CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL
CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO
U. MIRANDA, and MIGUEL M. ANTONIO, as
Minority Stock Holders of Marinduque Mining and
Industrial Corporation, respondents.
KAPUNAN, J.:
The petition for review on certiorari before us seeks us to
reverse and set aside the decision of the Court of Appeals which
denied due course to the petition for certiorari filed by the Asset
Privatization Trust (APT) assailing the order of the Regional Trial
Court (RTC) Branch 62, Makati City. The Makati RTCs order
upheld and confirmed the award made by the Arbitration
Committee in favor of Marinduque Mining and Industrial
Corporation (MMIC) and against the Government, represented
by herein petitioner APT for damages in the amount of P2.5
BILLION (or approximately P4.5 BILLION, including interest).
Ironically, the staggering amount of damages was imposed
on the Government for exercising its legitimate right of
foreclosure as creditor against the debtor MMIC as a
consequence of the latters failure to pay its overdue and unpaid
obligation of P22 billion to the Philippine National Bank (PNB)
and the Development Bank of the Philippines (DBP).
The antecedent facts of the case
The development, exploration and utilization of the mineral
deposits in the Surigao Mineral Reservation have been
authorized by Republic Act No. 1828, as amended by Republic
Acts No. 2077 and 4167, by virtue of which laws, a
Memorandum of Agreement was drawn on July 3, 1968, whereby
the Republic of the Philippines thru the Surigao Mineral
Reservation Board, granted MMIC the exclusive right to explore,
develop and exploit nickel, cobalt and other minerals in the
Surigao mineral reservation.[1] MMIC is a domestic corporation
engaged in mining with respondents Jesus S. Cabarrus, Sr. as
President and among its original stockholders.
The Philippine Government undertook to support the
financing of MMIC by purchase of MMIC debenture and extension
of guarantees. Further, the Philippine Government obtained a
firm, commitment from the DBP and/or other government
financing institutions to subscribed in MMIC and issue
guarantee/s for foreign loans or deferred payment arrangements
secured from the US Eximbank, Asian Development Bank, Kobe
Steel, of amount not exceeding US$100 Million.[2]
DBP approved guarantees in favor of MMIC and subsequent
requests for guarantees were based on the unutilized portion of
the Government commitment.Thereafter, the Government
extended accommodations to MMIC in various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage
Trust Agreement[3] whereby MMIC, as mortgagor, agreed to
constitute a mortgage in favor of PNB and DBP as mortgagees,
over all MMICs assets, subject of real estate and chattel
mortgage executed by the mortgagor, and additional assets
described and identified, including assets of whatever kind,
nature or description, which the mortgagor may acquire whether
in substitution of, in replenishment, or in addition thereto.
Article IV of the Mortgage Trust Agreement provides for
Events of Default, which expressly includes the event that the
MORTGAGOR shall fail to pay any amount secured by this
Mortgage Trust Agreement when due.[4]
Article V of the Mortgage Trust Agreement prescribes in
detail, and in addition to the enumerated events of defaults,
circumstances by which the mortgagor may be declared in
default, the procedure therefor, waiver of period to foreclose,
authority of Trustee before, during and after foreclosure,
including taking possession of the mortgaged properties.[5]

In various request for advances/remittances of loans of
huge amounts, Deeds of Undertakings, Promissory Notes, Loans
Documents, Deeds of Real Estate Mortgages, MMIC invariably
committed to pay either on demand or under certain terms the
loans and accommodations secured from or guaranteed by both
DBP and PNB.
By 1984, DBP and PNBs financial exposure both in loans
and in equity in MMIC had reached tremendous proportions, and
MMIC was having a difficult time meeting its financial
obligations. MMIC had an outstanding loan with DBP in the
amount of P13,792,607,565.92 as of August 31, 1984 and in the
amount of P8,789,028,249.38 as of July 15, 1984 or a total
Government exposure of Twenty Two Billion Six Hundred Sixty-
Eight Million Five Hundred Thirty-Seven Thousand Seven
Hundred Seventy and 05/100 (P22,668,537,770.05), Philippine
Currency.[6] Thus, a financial restructuring plan (FRP) designed to
reduce MMIC' interest expense through debt conversion to
equity was drafted by the Sycip Gorres Velayo accounting firm.
[7]
On April 30, 1984, the FRP was approved by the Board of
Directors of the MMIC.[8] However, the proposed FRP had never
been formally adopted, approved or ratified by either PNB or
DBP.[9]
In August and September 1984, as the various loans and
advances made by DBP and PNB to MMIC had become overdue
and since any restructuring program relative to the loans was no
longer feasible, and in compliance with the directive of
Presidential Decree No. 385, DBP and PNB as mortgagees of
MMIC assets, decided to exercise their right to extrajudicially
foreclose the mortgages in accordance with the Mortgage Trust
Agreement.[10]
The foreclosed assets were sold to PNB as the lone bidder
and were assigned to three newly formed corporations, namely,
Nonoc Mining Corporation, Maricalum Mining and Industrial
Corporation, and Island Cement Corporation. In 1986, these
assets were transferred to the Asset Privatization Trust (APT). [11]
On February 28, 1985, Jesus S. Cabarrus, Sr., together with
the other stockholders of MMIC, filed a derivative suit against
DBP and PNB before the RTC of Makati, Branch 62, for
Annulment of Foreclosures, Specific Performance and Damages.
[12]
The suit, docketed as Civil Case No. 9900, prayed that the
court: (1) annul the foreclosure, restore the foreclosed assets to
MMIC, and require the banks to account for their use and
operation in the interim; (2) direct the banks to honor and
perform their commitments under the alleged FRP; and (3) pay
moral and exemplary damages, attorneys fees, litigation
expenses and costs.
In the course of the trial, private respondents and
petitioner APT, as successor of the DBP and PNBs interest in
MMIC, mutually agreed to submit the case to arbitration by
entering into a Compromise and Arbitration Agreement,
stipulating, inter alia:
NOW, THEREFORE, for and in consideration of the foregoing
premises and the mutual covenants contain herein, the parties
agreed as follows:
1. Withdrawal and Compromise. The parties have agreed to
withdraw their respective claims from the Trial Court and to
resolve their dispute through arbitration by praying to the Trial
Court to issue a Compromise Judgment based on this
Compromise and Arbitration Agreement.
In withdrawing their dispute form the court and in choosing to
resolve it through arbitration, the parties have agreed that:
(a) their respective money claims shall be reduced to purely
money claims; and
(b) as successor and assignee of the PNB and DBP interest in
MMIC and the MMIC accounts, APT shall likewise succeed to the
rights and obligations of PNB and DBP in respect of the
controversy subject of Civil Case No. 9900 to be transferred to
arbitration and any arbitral award/order against either PNB
and/or DBP shall be the responsibility of, be discharged by and
be enforceable against APT, the partied having agreed to drop
PNB and DBP from the arbitration.
4
2. Submission. The parties hereby agree that (a) the controversy
in Civil Case No. 9900 shall be submitted instead to arbitration
under RA 876 and (b) the reliefs prayed for in Civil Case No.
9900 shall, with the approval of the Trial Court of this
Compromise and Arbitration Agreement, be transferred and
reduced to pure pecuniary/money claims with the parties
waiving and foregoing all other forms of reliefs which they
prayed for or should have payed for in Civil Case No. 9900.[13]
The Compromise and Arbitration Agreement limited the
issues to the following:
5. Issues. The issues to be submitted for the Committees
resolution shall be: (a) Whether PLAINTIFFS have the capacity or
the personality to institute this derivative suit in behalf of the
MMIC or its directors; (b) Whether or not the actions leading to,
and including, the PNB-DBP foreclosure of the MMIC assets were
proper, valid and in good faith.[14]
This agreement was presented for approval to the trial
court. On October 14, 1992, the Makati RTC, Branch 62, issued
an order, to wit:
WHEREFORE, this Court orders:
1. Substituting PNB and DBP with the Asset
Privatization Trust as party defendant.
2. Approving the Compromise and Arbitration
Agreement dated October 6, 1992, attached
as Annex C of the Omnibus Motion.
3. Approving the Transformation of the reliefs prayed
for [by] the plaintiffs in this case into pure
money claims; and
4. The Complaint is hereby DISMISSED.[15]
The Arbitration Committee was composed of retired
Supreme Court Justice Abraham Sarmiento as Chairman, Atty.
Jose C. Sison and former Court of Appeals Justice Magdangal
Elma as Members. On November 24, 1993, after conducting
several hearings, the Arbitration Committee rendered a majority
decision in favor of MMIC, the pertinent portions of which read
as follows:
Since, as this Committee finds, there is no foreclosure at all was
not legally and validly done, the Committee holds and so
declares that the loans of PNB and DBP to MMIC, for the
payment and recovery of which the void foreclosure sales were
undertaken, continue to remain outstanding and
unpaid. Defendant APT as the successor-in-interest of PNB and
DBP to the said loans is therefore entitled and retains the right,
to collect the same from MMIC pursuant to and based on the
loan documents signed by MMIC, subject to the legal and valid
defenses that the latter may duly and seasonably
interpose. Such loans shall, however, be reduced by the amount
which APT may have realized from the sale of the seized assets
of MMIC which by agreement should no longer be returned even
if the foreclosure were found to be null and void.
The documentary evidence submitted and adopted by both
parties (Exhibits 3, 3-B; Exhibits 100; and also Exhibit ZZZ) as
their exhibits would show that the total outstanding obligation
due to DBP and PNB as of the date of foreclosure
is P22,668,537,770.05, more or less.
Therefore, defendant APT can, and is still entitled to, collect the
outstanding obligations of MMIC to PNB and DBP amounting
to P22,668.537,770.05, more or less, with interest thereon as
stipulated in the loan documents from the date of foreclosure up
to the time they are fully paid less the proportionate liability of
DBP as owner of 87% of the total capitalization of MMIC under
the FRP. Simply put, DBP shall share in the award of damages to,
and in obligations of MMIC in proportion to its 87% equity in the
total capital stock of MMIC.

x x x.
As this Committee holds that the FRP is valid, DBPs equity in
MMIC is raised to 87%. So pursuant to the above provision of the
Compromise and Arbitration Agreement, the 87% equity of DBP
is hereby deducted from the actual damages
of P19,486,118,654.00 resulting in the net actual damages
of P2,531,635,425.02 plus interest.
DISPOSITION
WHEREFORE, premises considered, judgment is hereby
rendered:
1. Ordering the defendant to pay to the Marinduque Mining and
Industrial Corporation, except the DBP, the sum
of P2,531,635,425.02 with interest thereon at the legal rate of
six per cent (6%) per annum reckoned from August 3, 9, and 24,
1984, pari passu, as and for actual damages. Payment of these
actual damages shall be offset by APT from the outstanding and
unpaid loans of the MMIC with DBP and PNB, which have not
been converted into equity. Should there be any balance due to
the MMIC after the offsetting, the same shall be satisfied from
the funds representing the purchase price of the sale of the
shares of Island Cement Corporation in the amount
of P503,000,000.00 held under escrow pursuant to the Escrow
Agreement dated April 22, 1988 or to such subsequent escrow
agreement that would supercede [sic] it pursuant to paragraph
(9) of the Compromise and Arbitration Agreement;
2. Ordering the defendant to pay to the Marinduque Mining and
Industrial Corporation, except the DBP, the sum
of P13,000,000.00 as and for moral and exemplary
damages. Payment of these moral and exemplary damages shall
be offset by APT from the outstanding and unpaid loans of MMIC
with DBP and PNB, which have not been converted into
equity. Should there be any balance due to MMIC after the
offsetting, the same shall be satisfied from the funds
representing the purchase price of the sale of the shares of
Island Cement Corporation in the of P503,000,000.00 held under
escrow pursuant to the Escrow Agreement dated April 22, 1988
or to such subsequent escrow agreement that would supercede
[sic] it pursuant to paragraph (9) of the Compromise and
Arbitration Agreement;
3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus,
Sr., the sum of P10,000,000.00, to be satisfied likewise from the
funds held under escrow pursuant to the Escrow Agreement
dated April 22, 1988 or to such subsequent escrow agreement
that would supercede it, pursuant to paragraph (9) of the
Compromise and Arbitration Agreement, as and for moral
damages; and
4. Ordering the defendant to pay arbitration costs.
This Decision is FINAL and EXECUTORY.
IT IS SO ORDERED.[16]
Motions for reconsiderations were filed by both parties, but
the same were denied.
On October 17, 1994, private respondents filed in the same
Civil Case No. 9900 an Application/Motion for Confirmation of
Arbitration Award. Petitioner countered with an Opposition and
Motion to Vacate Judgment raising the following grounds:
1. The plaintiffs Application/Motion is improperly filed with this
branch of the Court, considering that the said motion is neither
a part nor the continuation of the proceedings in Civil Case No.
9900 which was dismissed upon motion of the parties. In fact,
the defendants in the said Civil Case No. 9900 were the
Development Bank of the Philippines and the Philippine National
Bank (PNB);
2. Under Section 22 of Rep. Act 876, an arbitration under a
contract or submission shall be deemed a special proceedings
and a party to the controversy which was arbitrated may apply
5
to the court having jurisdiction, (not necessarily with this
Honorable Court) for an order confirming the award;
3. The issues submitted for arbitration have been limited to two:
(1) propriety of the plaintiffs filing the derivative suit and (2) the
regularity of the foreclosure proceedings. The arbitration award
sought to be confirmed herein far exceeded the issues
submitted and even granted moral damages to one of the
herein plaintiffs;
4. Under Section 24 of Rep. Act 876, the Court must make an
order vacating the award where the arbitrators exceeded their
powers, or so imperfectly executed them, that a mutual final
and definite award upon the subject matter submitted to them
was not made.[17]
Private respondents filed a REPLY AND OPPOSITION dated
November 10, 1984, arguing that a dismissal of Civil case No.
9900 was merely a qualified dismissal to pave the way for the
submission of the controversy to arbitration, and operated
simply as a mere suspension of the proceedings. They denied
that the Arbitration Committee had exceeded its powers.
In an Order dated November 28, 1994, the trial court
confirmed the award of the Arbitration Committee. The
dispositive portion of said order reads:
WHEREFORE, premises considered, and in the light of the
parties [sic] Compromise and Arbitration Agreement dated
October 6, 1992, the Decision of the Arbitration Committee
promulgated on November 24, 1993, as affirmed in a Resolution
dated July 26, 1994, and finally settled and clarified in the
Separate Opinion dated September 2, 1994 of Committee
Member Elma, and the pertinent provisions of RA 876,also
known as the Arbitration Law, this Court GRANTS PLAINTIFFS
APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD,
AND JUDGMENT IS HEREBY RENDERED:
(a) Ordering the defendant APT to the Marinduque Mining and
Industrial Corporation (MMIC, except the DBP, the sum
of P3,811,757,425.00, as and for actual damages, which shall be
partially satisfied from the funds held under escrow in the
amount of P503,000,000.00 pursuant to the Escrow Agreement
dated April 22, 1988. The Balance of the award, after the escrow
funds are fully applied, shall be executed against the APT;
(b) Ordering the defendant to pay to the MMIC, except the DBP,
the sum of P13,000,000.00 as and moral and exemplary
damages;
(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the
sum of P10,000,000.00 as and for moral damages; and
(d) Ordering the defendant to pay the herein
plaintiffs/applicants/movants the sum of P1,705,410.22 as
arbitration costs.
In reiteration of the mandates of Stipulation No. 10 and
Stipulation No. 8 paragraph 2 of the Compromise and Arbitration
Agreement, and the final edict of the Arbitration Committees
decision, and with this Courts Confirmation, the issuance of the
Arbitration Committees Award shall henceforth be final and
executory.
SO ORDERED.[18]
On December 27, 1994, petitioner filed its motion for
reconsideration of the Order dated November 28, 1994. Private
respondents, in turn, submitted their reply and opposition
thereto.
On January 18, 1995, the trial court handed down its order
denying APTs motion for reconsideration for lack of merit and for
having been filed out of time.The trial court declared that
considering that the defendant APT through counsel, officially
and actually received a copy of the Order of this Court dated
November 28, 1994 on December 6, 1994, the Motion for
Reconsideration thereof filed by the defendant APT on
December 27, 1994, or after the lapse of 21 days, was clearly

filed beyond the 15-day reglementary period prescribed or
provided for by law for the filing of an appeal from final orders,
resolutions, awards, judgments or decisions of any court in all
cases, and by necessary implication for the filling of a motion for
reconsideration thereof.
On February 7, 1995, petitioner received private
respondents motion for Execution and Appointment of Custodian
of Proceeds of Execution dated February 6, 1995.
Petitioner thereafter filed with the Court of Appeals a
special civil action for certiorari with temporary restraining order
and/or preliminary injunction dated February 13, 1996 to annul
and declare as void the Orders of the RTC-Makati dated
November 28, 1994 and January 18, 1995 for having been
issued without or in excess of jurisdiction and/or with grave
abuse of discretion.[19] As ground therefor, petitioner alleged
that:
I THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED
JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY, TO
CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE
ORIGINAL CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN
DISMISSED.
II THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF
DISCRETION AND ACTED WITHOUT OR IN EXCESS OF
JURISDICTION, IN ISSUING THE QUESTIONED ORDERS
CONFIRMING THE ARBITRAL AWARD AND DENYING THE MOTION
FOR RECONSIDERATION OF ORDER OF AWARD.
III THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION
AND ACTED WITHOUT OR IN EXCESS OF AND WITHOUT
JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO
FILE MOTION FOR RECONSIDERATION, NOT FROM THE DATE OF
SERVICE OF THE COURTS COPY CONFIRMING THE AWARD, BUT
FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE
OPPOSING COUNSELS COPY THEREOF.[20]
On July 12, 1995, the Court of Appeals, through its fifth
Division denied due course and dismissed the petition
for certiorari.
Hence, the instant petition for review
on certiorari imputing to the Court of Appeals the following
errors.
ASSIGNMENT OF ERRORS
I
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
THE MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH
HAS PREVIOULSY DISMISSED CIVIL CASE NO. 9900 HAD
LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD
UNDER THE SAME CIVIL CASE AND IN NOT RULING THAT
THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN
FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE
DIFFERENT BRANCHES OF THE RTC.
II
THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING
THAT PETITIONER WAS ESTOPPED FROM QUESTIONING
THE ARBITRATION AWARD, WHEN PETITIONER
QUESTIONED THE JURISDICTION OF THE RTC-MAKATI,
BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE
THE ARBITRAL AWARD.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
THE RESPONDENT TRIAL COURT SHOULD HAVE EITHER
DISMISSED/DENIED PRIVATE RESPONDENTS
MOTION/PETITION FOR CONFIRMATION OF ARBITRATION
AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS
OF THE MOTION TO VACATE ARBITRAL AWARD.
IV
6
THE COURT OF APPEALS ERRED IN NOT TREATING
PETITIONER APTS PETITION FOR CERTIORARI AS AN
APPEAL TAKEN FROM THE ORDER CONFIRMING THE
AWARD
V
THE COURT OF APPEALS ERRED IN NOT RULING ON THE
LEGAL ISSUE OF WHEN TO RECKON THE COUNTING OF THE
PERIOD TO FILE A MOTION FOR RECONSIDERATION.[21]
The petition is impressed with merit.
I
The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award
The use of the term dismissed is not a mere semantic
imperfection. The dispositive portion of the Order of the trial
court dated October 14, 1992 stated in no uncertain terms:
4. The Complaint is hereby DISMISSED.[22]
The term dismiss has a precise definition in law. To dispose of an
action suit, or motion without trial on the issues
involved. Conclude, discontinue, terminate, quash.[23]
Admittedly the correct procedure was for the parties to go
back to the court where the case was pending to have the award
confirmed by said court.However, Branch 62 made
the fatal mistake of issuing a final order dismissing the
case. While Branch 62 should have merely suspended the case
and not dismissed it,[24] neither of the parties questioned said
dismissal. Thus, both parties as well as said court are bound by
such error.
It is erroneous then to argue, as private respondents do,
that petitioner APT was charged with the knowledge that the
case was merely stayed until arbitration finished, as again, the
order of Branch 62 in very clear terms stated that the complaint
was dismissed. By its own action, Branch 62 had lost jurisdiction
over the vase. It could not have validly reacquired jurisdiction
over the said case on mere motion of one of the parties. The
Rules of Court is specific on how a new case may be initiated
and such is not done by mere motion in a particular branch of
the RTC. Consequently, as there was no pending action to speak
of, the petition to confirm the arbitral award should have been
filed as a new case and raffled accordingly to one of the
branches of the Regional Trial Court.
II
Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.
The Court of Appeals ruled that APT was already estopped
to question the jurisdiction of the RTC to confirm the arbitral
award because it sought affirmative relief in said court by asking
that the arbitral award be vacated.
The rule is that Where the court itself clearly has no
jurisdiction over the subject matter or the nature of the action,
the invocation of this defense may de done at any time. It is
neither for the courts nor for the parties to violate or disregard
that rule, let alone to confer that jurisdiction, this matter being
legislative in character.[25] As a rule the, neither waiver nor
estoppel shall apply to confer jurisdiction upon a court barring
highly meritorious and exceptional circumstances.[26] One such
exception was enunciated in Tijam vs. Sibonghanoy,[27] where it
was held that after voluntarily submitting a cause and
encountering an adverse decision on the merits, it is too late for
the loser to question the jurisdiction or power of the court."
Petitioners situation is different because from the outset, it
has consistently held the position that the RTC, Branch 62 had
no jurisdiction to confirm the arbitral award; consequently, it
cannot be said that it was estopped from questioning the RTCs
jurisdiction. Petitioners prayer for the setting aside of the
arbitral award was not inconsistent with its disavowal of the
courts jurisdiction.
III
Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.
The Court of Appeals in dismissing APTs petition
for certiorari upheld the trial courts denial of APTs motion for

reconsideration of the trial courts order confirming the arbitral
award, on the ground that said motion was filed beyond the 15-
day reglementary period; consequently, the petition
for certiorari could not be resorted to as substitute to the lost
right of appeal.
We do not agree.
Section 29 of Republic Act No. 876,[28] provides that:
x x x 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 question of law. x x x.
The aforequoted provision, however, does not preclude a
party aggrieved by the arbitral award from resorting to the
extraordinary remedy of certiorariunder Rule 65 of the Rules of
Court where, as in this case, the Regional Trial Court to which
the award was submitted for confirmation has acted without
jurisdiction, or with grave abuse of discretion and there is no
appeal, nor any plain, speedy remedy in the course of law.
Thus, Section 1 of Rule 65 provides:
SEC 1. Petition for Certiorari: - When any tribunal, board or
officer exercising judicial functions, has acted without or in
excess of its or his jurisdiction, or with grave abuse of discretion
and there is no appeal, nor any plain, speedy, and adequate
remedy in the ordinary 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, as the law requires, of
such tribunal, board or officer.
In the instant case, the respondent court erred in
dismissing the special civil action for certiorari, it being from the
pleadings and the evidence that the trial court lacked
jurisdiction and/or committed grave abuse of discretion in taking
cognizance of private respondent motion to confirm the arbitral
award and, worse, in confirming said award which is grossly and
patently not in accord with the arbitration agreement, as will be
hereinafter demonstrated.
IV
The nature and limits of the Arbitrators powers.
As a rule, the award of an arbitrator cannot be set aside for
mere errors of judgment either as to the law or as to the facts.
[29]
Courts are without power to amend or overrule merely
because of disagreement with matters of law or facts
determined by the arbitrators.[30] They will not review the
findings of law and fact contained in an award, and will not
undertake to substitute their judgment for that of the
arbitrators, since any other rule would make an award the
commencement, not the end, of litigation. [31] Errors of law and
fact, or an erroneous decision of matters submitted to the
judgment of the arbitrators, are insufficient to invalidate an
award fairly and honestly made. [32] Judicial review of an
arbitration is, thus, more limited than judicial review of a trial.[33]
Nonetheless, the arbitrators awards is not absolute and
without exceptions. The arbitrators cannot resolve issues
beyond the scope of the submission agreement. [34] The parties
to such an agreement are bound by the arbitrators award only
to the extent and in the manner prescribed by the contract and
only if the award is rendered in conformity thereto. [35] Thus,
Sections 24 and 25 of the Arbitration Law provide grounds for
vacating, rescinding or modifying an arbitration award. Where
the conditions described in Articles 2038, [36] 2039[37] and
2040[38] of the Civil Code applicable to compromises and
arbitration are attendant, the arbitration award may also be
annulled.
In Chung Fu Industries (Phils.) vs. Court of Appeals, [39] we
held:
x x x. It is stated explicitly under Art. 2044 of the Civil Code that
the finality of the arbitrators awards is not absolute and without
exceptions. Where the conditions described in Articles 2038,
2039, and 2040 applicable to both compromises and arbitration
are obtaining, the arbitrators' award may be annulled or
7
rescinded. Additionally, under Sections 24 and 25, of the
Arbitration Law, there are grounds for vacating, modifying or
rescinding an arbitrators award. Thus, if and when the factual
circumstances referred to in the above-cited provisions are
present, judicial review of the award is properly warranted.
Accordingly, Section 20 of R.A. 876 provides:
SEC. 20. Form and contents of award. The award must be made
in writing and signed and acknowledged by a majority of the
arbitrators, if more than one; and by the sole arbitrator, if there
is only one. Each party shall be furnished with a copy of the
award. The arbitrators in their award may grant any remedy or
relief which they deem just and equitable and within the scope
of the agreement of the parties, which shall include, but not be
limited to, the specific performance of a contract.
xxx
The arbitrators shall have the power to decide only those
matters which have been submitted to them. The terms of the
award shall be confined to such disputes.(Underscoring ours).
xxx.
Section 24 of the same law enumerating the grounds for
vacating an award states:
SEC. 24. Grounds for vacating award. In any one of the following
cases, the court must make an order vacating the award upon
the petition of any party to the controversy when such party
proves affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue
means; or
(b) That there was evident partiality or corruption in arbitrators
or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in refusing
to hear evidence pertinent and material to the controversy; that
one or more of the arbitrators was disqualified to act as such
under section nine hereof, and willfully refrained from disclosing
such disqualifications or any other misbehavior by which the
rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the
subject matter submitted to them was not made. (Underscoring
ours).
xxx.
Section 25 which enumerates the grounds for modifying
the award provides:
SEC. 25. Grounds for modifying or correcting award In anyone of
the following cases, the court must make an order modifying or
correcting the award, upon the application of any party to the
controversy which was arbitrated:
(a) Where there was an evident miscalculation of figures, or an
evident mistake in the description of any person, thing or
property referred to in the award; or
(b) Where the arbitrators have awarded upon a matter not
submitted to them, not affecting the merits of the decision upon
the matter submitted; or
(c) Where the award is imperfect in a matter of form not
affecting the merits of the controversy, and if it had been a
commissioners report, the defect could have been amended or
disregarded by the court.
x x x.

Finally, it should be stressed that while a court is precluded
from overturning an award for errors in determination of factual
issues, nevertheless, if an examination of the record reveals no
support whatever for the arbitrators determinations, their award
must be vacated.[40] In the same manner, an award must be
vacated if it was made in manifest disregard of the law.[41]
Against the backdrop of the foregoing provisions and
principles, we find that the arbitrators came out with an award
in excess of their powers and palpably devoid of factual and
legal basis.
V adopted a restructuring program for its loan, it only meant that
There was no financial structuring program; foreclosure of mortgage was fully justified.
The point need not be belabored that PNB and DBP had the
legitimate right to foreclose of the mortgages of MMIC whose
obligations were past due. The foreclosure was not a wrongful
act of the banks and, therefore, could not be the basis of any
award of damages. There was no financial restructuring
agreement to speak of that could have constituted an
impediment to the exercise of the banks right to foreclose.
As correctly stated by Mr. Jose C. Sison, a member of the
Arbitration Committee who wrote a separate opinion:
1. The various loans and advances made by DBP and PNB to
MMIC have become overdue and remain unpaid. The fact that a
FRP was drawn up is enough to establish that MMIC has not
been complying with the terms of the loan
agreement. Restructuring simply connotes that the obligations
are past due that is why it is restructurable;
2. When MMIC thru its board and the stockholders agreed and
adopted the FRP, it only means that MMIC had been informed or
notified that its obligations were past due and that foreclosure is
forthcoming;
3. At that stage, MMIC also knew that PNB-DBP had the option of
either approving the FRP or proceeding with the
foreclosure. Cabarrus, who filed this case supposedly in behalf of
MMIC should have insisted on the FRP. Yet Cabarrus himself
opposed the FRP;
4. So when PNB-DBP proceeded with the foreclosure, it was done
without bad faith but with honest and sincere belief that
foreclosure was the only alternative; a decision further explained
by Dr. Placido Mapa who testified that foreclosure was, in the
judgment of PNB, the best move to save MMIC itself.
Q : Now in this portion of Exh. L which was marked as Exh. L-
1, and we adopted as Exh. 37-A for the respondent,
may I know from you, Dr. Mapa what you meant by that
the decision to foreclose was neither precipitate nor
arbitrary?
A : Well, it is not a whimsical decision but rather decision
arrived at after weighty considerations of the
information that we have received, and listening to the
prospects which reported to us that we had assumed
would be the premises of the financial rehabilitation
plan was not materialized nor expected to materialized.
Q : And this statement that it was premised upon the known
fact that means, it was referring to the decision to
foreclose, was premised upon the known fact that the
rehabilitation plan earlier approved by the stockholders
was no longer feasible, just what is meant by no longer
feasible?
A : Because the revenue that they were counting on to make
the rehabilitation plan possible, was not anymore
expected to be forthcoming because it will result in a
short fall compared to the prices that were actually
taking place in the market.
Q : And I supposed that was you were referring to when you
stated that the production targets and assumed prices
of MMICs products, among other projections, used in
the financial reorganization program that will make it
viable were not met nor expected to be met?
8
A : Yes.
xxx
Which brings me to my last point in this separate opinion. Was
PNB and DBP absolutely unjustified in foreclosing the
mortgages?
In this connection, it can readily be seen and it cannot quite be
denied that MMIC accounts in PNB-DBP were past due. The
drawing up of the FRP is the best proof of this. When MMIC
these loans were already due and unpaid. If these loans were
restructurable because they were already due and unpaid, they
are likewise forecloseable. The option is with the PNB-DBP on
what steps to take.
The mere fact that MMIC adopted the FRP does not mean that
DBP-PNB lost the option to foreclose. Neither does it mean that
the FRP is legally binding and implementable. It must be pointed
that said FRP will, in effect, supersede the existing and past due
loans of MMIC with PNB-DBP. It will become the new loan
agreement between the lenders and the borrowers. As in all
other contracts, there must therefore be a meeting of minds of
the parties; the PNB and DBP must have to validly adopt and
ratify such FRP before they can be bound by it; before it can be
implemented. In this case, not an iota of proof has been
presented by the PLAINTIFFS showing that PNB and DBP ratified
and adopted the FRP. PLAINTIFFS simply relied on a legal
doctrine of promissory estoppel to support its allegation in this
regard.[42]
Moreover, PNB and DBP had to initiate foreclosure
proceedings as mandated by P.D. No. 385, which took effect on
January 31, 1974. The decree requires government financial
institutions to foreclose collaterals for loans where the
arrearages amount to 20% of the total outstanding
obligations. The pertinent provisions of said decree read as
follows:
SEC. 1. It shall be mandatory for government financial
institutions, after the lapse of sixty (60) days from the issuance
of this Decree to foreclose the collaterals and/or securities for
any loan, credit, accommodations, and/or guarantees granted
by them whenever the arrearages on such account, including
accrued interest and other charges, amount to at least twenty
percent (20%) of the total outstanding obligations, including
interest and other charges, as appearing in the books of account
and/or related records of the financial institutions
concerned. This shall be without prejudice to the exercise by the
government financial institutions of such rights and/or remedies
available to them under their respective contracts with their
debtor, including the right to foreclosure on loans, credits,
accommodations and/or guarantees on which the arrearages are
less than twenty percent (20%).
SEC. 2. No restraining order, temporary or permanent injunction
shall be issued by the court against any government financial
institution in any action taken by such institution in compliance
with the mandatory foreclosure provided in Section 1 hereof,
whether such restraining order, temporary or permanent
injunction is sought by the borrower(s) or any third party or
parties, except after due hearing in which it is established by the
borrower and admitted by the government financial institution
concerned that twenty percent (20%) of the outstanding
arrearages has been paid after the filing of foreclosure
proceedings. (Underscoring supplied.)
Private respondents thesis that the foreclosure proceedings
were null and void because of lack of publication in the
newspaper is nothing more than a mere unsubstantiated
allegation not borne out by the evidence. In any case, a
disputable presumption exists in favor of petitioner that official
duty has been regularly performed and ordinary course of
business has been followed.[43]
VI
Not only was the foreclosure rightfully exercised by the
PNB and DBP, but also, from the facts of the case, the

arbitrators in making the award went beyond the arbitration
agreement.
In their complaint filed before the trial court, private
respondent Cabarrus, et al. prayed for judgment in their favor:
1. Declaring the foreclosure effected by the defendants DBP and
PNB on the assets of MMIC null and void and directing said
defendants to restore the foreclosed assets to the possession of
MMIC, to render an accounting of their use and/or operation of
said assets and to indemnify MMIC for the loss occasioned by its
dispossession or the deterioration thereof;
2. Directing the defendants DBP and PNB to honor and perform
their commitments under the financial reorganization plan which
was approved at the annual stockholders meeting of MMIC on 30
April 1984;
3. Condemning the defendants DBP and PNB, jointly and
severally to pay the plaintiffs actual damages consisting of the
loss of value of their investment amounting to not less
than P80,000,000.00, the damnum emerges and lucrum cessans
in such amount as may be establish during the trial, moral
damages in such amount as this Honorable Court may deem just
and equitable in the premises, exemplary damages in such
amount as this Honorable Court may consider appropriate for
the purpose of setting an example for the public good, attorneys
fees and litigation expenses in such amounts as may be proven
during the trial, and the costs legally taxable in this litigation.
Further, Plaintiffs pray for such other reliefs as may be just and
equitable in the premises.[44]
Upon submission for arbitration, the Compromise and
Arbitration Agreement of the parties clearly and explicitly
defined and limited the issues to the following:
(a) whether PLAINTIFFS have the capacity or the
personality to institute this derivative suit in behalf of the
MMIC or its directors;
(b) whether or not the actions leading to, and including,
the PNB-DBP foreclosure of the MMIC assets were proper,
valid and in good faith.[45]
Item No. 8 of the Agreement provides for the period by
which the Committee was to render its decision, as well as the
nature thereof:
8. Decision. The committee shall issue a decision on the
controversy not later than six (6) months from the date of its
constitution.
In the event the committee finds that PLAINTIFFS have the
personality to file this suit and extra-judicial foreclosure of the
MMIC assets wrongful, it shall make an award in favor of the
PLAINTIFFS (excluding DBP), in an amount as may be
established or warranted by the evidence which shall be payable
in Philippine Pesos at the time of the award. Such award shall be
paid by the APT or its successor-in-interest within sixty (60) days
from the date of the award in accordance with the provisions of
par. 9 hereunder. x x x. The PLAINTIFFS remedies under this
Section shall be in addition to other remedies that may be
available to the PLAINTIFFS, all such remedies being cumulative
and not exclusive of each other.
On the other hand, in case the arbitration committee finds that
PLAINTIFFS have no capacity to sue and/or that the extra-judicial
foreclosure is valid and legal, it shall also make an award in
favor of APT based on the counterclaims of DBP and PNB in an
amount as may be established or warranted by the
evidence. This decision of the arbitration committee in favor of
APT shall likewise finally settle all issues regarding the
foreclosure of the MMIC assets so that the funds held in escrow
mentioned in par. 9 hereunder will thus be released in full in
favor of APT.[46]
The clear and explicit terms of the submission
notwithstanding, the Arbitration Committee clearly exceeded its
powers or so imperfectly executed them: (a) in ruling on and
declaring valid the FRP; (b) in awarding damages to MMIC which
9
was not a party to the derivative suit; and (c) in awarding moral
damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.
The Arbitration Committee went beyond its mandate and
thus acted in excess of its powers when it ruled on the validity
of, and gave effect to, the proposed FRP.
In submitting the case to arbitration, the parties had
mutually agreed to limit the issue to the validity of the
foreclosure and to transform the reliefs prayed for therein into
pure money claims.
There is absolutely no evidence that the DBP and PNB
agreed, expressly or impliedly, to the proposed FRP. It cannot be
overemphasized that a FRP, as a contract, requires the consent
of the parties thereto.[47] The contract must bind both
contracting parties.[48] Private respondents even by their own
admission recognized that the FRP had yet not been carried out
and that the loans of MMIC had not yet been converted into
equity.[49]
However, the arbitration Committee not only declared the
FRP valid and effective, but also converted the loans of MMIC
into equity raising the equity of DBP to 87%.[50]
The Arbitration Committee ruled that there was a
commitment to carry out the FRP[51] on the ground of promissory
estoppel.
Similarly, the principle of promissory estoppel applies in the
present case considering as we observed, the fact that the
government (that is Alfredo Velayo) was the FRPs
proponent. Although the plaintiffs are agreed that the
government executed no formal agreement, the fact remains
that the DBP itself which made representations that the FRP
constituted a way out for MMIC. The Committee believes that
although the DBP did not formally agree (assuming that the
board and stockholders approvals were not formal enough), it is
bound nonetheless if only for its conspicuous representations.
Although the DBP sat in the board in a dual capacity-as holder of
36% of MMICs equity (at that time) and as MMICs creditor-the
DBP can not validly renege on its commitments simply because
at the same time, it held interest against the MMIC.
The fact, of course, is that as APT itself asserted, the FRP was
being carried out although apparently, it would supposedly fall
short of its targets. Assuming that the FRP would fail to meet its
targets, the DBP-and so this Committee holds-can not, in any
event, brook any denial that it was bound to begin with, and the
fact is that adequate or not (the FRP), the government is still
bound by virtue of its acts.
The FRP, of course, did not itself promise a resounding success,
although it raised DBPs equity in MMIC to 87%. It is not excuse,
however, for the government to deny its commitments.[52]
Atty. Sison, however, did not agree and correctly observed
that:
But the doctrine of promissory estoppel can hardly find
application here. The nearest that there can be said of any
estoppel being present in this case is the fact that the board of
MMIC was, at the time the FRP was adopted, mostly composed
of PNB and DBP representatives. But those representatives,
singly or collectively, are not themselves PNB or DBP. They are
individuals with personalities separate and distinct from the
banks they represent. PNB and DBP have different boards with
different members who may have different decisions. It is unfair
to impose upon them the decision of the board of another
company and thus pin them down on the equitable principle of
estoppel. Estoppel is a principle based on equity and it is
certainly not equitable to apply it in this particular
situation. Otherwise the rights of entirely separate, distinct and
autonomous legal entities like PNB and DBP with thousands of
stockholders will be suppressed and rendered nugatory.[53]
As a rule, a corporation exercises its powers, including the
power to enter into contracts, through its board of
directors. While a corporation may appoint agents to enter into

a contract in its behalf, the agent, should not exceed his
authority.[54] In the case at bar, there was no showing that the
representatives of PNB and DBP in MMIC even had the requisite
authority to enter into a debt-for-equity swap. And if they had
such authority, there was no showing that the banks, through
their board of directors, had ratified the FRP.
Further, how could the MMIC be entitled to a big amount of
moral damages when its credit reputation was not exactly
something to be considered sound and wholesome. Under
Article 2217 of the Civil Code, moral damages include
besmirched reputation which a corporation may possibly
suffer. A corporation whose overdue and unpaid debts to the
Government alone reached a tremendous amount of P22 Billion
Pesos cannot certainly have a solid business reputation to brag
about. As Atty. Sison in his separate opinion persuasively put it:
Besides, it is not yet a well settled jurisprudence that
corporations are entitled to moral damages. While the Supreme
Court may have awarded moral damages to a corporation for
besmirched reputation in Mambulao vs. PNB 22 SCRA 359, such
ruling cannot find application in this case. It must be pointed out
that when the supposed wrongful act of foreclosure was done,
MMICs credit reputation was no longer a desirable one. The
company then was already suffering from serious financial crisis
which definitely projects an image not compatible with good and
wholesome reputation. So it could not be said that there was a
reputation besmirches by the act of foreclosure.[55]
The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a
party to the derivative suit.
Civil Code No. 9900 filed before the RTC being a derivative
suit, MMIC should have been impleaded as a party. It was not
joined as a party plaintiff or party defendant at any stage of the
proceedings. As it is, the award of damages to MMIC, which was
not a party before the Arbitration Committee, is a complete
nullity.
Settled is the doctrine that in a derivative suit, the
corporation is the real party in interest while the stockholder
filing suit for the corporations behalf is only nominal party. The
corporation should be included as a party in the suit.
An individual stockholder is permitted to institute a derivative
suit on behalf of the corporation wherein he holds stock in order
to protect or vindicate corporate rights, whenever the officials of
the corporation refuse to sue, or are the ones to be sued or hold
the control of the corporation. In such actions, the suing
stockholder is regarded as a nominal party, with the corporation
as the real party in interest. x x x.[56]
It is a condition sine qua non that the corporation be
impleaded as a party because-
x x x. Not only is the corporation an indispensible party, but it is
also the present rule that it must be served with process. The
reason given is that the judgment must be made binding upon
the corporation and in order that the corporation may get the
benefit of the suit and may not bring a subsequent suit against
the same defendants for the same cause of action. In other
words the corporations must be joined as party because it is its
cause of action that is being litigated and because judgment
must be a res ajudicata against it.[57]
The reasons given for not allowing direct individual suit
are:
(1) x x x the universally recognized doctrine that a stockholder
in a corporation has no title legal or equitable to the corporate
property; that both of these are in the corporation itself for the
benefit of the stockholders. In other words, to allow
shareholders to sue separately would conflict with the separate
corporate entity principle;
(2) x x x that the prior rights of the creditors may be
prejudiced. Thus, our Supreme Court held in the case
10
of Evangelista v. Santos, that the stockholders may not directly
claim those damages for themselves for that would result in the
appropriation by, and the distribution among them of part of the
corporate assets before the dissolution of the corporation and
the liquidation of its debts and liabilities, something which
cannot be legally done in view of section 16 of the Corporation
Law xxx;
(3) the filing of such suits would conflict with the duty of the
management to sue for the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in a ascertaining the effect of
partial recovery by an individual on the damages recoverable by
the corporation for the same act.[58]
If at all an award was due MMIC, which it was not, the
same should have been given sans deduction, regardless of
whether or not the party liable had equity in the corporation, in
view of the doctrine that a corporation has a personality
separate and distinct from its individual stockholders or
members. DBPs alleged equity, even if it were indeed 87%, did
not give it ownership over any corporate property, including the
monetary award, its right over said corporate property being a
mere expectancy or inchoate right.[59]Notably, the stipulation
even had the effect of prejudicing the other creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.
It is perplexing how the Arbitration Committee can in one
breath rule that the case before it is a derivative suit, in which
the aggrieved party or the real party in interest is supposedly
the MMIC, and at the same time award moral damages to an
individual stockholder, to wit:
WHEREFORE, premises considered, judgment is hereby
rendered:
xxx.
3. Ordering the defendant to pay to the plaintiff, Jesus S.
Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it, pursuant to
paragraph (9), Compromise and Arbitration Agreement, as and
for moral damages; x x x[60]
The majority decision of the Arbitration Committee sought
to justify its award of moral damages to Jesus S. Cabarrus, Sr. by
pointing to the fact that among the assets seized by the
government were assets belonging to Industrial Enterprise Inc.
(IEI), of which Cabarrus is the majority stockholder. It then
acknowledge that Cabarrus had already recovered said assets in
the RTC, but that he won no more than actual damages. While
the Committee cannot possibly speak for the RTC, there is no
doubt that Jesus S. Cabarrus, Sr., suffered moral damages on
account of that specific foreclosure, damages the Committee
believes and so holds, he Jesus S. Cabarrus, Sr., may be awarded
in this proceeding.[61]
Cabarrus cause of action for the seizure of the assets
belonging to IEI, of which he is the majority stockholder, having
been ventilated in a complaint he previously filed with the RTC,
from which he obtained actual damages, he was barred res
judicata from filing a similar case in another court, this time
asking for moral damages which he failed to get from the earlier
case.[62] Worse, private respondents violated the rule against
non-forum shopping.
It is a basic postulate that s corporation has a personality
separate and distinct from its stockholders. [63] The properties
foreclosed belonged to MMIC, not to its stockholders. Hence, if
wrong was committed in the foreclosure, it was done against the
corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot
directly claim those damages for himself that would result in the
appropriation by, and the distribution to, him part of the
corporations assets before the dissolution of the corporation and
the liquidation of its debts and liabilities. The Arbitration
Committee, therefore, passed upon matters not submitted to

it.Moreover, said cause of action had already been decided in a
separate case. It is thus quite patent that the arbitration
committee exceeded the authority granted to it by the parties
Compromise and Arbitration Agreement by awarding moral
damages to Jesus S. Cabarrus, Sr.
Atty. Sison, in his separate opinion, likewise expressed
befuddlement to the award of moral damages to Jesus S.
Cabarrus, Sr.:
It is clear and it cannot be disputed therefore that based on
these stipulated issues, the parties themselves have agreed that
the basic ingredient of the causes of action in this case is the
wrong committed on the corporation (MMIC) for the alleged
illegal foreclosure of its assets. By agreeing to this
stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that
the cause of action pertains only to the corporation (MMIC) and
that they are filing this for and in behalf of MMIC.
Perforce this has to be so because it is the basic rule in
Corporation Law that the shareholders have no title, legal or
equitable to the property which is owned by the corporation (13
Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons
vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated
that a stockholder is not the co-owner of corporate
property. Since the property or assets foreclosed belongs [sic] to
MMIC, the wrong committed, if any, is done against the
corporation. There is therefore no direct injury or direct violation
of the rights of Cabarrus et al. There is no way, legal or
equitable, by which Cabarrus et al. could recover damages in
their personal capacities even assuming or just because the
foreclosure is improper or invalid. The Compromise and
Arbitration Agreement itself and the elementary principles of
Corporation Law say so. Therefore, I am constrained to dissent
from the award of moral damages to Cabarrus.[64]
From the foregoing discussions, it is evident that, not only
did the arbitration committee exceed its powers or so
imperfectly execute them, but also, its findings and conclusions
are palpably devoid of any factual basis and in manifest
disregard of the law.
We do not find it necessary to remand this case to the RTC
for appropriate action. The pleadings and memoranda filed with
this Court, as well as in the Court of Appeals, raised and
extensively discussed the issues on the merits. Such being the
case, there is sufficient basis for us to resolve the controversy
between the parties anchored on the records and the pleadings
before us.[65]
WHEREFORE, the Decision of the Court of Appeals dated
July 17, 1995, as well as the Orders of the Regional Trial Court of
Makati, Branch 62, dated November 28, 1994 and January 19,
1995, is hereby REVERSED and SET ASIDE, and the decision of
the Arbitration Committee is hereby VACATED.
SO ORDERED
THIRD DIVISION[G.R. No. 121227. August 17, 1998]
VICENTE SAN JOSE, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and OCEAN TERMINAL
SERVICES, INC., respondents.
PURISIMA, J.:
Before the Court is a Petition for Certiorari seeking to annul
a Decision of the National Labor Relations Commission dated
April 20, 1995 in NLRC-NCR-CA-No. 00671-94 which reversed, on
jurisdictional ground, a Decision of the Labor Arbiter dated
January 19, 1994 in NLRC-NCR Case No. 00-03-02101-93 a case
for a money claim - underpayment of retirement
benefit. Records do not show that petitioner presented a Motion
for Reconsideration of subject Decision of the National Labor
Relations Commission, which motion is, generally required
before the filing of Petition for Certiorari.
While the rule prescribing the requisite motion for
reconsideration is not absolute and recognizes some exceptions,
11
there is no showing that the case at bar constitutes an
exception. Nevertheless, we gave due course to the petition to
enable the Court to reiterate and clarify the jurisdictional
boundaries between Labor Arbiters and Voluntary Arbitrator or
Panel of Voluntary Arbitrators over money claims, and to render
substantial and speedy justice to subject aged stevedore retiree
who first presented his claim for retirement benefit in April 1991,
or seven years ago.
Labor law practitioners and all lawyers, for that
matter, should be fully conversant with the requirements for the
institution of certiorari proceedings under Rule 65 of the Revised
Rules of Court. For instance, it is necessary that a Motion for
Reconsideration of the Decision of the National Labor Relations
Commission must first be resorted to. The ruling in Corazon
Jamer v. National Labor Relations Commission, G.R. No. 112630,
September 5, 1997, comes to the fore and should be well
understood and observed. An ordinary allegation ... and there is
no appeal, nor any plain, speedy, and adequate remedy in the
ordinary course of law (Rule 65, Sec. 1, Revised Rules of Court)
is not a foolproof substitute for a Motion for Reconsideration,
absence of which can be fatal to a Petition
for Certiorari. Petitioner cannot and should not rely on the
liberality of the Court simply because he is a working man.
In the Jamer case, this court said:
... This premature action of petitioners constitutes a fatal
infirmity as ruled in a long line of decisions, most recently is the
case of Building Care Corporation v. National Labor Relations
Commission
The filing of such motion is intended to afford public respondent
an opportunity to correct any actual or fancied error attributed
to it by way of a re-examination of the legal and factual aspects
of the case. Petitioners inaction or negligence under the
circumstances is tantamount to a deprivation of the right and
opportunity of the respondent commission to cleanse itself of an
error unwittingly committed or to vindicate itself of an act
unfairly imputed...
Likewise, a motion for reconsideration is an adequate remedy;
hence certiorari proceedings, as in this case, will not prosper.
As stated in the Decision of the Labor Arbiter in NLRC-NCR-
Case No. 00-03-0201-93, dated January 19, 1994, the facts of
this case are undisputed. The Labor Arbiter reported, thus:
Complainant, in his position paper (Record, pages 11 to
14) states that he was hired sometime in July 1980 as a
stevedore continuously until he was advised in April 1991 to
retire from service considering that he already reached 65 years
old (sic); that accordingly, he did apply for retirement and was
paid P3,156.39 for retirement pay... (Rollo, pp. 15, 26-27, 58-
59).
Decision of the Labor Arbiter in NLRC-NCR-Case No. 00-03-
02101-93, January 9, 1994 (Rollo, pp. 15017, at pp. 16-17).
The Labor Arbiter decided the case solely on the merits of
the complaint. Nowhere in the Decision is made mention of or
reference to the issue of jurisdiction of the Labor Arbiter (Rollo,
pp. 15-17). But the issue of jurisdiction is the bedrock of the
Petition because, as earlier intimated, the Decision of the
National Labor Relations Commission, hereinbelow quoted,
reversed the Labor Arbiters Decision on the issue of
jurisdiction. Reads subject Decision of the Labor Arbiter:
Respondents, in their Reply to complainants position paper,
allege (Record, pages 18 to 21) that complainants latest basic
salary was P120.34 per day; that he only worked on rotation
basis and not seven days a week due to numerous stevedores
who can not all be given assignments at the same time; that all
stevedores only for paid every time they were assigned or

actually performed stevedoring; that the computation used in
arriving at the amount of P3,156.30 was the same computation
applied to the other stevedores; that the use of divisor 303 is
not applicable because complainant performed stevedoring job
only on call, so while he was connected with the company for
the past 11 years, he did not actually render 11 years of service;
that the burden of proving that complainants latest salary
was P200.00 rests upon him; that he already voluntarily signed
a waiver of quitclaim; that if indeed respondent took advantage
of his illiteracy into signing his quitclaim, he would have
immediately filed this complaint but nay, for it took him
two (2) years to do so.
The issue therefore is whether or not complainant is entitled to
the claimed differential of separation pay.
We find for the complainant. He is entitled to differential.
We cannot sustain a computation of length of service based on
the ECC contribution records. Likewise, the allegation that
complainant rendered service for only five days a month for the
past 11 years is statistically improbable, aside from the fact that
the best evidence thereof are complainants daily time records
which respondent are (sic) duty bound to keep and make
available anytime in case of this.
The late filing has no bearing. The prescription period is three
years. It is suffice (sic) that the filing falls within the period.
Whether or not complainant worked on rotation basis is a
burden which lies upon the employer. The presumption is that
the normal working period is eight (8)hours a day and
six (6) days a week, or 26 days a month, unless proven
otherwise.
Also, the burden of proving the amount of salaries paid to
employees rests upon the employer not on the employee. It can
be easily proven by payrolls, vouchers, etc. which the employers
are likewise duty bound to keep and present. There being non,
we have to sustain complainants assertion that his latest salary
rate was P200 a day or P5,200 a month. Therefore, his
retrenchment pay differential is P25,443.70 broken down as
follows:
P200 x 26 days = P5,200 x 11 years
2
= (P2,600 x 11 years) - P3,156.30
= P28,600 - P3,156.30
= P25,443.70
The Decision of the National Labor Relations Commission in
NLRC-NCR-CA No. 06701-94, April 20, 1995 (Rollo, pp. 18-21).
The National Labor Relations Commission reversed on
jurisdictional ground the aforesaid Decision of the Labor Arbiter;
ruling, as follows:
... His claim for separation pay differential is based on the
Collective Bargaining Agreement (CBA) between his union and
the respondent company, the pertinent portion of which reads:
xxx ANY UNION member shall be compulsory retired (sic) by the
company upon reaching the age of sixty (60) years, unless
otherwise extended by the company for justifiable reason. He
shall be paid his retirement pay equivalent to one-
half (1/2) month salary for every year of service, a fraction of at
least six months being considered as one (1) whole year.
12
xxx The company agrees that in case of casual employees
and/or workers who work on rotation basis the criterion for
determining their retirement pay shall be 303 rotation calls or
work days as equivalent to one (1) year and shall be paid their
retirement pay equivalent to one half (1/2) month for every year
of service.
xxx
Since the instant case arises from interpretation or
implementation of a collective bargaining agreement, the Labor
Arbiter should have dismissed it for lack of jurisdiction in
accordance with Article 217 (c) of the Labor Code, which
reads: (Underscoring supplied)
Art. 217. Jurisdiction of Labor Arbiter and the Commission.
xxx
(c) Cases arising from the interpretation or implementation of
collective bargaining agreement and those arising from the
interpretation or enforcement of company procedure/policies
shall be disposed of by the Labor Arbiter by referring the same
to the grievance machinery and voluntary arbitrator as may be
provided in said agreements.
Petitioner contends that:
I. THE PUBLIC RESPONDENT NLRC GRAVELY ABUSED ITS
DISCRETION IN GIVING DUE COURSE TO THE APPEAL
DESPITE THE FACT 4 (SIC) THAT IT WAS FILED OUT OF
TIME AND THERE IS NO SHOWING THAT A SURETY BOND
WAS POSTED.
II. THE PUBLIC RESPONDENT NLRC GRAVELY ABUSED ITS
DISCRETION N SETTING ASIDE THE DECISION OF XXX
DATED 19 JANUARY 1994 AND DISMISSING THE CASE ON
THE GROUND OF LACK OF JURISDICTION WHEN THE
ISSUE DOES NOT INVOLVE ANY PROVISION OF THE
COLLECTIVE BARGAINING AGREEMENT. (Rollo, pp. 7-8)
The Manifestation and Motion (In Lieu of Comment) sent in
on December 6, 1995 by the Office of the Solicitor General
support the second issue, re: jurisdiction raised by the Petitioner
(Rollo, pp. 26-33, at pp. 38-32).
Labor Arbiter Decision
Labor Arbiters should exert all efforts to cite statutory
provisions and/or judicial decision to buttress their
dispositions. An Arbiter cannot rely on simplistic statements,
generalizations, and assumptions. These are not substitutes for
reasoned judgment. Had the Labor Arbiter exerted more
research efforts, support for the Decision could have been found
in pertinent provisions of the Labor Code, its Implementing
Rules, and germane decisions of the Supreme Court. As this
Court said in Juan Saballa, et al. v. NLRC, G.R. No. 102472-84,
August 22, 1996:
xxx This Court has previously held that judges and arbiters
should draw up their decisions and resolutions with due care,
and make certain that they truly and accurately reflect their
conclusions and their final dispositions. A decision should
faithfully comply with Section 14, Article VIII of the Constitution
which provides that no decision shall be rendered by any court
without expressing therein clearly and distinctly the facts of the
case and the law on which it is based. If such decision had to be
completely overturned or set aside, upon the modified decision,
such resolution or decision should likewise state the factual and
legal foundation relied upon. The reason for this is
obvious: aside from being required by the Constitution, the court
should be able to justify such a sudden change of course; it
must be able to convincingly explain the taking back of its

solemn conclusions and pronouncements in the earlier
decision. The same thing goes for the findings of fact made by
the NLRC, as it is a settled rule that such findings are entitled to
great respect and even finality when supported by substantial
evidence; otherwise, they shall be struck down for being
whimsical and capricious and arrived at with grave abuse of
discretion. It is a requirement of due process and fair play that
the parties to a litigation be informed of how it was decided,
with an explanation of the factual and legal reasons that led to
the conclusions of the court.A decision that does not clearly and
distinctly state the facts and the law on which it is based leaves
the parties in the dark as to how it was reached and is especially
prejudicial to the losing party, who is unable to pinpoint the
possible errors of the court for review by a higher tribunal. xxx
This is not an admonition but rather, advice and a critique
to stress that both have obligations to the Courts and students
of the law. Decisions of the Labor Arbiters, the National Labor
Relations Commission, and the Supreme Court serve not only to
adjudicate disputes, but also as an educational tool to
practitioners, executives, labor leaders and law students. They
all have a keen interest in methods of analysis and the
reasoning processes employed in labor dispute adjudication and
resolution. In fact, decisions rise or fall on the basis of the
analysis and reasoning processes of decision makers or
adjudicators.
On the issues raised by the Petitioner, we rule:
I. Timeliness of Appeal And Filing of Appeal Bond
The Court rules that the appeal of the respondent
corporation was interposed within the reglementary period, in
accordance with the Rules of the National Labor Relations
Commission, and an appeal bond was duly posted. We adopt the
following Comment dated August 14, 1996, submitted by the
National Labor Relations Commission, to wit:
xxx While it is true that private respondent company received a
copy of the decision dated January 19, 1994 of the Labor Arbiter
xxx and filed its appeal on February 14, 1994, it is undisputed
that the tenth day within which to file an appeal fell on a
Saturday, the last day to perfect an appeal shall be the next
working day.
Thus, the amendments to the New Rules of Procedure of the
NLRC, Resolution No. 11-01-91 which took effect on January 14,
1992, provides in part:
xxx
1. Rule VI, Sections 1 and 6 are hereby amended to read as
follows:
Section 1. Period of Appeal Decisions, awards or orders of the
Labor Arbiter ... shall be final and executory unless appealed to
the Commission by any or both parties within ten (10) calendar
days from receipt of such decisions, awards or orders of the
Labor Arbiter xxx ... If the 10th day ... falls on a Saturday, Sunday
or a Holiday, the last day to perfect the decision shall be the
next working day. (Underscoring supplied)
Hence, it is crystal clear that the appeal was filed within the
prescriptive period to perfect an appeal. Likewise, the
petitioners contention that private respondent did not post the
required surety bond, deserves scant consideration, for the
simple reason that a surety bond was issued by BF General
Insurance Company, Inc., in the amount of P25, 443.70 (Rollo,
pp. 63-64).
2. Jurisdictional Issue
13
The jurisdiction of Labor Arbiters and Voluntary Arbitrator or
Panel of Voluntary Arbitrators is clearly defined and specifically
delineated in the Labor Code.The pertinent provisions of the
Labor Code, read:
A. Jurisdiction of Labor Arbiters
Art. 217. Jurisdiction of Labor Arbiter and the Commission. -- (a)
Except as otherwise provided under this Code the Labor Arbiter
shall have original and exclusive jurisdiction to hear and decide,
within thirty (30) calendar days after the submission of the case
by the parties for decision without extension, even in the
absence of stenographic notes, the following cases involving all
workers, whether agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases
that workers may file involving wages, rates of pay, hours of
work and other terms and conditions of employment;
4. claims for actual, moral, exemplary and other forms of
damages arising from the employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code,
including questions involving the legality of strikes and lockouts;
and,
6. Except claims for Employees Compensation, Social Security,
Medicare and maternity benefits, all other claims, arising from
employer-employee relations, including those of persons in
domestic or household service, involving an amount exceeding
five thousand pesos (P5,000) regardless of whether
accompanied with a claim for reinstatement.
xxx
(c) Cases arising from the interpretation or implementation of
collective bargaining agreement and those arising from the
interpretation or enforcement of company procedure/policies
shall be disposed of by the Labor Arbiter by referring the same
to the grievance machinery and voluntary arbitrator so maybe
provided in said agreement.
B. Jurisdiction of Voluntary Arbitrator or Panel of Voluntary
Arbitrators
Art. 261. Jurisdiction of Voluntary Arbitrators or panel of
Voluntary Arbitrators. The Voluntary Arbitrator or panel of
Voluntary Arbitrators shall have original and exclusive
jurisdiction to hear and decide all unresolved grievances arising
from the interpretation or implementation of the Collective
Bargaining Agreement and those arising from the interpretation
or enforcement of company personnel policies referred to in the
immediately preceding article. Accordingly, violations of a
Collective Bargaining Agreement, except those which are gross
in character, shall no longer be treated as unfair labor practice
and shall be resolved as grievances under the collective
bargaining agreement. For purposes of this Article, gross
violations of Collective Bargaining Agreement shall mean
flagrant and/or malicious refusal to comply with the economic
provisions of such agreement.
The Commission, its Regional Offices and the Regional Directors
of the Department of Labor and Employment shall not entertain
disputes, grievances or matters under the exclusive and original
jurisdiction of the Voluntary Arbitrator or panel of Voluntary
Arbitrators and shall immediately dispose and refer the same to
the Grievance Machinery or Voluntary Arbitration provided in the
Collective Bargaining Agreement.

Art. 262. Jurisdiction over other labor disputes. The Voluntary
Arbitrator or panel of Voluntary Arbitrators, upon agreement of
the parties, shall also hear and decide all other labor disputes
including unfair labor practices and bargaining deadlocks.
The aforecited provisions of law cannot be read in isolation
or separately. They must be read as a whole and each Article of
the Code reconciled one with the other. An analysis of the
provisions of Articles 217, 261, and 262 indicates, that:
1. The jurisdiction of the Labor Arbiter and Voluntary
Arbitrator or Panel of Voluntary Arbitrators over the
cases enumerated in Articles 217, 261 and 262, can
possibly include money claims in one form or another.
2. The cases where the Labor Arbiters have original and
exclusive jurisdiction are enumerated in Article 217,
and that of the Voluntary Arbitrator or Panel of
Voluntary Arbitrators in Article 261.
3. The original and exclusive jurisdiction of Labor Arbiters
is qualified by an exception as indicated in the
introductory sentence of Article 217 (a), to wit:
Art. 217. Jurisdiction of Labor Arbiters ... (a) Except as otherwise
provided under this Code the Labor Arbiter shall have original
and exclusive jurisdiction to hear and decide ... the following
cases involving all workers...
The phrase Except as otherwise provided under this Code
refers to the following exceptions:
A. Art. 217. Jurisdiction of Labor Arbiters ...
xxx
(c) Cases arising from the interpretation or implementation of
collective bargaining agreement and those arising from the
interpretation or enforcement of company procedure/policies
shall be disposed of by the Labor Arbiter by referring the same
to the grievance machinery and voluntary arbitrator as may be
provided in said agreement.
B. Art. 262. Jurisdiction over other labor disputes. - The
Voluntary Arbitrator or panel of Voluntary Arbitrators, upon
agreement of the parties, shall also hear and decide all other
labor disputes including unfair labor practices and bargaining
deadlocks.
Parenthetically, the original and exclusive jurisdiction of the
Labor Arbiter under Article 217 (c), for money claims is limited
only to those arising from statutes or contracts other than a
Collective Bargaining Agreement. The Voluntary Arbitrator or
Panel of Voluntary Arbitrators will have original and exclusive
jurisdiction over money claims arising from the interpretation or
implementation of the Collective Bargaining Agreement and,
those arising from the interpretation or enforcement of company
personnel policies, under Article 261.
4. The jurisdiction of Voluntary Arbitrator or Panel of
Voluntary Arbitrators is provided for in Arts. 261 and
262 of the Labor Code as indicated above.
1. A close reading of Article 261 indicates that the original
and exclusive jurisdiction of Voluntary Arbitrator or Panel of
Voluntary Arbitrators is limited only to:
... unresolved grievances arising from the interpretation or
implementation of the Collective Bargaining Agreement and
those arising from the interpretation or enforcement of company
personnel policies... Accordingly, violations of a collective
bargaining agreement, except those which are gross in
character, shall no longer be treated as unfair labor practice and
14
shall be resolved as grievances under the Collective Bargaining
Agreement. xxx.
2. Voluntary Arbitrators or Panel of Voluntary Arbitrators,
however, can exercise jurisdiction over any and all disputes
between an employer and a union and/or individual worker as
provided for in Article 262.
Art. 262. Jurisdiction over other labor disputes. - The voluntary
arbitrator or panel of voluntary arbitrators, upon agreement of
the parties, shall also hear and decide all other labor disputes
including unfair labor practices and bargaining deadlocks.
It must be emphasized that the jurisdiction of the Voluntary
Arbitrator or Panel of Voluntary Arbitrators under Article 262
must be voluntarily conferred upon by both labor and
management. The labor disputes referred to in the same Article
262 can include all those disputes mentioned in Article 217 over
which the Labor Arbiter has original and exclusive jurisdiction.
As shown in the above contextual and wholistic analysis of
Articles 217, 261, and 262 of the Labor Code, the National Labor
Relations Commission correctly ruled that the Labor Arbiter had
no jurisdiction to hear and decide petitioners money-
claim underpayment of retirement benefits, as the
controversy between the parties involved an issue arising from
the interpretation or implementation of a provision of the
collective bargaining agreement. The Voluntary Arbitrator or
Panel of Voluntary Arbitrators has original and exclusive
jurisdiction over the controversy under Article 261 of the Labor
Code, and not the Labor Arbiter.
3. Merits of the Case
The Court will not remand the case to the Voluntary
Arbitrator or Panel of Voluntary Arbitrators for hearing. This case
has dragged on far too long - eight (8) years. Any further delay
would be a denial of speedy justice to an aged retired
stevedore. There is further the possibility that any Decision by
the Voluntary Arbitrator or Panel of Voluntary Arbitrators will be
appealed to the Court of Appeals, and finally to this
Court. Hence, the Court will rule on the merits of the case.
We adopt as our own the retirement benefit computation
formula of the Labor Arbiter, and the reasons therefor as stated
in the decision abovequoted.
The simple statement of the Labor Arbiter that we cannot
sustain a computation of length of service based on ECC
contribution records, was not amply explained by the Labor
Arbiter; however, there is legal and factual basis for the same. It
is unrealistic to expect a lowly stevedore to know what reports
his employer submits to the Employees Compensation
Commission under Book IV, Health, Safety and Welfare Benefits,
Title II, Employees Compensation and State Insurance Fund, of
the Labor Code, simply because the insurance fund is solely
funded by the employer and the rate of employers contribution
varies according to time and actuarial
computations. (See Articles 183-184; Labor Code). The worker
has no ready access to this employers record. In fact, it is
farthest from his mind to inquire into the amount of employers
contribution, much less whether the employer remits the
contributions. The worker is at all times entitled to benefits upon
the occurrence of the defined contingency even when the
employer fails to remit the contributions. (See Article 196 (b),
Labor Code).
All employers are likewise required to keep an employment
record of all their employees, namely: payrolls; and time
records. (See Book III, Rule X, specifically Secs. 6,7,8, 1 and
12, Omnibus Rules - Implementing the Labor Code).
The respondent-employer was afforded the opportunity to
show proof of the petitioners length of service and pay

records. In both instances, the respondent-employer failed. By
its own folly, it must therefore suffer the consequences of such
failure. (South Motorists Enterprises v. Tosoc, 181 SCRA 386,
[1990]) From the very beginning - by the provision of the
retirement provision of the Collective Bargaining Agreement,
i.e., the length of service as requirement for retirement, and
salary as a basis for benefit computation - the employer was
forewarned of the need for accurate record keeping. This is
precisely the basis of retirement, and the computation of
benefits based on years of service and monthly wage.
To recapitulate; the Court hereby rules -
1. That the National Labor Relations Commission correctly
ruled that the Labor Arbiter had no jurisdiction over the
case, because the case involved an issue arising from
the interpretation or implementation of a Collective
Bargaining Agreement;
2. That the appeal to the National Labor Relations
Commission was filed within the reglementary period
and that the appeal bond was filed; and
3. That we adopt the computation formula for the
retirement benefits by the Labor Arbiter, and the basis
thereof. The respondent must therefore pay the
petitioner the additional amount of Twenty-Five
Thousand Four Hundred Forty-Three and Seventy
Centavos P25,443.70) Pesos.
In view of the long delay in the disposition of the case, this
decision is immediately executory.
SO ORDERED.
FIRST DIVISION[G.R. No. 108001. March 15, 1996]
SAN MIGUEL CORPORATION, ANGEL G. ROA and MELINDA
MACARAIG, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION (Second Division),
LABOR ARBITER EDUARDO J. CARPIO, ILAW AT
BUKLOD NG MANGGAWA (IBM), ET
AL., respondents.
HERMOSISIMA, JR., J.:
In the herein petition for certiorari under
Rule 65, petitioners question the jurisdiction of the Labor Arbiter
to hear a complaint for unfair labor practice, illegal dismissal,
and damages, notwithstanding the provision for grievance and
arbitration in the Collective Bargaining Agreement.
Let us unfurl the facts.
Private respondents, employed by petitioner San Miguel
Corporation (SMC) as mechanics, machinists, and carpenters,
were and still are, bona fide officers and members of private
respondent Ilaw at Buklod ng Manggagawa.
On or about July 31, 1990, private respondents were
served a Memorandum from petitioner Angel G. Roa, Vice-
President and Manager of SMCs Business Logistics Division
(BLD), to the effect that they had to be seperated from the
service effective October 31, 1990 on the ground of redundancy
or excesss personnel. Respondent union, in behalf of private
respondents, opposed the intended dismissal and asked for a
dialogue with management.
Accordingly, a series of dialogues were held between
petitioners and private respondents. Even before the conclusion
of said dialogues, the aforesaid petitioner Angel Roa issued
another Memorandum on October 1, 1990 informing private
respondents that they would be dismissed from work effective
15
as of the close of business hours on November 2, 1990. Private
respondents were in fact purged on the date aforesaid.
Thus, on February 25, 1991, private respondents filed a
complaint against petitioners for Illegal Dismissal and Unfair
Labor Practices, with a prayer for damages and attorneys fees,
with the Arbitration Branch of respondent National Labor
Relations Commission. The complaint[1] was assigned to Labor
Arbiter Eduardo F. Carpio for hearing and proper disposition.
On April 15, 1991, petitioners filed a motion to dismiss the
complaint, alleging that respondent Labor Arbiter had no
jurisdiction over the subject matter of the complaint, and that
respondent Labor Arbiter must defer consideration of the unfair
labor practice complaint until after the parties have gone
through the grievance procedure provided for in the existing
Collective Bargaining Agreement (CBA). Respondent Labor
Arbiter denied this motion in a Resolution, dated September 23,
1991.
The petitioners appealed the denial to respondent
Commission on November 8, 1991. Unimpressed by the grounds
therefor, respondent Commission dismissed the appeal in its
assailed Resolution, dated August 11, 1992. Petitioners promptly
filed a Motion for Reconsideration which, however, was denied
through the likewise assailed Resolution, dated October 29,
1992.
Hence, the instant petition for certiorari alleging the
following grounds was filed by the petitioners:
I.
RESPONDENT LABOR ARBITER CANNOT EXERCISE JURISDICTION
OVER THE ALLEGED ILLEGAL TERMINATION AND ALLEGED ULP
CASES WITHOUT PRIOR RESORT TO GRIEVANCE AND
ARBITRATION PROVIDED UNDER THE CBA.
II
THE STRONG STATE POLICY ON THE PROMOTION OF VOLUNTARY
MODES OF SETTLEMENT OF LABOR DISPUTES CRAFTED IN THE
CONSTITUTION AND THE LABOR CODE DICTATES THE
SUBMISSION OF THE CBA DISPUTE TO GRIEVANCE AND
ARBITRATION.[2]
Petitioners posit the basic principle that a collective
bargaining agreement is a contract between management and
labor that must bind and be enforced in the first instance as
between the parties thereto. In this case, the CBA between the
petitioners and respondent union provides, under Section 1,
Article V entitled ARBITRATION, that wages, hours of work,
conditions of employment and/or employer-employee relations
shall be settled by arbitration. Petitioners thesis is that the
dispute as to the termination of the union members and the
unfair labor practice should first be settled by arbitration, and
not directly by the labor arbiter, following the above provision of
the CBA, which ought to be treated as the law between the
parties thereto.
The argument is unmeritorious. The law in point is Article
217 (a) of the Labor Code. It is elementary that this law is
deemed written into the CBA. In fact, the law speaks in plain and
unambiguous terms that termination disputes, together with
unfair labor practices, are matters falling under the original and
exclusive jurisdiction of the Labor Arbiter, to wit:
Article 217. Jurisdiction of Labor Arbiters and the Commission -
(a) Except as otherwise provided under this Code, the Labor
Arbiters shall have original and exclusive jurisdiction to hear and
decide x x x the following cases involving all workers, whether
agricultural or non-agricultural:

(1) Unfair labor practice cases:
(2) Termination disputes;
x x x x x x x x x.
The sole exception to the above rule can be found under Article
262 of the same Code, which provides:
Aricle 262. Jurisdiction over other labor disputes - The voluntary
arbitrator or panel of voluntary arbitrators, upon agreement of
the parties, shall also hear and decide all other labor disputes
including unfair labor practices and bargaining deadlocks. (As
added by R.A. 6715)
We subjected the records of this case, particularly the CBA, to
meticulous scrutiny and we find no agreement between SMC
and the respondent union that would state in unequivocal
language that petitioners and the respondent union conform to
the submission of termination disputes and unfair labor
practices to voluntary arbitration. Section 1, Article V of the
CBA, cited by the herein petitioners, certainly does not provide
so. Hence, consistent with the general rule under Article 217 (a)
of the Labor Code, the Labor Arbiter properly has jurisdiction
over the complaint filed by the respondent union on February
25, 1991 for illegal dismissal and unfair labor practice.
Petitioners point however to Section 2, Article III of the
CBA, under the heading Job Security, to show that the dispute is
a proper subject of the grievance procedure, viz:
x x x The UNION, however, shall have the right to seek
reconsideration of any discharge, lay-off or disciplinary action,
and such requests for reconsideration shall be considered a
dispute or grievance to be dealt with in accordance with the
procedure outlined in Article IV hereof [on Grievance Machinery]
x x x[3] (Emphasis ours)
Petitioners allege that respondent union requested management
for a reconsideration and review of the companys decision to
terminate the employment of the union members. By this act,
petitioners argue, respondent union recognized that the
questioned dismissal is a grievable dispute by virtue of Section
2, Article III of the CBA. This allegation was strongly denied by
the respondent union. In a Memorandum filed for the public
respondent NLRC, the Solicitor General supported the position of
the respondent union that it did not seek reconsideration from
the SMC management in regard to the dismissal of the
employees.
Petitioners fail miserably to prove that, indeed, the
respondent union requested for a reconsideration or review of
the management decision to dismiss the private respondents. A
punctilious examination of the records indubitably reveals that
at no time did the respondent union exercise its right to seek
reconsideration of the companys move to terminate the
employment of the union members, which request for
reconsideration would have triggered the application of Section
2, Article III of the CBA, thus resulting in the treatment of the
dispute as a grievance to be dealt with in accordance with the
Grievance Machinery laid down in Article IV of, the CBA. Stated
differently, the filing of a request. for reconsideration by the
respondent union, which is the condition sine qua non to
categorize the termination dispute and the ULP complaint as a
grievable dispute, was decidedly absent in the case at
bench. Hence, the respondent union acted well within their
rights in filing their complaint for illegal dismissal and ULP
directly with the Labor Arbiter under Article 217 (a) of the Labor
Code.
Second. Petitioners insist that involved in the controversy
is the interpretation and implementation of the CBA which is
grievable and arbitrable by law under Article 217(c) of the Labor
Code, viz:
16
ART. 217(c). Cases arising from the interpretation or
implementation of collective bargaining agreements and those
arising from the interpretation or enforcement of company
personnel policies shall be disposed of by the Labor Arbiter by
referring the same to the grievance machinery and voluntary
arbitration as may be provided in said agreements. (As
amended by R.A. 6715).
Petitioners theorize that since respondents questioned the
discharges, the main question for resolution is whether SMC had
the management right or prerogative to effect the discharges on
the ground of redundancy, and this necessarily calls for the
interpretation or implementation of Article III (Job Security) in
relation to Article IV (Grievance Machinery)of the CBA.[4]
Petitioners theory does not hold water. There is no
connection whatsoever between SMCs management prerogative
to effect the discharges and the interpretation or
implementation of Articles III and IV of the CBA. The only
relevant provision under Article III that may need interpretation
or implementation is Section 2 which was cited herein. However,
as patiently pointed out by this court, said provision does not
come into play considering that the union never exercised its
right to seek reconsideration of the discharges effected by the
company. It would have been different had the union sought
reconsideration. Such recourse under Section 2 would have
been treated as a grievance under Article IV (Grievance
Machinery) of the CBA, thus calling for the possible
interpretation or implementation of the entire provision on
Grievance Machinery as agreed upon by the parties. This was
not the case however. The union brought the termination
dispute directly to the Labor Arbiter rendering Articles III and IV
of the CBA inapplicable for the resolution of this case.
The discharges, petitioners also contend, call for the
interpretation or enforcement of company personnel policies,
particulary SMCs personnel policies on lay-offs arising from
redundacy, and so, they may be considered grievable and
arbitrable by virtue of Article 2 17(c). Not necessarily
so. Company personnel policies are guiding principles stated in
broad, long-range terms that express the philosophy or beliefs
of an organizations top authority regarding personnel
matters. They deal with matters affecting efficiency and well-
being of employees and include, among others, the procedure in
the administration of wages, benefits, promotions, transfer and
other personnel movements which are usually not spelled out in
the collective agreement. The usual source of grievances,
however, is the rules and regulations governing disciplinary
actions.[5] Judging therefrom, the questioned discharges due to
alleged redundancy can hardly be cosidered company personnel
policies and therefore need not directly be subject to the
grievance machinery nor to voluntary arbitration.
Third. Petitioners would like to persuade us that
respondents ULP claims are merely conclusory and cannot serve
to vest jurisdiction to the Labor Arbiters. Petitioners argue with
passion: How was the discharges (sic) right to self-organization
restrained by their termination? Respondent did not show..
There is no allegation of the existence of anti-union animus or of
the ultimate facts showing how the discharges affected the
rights to self-organization of individual respondents. [6] In short,
petitioners maintain that respondents complaint does not allege
a genuine case for ULP.
The Court is not convinced.
The complaint alleges that:
5. Individual complainants are bona fide officers and members
of complainant Ilaw at Buklod ng Manggagawa (IBM). They are
active and militant in the affairs and activities of the union.
xxx xxx xxx

23. The dismissal or lock-out from work of the individual
complainants clearly constitutes an act of unfair labor practices
in the light of the fact that the work being performed by the
individual complainants are being contracted out by the
respondent company, and, therefore, deprives individual
complainants of their right to work and it constitutes a criminal
violation of existing laws.
xxx xxx xxx
25. The acts of the respondent company in economically
coercing employees to accept payment of seperation and/or
retirement benefits, pending final resolution of the labor
disputes between the parties constitute acts of unfair labor
practice in the light of the fact that there is undue interference,
restraint, and coercion of employees in the exercise of their right
to self-organization and collective bargaining.[7]
Short of pre-empting the proceedings before the Labor
Arbiter, the above complaint, makes Out a genuine case for ULP.
In Manila Pencil Co. v. CIR,[8] This Court had occasion to
observe that even where business conditions justified a lay-off of
employees, unfair labor practices were committed in the form of
discriminatory dismissal where only unionists were permanently
dismissed. This was despite the valid excuse given by the Manila
Pencil Company that the dismissal of the employees was due to
the reduction of the companys dollar allocations for importation
and that both union members and non-union members were
laid-off. The Court, thru Justice Makalintal, rebuffed the
petitioner Company and said:
x x x The explanation, however, does not by any means account
for the permanent dismissal of five of the unionists, where it
does not appear that non-unionists were similarly dismissed.
xxx xxx xxx
And the discrimination shown by the Company strongly is
confirmed by the fact that during the period from October 1958
to August 17, 1959 it hired from fifteen to twenty new
employees and ten apprentices. It says these employees were
for its new lead factory, but is (sic) not shown that the five who
had been permanently dismissed were not suitable for work in
that new factory.
A similar ruling was made by this Court in Peoples Bank
and Trust Co. v. Peoples Bank and Trust Co. Employees
Union[9] involving the lay-off by a bank of sixty-
five (65) employees who were active union members allegedly
by reason of retrechment. The Court likewise found the
employer in that case to have committed ULP in effecting the
discharges.
This Court was more emphatic however in Bataan Shipyard
and Engineering Co., Inc. v. NLRC, et al.:[10]
Under the circumstances obtaining in this case, We are inclined
to believe that the company had indeed been discriminatory in
selecting the employees who were to be retrenched. All of the
retrenched employees are officers and members of the
NAFLU.The record of the case is bereft of any satisfactory
explanation from the Company regarding this situation. As such,
the action taken by the firm becomes highly suspect. It leads
Us to conclude that the firm had been discriminating
against membership in the NAFLU, an act which amounts
to interference in the employees exercise of their right
of self-organization. Under Art. 249 (now Art. 248) of the
Labor Code of the Philippines, such interference is considered an
act of unfair labor practice on the part of the Company x x x.
(Emphasis ours)
It matters not that the cause of termination in the above
cited cases was retrenchment while that in the instant case was
17
redundancy. The important fact is that in all of these cases,
including the one at bar, all of the dismissed employees were
officers and members of their respective unions, and their
employers failed to give a satisfactory explanation as to why
this group of employees was singled out.
It may be the case that employees other than union
members may have been terminated also by petitioner SMC on
account of its redundancy program. If that is true, the
discharges may really be for a bona fide authorized cause under
Article 283[11] of the Labor Code. On the other hand, it is also
possible that such may only be a clever scheme of the petitioner
company to camouflage its real intention of discriminating
against union members particularly the private respondents. In
any case, these matters will be best ventilated in a hearing
before the Labor Arbiter.
It is for the above reason that we cannot hold the
petitioners guilty of the ULP charge. This will be the task of the
Labor Arbiter. We however find that based on the cicumstances
surrounding this case and settled jurisprudence on the subject,
the complaint filed by the private respondents on
February 25, 1991 alleges facts sufficient to costitute a bona
fide case of ULP, and therefore properly cognizable by the Labor
Arbiter under Article 2 17(a) of the Labor Code. This is
consistent with the rule that jurisdictioin over the subject matter
is determined by the allegations of the complaint. [12]
Finally, petitioners try to impress on this Court the strong
State policy on the promotion of voluntary modes of settlement
of labor disputes crafted in the Constitution and the Labor Code
which dictate the submission of the CBA dispute to grievance
and arbitration.[13]
In this regard, the response of the Solicitor General is apt:
Petitioners deserve commendation for divulging and bringing to
public respondents attention the noble legislative intent behind
the law mandating the inclusion of grievance and voluntary
arbitration provisions in the CBA. However, in the absence of an
express legal conferment thereof, jurisdiction cannot be
appropriated by an official or tribunal (sic) no matter how well-
intentioned it is, even in the pursuit of the clearest substantial
right (Concurring Opinion of Justice Barredo,
Estanislao v. Honrado, 114 SCRA 748, 29 June 1982).[14]
In the same manner, petitioners cannot arrogate into the powers
of voluntary arbitrators the original and exclusive jurisdiction of
Labor Arbiters over unfair labor practices, termination disputes,
and claims for damages, in the absence of an express
agreement between the parties in order for Article 262 [15] of the
Labor Law to apply in the case at bar.[16]
WHEREFORE, the instant petition is DISMISSED for lack of
merit and the resolutions of the National Labor Relations
Commission dated August 11, 1992 and October 29, 1992 are
hereby AFFIRMED.
SO ORDERED
THIRD DIVISION[G. R. No. 138094. May 29, 2003]
MARILOU GUANZON APALISOK, petitioner, vs. RADIO
PHILIPPINES NETWORK RADIO STATION DYKC and
STATION MANAGER GEORGE SUAZO, respondents.
DECISION
CARPIO-MORALES, J.:
Before this Court is a petition for review on certiorari under
Rule 45 assailing the Court of Appeals Decision [1] of October 30,
1998 and Resolution[2] of February 26, 1999.

On May 15, 1995, Marilou Gaunzon Apalisok (petitioner),
then Production Chief of Radio Philippines Network (RPN) Station
DYKC, received a Memorandum[3] from Branches Operations
Manager Gilito Datoc asking her to submit a written explanation
why no disciplinary action should be taken against her for
performance of acts hostile to RPN, and arrogant, disrespectful
and defiant behavior towards her superior Station Manager
George Suazo.
Complying, petitioner submitted on May 16, 1995 her
Answer[4] to the memorandum.
On May 31, 1995, petitioner received another
memorandum from the Administrative Manager of RPN,
informing her of the termination of her services effective the
close of regular office hours of June 15, 1995.
By letter of June 5, 1995, petitioner informed RPN, by letter
of June 5, 1995, of her decision to waive her right to resolve her
case through the grievance machinery of RPN as provided for in
the Collective Bargaining Agreement (CBA) and to lodge her
case before the proper government forum. She thereafter filed a
complaint against RPN DYKC and Suazo (respondents) for illegal
dismissal before the National labor Relations Commission,
Regional Arbitration Branch of Region 7 which referred it to the
National Conciliation and Mediation Board.
By Submission Agreement[5] dated June 20, 1995 signed by
their respective counsels, petitioner and respondents agreed to
submit for voluntary arbitration the issue of whether petitioners
dismissal was valid and to abide by the decision of the voluntary
arbitrator.
In her position paper[6] submitted before the voluntary
arbitrator, petitioner prayed that her dismissal be declared
invalid and that she be awarded separation pay, backwages and
other benefits granted to her by the Labor Code since
reinstatement is no longer feasible due to strained relations. She
also prayed that she be awarded P2,000,000.00 for moral
damages and P500,000.00 for exemplary damages.
Respondents on the other hand prayed for the dismissal of
the complaint, arguing that the voluntary arbitrator had no
jurisdiction over the case and, assuming that he had, the
complaint is dismissible for lack of merit as petitioner was not
illegally dismissed.[7]
On October 18, 1995, the voluntary arbitrator rendered an
Award[8] in favor of petitioner, the dispositive portion of which
reads:
WHEREFORE, above premises considered, this Voluntary
Arbitrator rules that the dismissal of complainant was
invalid.
However, considering the impracticality of reinstatement
because of proven strained relation between the parties,
respondents, instead shall pay complainant the amount of FOUR
HUNDRED ELEVEN THOUSAND ONE HUNDRED TWENTY SIX
PESOS & SEVENTY-SIX CENTAVOS (P411,126.76) itemized as
follows:
In summary, the total award is hereunder itemized:
1. SEPARATION PAY (P14,600.00
divide by 30 days multiplied by
15 days per year of service x 19
years) ......................................... P138,700.95
18
2. BACKWAGES (P14,600 X 6
months) ................................ P 88,817.00
3. MORAL AND EXEMPLARY
DAMAGES .................................. P100,000.00
4. SERVICE INCENTIVE LEAVES
(P14,600 divide by 30 days =
P486.67 x 5 days = P2,433.35 x
19 years ........................................ P 46,233.65
5. ATTORNEYS FEES (10%) .... P 37,375.16
All other claims are hereby denied.
SO ORDERED. (Emphasis supplied)
Respondents motion for reconsideration[9] of the Award
having been denied by the voluntary arbitrator by Order of
November 21, 1995, they filed a petition for certiorari before
this Court, docketed as G. R. No. 122841.
By Resolution[10] of December 13, 1995, the Third Division
of this Court referred G. R. No. 122841 to the Court of Appeals,
following the case of Luzon Development Bank v. Association of
Luzon Development Bank Employees, et al.[11]holding that
decisions or awards of a voluntary arbitrator or panel of
arbitrators in labor cases are reviewable by the Court of
Appeals.
The Court of Appeals, finding that the option of petitioner
not to subject the dispute to the grievance machinery provided
for in the CBA was tantamount to relinquishing her right to avail
of the aid of a voluntary arbitrator in settling the dispute which
likewise converted an unresolved grievance into a resolved one,
held that the voluntary arbitrator did not have jurisdiction over
petitioners complaint and accordingly nullified and set aside, by
Decision of October 30, 1998, the voluntary arbitration award.
Petitioners Motion for Reconsideration [12] of the Court of
Appeals Decision having been denied by Resolution [13] of
February 26, 1999, the present petition was filed which raises
the following issues:
1. Whether or not the Voluntary Arbitrator had jurisdiction over
petitioners complaint, and
2. Whether or not respondents are guilty of estoppel.[14]
Petitioner, citing Article 262 of the Labor Code of the
Philippines, as amended which reads:
ARTICLE 262. JURISDICTION OVER OTHER LABOR DISPUTES. The
Voluntary Arbitrator or panel of Voluntary
Arbitrators, upon agreement of the parties, shall hear and
decide all other labor disputes including unfair labor
practices and bargaining deadlocks. (Emphasis and
underscoring supplied),
contends that her option not to subject the dispute to the
grievance machinery of RPN did not amount to her relinquishing
of her right to avail of voluntary arbitration as a mode of settling
it for she and respondents in fact agreed to have the dispute
settled by a voluntary arbitrator when they freely executed the
above-said Submission Agreement. She thus concludes that the
voluntary arbitrator has jurisdiction over the controversy. [15]

Petitioner contends in any event that even assuming that
the voluntary arbitrator had no jurisdiction over the case, it
would not be in keeping with settled jurisprudence to allow a
losing party to question the authority of the voluntary arbitrator
after it had freely submitted itself to its authority.[16]
The petition is impressed with merit.
The above-quoted Article 262 of the Labor Code provides
that upon agreement of the parties, the voluntary arbitrator
can hear and decide all other labor disputes.
Contrary to the finding of the Court of Appeals, voluntary
arbitration as a mode of settling the dispute was not forced
upon respondents. Both parties indeed agreed to submit the
issue of validity of the dismissal of petitioner to the jurisdiction
of the voluntary arbitrator by the Submission Agreement duly
signed by their respective counsels.
As the voluntary arbitrator had jurisdiction over the parties
controversy, discussion of the second issue is no longer
necessary.
WHEREFORE, the Court of Appeals Decision of October
30, 1998 is hereby SET ASIDE and the voluntary arbitration
Award of October 18, 1995 is hereby REINSTATED.
SO ORDERED.
SECOND DIVISION[G.R. No. 140960. January 20, 2003]
LUDO & LUYM CORPORATION, petitioner, vs. FERDINAND
SAORNIDO as voluntary arbitrator and
LUDO EMPLOYEES UNION (LEU) representing 214
of its officers and members, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks to annul and set
aside the decision[1] of the Court of Appeals promulgated on July
6, 1999 and its Order denying petitioners motion for
reconsideration in CA-G.R. SP No. 44341.
The relevant facts as substantially recited by the Court of
Appeals in its decision are as follows:
Petitioner LUDO & LUYM CORPORATION (LUDO for brevity)
is a domestic corporation engaged in the manufacture of coconut
oil, corn starch, glucose and related products. It operates a
manufacturing plant located at Tupas Street, Cebu City and a
wharf where raw materials and finished products are shipped
out.
In the course of its business operations, LUDO engaged the
arrastre services of Cresencio Lu Arrastre Services (CLAS) for the
loading and unloading of its finished products at the
wharf. Accordingly, several arrastre workers were deployed by
CLAS to perform the services needed by LUDO.
These arrastre workers were subsequently hired, on
different dates, as regular rank-and-file employees of LUDO
every time the latter needed additional manpower services. Said
employees thereafter joined respondent union, the LUDO
Employees Union (LEU), which acted as the exclusive bargaining
agent of the rank-and-file employees.
On April 13, 1992, respondent union entered into a
collective bargaining agreement with LUDO which provides
certain benefits to the employees, the amount of which vary
19
according to the length of service rendered by the availing
employee.
Thereafter, the union requested LUDO to include in its
members period of service the time during which they rendered
arrastre services to LUDO through the CLAS so that they could
get higher benefits. LUDO failed to act on the request. Thus, the
matter was submitted for voluntary arbitration.
The parties accordingly executed a submission agreement
raising the sole issue of the date of regularization of the workers
for resolution by the Voluntary Arbitrator.
In its decision dated April 18, 1997, the Voluntary
Arbitrator ruled that: (1) the respondent employees were
engaged in activities necessary and desirable to the business of
petitioner, and (2) CLAS is a labor-only contractor of petitioner.
[2]
It disposed of the case thus:
WHEREFORE, in view of the foregoing, this Voluntary Arbitrator
finds the claims of the complainants meritorious and so hold
that:
a. the 214 complainants, as listed in the Annex A, shall be
considered regular employees of the respondents six (6) months
from the first day of service at CLAS;
b. the said complainants, being entitled to the CBA benefits
during the regular employment, are awarded a) sick leave, b)
vacation leave & c) annual wage and salary increases during
such period in the amount of FIVE MILLION SEVEN HUNDRED
SEVEN THOUSAND TWO HUNDRED SIXTY ONE PESOS AND SIXTY
ONE CENTAVOS (P5,707,261.61) as computed in Annex A;
c. the respondents shall pay attorneys fees of ten (10) percent
of the total award;
d. an interest of twelve (12) percent per annum or one (1)
percent per month shall be imposed to the award from the date
of promulgation until fully paid if only to speed up the payment
of these long over due CBA benefits deprived of the complaining
workers.
Accordingly, all separation and/or retirement benefits shall be
construed from the date of regularization aforementioned
subject only to the appropriate government laws and other
social legislation.
SO ORDERED.[3]
In due time, LUDO filed a motion for reconsideration, which
was denied. On appeal, the Court of Appeals affirmed in toto the
decision of the Voluntary Arbitrator, thus:
WHEREFORE, finding no reversible error committed by
respondent voluntary arbitrator, the instant petition is hereby
DISMISSED.
SO ORDERED.[4]
Hence this petition. Before us, petitioner raises the
following issues:
I
WHETHER OR NOT BENEFITS CONSISTING OF SALARY
INCREASES, VACATION LEAVE AND SICK LEAVE BENEFITS FOR
THE YEARS 1977 TO 1987 ARE ALREADY BARRED BY
PRESCRIPTION WHEN PRIVATE RESPONDENTS FILED THEIR CASE
IN JANUARY 1995;

II
WHETHER OR NOT A VOLUNTARY ARBITRATOR CAN AWARD
BENEFITS NOT CLAIMED IN THE SUBMISSION AGREEMENT. [5]
Petitioner contends that the appellate court gravely erred
when it upheld the award of benefits which were beyond the
terms of submission agreement. Petitioner asserts that the
arbitrator must confine its adjudication to those issues
submitted by the parties for arbitration, which in this case is the
sole issue of the date of regularization of the workers.Hence, the
award of benefits by the arbitrator was done in excess of
jurisdiction.[6]
Respondents, for their part, aver that the three-year
prescriptive period is reckoned only from the time the obligor
declares his refusal to comply with his obligation in clear and
unequivocal terms. In this case, respondents maintain that
LUDO merely promised to review the company records in
response to respondents demand for adjustment in the date of
their regularization without making a categorical statement of
refusal.[7] On the matter of the benefits, respondents argue that
the arbitrator is empowered to award the assailed benefits
because notwithstanding the sole issue of the date of
regularization, standard companion issues on reliefs and
remedies are deemed incorporated. Otherwise, the whole
arbitration process would be rendered purely academic and the
law creating it inutile.[8]
The jurisdiction of Voluntary Arbitrator or Panel of Voluntary
Arbitrators and Labor Arbiters is clearly defined and specifically
delineated in the Labor Code. The pertinent provisions of the
Labor Code, read:
Art. 217. Jurisdiction of Labor Arbiters and the
Commission. --- (a) Except as otherwise provided under this
Code the Labor Arbiters shall have original and exclusive
jurisdiction to hear and decide, within thirty (30) calendar days
after the submission of the case by the parties for decision
without extension, even in the absence of stenographic notes,
the following cases involving all workers, whether agricultural or
non-agricultural:
1. Unfair labor practice cases:
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases
that workers may file involving wage, rates of pay, hours of work
and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of
damages arising from the employer-employee relations;
xxx
Art. 261. Jurisdiction of Voluntary Arbitrators or panel of
Voluntary Arbitrators. The Voluntary Arbitrator or panel of
Voluntary Arbitrators shall have original and exclusive
jurisdiction to hear and decide all unresolved grievances arising
from the interpretation or implementation of the Collective
Bargaining Agreement and those arising from the interpretation
or enforcement of company personnel policies referred to in the
immediately preceding article. Accordingly, violations of a
Collective Bargaining Agreement, except those which are gross
in character, shall no longer be treated as unfair labor practice
and shall be resolved as grievances under the Collective
Bargaining Agreement. For purposes of this article, gross
violations of Collective Bargaining Agreement shall mean
flagrant and/or malicious refusal to comply with the economic
provisions of such agreement.
20
The Commission, its Regional Offices and the Regional Directors
of the Department of Labor and Employment shall not entertain
disputes, grievances or matters under the exclusive and original
jurisdiction of the Voluntary Arbitrator or panel of Voluntary
Arbitrators and shall immediately dispose and refer the same to
the Grievance Machinery or Voluntary Arbitration provided in the
Collective Bargaining Agreement.
Art. 262. Jurisdiction over other labor disputes. The
Voluntary Arbitrator or panel of Voluntary Arbitrators, upon
agreement of the parties, shall also hear and decide all other
labor disputes including unfair labor practices and bargaining
deadlocks.
In construing the above provisions, we held in San Jose vs.
NLRC, [9] that the jurisdiction of the Labor Arbiter and the
Voluntary Arbitrator or Panel of Voluntary Arbitrators over the
cases enumerated in the Labor Code, Articles 217, 261 and
262, can possibly include money claims in one form or another.
[10]
Comparatively, in Reformist Union of R.B. Liner, Inc. vs.
NLRC,[11] compulsory arbitration has been defined both as the
process of settlement of labor disputes by a government
agency which has the authority to investigate and to make an
award which is binding on all the parties, and as a mode of
arbitration where the parties are compelled to accept the
resolution of their dispute through arbitration by a third party
(emphasis supplied).[12] While a voluntary arbitrator is not part
of the governmental unit or labor departments personnel, said
arbitrator renders arbitration services provided for under labor
laws.
Generally, the arbitrator is expected to decide only those
questions expressly delineated by the submission
agreement. Nevertheless, the arbitrator can assume that he has
the necessary power to make a final settlement since arbitration
is the final resort for the adjudication of disputes. [13] The
succinct reasoning enunciated by the CA in support of its
holding, that the Voluntary Arbitrator in a labor controversy has
jurisdiction to render the questioned arbitral awards, deserves
our concurrence, thus:
In general, the arbitrator is expected to decide those questions
expressly stated and limited in the submission
agreement. However, since arbitration is the final resort for the
adjudication of disputes, the arbitrator can assume that he has
the power to make a final settlement. Thus, assuming that the
submission empowers the arbitrator to decide whether an
employee was discharged for just cause, the arbitrator in this
instance can reasonable assume that his powers extended
beyond giving a yes-or-no answer and included the power to
reinstate him with or without back pay.
In one case, the Supreme Court stressed that xxx the Voluntary
Arbitrator had plenary jurisdiction and authority to interpret the
agreement to arbitrate and to determine the scope of his own
authority subject only, in a proper case, to the certiorari
jurisdiction of this Court. The Arbitrator, as already indicated,
viewed his authority as embracing not merely the determination
of the abstract question of whether or not a performance bonus
was to be granted but also, in the affirmative case, the amount
thereof.
By the same token, the issue of regularization should be viewed
as two-tiered issue. While the submission agreement mentioned
only the determination of the date or regularization, law and
jurisprudence give the voluntary arbitrator enough leeway of
authority as well as adequate prerogative to accomplish the
reason for which the law on voluntary arbitration was created
speedy labor justice. It bears stressing that the underlying
reason why this case arose is to settle, once and for all, the
ultimate question of whether respondent employees are entitled
to higher benefits. To require them to file another action for
payment of such benefits would certainly undermine labor
proceedings and contravene the constitutional mandate
providing full protection to labor.[14]

As regards petitioners contention that the money claim in
this case is barred by prescription, we hold that this contention
is without merit. So is petitioners stance that the benefits
claimed by the respondents, i.e., sick leave, vacation leave and
13th-month pay, had already prescribed, considering the three-
year period for the institution of monetary claims. [15] Such
determination is a question of fact which must be ascertained
based on the evidence, both oral and documentary, presented
by the parties before the Voluntary Arbitrator. In this case, the
Voluntary Arbitrator found that prescription has not as yet set in
to bar the respondents claims for the monetary benefits
awarded to them. Basic is the rule that findings of fact of
administrative and quasi-judicial bodies, which have acquired
expertise because their jurisdiction is confined to specific
matters, are generally accorded not only great respect but even
finality.[16] Here, the Voluntary Arbitrator received the evidence
of the parties first-hand. No compelling reason has been shown
for us to diverge from the findings of the Voluntary Arbitrator,
especially since the appellate court affirmed his findings, that it
took some time for respondent employees to ventilate their
claims because of the repeated assurances made by the
petitioner that it would review the company records and
determine therefrom the validity of the claims, without
expressing a categorical denial of their claims. As elucidated by
the Voluntary Arbitrator:
The respondents had raised prescription as defense. The
controlling law, as ruled by the High Court, is:
The cause of action accrues until the party obligated refuses xxx
to comply with his duty. Being warded off by promises, the
workers not having decided to assert [their] right[s], [their]
causes of action had not accrued (Citation omitted.)
Since the parties had continued their negotiations even after the
matter was raised before the Grievance Procedure and the
voluntary arbitration, the respondents had not refused to
comply with their duty. They just wanted the complainants to
present some proofs. The complainants cause of action had not
therefore accrued yet. Besides, in the earlier voluntary
arbitration case aforementioned involving exactly the same
issue and employees similarly situated as the complainants, the
same defense was raised and dismissed by Honorable Thelma
Jordan, Voluntary Arbitrator.
In fact, the respondents promised to correct their length of
service and grant them the back CBA benefits if the
complainants can prove they are entitled rendered the former in
estoppel, barring them from raising the defense of laches or
prescription. To hold otherwise amounts to rewarding the
respondents for their duplicitous representation and abet them
in a dishonest scheme against their workers.[17]
Indeed, as the Court of Appeals concluded, under the
equitable principle of estoppel, it will be the height of injustice if
we will brush aside the employees claims on a mere
technicality, especially when it is petitioners own action that
prevented them from interposing the claims within the
prescribed period.
WHEREFORE, the petition is DENIED. The appealed
decision of the Court of Appeals in CA-G.R. SP No. 44341 and the
resolution denying petitioners motion for reconsideration,
are AFFIRMED. Costs against petitioner.
SO ORDERED.
SECOND DIVISION[G.R. No. 138938. October 24, 2000]
CELESTINO VIVIERO, petitioner, vs. COURT OF APPEALS,
HAMMONIA MARINE SERVICES, and HANSEATIC
SHIPPING CO., LTD. respondents.
DECISION
21
BELLOSILLO, J.:
CELESTINO VIVERO, in this petition for review, seeks the
reversal of the Decision of the Court of Appeals of 26 May 1999
setting aside the Decision of the National Labor Relations
Commission of 28 May 1998 as well as its Resolution of 23 July
1998 denying his motion for its reconsideration, and reinstating
the decision of the Labor Arbiter of 21 January 1997.
Petitioner Vivero, a licensed seaman, is a member of the
Associated Marine Officers and Seamen's Union of the
Philippines (AMOSUP). The Collective Bargaining Agreement
entered into by AMOSUP and private respondents provides,
among others -
ARTICLE XII
GRIEVANCE PROCEDURE
xxxx
Sec. 3. A dispute or grievance arising in connection with the
terms and provisions of this Agreement shall be adjusted in
accordance with the following procedure:
1. Any seaman who feels that he has been unjustly treated or
even subjected to an unfair consideration shall endeavor to
have said grievance adjusted by the designated representative
of the unlicensed department abroad the vessel in the following
manner:
A. Presentation of the complaint to his immediate superior.
B. Appeal to the head of the department in which the seaman
involved shall be employed.
C. Appeal directly to the Master.
Sec. 4. If the grievance cannnot be resolved under the provision
of Section 3, the decision of the Master shall govern at sea x x x
x in foreign ports and until the vessel arrives at a port where the
Master shall refer such dispute to either the COMPANY or the
UNION in order to resolve such dispute. It is understood,
however, if the dispute could not be resolved then both parties
shall avail of the grievance procedure.
Sec. 5. In furtherance of the foregoing principle, there is hereby
created a GRIEVANCE COMMITTEE to be composed of two
COMPANY REPRESENTATIVES to be designated by the COMPANY
and two LABOR REPRESENTATIVES to be designated by the
UNION.
Sec. 6. Any grievance, dispute or misunderstanding concerning
any ruling, practice, wages or working conditions in the
COMPANY, or any breach of the Employment Contract, or any
dispute arising from the meaning or the application of the
provision of this Agreement or a claim of violation thereof or any
complaint that any such crewmembers may have against the
COMPANY, as well as complaint which the COMPANY may have
against such crewmembers shall be brought to the attention of
the GRIEVANCE COMMITTEE before either party takes any
action, legal or otherwise.
Sec. 7. The COMMITTEE shall resolve any dispute within seven
(7) days from and after the same is submitted to it for resolution
and if the same cannot be settled by the COMMITTEE or if the
COMMITTEE fails to act on the dispute within the 7-day period
herein provided, the same shall be referred to a VOLUNTARY
ARBITRATION COMMITTEE.
An "impartial arbitrator" will be appointed by mutual choice and
consent of the UNION and the COMPANY who shall hear and

decide the dispute or issue presented to him and his decision
shall be final and unappealable x x x x[1]
As found by the Labor Arbiter -
Complainant was hired by respondent as Chief Officer of the
vessel "M.V. Sunny Prince" on 10 June 1994 under the terms and
conditions, to wit:
Duration of Contract - - - - 10 months
Basic Monthly Salary - - - - US $1,100.00
Hours of Work - - - - 44 hrs./week
Overtime - - - - 495 lump O.T.
Vacation leave with pay - - - - US $220.00/mo.
On grounds of very poor performance and conduct, refusal to
perform his job, refusal to report to the Captain or the vessels
Engineers or cooperate with other ship officers about the
problem in cleaning the cargo holds or of the shipping pump and
his dismal relations with the Captain of the vessel, complainant
was repatriated on 15 July 1994.
On 01 August 1994, complainant filed a complaint for illegal
dismissal at Associated Marine Officers and Seamans Union of
the Philippines (AMOSUP) of which complainant was a
member. Pursuant to Article XII of the Collective Bargaining
Agreement, grievance proceedings were conducted; however,
parties failed to reach and settle the dispute amicably, thus, on
28 November 1994, complainant filed [a] complaint with the
Philippine Overseas Employment Administration (POEA). [2]
The law in force at the time petitioner filed his Complaint with
the POEA was EO No. 247.[3]
While the case was pending before the POEA, private
respondents filed a Motion to Dismiss on the ground that the
POEA had no jurisdiction over the case considering petitioner
Vivero's failure to refer it to a Voluntary Arbitration Committee in
accordance with the CBA between the parties. Upon the
enactment of RA 8042, the Migrant Workers and Overseas
Filipinos Act of 1995, the case was transferred to the
Adjudication Branch of the National Labor Relations Commission.
On 21 January 1997 Labor Arbiter Jovencio Ll. Mayor Jr., on
the basis of the pleadings and documents available on record,
rendered a decision dismissing the Complaint for want of
jurisdiction.[4] According to the Labor Arbiter, since the CBA of
the parties provided for the referral to a Voluntary Arbitration
Committee should the Grievance Committee fail to settle the
dispute, and considering the mandate of Art. 261 of the Labor
Code on the original and exclusive jurisdiction of Voluntary
Arbitrators, the Labor Arbiter clearly had no jurisdiction over the
case.[5]
Petitioner (complainant before the Labor Arbiter) appealed
the dismissal of his petition to the NLRC. On 28 May 1998 the
NLRC set aside the decision of the Labor Arbiter on the ground
that the record was clear that petitioner had exhausted his
remedy by submitting his case to the Grievance Committee of
AMOSUP. Considering however that he could not obtain any
settlement he had to ventilate his case before the proper
forum, i.e., the Philippine Overseas Employment Administration.
[6]
The NLRC further held that the contested portion in the CBA
providing for the intercession of a Voluntary Arbitrator was not
binding upon petitioner since both petitioner and private
respondents had to agree voluntarily to submit the case before
a Voluntary Arbitrator or Panel of Voluntary Arbitrators. This
would entail expenses as the Voluntary Arbitrator chosen by the
parties had to be paid. Inasmuch however as petitioner chose to
22
file his Complaint originally with POEA, then the Labor Arbiter to
whom the case was transferred would have to take cognizance
of the case.[7]
The NLRC then remanded the case to the Labor Arbiter for
further proceedings. On 3 July 1998 respondents filed a Motion
for Reconsideration which was denied by the NLRC on 23 July
1998.
Thus, private respondents raised the case to the Court of
Appeals contending that the provision in the CBA requiring a
dispute which remained unresolved by the Grievance Committee
to be referred to a Voluntary Arbitration Committee, was
mandatory in character in view of the CBA between the
parties. They stressed that "since it is a policy of the state to
promote voluntary arbitration as a mode of settling labor
disputes, it is clear that the public respondent gravely abused its
discretion in taking cognizance of a case which was still within
the mantle of the Voluntary Arbitration Commitees
jurisdiction."[8]
On the other hand, petitioner argued -
(A)s strongly suggested by its very title, referral of cases of this
nature to the Voluntary Arbitration Committee is voluntary in
nature.Otherwise, the committee would not have been called
Voluntary Arbitration Committee but rather, a Compulsory
Arbitration Committee. Moreover, if the referral of cases of
similar nature to the Voluntary Arbitration Committee would be
deemed mandatory by virtue of the provisions in the CBA, the
[NLRC] would then be effectively deprived of its jurisdiction to
try, hear and decide termination disputes, as provided for under
Article 217 of the Labor Code. Lastly, [respondents] ought to be
deemed to have waived their right to question the procedure
followed by [petitioner], considering that they have already filed
their Position Paper beforebelatedly filing a Motion to Dismiss x x
x x [9]
But the Court of Appeals ruled in favor of private
respondents. It held that the CBA "is the law between the
parties and compliance therewith is mandated by the express
policy of the law."[10] Hence, petitioner should have followed the
provision in the CBA requiring the submission of the dispute to
the Voluntary Arbitration Committee once the Grievance
Committee failed to settle the controversy.[11] According to the
Court of Appeals, the parties did not have the choice to
"volunteer" to refer the dispute to the Voluntary Arbitrator or a
Panel of Arbitrators when there was already an agreement
requiring them to do so. "Voluntary Arbitration" means that it is
binding because of a prior agreement or contract, while
"Compulsory Arbitration" is when the law declares the dispute
subject to arbitration, regardless of the consent or desire of the
parties.[12]
The Court of Appeals further held that the Labor Code itself
enumerates the original and exclusive jurisdiction of the
Voluntary Arbitrator or Panel of Voluntary Arbitrators, and
prohibits the NLRC and the Regional Directors of the Department
of Labor and Employment (DOLE) from entertaining cases falling
under the same.[13] Thus, the fact that private respondents filed
their Position Paper first before filing their Motion to
Dismiss was immaterial and did not operate to confer
jurisdiction upon the Labor Arbiter, following the well-settled
rule that jurisdiction is determined by law and not by consent or
agreement of the parties or by estoppel.[14]
Finally, the appellate court ruled that a case falling under
the jurisdiction of the Labor Arbiter as provided under Art. 217 of
the Labor Code may be lodged instead with a Voluntary
Arbitrator because the law prefers, or gives primacy, to
voluntary arbitration instead of compulsory arbitration.
[15]
Consequently, the contention that the NLRC would be
deprived of its jurisdiction to try, hear and decide termination
disputes under Art. 217 of the Labor Code, should the instant
dispute be referred to the Voluntary Arbitration Committee, is

clearly bereft of merit.[16] Besides, the Voluntary Arbitrator,
whether acting solely or in a panel, enjoys in law the status of a
quasi-judicial agency independent of, and apart from, the NLRC
since his decisions are not appealable to the latter.[17]
Celestino Vivero, in his petition for review assailing the
Decision of the Court of Appeals, alleges that the appellate court
committed grave abuse of discretion in holding that a Voluntary
Arbitrator or Panel of Voluntary Arbitrators, and not the
Adjudication Branch of the NLRC, has jurisdiction over his
complaint for illegal dismissal. He claims that his complaintfor
illegal dismissal was undeniably a termination dispute and did
not, in any way, involve an "interpretation or implementation of
collective bargaining agreement" or "interpretation" or
"enforcement" of company personnel policies.Thus, it should fall
within the original and exclusive jurisdiction of the NLRC and its
Labor Arbiter, and not with a Voluntary Arbitrator, in accordance
with Art. 217 of the Labor Code.
Private respondents, on the other hand, allege that the
case is clearly one "involving the
proper interpretation and implementation of the Grievance
Procedure found in the Collective Bargaining Agreement (CBA)
between the parties"[18]because of petitioners allegation in his
claim/assistance request form submitted to the Union, to wit:
NATURE OF COMPLAINT
3. Illegal Dismissal - Reason: (1) That in this case it was the
master of M.V. SUNNY PRINCE Capt. Andersen who created the
trouble with physical injury and stating false allegation; (2) That
there was no proper procedure of grievance; (3) No proper
notice of dismissal.
Is there a Notice of dismissal? _x_ Yes or ____ No
What date? 11 July 1994
Is there a Grievance Procedure observed? ____ Yes or _x_ No[19]
Private respondents further allege that the fact that
petitioner sought the assistance of his Union evidently shows
that he himself was convinced that his Complaint was within the
ambit of the jurisdiction of the grievance machinery and
subsequently by a Panel of Voluntary Arbitrators as provided for
in their CBA, and as explicitly mandated by Art. 261 of the Labor
Code.[20]
Thus, the issue is whether the NLRC is deprived of
jurisdiction over illegal dismissal cases whenever a CBA provides
for grievance machinery and voluntary arbitration
proceedings. Or, phrased in another way, does the dismissal of
an employee constitute a "grievance between the parties," as
defined under the provisions of the CBA, and consequently,
within the exclusive original jurisdiction of the Voluntary
Arbitrators, thereby rendering the NLRC without jurisdiction to
decide the case?
On the original and exclusive jurisdiction of Labor Arbiters,
Art. 217 of the Labor Code provides -
Art. 217. Jurisdiction of Labor Arbiters and the Commission.
- (a) Except as otherwise provided under this Code, the Labor
Arbiters shall have original and exclusive jurisdiction to hear and
decide within thirty (30) calendar days after the submission of
the case by the parties for decision without extension, even in
the absence of stenographic notes, the following cases involving
all workers, whether agricultural or non-agricultural: (1) Unfair
labor practice cases; (2) Termination disputes; (3) If
accompanied with a claim for reinstatement, those cases that
workers may file involving wages, rates of pay, hours of work
and other terms and conditions of employment; (4) Claims for
actual, moral, exemplary and other forms of damages arising
from the employer-employee relations; (5) Cases arising from
23
any violation of Article 264 of this Code, including questions
involving the legality of strikes and lockouts; and, (6) Except
claims for Employees Compensation, Social Security, Medicare
and maternity benefits, all other claims arising from employer-
employee relations, including those of persons in domestic or
household service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with a
claim for reinstatement.
(b) The Commission shall have exclusive appellate jurisdiction
over all cases decided by Labor Arbiters.
(c) Cases arising from the interpretation of collective bargaining
agreements and those arising from the interpretation or
enforcement of company personnel policies shall be disposed of
by the Labor Arbiter by referring the same to the grievance
machinery and voluntary arbitration as may be provided in said
agreements (emphasis supplied).
However, any or all of these cases may, by agreement of
the parties, be submitted to a Voluntary Arbitrator or Panel of
Voluntary Arbitrators for adjudication. Articles 261 and 262 of
the Labor Code provide -
Art. 261. Jurisdiction of Voluntary Arbitrators or Panel of
Voluntary Arbitrators. - The Voluntary Arbitrator or panel of
Voluntary Arbitrators shall have original and exclusive
jurisdiction to hear and decide all unresolved grievances arising
from the interpretation or implementation of the Collective
Bargaining Agreement and those arising from the interpretation
or enforcement of company personnel policies referred to in the
immediately preceding article. Accordingly, violations of a
Collective Bargaining Agreement, except those which are gross
in character, shall no longer be treated as unfair labor practice
and shall be resolved as grievances under the Collective
Bargaining Agreement. For purposes of this article, gross
violations of Collective Bargaining Agreement shall mean
flagrant and/or malicious refusal to comply with the economic
provisions of such agreement.
The Commission, its Regional Offices and the Regional Directors
of the Department of Labor and Employment shall not entertain
disputes, grievances or matters under the exclusive and original
jurisdiction of the Voluntary Arbitrator or panel of Voluntary
Arbitrators and shall immediately dispose and refer the same to
the Grievance Machinery or Voluntary Arbitration provided in the
Collective Bargaining Agreement.
Art. 262. Jurisdiction Over Other Labor Disputes. - The Voluntary
Arbitrator or panel of Voluntary Arbitrators, upon agreement of
the parties, shall also hear and decide all other labor disputes
including unfair labor practices and bargaining deadlocks
(emphasis supplied).
Private respondents attempt to justify the conferment of
jurisdiction over the case on the Voluntary Arbitrator on the
ground that the issue involves the proper interpretation and
implementation of the Grievance Procedure found in the
CBA. They point out that when petitioner sought the assistance
of his Union to avail of the grievance machinery, he in effect
submitted himself to the procedure set forth in the CBA
regarding submission of unresolved grievances to a Voluntary
Arbitrator.
The argument is untenable. The case is primarily a
termination dispute. It is clear from the claim/assistance request
form submitted by petitioner to AMOSUP that he was
challenging the legality of his dismissal for lack of cause and
lack of due process. The issue of whether there was proper
interpretation and implementation of the CBA provisions comes
into play only because the grievance procedure provided for in
the CBA was not observed after he sought his Unions assistance
in contesting his termination. Thus, the question to be resolved
necessarily springs from the primary issue of whether there was
a valid termination; without this, then there would be no reason

to invoke the need to interpret and implement the CBA
provisions properly.
In San Miguel Corp. v. National Labor Relations
Commission[21] this Court held that the phrase "all other labor
disputes" may include termination disputes provided that the
agreement between the Union and the Company states "in
unequivocal language that [the parties] conform to the
submission of termination disputes and unfair labor practices to
voluntary arbitration."[22] Ergo, it is not sufficient to merely say
that parties to the CBA agree on the principle that "all disputes"
should first be submitted to a Voluntary Arbitrator. There is a
need for an express stipulation in the CBA that illegal
termination disputes should be resolved by a Voluntary
Arbitrator or Panel of Voluntary Arbitrators, since the same fall
within a special class of disputes that are generally within the
exclusive original jurisdiction of Labor Arbiters by express
provision of law. Absent such express stipulation, the phrase "all
disputes" should be construed as limited to the areas of conflict
traditionally within the jurisdiction of Voluntary Arbitrators, i.e.,
disputes relating to contract-interpretation, contract-
implementation, or interpretation or enforcement of company
personnel policies. Illegal termination disputes - not falling
within any of these categories - should then be considered as a
special area of interest governed by a specific provision of law.
In this case, however, while the parties did agree to make
termination disputes the proper subject of voluntary arbitration,
such submission remains discretionary upon the parties. A
perusal of the CBA provisions shows that Sec. 6, Art. XII
(Grievance Procedure) of the CBA is the general agreement of
the parties to refer grievances, disputes or misunderstandings
to a grievance committee, and henceforth, to a voluntary
arbitration committee. The requirement of specificity is fulfilled
by Art. XVII (Job Security) where the parties agreed -
Sec. 1. Promotion, demotion, suspension, dismissal or
disciplinary action of the seaman shall be left to the discretion of
the Master, upon consultation with the Company and notification
to the Union. This notwithstanding, any and all disciplinary
action taken on board the vessel shall be provided for in
Appendix B of this Agreement x x x x [23]
Sec. 4. x x x x Transfer, lay-off or discipline of seamen for
incompetence, inefficiency, neglect of work, bad behavior,
perpetration of crime, drunkenness, insubordination, desertion,
violation of x x x regulations of any port touched by the
Companys vessel/s and other just and proper causes shall be at
Masters discretion x x x in the high seas or foreign ports. The
Master shall refer the case/dispute upon reaching port and if not
satisfactorily settled, the case/dispute may be referred to the
grievance machinery or procedure hereinafter provided
(emphasis supplied).[24]
The use of the word "may" shows the intention of the
parties to reserve the right to submit the illegal termination
dispute to the jurisdiction of the Labor Arbiter, rather than to a
Voluntary Arbitrator. Petitioner validly exercised his option to
submit his case to a Labor Arbiter when he filed
his Complaint before the proper government agency.
Private respondents invoke Navarro III v.
Damasco[25] wherein the Court held that "it is the policy of the
state to promote voluntary arbitration as a mode of
settling disputes."[26] It should be noted, however, that
in Navarro III all the parties voluntarily submitted to the
jurisdiction of the Voluntary Arbitrator when they filed their
respective position papers and submitted documentary
evidence before him. Furthermore, they manifested during the
initial conference that they were not questioning the authority of
the Voluntary Arbitrator.[27] In the case at bar, the dispute was
never brought to a Voluntary Arbitrator for resolution; in fact,
petitioner precisely requested the Court to recognize the
jurisdiction of the Labor Arbiter over the case. The Court had
held in San Miguel Corp. v. NLRC[28] that neither officials nor
tribunals can assume jurisdiction in the absence of an express
24
legal conferment. In the same manner, petitioner cannot
arrogate into the powers of Voluntary Arbitrators the original
and exclusive jurisdiction of Labor Arbiters over unfair labor
practices, termination disputes, and claims for damages, in the
absence of an express agreement between the parties in order
for Art. 262 of the Labor Code to apply in the case at bar. In
other words, the Court of Appeals is correct in holding that
Voluntary Arbitration is mandatory in character if there is a
specific agreement between the parties to that effect. It must be
stressed however that, in the case at bar, the use of the word
"may" shows the intention of the parties to reserve the right of
recourse to Labor Arbiters.
The CBA clarifies the proper procedure to be followed in
situations where the parties expressly stipulate to submit
termination disputes to the jurisdiction of a Voluntary Arbitrator
or Panel of Voluntary Arbitrators. For when the parties have
validly agreed on a procedure for resolving grievances and to
submit a dispute to voluntary arbitration then that procedure
should be strictly observed. Non-compliance therewith cannot
be excused, as petitioner suggests, by the fact that he is not
well-versed with the "fine prints" of the CBA. It was his
responsibility to find out, through his Union, what the provisions
of the CBA were and how they could affect his rights. As
provided in Art. 241, par. (p), of the Labor Code -
(p) It shall be the duty of any labor organization and its officers
to inform its members on the provisions of its constitution and
by-laws, collective bargaining agreement, the prevailing labor
relations system and all their rights and obligations under
existing labor laws.
In fact, any violation of the rights and conditions of union
membership is a "ground for cancellation of union registration or
expulsion of officer from office, whichever is appropriate. At
least thirty percent (30%) of all the members of a union or any
member or members especially concerned may report such
violation to the Bureau [of Labor Relations] x x x x" [29]
It may be observed that under Policy Instruction No. 56 of
the Secretary of Labor, dated 6 April 1993, "Clarifying the
Jurisdiction Between Voluntary Arbitrators and Labor Arbiters
Over Termination Cases and Providing Guidelines for the
Referral of Said Cases Originally Filed with the NLRC to the
NCMB," termination cases arising in or resulting from the
interpretation and implementation of collective bargaining
agreements and interpretation and enforcement of company
personnel policies which were initially processed at the various
steps of the plant-level Grievance Procedures under the parties'
collective bargaining agreements fall within the original and
exclusive jurisdiction of the voluntary arbitrator pursuant to Art.
217 (c) and Art. 261 of the Labor Code; and, if filed before the
Labor Arbiter, these cases shall be dismissed by the Labor
Arbiter for lack of jurisdiction and referred to the concerned
NCMB Regional Branch for appropriate action towards an
expeditious selection by the parties of a Voluntary Arbitrator or
Panel of Arbitrators based on the procedures agreed upon in the
CBA.
As earlier stated, the instant case is a termination dispute
falling under the original and exclusive jurisdiction of the Labor
Arbiter, and does not specifically involve the application,
implementation or enforcement of company personnel policies
contemplated in Policy Instruction No. 56. Consequently, Policy
Instruction No. 56 does not apply in the case at bar. In any case,
private respondents never invoked the application of Policy
Instruction No. 56 in their Position Papers, neither did they raise
the question in their Motion to Dismiss which they filed nine (9)
months after the filing of their Position Papers. At this late stage
of the proceedings, it would not serve the ends of justice if this
case is referred back to a Voluntary Arbitrator considering that
both the AMOSUP and private respondents have submitted to
the jurisdiction of the Labor Arbiter by filing their
respective Position Papers and ignoring the grievance procedure
set forth in their CBA.
 25
After the grievance proceedings have failed to bring about voltage/pole who are team
a resolution, AMOSUP, as agent of petitioner, should have not exposed to the
informed him of his option to settle the case through voluntary risk
arbitration. Private respondents, on their part, should have
timely invoked the provision of their CBA requiring the referral of Collectors - no need for cash
their unresolved disputes to a Voluntary Arbitrator once it bond, no
became apparent that the grievance machinery failed to resolve need to reduce quota
it prior to the filing of the case before the proper tribunal. The and MAPL
private respondents should not have waited for nine (9) months
exclude confidential
from the filing of their Position Paper with the POEA before it CBU - include
employees
moved to dismiss the case purportedly for lack of jurisdiction. As
it is, private respondents are deemed to have waived their right maintenance of
Union security - closed shop
to question the procedure followed by petitioner, assuming that membership
they have the right to do so. Under their CBA, both Union and
respondent companies are responsible for selecting an impartial Contracting no need to consult
- consult first
out union
arbitrator or for convening an arbitration committee; [30] yet, it is
apparent that neither made a move towards this existing terms and
end. Consequently, petitioner should not be deprived of his All benefits - all terms
conditions
legitimate recourse because of the refusal of both Union and
respondent companies to follow the grievance procedure. Dec. 28, 1996-Dec. from Dec. 1,
Retroactivity -
27, 199(9) 1995
WHEREFORE, the Decision of the Court of Appeals is SET
ASIDE and the case is remanded to the Labor Arbiter to dispose Dissatisfied with the Decision, some alleged members of private
of the case with dispatch until terminated considering the undue respondent union (Union for brevity) filed a motion for
delay already incurred.SO ORDERED. intervention and a motion for reconsideration of the said
Decision. A separate intervention was likewise made by the
supervisor's union (FLAMES2) of petitioner corporation alleging
SPECIAL FIRST DIVISIONG.R. No. 127598 February 22,
that it has bona fide legal interest in the outcome of the
2000
case.3 The Court required the "proper parties" to file a comment
to the three motions for reconsideration but the Solicitor-
MANILA ELECTRIC COMPANY, petitioner, General asked that he be excused from filing the comment
vs. because the "petition filed in the instant case was granted" by
Hon. SECRETARY OF LABOR LEONARDO QUISUMBING and the Court.4 Consequently, petitioner filed its own consolidated
MERALCO EMPLOYEES and WORKERS ASSOCIATION comment. An "Appeal Seeking Immediate Reconsideration" was
(MEWA), respondent. also filed by the alleged newly elected president of the
Union.5 Other subsequent pleadings were filed by the parties
and intervenors.
YNARES-SANTIAGO, J.:

The issues raised in the motions for reconsideration had already

In the Decision promulgated on January 27, 1999, the Court
disposed of the case as follows:
WHEREFORE, the petition is granted and the orders of
public respondent Secretary of Labor dated August 19,
1996 and December 28, 1996 are set aside to the
extent set forth above. The parties are directed to
execute a Collective Bargaining Agreement
incorporating the terms and conditions contained in the
unaffected portions of the Secretary of Labor's orders
of August 19, 1996 and December 28, 1996, and the
modifications set forth above. The retirement fund
issue is remanded to the Secretary of Labor for
reception of evidence and determination of the legal
personality of the MERALCO retirement fund.1
The modifications of the public respondent's resolutions include
the following:
Secretary's
January 27, 1999 decision
resolution
been passed upon by the Court in the January 27, 1999 decision.
No new arguments were presented for consideration of the
Court. Nonetheless, certain matters will be considered herein,
particularly those involving the amount of wages and the
retroactivity of the Collective Bargaining Agreement (CBA)
arbitral awards.
Petitioner warns that if the wage increase of P2,200.00 per
month as ordered by the Secretary is allowed, it would simply
pass the cost covering such increase to the consumers through
an increase in the rate of electricity. This is a non sequitur. The
Court cannot be threatened with such a misleading argument.
An increase in the prices of electric current needs the approval
of the appropriate regulatory government agency and does not
automatically result from a mere increase in the wages of
petitioner's employees. Besides, this argument presupposes that
petitioner is capable of meeting a wage increase. The All Asia
Capital report upon which the Union relies to support its position
regarding the wage issue cannot be an accurate basis and
conclusive determinant of the rate of wage increase. Section 45
of Rule 130 Rules of Evidence provides:

P1,900.00 for 1995- Commercial lists and the like. Evidence of

Wages - P2,200.00 statements of matters of interest to persons engaged
96
in an occupation contained in a list, register, periodical,
modified to one or other published compilation is admissible as tending
X'mas bonus - 2 months
month to prove the truth of any relevant matter so stated if
that compilation is published for use by persons
remanded to the engaged in that occupation and is generally used and
Retirees - granted
Secretary relied upon by them therein.
Loan to coops - denied granted
Under the afore-quoted rule, statement of matters contained in
GHSIP, HMP a periodical, may be admitted only "if that compilation is
and granted up to published for use by persons engaged in that occupation and is
Housing loans - P60,000.00 granted generally used and relied upon by them therein." As correctly
held in our Decision dated January 27, 1999, the cited report is a
Signing bonus - denied granted mere newspaper account and not even a commercial list. At
most, it is but an analysis or opinion which carries no persuasive
Union leave - 40 days (typo error) 30 days
weight for purposes of this case as no sufficient figures to
High - not apply to those members of support
a it were presented. Neither did anybody testify to its
accuracy. It cannot be said that businessmen generally rely on

news items such as this in their occupation. Besides, no
evidence was presented that the publication was regularly
prepared by a person in touch with the market and that it is
generally regarded as trustworthy and reliable. Absent extrinsic
proof of their accuracy, these reports are not admissible. 6 In the
same manner, newspapers containing stock quotations are not
admissible in evidence when the source of the reports is
available.7 With more reason, mere analyses or projections of
such reports cannot be admitted. In particular, the source of the
report in this case can be easily made available considering that
the same is necessary for compliance with certain governmental
requirements.
Nonetheless, by petitioner's own allegations, its actual total net
income for 1996 was P5.1 billion. 8 An estimate by the All Asia
financial analyst stated that petitioner's net operating income
for the same year was about P5.7 billion, a figure which the
Union relies on to support its claim. Assuming without admitting
the truth thereof, the figure is higher than the P4.171 billion
allegedly suggested by petitioner as its projected net operating
income. The P5.7 billion which was the Secretary's basis for
granting the P2,200.00 is higher than the actual net income of
P5.1 billion admitted by petitioner. It would be proper then to
increase this Court's award of P1,900.00 to P2,000.00 for the
two years of the CBA award. For 1992, the agreed CBA wage
increase for rank-and-file was P1,400.00 and was reduced to
P1,350.00; for 1993; further reduced to P1,150.00 for 1994. For
supervisory employees, the agreed wage increase for the years
1992-1994 are P1,742.50, P1,682.50 and P1,442.50,
respectively. Based on the foregoing figures, the P2,000.00
increase for the two-year period awarded to the rank-and-file is
much higher than the highest increase granted to supervisory
employees.9 As mentioned in the January 27, 1999 Decision, the
Court does "not seek to enumerate in this decision the factors
that should affect wage determination" because collective
bargaining disputes particularly those affecting the national
interest and public service "requires due consideration and
proper balancing of the interests of the parties to the dispute
and of those who might be affected by the dispute." 10 The Court
takes judicial notice that the new amounts granted herein are
significantly higher than the weighted average salary currently
enjoyed by other rank-and-file employees within the community.
It should be noted that the relations between labor and capital is
impressed with public interest which must yield to the common
good.11 Neither party should act oppressively against the other
or impair the interest or convenience of the public. 12 Besides,
matters of salary increases are part of management
prerogative.13
On the retroactivity of the CBA arbitral award, it is well to recall
that this petition had its origin in the renegotiation of the
parties' 1992-1997 CBA insofar as the last two-year period
thereof is concerned. When the Secretary of Labor assumed
jurisdiction and granted the arbitral awards, there was no
question that these arbitral awards were to be given retroactive
effect. However, the parties dispute the reckoning period when
retroaction shall commence. Petitioner claims that the award
should retroact only from such time that the Secretary of Labor
rendered the award, invoking the 1995 decision in Pier 8
case14 where the Court, citing Union of Filipino Employees v.
NLRC,15 said:
The assailed resolution which incorporated the CBA to
be signed by the parties was promulgated on June 5,
1989, the expiry date of the past CBA. Based on the
provision of Section 253-A, its retroactivity should be
agreed upon by the parties. But since no agreement to
that effect was made, public respondent did not abuse
its discretion in giving the said CBA a prospective
effect. The action of the public respondent is within the
ambit of its authority vested by existing law.
On the other hand, the Union argues that the award should
retroact to such time granted by the Secretary, citing the 1993
decision of St. Luke's.16
Finally, the effectivity of the Order of January 28, 1991,
must retroact to the date of the expiration of the
previous CBA, contrary to the position of petitioner.
Under the circumstances of the case, Article 253-A
cannot be properly applied to herein case. As correctly
26
stated by public respondent in his assailed Order of
April 12, 1991 dismissing petitioner's Motion for
Reconsideration
Anent the alleged lack of basis for the
retroactivity provisions awarded; we would
stress that the provision of law invoked by the
Hospital, Article 253-A of the Labor Code,
speaks of agreements by and between the
parties, and not arbitral awards . . .
Therefore, in the absence of a specific provision of law
prohibiting retroactivity of the effectivity of arbitral
awards issued by the Secretary of Labor pursuant to
Article 263(g) of the Labor Code, such as herein
involved, public respondent is deemed vested with
plenary and discretionary powers to determine the
effectivity thereof.
In the 1997 case of Mindanao Terminal, 17 the Court applied the
St. Luke's doctrine and ruled that:
In St. Luke's Medical Center v. Torres, a deadlock also
developed during the CBA negotiations between
management and the union. The Secretary of Labor
assumed jurisdiction and ordered the retroaction of the
CBA to the date of expiration of the previous CBA. As in
this case, it was alleged that the Secretary of Labor
gravely abused its discretion in making his award
retroactive. In dismissing this contention this Court
held:
Therefore, in the absence of a specific
provision of law prohibiting retroactive of the
effectivity of arbitral awards issued by the
Secretary of Labor pursuant to Article 263(g)
of the Labor Code, such as herein involved,
public respondent is deemed vested with
plenary and discretionary powers to determine
the effectivity thereof.
The Court in the January 27, 1999 Decision, stated that the CBA
shall be "effective for a period of 2 years counted from
December 28, 1996 up to December 27, 1999." Parenthetically,
this actually covers a three-year period. Labor laws are silent as
to when an arbitral award in a labor dispute where the Secretary
had assumed jurisdiction by virtue of Article 263 (g) of the Labor
Code shall retroact. In general, a CBA negotiated within six
months after the expiration of the existing CBA retroacts to the
day immediately following such date and if agreed thereafter,
the effectivity depends on the agreement of the parties. 18 On
the other hand, the law is silent as to the retroactivity of a CBA
arbitral award or that granted not by virtue of the mutual
agreement of the parties but by intervention of the government.
Despite the silence of the law, the Court rules herein that CBA
arbitral awards granted after six months from the expiration of
the last CBA shall retroact to such time agreed upon by both
employer and the employees or their union. Absent such an
agreement as to retroactivity, the award shall retroact to the
first day after the six-month period following the expiration of
the last day of the CBA should there be one. In the absence of a
CBA, the Secretary's determination of the date of retroactivity as
part of his discretionary powers over arbitral awards shall
control.
It is true that an arbitral award cannot per se be categorized as
an agreement voluntarily entered into by the parties because it
requires the interference and imposing power of the State thru
the Secretary of Labor when he assumes jurisdiction. However,
the arbitral award can be considered as an approximation of a
collective bargaining agreement which would otherwise have
been entered into by the parties. 19 The terms or periods set forth
in Article 253-A pertains explicitly to a CBA. But there is nothing
that would prevent its application by analogy to an arbitral
award by the Secretary considering the absence of an applicable
law. Under Article 253-A: "(I)f any such agreement is entered
into beyond six months, the parties shall agree on the duration
of retroactivity thereof." In other words, the law contemplates
retroactivity whether the agreement be entered into before or
after the said six-month period. The agreement of the parties

need not be categorically stated for their acts may be
considered in determining the duration of retroactivity. In this
connection, the Court considers the letter of petitioner's
Chairman of the Board and its President addressed to their
stockholders, which states that the CBA "for the rank-and-file
employees covering the period December 1, 1995 to November
30, 1997 is still with the Supreme Court," 20 as indicative of
petitioner's recognition that the CBA award covers the said
period. Earlier, petitioner's negotiating panel transmitted to the
Union a copy of its proposed CBA covering the same period
inclusive.21 In addition, petitioner does not dispute the allegation
that in the past CBA arbitral awards, the Secretary granted
retroactivity commencing from the period immediately following
the last day of the expired CBA. Thus, by petitioner's own
actions, the Court sees no reason to retroact the subject CBA
awards to a different date. The period is herein set at two (2)
years from December 1, 1995 to November 30, 1997.
On the allegation concerning the grant of loan to a cooperative,
there is no merit in the union's claim that it is no different from
housing loans granted by the employer. The award of loans for
housing is justified because it pertains to a basic necessity of
life. It is part of a privilege recognized by the employer and
allowed by law. In contrast, providing seed money for the
establishment of the employee's cooperative is a matter in
which the employer has no business interest or legal obligation.
Courts should not be utilized as a tool to compel any person to
grant loans to another nor to force parties to undertake an
obligation without justification. On the contrary, it is the
government that has the obligation to render financial
assistance to cooperatives and the Cooperative Code does not
make it an obligation of the employer or any private individual.22
Anent the 40-day union leave, the Court finds that the same is a
typographical error. In order to avoid any confusion, it is herein
declared that the union leave is only thirty (30) days as granted
by the Secretary of Labor and affirmed in the Decision of this
Court.
The added requirement of consultation imposed by the
Secretary in cases of contracting out for six (6) months or more
has been rejected by the Court. Suffice it to say that the
employer is allowed to contract out services for six months or
more. However, a line must be drawn between management
prerogatives regarding business operations per se and those
which affect the rights of employees, and in treating the latter,
the employer should see to it that its employees are at least
properly informed of its decision or modes of action in order to
attain a harmonious labor-management relationship and
enlighten the workers concerning their rights.23 Hiring of workers
is within the employer's inherent freedom to regulate and is a
valid exercise of its management prerogative subject only to
special laws and agreements on the matter and the fair
standards of justice.24 The management cannot be denied the
faculty of promoting efficiency and attaining economy by a
study of what units are essential for its operation. It has the
ultimate determination of whether services should be performed
by its personnel or contracted to outside agencies. While there
should be mutual consultation, eventually deference is to be
paid to what management decides.25 Contracting out of services
is an exercise of business judgment or management
prerogative.26 Absent proof that management acted in a
malicious or arbitrary manner, the Court will not interfere with
the exercise of judgment by an employer.27 As mentioned in the
January 27, 1999 Decision, the law already sufficiently regulates
this matter.28 Jurisprudence also provides adequate limitations,
such that the employer must be motivated by good faith and the
contracting out should not be resorted to circumvent the law or
must not have been the result of malicious or arbitrary
actions.29 These are matters that may be categorically
determined only when an actual suit on the matter arises.
WHEREFORE, the motion for reconsideration is PARTIALLY
GRANTED and the assailed Decision is MODIFIED as follows: (1)
the arbitral award shall retroact from December 1, 1995 to
November 30, 1997; and (2) the award of wage is increased
from the original amount of One Thousand Nine Hundred Pesos
(P1,900.00) to Two Thousand Pesos (P2,000.00) for the years
1995 and 1996. This Resolution is subject to the monetary
advances granted by petitioner to its rank-and-file employees
during the pendency of this case assuming such advances had
27
actually been distributed to them. The assailed Decision is
AFFIRMED in all other respects.1wphi1.ntSO ORDERED.
THIRD DIVISIONG.R. No. 80774 May 31, 1988
SAN MIGUEL CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and RUSTICO
VEGA, respondents.
FELICIANO, J.:
In line with an Innovation Program sponsored by petitioner San
Miguel Corporation ("Corporation;" "SMC") and under which
management undertook to grant cash awards to "all SMC
employees ... except [ED-HO staff, Division Managers and
higher-ranked personnel" who submit to the Corporation Ideas
and suggestions found to be beneficial to the Corporation,
private respondent Rustico Vega submitted on 23 September
1980 an innovation proposal. Mr. Vega's proposal was entitled
"Modified Grande Pasteurization Process," and was supposed to
eliminate certain alleged defects in the quality and taste of the
product "San Miguel Beer Grande:"
Title of Proposal
Modified Grande Pasteurization Process
Present Condition or Procedure
At the early stage of beer grande production, several cases of
beer grande full goods were received by MB as returned beer
fulls (RBF). The RBF's were found to have sediments and their
contents were hazy. These effects are usually caused by
underpasteurization time and the pasteurzation units for beer
grande were almost similar to those of the steinie.
Proposed lnnovation (Attach necessary information)
In order to minimize if not elienate underpasteurization of
beer grande, reduce the speed of the beer grande pasteurizer
thereby, increasing the pasteurization time and the
pasteurization acts for grande beer. In this way, the self-life
(sic) of beer grande will also be increased. 1
Mr. Vega at that time had been in the employ of petitioner
Corporation for thirteen (1 3) years and was then holding the
position of "mechanic in the Bottling Department of the SMC
Plant Brewery situated in Tipolo, Mandaue City.
Petitioner Corporation, however, did not find the aforequoted
proposal acceptable and consequently refused Mr. Vega's
subsequent demands for a cash award under the Innovation
Program. On 22 February 1983., a Complaint 2 (docketed as
Case No. RAB-VII-0170-83) was filed against petitioner
Corporation with Regional Arbitration Branch No. VII (Cebu City)
of the then.", Ministry of Labor and Employment. Frivate
respondent Vega alleged there that his proposal "[had] been
accepted by the methods analyst and implemented by the
Corporation [in] October 1980," and that the same "ultimately
and finally solved the problem of the Corporation in the
production of Beer Grande." Private respondent thus claimed
entitlement to a cash prize of P60,000.00 (the maximum award
per proposal offered under the Innovation Program) and
attorney's fees.
In an Answer With Counterclaim and Position Paper, 3 petitioner
Corporation alleged that private respondent had no cause of
action. It denied ever having approved or adopted Mr. Vega's
proposal as part of the Corporation's brewing procedure in the
production of San Miguel Beer Grande. Among other things,
petitioner stated that Mr. Vega's proposal was tumed down by
the company "for lack of originality" and that the same, "even if

implemented [could not] achieve the desired result." Petitioner
further alleged that the Labor Arbiter had no jurisdiction, Mr.
Vega having improperly bypassed the grievance machinery
procedure prescribed under a then existing collective bargaining
agreement between management and employees, and available
administrative remedies provided under the rules of the
Innovation Program. A counterclaim for moral and exemplary
damages, attorney's fees, and litigation expenses closed out
petitioner's pleading.
In an Order 4 dated 30 April 1986, the Labor Arbiter, noting that
the money claim of complainant Vega in this case is "not a
necessary incident of his employment" and that said claim is not
among those mentioned in Article 217 of the Labor Code,
dismissed the complaint for lack of jurisdiction. However, in a
gesture of "compassion and to show the government's concern
for the workingman," the Labor Arbiter also directed petitioner
to pay Mr. Vega the sum of P2,000.00 as "financial assistance."
The Labor Arbiter's order was subsequently appealed by both
parties, private respondent Vega assailing the dismissal of his
complaint for lack of jurisdiction and petitioner Corporation
questioning the propriety of the award of "financial assistance"
to Mr. Vega. Acting on the appeals, the public respondent
National Labor Relations Commission, on 4 September 1987,
rendered a Decision, 5 the dispositive portion of which reads:
WHEREFORE, the appealed Order is hereby set aside and
another udgment entered, order the respondent to pay the
complainant the amount of P60,000.00 as explained above.
SO ORDERED.
In the present Petition for certiorari filed on 4 December 1987,
petitioner Corporation, invoking Article 217 of the Labor Code,
seeks to annul the Decision of public respondent Commission in
Case No. RAB-VII-01 70-83 upon the ground that the Labor
Arbiter and the Commission have no jurisdiction over the subject
matter of the case.
The jurisdiction of Labor Arbiters and the National Labor
Relations Commission is outlined in Article 217 of the Labor
Code, as last amended by Batas Pambansa Blg. 227 which took
effect on 1 June 1982:
ART. 217. Jurisdiction of Labor Arbiters and the commission.
(a) The Labor Arbiters shall have the original and exclusive
jurisdiction to hear and decide within thirty (30) working days
after submission of the case by the parties for decision, the
following cases involving are workers, whether agricultural or
non-agricultural:
1. Unfair labor practice cases;
2. Those that workers may file involving wages, hours of work
and other terms and conditions of employment;
3. All money claims of workers, including those based on non-
payment or underpayment of wages, overtime compensation,
separation pay and other benefits provided by law or
appropriate agreement, except claims for employees'
compensation, social security, medicare and maternity
benefits;
4. Cases involving household services; and
5. Cases arising from any violation of Article 265 of this; Code,
including questions involving the legality of strikes and
lockouts.
(b) The Commission shall have exclusive appellate jurisdiction
over all cases decided by Labor Arbiters. (Emphasis supplied)
28
While paragraph 3 above refers to "all money claims of
workers," it is not necessary to suppose that the entire universe
of money claims that might be asserted by workers against their
employers has been absorbed into the original and exclusive
jurisdiction of Labor Arbiters. In the first place, paragraph 3
should be read not in isolation from but rather within the context
formed by paragraph 1 related to unfair labor practices),
paragraph 2 (relating to claims concerning terms and conditions
of employment), paragraph 4 (claims relating to household
services, a particular species of employer-employee relations),
and paragraph 5 (relating to certain activities prohibited to
employees or to employers).<re||an1w> It is evident that
there is a unifying element which runs through paragraphs 1 to
5 and that is, that they all refer to cases or disputes arising out
of or in connection with an employer-employee relationship. This
is, in other words, a situation where the rule of noscitur a sociis
may be usefully invoked in clarifying the scope of paragraph 3,
and any other paragraph of Article 217 of the Labor Code, as
amended. We reach the above conclusion from an examination
of the terms themselves of Article 217, as last amended by B.P.
Blg. 227, and even though earlier versions of Article 217 of the
Labor Code expressly brought within the jurisdiction of the Labor
Arbiters and the NLRC "cases arising from employer employee
relations," 6 which clause was not expressly carried over, in
printer's ink, in Article 217 as it exists today. For it cannot be
presumed that money claims of workers which do not arise out
of or in connection with their employer-employee relationship,
and which would therefore fall within the general jurisdiction of
the regular courts of justice, were intended by the legislative
authority to be taken away from the jurisdiction of the courts
and lodged with Labor Arbiters on an exclusive basis. The Court,
therefore, believes and so holds that the money claims of
workers" referred to in paragraph 3 of Article 217 embraces
money claims which arise out of or in connection with the
employer-employee relationship, or some aspect or incident of
such relationship. Put a little differently, that money claims of
workers which now fall within the original and exclusive
jurisdiction of Labor Arbiters are those money claims which have
some reasonable causal connection with the employer-employee
relationship.
Applying the foregoing reading to the present case, we note that
petitioner's Innovation Program is an employee incentive
scheme offered and open only to employees of petitioner
Corporation, more specifically to employees below the rank of
manager. Without the existing employer-employee relationship
between the parties here, there would have been no occasion to
consider the petitioner's Innovation Program or the submission
by Mr. Vega of his proposal concerning beer grande; without that
relationship, private respondent Vega's suit against petitioner
Corporation would never have arisen. The money claim of
private respondent Vega in this case, therefore, arose out of or
in connection with his employment relationship with petitioner.
The next issue that must logically be confronted is whether the
fact that the money claim of private respondent Vega arose out
of or in connection with his employment relation" with petitioner
Corporation, is enough to bring such money claim within the
original and exclusive jurisdiction of Labor Arbiters.
In Molave Motor Sales, Inc. v. Laron, 7 the petitioner was a
corporation engaged in the sale and repair of motor vehicles,
while private respondent was the sales Manager of petitioner.
Petitioner had sued private respondent for non-payment of
accounts which had arisen from private respondent's own
purchases of vehicles and parts, repair jobs on cars personally
owned by him, and cash advances from the corporation. At the
pre-trial in the lower court, private respondent raised the
question of lack of jurisdiction of the court, stating that because
petitioner's complaint arose out of the employer-employee
relationship, it fell outside the jurisdiction of the court and
consequently should be dismissed. Respondent Judge did
dismiss the case, holding that the sum of money and damages
sued for by the employer arose from the employer-employee
relationship and, hence, fell within the jurisdiction of the Labor
Arbiter and the NLRC. In reversing the order of dismissal and
requiring respondent Judge to take cognizance of the case

below, this Court, speaking through Mme. Justice Melencio-
Herrera, said:
Before the enactment of BP Blg. 227 on June 1, 1982,
Labor Arbiters, under paragraph 5 of Article 217 of the
Labor Code had jurisdiction over" all other cases arising
from employer-employee relation, unless, expressly
excluded by this Code." Even then, the principle followed
by this Court was that, although a controversy is between
an employer and an employee, the Labor Arbiters have no
jurisdiction if the Labor Code is not involved. In Medina vs.
Castro-Bartolome, 11 SCRA 597, 604, in negating
jurisdiction of the Labor Arbiter, although the parties were
an employer and two employees, Mr. Justice Abad Santos
stated:
The pivotal question to Our mind is whether or not the
Labor Code has any relevance to the reliefs sought by the
plaintiffs. For if the Labor Code has no relevance, any
discussion concerning the statutes amending it and
whether or not they have retroactive effect is unnecessary.
It is obvious from the complaint that the plaintiffs have not
alleged any unfair labor practice. Theirs is a simple action
for damages for tortious acts allegedly committed by the
defendants. Such being the case, the governing statute is
the Civil Code and not the Labor Code. It results that the
orders under review are based on a wrong premise.
And in Singapore Airlines Limited v. Pao, 122 SCRA 671,
677, the following was said:
Stated differently, petitioner seeks protection under the
civil laws and claims no benefits under the Labor Code.
The primary relief sought is for liquidated damages for
breach of a contractual obligation. The other items
demanded are not labor benefits demanded by workers
generally taken cognizance of in labor disputes, such as
payment of wages, overtime compensation or separation
pay. The items claimed are the natural consequences
flowing from breach of an obligation, intrinsically a civil
dispute.
In the case below, PLAINTIFF had sued for monies loaned
to DEFENDANT, the cost of repair jobs made on his
personal cars, and for the purchase price of vehicles and
parts sold to him. Those accounts have no relevance to
the Labor Code. The cause of action was one under the
civil laws, and it does not breach any provision of the
Labor Code or the contract of employment of DEFENDANT.
Hence the civil courts, not the Labor Arbiters and the NLRC
should have jurisdiction. 8
It seems worth noting that Medina v. Castro-Bartolome, referred
to in the above excerpt, involved a claim for damages by two (2)
employees against the employer company and the General
Manager thereof, arising from the use of slanderous language on
the occasion when the General Manager fired the two (2)
employees (the Plant General Manager and the Plant
Comptroller). The Court treated the claim for damages as "a
simple action for damages for tortious acts" allegedly committed
by private respondents, clearly if impliedly suggesting that the
claim for damages did not necessarily arise out of or in
connection with the employer-employee relationship. Singapore
Airlines Limited v. Pao, also cited in Molave, involved a claim
for liquidated damages not by a worker but by the employer
company, unlike Medina. The important principle that runs
through these three (3) cases is that where the claim to the
principal relief sought 9 is to be resolved not by reference to the
Labor Code or other labor relations statute or a collective
bargaining agreement but by the general civil law, the
jurisdiction over the dispute belongs to the regular courts of
justice and not to the Labor Arbiter and the NLRC. In such
situations, resolution of the dispute requires expertise, not in
labor management relations nor in wage structures and other
29
terms and conditions of employment, but rather in the
application of the general civil law. Clearly, such claims fall
outside the area of competence or expertise ordinarily ascribed
to Labor Arbiters and the NLRC and the rationale for granting
jurisdiction over such claims to these agencies disappears.
Applying the foregoing to the instant case, the Court notes that
the SMC Innovation Program was essentially an invitation from
petitioner Corporation to its employees to submit innovation
proposals, and that petitioner Corporation undertook to grant
cash awards to employees who accept such invitation and
whose innovation suggestions, in the judgment of the
Corporation's officials, satisfied the standards and requirements
of the Innovation Program 10 and which, therefore, could be
translated into some substantial benefit to the Corporation.
Such undertaking, though unilateral in origin, could nonetheless
ripen into an enforceable contractual (facio ut des) 11 obligation
on the part of petitioner Corporation under certain
circumstances. Thus, whether or not an enforceable contract,
albeit implied arid innominate, had arisen between petitioner
Corporation and private respondent Vega in the circumstances
of this case, and if so, whether or not it had been breached, are
preeminently legal questions, questions not to be resolved by
referring to labor legislation and having nothing to do with
wages or other terms and conditions of employment, but rather
having recourse to our law on contracts.
WEREFORE, the Petition for certiorari is GRANTED. The decision
dated 4 September 1987 of public respondent National Labor
Relations Commission is SET ASIDE and the complaint in Case
No. RAB-VII-0170-83 is hereby DISMISSED, without prejudice to
the right of private respondent Vega to file a suit before the
proper court, if he so desires. No pronouncement as to costs.SO
ORDERED.
SECOND DIVISION February 13, 2008 G.R. No. 163101
BENGUET CORPORATION, Petitioner,- versus - DEPARTMENT
OF ENVIRONMENT AND NATURAL RESOURCES-MINES
ADJUDICATION BOARD and J.G. REALTY AND
MINING CORPORATION,Respondents.
x----------------------------------------------------------------------------------------
-x
VELASCO, JR., J.:
The instant petition under Rule 65 of the Rules of Court seeks
the annulment of the December 2, 2002 Decision [1]and March
17, 2004 Resolution[2] of the Department of Environment and
Natural Resources-Mining Adjudication Board (DENR-MAB) in
MAB Case No. 0124-01 (Mines Administrative Case No. R-M-
2000-01) entitled Benguet Corporation (Benguet) v. J.G. Realty
and Mining Corporation (J.G. Realty). The December 2, 2002
Decision upheld the March 19, 2001 Decision[3] of the MAB Panel
of Arbitrators (POA) which canceled the Royalty Agreement with
Option to Purchase (RAWOP) dated June 1, 1987[4] between
Benguet and J.G. Realty, and excluded Benguet from the joint
Mineral Production Sharing Agreement (MPSA) application over
four mining claims. The March 17, 2004 Resolution denied
Benguets Motion for Reconsideration.
The Facts
On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP,
wherein J.G. Realty was acknowledged as the owner of four
mining claims respectively named as Bonito-I, Bonito-II, Bonito-
III, and Bonito-IV, with a total area of 288.8656 hectares,
situated in Barangay Luklukam, Sitio Bagong
Bayan, Municipality of Jose Panganiban, Camarines Norte. The
parties also executed a Supplemental Agreement [5] dated June 1,
1987. The mining claims were covered by MPSA Application No.
APSA-V-0009 jointly filed by J.G. Realty as claimowner and
Benguet as operator.
In the RAWOP, Benguet obligated itself to perfect the rights to
the mining claims and/or otherwise acquire the mining rights to
the mineral claims. Within 24 months from the execution of the
RAWOP, Benguet should also cause the examination of the
mining claims for the purpose of determining whether or not
they are worth developing with reasonable probability of
profitable production. Benguet undertook also to furnish J.G.

Realty with a report on the examination, within a reasonable
time after the completion of the examination. Moreover, also
within the examination period, Benguet shall conduct all
necessary exploration in accordance with a prepared exploration
program. If it chooses to do so and before the expiration of the
examination period, Benguet may undertake to develop the
mining claims upon written notice to J.G. Realty. Benguet must
then place the mining claims into commercial productive stage
within 24 months from the written notice. [6] It is also provided in
the RAWOP that if the mining claims were placed in commercial
production by Benguet, J.G. Realty should be entitled to a royalty
of five percent (5%) of net realizable value, and to royalty for
any production done by Benguet whether during the
examination or development periods.
Thus, on August 9, 1989, the Executive Vice-President of
Benguet, Antonio N. Tachuling, issued a letter informing J.G.
Realty of its intention to develop the mining claims. However, on
February 9, 1999, J.G. Realty, through its President, Johnny L.
Tan, then sent a letter to the President of Benguet informing the
latter that it was terminating the RAWOP on the following
grounds:
a. The fact that your company has failed to
perform the obligations set forth in the RAWOP, i.e., to
undertake development works within 2 years from the
execution of the Agreement;
b. Violation of the Contract by allowing high
graders to operate on our claim.
c. No stipulation was provided with respect
to the term limit of the RAWOP.
d. Non-payment of the royalties thereon as
provided in the RAWOP.[7]
In response, Benguets Manager for Legal Services,
Reynaldo P. Mendoza, wrote J.G. Realty a letter dated March 8,
1999,[8] therein alleging that Benguet complied with its
obligations under the RAWOP by investing PhP 42.4 million to
rehabilitate the mines, and that the commercial operation was
hampered by the non-issuance of a Mines Temporary Permit by
the Mines and Geosciences Bureau (MGB) which must be
considered as force majeure, entitling Benguet to an extension
of time to prosecute such permit. Benguet further claimed that
the high graders mentioned by J.G. Realty were already
operating prior to Benguets taking over of the premises, and
that J.G. Realty had the obligation of ejecting such small scale
miners. Benguet also alleged that the nature of the mining
business made it difficult to specify a time limit for the RAWOP.
Benguet then argued that the royalties due to J.G. Realty were in
fact in its office and ready to be picked up at any time. It
appeared that, previously, the practice by J.G. Realty was to
pick-up checks from Benguet representing such royalties.
However, starting August 1994, J.G. Realty allegedly refused to
collect such checks from Benguet. Thus, Benguet posited that
there was no valid ground for the termination of the RAWOP. It
also reminded J.G. Realty that it should submit the disagreement
to arbitration rather than unilaterally terminating the RAWOP.
On June 7, 2000, J.G. Realty filed a Petition for
Declaration of Nullity/Cancellation of the RAWOP [9] with the
Legaspi City POA, Region V, docketed as DENR Case No. 2000-
01 and entitled J.G. Realty v. Benguet.
On March 19, 2001, the POA issued a Decision, [10] dwelling upon
the issues of (1) whether the arbitrators had jurisdiction over the
case; and (2) whether Benguet violated the RAWOP justifying
the unilateral cancellation of the RAWOP by J.G. Realty. The
dispositive portion stated:
WHEREFORE, premises considered, the June
01, 1987 [RAWOP] and its Supplemental Agreement is
hereby declared cancelled and without effect. BENGUET
is hereby excluded from the joint MPSA Application over
the mineral claims denominated as BONITO-I, BONITO-
II, BONITO-III and BONITO-IV.
SO ORDERED.
30
Therefrom, Benguet filed a Notice of Appeal [11] with the MAB on
April 23, 2001, docketed as Mines Administrative Case No. R-M-
2000-01. Thereafter, the MAB issued the assailed December 2,
2002 Decision. Benguet then filed a Motion for Reconsideration
of the assailed Decision which was denied in the March 17,
2004Resolution of the MAB. Hence, Benguet filed the instant
petition.
The Issues
1. There was serious and palpable error
when the Honorable Board failed to rule that the
contractual obligation of the parties to arbitrate under
the Royalty Agreement is mandatory.
2. The Honorable Board exceeded its
jurisdiction when it sustained the cancellation of the
Royalty Agreement for alleged breach of contract
despite the absence of evidence.
3. The Questioned Decision of the
Honorable Board in cancelling the RAWOP prejudice[d]
the substantial rights of Benguet under the contract to
the unjust enrichment of JG Realty.[12]
Restated, the issues are: (1) Should the controversy have first
been submitted to arbitration before the POA took cognizance of
the case?; (2) Was the cancellation of the RAWOP supported by
evidence?; and (3) Did the cancellation of the RAWOP amount to
unjust enrichment of J.G. Realty at the expense of Benguet?
The Courts Ruling
Before we dwell on the substantive issues, we find that
the instant petition can be denied outright as Benguet resorted
to an improper remedy.
The last paragraph of Section 79 of Republic Act No. (RA) 7942
or the Philippine Mining Act of 1995 states, A petition for review
by certiorari and question of law may be filed by the aggrieved
party with the Supreme Court within thirty (30) days from
receipt of the order or decision of the [MAB].
However, this Court has already invalidated such provision
in Carpio v. Sulu Resources Development Corp.,[13]ruling that a
decision of the MAB must first be appealed to the Court of
Appeals (CA) under Rule 43 of the Rules of Court, before
recourse to this Court may be had. We held, thus:
To summarize, there are sufficient legal
footings authorizing a review of the MAB Decision
under Rule 43 of the Rules of Court. First, Section 30 of
Article VI of the 1987 Constitution, mandates that [n]o
law shall be passed increasing the appellate jurisdiction
of the Supreme Court as provided in this Constitution
without its advice and consent. On the other hand,
Section 79 of RA No. 7942 provides that decisions of
the MAB may be reviewed by this Court on a petition
for review by certiorari. This provision is obviously an
expansion of the Courts appellate jurisdiction, an
expansion to which this Court has not consented.
Indiscriminate enactment of legislation enlarging the
appellate jurisdiction of this Court would unnecessarily
burden it.
Second, when the Supreme Court, in the
exercise of its rule-making power, transfers to the CA
pending cases involving a review of a quasi-judicial
bodys decisions, such transfer relates only to
procedure; hence, it does not impair the substantive
and vested rights of the parties. The aggrieved partys
right to appeal is preserved; what is changed is only
the procedure by which the appeal is to be made or
decided. The parties still have a remedy and a
competent tribunal to grant this remedy.
Third, the Revised Rules of Civil Procedure
included Rule 43 to provide a uniform rule on appeals
from quasi-judicial agencies. Under the rule, appeals
from their judgments and final orders are now required
to be brought to the CA on a verified petition for review.
A quasi-judicial agency or body has been defined as an
organ of government, other than a court or legislature,
which affects the rights of private parties through
either adjudication or rule-making. MAB falls under this

definition; hence, it is no different from the other quasi-
judicial bodies enumerated under Rule 43. Besides, the
introductory words in Section 1 of Circular No. 1-
91among these agencies areindicate that the
enumeration is not exclusive or conclusive and
acknowledge the existence of other quasi-judicial
agencies which, though not expressly listed, should be
deemed included therein.
Fourth, the Court realizes that under Batas
Pambansa (BP) Blg. 129 as amended by RA No. 7902,
factual controversies are usually involved in decisions
of quasi-judicial bodies; and the CA, which is likewise
tasked to resolve questions of fact, has more elbow
room to resolve them. By including questions of fact
among the issues that may be raised in an appeal from
quasi-judicial agencies to the CA, Section 3 of Revised
Administrative Circular No. 1-95 and Section 3 of Rule
43 explicitly expanded the list of such issues.
According to Section 3 of Rule 43, [a]n appeal
under this Rule may be taken to the Court of Appeals
within the period and in the manner herein provided
whether the appeal involves questions of fact, of law,
or mixed questions of fact and law. Hence, appeals
from quasi-judicial agencies even only on questions of
law may be brought to the CA.
Fifth, the judicial policy of observing the
hierarchy of courts dictates that direct resort from
administrative agencies to this Court will not be
entertained, unless the redress desired cannot be
obtained from the appropriate lower tribunals, or unless
exceptional and compelling circumstances justify
availment of a remedy falling within and calling for the
exercise of our primary jurisdiction.[14]
The above principle was reiterated in Asaphil Construction and
Development Corporation v. Tuason, Jr. (Asaphil).[15] However,
the Carpio ruling was not applied to Asaphil as the petition in
the latter case was filed in 1999 or three years before the
promulgation of Carpio in 2002. Here, the petition was filed on
April 28, 2004 when the Carpio decision was already applicable,
thus Benguet should have filed the appeal with the CA.
Petitioner having failed to properly appeal to the CA
under Rule 43, the decision of the MAB has become final and
executory. On this ground alone, the instant petition must be
denied.
Even if we entertain the petition although Benguet
skirted the appeal to the CA via Rule 43, still, the December 2,
2002 Decision and March 17, 2004 Resolution of the DENR-MAB
in MAB Case No. 0124-01 should be maintained.
First Issue: The case should have first been brought to
voluntary arbitration before the POA
Secs. 11.01 and 11.02 of the RAWOP pertinently provide:
11.01 Arbitration
Any disputes, differences or disagreements between
BENGUET and the OWNER with reference to anything
whatsoever pertaining to this Agreement that cannot
be amicably settled by them shall not be cause of any
action of any kind whatsoever in any court or
administrative agency but shall, upon notice of one
party to the other, be referred to a Board of Arbitrators
consisting of three (3) members, one to be selected by
BENGUET, another to be selected by the OWNER and
the third to be selected by the aforementioned two
arbitrators so appointed.
xxxx
11.02 Court Action
No action shall be instituted in court as to any matter in
dispute as hereinabove stated, except to enforce the
decision of the majority of the Arbitrators.[16]
31
Thus, Benguet argues that the POA should have first referred the
case to voluntary arbitration before taking cognizance of the
case, citing Sec. 2 of RA 876 on persons and matters subject to
arbitration.
On the other hand, in denying such argument, the POA ruled
that:
While the parties may establish such stipulations
clauses, terms and conditions as they may deem
convenient, the same must not be contrary to law and
public policy. At a glance, there is nothing wrong with
the terms and conditions of the agreement. But to state
that an aggrieved party cannot initiate an action
without going to arbitration would be tying ones hand
even if there is a law which allows him to do so. [17]
The MAB, meanwhile, denied Benguets contention on the
ground of estoppel, stating:
Besides, by its own act, Benguet is already estopped in
questioning the jurisdiction of the Panel of Arbitrators
to hear and decide the case. As pointed out in the
appealed Decision, Benguet initiated and filed an
Adverse Claim docketed as MAC-R-M-2000-02 over the
same mining claims without undergoing contractual
arbitration. In this particular case (MAC-R-M-2000-02)
now subject of the appeal, Benguet is likewise in
estoppel from questioning the competence of the Panel
of Arbitrators to hear and decide in the summary
proceedings J.G. Realtys petition, when Benguet itself
did not merely move for the dismissal of the case but
also filed an Answer with counterclaim seeking
affirmative reliefs from the Panel of Arbitrators.[18]
Moreover, the MAB ruled that the contractual provision on
arbitration merely provides for an additional forum or venue and
does not divest the POA of the jurisdiction to hear the case. [19]
In its July 20, 2004 Comment, [20] J.G. Realty reiterated the above
rulings of the POA and MAB. It argued that RA 7942 or the
Philippine Mining Act of 1995 is a special law which should
prevail over the stipulations of the parties and over a general
law, such as RA 876. It also argued that the POA cannot be
considered as a court under the contemplation of RA 876 and
that jurisprudence saying that there must be prior resort to
arbitration before filing a case with the courts is inapplicable to
the instant case as the POA is itself already engaged in
arbitration.
On this issue, we rule for Benguet.
Sec. 2 of RA 876 elucidates the scope of arbitration:
Section 2. Persons and matters subject to
arbitration.Two or more persons or parties may
submit to the arbitration of one or more
arbitrators any controversy existing between
them at the time of the submission and which
may be the subject of an action, or the parties to
any contract may in such contract agree to settle
by arbitration a controversy thereafter arising
between them. Such submission or contract shall
be valid, enforceable and irrevocable, save upon
such grounds as exist at law for the revocation of
any contract.
Such submission or contract may include
question[s] arising out of valuations, appraisals or other
controversies which may be collateral, incidental,
precedent or subsequent to any issue between the
parties. (Emphasis supplied.)
In RA 9285 or the Alternative Dispute Resolution Act of 2004, the
Congress reiterated the efficacy of arbitration as an alternative
mode of dispute resolution by stating in Sec. 32 thereof that
domestic arbitration shall still be governed by RA 876. Clearly, a
contractual stipulation that requires prior resort to voluntary
arbitration before the parties can go directly to court is not
illegal and is in fact promoted by the State. Thus, petitioner
correctly cites several cases whereby arbitration clauses have
been upheld by this Court.[21]

Moreover, the contention that RA 7942 prevails over RA 876
presupposes a conflict between the two laws. Such is not the
case here. To reiterate, availment of voluntary arbitration before
resort is made to the courts or quasi-judicial agencies of the
government is a valid contractual stipulation that must be
adhered to by the parties. As stated in Secs. 6 and 7 of RA 876:
Section 6. Hearing by court.A party
aggrieved by the failure, neglect or refusal of
another to perform under an agreement in
writing providing for arbitration may petition the
court for an order directing that such arbitration
proceed in the manner provided for in such
agreement. Five days notice in writing of the hearing
of such application shall be served either personally or
by registered mail upon the party in default. The court
shall hear the parties, and upon being satisfied
that the making of the agreement or such failure
to comply therewith is not in issue, shall make an
order directing the parties to proceed to
arbitration in accordance with the terms of the
agreement. If the making of the agreement or
default be in issue the court shall proceed to
summarily hear such issue. If the finding be that
no agreement in writing providing for arbitration
was made, or that there is no default in the
proceeding thereunder, the proceeding shall be
dismissed. If the finding be that a written
provision for arbitration was made and there is a
default in proceeding thereunder, an order shall
be made summarily directing the parties to
proceed with the arbitration in accordance with
the terms thereof.
xxxx
Section 7. Stay of civil action.If any suit or
proceeding be brought upon an issue arising out of an
agreement providing for the arbitration thereof, the
court in which such suit or proceeding is pending, upon
being satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the
action or proceeding until an arbitration has been had
in accordance with the terms of the agreement:
Provided, That the applicant, for the stay is not in
default in proceeding with such arbitration. (Emphasis
supplied.)
In other words, in the event a case that should properly be the
subject of voluntary arbitration is erroneously filed with the
courts or quasi-judicial agencies, on motion of the defendant,
the court or quasi-judicial agency shall determine whether such
contractual provision for arbitration is sufficient and effective. If
in affirmative, the court or quasi-judicial agency shall then order
the enforcement of said provision. Besides, in BF Corporation v.
Court of Appeals, we already ruled:
In this connection, it bears stressing that the
lower court has not lost its jurisdiction over the case.
Section 7 of Republic Act No. 876 provides that
proceedings therein have only been stayed. After the
special proceeding of arbitration has been pursued and
completed, then the lower court may confirm the award
made by the arbitrator.[22]
J.G. Realtys contention, that prior resort to arbitration is
unavailing in the instant case because the POAs mandate is to
arbitrate disputes involving mineral agreements, is misplaced. A
distinction must be made between voluntary and compulsory
arbitration. In Ludo and Luym Corporation v. Saordino, the Court
had the occasion to distinguish between the two types of
arbitrations:
Comparatively, in Reformist Union of R.B. Liner, Inc. vs.
NLRC, compulsory arbitration has been defined both as
the process of settlement of labor disputes by
a government agency which has the authority to
investigate and to make an award which is binding
on all the parties, and as a mode of arbitration where
the parties are compelled to accept the resolution of
their dispute through arbitration by a third party. While
a voluntary arbitrator is not part of the
32
governmental unit or labor departments
personnel, said arbitrator renders arbitration services
provided for under labor laws.[23] (Emphasis supplied.)
There is a clear distinction between compulsory and voluntary
arbitration. The arbitration provided by the POA is compulsory,
while the nature of the arbitration provision in the RAWOP is
voluntary, not involving any government agency. Thus, J.G.
Realtys argument on this matter must fail.
As to J.G. Realtys contention that the provisions of RA 876
cannot apply to the instant case which involves an
administrative agency, it must be pointed out that Section 11.01
of the RAWOP states that:
[Any controversy with regard to the contract] shall not
be cause of any action of any kind whatsoever in any
court or administrative agency but shall, upon notice
of one party to the other, be referred to a Board of
Arbitrators consisting of three (3) members, one to be
selected by BENGUET, another to be selected by the
OWNER and the third to be selected by the
aforementioned two arbiters so appointed.
[24]
(Emphasis supplied.)
There can be no quibbling that POA is a quasi-judicial body
which forms part of the DENR, an administrative agency. Hence,
the provision on mandatory resort to arbitration, freely entered
into by the parties, must be held binding against them. [25]
In sum, on the issue of whether POA should have referred the
case to voluntary arbitration, we find that, indeed, POA has no
jurisdiction over the dispute which is governed by RA 876, the
arbitration law.
However, we find that Benguet is already estopped from
questioning the POAs jurisdiction. As it were, when J.G. Realty
filed DENR Case No. 2000-01, Benguet filed its answer and
participated in the proceedings before the POA, Region
V. Secondly, when the adverse March 19, 2001 POA Decision
was rendered, it filed an appeal with the MAB in Mines
Administrative Case No. R-M-2000-01 and again participated in
the MAB proceedings. When the adverse December 2, 2002 MAB
Decision was promulgated, it filed a motion for reconsideration
with the MAB. When the adverse March 17, 2004 MAB
Resolution was issued, Benguet filed a petition with this Court
pursuant to Sec. 79 of RA 7942 impliedly recognizing MABs
jurisdiction. In this factual milieu, the Court rules that the
jurisdiction of POA and that of MAB can no longer be questioned
by Benguet at this late hour. What Benguet should have done
was to immediately challenge the POAs jurisdiction by a special
civil action for certiorari when POA ruled that it has jurisdiction
over the dispute. To redo the proceedings fully participated in by
the parties after the lapse of seven years from date of institution
of the original action with the POA would be anathema to the
speedy and efficient administration of justice.
Second Issue: The cancellation of the RAWOP
was supported by evidence
The cancellation of the RAWOP by the POA was based
on two grounds: (1) Benguets failure to pay J.G. Realtys royalties
for the mining claims; and (2) Benguets failure to seriously
pursue MPSA Application No. APSA-V-0009 over the mining
claims.
As to the royalties, Benguet claims that the checks
representing payments for the royalties of J.G. Realty were
available for pick-up in its office and it is the latter which refused
to claim them. Benguet then thus concludes that it did not
violate the RAWOP for nonpayment of royalties. Further,
Benguet reasons that J.G. Realty has the burden of proving that
the former did not pay such royalties following the principle that
the complainants must prove their affirmative allegations.
With regard to the failure to pursue the MPSA
application, Benguet claims that the lengthy time of approval of
the application is due to the failure of the MGB to approve it. In
other words, Benguet argues that the approval of the application
is solely in the hands of the MGB.
Benguets arguments are bereft of merit.
Sec. 14.05 of the RAWOP provides:
14.05 Bank Account

OWNER shall maintain a bank account at ___________ or
any other bank from time to time selected by OWNER
with notice in writing to BENGUET where BENGUET
shall deposit to the OWNERs credit any and all
advances and payments which may become due the
OWNER under this Agreement as well as the purchase
price herein agreed upon in the event that BENGUET
shall exercise the option to purchase provided for in the
Agreement. Any and all deposits so made by
BENGUET shall be a full and complete
acquittance and release to [sic] BENGUET from
any further liability to the OWNER of the
amounts represented by such deposits. (Emphasis
supplied.)
Evidently, the RAWOP itself provides for the mode of royalty
payment by Benguet. The fact that there was the previous
practice whereby J.G. Realty picked-up the checks from Benguet
is unavailing. The mode of payment is embodied in a contract
between the parties. As such, the contract must be considered
as the law between the parties and binding on both.[26] Thus,
after J.G. Realty informed Benguet of the bank account where
deposits of its royalties may be made, Benguet had the
obligation to deposit the checks. J.G. Realty had no obligation to
furnish Benguet with a Board Resolution considering that the
RAWOP itself provided for such payment scheme.
Notably, Benguets claim that J.G. Realty must prove
nonpayment of its royalties is both illogical and unsupported by
law and jurisprudence.
The allegation of nonpayment is not a positive
allegation as claimed by Benguet. Rather, such is a negative
allegation that does not require proof and in fact transfers the
burden of proof to Benguet. Thus, this Court ruled in Jimenez
v. National Labor Relations Commission:
As a general rule, one who pleads payment
has the burden of proving it. Even where the plaintiff
must allege non-payment, the general rule is that the
burden rests on the defendant to prove payment,
rather than on the plaintiff to prove non-payment. The
debtor has the burden of showing with legal
certainty that the obligation has been discharged
by payment.[27] (Emphasis supplied.)
In the instant case, the obligation of Benguet to pay
royalties to J.G. Realty has been admitted and supported by the
provisions of the RAWOP. Thus, the burden to prove such
obligation rests on Benguet.
It should also be borne in mind that MPSA Application No. APSA-
V-0009 has been pending with the MGB for a considerable
length of time. Benguet, in the RAWOP, obligated itself to
perfect the rights to the mining claims and/or otherwise acquire
the mining rights to the mineral claims but failed to present any
evidence showing that it exerted efforts to speed up and have
the application approved. In fact, Benguet never even alleged
that it continuously followed-up the application with the MGB
and that it was in constant communication with the government
agency for the expeditious resolution of the application. Such
allegations would show that, indeed, Benguet was remiss in
prosecuting the MPSA application and clearly failed to comply
with its obligation in the RAWOP.
Third Issue: There is no unjust enrichment in the instant
case
Based on the foregoing discussion, the cancellation of the
RAWOP was based on valid grounds and is, therefore, justified.
The necessary implication of the cancellation is the cessation of
Benguets right to prosecute MPSA Application No. APSA-V-0009
and to further develop such mining claims.
In Car Cool Philippines, Inc. v. Ushio Realty and Development
Corporation, we defined unjust enrichment, as follows:
We have held that [t]here is unjust enrichment
when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of
another against the fundamental principles of justice,
33
equity and good conscience. Article 22 of the Civil Code
provides that [e]very person who through an act of
performance by another, or any other means, acquires
or comes into possession of something at the expense
of the latter without just or legal ground, shall return
the same to him. The principle of unjust enrichment
under Article 22 requires two conditions: (1) that a
person is benefited without a valid basis or justification,
and (2) that such benefit is derived at anothers
expense or damage.
There is no unjust enrichment when the
person who will benefit has a valid claim to such
benefit.[28](Emphasis supplied.)
Clearly, there is no unjust enrichment in the instant case as the
cancellation of the RAWOP, which left Benguet without any legal
right to participate in further developing the mining claims, was
brought about by its violation of the RAWOP. Hence, Benguet has
no one to blame but itself for its predicament.
WHEREFORE, we DISMISS the petition, and AFFIRM the
December 2, 2002 Decision and March 17, 2004 Resolution of
the DENR-MAB in MAB Case No. 0124-01 upholding the
cancellation of the June 1, 1987 RAWOP. No costs.
SO ORDERED.
THIRD DIVISIONG.R. No. 180640 April 24, 2009
HUTAMA-RSEA JOINT OPERATIONS, INC., Petitioner,
vs.
CITRA METRO MANILA TOLLWAYS
CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition1 for Review on Certiorari under Rule 45 of
the Rules of Court seeking to set aside the Decision 2 dated 23
May 2007 and Resolution3 dated 16 November 2007 of the Court
of Appeals in CA-G.R. SP No. 92504.
The facts, culled from the records, are as follows:
Petitioner HUTAMA-RSEA Joint Operations Incorporation and
respondent Citra Metro Manila Tollways Corporation are
corporations organized and existing under Philippine laws.
Petitioner is a sub-contractor engaged in engineering and
construction works. Respondent, on the other hand, is the
general contractor and operator of the South Metro Manila
Skyway Project (Skyway Project).
On 25 September 1996, petitioner and respondent entered into
an Engineering Procurement Construction Contract (EPCC)
whereby petitioner would undertake the construction of Stage 1
of the Skyway Project, which stretched from the junction of
Buendia Avenue, Makati City, up to Bicutan Interchange, Taguig
City. As consideration for petitioners undertaking, respondent
obliged itself under the EPCC to pay the former a total amount
of US$369,510,304.00.4
During the construction of the Skyway Project, petitioner wrote
respondent on several occasions requesting payment of the
formers interim billings, pursuant to the provisions of the EPCC.
Respondent only partially paid the said interim billings, thus,
prompting petitioner to demand that respondent pay the
outstanding balance thereon, but respondent still failed to do
so.5
The Skyway Project was opened on 15 December 1999 for public
use, and toll fees were accordingly collected. After informing
respondent that the construction of the Skyway Project was
already complete, petitioner reiterated its demand that
respondent pay the outstanding balance on the interim billings,
as well as the "Early Completion Bonus" agreed upon in the

EPCC. Respondent refused to comply with petitioners
demands.6
On 24 May 2004, petitioner, through counsel, sent a letter to
respondent demanding payment of the following: (1) the
outstanding balance on the interim billings; (2) the amount of
petitioners final billing; (3) early completion bonus; and (4)
interest charges on the delayed payment. Thereafter, petitioner
and respondent, through their respective officers and
representatives, held several meetings to discuss the possibility
of amicably settling the dispute. Despite several meetings and
continuous negotiations, lasting for a period of almost one year,
petitioner and respondent failed to reach an amicable
settlement.7
Petitioner finally filed with the Construction Industry Arbitration
Commission (CIAC) a Request for Arbitration, seeking to enforce
its money claims against respondent.8 Petitioners Request was
docketed as CIAC Case No. 17-2005.
In its Answer ad cautelam with Motion to Dismiss, respondent
averred that the CIAC had no jurisdiction over CIAC Case No. 17-
2005. Respondent argued that the filing by petitioner of said
case was premature because a condition precedent, i.e., prior
referral by the parties of their dispute to the Dispute
Adjudication Board (DAB), required by Clause 20.4 of the EPCC,
had not been satisfied or complied with. Respondent asked the
CIAC to dismiss petitioners Request for Arbitration in CIAC Case
No. 17-2005 and to direct the parties to comply first with Clause
20.4 of the EPCC.9
After submission by the parties of the necessary pleadings on
the matter of jurisdiction, the CIAC issued on 30 August 2005,
an Order in CIAC Case No. 17-2005, favoring petitioner. The CIAC
ruled that it had jurisdiction over CIAC Case No. 17-2005, and
that the determination of whether petitioner had complied with
Clause 20.4 of the EPCC was a factual issue that may be
resolved during the trial. It then ordered respondent to file an
Answer to petitioners Request for Arbitration.10
After respondent and petitioner filed an Answer and a Reply,
respectively, in CIAC Case No. 17-2005, the CIAC conducted a
preliminary conference, wherein petitioner and respondent
signed the "Terms of Reference" outlining the issues to be
resolved, viz:
(1) Is prior resort to the DAB a precondition to
submission of the dispute to arbitration considering
that the DAB was not constituted?;
(2) Is [herein petitioner] entitled to the balance of the
principal amount of the contract? If so, how much?;
(3) Is [petitioner] entitled to the early compensation
bonus net of VAT due thereon? If so, how much?;
(4) Was there delay in the completion of the project? If
so, is [herein respondent] entitled to its counterclaim
for liquidated damages?;
(5) Is [petitioner] entitled to payment of interest on the
amounts of its claims for unpaid billings and early
completion bonus? If so, at what rate and for what
period?;
(6) Which of the parties is entitled to reimbursement of
the arbitration costs incurred? 11
Respondent, however, subsequently filed an Urgent Motion
requesting that CIAC refrain from proceeding with the trial
proper of CIAC Case No. 17-2005 until it had resolved the issue
of whether prior resort by the parties to DAB was a condition
precedent to the submission of the dispute to
34
CIAC.12 Respondents Urgent Motion was denied by the CIAC in
its Order dated 6 December 2005.13
Respondent filed a Motion for Reconsideration of the CIAC Order
dated 6 December 2005.14 The CIAC issued, on 12 December
2005, an Order denying respondents Motion for
Reconsideration.15 It held that prior resort by the parties to DAB
was not a condition precedent for it to assume jurisdiction over
CIAC Case No. 17-2005. Aggrieved, respondent assailed the
CIAC Order dated 12 December 2005 by filing a special civil
action for certiorari and prohibition with the Court of
Appeals,16 docketed as CA-G.R. SP No. 92504.
On 23 May 2007, the Court of Appeals rendered its Decision in
CA-G.R. SP No. 92504, annulling the 12 December 2005 Order of
the CIAC, and enjoining the said Commission from proceeding
with CIAC Case No. 17-2005 until the dispute between petitioner
and respondent had been referred to and decided by the DAB, to
be constituted by the parties pursuant to Clause 20.4 of the
EPCC. The appellate court, thus, found that the CIAC exceeded
its jurisdiction in taking cognizance of petitioners Request for
Arbitration in CIAC Case No. 17-2005 despite the latters failure
to initially refer its dispute with respondent to the DAB, as
directed by Clause 20.4 of the EPCC.
The dispositive portion of the 23 May 2007 Decision of the Court
of Appeals reads:
WHEREFORE, the instant petition is GRANTED and the order of
the Arbitration Tribunal of the Construction Industry Arbitration
Commission dated December 12, 2005 is hereby ANNULED and
SET ASIDE and, instead, [CIAC, members of the Arbitral
Tribunal,17 and herein petitioner], their agents or anybody acting
in their behalf, are enjoined from further proceeding with CIAC
Case No. 17-2005, promulgating a decision therein, executing
the same if one has already been promulgated or otherwise
enforcing said order of December 12, 2005 until the dispute has
been referred to and decided by the Dispute Adjudication Board
to be constituted by the parties in accordance with Sub-Clause
20.4 of the Engineering Procurement Construction Contract
dated September 25, 1996.
Petitioner filed a Motion for Reconsideration of the afore-
mentioned Decision but this was denied by the Court of Appeals
in a Resolution dated 16 November 2007.
Hence, petitioner filed the instant Petition for Review before us
raising the sole issue of whether CIAC has jurisdiction over CIAC
Case No. 17-2005.
Section 4 of Executive Order No. 1008 18 defines the jurisdiction
of CIAC, thus:
SECTION 4. Jurisdiction. - The CIAC shall have original and
exclusive jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in construction
in the Philippines, whether the disputes arises before or after
the completion of the contract, or after the abandonment or
breach thereof. These disputes may involve government or
private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary
arbitration.
The jurisdiction of the CIAC may include but is not limited to
violation of specifications for materials and workmanship;
violation of the terms of agreement; interpretation and/or
application of contractual provisions; amount of damages and
penalties; commencement time and delays; maintenance and
defects; payment default of employer or contractor and changes
in contract cost.
Excluded from the coverage of this law are disputes arising from
employer-employee relationships which shall continue to be
covered by the Labor Code of the Philippines. (Emphasis ours.)

Further, Section 1, Article III of the CIAC Rules of Procedure
Governing Construction Arbitration19 (CIAC Rules), provides:
SECTION 1. Submission to CIAC Jurisdiction. An arbitration
clause in a construction contract or a submission to arbitration
of a construction dispute shall be deemed an agreement to
submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission. When
a contract contains a clause for the submission of a future
controversy to arbitration, it is not necessary for the parties to
enter into a submission agreement before the claimant may
invoke the jurisdiction of CIAC.
An arbitration agreement or a submission to arbitration shall be
in writing, but it need not be signed by the parties, as long as
the intent is clear that the parties agree to submit a present or
future controversy arising from a construction contract to
arbitration.
It may be in the form of exchange of letters sent by post or by
telefax, telexes, telegrams or any other modes of
communication. (Emphasis ours.)
Based on the foregoing provisions, the CIAC shall have
jurisdiction over a dispute involving a construction contract if
said contract contains an arbitration clause (nothwithstanding
any reference by the same contract to another arbitration
institution or arbitral body); or, even in the absence of such a
clause in the construction contract, the parties still agree to
submit their dispute to arbitration.
It is undisputed that in the case at bar, the EPCC contains an
arbitration clause in which the petitioner and respondent
explicitly agree to submit to arbitration any dispute between
them arising from or connected with the EPCC, under the
following terms and conditions20 :
CLAIMS, DISPUTES and ARBITRATION
xxxx
20.3 Unless the member or members of the Dispute
Adjudication Board have been previously mutually agreed upon
by the parties and named in the Contract, the parties shall,
within 28 days of the Effective Date, jointly ensure the
appointment of a Dispute Adjudication Board. Such Dispute
Adjudication Board shall comprise suitably qualified persons as
members, the number of members being either one or three, as
stated in the Appendix to Tender. If the Dispute Adjudication
Board is to comprise three members, each party shall nominate
one member for the approval of the other party, and the parties
shall mutually agree upon and appoint the third member (who
shall act as chairman).
The terms of appointment of the Dispute Adjudication Board
shall:
(a) incorporate the model terms published by the
Fdration Internationale des Ingnieurs-Conseils
(FIDIC),
(b) require each member of the Dispute Adjudication
Board to be, and to remain throughout the
appointment, independent of the parties,
(c) require the Dispute Adjudication Board to act
impartially and in accordance with the Contract, and
(d) include undertakings by the parties (to each other
and to the Dispute Adjudication Board) that the
members of the Dispute Adjudication Board shall in no
circumstances be liable for breach of duty or of
35
contract arising out of their appointment; the parties
shall indemnify the members against such claims.
The terms of the remuneration of the Dispute Adjudication
Board, including the remuneration of each member and of any
specialist from whom the Dispute Adjudication Board may
require to seek advice, shall be mutually agreed upon by the
Employer, the Contractor and each member of the Dispute
Adjudication Board when agreeing such terms of appointment.
In the event of disagreement, the remuneration of each member
shall include reimbursement for reasonable expenses, a daily
fee in accordance with the daily fee established from time to
time for arbitrators under the administrative and financial
regulations of the International Centre for Settlement of
Investment Disputes, and a retainer fee per calendar month
equivalent to three times such daily fee.
The Employer and the Contractor shall each pay one-half of the
Dispute Adjudication Boards remuneration in accordance with
its terms of remuneration. If, at any time, either party shall fail
to pay its due proportion of such remuneration, the other party
shall be entitled to make payment on his behalf and recover if
from the party in default.
The Dispute Adjudication Boards appointment may be
terminated only by mutual agreement of the Employer and the
Contractor. The Dispute Adjudication Boards appointment shall
expire when the discharge referred to in Sub-Clause 13.12 shall
have become effective, or at such other time as the parties may
mutually agree.
It, at any time, the parties so agree, they may appoint a suitably
qualified person to replace (or to be available to replace) any or
all members of the Dispute Adjudication Board. The
appointment will come into effect if a member of the Dispute
Adjudication Board declines to act or is unable to act as a result
of death, disability, resignation or termination of appointment. If
a member so declines or is unable to act, and no such
replacement is available to act, the member shall be replaced in
the same manner as such member was to have been
nominated.
If any of the following conditions apply, namely:
(a) the parties fail to agree upon the appointment of
the sole member of a one-person Dispute Adjudication
Board within 28 days of the Effective Date,
(b) either party fails to nominate an acceptable
member, for the Dispute Adjudication Board of three
members, within 28 days of the Effective Date,
(c) the parties fail to agree upon the appointment of
the third member (to act as chairman) within 28 days
of the Effective Date, or
(d) the parties fail to agree upon the appointment of a
replacement member of the Dispute Adjudication Board
within 28 days of the date on which a member of the
Dispute Adjudication Board declines to act or is unable
to act as a result of death, disability, resignation or
termination of appointment,
then the person or administration named in the Appendix to the
Tender shall, after due consultation with the parties, nominate
such member of the Dispute Adjudication Board, and such
nomination shall be final and conclusive.
20.4 If a dispute arises between the Employer and the
Contractor in connection with, or arising out of, the Contract or
the execution of the Works, including any dispute as to any
opinion, instruction, determination, certification or valuation of
the Employers Representative, the dispute shall initially be
referred in writing to the Dispute Adjudication Board for its

decision, with a copy to the other party. Such reference shall
state that it is made under this Sub-Clause. The parties shall
promptly make available to the Dispute Adjudication Board all
such information, access to the Site, and appropriate facilities,
as the Dispute Adjudication Board may require for the purposes
of rendering its decision. No later than the fifty-sixth day after
the day on which it received such reference, the Dispute
Adjudication Board, acting as a panel of expert(s) and not as
arbitrator(s), shall give notice of its decision to the parties. Such
notice shall include reasons and shall state that it is given under
this Sub-Clause.1awphi1.zw+
Unless the Contract has already been repudiated or terminated,
the Contractor shall, in every case, continue to proceed with the
Works with all due diligence, and the Contractor and the
Employer shall give effect forthwith to every decision of the
Dispute Adjudication Board, unless and until the same shall be
revised, as hereinafter provided, in an amicable settlement or an
arbitral award.
If either party is dissatisfied with the Dispute Adjudication
Boards decision, then either party, on or before the twenty-
eighth day after the day on which it received notice of such
decision, may notify the other party of its dissatisfaction. If the
Dispute Adjudication Board fails to give notice of its decision on
or before the fifty-sixth day after the day on which it received
the reference, then either party, on or before the twenty-eighth
day after the day on which the said period of fifty-six days has
expired, may notify the other party of its dissatisfaction. In
either event, such notice of dissatisfaction shall state that it is
given under this Sub-Clause, such notice shall set out the
matters in dispute and the reason(s) for dissatisfaction and,
subject to Sub-Clauses 20.7 and 20.8, no arbitration in respect
of such dispute may be commenced unless such notice is given.
If the Dispute Adjudication Board has given notice of its decision
as to a matter in dispute to the Employer and the Contractor
and no notice of dissatisfaction has been given by either party
on or before the twenty-eighth day after the day on which the
parties received the Dispute Adjudication Boards decision, then
the Dispute Adjudication Boards decision shall become final and
binding upon the Employer and the Contractor.
20.5 Where notice of dissatisfaction has been given under Sub-
Clause 20.4, the parties shall attempt to settle such dispute
amicably before the commencement of arbitration. Provided
that unless the parties agree otherwise, arbitration may be
commenced on or after the fifty-sixth day after the day on which
notice of dissatisfaction was given, even if no attempt at
amicable settlement has been made.
20.6 Any dispute in respect of which:
(a) the decision, if any, of the Dispute Adjudication
Board has not become final and binding pursuant to
Sub-Clause 20.4, and
(b) amicable settlement has not been reached, shall be
finally decided by international arbitration. The
arbitration rules under which the arbitration is
conducted, the institution to nominate the arbitrator(s)
or to administer the arbitration rules (unless named
therein), the number of arbitrators, and the language
and place of such arbitration shall be as set out in the
Appendix to Tender. The arbitrator(s) shall have full
power to open up, review and revise any decision of the
Dispute Adjudication Board.
Neither party shall be limited, in the proceedings before such
arbitrator(s), to the evidence or arguments previously put before
the Dispute Adjudication Board to obtain its decision.
Arbitration may be commenced prior to or after completion of
the Works. The obligations of the parties and the Dispute
36
Adjudication Board shall not be altered by reason of the
arbitration being conducted during the progress of the Works.
20.7 Where neither party has given notice of dissatisfaction
within the period stated in Sub-Clause 20.4 and the Dispute
Adjudication Boards related decision, if any, has become final
and binding, either party may, if the other party fails to comply
with such decision, and without prejudice to any other rights it
may have, refer the failure itself to arbitration under Sub-Clause
20.6. The provisions of Sub-Clauses 20.4 and 20.5 shall not
apply to any such reference.
20.8 When the appointment of the Dispute Adjudication Board
and of any replacement has expired, any such dispute referred
to in Sub-Clause 20.4 shall be finally settled by arbitration
pursuant to Sub-Clause 20.6. The provisions of Sub-Clauses 20.4
and 20.5 shall not apply to any such reference. (Emphasis ours.)
Despite the presence of the afore-quoted arbitration clause in
the EPCC, it is respondents position, upheld by the Court of
Appeals, that the CIAC still cannot assume jurisdiction over CIAC
Case No. 17-2005 (petitioners Request for Arbitration) because
petitioner has not yet referred its dispute with respondent to the
DAB, as directed by Clause 20.4 of the EPCC. Prior resort of the
dispute to DAB is a condition precedent and an indispensable
requirement for the CIAC to acquire jurisdiction over CIAC Case
No. 17-2005.21
It is true that Clause 20.4 of the EPCC states that a dispute
between petitioner and respondent as regards the EPCC shall be
initially referred to the DAB for decision, and only when the
parties are dissatisfied with the decision of the DAB should
arbitration commence. This does not mean, however, that the
CIAC is barred from assuming jurisdiction over the dispute if
such clause was not complied with.
Under Section 1, Article III of the CIAC Rules, an arbitration
clause in a construction contract shall be deemed as an
agreement to submit an existing or future controversy to CIAC
jurisdiction, "notwithstanding the reference to a different
arbitration institution or arbitral body in such contract x x x."
Elementary is the rule that when laws or rules are clear, it is
incumbent on the court to apply them. When the law (or rule) is
unambiguous and unequivocal, application, not interpretation
thereof, is imperative.22
Hence, the bare fact that the parties herein incorporated an
arbitration clause in the EPCC is sufficient to vest the CIAC with
jurisdiction over any construction controversy or claim between
the parties.23 The arbitration clause in the construction contract
ipso facto vested the CIAC with jurisdiction.24 This rule applies,
regardless of whether the parties specifically choose another
forum or make reference to another arbitral body. 25 Since the
jurisdiction of CIAC is conferred by law, it cannot be subjected to
any condition; nor can it be waived or diminished by the
stipulation, act or omission of the parties, as long as the parties
agreed to submit their construction contract dispute to
arbitration, or if there is an arbitration clause in the construction
contract.26 The parties will not be precluded from electing to
submit their dispute to CIAC, because this right has been vested
in each party by law.27
In China Chang Jiang Energy Corporation (Philippines) v. Rosal
Infrastructure Builders,28 we elucidated thus:
What the law merely requires for a particular construction
contract to fall within the jurisdiction of CIAC is for the parties to
agree to submit the same to voluntary arbitration. Unlike in the
original version of Section 1, as applied in the Tesco case, the
law does not mention that the parties should agree to submit
disputes arising from their agreement specifically to the CIAC for
the latter to acquire jurisdiction over such disputes. Rather, it is
plain and clear that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum they may
choose, their agreement will fall within the jurisdiction of the

CIAC, such that, even if they specially choose another forum, the
parties will not be precluded from electing to submit their
dispute before the CIAC because this right has been vested upon
each party by law, i.e., E.O. No. 1008.
xxxx
Now that Section 1, Article III [CIAC Rules of Procedure
Governing Construction Arbitration], as amended, is submitted
to test in the present petition, we rule to uphold its validity with
full certainty. However, this should not be understood to mean
that the parties may no longer stipulate to submit their disputes
to a different forum or arbitral body. Parties may continue to
stipulate as regards their preferred forum in case of voluntary
arbitration, but in so doing, they may not divest the CIAC of
jurisdiction as provided by law. Under the elementary principle
on the law on contracts that laws obtaining in a jurisdiction form
part of all agreements, when the law provides that the Board
acquires jurisdiction when the parties to the contract agree to
submit the same to voluntary arbitration, the law in effect,
automatically gives the parties an alternative forum before
whom they may submit their disputes. That alternative forum is
the CIAC. This, to the mind of the Court, is the real spirit of E.O.
No. 1008, as implemented by Section 1, Article III of the CIAC
Rules. (Emphases ours.)
Likewise, in National Irrigation Administration v. Court of
Appeals,29 we pronounced that:
Under the present Rules of Procedure [CIAC Rules of Procedure
Governing Construction Arbitration], for a particular construction
contract to fall within the jurisdiction of CIAC, it is merely
required that the parties agree to submit the same to voluntary
arbitration. Unlike in the original version of Section 1, as applied
in the Tesco case, the law as it now stands does not provide that
the parties should agree to submit disputes arising from their
agreement specifically to the CIAC for the latter to acquire
jurisdiction over the same. Rather, it is plain and clear that as
long as the parties agree to submit to voluntary arbitration,
regardless of what forum they may choose, their agreement will
fall within the jurisdiction of the CIAC, such that, even if they
specifically choose another forum, the parties will not be
precluded from electing to submit their dispute before the CIAC
because this right has been vested upon each party by law, i.e.,
E.O. No. 1008.
We note that this is not a case wherein the arbitration clause in
the construction contract named another forum, not the CIAC,
which shall have jurisdiction over the dispute between the
parties; rather, the said clause requires prior referral of the
dispute to the DAB. Nonetheless, we still hold that this condition
precedent, or more appropriately, non-compliance therewith,
should not deprive CIAC of its jurisdiction over the dispute
between the parties.
It bears to emphasize that the mere existence of an arbitration
clause in the construction contract is considered by law as an
agreement by the parties to submit existing or future
controversies between them to CIAC jurisdiction, without any
qualification or condition precedent. To affirm a condition
precedent in the construction contract, which would effectively
suspend the jurisdiction of the CIAC until compliance therewith,
would be in conflict with the recognized intention of the law and
rules to automatically vest CIAC with jurisdiction over a dispute
should the construction contract contain an arbitration clause.
Moreover, the CIAC was created in recognition of the
contribution of the construction industry to national
development goals. Realizing that delays in the resolution of
construction industry disputes would also hold up the
development of the country, Executive Order No. 1008 expressly
mandates the CIAC to expeditiously settle construction industry
disputes and, for this purpose, vests in the CIAC original and
exclusive jurisdiction over disputes arising from, or connected
37
with, contracts entered into by the parties involved in
construction in the Philippines.30
The dispute between petitioner and respondent has been
lingering for almost five years now. Despite numerous meetings
and negotiations between the parties, which took place prior to
petitioners filing with the CIAC of its Request for Arbitration, no
amicable settlement was reached. A ruling requiring the parties
to still appoint a DAB, to which they should first refer their
dispute before the same could be submitted to the CIAC, would
merely be circuitous and dilatory at this point. It would entail
unnecessary delays and expenses on both parties, which
Executive Order No. 1008 precisely seeks to prevent. It would,
indeed, defeat the purpose for which the CIAC was created.
WHEREFORE, the Petition is hereby GRANTED. The Decision,
dated 23 May 2007, and Resolution, dated 16 November 2007,
of the Court of Appeals in CA-G.R. SP No. 92504 are hereby
REVERSED and SET ASIDE. The instant case is hereby
REMANDED for further proceedings to the CIAC which is
DIRECTED to resolve the same with dispatch.
SO ORDERED.
FIRST DIVISION [G.R. No. 129169. November 17, 1999]
NATIONAL IRRIGATION ADMINISTRATION (NIA), petitioner,
vs. HONORABLE COURT OF APPEALS (4th
Division), CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION, and HYDRO
RESOURCES CONTRACTORS
CORPORATION, respondents.
DECISION
DAVIDE, JR., C.J.:
In this special civil action for certiorari under Rule 65 of the
Rules of Court, the National Irrigation Administration (hereafter
NIA), seeks to annul and set aside the Resolutions [1]of the Court
of Appeals in CA-GR. SP No. 37180 dated 28 June 1996 and 24
February 1997, which dismissed respectively NIAs petition
for certiorari and prohibition against the Construction Industry
Arbitration Commission (hereafter CIAC), and the motion for
reconsideration thereafter filed.
Records show that in a competitive bidding held by NIA in
August 1978, Hydro Resources Contractors Corporation
(hereafter HYDRO) was awarded Contract MPI-C-2 for the
construction of the main civil works of the Magat River Multi-
Purpose Project. The contract provided that HYDRO would be
paid partly in Philippine pesos and partly in U.S. dollars. HYDRO
substantially completed the works under the contract in 1982
and final acceptance by NIA was made in 1984. HYDRO
thereafter determined that it still had an account receivable
from NIA representing the dollar rate differential of the price
escalation for the contract.[2]
After unsuccessfully pursuing its case with NIA, HYDRO, on
7 December 1994, filed with the CIAC a Request for Adjudication
of the aforesaid claim. HYDRO nominated six arbitrators for the
arbitration panel, from among whom CIAC appointed Engr. Lauro
M. Cruz. On 6 January 1995, NIA filed its Answer wherein it
questioned the jurisdiction of the CIAC alleging lack of cause of
action, laches and estoppel in view of HYDROs alleged failure to
avail of its right to submit the dispute to arbitration within the
prescribed period as provided in the contract. On the same date,
NIA filed a Compliance wherein it nominated six arbitrators, from
among whom CIAC appointed Atty. Custodio O. Parlade, and
made a counterclaim for P1,000,000 as moral damages; at
least P100,000 as exemplary damages; P100,000 as attorneys
fees; and the costs of the arbitration.[3]

The two designated arbitrators appointed Certified Public
Accountant Joven B. Joaquin as Chairman of the Arbitration
Panel.The parties were required to submit copies of the evidence
they intended to present during the proceedings and were
provided the draft Terms of Reference.[4]
At the preliminary conference, NIA through its counsel Atty.
Joy C. Legaspi of the Office of the Government Corporate
Counsel, manifested that it could not admit the genuineness of
HYDROs evidence since NIAs records had already been
destroyed. NIA requested an opportunity to examine the
originals of the documents which HYDRO agreed to provide. [5]
After reaching an accord on the issues to be considered by
the arbitration panel, the parties scheduled the dates of
hearings and of submission of simultaneous memoranda.[6]
On 13 March 1995, NIA filed a Motion to Dismiss [7]alleging
lack of jurisdiction over the disputes. NIA contended that there
was no agreement with HYDRO to submit the dispute to CIAC for
arbitration considering that the construction contract was
executed in 1978 and the project completed in 1982, whereas
the Construction Industry Arbitration Law creating CIAC was
signed only in 1985; and that while they have agreed to
arbitration as a mode of settlement of disputes, they could not
have contemplated submission of their disputes to CIAC. NIA
further argued that records show that it had not voluntarily
submitted itself to arbitration by CIAC citing TESCO Services,
Inc. v. Hon. Abraham Vera, et al.,[8] wherein it was ruled:
CIAC did not acquire jurisdiction over the dispute arising from
the sub-contract agreement between petitioner TESCO and
private respondent LAROSA. The records do not show that the
parties agreed to submit the disputes to arbitration by the CIAC
xxxx. While both parties in the sub-contract had agreed to
submit the matter to arbitration, this was only between
themselves, no request having been made by both with the
CIAC. Hence, as already stated, the CIAC, has no jurisdiction
over the dispute. xxxx. Nowhere in the said article (sub-
contract) does it mention the CIAC, much less, vest jurisdiction
with the CIAC.
On 11 April 1995, the arbitral body issued an order [9] which
deferred the determination of the motion to dismiss and
resolved to proceed with the hearing of the case on the merits
as the grounds cited by NIA did not seem to be indubitable. NIA
filed a motion for reconsideration of the aforesaid Order. CIAC in
denying the motion for reconsideration ruled that it has
jurisdiction over the HYDROs claim over NIA pursuant to E.O
1008 and that the hearing should proceed as scheduled. [10]
On 26 May 1996, NIA filed with the Court of Appeals an
original action of certiorari and prohibition with prayer for
restraining order and/or injunction, seeking to annul the Orders
of the CIAC for having been issued without or in excess of
jurisdiction. In support of its petition NIA alleged that:
A
RESPONDENT CIAC HAS NO AUTHORITY OR JURIDICTION TO
HEAR AND TRY THIS DISPUTE BETWEEN THE HEREIN PARTIES AS
E.O. NO. 1008 HAD NO RETROACTIVE EFFECT.
B exercise of its jurisdiction would be errors of judgment which are
THE DISPUTE BETWEEN THE PARTIES SHOULD BE SETTLED IN
ACCORDANCE WITH GC NO. 25, ART. 2046 OF THE CIVIL CODE
AND R.A. NO. 876 THE GOVERNING LAWS AT THE TIME
CONTRACT WAS EXECUTED AND TERMINATED.
C The appeal from a final disposition of the Court of Appeals
38
E.O. NO. 1008 IS A SUBSTANTIVE LAW, NOT MERELY
PROCEDURAL AS RULED BY THE CIAC.
D
AN INDORSEMENT OF THE AUDITOR GENERAL DECIDING A
CONTROVERSY IS A DECISION BECAUSE ALL THE ELEMENTS FOR
JUDGMENT ARE THERE; THE CONTROVERSY, THE AUTHORITY TO
DECIDE AND THE DECISION.IF IT IS NOT APPEALED SEASONABLY,
THE SAME BECOMES FINAL.
E
NIA HAS TIMELY RAISED THE ISSUE OF JURISDICTION. IT DID NOT
WAIVE NOR IS IT ESTOPPED FROM ASSAILING THE SAME.
F
THE LEGAL DOCTRINE THAT JURISDICTION IS DETERMINED BY
THE STATUTE IN FORCE AT THE TIME OF THE COMMENCEMENT
OF THE ACTION DOES NOT ONLY APPLY TO THE INSTANT CASE. [11]
The Court of Appeals, after finding that there was no grave
abuse of discretion on the part of the CIAC in issuing the
aforesaid Orders, dismissed the petition in its Resolution dated
28 June 1996. NIAs motion for reconsideration of the said
decision was likewise denied by the Court of Appeals on 26
February 1997.
On 2 June 1997, NIA filed before us an original action
for certiorari and prohibition with urgent prayer for temporary
restraining order and writ of preliminary injunction, praying for
the annulment of the Resolutions of the Court of Appeals dated
28 June 1996 and 24 February 1997. In the said special civil
action, NIA merely reiterates the issues it raised before the
Court of Appeals. [12]
We take judicial notice that on 10 June 1997, CIAC
rendered a decision in the main case in favor of HYDRO. [13] NIA
assailed the said decision with the Court of Appeals. In view of
the pendency of the present petitions before us the appellate
court issued a resolution dated 26 March 1998 holding in
abeyance the resolution of the same until after the instant
petitions have been finally decided.[14]
At the outset, we note that the petition suffers from a
procedural defect that warrants its outright dismissal. The
questioned resolutions of the Court of Appeals have already
become final and executory by reason of the failure of NIA to
appeal therefrom.Instead of filing this petition
for certiorari under Rule 65 of the Rules of Court, NIA should
have filed a timely petition for review under Rule 45.
There is no doubt that the Court of Appeals has jurisdiction
over the special civil action for certiorari under Rule 65 filed
before it by NIA. The original jurisdiction of the Court of Appeals
over special civil actions for certiorari is vested upon it under
Section 9(1) of B.P. 129. This jurisdiction is concurrent with the
Supreme Court[15] and with the Regional Trial Court.[16]
Thus, since the Court of Appeals had jurisdiction over the
petition under Rule 65, any alleged errors committed by it in the
reviewable by timely appeal and not by a special civil action
of certiorari.[17] If the aggrieved party fails to do so within the
reglementary period, and the decision accordingly becomes final
and executory, he cannot avail himself of the writ of certiorari,
his predicament being the effect of his deliberate inaction. [18]
is a petition for review under Rule 45 and not a special civil
action under Rule 65 of the Rules of Court, now Rule 45 and Rule
65, respectively, of the 1997 Rules of Civil Procedure.[19] Rule 45

is clear that decisions, final orders or resolutions of the Court of
Appeals in any case, i.e., regardless of the nature of the action
or proceedings involved, may be appealed to this Court by filing
a petition for review, which would be but a continuation of the
appellate process over the original case. [20] Under Rule 45 the
reglementary period to appeal is fifteen (15) days from notice of
judgment or denial of motion for reconsideration.[21]
In the instant case the Resolution of the Court of Appeals
dated 24 February 1997 denying the motion for reconsideration
of its Resolution dated 28 June 1997 was received by NIA on 4
March1997. Thus, it had until 19 March 1997 within which to
perfect its appeal. NIA did not appeal. What it did was to file an
original action for certiorari before this Court, reiterating the
issues and arguments it raised before the Court of Appeals.
For the writ of certiorari under Rule 65 of the Rules of Court
to issue, a petitioner must show that he has no plain, speedy
and adequate remedy in the ordinary course of law against its
perceived grievance.[22] A remedy is considered plain, speedy
and adequate if it will promptly relieve the petitioner from the
injurious effects of the judgment and the acts of the lower court
or agency.[23] In this case, appeal was not only available but also
a speedy and adequate remedy.
Obviously, NIA interposed the present special civil action
of certiorari not because it is the speedy and adequate remedy
but to make up for the loss, through omission or oversight, of
the right of ordinary appeal. It is elementary that the special
civil action of certiorari is not and cannot be a substitute for an
appeal, where the latter remedy is available, as it was in this
case. A special civil action under Rule 65 of the Rules of Court
will not be a cure for failure to timely file a petition for review
on certiorari under Rule 45 of the Rules of Court. [24] Rule 65 is
an independent action that cannot be availed of as a substitute
for the lost remedy of an ordinary appeal, including that under
Rule 45,[25] especially if such loss or lapse was occasioned by
ones own neglect or error in the choice of remedies.[26]
For obvious reasons the rules forbid recourse to a special
civil action for certiorari if appeal is available, as the remedies of
appeal and certiorari are mutually exclusive and not alternative
or successive.[27] Although there are exceptions to the rules,
none is present in the case at bar. NIA failed to show
circumstances that will justify a deviation from the general rule
as to make available a petition for certiorari in lieu of taking an
appropriate appeal.
Based on the foregoing, the instant petition should be
dismissed.
In any case, even if the issue of technicality is disregarded
and recourse under Rule 65 is allowed, the same result would be
reached since a review of the questioned resolutions of the CIAC
shows that it committed no grave abuse of discretion.
Contrary to the claim of NIA, the CIAC has jurisdiction over
the controversy. Executive Order No.1008, otherwise known as
the Construction Industry Arbitration Law which was
promulgated on 4 February 1985, vests upon CIAC original and
exclusive jurisdiction over disputes arising from, or connected
with contracts entered into by parties involved in construction in
the Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach
thereof. The disputes may involve government or private
contracts. For the Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to voluntary arbitration.
[28]
The complaint of HYDRO against NIA on the basis of the
contract executed between them was filed on 7 December 1994,
during the effectivity of E.O. No. 1008. Hence, it is well within
the jurisdiction of CIAC. The jurisdiction of a court is determined
by the law in force at the time of the commencement of the
action.[29]
39
NIAs argument that CIAC had no jurisdiction to arbitrate on
contract which preceded its existence is untenable. E.O. 1008 is
clear that the CIAC has jurisdiction over all disputes arising from
or connected with construction contract whether the dispute
arises before or after the completion of the contract. Thus, the
date the parties entered into a contract and the date of
completion of the same, even if these occurred before the
constitution of the CIAC, did not automatically divest the CIAC of
jurisdiction as long as the dispute submitted for arbitration arose
after the constitution of the CIAC. Stated differently, the
jurisdiction of CIAC is over the dispute, not the contract; and the
instant dispute having arisen when CIAC was already
constituted, the arbitral board was actually exercising current,
not retroactive, jurisdiction. As such, there is no need to pass
upon the issue of whether E.O. No. 1008 is a substantive or
procedural statute.
NIA also contended that the CIAC did not acquire
jurisdiction over the dispute since it was only HYDRO that
requested for arbitration. It asserts that to acquire jurisdiction
over a case, as provided under E.O. 1008, the request for
arbitration filed with CIAC should be made by both parties, and
hence the request by one party is not enough.
It is undisputed that the contracts between HYDRO and NIA
contained an arbitration clause wherein they agreed to submit
to arbitration any dispute between them that may arise before
or after the termination of the agreement. Consequently, the
claim of HYDRO having arisen from the contract is
arbitrable. NIAs reliance with the ruling on the case of Tesco
Services Incorporated v. Vera,[30] is misplaced.
The 1988 CIAC Rules of Procedure which were applied by
this Court in Tesco case had been duly amended by CIAC
Resolutions No. 2-91 and 3-93, Section 1 of Article III of which
read as follows:
Submission to CIAC Jurisdiction - An arbitration clause in a
construction contract or a submission to arbitration of a
construction contract or a submission to arbitration of a
construction dispute shall be deemed an agreement to submit
an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission. When
a contract contains a clause for the submission of a future
controversy to arbitration, it is not necessary for the parties to
enter into a submission agreement before the claimant may
invoke the jurisdiction of CIAC.
Under the present Rules of Procedure, for a particular
construction contract to fall within the jurisdiction of CIAC, it is
merely required that the parties agree to submit the same to
voluntary arbitration. Unlike in the original version of Section 1,
as applied in the Tesco case, the law as it now stands does not
provide that the parties should agree to submit disputes arising
from their agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain and clear
that as long as the parties agree to submit to voluntary
arbitration, regardless of what forum they may choose, their
agreement will fall within the jurisdiction of the CIAC, such that,
even if they specifically choose another forum, the parties will
not be precluded from electing to submit their dispute before
the CIAC because this right has been vested upon each party by
law, i.e., E.O. No. 1008.[31]
Moreover, it is undeniable that NIA agreed to submit the
dispute for arbitration to the CIAC. NIA through its counsel
actively participated in the arbitration proceedings by filing an
answer with counterclaim, as well as its compliance wherein it
nominated arbitrators to the proposed panel, participating in the
deliberations on, and the formulation of, the Terms of Reference
of the arbitration proceeding, and examining the documents
submitted by HYDRO after NIA asked for the originals of the said
documents.[32]

As to the defenses of laches and prescription, they are
evidentiary in nature which could not be established by mere
allegations in the pleadings and must not be resolved in a
motion to dismiss. Those issues must be resolved at the trial of
the case on the merits wherein both parties will be given ample
opportunity to prove their respective claims and defenses.
[33]
Under the rule[34] the deferment of the resolution of the said
issues was, thus, in order. An allegation of prescription can
effectively be used in a motion to dismiss only when the
complaint on its face shows that indeed the action has already
prescribed.[35] In the instant case, the issue of prescription and
laches cannot be resolved on the basis solely of the complaint. It
must, however, be pointed that under the new rules,
[36]
deferment of the resolution is no longer permitted. The court
may either grant the motion to dismiss, deny it, or order the
amendment of the pleading.
WHEREFORE, the instant petition is DISMISSED for lack of
merit. The Court of Appeals is hereby DIRECTED to proceed with
reasonable dispatch in the disposition of C.A. G.R. No. 44527
and include in the resolution thereof the issue of laches and
prescription.
SO ORDERED.
THIRD DIVISION[G.R. No. 127275. June 20, 2003]
PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, petitioner, vs. COURT OF APPEALS,
WILLIAM GOLANGCO CONSTRUCTION CORP.,
Chairman ERNESTO S. DE CASTRO, and members
LAURO M. CRUZ and VICTOR P. LAZATIN of the
ARBITRAL TRIBUNAL of the CONSTRUCTION
INDUSTRY ARBITRATION
COMMISSION, respondents.
CARPIO-MORALES, J.:
Petitioner Philippine Commercial Industrial Bank (PCIB)
assails, by the present Petition for Certiorari and Mandamus, the
September 25, 1996 Resolution of the Court of Appeals (CA)
dismissing its petition for Certiorari and/or Partial Review of CIAC
Case No. 07-95, on motion of private respondent William
Golangco Construction Corporation (WGCC).
PCIB contracted WGCC to construct the 5th to 21st floors
of PCIB Tower II in Makati. Alleging that the granite finish [of the
tower] proved to be defective such that after all efforts at
negotiations proved futile it hired another contractor to redo the
defective finish, but that WGCC refused to pay it actual
damages incurred in the process, PCIB filed a request for
arbitration with the Construction Industry Arbitration
Commission (CIAC), which docketed it as CIAC Case No. 07-95,
praying that WGCC be held liable for construction deficiencies.
WGCC denied PCIBs claim, it alleging that it accomplished
the project faithfully and in accordance with the specifications-
requirements of PCIB which accepted it after due inspection. It
counterclaimed that PCIB was actually indebted to it for material
cost adjustment since the cost of materials substantially
increased in the course of the construction of the project.
The CIAC, by Decision[1] of June 21, 1996, found that PCIB
was entitled to recover from WGCC the sum of P9,741,829.00
representing cost of repairs done by another contractor on the
project. On WGCCs counterclaim, finding that under the parties
contract, increase for labor and materials under certain
conditions was allowed but that PCIB presented no strong, or at
best, token opposition to the evidence presented by WGCC for
the escalated cost of materials, the CIAC awarded WGCC the
amount of P5,777,157.84. The CIAC accordingly disposed as
follows:
40
After summing up the award to both parties this TRIBUNAL
hereby awards the amount of THREE MILLION NINE HUNDRED
SIXTY-FOUR THOUSAND SIX HUNDRED SEVENTY[-]ONE PESOS
AND SIXTEEN CENTAVOS (P3,964,671.16) to CLAIMANT
Philippine Commercial Industrial Bank. Respondent William
Golangco Construction is hereby ordered to pay the stated
amount with legal interest of six (6%) percent from date of this
decision until fully paid.[2]
PCIB filed on June 28, 1996 a Motion for Partial
Reconsideration[3] of the CIAC Decision which is not
allowed under Section 9, Article XV of the CIAC Rules of
Procedure. It subsequently filed on July 12, 1996 before the CA a
petition for Certiorari and/or Partial Review [4] which may be
treated as an original action for certiorari under Rule 65 of the
Rules of Court or as a petition for review under Circular 1-95 of
the Supreme Court, alleging that the CIAC acted in excess of its
jurisdiction and contrary to law in awarding, without basis, an
amount in favor of WGCC.
To PCIBs petition filed before the CA WGCC filed a Motion to
Dismiss with Motion to Cite PCIB Counsel for Contempt[5] on the
ground that it was filed beyond the 15-day reglementary period
for filing an appeal, in support of which it alleged that, contrary
to the allegation of counsel for PCIB that he acquired actual
knowledge of the CIAC decision on June 28, 1996, PCIB actually
received a copy thereof on June 24, 1996, hence, it had only
until July 9, 1996 within which to file before the CA a petition
for review. Since PCIB filed before the CA its petition for
Certiorari and/or Partial Review on July 12, 1996, WGCC
concluded that it was late by 3 days. WGCC attached to its
motion a certified photocopy[6] of the pertinent entry in the CIAC
logbook showing that Engineer Bong Nuno received a copy of
the decision for PCIB on June 24, 1996.
By its assailed Resolution,[7] the CA granted WGCCs Motion
to Dismiss PCIBs petition upon a finding that indeed PCIB
received a copy of the CIAC decision on June 24, 1996 and,
therefore, its petition was belatedly filed. On the nature of the
petition, the CA held that an original action for certiorari under
Rule 65 and a petition for review under Circular 1-95 of the
Supreme Court cannot be the subject of a single pleading.
PCIBs Motion for Reconsideration having been denied by
the CA, it comes to this Court by the present petition for
Certiorari and Mandamus upon the following grounds:
I
THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION TO
THE GRAVE AND IRREPARABLE DAMAGE TO THE PETITIONER
AND FAILED OR UNLAWFULLY NEGLECTED TO DO AN ACT WHICH
THE LAW ENJOINS IT TO DO WHEN IT DISMISSED THE PETITION
IN CA G.R. SP NO. 41227.
II
THE RESPONDENT COURT GRAVELY ABUSED ITS DISCRETION TO
THE GRAVE AND IRREPARABLE DAMAGE AND INJURY TO THE
PETITIONER AND FAILED OR UNLAWFULLY NEGLECTED TO DO AN
ACT WHICH THE LAW ENJOINS IT TO DO WHEN IT REFUSED TO
ALLOW THE PETITIONERS ALTERNATIVE RELIEFS FOR REVIEW
AND/OR FOR CERTIORARI. (Underscoring supplied)
PCIBs counsel disclaims that Engineer Bong Nuno is his
employee but submits anyway that he was not authorized to
receive the CIAC decision for him in his (counsels) capacity as,
by his claim, the authorized representative of PCIB.
The present petition fails.
In the petition for Certiorari and/or Partial Review of CIAC
Case No. 07-95[8] filed before the CA by PCIB, its counsel alleged,
inter alia, as follows, quoted verbatim:

Inasmuch as the undersigned counsel ha[s] not officially
received its copy of the Decision sought to be reviewed
because the Arbitral Tribunal had such copy served only on
[PCIB], the reglementary period should be reckoned from the
date when the undersigned counsel actually acquired knowledge
thereof which was on 28 June 1996 when it filed [PCIBs] Motion
for Partial Reconsideration.Accordingly, treated as a Petition for
Review, pursuant to resolution No. 2-95, this petition is
seasonable.
A copy of the Decision as served upon [PCIB] itself is attached
marked as Annex A and made a part thereof.[9] (Underscoring
supplied)
The copy of the CIAC decision attached to PCIBs petition
before the CA is a computer print-out bearing
the originalsignatures of the Chairman and two members of
the Arbitral Tribunal.[10] When PCIB received that copy of the
CIAC decision, the petition filed before the CA did not state.
As earlier stated, WGCC filed before the CA a Motion to
Dismiss with Motion to Cite PCIB Counsel for Contempt, [11]on the
grounds that:
THE . . . PETITION HAS BEEN FILED BEYOND THE REGLEMENTARY
PERIOD OF FIFTEEN DAYS FROM PETITIONERS RECEIPT OF THE
ASSAILED DECISION.
PETITIONERS COUNSEL IS GUILTY OF MISREPRESENTING FACTS IN
A BLATANT ATTEMPT TO HIDE THE BELATED FILING OF THE . . .
PETITION;
41
1996, it was only on June 27 (sic), 1996 that [he] had actual
knowledge of the content of the decision. (Emphasis
supplied). PCIBs counsels latest position may not be entertained
given his glaring admission that copy of the CIAC decision was
duly served on June 24 1996 on PCIB, a party to the case which,
as will now be discussed, CIAC Rules mandates should be the
one to be notified of the text of the decision.
The CIAC Rules of Procedure does not contain a provision
similar to Section 2, Rule 13 of the Revised Rules of Court,
reiterated in the 1997 Rules of Civil Procedure, which provides
that service to any party represented by counsel should be
made upon his counsel, unless service upon the party himself is
ordered by the court. Instead, Section 7, Article XV of the CIAC
Rules of Procedure provides:
Section 7. Notification of Award to Parties Once an award has
been made, provided that the costs of the arbitration have been
fully paid to the Secretariat by the parties or by one of them, the
Secretariat shall notify the parties of the text signed by the
Arbitrator or Arbitral Tribunal.
Additional copies certified true by the Executive Director of the
Secretariat shall be made available, on request and at any time,
to the parties or their counsel but to no one else. (Emphasis
and underscoring supplied)
From the immediately-quoted provision of the CIAC Rules,
it is the parties who are to be notified of the text of the CIAC
decision. This answers PCIBs counsels jarring complaint that he
was not officially served with a copy of the CIAC decision.

In fine, copy of the CIAC decision having admittedly been

and in said Motion to Dismiss, WGCC alleged that per CIAC
served on and received by PCIB on June 24, 1996, PCIBs
records, petitioner received its copy of the CIAC decision on June
counsel cannot assail the validity of such service by now
24, 1996, hence, the petition filed before the CA on July 12,
claiming that the same was ineffective as it was not served on
1996 was late by 3 days.
him (counsel) as the duly authorized representative of PCIB.

In its Opposition [to WGCCs Motion to Dismiss], and

It is an elementary rule of procedure that perfection of an
Countermotion for Contempt,[12] PCIBs counsel admitted that
appeal within the reglementary period is not
PCIB was indeed served copy of the CIAC decision through
only mandatory but also jurisdictional so that failure to do so
Engineer Nuno but that it was only on June 28, 1996 that PCIB
renders the questioned decision final and executory, and
sent him a copy thereof. Thus PCIBs counsel alleged:
deprives an appellate court of jurisdiction to alter the final
judgment, much less to entertain the appeal.[13]
In its petition filed with this Honorable Court [of Appeals], the
petitioner was candid in alleging that although it received a copy
PCIB having filed its petition for Certiorari and/or Partial
of a decision of the Arbitral Tribunal, no actual service thereof
Review after the CIAC decision had become final and executory,
was made on the undersigned counsel. Receipt by the
the CA correctly granted WGCCs Motion to Dismiss the
petitioner itself of the decision did not start the running of the
same. This leaves it unnecessary to pass upon PCIBs plaint
period to appeal. It is basic that:
about the CAs refus[al] to allow [its] alternative reliefs for review
and/or certiorari. Suffice it to state that the following ruling of
xxx. The moment an attorney appears for any party, notice this Court instructs:
should be given to the furnished. xxx where a party appears by
attorney in an action or proving in a court of record all notices
We have time and again reminded members of the bench and
thereafter requires to be given in the action or providing must
bar that a special civil action for certiorari under Rule 65 lies
be given to the attorney and not to the client; and a notice given
only when there is no appeal nor plain, speedy and adequate
to the client and not to his attorney is not a notice in law (Palad
remedy in the ordinary course of law. Certiorari cannot be
vs. Cui, et al., 28 Phil. 44). In legal contemplation, therefore, and
allowed when a party to a case fails to appeal a judgment
under the fact, the present case, there was no legal service of
despite the availability of that remedy, certiorari not being a
the notice, and the defendants creed not be in default. (Elli, et
substitute for lost appeal. The remedies of appeal and
al. vs. Ditan, et al., 5 SCRA 503, 506).
certiorari are mutually exclusive and not alternative or
successive (Emphasis supplied, citations omitted.) [14]
When, therefore, the undersigned submitted in the petition
that it had actual knowledge of the decision on 28 June
PCIB, at all events, appeals for a relaxation of the Rules
1996 when the petitioner sent it a copy thereof, it was
given the [substantial] issues and amounts involved. But even
not only being candid, but was also admitting that it
its present petition for certiorari and mandamus is not the
already had actual notice of the decision as of then, hence,
proper remedy from the CA Resolution. What it should have filed
the running of the period to appeal must commence as of
was a petition for review under Rule 45 of the Rules of
then. (Emphasis supplied, underscoring by petitioner)
Court. But even if, in accordance with the liberal spirit pervading
the Rules of Court and in the interest of justice, this Court, in the
In the present petition before this Court, PCIBs exercise of its discretion, treats the present petition for certiorari
counsel now alleges that in the CIAC decision, he was as one for review under Rule 45, petitioner has failed to proffer
specifically named as the representative and counsel for [PCIB], meritorious reasons or arguments for its allowance.
but since the decision was not served on him as the authorized
representative of PCIB but to an employee of [PCIB] on June 24,

WHEREFORE, the present petition is hereby DISMISSED.
SO ORDERED.
SECOND DIVISION March 14, 2012 G.R. No. 187521
F.F. CRUZ & CO., INC., Petitioner,- versus - HR
CONSTRUCTION CORP.,
Respondent.
REYES, J.:
This is a petition for review on certiorari under Rule 45
of the Rules of Court filed by petitioner F.F. Cruz & Co., Inc.
(FFCCI) assailing the Decision[1] dated February 6, 2009 and
Resolution[2] dated April 13, 2009 issued by the Court of Appeals
(CA) in CA-G.R. SP No. 91860.
The Antecedent Facts
Sometime in 2004, FFCCI entered into a contract with
the Department of Public Works and Highways (DPWH) for the
construction of the Magsaysay Viaduct, known as the Lower
Agusan Development Project. On August 9, 2004, FFCCI, in turn,
entered into a Subcontract Agreement [3] with HR Construction
Corporation (HRCC) for the supply of materials, labor,
equipment, tools and supervision for the construction of a
portion of the said project called the East Bank Levee and Cut-
Off Channel in accordance with the specifications of the main
contract.
The subcontract price agreed upon by the parties
amounted to P31,293,532.72. Pursuant to the Subcontract
Agreement, HRCC would submit to FFCCI a monthly progress
billing which the latter would then pay, subject to stipulated
deductions, within 30 days from receipt thereof.
The parties agreed that the requests of HRCC for
payment should include progress accomplishment of its
completed works as approved by FFCCI. Additionally, they
agreed to conduct a joint measurement of the completed works
of HRCC together with the representative of DPWH and
consultants to arrive at a common quantity.
Thereafter, HRCC commenced the construction of the
works pursuant to the Subcontract Agreement.
On September 17, 2004, HRCC submitted to FFCCI its
first progress billing in the amount of P2,029,081.59 covering
the construction works it completed from August 16 to
September 15, 2004.[4] However, FFCCI asserted that the DPWH
was then able to evaluate the completed works of HRCC only
until July 25, 2004. Thus, FFCCI only approved the gross amount
of P423,502.88 for payment. Pursuant to the Subcontract
Agreement, FFCCI deducted from the said gross
amount P42,350.29 for retention and P7,700.05 for expanded
withholding tax leaving a net payment in the amount
of P373,452.54. This amount was paid by FFCCI to HRCC on
December 3, 2004.[5]
FFCCI and the DPWH then jointly evaluated the
completed works of HRCC for the period of July 26 to September
25, 2004. FFCCI claimed that the gross amount due for the
completed works during the said period was P2,008,837.52.
From the said gross amount due, FFCCI deducted
therefrom P200,883.75 for retention and P36,524.07 for
expanded withholding tax leaving amount of P1,771,429.45 as
the approved net payment for the said period. FFCCI paid this
amount on December 21, 2004.[6]
On October 29, 2004, HRCC submitted to FFCCI its
second progress billing in the amount of P1,587,760.23 covering
its completed works from September 18 to 25, 2004. [7] FFCCI did
not pay the amount stated in the second progress billing,
claiming that it had already paid HRCC for the completed works
for the period stated therein.
On even date, HRCC submitted its third progress billing
in the amount of P2,569,543.57 for its completed works from
September 26 to October 25, 2004. [8] FFCCI did not immediately
42
pay the amount stated in the third progress billing, claiming that
it still had to evaluate the works accomplished by HRCC.
On November 25, 2004, HRCC submitted to FFCCI its
fourth progress billing in the amount of P1,527,112.95 for the
works it had completed from October 26 to November 25, 2004.
Subsequently, FFCCI, after it had evaluated the
completed works of HRCC from September 26 to November 25,
2004, approved the payment of the gross amount
of P1,505,570.99 to HRCC. FFCCI deducted
therefrom P150,557.10 for retention and P27,374.02 for
expanded withholding tax leaving a net payment
of P1,327,639.87, which amount was paid to HRCC on March 11,
2005.[9]
Meanwhile, HRCC sent FFCCI a letter [10] dated
December 13, 2004 demanding the payment of its progress
billings in the total amount of P7,340,046.09, plus interests,
within three days from receipt thereof. Subsequently, HRCC
completely halted the construction of the subcontracted project
after taking its Christmas break on December 18, 2004.
On March 7, 2005, HRCC, pursuant to the arbitration
clause in the Subcontract Agreement, filed with the Construction
Industry Arbitration Commission (CIAC) a Complaint [11] against
FFCCI praying for the payment of the following: (1) overdue
obligation in the reduced amount of P4,096,656.53 as of
December 15, 2004 plus legal interest; (2) P1,500,000.00 as
attorneys fees; (3) P80,000.00 as acceptance fee and
representation expenses; and (4) costs of litigation.
In its Answer,[12] FFCCI claimed that it no longer has any
liability on the Subcontract Agreement as the three payments it
made to HRCC, which amounted to P3,472,521.86, already
represented the amount due to the latter in view of the works
actually completed by HRCC as shown by the survey it
conducted jointly with the DPWH. FFCCI further asserted that
the delay in the payment processing was primarily attributable
to HRCC inasmuch as it presented unverified work
accomplishments contrary to the stipulation in the Subcontract
Agreement regarding requests for payment.
Likewise, FFCCI maintained that HRCC failed to comply
with the condition stated under the Subcontract Agreement for
the payment of the latters progress billings, i.e. joint
measurement of the completed works, and, hence, it was
justified in not paying the amount stated in HRCCs progress
billings.
On June 16, 2005, an Arbitral Tribunal was created
composed of Engineer Ricardo B. San Juan, Joven B. Joaquin and
Attorney Alfredo F. Tadiar, with the latter being appointed as the
Chairman.
In a Preliminary Conference held on July 5, 2005, the
parties defined the issues to be resolved in the proceedings
before the CIAC as follows:
1. What is the correct amount of [HRCCs] unpaid
progress billing?
2. Did [HRCC] comply with the conditions set forth in
subparagraph 4.3 of the Subcontract Agreement
for the submission, evaluation/processing and
release of payment of its progress billings?
3. Did [HRCC] stop work on the project?
3.1 If so, is the work stoppage justified?
3.2 If so, what was the percentage and value
of [HRCCs] work accomplishment at the
time it stopped work on the project?
4. Who between the parties should bear the cost of
arbitration or in what proportion should it be
shared by the parties?[13]
Likewise, during the said Preliminary Conference, HRCC
further reduced the amount of overdue obligation it claimed
from FFCCI to P2,768,916.66. During the course of the
proceedings before the CIAC, HRCC further reduced the said

amount to P2,635,397.77 the exact difference between the total
amount of HRCCs progress billings (P6,107,919.63) and FFCCIs
total payments in favor of the latter (P3,472,521.86).
The CIAC Decision
On September 6, 2005, after due proceedings, the CIAC
rendered a Decision[14] in favor of HRCC, the decretal portion of
which reads:
WHEREFORE, judgment is hereby rendered in
favor of the Claimant HR CONSTRUCTION
CORPORATION and AWARD made on its monetary
claim against Respondent F.F. CRUZ & CO., INC., as
follows:
[P]2,239,452.63 as the balance of its unpaid
billings and
101,161.57 as reimbursement of the
arbitration costs.
[P]2,340,614.20 Total due the Claimant
Interest on the foregoing
amount [P]2,239,452.63 shall be paid at the rate of
6% per annum from the date of this Decision. After
finality of this Decision, interest at the rate of 12% per
annum shall be paid thereon until full payment of the
awarded amount shall have been made x x x.
SO ORDERED.[15]
The CIAC held that the payment method adopted by
FFCCI is actually what is known as the back-to-back payment
scheme which was not agreed upon under the Subcontract
Agreement. As such, the CIAC ruled that FFCCI could not impose
upon HRCC its valuation of the works completed by the latter.
The CIAC gave credence to HRCCs valuation of its completed
works as stated in its progress billings. Thus:
During the trial, [FFCCIs] Aganon admitted
that [HRCCs] accomplishments are included in its own
billings to the DPWH together with a substantial mark-
up to cover overhead costs and profit. He further
admitted that it is only when DPWH approves its
(Respondents) billings covering [HRCCs] scope of work
and pays for them, that [FFCCI] will in turn pay [HRCC]
for its billings on the sub-contracted works.
On clarificatory questioning by the Tribunal,
[FFCCI] admitted that there is no back-to-
back provision in the sub-contract as basis for
this sequential payment arrangement and,
therefore, [FFCCIs] imposition thereof by withholding
payment to [HRCC] until it is first paid by the project
owner on the Main Contract, clearly violates said sub-
contract. It [is] this unauthorized implementation of a
back-to-back payment scheme that is seen to be the
reason for [FFCCIs] non-payment of the third progress
billings.
It is accordingly the holding of this Arbitral
Tribunal that [FFCCI] is not justified in withholding
payment of [HRCCs] third progress billing for this
scheme that [HRCC] has not agreed to in the sub-
contract agreement x x x.
xxx
The total retention money deducted by [FFCCI]
from [HRCCs] three progress billings, amounts
to [P]395,945.14 x x x. The retention money is part of
[HRCCs] progress billings and must, therefore, be
credited to this account. The two amounts (deductions
and net payments) total [P]3,868,467.00 x x x. This
represents the total gross payments that should be
credited and deducted from the total gross billings to
arrive at what has not been paid to the [HRCC]. This
results in the amount
of [P]2,239,452.63 ([P]6,107,919.63 - verification survey result in the former being obliged to
[P]3,868,467.00) as the correct balance of [HRCCs]
unpaid billings.[16]
43
Further, the CIAC ruled that FFCCI had already waived
its right under the Subcontract Agreement to require a joint
measurement of HRCCs completed works as a condition
precedent to the payment of the latters progress billings. Hence:
[FFCCI] admits that in all three instances
where it paid [HRCC] for its progress billings, it never
required compliance with the aforequoted contractual
provision of a prior joint quantification. Such repeated
omission may reasonably be construed as
a waiver by [FFCCI] of its contractual right to require
compliance of said condition and it is now too late in
the day to so impose it. Article 6 of the Civil Code
expressly provides that rights may be waived unless
the waiver is contrary to law, public order, public
policy, morals or good customs. The tribunal cannot
see any such violation in this case.
xxx
[FFCCIs] omission to enforce the contractually
required condition of payment, has led [HRCC] to
believe it to be true that indeed [FFCCI] has waived the
condition of joint quantification and, therefore, [FFCCI]
may not be permitted to falsify such resulting position.
[17]
Likewise, the CIAC held that FFCCIs non-payment of the
progress billings submitted by HRCC gave the latter the right to
rescind the Subcontract Agreement and, accordingly, HRCCs
work stoppage was justified. It further opined that, in effect,
FFCCI had ratified the right of HRCC to stop the construction
works as it did not file any counterclaim against HRCC for
liquidated damages arising therefrom.
FFCCI then filed a petition for review with CA assailing
the foregoing disposition by the CIAC.
The CA Decision
On February 6, 2009, the CA rendered the herein
assailed Decision[18] denying the petition for review filed by
FFCCI. The CA agreed with the CIAC that FFCCI had waived its
right under the Subcontract Agreement to require a joint
quantification of HRCCs completed works.
The CA further held that the amount due to HRCC as
claimed by FFCCI could not be given credence since the same
was based on a survey of the completed works conducted
without the participation of HRCC. Likewise, being the main
contractor, it ruled that it was the responsibility of FFCCI to
include HRCC in the joint measurement of the completed works.
Furthermore, the CA held that HRCC was justified in stopping its
construction works on the project as the failure of FFCCI to pay
its progress billings gave the former the right to rescind the
Subcontract Agreement.
FFCCI sought a reconsideration[19] of the said February
6, 2009 Decision but it was denied by the CA in its
Resolution[20] dated April 13, 2009.
Issues
In the instant petition, FFCCI submits the following
issues for this Courts resolution:
[I.]
x x x First, [d]oes the act of [FFCCI] in
conducting a verification survey of [HRCCs] billings in
the latters presence amount to a waiver of the right of
[FFCCI] to verify and approve said billings? What, if any,
is the legal significance of said act?
[II.]
x x x Second, [d]oes the payment of [FFCCI] to
[HRCC] based on the results of the above mentioned
accept whatever accomplishment was reported by the
latter?

[III.]
x x x Third, [d]oes the mere comparison of the
payments made by [FFCCI] with the contested progress
billings of [HRCC] amount to an adjudication of the
controversy between the parties?
[IV.]
x x x Fourth, [d]oes the failure of [FFCCI] to
interpose a counterclaim against [HRCC] for liquidated
damages due to the latters work stoppage, amount to a
ratification of such work stoppage?
[V.]
x x x Fifth, [d]id the [CA] disregard or overlook
significant and material facts which would affect the
result of the litigation?[21]
In sum, the crucial issues for this Courts resolution
are: first, what is the effect of FFCCIs non-compliance with the
stipulation in the Subcontract Agreement requiring a joint
quantification of the works completed by HRCC on the payment
of the progress billings submitted by the latter; and second,
whether there was a valid rescission of the Subcontract
Agreement by HRCC.
The Courts Ruling
The petition is not meritorious.
Procedural Issue:
Finality and Conclusiveness of the CIACs Factual Findings
Before we delve into the substantial issues raised by FFCCI, we
shall first address the procedural issue raised by HRCC.
According to HRCC, the instant petition merely assails the
factual findings of the CIAC as affirmed by the CA and,
accordingly, not proper subjects of an appeal under Rule 45 of
the Rules of Court. It likewise pointed out that factual findings of
the CIAC, when affirmed by the CA, are final and conclusive
upon this Court.
Generally, the arbitral award of CIAC is final and may not
be appealed except on questions of law.
Executive Order (E.O.) No. 1008 [22] vests upon the CIAC original
and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in
construction in the Philippines. Under Section 19 of E.O. No.
1008, the arbitral award of CIAC "shall be final and inappealable
except on questions of law which shall be appealable to the
Supreme Court."[23]
In Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc.,
[24]
we explained raison d etre for the rule on finality of the CIACs
arbitral award in this wise:
Voluntary arbitration involves the reference of
a dispute to an impartial body, the members of which
are chosen by the parties themselves, which parties
freely consent in advance to abide by the arbitral
award issued after proceedings where both parties had
the opportunity to be heard. The basic objective is to
provide a speedy and inexpensive method of settling
disputes by allowing the parties to avoid the
formalities, delay, expense and aggravation which
commonly accompany ordinary litigation, especially
litigation which goes through the entire hierarchy of
courts. Executive Order No. 1008 created an arbitration
facility to which the construction industry in
the Philippines can have recourse. The Executive Order
was enacted to encourage the early and expeditious
settlement of disputes in the construction industry, a
public policy the implementation of which is necessary
and important for the realization of national
development goals.
44
Aware of the objective of voluntary arbitration
in the labor field, in the construction industry, and in
any other area for that matter, the Court will not assist
one or the other or even both parties in any effort to
subvert or defeat that objective for their private
purposes. The Court will not review the factual findings
of an arbitral tribunal upon the artful allegation that
such body had "misapprehended the facts" and will not
pass upon issues which are, at bottom, issues of fact,
no matter how cleverly disguised they might be as
"legal questions." The parties here had recourse to
arbitration and chose the arbitrators themselves; they
must have had confidence in such arbitrators. x x
x[25] (Citation omitted)
Thus, in cases assailing the arbitral award rendered by
the CIAC, this Court may only pass upon questions of
law. Factual findings of construction arbitrators are final and
conclusive and not reviewable by this Court on appeal. This rule,
however, admits of certain exceptions.
In Spouses David v. Construction Industry and Arbitration
Commission,[26] we laid down the instances when this Court may
pass upon the factual findings of the CIAC, thus:
We reiterate the rule that factual findings of
construction arbitrators are final and conclusive and
not reviewable by this Court on appeal, except when
the petitioner proves affirmatively that: (1) the award
was procured by corruption, fraud or other undue
means; (2) there was evident partiality or corruption of
the arbitrators or of any of them; (3) the arbitrators
were guilty of misconduct in refusing to postpone the
hearing upon sufficient cause shown, or in refusing to
hear evidence pertinent and material to the
controversy; (4) one or more of the arbitrators were
disqualified to act as such under section nine of
Republic Act No. 876 and willfully refrained from
disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been
materially prejudiced; or (5) the arbitrators exceeded
their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject
matter submitted to them was not made. x x
x[27] (Citation omitted)
Issues on the proper interpretation of the terms of the
Subcontract Agreement involve questions of law.
A question of law arises when there is doubt as to what the law
is on a certain state of facts, while there is a question of fact
when the doubt arises as to the truth or falsity of the alleged
facts. For a question to be one of law, the same must not involve
an examination of the probative value of the evidence presented
by the litigants or any of them. The resolution of the issue must
rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of
the evidence presented, the question posed is one of fact.[28]
On the surface, the instant petition appears to merely
raise factual questions as it mainly puts in issue the appropriate
amount that is due to HRCC. However, a more thorough analysis
of the issues raised by FFCCI would show that it actually asserts
questions of law.
FFCCI primarily seeks from this Court a determination
of whether amount claimed by HRCC in its progress billing may
be enforced against it in the absence of a joint measurement of
the formers completed works. Otherwise stated, the main
question advanced by FFCCI is this: in the absence of the joint
measurement agreed upon in the Subcontract Agreement, how
will the completed works of HRCC be verified and the amount
due thereon be computed?
The determination of the foregoing question entails an
interpretation of the terms of the Subcontract Agreement vis--
vis the respective rights of the parties herein. On this point, it
should be stressed that where an interpretation of the true
agreement between the parties is involved in an appeal, the
appeal is in effect an inquiry of the law between the parties, its
interpretation necessarily involves a question of law. [29]

Moreover, we are not called upon to examine the
probative value of the evidence presented before the CIAC.
Rather, what is actually sought from this Court is an
interpretation of the terms of the Subcontract Agreement as it
relates to the dispute between the parties.
First Substantive Issue: Effect of Non-compliance with
the Joint Quantification Requirement on the
Progress Billings of HRCC
Basically, the instant issue calls for a determination as to which
of the parties respective valuation of accomplished works should
be given credence. FFCCI claims that its valuation should be
upheld since the same was the result of a measurement of the
completed works conducted by it and the DPWH. On the other
hand, HRCC maintains that its valuation should be upheld on
account of FFCCIs failure to observe the joint measurement
requirement in ascertaining the extent of its completed works.
The terms of the Subcontract Agreement should prevail.
In resolving the dispute as to the proper valuation of the works
accomplished by HRCC, the primordial consideration should be
the terms of the Subcontract Agreement. It is basic that if the
terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its
stipulations shall control.[30]
In Abad v. Goldloop Properties, Inc.,[31] we stressed that:
A courts purpose in examining a contract is to
interpret the intent of the contracting parties, as
objectively manifested by them. The process of
interpreting a contract requires the court to make a
preliminary inquiry as to whether the contract before it
is ambiguous. A contract provision is ambiguous if it is
susceptible of two reasonable alternative
interpretations. Where the written terms of the
contract are not ambiguous and can only be read
one way, the court will interpret the contract as a
matter of law. If the contract is determined to be
ambiguous, then the interpretation of the contract is
left to the court, to resolve the ambiguity in the light of
the intrinsic evidence.[32](Emphasis supplied and
citation omitted)
Article 4 of the Subcontract Agreement, in part, contained the
following stipulations:
ARTICLE 4
SUBCONTRACT PRICE
4.1 The total SUBCONTRACT Price shall be THIRTY ONE
MILLION
TWO HUNDRED NINETY THREE THOUSAND FIVE
HUNDRED THIRTY TWO PESOS & 72/100 ONLY
([P]31,293,532.72) inclusive of Value Added
Tax x x x.
xxx
4.3 Terms of Payment
FFCCI shall pay [HRCC] within thirty (30)
days upon receipt of the [HRCCs] Monthly
Progress Billingssubject to deductions due to
ten percent (10%) retention, and any other sums
that may be due and recoverable by FFCCI from
[HRCC] under this SUBCONTRACT. In all cases,
however, two percent (2%) expanded
withholding tax on the [HRCCs] income will be
deducted from the monthly payments.
Requests for the payment by the [HRCC]
shall include progress accomplishment of
completed works (unit of work accomplished x
unit cost) as approved by [FFCCI]. Cut-off
date of monthly billings shall be every 25 thof the
month and joint measurement shall be
conducted with the DPWHs representative,
Consultants, FFCCI and [HRCC] to arrive at
45
a common/agreed quantity.[33] (Emphasis
supplied)
Pursuant to the terms of payment agreed upon by the
parties, FFCCI obliged itself to pay the monthly progress billings
of HRCC within 30 days from receipt of the same. Additionally,
the monthly progress billings of HRCC should indicate the extent
of the works completed by it, the same being essential to the
valuation of the amount that FFCCI would pay to HRCC.
The parties further agreed that the extent of HRCCs
completed works that would be indicated in the monthly
progress billings should be determined through a joint
measurement conducted by FFCCI and HRCC together with the
representative of DPWH and the consultants.
It is the responsibility of FFCCI to call for the joint
measurement of HRCCs completed works.
It bears stressing that the joint measurement contemplated
under the Subcontract Agreement should be conducted by the
parties herein together with the representative of the DPWH and
the consultants. Indubitably, FFCCI, being the main contractor of
DPWH, has the responsibility to request the representative of
DPWH to conduct the said joint measurement.
On this score, the testimony of Engineer Antonio M.
Aganon, Jr., project manager of FFCCI, during the reception of
evidence before the CIAC is telling, thus:
MR. J. B. JOAQUIN:
Engr. Aganon, earlier there was a stipulation that in all
the four billings, there never was a joint quantification.
PROF. A. F. TADIAR:
He admitted that earlier. Pinabasa ko sa kanya.
ENGR. R. B. SAN JUAN:
The joint quantification was done only between them
and DPWH.
xxxx
ENGR. AGANON:
Puwede ko po bang i-explain sandali lang po regarding
lang po doon sa quantification na iyon? Basically po as
main contractor of DPWH, we are the ones who
[are] requesting for joint survey quantification
with the owner, DPWH. Ngayon po, although wala sa
papel na nag-witness and [HRCC] still the same po,
nandoon din po sila during that time, kaya lang ho . . .
MR. J. B. JOAQUIN:
Hindi pumirma?
ENGR. AGANON:
Hindi sila puwede pumirma kasi ho kami po ang
contractor ng DPWH hindi sila.[34] (Emphasis supplied)
FFCCI had waived its right to demand for a joint
measurement of HRCCs completed works under the
Subcontract Agreement.
The CIAC held that FFCCI, on account of its failure to demand
the joint measurement of HRCCs completed works, had
effectively waived its right to ask for the conduct of the same as
a condition sine qua non to HRCCs submission of its monthly
progress billings.
We agree.
In People of the Philippines v. Donato,[35] this Court explained the
doctrine of waiver in this wise:

Waiver is defined as "a voluntary and
intentional relinquishment or abandonment of a known
existing legal right, advantage, benefit, claim or
privilege, which except for such waiver the party would
have enjoyed; the voluntary abandonment or
surrender, by a capable person, of a right known by
him to exist, with the intent that such right shall be
surrendered and such person forever deprived of its
benefit; or such conduct as warrants an inference
of the relinquishment of such right; or the
intentional doing of an act inconsistent with
claiming it."
As to what rights and privileges may be
waived, the authority is settled:
x x x the doctrine of waiver extends to rights
and privileges of any character, and, since the
word waiver covers every conceivable right, it
is the general rule that a person may
waive any matter which affects his
property, and any alienable right or
privilege of which he is the owner or
which belongs to him or to which he is
legally entitled, whether secured by
contract, conferred with statute, or
guaranteed by constitution, provided such
rights and privileges rest in the
individual, are intended for his sole
benefit, do not infringe on the rights of
others, and further provided the waiver
of the right or privilege is not forbidden
by law, and does not contravene public
policy; and the principle is recognized that
everyone has a right to waive, and agree to
waive, the advantage of a law or rule made
solely for the benefit and protection of the
individual in his private capacity, if it can be
dispensed with and relinquished without
infringing on any public right, and without
detriment to the community at large. x x
x[36] (Emphasis supplied and citations omitted)
Here, it is undisputed that the joint measurement of HRCCs
completed works contemplated by the parties in the
Subcontract Agreement never materialized. Indeed, HRCC, on
separate occasions, submitted its monthly progress billings
indicating the extent of the works it had completed sans prior
joint measurement. Thus:
Progress Billing Period Covered
1st Progress Billing dated
August 16 to September 15, 2004
September 17, 2004[37]
2nd Progress Billing dated October
September 18 to 25, 2004
29, 2004[38]
3rd Progress Billing dated October
September 26 to October 25, 2004
29, 2004[39]
4th Progress Billing dated November
October 26 to November 25, 2004
25, 2004
FFCCI did not contest the said progress billings submitted by
HRCC despite the lack of a joint measurement of the latters
completed works as required under the Subcontract Agreement.
Instead, FFCCI proceeded to conduct its own verification of the
works actually completed by HRCC and, on separate dates,
made the following payments to HRCC:
Date of Payment Period Covered
[40]
December 3, 2004 April 2 to July 25, 2004
December 21, 2004[41] July 26 to September 25, 2004
[42]
March 11, 2005 September 26 to November 25,
FFCCIs voluntary payment in favor of HRCC, albeit in amounts
substantially different from those claimed by the latter, is a
glaring indication that it had effectively waived its right to
demand for the joint measurement of the completed works.
FFCCIs failure to demand a joint measurement of HRCCs
completed works reasonably justified the inference that it had
already relinquished its right to do so. Indeed, not once did
46
FFCCI insist on the conduct of a joint measurement to verify the
extent of HRCCs completed works despite its receipt of the four
monthly progress billings submitted by the latter.
FFCCI is already barred from contesting HRCCs valuation
of the completed works having waived its right to
demand the joint measurement requirement.
In view of FFCCIs waiver of the joint measurement
requirement, the CA, essentially echoing the CIACs disposition,
found that FFCCI is obliged to pay the amount claimed by HRCC
in its monthly progress billings. The CA reasoned thus:
Verily, the joint measurement that [FFCCI]
claims it conducted without the participation of [HRCC],
to which [FFCCI] anchors its claim of full payment of its
obligations to [HRCC], cannot be applied, nor imposed,
on [HRCC]. In other words, [HRCC] cannot be made to
accept a quantification of its works when the said
quantification was made without its participation. As a
consequence, [FFCCIs] claim of full payment cannot be
upheld as this is a result of a quantification that was
made contrary to the express provisions of the
Subcontract Agreement.
The Court is aware that by ruling so, [FFCCI]
would seem to be placed at a disadvantage because it
would result in [FFCCI] having to pay exactly what
[HRCC] was billing the former. If, on the other hand, the
Court were to rule otherwise[,] then [HRCC] would be
the one at a disadvantage because it would be made to
accept payment that is less than what it was billing.
Circumstances considered, however, the Court
deems it proper to rule in favor of [HRCC] because of
the explicit provision of the Subcontract Agreement
that requires the participation of the latter in the joint
measurement. If the Court were to rule otherwise, then
the Court would, in effect, be disregarding the explicit
agreement of the parties in their contract. [43]
Essentially, the question that should be resolved is this: In view
of FFCCIs waiver of its right to demand a joint measurement of
HRCCs completed works, is FFCCI now barred from disputing the
claim of HRCC in its monthly progress billings?
We rule in the affirmative.
As intimated earlier, the joint measurement requirement is a
mechanism essentially granting FFCCI the opportunity to verify
and, if necessary, contest HRCCs valuation of its completed
works prior to the submission of the latters monthly progress
billings.
In the final analysis, the joint measurement
requirement seeks to limit the dispute between the parties with
regard to the valuation of HRCCs completed works. Accordingly,
any issue which FFCCI may have with regard to HRCCs valuation
of the works it had completed should be raised and resolved
during the said joint measurement instead of raising the same
after HRCC had submitted its monthly progress billings. Thus,
having relinquished its right to ask for a joint measurement of
HRCCs completed works, FFCCI had necessarily waived its right
to dispute HRCCs valuation of the works it had accomplished.
Second Substantive Issue:
Validity of HRCCs Rescission of the Subcontract
Agreement
Both the CA and the CIAC held that the work stoppage of HRCC
was justified as the same is but an exercise of its right to rescind
2004
the Subcontract Agreement in view of FFCCIs failure to pay the
formers monthly progress billings. Further, the CIAC stated that
FFCCI could no longer assail the work stoppage of HRCC as it
failed to file any counterclaim against HRCC pursuant to the
terms of the Subcontract Agreement.
For its part, FFCCI asserted that the work stoppage of
HRCC was not justified and, in any case, its failure to raise a
counterclaim against HRCC for liquidated damages before the

CIAC does not amount to a ratification of the latters work
stoppage.
The determination of the validity of HRCCs work stoppage
depends on a determination of the following: first,whether HRCC
has the right to extrajudicially rescind the Subcontract
Agreement; and second, whether FFCCI is already barred from
disputing the work stoppage of HRCC.
HRCC had waived its right to rescind the Subcontract
Agreement.
The right of rescission is statutorily recognized in
reciprocal obligations. Article 1191 of the Civil Code pertinently
reads:
Art. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to
the rights of third persons who have acquired the thing,
in accordance with Articles 1385 and 1388 and the
Mortgage Law.
The rescission referred to in this article, more appropriately
referred to as resolution is on the breach of faith by the
defendant which is violative of the reciprocity between the
parties.[44] The right to rescind, however, may be waived,
expressly or impliedly.[45]
While the right to rescind reciprocal obligations is implied, that
is, that such right need not be expressly provided in the
contract, nevertheless the contracting parties may waive the
same.[46]
Contrary to the respective dispositions of the CIAC and the CA,
we find that HRCC had no right to rescind the Subcontract
Agreement in the guise of a work stoppage, the latter having
waived such right. Apropos is Article 11.2 of the Subcontract
Agreement, which reads:
11.2 Effects of Disputes and Continuing
Obligations
Notwithstanding any dispute,
controversy, differences or arbitration
proceedings relating directly or indirectly
to this SUBCONTRACT Agreement and
without prejudice to the eventual outcome
thereof, [HRCC] shall at all times proceed
with the prompt performance of the
Works in accordance with the directives
of FFCCI and this SUBCONTRACT
Agreement.[47] (Emphasis supplied)
Hence, in spite of the existence of dispute or
controversy between the parties during the course of the
Subcontract Agreement, HRCC had agreed to continue the
performance of its obligations pursuant to the Subcontract
Agreement. In view of the provision of the Subcontract
Agreement quoted above, HRCC is deemed to have effectively
waived its right to effect extrajudicial rescission of its contract
with FFCCI. Accordingly, HRCC, in the guise of rescinding the
Subcontract Agreement, was not justified in implementing a
work stoppage.
The costs of arbitration should be shared by the parties
equally.
47
Section 1, Rule 142 of the Rules of Court provides:
Section 1. Costs ordinarily follow results of
suit. Unless otherwise provided in these rules, costs
shall be allowed to the prevailing party as a matter of
course, but the court shall have power, for special
reasons, to adjudge that either party shall pay the
costs of an action, or that the same be divided, as
may be equitable. No costs shall be allowed against
the Republic of the Philippines unless otherwise
provided by law. (Emphasis supplied)
Although, generally, costs are adjudged against the
losing party, courts nevertheless have discretion, for special
reasons, to decree otherwise.
Here, considering that the work stoppage of HRCC is
not justified, it is only fitting that both parties should share in
the burden of the cost of arbitration equally. HRCC had a valid
reason to institute the complaint against FFCCI in view of the
latters failure to pay the full amount of its monthly progress
billings. However, we disagree with the CIAC and the CA that
only FFCCI should shoulder the arbitration costs. The arbitration
costs should be shared equally by FFCCI and HRCC in view of the
latters unjustified work stoppage.
WHEREFORE, in consideration of the foregoing
disquisitions, the Decision dated February 6, 2009 and
Resolution dated April 13, 2009 of the Court of Appeals in CA-
G.R. SP No. 91860 are
hereby AFFIRMED with MODIFICATION that the arbitration
costs shall be shared equally by the parties herein.SO
ORDERED.
FIRST DIVISIONG.R. No. 141897 September 24, 2001
METRO CONSTRUCTION, INC., petitioner,
vs.
CHATHAM PROPERTIES, INC., respondent.
DAVIDE, JR., C.J.:
The core issue in this case is whether under existing law and
rules the Court of Appeals can also review findings of facts of
the Construction Industry Arbitration Commission (CIAC).
Respondent Chatham Properties, Inc. (CHATHAM) and petitioner
Metro Construction, Inc. (MCI) entered into a contract for the
construction of a multi-storey building known as the Chatham
House located at the corner of Herrera and Valero Streets,
Salcedo Village, Makati City, Metro Manila. In April 1998, MCI
sought to collect from CHATHAM a sum of money for unpaid
progress billings and other charges and instituted a request for
adjudication of its claims with the CIAC. The case was docketed
as CIAC Case No. 10-98. The arbitral tribunal was composed of
Joven B. Joaquin as Chairman, and Beda G. Fajardo and Loreto C.
Aquino as members.
The preliminary conference before the CIAC started in June 1998
and was concluded a month after with the signing of the Terms
of Reference (TOR) of the Case.1 The hearings immediately
started with the presentation of MCI's witnesses, namely: Ms.
Ma. Suzette S. Nucum, Chief Accountant; Ms. Isabela Redito,
Office Engineer; Mr. John Romulo, Field Manager; and Dr. John Y.
Lai, President. CHATHAM's witnesses were: Engr. Ruperto
Kapunan III, Managing Director of RK Development and
Construction Co., Inc. (RKDCCI), which was the Construction
Manager firm hired by CHATHAM to oversee the construction
work of the Chatham House; Engr. Alex Bautista, Area Manager
of RKDCCI; Mr. Avelino M. Mercado, CHATHAM's Project Manager;
and Engr. Jose T. Infante.
In the meantime, the TOR was amended and finalized on 19
August 1998.2
The facts, as admitted by the parties before the CIAC and
incorporated in the original TOR, are as follows:
 48
1. On 21 April 1994, the parties formally entered into 10. Whether or not CHATHAM is entitled to claim x x x
a . . . contract for the construction of the "Chatham actual damages? If so, to what extent and how much?
House" . . . for the contract price of price of
P50,000,000.00 inclusive of value-added tax, subject to
11. Whether or not CHATHAM is entitled to x x x
adjustments in accordance with Article 9 of the
additional counterclaims as follows:
contract. Construction of the project, however,
commenced on 15 April 1994 upon the release by
CHATHAM of the down payment 11.1. Core testing expenses and penalty for
concrete strength failure P3,630,587.38.
2. On 12 July 1994, a Supplemental Contract was
executed by and between the parties whereby 11.2. Expenses to rectify structural steel works
CHATHAM authorized MCI to procure in behalf of the for the foundation P1,331,139.74.
former materials, equipment, tools, fixtures,
refurbishing, furniture, and accessories necessary for
11.3. Cost of additional materials (concrete &
the completion of the project.
rebars) supplied by CPI P5,761,457.91.

3. Under Section I.04 of the Supplemental Contract, the

12. Are the parties entitled to their respective claims
total amount of procurement and transportation cost[s]
for attorney's fees and cost of litigation? If so, how
and expenses which may be reimbursed by MCI from
much?3
CHATHAM shall not exceed the amount of P75,
000,000.00.
In the resolution of these issues, the CIAC discovered significant
data, which were not evident or explicit in the documents and
4. In the course of the construction, Change Orders No.
records but otherwise revealed or elicited during the hearings,
1, 4, 8A, 11, 12 and 13 were implemented, payment of
which the CIAC deemed material and relevant to the complete
which were recommended by x x x RKDCCI and
adjudication of the case. In its decision of 19 October 1998, 4
approved by one of CHATHAM's Project Managers,
the CIAC made the following findings and conclusions:
Romulo F. Sugay.

It was established during the hearing that the contract was

5. On 15 September 1995, CHATHAM through its Project
Manager, Romulo F. Sugay, agreed to give P20,000 per
floor for five (5) floors, or a total of P100,000.00 as
bonus/incentive pay to MCI's construction workers for
the completion of each floor on schedule. CHATHAM
reimbursed MCI the amount of P60,000.00
corresponding to bonuses advanced to its workers by
the latter for the 14th, 16th, and 17th floors.
6. CHATHAM's payments to MCI totaled
P104,875,792.37, representing payments for portions
of MCI's progress billings and x x x additional charges.
The parties then stipulated on the following issues, again, as set
forth in the TOR:
1. Is MCI entitled to its claims for unpaid progress
billings amounting to P21,062,339.76?
2. Were the approved Change Orders 1, 4, 8a, 11, 12
and 13 fully paid by CHATHAM? If not, is MCI entitled to
its claim for the unpaid balance?
3. Is CHATHAM liable for Change Orders 7a, 7b, 10, 14,
15, 16, 17, 19 and 20?
4. Were the CHB works from the 8th to the 31st floors
part of the original contract or in the nature of
extra/additional works? Is CHATHAM liable for the
same? If so, how much?
5. Is MCI entitled to an additional reimbursement of
P40,000.00 for bonuses granted to workers as an
incentive for the early completion of each floor?
6. Were the deductions in the amount of P1,393,458.84
made by CHATHAM in MCI's progress billing
reasonable?
7. Is MCI's claim of P1,646,502.00 for labor escalation
valid?
8. Is MCI entitled to payment of attendance fee? To
what extent and how much?
9. Did MCI fail to complete and/or deliver the project
within the approved completion period? If so, is MCI
liable for liquidated damages and how much?
awarded to MCI through negotiation as no bidding was
conducted, x x x It was also revealed that two agreements
were entered into, one is labeled Construction Contract for the
total fixed amount of P50,000,000.00 and the other a
Supplemental Contract for an amount not to exceed
P75,000,000.00. The latter is supposed to cover the
procurement of materials for the project. The Construction
Contract provides for monthly progress billings and payments
based on actual accomplishments of the various phases of
work. The Supplemental Contract provides for; reimbursement
of [the] total amount of procurement and transportation costs
and expenses, upon MCI's presentation of suppliers'
invoices/receipts.
However, from testimonies of witnesses from both parties, it
was revealed that the two distinct manner(s) of payment to
MCI was set aside. The earlier attempt by CHATHAM to prove
that MCI was remiss in submitting suppliers' invoices and/or
receipts in support of its billings against the Supplemental
Contract was in fact later on abandoned when CHATHAM's
witness Mercado admitted that the matter of adherence to the
payment provision of the Supplemental Contract is a 'non-
issue.' This was borne out by the fact that progress billings
and payments under both contracts were made on the basis
of percentage of project completion.
Both documentary and testimonial evidence prove that,
effectively, the construction contract and supplemental
contract is but one agreement for a lump sum contract
amount of P125,000,000.00.
xxx xxx xxx
There was also the admitted fact that the contract was
negotiated and awarded in the absence of a complete
construction plan. In any case, in support of the total contract
amount of P125 million, is a Cost Breakdown (Exh. 17-L),
where the estimated quantities of owner furnished materials
(OFM) are indicated. It is however, understood that these
quantities are estimates, based on (an) incomplete set of
construction plans. It is likewise understood that except for
the OFM, all the other costs in the Cost Breakdown form the
basis for the lump-sum agreement under the contract, subject
to adjustment only if there are any significant changes in the
contract plans.
RKDCCI in its letter to MCI dated 15 Feb. 1995 (Exh. 4),
informed MCI that it was confirming the agreement allegedly
accepted by Dr. Lai that the Building Committee will take over
the management of the construction operations (of the
project) albeit under certain conditions. Specifically, the take

over was for an interim period and will extend only after
concreting of up to basement level 5 or up to 30 May 1995
whichever is later. The letter also stated that the Building
Committee . . . will be responsible for management and
direction including management of MCI engineers at the site,
sequencing of work, additional labor, additional equipment
and management of the yard and staging area. The letter,
however, emphasized that the intent is not a take over of the
contract or take over of the entire work and in fact, it was
mentioned that MCI will still be responsible for earth
anchoring and steel fabrication work.
CHATHAM claims that the interim take-over was necessitated
by MCI's delay in the progress of its work, due allegedly to
MCI's lack of manpower and equipment. During the hearings
of this case, this claim of MCI's lack of manpower, necessary
equipment, qualified engineers and inefficient construction
management was testified to by both Mr. Mercado [of
CHATHAM] and Engr. Kapunan of RKDCCI. CHATHAM's
witnesses, however, testified that in spite of these alleged
deficiencies, MCI was nevertheless allowed to continue to take
full control of the operations. When asked why termination of
the contract was not resorted to if truly, MCI was not
performing its contracted obligations, witnesses Mercado and
Kapunan cited "special relations" between the owner of MCI
(Dr. John Lai) and the president of CHATHAM (Mr. Lamberto
Ocampo) as the reason.
49
1. That indeed 'special friendly relations' were present
between the parties in this case, although decisions by either
party on any particular issue were made not purely on the
basis of such special relations. For example, this Tribunal
believes that, contrary to the allegation of (CHATHAM's)
witnesses, the decision not to terminate the contract was not
due to the admitted 'special relations' only, but also due to
the greater problems the project would be faced with by
terminating the MCI contract and mobilizing another
contractor.
2. That while there was no official termination of the contract,
the manner by which CHATHAM had taken upon themselves
the procurement of materials, the fielding of labor, the control
over MCI's engineers, and the subcontracting of various
phases of work on its own, is considered by this Tribunal as
implied termination of the contract. The idea of allowing MCI
to remain on the project in spite of what CHATHAM claims. (to
be) MCI's shortcomings, and MCI's agreement to stay on the
project under conditions set by CHATHAM, is believed a
matter of mutual benefit to both parties.
3. That CHATHAM's invoking its rights under the provisions of
Article 27 of the construction contract is believed out of place,
as it failed to observe the required antecedent acts before it
can exercise its prerogative under the said contract provision.

4. That there is no reason to believe, either party was in any

On the other hand, Dr. Lai contends that, as explained in his
way guilty of bad faith in acting as it did on certain relevant
letter to CHATHAM dated 17 February 1995, (Exh. 4-A) MCI's
matters. However, this Tribunal is of the belief that due
work was on schedule. During the hearings, Dr. Lai also
perhaps to the eagerness on the part particularly of
insisted that beginning 15 February 1995, MCI was relieved of
CHATHAM's representatives to take such steps it considered
full control of the construction operations, that it was
necessary to insure completion of the project within the
relegated to (be) a mere supplier of labor, materials and
period desired by CHATHAM, it deviated from some generally
equipment, and that the alleged interim takeover actually
accepted procedures in the construction industry in dealing
extended through the completion of the project. Dr. Lai cited
with MCI. One example was not giving MCI the opportunity to
CHATHAM's purchases of materials, fielding labor force and
rectify some of what CHATHAM considered as construction
sub-contracting works allegedly for the project without his
deficiencies and instead engaging the services of other
knowledge and consent as proof that CHATHAM had taken full
parties to undertake the corrective works and later on
control of the project.
charging the costs thereof to MCI.

To the above allegation of MCI that CHATHAM went ahead and

In addition to the above conclusions resulting from what this
procured materials, hired labor and entered into sub-contract
Tribunal considered peculiar of circumstances surrounding the
agreements with the intention of eventually charging the
implementation of the project that were revealed during the
costs thereof to MCI, witness Mercado countered, that
proceedings of this case, this Tribunal finds the necessity of
CHATHAM has the right to do this under the provisions of
establishing a cut-off date with regard to the fiscal liability of
Article 27 of the contract, dealing with 'Recision, Cancellation,
one party towards the other.
Termination of Contract.'

Mr. Avelino Mercado of CHATHAM presented a list of what he

By way of responding to the various counterclaims of
claims as its Payments to MCI (Exhibit 7) summarized as
CHATHAM, MCI referred to a letter of the former addressed to
follows:
MCI dated 18 January 1997 (Exhibit E-1) the first paragraph of
which reads as follows:

After evaluating all the documents issued and received from

both Chatham Properties Inc. and Metro Construction, Inc., the a. Down payment (Paid in two equal trances
Building Committee of Chatham Properties, Inc. evaluated
them. The Building Committee finds the total receivable of
Metro Construction is in the amount of EIGHT MILLION PESOS
(P8,000,000.00) only.
b. Cash Advance for Mobilization

When queried by the Tribunal if the said amount already took

into account the costs and expenses, (Chatham) claims to
have incurred for the account of MCI, Mr. Mercado answered in
the affirmative. When queried further how the amount was c. Payments of Progress Billings up to Billing No. 19
arrived at, Mr. Mercado replied that it was the sum the
Building Committee figured it was willing to pay MCI simply to
close the issue.
d. Other Payments (Mar 1994 to Apr. 1996)
Mr. Mercado even added that while MCI is not actually entitled
to this amount, it was out of a friendship" that CHATHAM
offered this sum to MCI as final settlement under the contract.
e. Advances on MCI Payrolls (April 1996 to March
It is with the above attendant circumstances that this Tribunal 1997)
will be guided in the resolution of issues brought before it for
adjudication. From what this Tribunal finds as peculiar
circumstances surrounding the contracting and
implementation of the CHATHAM House Project. it arrived at Total
the following fundamental conclusions:

The records of this case show that the last progress payment
to MCI was in January 1996 representing payment of Progress
Billing No. 19 for the period ending 31 December 1995. The
percentage of completion claimed then by MCI was 80.02%,
the amount evaluated and eventually paid to MCI was the
equivalent of 77.15% work accomplishment. No further
progress payments were made thereafter, other than for
advances to cover MCI payrolls from April 1996 to March 1997
in the amount of P8,196,755.51 and for various advances and
payments of approved change orders in the amount of
P5,474,419.67.
In the meantime, up to Billing No. 23 for the period ending 30
April 1996, MCI billed CHATHAM a total accomplishment of
95.29%. This billing was however, evaluated by CHATHAM,
and in its letter to MCI dated 27 May 1996 (Exhibit E) it
confirmed that MCI's remaining balance of work stands at
P7,374,201.15 as of 23 May 1996. This amount, percentage-
wise, equals roughly 5.88% of the contract amount as testified
to by Engr. Jose Infante. (Exhibit 22-B). Therefore, what was
computed as MCI's work accomplishment as of 23 May 1996
was 94.12% and it is this evaluation which this Tribunal
believes MCI is entitled to as of said date.
Applying this percentage of completion of 94.12% to the
P125,000,000.00 contract amount gives a total
accomplishment equivalent to P117,650,000.00 as of 23 May
1996. Add to this amount the sum of P5,353,091.08
representing the total of approved Change Orders as of 31
December 1995 gives a total MCI accomplishment of
P123,003,091.08, as CHATHAM saw it. Of this amount,
CHATHAM admitted having paid MCI the total sum of
P104,752,358.42 only (Exhibit 7) up to March 15, 1997,
leaving a balance of P18,250,732.66. It should be noted that
of the total payment of P104,752,358.42, the sum of
P5,750,000.00 was paid after May 1996 so that as of 25 May
1996, CHATHAM's total payment to MCI was P99,002,358.42.
Effectively, therefore, the amount due MCI as of 23 May 1996
amounted to P24,005,732.66 computed as follows:
Total accomplishment as of 23 May 1996 at option which [it] may or may not exercise.
94.12%
Add approved change orders
Total
Less payments up to 23 May 1996
Balance due MCI as of 23 May 1996
Of the above balance of P24,005,732.66 as of 23 May 1996,
the only payments made by CHATHAM to MCI is the sum of
P5,750,000.00 from June 1996 onwards, allegedly to cover
MCI payrolls. It is of course noted that CHATHAM's suspension
of further payments to MCI was because it had been
undertaking on its own, the further procurement of materials
and sub-contracting of various phases of works on the project.
50
In consideration of the above facts, this Tribunal's conclusion
that there was in fact an implied take over of the project is
further confirmed. Furthermore, this Tribunal additionally
concludes that the cut-off date for purposes of delineating the
financial obligations of the parties between them should be 23
May 1996, the date when CHATHAM evaluated MCI's
accomplishment at 94.10% but nevertheless suspended all
further progress payments to MCI.
MCI presented further documentary evidence (Exhibit E-6) the
subject of which is a PUNCHLISTING-CIVIL STRUCTURAL." In
this particular document which bears the signatures of
representatives of both MCI and RKDCCI, MCI tried to prove
that as of 30 August 1996 it had actually attained 99.16%
work accomplishment. While it may be true that as of that
date the project had reached 99.16% completion, there is no
incontrovertible evidence showing that MCI was responsible
for such accomplishment. This was in fact actually testified to
by Engr. Alex Bautista of RKDCCI, when he said that it was an
evaluation of the project's completion stage, not necessarily
MCI's work accomplishment. This Tribunal therefore stands
firm on its conclusion that MCI's accomplishment is only up to
the extent of 94.10%.5
With those findings, the CIAC disposed of the specific money
claims by either granting or reducing them. On Issue No. 9, i.e.,
whether CHATHAM failed to complete and/or deliver the project
within the approved completion period and, if so, whether
CHATHAM is liable for liquidated damages and how much, the
CIAC ruled in this wise:
This Tribunal holds that the provision of the contract insofar as
the Overall Schedule is concerned cannot justifiably be
applied in the instant case in view of the implied take-over of
the Chatham House project by CHATHAM. Accordingly, this
Tribunal finds no necessity to resolve whether or not MCI
complete[d] and/or deliver[ed] the project within the
approved completion period. In fact, Mr. Mercado testified that
it was CHATHAM who ultimately completed the project, with
assistance of the construction managers.
In any case, this Tribunal finds merit in RKDCCI's claim that
MCI was in delay in the concreting milestone and that [it] is
liable for liquidated damages therefor. This, notwithstanding
MCI's invoking that Chatham is estopped from claiming
liquidated damages after it failed to deduct the alleged
liquidated damages from MCI's progress billings. This Tribunal
holds that such failure to deduct, which CHATHAM claims it did
in order not to hamper progress of work in the project, is an
However, this Tribunal finds that CHATHAM's Exh. 11-A where
the liquidated damages on delays in concreting milestone was
applied is not consistent with [its] own Exhibit 3-I. This
Tribunal notes that in Exh. 11-A, CHATHAM included a
projected delay of 85 days for the Helipad Concreting works,
while no such projected delay was included in Exh. 3-I as it
should be.
This Tribunal holds that Exh. 3-I showing a delay of 294 days
in concreting milestones should rightfully be used in
computing liquidated damages. Accordingly, this Tribunal
holds that MCI is liable for liquidated damages in the amount
of P3,062,498.78 as follows:
1/4 x 1/3[(1/10 x P125,000,000.00) 1%] x 294 =
P3,062,498.78.6
The CIAC then decreed:
Accordingly, as presented below, all the amounts due MCI are
first listed and added up and the total payment is deducted
therefrom. The admitted total payment figure as reflected in
the Terms of Reference is the amount applied instead of the
total reflected in CHATHAM's Summary of Payments which
incidentally reflected a lesser amount. From the 'Balance Due
MCI' the 'Amounts CPI is Held Entitled To' is deducted and the
'Net Amount Due MCI' is arrived at.
 51

A. AMOUNTS HELD CPI IS ENTITLED TO: C. NET AMOUNT DUE MCI (A minus B)

A.1. From the original contract: WHEREFORE, judgment is hereby rendered in favor of the
94.12% of P125,000,000.00 Claimant [MCI] directing Respondent [CHATHAM] to pay
Claimant [MCI] the net sum of SIXTEEN MILLION ONE
HUNDRED TWENTY SIX THOUSAND NINE HUNDRED TWENTY
TWO & 91/100 (16,126,922.91) PESOS.

A.2. Approved Change Orders

SO ORDERED.7

Impugning the decision of the CIAC, CHATHAM instituted a

A.3 Pending Change Orders petition for review with the Court of Appeals, which was
docketed as CA-G.R. SP No. 49429. In its petition, CHATHAM
alleged that:

A.4 CHB Works The Arbitral Tribunal grossly erred in failing to indicate
specific reference to the evidence presented or to the
transcript of stenographic notes in arriving at its
questioned Decision, in violation of the cardinal rule
under Section 1, Rule 36 of the Revised Rules of Civil
A.5 Workers Bonus Procedure that a judgment must state clearly and
definitely the facts and the law on which it is based.

The Tribunal's conclusions are grounded entirely on

A.6 Disputed Deductions speculations, surmises and conjectures.

The Arbitral Tribunal grossly erred in failing to consider

the evidence presented by CHATHAM and the
A.7 Labor Escalation testimony of its witnesses.

The Arbitral Tribunal gravely abused its discretion in

considering arbitrarily that there was an implied
A.8 Attendance Fee takeover contrary to the facts and evidence submitted.

The Arbitral Tribunal committed grave error and gross

misapprehension of facts in holding that CHATHAM is
Total
not entitled to liquidated damages despite failure of
MCI to meet the over-all schedule of completion.

The Arbitral Tribunal manifestly erred in holding that

Less: Total payments - Item 11-6 of TOR
MCI is entitled to its claim for unpaid progress billings.

The Arbitral Tribunal committed gross and reversible

error in equating the percentage of MCI's work
Balance Due MCI
accomplishment with the entire work in place, despite
evidence to the contrary.

The Arbitral Tribunal gravely erred in making 23 May

B. AMOUNTS HELD CPI IS ENTITLED TO:
1996 as the cut-off date for purposes of delineating the
financial obligations of the parties.

The Arbitral Tribunal erred in denying CHATHAM its

B.1. liquidated Damages
claim for actual damages pursuant to Article 27.8 of the
Construction Contract.

The facts set forth in CHATHAM's Answer with

B.2. Actual Damages
Compulsory Counterclaim as well as its documentary
and testamentary evidence were not overturned or
controverted by any contrary evidence.8

B.3. Penalties
In its decision of 30 September 1999, 9 the Court of Appeals
simplified the assigned errors into one core issue, namely, the
"propriety" of the CIAC's factual findings and conclusions. In
upholding the decision of the CIAC, the Court of Appeals
B.4. Cash Payments in Behalf of MCI confirmed the jurisprudential principle that absent any showing
of arbitrariness, the CIAC's findings as an administrative agency
and quasi judicial body should not only be accorded great
respect but also given the stamp of finality. However, the Court
Total Amount Due CPI of Appeals found exception in the CIAC's disquisition of Issue
No.9on the matter of liquidated damages.

The Court of Appeals disagreed with the CIAC's finding that

there was an implied takeover by CHATHAM of the project and

that it was unnecessary for the CIAC to rule on whether MCI
completed and/or delivered the project within the approved
completion schedule of the project since CHATHAM failed to
observe the antecedent acts required for the termination of the
contract, as set forth in the Construction Agreement.
The Court of Appeals ascertained that the evidence
overwhelmingly proved that there was no takeover by CHATHAM
and that MCI exercised complete control, authority and
responsibility over the construction. In support of this
conclusion, the appellate court pointed to the following
evidentiary bases:10
1. Testimony of CHATHAM's Engr. Kapunan that the
interim takeover for the works on the basement was
triggered by lack of manpower and delays as early as
February 1995, as evidenced by their assessment 11and
that the interim takeover was only with respect to the
direction or management of the field operations and
was limited only to works on the basement and
intended to assist MCI to catch up with the schedule of
completion, since at that time the project was very
much delayed; thereafter, the MCI was back in full
control of the project.12
2. Testimony of Engr. Bautista that the takeover was
only partial and temporary and limited to the
management portion on the basement only and that
MCI was always in control of the project.13
3. Testimony of Engr. Infante that MCI personnel were
constantly present in the project and the "intervention"
(not takeover) by CHATHAM was justified to ensure
completion of the project on time.14
4. Documentary exhibits evincing the nature and
extent of MCI's work during the takeover period which
belied its claims that it was not in control of the project
because of the takeover thus:
Exhibit "4" Letter dated 15 February 1995 of
Engr. Kapunan of RKDCCI to John Lai of MCI
stating that the takeover of directions or
management of the field operations is interim,
i.e. while the takeover is effective immediately
it will extend only after concreting Level B-1 or
approximately until 30 May 1995 which ever is
later.
Exhibit "4-A" Letter dated 17 February 1995
written by Dr. Lai of MCI to Engr. Kapunan in
response to the latter's 15 February 1995
letter stating that "[Also we were assured that
we will not be responsible for any errors or
accidents that may occur during this INTERIM
period," indicating that Dr. Lai was very much
aware of the interim period.
Exhibit "4-C" Letter dated 18 February 1995
written by Engr. Ben C. Ruiz of RKDCCI to Dr.
Lai containing the reasons for the takeover.
Exhibit "8A" Letter dated 5 September 1995
written by Dr. E.G. Tabujara to Dr. Lai/Romy
Laron (Project Manager of MCI) requesting for
an engineer of MCI to accompany the
inspector of RKDCCI to witness batching
procedures. By so doing, Dr. E.G. Tabujara
acknowledged that Dr. Lai was in control of the
project.
Exhibit "8" Letter dated 4 September 1995
by Engr. Romulo R Sugay to Dr. Lai offering an
incentive to the workers of MCI to exert (their)
best effort for topping off by the end of
December; another clear indication that Dr. Lai
was in control of the project.
52
Exhibit "4-D" Letter dated 4 January 1996
indicating that Mr. H.T. Go offered Dr Lai an
incentive of P1,800,000 on the condition that
MCI meets the new schedule/milestones. MCI's
acceptance of the incentive offer likewise
shows that MCI was in control of the Project.
Exhibits "5," "3-1," "3-M," "3-N," "3-W-1," 3-X,"
"3-Y," and "3-Z" among others containing
reminders to MCI of its duties and
shortcomings, likewise attest to the fact that
MCI was in control (of) and responsible for the
Project, although markedly deficient.
Exhibits "5," "5-A," "5-B," "5-C," "5-D," "5-E,"
"5-F," "5-O," "C-7," and "E-9" evidencing
that MCI continued to manage other works on
the project even during the time of the interim
takeover of the basement works, as seen in
the series of communications between
CHATHAM or RKDCCI and MCI within the period
beginning February 1995 to 30 May 1995.
5. Respondent's Request for Adjudication, Annex G,
Records, Folder No. 6 which incorporated Change
Order No. 12, among others, dated 28 August 1995,
recommended by the RKDCCI and accepted by Dr. Lai,
and which request for an extension of 25 days readily
showed that even after 30 May 1995, after the close of
the supposed takeover period, MCI was still the
contractor in complete control of the project for it
would not have otherwise accepted the said change
order if it (were) no longer the Contractor of the project
due to the termination of the Construction agreement
as of said date on account of the alleged takeover.
6. Exhibits "3-J," "3-M," "3-Q," "3-R," "3-V," "3- W-1," "3-
W-2," "5-F," "5-1," "6," "12-II," "12-JJ," "12-MM," and
"12-NN" tending to prove that RKDCCI monitored the
work from start to finish and had zealously pointed out
to MCI the defects or improper execution of the
construction works, and gave MCI all the opportunity to
rectify the construction deficiencies and complete the
works of the project.
The Court of Appeals concluded that the interim takeover was
necessitated by CHATHAM's insistence to meet its own turnover
dates with the buyers of the project's units. Thus, CHATHAM was
constrained to hire subcontractors with sufficient manpower and
supervision and incur various expenses to facilitate the
completion of the project and/or assist MCI in making up for its
delay.
The Court of Appeals then considered it imperative to determine
whether MCI failed to complete the project on time for which it
may be held liable for liquidated damages based on the delays
in the overall schedule of completion pursuant to Art. 13.5 of the
Construction Agreement, to wit:
13.5. Over-All Schedule For not meeting the final
completion date of the PROJECT, the OWNER will
deduct from the Contract Sum or amounts due the
CONTRACTOR, the amount equivalent to 1/10 of 1% of
the Contract Sum for every calendar day of delay,
provided, however, that the maximum penalty should
not exceed 25% of the fee payable to the CONTRACTOR
as stipulated in the Bill of Quantities. Penalties from
concreting milestones shall be deducted from the
penalty of Over-All Schedule.15
The Court of Appeals disposed of the controversy in this wise:
As is extant from the records, the completion date of
the Project under the Construction Contract or under
the revised construction schedule was never met by
reason of [MCI's] lack of manpower, necessary
equipment, qualified engineers and inefficient
management of construction works on the Project.
Thus, under the Contract (Exhibit '1'), [MCI] had 780
 53
days, or until 22 January 1996, from starting date, or
April 12, 1994, to finish the project. The completion
date, however, was not followed and was revised as
early as December 17, 1994, extending the milestone
dates up to March 15, 1996 (Exhibits '3-G' and '3-H').
As of December 25, 1995, the number of days delayed
was already 294 days. Thus, on February 22, 1996, the
contract milestones were again revised, inclusive of 53 A.7 Labor Escalation
days extension, to May 23, 1996 (Exhibits '3-I' and '3-
O'). The May 23, 1996 turnover milestone nor the July
22, 1996 turnover of the whole project were neither
met (Exhibits '3-P', '3-R', '3-S' and '3-T' but [CHATHAM] A.8 Attendance Fee
was again constrained to allow [MCI] to continue
working on the Project to complete the balance of the
works (Exhibit 'M'). And all throughout the construction
of the Project, [CHATHAM] had to assist [MCI] along the
Total
way to expedite the execution and completion of the
Project (Exhibits '3-K' and '3-V').

From the foregoing disquisitions, it is clear that [MCI] is

Less: Total payments-item 11-6 of TOR
liable for liquidated damages, as per Article 13.5 of the
Construction Contract, for its failure to complete the
project within the period stipulated in the Construction
Contract and even despite an extension of 53 days
from the original schedule or of the overall schedule of Balance Due Respondent
completion. [MCI] should therefore pay [CHATHAM] the
amount of liquidated damages equivalent to
P24,125,000.00 for 193 days of delay in the overall
schedule of completion counted from overall
B. AMOUNTS [CHATHAM] IS ENTITLED TO:
completion date on July 22, 1996 up to the date of
completion on February 15, 1997, as stated in the
Certificate of Occupancy, computed as follows, to wit:

B.1. liquidated Damages

1/10[1%(P125,000,000.00)] per day x 193
days

= [1/10 (P1,250,000.00)] per day x 193 days B.2. Actual Damages

= P125,000.00 per day x 193 days

= P24,125,000.00 B.3. Penalties

IN VIEW OF ALL THE FOREGOING, judgment is hereby

rendered partially granting [CHATHAM's] claim for
liquidated damages. The Tribunal's Decision dated 19 B.4. Cash Payments in behalf of MCI
October 1998 is hereby AFFIRMED with the modification
on [MCI's] liability for liquidated damages in the
amount of P24,125,000.00. Thus,
Total Amount Due CPI

A. AMOUNT [MCI] IS ENTITLED TO:

C. NET AMOUNT DUE [CHATHAM] (B minus A)

A.1. From the original contract:

94.12% of P125,000,000.00 Correspondingly, Respondent [MCI] is hereby directed
to pay the Petitioner [CHATHAM] the net sum of FOUR
MILLION NINE HUNDRED THIRTY-FIVE THOUSAND FIVE
HUNDRED SEVENTY-EIGHT & 31/100 (P4,935,578.31)
A.2 Approved Change Orders PESOS.16

MCI promptly filed on 25 October 1999 a motion for

reconsideration. In its Resolution of 4 February 2000, the Court
A.3 Pending Change Orders of Appeals denied MCI's motion for reconsideration for lack of
merit, as well as CHATHAM's Motion to Lift Garnishment and
Levy Pending Appeal, filed on 13 October 1999, for being
premature.17
A.4 CHB Works
Thus, MCI filed the instant petition for review to challenge the
decision of the Court of Appeals. MCI alleges that the Court of
Appeals erred in reviewing and reversing the CIAC's factual
findings, that there was an implied takeover by CHATHAM of the
A.5 Workers Bonus
project, and that MCI was not in delay in the overall schedule. In
so doing, the Court of Appeals contravened Section 19 of
Executive Order (E.O.) No. 1008,18 which limits the review of an
Arbitral Award to only questions of law, thus:
A.6 Disputed Deductions

SECTION 19. Finality of Awards The arbitral award
shall be binding upon the parties. It shall be final and
inappealable (sic), except on questions of law which
shall be appealable to the Supreme Court.
MCI then asserts that as signatories to the contract, it and
CHATHAM complied with this legal provision when they included
as part of their TOR the stipulation that "[t]he decision of the
Arbitral Tribunal shall be final and non-appealable except on
questions of law." Accordingly, the binding character of this
provision upon the parties is conclusive and final.
MCI also contends that while it may be argued that recent (1)
issuances by the Supreme Court, specifically, Circular No. 1-91,
which eventually became Revised Administrative Circular No. 1-
95; (2) legislation in particular, Republic Act No. 7902, which
amended Batas Pambansa Blg. 129; and (3) amendments to the
Rules on Civil Procedure, modifying E.O. No. 1008 in the sense
that "questions of facts, of law, or mixed questions of facts and
law may be the subject of an appeal of the CIAC's decision to
the Court of Appeals," it is still E.O. No. 1008 which remains to
be the fundamental and substantive law that endows parties to
an arbitral controversy the right to appeal. Hence, the provisions
on appeal of E.O. No. 1008 should be controlling, i.e., only
questions of law should be entertained. Therefore, the only
effect of these rules on E.O. No. 1008 is the transfer of the
appeal forum from the Supreme Court to the Court of Appeals.
MCI further asserts that, even assuming that the CIAC's findings
of facts are reviewable on appeal, the Court of Appeals gravely
abused its discretion when it accepted "hook, line and sinker"
CHATHAM's contention that MCI was in delay, and ignored
competent, clear and substantial evidence that prove the
contrary, and that CHATHAM is not entitled to liquidated
damages.
For its part, CHATHAM avers that the evolution on the rules
governing appeals from judgments, decisions, resolutions,
orders or awards of the CIAC convincingly discloses that E.O. No.
1008 has already been superseded. With the power of the
Supreme Court to promulgate rules concerning the protection
and enforcement of constitutional rights, pleadings, practice,
and procedure in all courts, its issuances and amendments to
the Rules on Civil Procedure, not to mention R A. No. 7902, as
enacted by Congress, effectively modified E.O. No. 1008.
Accordingly, the judgments, awards, decisions, resolutions,
orders or awards of the CIAC are now appealable to the Court of
Appeals on questions of facts, mixed questions of facts and law,
and questions of law, and no longer with the Supreme Court on
exclusively questions of law. Further, the TOR cannot limit the
expanded jurisdiction of the Court of Appeals based on the
latest rules. Thus, the Court of Appeals did not err in reviewing
the factual findings of the CIAC.
CHATHAM also contends that, even if the Court of Appeals can
only review questions of law, said court did not err in rendering
the questioned decision as the conclusions therein, drawn as
they were from factual determinations, can be considered
questions of law. .
Finally, CHATHAM asseverates that the Court of Appeals did not
commit grave abuse of discretion in reversing the CIAC's
ascertainment on the implied take-over and liquidated damages.
This Court shall now resolve the primary issue raised in this
case.
EO. No. 1008 vest upon the CIAC original and exclusive
jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach
thereof.19 By express provision of Section 19 thereof, the arbitral
award of the CIAC is final and unappealable, except on questions
of law, which are appealable to the Supreme Court.
The parties, however, disagree on whether the subsequent
Supreme Court issuances on appellate procedure and R.A. No.
7902 removed from the Supreme Court its appellate jurisdiction
54
in Section 19 of E.O. No. 1008 and vested the same in the Court
of Appeals, and whether appeals from CISC awards are no
longer confined to questions of law.
On 27 February 1991, this Court issued Circular No. 1-91, which
prescribes the Rules Governing Appeals to the Court of Appeals
from Final Orders or Decisions of the Court of Tax Appeals and
Quasi-Judicial Agencies. Pertinent portions thereof read as
follows:
1. Scope. These rules shall apply to appeals from
final orders or decisions of the Court of Tax Appeals.
They shall also apply to appeals from final orders or
decisions of any quasi-judicial agency from which an
appeal is now allowed by statute to the Court of
Appeals or the Supreme Court. Among these agencies
are the Securities and Exchange Commission, Land
Registration Authority, Social Security Commission,
Civil Aeronautics Board, Bureau of Patents, Trademarks
and Technology Transfer, National Electrification
Administration, Energy Regulatory Board, National
Telecommunications Commission, Secretary of Agrarian
Reform and Special Agrarian Courts under RA. No.
6657, Government Service Insurance System,
Employees Compensation Commission, Agricultural
Inventions Board, Insurance Commission and Philippine
Atomic Energy Commission.
2. Cases not Covered. These rules shall not apply to
decisions and interlocutory orders of the National Labor
Relations Commission or the Secretary of Labor and
Employment under the Labor Code of the Philippines,
the Central Board of Assessment Appeals, and other
quasi-judicial agencies from which no appeal to the
courts is prescribed or allowed by statute.
3. Who may appeal and where to appeal. The appeal
of a party affected by a final order, decision, or
judgment of the Court of Tax Appeals or a quasi judicial
agency shall be taken to the Court of Appeals within
the period and in the manner herein provided, whether
the appeal involves questions of fact or of law or mixed
questions of fact and law. From final judgments or
decisions of the Court of Appeals, the aggrieved party
may appeal by certiorari to the Supreme Court as
provided in Rule 45 of the Rules of Court.
Subsequently, on 23 February 1995, RA. No. 7902 was enacted.
It expanded the jurisdiction of the Court of Appeals and
amended for that purpose Section 9 of B.P. Blg. 129, otherwise
known as the Judiciary Reorganization Act of 1980.20
Section 9(3) thereof reads:
SECTION 9. Jurisdiction. The Court of Appeals shall
exercise:
xxx xxx xxx
(3) Exclusive appellate jurisdiction over all final
judgments, decisions, resolutions, orders or awards of
Regional Trial Courts and quasi-judicial agencies,
instrumentalities, boards or commissions, including the
Securities and Exchange Commission, the Social
Security Commission, the Employees Compensation
Commission and the Civil Service Commission, except
those falling within the appellate jurisdiction of the
Supreme Court in accordance with the Constitution, the
Labor Code of the Philippines under Presidential Decree
No. 442, as amended, the provisions of this Act, and of
subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17
of the Judiciary Act of 1948.
The Court of Appeals shall have the power to try cases
and conduct hearings, receive evidence and perform
any and all acts necessary to resolve factual issues
raised in cases falling within its original and appellate

jurisdiction, including the power to grant and conduct
new trials or further proceedings. x x x
Then this Court issued Administrative Circular No. 1-95, 21 which
revised Circular No. 1-91. Relevant portions of the former reads
as follows:
1. Scope. These rules shall apply to appeals from
judgments or final orders of the Court of Tax Appeals
and from awards, judgments, final orders or resolutions
of any quasi-judicial agency from which an appeal is
authorized to be taken to the Court of Appeals or the
Supreme Court. Among these agencies are the
Securities and Exchange Commission, Land
Registration Authority, Social Security Commission,
Civil Aeronautics Board, Bureau of Patents, Trademarks
and Technology Transfer, National Electrification
Administration, Energy Regulatory Board, National
Telecommunication Commission, Department of
Agrarian Reform under Republic Act No. 6657,
Government Service Insurance System, Employees
Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, and Construction
Industry Arbitration Commission.
SECTION 2. Cases Not Covered. These rules shall not
apply to judgments or final orders issued under the
Labor Code of the Philippines, Central Board of
Assessment Appeals, and by other quasi-judicial
agencies from which no appeal to the court is
prescribed or allowed.
SECTION 3. Where to Appeal. An appeal under these
rules may be taken to the Court of Appeals within the
period and in the manner herein provided, whether the
appeal involves questions of fact, of law, or mixed
questions of fact and law.
Thereafter, this Court promulgated the 1997 Rules on Civil
Procedure. Sections 1, 2 and 3 of Rule 43 thereof provides:
SECTION 1. Scope. This Rule shall apply to appeals
from judgments or final orders of the Court of Tax
Appeals and from awards, judgments, final orders or
resolutions of or authorized by any quasi-judicial
agency in the exercise of its quasi-judicial functions.
Among these agencies are the Civil Service
Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Office of the
President, Land Registration Authority, Social Security
Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National
Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department
of Agrarian Reform under Republic Act No. 6657,
Government Service Insurance System, Employees
Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction
Industry Arbitration Commission, and voluntary
arbitrators authorized by law.
SECTION 2. Cases Not Covered. This Rule shall not
apply to judgments or final orders issued under the
Labor Code of the Philippines.
SECTION 3. Were to Appeal. An appeal under this
Rule may be taken to the Court of Appeals within the
period and in the manner herein provided, whether the
appeal involves question of fact, of law, or mixed
questions of fact and law.
Through Circular No. 1-91, the Supreme Court intended to
establish a uniform procedure for the review of the final orders
or decisions of the Court of Tax Appeals and other quasi judicial
agencies provided that an appeal therefrom is then allowed
under existing statutes to either the Court of Appeals or the
Supreme Court. The Circular designated the Court of Appeals as
55
the reviewing body to resolve questions of fact or of law or
mixed questions of fact and law.
It is clear that Circular No. 1-91 covers the CIAC. In the first
place, it is a quasi judicial agency. A quasi-judicial agency or
body has been defined as an organ of government other than a
court and other than a legislature, which affects the rights of
private parties through either adjudication or rule-making. 22 The
very definition of an administrative agency includes its being
vested with quasi judicial powers. The ever increasing variety of
powers and functions given to administrative agencies
recognizes the need for the active intervention of administrative
agencies in matters calling for technical knowledge and speed in
countless controversies which cannot possibly be handled by
regular courts.23 The CIAC's primary function is that of a quasi-
judicial agency, which is to adjudicate claims and/or determine
rights in accordance with procedures set forth in E.O. No. 1008.
In the second place, the language of Section 1 of Circular No. 1-
91 emphasizes the obvious inclusion of the CIAC even if it is not
named in the enumeration of quasi-judicial agencies. The
introductory words "[a] among these agencies are" preceding
the enumeration of specific quasi-judicial agencies only highlight
the fact that the list is not exclusive or conclusive. Further, the
overture stresses and acknowledges the existence of other
quasi-judicial agencies not included in the enumeration but
should be deemed included. In addition, the CIAC is obviously
excluded in the catalogue of cases not covered by the Circular
and mentioned in Section 2 thereof for the reason that at the
time the Circular took effect, E.O. No. 1008 allows appeals to the
Supreme Court on questions of law.
In sum, under Circular No. 1-91, appeals from the arbitral
awards of the CIAC may be brought to the Court of Appeals, and
not to the Supreme Court alone. The grounds for the appeal are
likewise broadened to include appeals on questions of facts and
appeals involving mixed questions of fact and law.
The jurisdiction of the Court of Appeals over appeals from final
orders or decisions of the CIAC is further fortified by the
amendments to B.P. Blg. 129, as introduced by RA. No. 7902.
With the amendments, the Court of Appeals is vested with
appellate jurisdiction over all final judgments, decisions,
resolutions, orders or awards of Regional Trial Courts and quasi-
judicial agencies, instrumentalities, boards or commissions,
except "those within the appellate jurisdiction of the Supreme
Court in accordance with the Constitution, the Labor Code of the
Philippines under Presidential Decree No. 442, as amended, the
provisions of this Act, and of subparagraph (1) of the third
paragraph and subparagraph (4) of the fourth paragraph of
Section 17 of the Judiciary Act of 1948."
While, again, the CIAC was not specifically named in said
provision, its inclusion therein is irrefutable. The CIAC was not
expressly covered in the exclusion. Further, it is a quasi-judicial
agency or instrumentality. The decision in Luzon Development
Bank v. Luzon Development Bank Employees 24 sheds light on
the matter, thus:
Assuming arguendo that the voluntary arbitrator or the
panel of voluntary arbitrators may not strictly be
considered as a quasi-judicial agency, board or
commission, still both he and the panel are
comprehended within the concept of a 'quasi-judicial
instrumentality.' It may even be stated that it was to
meet the very situation presented by the quasi-judicial
functions of the voluntary arbitrators here, as well as
the subsequent arbitrator/arbitral tribunal operating
under the Construction Industry Arbitration
Commission, that the broader term 'instrumentalities'
was purposely included in [Section 9 of B.P. Blg. 129 as
amended by RA. No. 7902].
An instrumentality' is anything used as a means or
agency. Thus, the terms governmental 'agency' or
'instrumentality' are synonymous in the sense that
either of them is a means by which a government acts,
or by which a certain government act or function is
performed. The word 'instrumentality,' with respect to a
state, contemplates an authority to which the state

delegates governmental power for the performance of
a state function.
Any remaining doubt on the procedural mutation of the
provisions on appeal in E.O. No. 1008, vis-a-vis Circular No. 1-91
and R A. No. 7902, was completely removed with the issuance
by the Supreme Court of Revised Administrative Circular No. 1-
95 and the 1997 Rules of Civil Procedure. Both categorically
include the CIAC in the enumeration of quasi-judicial agencies
comprehended therein. Section 3 of the former and Section 3,
Rule 43 of the latter, explicitly expand the issues that may be
raised in an appeal from quasi judicial agencies or
instrumentalities to the Court of Appeals within the period and in
the manner therein provided. Indisputably, the review of the
CIAC award may involve either questions of fact, of law, or of
fact and law.
In view of all the foregoing, we reject MCI's submission that
Circular No. 1-91, B.P. Blg. 129, as amended by RA. 7902,
Revised Administrative Circular 1-95, and Rule 43 of the 1997
Rules of Civil Procedure failed to efficaciously modify the
provision on appeals in E.O. No. 1008. We further discard MCI's
claim that these amendments have the effect of merely
changing the forum for appeal from the Supreme Court to the
Court of Appeals.
There is no controversy on the principle that the right to appeal
is statutory. However, the mode or manner by which this right
may be exercised is a question of procedure which may be
altered and modified provided that vested rights are not
impaired. The Supreme Court is bestowed by the Constitution
with the power and prerogative, inter alia, to promulgate rules
concerning pleadings, practice and procedure in all courts, as
well as to review rules of procedure of special courts and quasi-
judicial bodies, which, however, shall remain in force until
disapproved by the Supreme Court. 25 This power is
constitutionally enshrined to enhance the independence of the
26
Supreme Court.
The right to appeal from judgments, awards, or final orders of
the CIAC is granted in E.O. No. 1008. The procedure for the
exercise or application of this right was initially outlined in E.O.
No. 1008. While R. A. No. 7902 and circulars subsequently
issued by the Supreme Court and its amendments to the 1997
Rules on Procedure effectively modified the manner by which
the right to appeal ought to be exercised, nothing in these
changes impaired vested rights. The new rules do not take away
the right to appeal allowed in E.O. No. 1008. They only prescribe
a new procedure to enforce the right. 27 No litigant has a vested
right in a particular remedy, which may be changed by
substitution without impairing vested rights; hence, he can have
none in rules of procedure which relate to remedy."28
The foregoing discussion renders academic MCI's assertion on
the binding effect of its stipulation with CHATHAM in the TOR
that the decision of the CIAC shall be final and non-appealable
except on questions of law. The agreement merely adopted
Section 19 of E.O. No. 1008, which, as shown above, had been
modified.
The TOR, any contract or agreement of the parties cannot
amend, modify, limit, restrict or circumscribe legal remedies or
the jurisdiction of courts. Rules of procedure are matters of
public order and interest and unless the rules themselves so
allow, they cannot be altered, changed or regulated by
agreements between or stipulations of the parties for their
singular convenience.29
Having resolved the existence of the authority of the Court of
Appeals to review the decisions, awards, or final orders of the
CIAC, the Court shall now determine whether the Court of
Appeals erred in rendering the questioned decision
of30 September 1999.
Settled is the general rule that the findings of facts of the Court
of Appeals are binding on us. There are recognized exceptions to
the rule, such as when the findings are contrary to those of the
trial court 30 as in this case. Hence, we have to take a closer
reexamination of this case.
56
The CIAC is certain that the evidence overwhelmingly tended to
prove that the manner by which CHATHAM took charge in the
procurement of materials, fielding of labor, control of MCI
engineers and the subcontracting of various phases of the work,
constituted an implied takeover of the project. The CIAC then
concludes that the cut-off date for delineating the fiscal
liabilities of the parties is 23 May 1996 when CHATHAM
evaluated MCI's work accomplishment at 94.12% and then
suspended all further progress payments to MCI. For these
reasons, the CIAC found it trifling to determine whether MCI was
in delay based on the Overall Schedule. However, the CIAC
discovered that MCI was in delay for 294 days in the concreting
milestone and held the latter liable for liquidated damages in
the amount of P3,062,498.78.
The Court of Appeals made a contrary conclusion and declared
that MCI was in delay for 193 days based on the overall
schedule of completion of the project and should incur
liquidated damages in the amount of P24,125,000.00.
It is undisputed that the CIAC and the Court of Appeals found
MCI liable for liquidated damages but on different premises.
Based on the CIAC's assessment, MCI's responsibility was
anchored on its delay in the concreting milestone, while the
Court of Appeal's evaluation concentrated on MCI's delay in
completing the project based on the overall schedule of work.
The variance in the evaluation spells a staggering difference in
the party who should ultimately be held liable and the net
amount involved.
A study of the final computation of the net amount due in both
the final disquisition of the CIAC and the Court of Appeals shows
that all the other figures therein are constant, save for the
amount of liquidated damages for which MCI should be
accountable. If this Court concurs with the CIAC's conclusions,
MCI's responsibility for liquidated damages is, as already stated,
P3,062,498.78. Setting this off against CHATHAM's overall fiscal
accountability would bring the latter's total liability to MCI to
P16,126,922.91. If the Court of Appeals is correct, MCI would be
held liable for a much higher P24,125,000 liquidated damages.
Setting this off against CHATHAM's monetary responsibilities,
MCI would still have to pay CHATHAM P4,935,578.31.
After painstakingly combing through the voluminous records, we
affirm the findings of the CIAC. The evidence taken as a whole or
in their totality reveals that there was an implied takeover by
CHATHAM on the completion of the project. The evidence that
appears to accentuate the Court of Appeals' decision ironically
bolstered the CIAC's conclusion. The testimonies of Engr.
Kapunan, Engr. Bautista, Dr. Lai, and the letter of Engr.
Ruiz,31acknowledging the "temporary takeover" by CHATHAM of
the project, underscore the palpable fact that there was indeed
a takeover. We confer particular credit to Dr. Lai's testimony that
as of 15 February 1995, MCI was relieved of full control of the
construction operations, that it was relegated to a mere supplier
of labor, materials and equipment, and that the alleged interim
takeover actually extended through the completion of the
project. Even CHATHAM admits the takeover but sugarcoated
the same with words like "interim" did "charging the costs to
MCI." With these glaring admissions, we can even consider that
the takeover was not implied but blatant.
Exhibits "4," "4-A," "4-C," "8A," "8," "4-D," '43," "3-I," "3-M," "3-
N," "3-W-1," "3-X," "3-Y," "3-Z," "5,""5-A," "5-B," "5-C," "5-D," "5-
E," "5-F," "5-O," "C-7," "E-9," etc., 32 relied upon by the Court of
Appeals when considered by themselves and singly, seemingly
and initially evince MCI's control over the project. However, they
eventually lose evidentiary puissance to support the Court of
Appeals' conclusion when reckoned against the totality of the
evidence that CHATHAM took charge of the completion of the
project, particularly, the fact that CHATHAM suspended all
progress billing payments to MCI. The continued presence and
participation of MCI in the project was, as found by the CIAC, a
matter of mutual benefit to and convenience of the parties.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the assailed 30
September 1999 decision of the Court of Appeals in CA-G.R SP
No. 49429 is hereby PARTIALLY MODIFIED by setting aside the
order directing Metro Construction, Inc. to pay Chatham
Properties, Inc. the amount of P4,935,578.31. The arbitral award
of the Construction Industry Arbitration Commission in CIAC

Case 10-98, promulgated on 19 October 1998, directing
Chatham Properties, Inc. to pay Metro Construction, Inc. the sum
of SIXTEEN MILLION ONE HUNDRED TWENTY-SIX THOUSAND
NINE HUNDRED TWENTY-TWO & 91/100 (P16,126,922.91)
PESOS, is accordingly REINSTATED.
No pronouncement as to costs.SO ORDERED.
THIRD DIVISION.R. No. 110434 December 13, 1993
HI-PRECISION STEEL CENTER, INC., petitioner,
vs.
LIM KIM STEEL BUILDERS, INC., and CONSTRUCTION
INDUSTRY ARBITRATION COMMISSION, respondents.
FELICIANO, J.:
On 18 June 1993, a "Petition for Extension to File Petition for
Review" 1 was filed before the Court, petitioner Hi-Precision Steel
Center, Inc. ("Hi-Precision") stating that it intended to file a
Petition for Review on Certiorari in respect of the 13 November
1992 Award 2 and 13 May 1993 Order 3 of public respondent
Construction Industry Arbitration Commission ("CIAC") in
Arbitration Case No. 13-90. The Petition (really a Motion) prayed
for an extension of thirty (30) days or until 21 July 1993 within
which to file a Petition for Review.
An opposition 4 to the Motion was filed by private respondent
Lim Kim Steel Builders, Inc. ("Steel Builders") on 5 July 1993. On
the same day, however, the Court issued a Resolution 5 granting
the Motion with a warning that no further extension would be
given.
The Opposition, the subsequent Reply 6 of petitioner filed on 20
July 1993 and the Petition for Review 7 dated 21 July 1993, were
noted by the Court in its Resolution 8 of 28 July 1993. The Court
also required private respondent Steel Builders to file a
Comment on the Petition for Review and Steel Builders
complied.
The Petition prays for issuance of a temporary restraining
order 9 to stay the execution of the assailed Order and Award in
favor of Steel Builders, which application the Court merely
noted, as it did subsequent Urgent Motions for a temporary
restraining order. 10
Petitioner Hi-Precision entered into a contract with private
respondent Steel Builders under which the latter as Contractor
was to complete a P21 Million construction project owned by the
former within a period of 153 days, i.e. from 8 May 1990 to 8
October 1990. The project completion date was first moved to 4
November 1990. On that date, however, only 75.8674% of the
project was actually completed. Petitioner attributed this non-
completion to Steel Builders which allegedly had frequently
incurred delays during the
original contract period and the extension period. Upon the
other hand, Steel Builders insisted that the delays in the project
were either excusable or due to Hi-Precision's own fault and
issuance of change orders. The project was taken over on 7
November 1990, and eventually completed on February 1991,
by Hi-Precision.
Steel Builders filed a "Request for Adjudication" with public
respondent CIAC. In its Complaint filed with the CIAC, Steel
Builders sought payment of its unpaid progress buildings,
alleged unearned profits and other receivables. Hi-Precision,
upon the other hand, in its Answer and Amended Answer,
claimed actual and liquidated damages, reimbursement of
alleged additional costs it had incurred in order to complete the
project and attorney's fees.
The CIAC formed an Arbitral Tribunal with three (3) members,
two (2) being appointed upon nomination of Hi-Precision and
Steel Builders, respectively; the third member (the Chairman)
57
was appointed by the CIAC as a common nominee of the two (2)
parties. On the Chairman was a lawyer. After the arbitration
proceeding, the Arbitral Tribunal rendered a unanimous Award
dated 13 November 1992, the dispositive portion of which reads
as follows:
WHEREFORE, premises considered, the Owner
[petitioner Hi-Precision] is ordered to pay the
Contractor [private respondent Steel Builders]
the amount of P6,400,717.83 and all other
claims of the parties against each other are
deemed compensated and offset. No
pronouncement as to costs.
The Parties are enjoined to abide by the
award. 11
Upon motions for reconsideration filed, respectively, by
Hi-Precision and Steel Builders, the Arbitral Tribunal
issued an Order dated 13 May 1993 which reduced the
net amount due to contractor Steel Builders to
P6,115,285.83. 12
In its Award, the Arbitral Tribunal stated that it was guided by
Articles 1169, 1192 and 2215 of the Civil Code. With such
guidance, the arbitrators concluded that (a) both parties were at
fault, though the Tribunal could not point out which of the
parties was the first infractor; and (b) the breaches by one party
affected the discharge of the reciprocal obligations of the other
party. With mutual fault as a principal premise, the Arbitral
Tribunal denied (a) petitioner's claims for the additional costs
allegedly incurred to complete the project; and (b) private
respondent's claim for profit it had failed to earn because of
petitioner's take over of the project.
The Tribunal then proceeded to resolve the remaining specific
claims of the parties. In disposing of these multiple, detailed
claims the Arbitral Tribunal, in respect of one or more of the
respective claims of the parties: (a) averaged out the conflicting
amounts and percentages claimed by the parties; 13 (b) found
neither basis nor justification for a particular claim; 14 (c) found
the evidence submitted in support of particular claims either
weak or non-existent; 15 (d) took account of the admissions of
liability in respect of particular claims; 16 (e) relied on its own
expertise in resolving particular claims; 17 and (f) applied a
"principle of equity" in requiring each party to bear its own loss
resulting or arising from mutual fault or delay (compensation
morae). 18
Petitioner Hi-Precision now asks this Court to set aside the
Award, contending basically that it was the contractor Steel
Builders who had defaulted on its contractual undertakings and
so could not be the injured party and should not be allowed to
recover any losses it may have incurred in the project. Petitioner
Hi-Precision insists it is still entitled to damages, and claims that
the Arbitral Tribunal committed grave abuse of discretion when
it allowed certain claims by Steel Builders and offset them
against claims of Hi-Precision.
A preliminary point needs to be made. We note that the Arbitral
Tribunal has not been impleaded as a respondent in the Petition
at bar. The CIAC has indeed been impleaded; however, the
Arbitral Award was not rendered by the CIAC, but rather by the
Arbitral Tribunal. Moreover, under Section 20 of Executive Order
No. 1008, dated 4 February 1985, as amended, it is the Arbitral
Tribunal, or the single Arbitrator, with the concurrence of the
CIAC, which issues the writ of execution requiring any sheriff or
other proper officer to execute the award. We consider that the
Arbitral Tribunal which rendered the Award sought to be
reviewed and set aside, should be impleaded even though the
defense of its Award would presumably have to be carried by
the prevailing party.
Petitioner Hi-Precision apparently seeks review of both under
Rule 45 and Rule 65 of the Rules of Court. 19 We do not find it

necessary to rule which of the two: a petition for review under
Rule 45 or a petition for certiorari under Rule 65 is necessary
under Executive Order No. 1008, as amended; this issue was, in
any case, not squarely raised by either party and has not been
properly and adequately litigated.
In its Petition, Hi-Precision purports to raise "legal issues," and in
presenting these issues, prefaced each with a creative formula:
(1)
The public respondent [should be the "Arbitral
Tribunal'] committed serious error in law, if not grave abuse of
discretion, when it failed to strictly apply Article 1191, New
Civil Code, against the
contractor . . .;
(2)
The public respondent committee serious error in law, if not
grave abuse of discretion, when it failed to rule in favor of the
owner, now petitioner herein, all the awards it claimed on
arbitration, and when it nonetheless persisted in its awards of
damages in favor of the
respondent. . . .;
(3)
The public respondent committed serious error in law, if not
grave abuse of discretion, for its abject failure to apply the
doctrine of waiver, estoppel against the contractor, the
private respondent herein, when it agreed on November 16,
1990 to award termination of the contract and the owner's
takeover of the project . . .;
(4)
The public respondent committed serious error in law, if not
grave abuse of discretion, when it did not enforce the law
between the parties, the "technical specification[s]" which is
one of the contract documents, particularly to par. (a), sub-
part 3.01, part 3, Sec. 2b, which expressly requires that major
site work activities like stripping, removal and stockpiling of
top soil shall be done "prior to the start of regular excavation
or backfiling work", the principal issue in arbitration being
non-compliance with the contract documents;
(5)
The public respondent committed serious error in law, if not
grave abuse of discretion, when it found, in the May 13, 1993
Order, the petitioner "guilty of estoppel" although it is claimed
that the legal doctrine of estoppel does not apply with respect
to the required written formalities in the issuance of change
order . . .;
(6)
The exceptional circumstances in Remalante vs. Tibe, 158
SCRA 138, where the Honorable Supreme Court may review
findings of facts, are present in the instant case, namely; (a)
when the inference made is manifestly absurd, mistaken or
impossible (Luna vs. Linatoc, 74 Phil. 15); (2) when there is
grave abuse of discretion in the appreciation of facts (Buyco
vs. People, 95 Phil. 253); (3) when the judgment is premised
on a misapprehension of facts (De la Cruz v. Sosing, 94 Phil.
26 and Castillo vs. CA, 124 SCRA 808); (4) when the findings
of fact are conflicting (Casica v. Villaseca, 101 Phil. 1205); (5)
when the findings are contrary to the admissions of the
parties (Evangelista v. Alto Surety, 103 Phil. 401), and
therefore, the findings of facts of the public respondent in the
instant case may be reviewed by the Honorable Supreme
Court. 20 (Emphasis partly applied and partly in the original)
58
From the foregoing, petitioner Hi-Precision may be seen to be
making two (2) basic arguments:
(a) Petitioner asks this Court to correct legal errors committed
by the Arbitral Tribunal, which at the same time constitute
grave abuse of discretion amounting to lack of jurisdiction on
the part of the Arbitral Tribunal; and
(b) Should the supposed errors petitioner asks us to correct be
characterized as errors of fact, such factual errors should
nonetheless be reviewed because there was "grave abuse of
discretion" in the misapprehension of facts on the part of the
Arbitral Tribunal.
Executive Order No. 1008, as amended, provides, in its
Section 19, as follows:
Sec. 19. Finality of Awards. The arbitral award shall be
binding upon the parties. It shall be final and inappealable
except on questions of law which shall be appealable to the
Supreme Court.
Section 19 makes it crystal clear that questions of fact cannot
be raised in proceedings before the Supreme Court which is
not a trier of facts in respect of an arbitral award rendered
under the aegis of the CIAC. Consideration of the animating
purpose of voluntary arbitration in general, and arbitration
under the aegis of the CIAC in particular, requires us to apply
rigorously the above principle embodied in Section 19 that the
Arbitral Tribunal's findings of fact shall be final and
inappealable.
Voluntary arbitration involves the reference of a dispute to an
impartial body, the members of which are chosen by the parties
themselves, which parties freely consent in advance to abide by
the arbitral award issued after proceedings where both parties
had the opportunity to be heard. The basic objective is to
provide a speedy and inexpensive method of settling disputes
by allowing the parties to avoid the formalities, delay, expense
and aggravation which commonly accompany ordinary litigation,
especially litigation which goes through the entire hierarchy of
courts. Executive Order No. 1008 created an arbitration facility
to which the construction industry in the Philippines can have
recourse. The Executive Order was enacted to encourage the
early and expeditious settlement of disputes in the construction
industry, a public policy the implementation of which is
necessary and important for the realization of national
development goals. 21
Aware of the objective of voluntary arbitration in the labor field,
in the construction industry, and in any other area for that
matter, the Court will not assist one or the other or even both
parties in any effort to subvert or defeat that objective for their
private purposes. The Court will not review the factual findings
of an arbitral tribunal upon the artful allegation that such body
had "misapprehended the facts" and will not pass upon issues
which are, at bottom, issues of fact, no matter how cleverly
disguised they might be as "legal questions." The parties here
had recourse to arbitration and chose the arbitrators
themselves; they must have had confidence in such arbitrators.
The Court will not, therefore, permit the parties to relitigate
before it the issues of facts previously presented and argued
before the Arbitral Tribunal, save only where a very clear
showing is made that, in reaching its factual conclusions, the
Arbitral Tribunal committed an error so egregious and hurtful to
one party as to constitute a grave abuse of discretion resulting
in lack or loss of jurisdiction. 22 Prototypical examples would be
factual conclusions of the Tribunal which resulted in deprivation
of one or the other party of a fair opportunity to present its
position before the Arbitral Tribunal, and an award obtained
through fraud or the corruption of arbitrators. 23 Any other, more
relaxed, rule would result in setting at naught the basic
objective of a voluntary arbitration and would reduce arbitration
to a largely inutile institution.

Examination of the Petition at bar reveals that it is essentially an
attempt to re-assert and re-litigate before this Court the detailed
or itemized factual claims made before the Arbitral Tribunal
under a general averment that the Arbitral Tribunal had
"misapprehended the facts" submitted to it. In the present
Petition, too, Hi-Precision claims that the Arbitral Tribunal had
committed grave abuse of discretion amounting to lack of
jurisdiction in reaching its factual and legal conclusions.
The first "legal issue" submitted by the Petition is the claimed
misapplication by the Arbitral Tribunal of the first and second
paragraphs of Article 1911 of the Civil Code. 24 Article 1191
reads:
59
Conditions of Contract forming part of the Contract Documents.
Petitioner Hi-Precision's argument is that a written Agreement
dated 16 November 1990 with Steel Builders concerning the
take over of the project by Hi-Precision, constituted waiver on
the part of the latter of its right to a 15-day notice of contract
termination. Whether or not that Agreement dated 16 November
1990 (a document not submitted to this Court) is properly
characterized as constituting waiver on the part of Steel
Builders, may be conceded to be prima facie a question of law;
but, if it is, and assuming arguendo that the Arbitral Tribunal had
erred in resolving it, that error clearly did not constitute a grave
abuse of discretion resulting in lack or loss of jurisdiction on the
part of the Tribunal.

A third "legal issue" posed by Hi-Precision relates to the

Art. 1191. The power to rescind obligations is implied in
supposed failure on the part of the Arbitral Tribunal "to uphold
reciprocal ones, in case one of the obligors should not comply
the supremacy of 'the
with what is incumbent upon him.
law between the parties' and enforce it against private
respondent [Steel Builders]." 27 The "law between that parties"
The injured party may choose between the fulfillment and the here involved is the "Technical Specifications" forming part of
rescission of the obligation, with the payment of damages in the Contract Documents. Hi-Precision asserts that the Arbitral
either case. He may also seek rescission, even after he has Tribunal did not uphold the "law between the parties," but
chosen fulfillment, if the latter should become impossible. instead substituted the same with "its [own] absurd inference
and 'opinion' on mud." Here again, petitioner is merely
The court shall decree the rescission claimed, unless there be disguising a factual question as a "legal issue," since petitioner
just cause authorizing the fixing of a period. is in reality asking this Court to review the physical operations
relating, e.g., to site preparation carried out by the contractor
Steel Builders and to determine whether such operations were in
This is understood to be without prejudice to the rights of third accordance with the Technical Specifications of the project. The
persons who have acquired the thing, in accordance with Arbitral Tribunal resolved Hi-Precision's claim by finding that
articles 1385 and 1388 and the Mortgage Law. Steel Builders had complied substantially with the Technical
Specifications. This Court will not pretend that it has the
Hi-Precision contends energetically that it is the injured party technical and engineering capability to review the resolution of
and that Steel Builders was the obligor who did not comply with that factual issue by the Arbitral Tribunal.
what was incumbent upon it, such that Steel Builders was the
party in default and the entity guilty of negligence and delay. As Finally, the Petition asks this Court to "review serious errors in
the injured party, Hi-Precision maintains that it may choose the findings of fact of the [Arbitral Tribunal]." 28 In this section of
between the fulfillment or rescission of the obligation in its Petition,
accordance with Article 1191, and is entitled to damages in Hi-Precision asks us to examine each item of its own claims
either case. Thus, Hi-Precision continues, when the contractor which the Arbitral Tribunal had rejected in its Award, and each
Steel Builders defaulted on the 153rd day of the original claim of the contractor Steel Builders which the Tribunal had
contract period, Hi-Precision opted for specific performance and granted. In respect of each item of the owner's claims and each
gave Steel Builders a 30-day extension period with which to item of the contractor's claims, Hi-Precision sets out its
complete the project. arguments, to all appearances the same arguments it had raised
before the Tribunal. As summarized in the Arbitral Award,
What petitioner Hi-Precision, in its above argument, disregards is Contractor's Claims were as follows:
that the determination of whether Hi-Precision or Steel Builders
was the "injured party" is not to be resolved by an application of 12.1. Unpaid Progress Billing 1,812,706.95
Article 1191. That determination is eminently a question of fact,
for it requires ascertainment and identification of which the two
(2) contending parties had first failed to comply with what is 12.2. Change Order 1 0.00
incumbent upon it. In other words, the supposed misapplication 12.3. -do- 2 10,014.00
of Article 1191, while ostensibly a "legal issue," is ultimately a 12.4. -do- 3 320,000.00
question of fact, i.e., the determination of the existence or non- 12.5. -do- 4 112,300.70
existence of a fact or set of facts in respect of which Article 1191 12.6. -do- 5 398,398.00
may be properly applied. Thus, to ask this Court to correct a 12.7. -do- 6 353,050.38
claimed misapplication or non-application of Article 1191 is to 12.8. -do- 7 503,836.53
compel this Court to determine which of the two (2) contending 12.9. -do- 8 216,138.75
parties was the "injured party" or the "first infractor." As noted 12.10. -do- 9 101,621.40
earlier, the Arbitral Tribunal after the prolonged arbitration 12.11. -do- 10 7,200.00
proceeding, was unable to make that factual determination and 12.12. -do- 11 0.00
instead concluded that both parties had committed breaches of 12.13. -do- 12 7,800.00
their respective obligations. We will not review, and much less 12.14. -do- 13 49,250.00
reverse, that basic factual finding of the Arbitral Tribunal. 12.15. -do- 14 167,952.00
12.16. -do- 15 445,600.00
12.17. -do- 16 92,457.30
A second "legal issue" sought to be raised by petitioner Hi- 12.18. -do- 17 1,500.00
Precision relates to the supposed failure of the Arbitral Tribunal 12.19. 20,240.00
to apply the doctrines of estoppel and waiver as against Steel 12.20. 63,518.00
Builders. 25 The Arbitral Tribunal, after declaring that the parties 12.21. 0.00
were mutually at fault, proceeded to enumerate the faults of 12.22. 0.00
each of the parties. One of the faults attributed to petitioner Hi- 12.23. 0.00
Precision is that it had failed to give the contractor Steel 12.24. 0.00
Builders the required 15-day notice for termination of the 12.25. 0.00
contract. 26 This was clearly a finding of fact on the part of the 12.26. 730,201.57
Tribunal, supported by the circumstance that per the record, 12.27. 1,130,722.70
petitioner had offered no proof that it had complied with such 12.28. 0.00
15-day notice required under Article 28.01 of the General
 60
12.29. 273,991.00 a. Foreign exchange loss 4,155,982.18
12.30. 0.00 b. Cost of money (a) 821,242.72
c. Additional import levy of 5% 886,513.33
d. Cost of money (c) 170,284.44

e. Cost of money on marginal

deposit on Letter of Credit 561,195.25
29
12.31. 7,318,499.28

IF Cost of money on holding to CRC INTY 3,319,609.63

=============

Total Actual Damages 35,295,927.32

Upon the other hand, the petitioner's claims we are asked to
review and grant are summarized as follows:
2. Liquidated Damages 2,436,000.00

1. Actual Damages
3. Attorney's Fees 500,000.00

Advance Downpayment

[at] signing of Contract
which is subject to 40%
deduction every progress P38,231,927.32 30
billing (40% of Contract Price) P8,406,000.00
=============
Progress Billings 5,582,585.55
We consider that in asking this Court to go over each individual
Advances made to Lim Kim claim submitted by it and each individual countering claim
submitted by Steel Builders to the Arbitral Tribunal, petitioner Hi-
Precision is asking this Court to pass upon claims which are
a) prior to take-over 392,781.45
either clearly and directly factual in nature or require previous
b) after the take-over
determination of factual issues. This upon the one hand. Upon
the other hand, the Court considers that petitioner Hi-Precision
Civil Works 1,158,513.88 has failed to show any serious errors of law amounting to grave
Materials 4,213,318.72 abuse of discretion resulting in lack of jurisdiction on the part of
Labor 2,155,774.79 the Arbitral Tribunal, in either the methods employed or the
Equipment Rental 1,448,208.90 results reached by the Arbitral Tribunal, in disposing of the
detailed claims of the respective parties.

WHEREFORE, for all the foregoing, the Petition is hereby

P8,974,816.45 DISMISSED for lack of merit. Costs against petitioner.SO
ORDERED.

Total Amount Paid for Construction 23,650,183.00

Less: Contract Price (21,000,000.00) SECOND DIVISION G.R. No. 175404 January 31, 2011
CARGILL PHILIPPINES, INC.,Petitioner, - versus - SAN
FERNANDO REGALA TRADING, INC., Respondent.
IA Excess of amount paid
over contract price 2,650,163.29 PERALTA, J.:

Before us is a petition for review on certiorari seeking to reverse

IB Other items due from Lim and set aside the Decision [1] dated July 31, 2006and the
Kim Steel Builders Resolution[2] dated November 13, 2006 of the Court of Appeals
(CA) in CA G.R. SP No. 50304.
a. Amount not yet deducted
The factual antecedents are as follows:
from Downpayment due
to non-completion of Project
(P24.1326%) 2,027,138.40

b. Due to Huey
used for HSCI Project 51,110.40
IC Additional construction expenses
a. Increases in prices since Oct. 5,272,096.81
b. Cost of money of (a) 873,535.49
ID Installation of machinery
a. Foreign exchange loss 11,565,048.37
b. Cost of money (a) 2,871,987.01
I[E] Raw Materials
Commercial On June 18, 1998, respondent San Fernando Regala Trading, Inc.
filed with the Regional Trial Court (RTC) of Makati City a
Complaint for Rescission of Contract with Damages [3] against
petitioner Cargill Philippines, Inc. In its Complaint, respondent
alleged that it was engaged in buying and selling of molasses
and petitioner was one of its various sources from whom it
purchased molasses. Respondent alleged that it entered into a
contract dated July 11, 1996 with petitioner, wherein it was
agreed upon that respondent would purchase from petitioner
12,000 metric tons of Thailand origin cane blackstrap molasses
at the price of US$192 per metric ton; that the delivery of the
molasses was to be made in January/February 1997 and
payment was to be made by means of an Irrevocable Letter of
Credit payable at sight, to be opened by September 15, 1996;
that sometime prior to September 15, 1996, the parties agreed
that instead of January/February 1997, the delivery would be
made in April/May 1997 and that payment would be by an
Irrevocable Letter of Credit payable at sight, to be opened upon
petitioner's advice. Petitioner, as seller, failed to comply with its
obligations under the contract, despite demands from
respondent, thus, the latter prayed for rescission of the contract
and payment of damages.

On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend
Proceedings and To Refer Controversy to Voluntary Arbitration,
[4]
wherein it argued that the alleged contract between the
parties, dated July 11, 1996, was never consummated because
respondent never returned the proposed agreement bearing its
written acceptance or conformity nor did respondent open the
Irrevocable Letter of Credit at sight. Petitioner contended that
the controversy between the parties was whether or not the
alleged contract between the parties was legally in existence
and the RTC was not the proper forum to ventilate such issue. It
claimed that the contract contained an arbitration clause, to wit:
ARBITRATION
Any dispute which the Buyer and Seller may not be
able to settle by mutual agreement shall be settled by
arbitration in the City of New York before the American
Arbitration Association. The Arbitration Award shall be
final and binding on both parties.[5]
that respondent must first comply with the arbitration clause
before resorting to court, thus, the RTC must either dismiss the
case or suspend the proceedings and direct the parties to
proceed with arbitration, pursuant to Sections 6 [6] and
7[7] of Republic Act (R.A.) No. 876, or the Arbitration Law.
Respondent filed an Opposition, wherein it argued that the RTC
has jurisdiction over the action for rescission of contract and
could not be changed by the subject arbitration clause. It cited
cases wherein arbitration clauses, such as the subject clause in
the contract, had been struck down as void for being contrary to
public policy since it provided that the arbitration award shall be
final and binding on both parties, thus, ousting the courts of
jurisdiction.
In its Reply, petitioner maintained that the cited decisions were
already inapplicable, having been rendered prior to the
effectivity of the New Civil Code in 1950 and the Arbitration Law
in 1953.
In its Rejoinder, respondent argued that the arbitration clause
relied upon by petitioner is invalid and unenforceable,
considering that the requirements imposed by the provisions of
the Arbitration Law had not been complied with.
By way of Sur-Rejoinder, petitioner contended that respondent
had even clarified that the issue boiled down to whether the
arbitration clause contained in the contract subject of the
complaint is valid and enforceable; that the arbitration clause
did not violate any of the cited provisions of the Arbitration Law.
On September 17, 1998, the RTC rendered an Order, [8] the
dispositive portion of which reads:
Premises considered, defendant's Motion To
Dismiss/Suspend Proceedings and To Refer Controversy
To Voluntary Arbitration is hereby DENIED. Defendant is
directed to file its answer within ten (10) days from
receipt of a copy of this order.[9]
In denying the motion, the RTC found that there was no clear
basis for petitioner's plea to dismiss the case, pursuant to
Section 7 of the Arbitration Law. The RTC said that the provision
directed the court concerned only to stay the action or
proceeding brought upon an issue arising out of an agreement
providing for the arbitration thereof, but did not impose the
sanction of dismissal. However, the RTC did not find the
61
suspension of the proceedings warranted, since the Arbitration
Law contemplates an arbitration proceeding that must be
conducted in the Philippines under the jurisdiction and control of
the RTC; and before an arbitrator who resides in the country;
and that the arbitral award is subject to court approval,
disapproval and modification, and that there must be an appeal
from the judgment of the RTC. The RTC found that the arbitration
clause in question contravened these procedures, i.e., the
arbitration clause contemplated an arbitration proceeding
in New York before a non-resident arbitrator (American
Arbitration Association); that the arbitral award shall be final and
binding on both parties. The RTC said that to apply Section 7 of
the Arbitration Law to such an agreement would result in
disregarding the other sections of the same law and rendered
them useless and mere surplusages.
Petitioner filed its Motion for Reconsideration, which the RTC
denied in an Order[10] dated November 25, 1998.
Petitioner filed a petition for certiorari with the CA raising the
sole issue that the RTC acted in excess of jurisdiction or with
grave abuse of discretion in refusing to dismiss or at least
suspend the proceedings a quo, despite the fact that the party's
agreement to arbitrate had not been complied with.
Respondent filed its Comment and Reply. The parties were then
required to file their respective Memoranda.
On July 31, 2006, the CA rendered its assailed Decision denying
the petition and affirming the RTC Orders.
In denying the petition, the CA found that stipulation providing
for arbitration in contractual obligation is both valid and
constitutional; that arbitration as an alternative mode of dispute
resolution has long been accepted in our jurisdiction and
expressly provided for in the Civil Code; that R.A. No. 876 (the
Arbitration Law) also expressly authorized the arbitration of
domestic disputes. The CA found error in the RTC's holding that
Section 7 of R.A. No. 876 was inapplicable to arbitration clause
simply because the clause failed to comply with the
requirements prescribed by the law. The CA found that there
was nothing in the Civil Code, or R.A. No. 876, that require that
arbitration proceedings must be conducted only in
the Philippines and the arbitrators should be Philippine
residents. It also found that the RTC ruling effectively invalidated
not only the disputed arbitration clause, but all other
agreements which provide for foreign arbitration. The CA did not
find illegal or against public policy the arbitration clause so as to
render it null and void or ineffectual.
Notwithstanding such findings, the CA still held that the case
cannot be brought under the Arbitration Law for the purpose of
suspending the proceedings before the RTC, since in its Motion
to Dismiss/Suspend proceedings, petitioner alleged, as one of
the grounds thereof, that the subject contract between the
parties did not exist or it was invalid; that the said contract
bearing the arbitration clause was never consummated by the
parties, thus, it was proper that such issue be first resolved by
the court through an appropriate trial; that the issue involved a
question of fact that the RTC should first resolve. Arbitration is
not proper when one of the parties repudiated the existence or
validity of the contract.
Petitioner's motion for reconsideration was denied in a
Resolution dated November 13, 2006.
Hence, this petition.
Petitioner alleges that the CA committed an error of law
in ruling that arbitration cannot proceed despite the fact that:
(a) it had ruled, in its assailed decision, that the arbitration
clause is valid, enforceable and binding on the parties; (b) the
case of Gonzales v. Climax Mining Ltd. [11] is inapplicable here; (c)
parties are generally allowed, under the Rules of Court, to adopt
several defenses, alternatively or hypothetically, even if such

defenses are inconsistent with each other; and (d) the complaint
filed by respondent with the trial court is premature.
Petitioner alleges that the CA adopted inconsistent positions
when it found the arbitration clause between the parties as valid
and enforceable and yet in the same breath decreed that the
arbitration cannot proceed because petitioner assailed the
existence of the entire agreement containing the arbitration
clause. Petitioner claims the inapplicability of the
cited Gonzales case decided in 2005, because in the present
case, it was respondent who had filed the complaint for
rescission and damages with the RTC, which based its cause of
action against petitioner on the alleged agreement dated July
11, 2006 between the parties; and that the same agreement
contained the arbitration clause sought to be enforced by
petitioner in this case. Thus, whether petitioner assails the
genuineness and due execution of the agreement, the fact
remains that the agreement sued upon provides for an
arbitration clause; that respondent cannot use the provisions
favorable to him and completely disregard those that are
unfavorable, such as the arbitration clause.
Petitioner contends that as the defendant in the RTC, it
presented two alternative defenses, i.e., the parties had not
entered into any agreement upon which respondent as plaintiff
can sue upon; and, assuming that such agreement existed,
there was an arbitration clause that should be enforced, thus,
the dispute must first be submitted to arbitration before an
action can be instituted in court. Petitioner argues that under
Section 1(j) of Rule 16 of the Rules of Court, included as a
ground to dismiss a complaint is when a condition precedent for
filing the complaint has not been complied with; and that
submission to arbitration when such has been agreed upon is
one such condition precedent. Petitioner submits that the
proceedings in the RTC must be dismissed, or at least
suspended, and the parties be ordered to proceed with
arbitration.
On March 12, 2007, petitioner filed a Manifestation [12] saying
that the CA's rationale in declining to order arbitration based on
the 2005 Gonzales ruling had been modified upon a motion for
reconsideration decided in 2007; that the CA decision lost its
legal basis, because it had been ruled that the arbitration
agreement can be implemented notwithstanding that one of the
parties thereto repudiated the contract which contained such
agreement based on the doctrine of separability.
In its Comment, respondent argues that certiorari under
Rule 65 is not the remedy against an order denying a Motion to
Dismiss/Suspend Proceedings and To Refer Controversy to
Voluntary Arbitration. It claims that the Arbitration Law which
petitioner invoked as basis for its Motion prescribed, under its
Section 29, a remedy, i.e., appeal by a petition for review
on certiorari under Rule 45. Respondent contends that
the Gonzales case, which was decided in 2007, is inapplicable in
this case, especially as to the doctrine of separability enunciated
therein.Respondent argues that even if the existence of the
contract and the arbitration clause is conceded, the decisions of
the RTC and the CA declining referral of the dispute between the
parties to arbitration would still be correct. This is so because
respondent's complaint filed in Civil Case No. 98-1376 presents
the principal issue of whether under the facts alleged in the
complaint, respondent is entitled to rescind its contract with
petitioner and for the latter to pay damages; that such issue
constitutes a judicial question or one that requires the exercise
of judicial function and cannot be the subject of arbitration.
Respondent contends that Section 8 of the Rules of Court, which
allowed a defendant to adopt in the same action several
defenses, alternatively or hypothetically, even if such defenses
are inconsistent with each other refers to allegations in the
pleadings, such as complaint, counterclaim, cross-claim, third-
party complaint, answer, but not to a motion to dismiss. Finally,
respondent claims that petitioner's argument is premised on the
existence of a contract with respondent containing a provision
for arbitration. However, its reliance on the contract, which it
repudiates, is inappropriate.
62
In its Reply, petitioner insists that respondent filed an action for
rescission and damages on the basis of the contract, thus,
respondent admitted the existence of all the provisions
contained thereunder, including the arbitration clause; that if
respondent relies on said contract for its cause of action against
petitioner, it must also consider itself bound by the rest of the
terms and conditions contained thereunder notwithstanding that
respondent may find some provisions to be adverse to its
position; that respondents citation of the Gonzales case, decided
in 2005, to show that the validity of the contract cannot be the
subject of the arbitration proceeding and that it is the RTC which
has the jurisdiction to resolve the situation between the parties
herein, is not correct since in the resolution of the Gonzales'
motion for reconsideration in 2007, it had been ruled that an
arbitration agreement is effective notwithstanding the fact that
one of the parties thereto repudiated the main contract which
contained it.
We first address the procedural issue raised by respondent that
petitioners petition for certiorari under Rule 65 filed in the CA
against an RTC Order denying a Motion to Dismiss/Suspend
Proceedings and to Refer Controversy to Voluntary Arbitration
was a wrong remedy invoking Section 29 of R.A. No. 876, which
provides:
Section 29.
x x x 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 question of law. x x x.
To support its argument, respondent cites the case of Gonzales
v. Climax Mining Ltd.[13] (Gonzales case), wherein we ruled the
impropriety of a petition for certiorari under Rule 65 as a mode
of appeal from an RTC Order directing the parties to arbitration.
We find the cited case not in point.
In the Gonzales case, Climax-Arimco filed before the RTC of
Makati a petition to compel arbitration under R.A. No. 876,
pursuant to the arbitration clause found in the Addendum
Contract it entered with Gonzales. Judge Oscar Pimentel of the
RTC of Makati then directed the parties to arbitration
proceedings. Gonzales filed a petition for certiorari with
Us contending that 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 was null and void. Climax-
Arimco assailed the mode of review availed of by Gonzales,
citing Section 29 of R.A. No. 876 contending that certiorariunder
Rule 65 can be availed of only if there was no appeal or any
adequate remedy in the ordinary course of law; that R.A. No.
876 provides for an appeal from such order. We then ruled that
Gonzales' petition for certiorarishould be dismissed as it was
filed in lieu of an appeal by certiorari which was the prescribed
remedy under R.A. No. 876 and the petition was filed far beyond
the reglementary period.
We found that Gonzales petition for certiorari raises a question
of law, but not a question of jurisdiction; that Judge Pimentel
acted in accordance with the procedure prescribed in R.A. No.
876 when he ordered Gonzales to proceed with arbitration and
appointed a sole arbitrator after making the determination that
there was indeed an arbitration agreement. It had been held

that as long as a court acts within its jurisdiction and does not
gravely abuse its discretion in the exercise thereof, any
supposed error committed by it will amount to nothing more
than an error of judgment reviewable by a timely appeal and not
assailable by a special civil action of certiorari.[14]
In this case, petitioner raises before the CA the issue that the
respondent Judge acted in excess of jurisdiction or with grave
abuse of discretion in refusing to dismiss, or at least suspend,
the proceedings a quo, despite the fact that the partys
agreement to arbitrate had not been complied with. Notably, the
RTC found the existence of the arbitration clause, since it said in
its decision that hardly disputed is the fact that the arbitration
clause in question contravenes several provisions of the
Arbitration Law x x x and to apply Section 7 of the Arbitration
Law to such an agreement would result in the disregard of the
afore-cited sections of the Arbitration Law and render them
useless and mere surplusages. However, notwithstanding the
finding that an arbitration agreement existed, the RTC denied
petitioner's motion and directed petitioner to file an answer.
In La Naval Drug Corporation v. Court of Appeals,[15] it
was held that R.A. No. 876 explicitly confines the courts
authority only to the determination of whether or not there is an
agreement in writing providing for arbitration. In the affirmative,
the statute ordains that the court shall issue an order summarily
directing the parties to proceed with the arbitration in
accordance with the terms thereof. If the court, upon the other
hand, finds that no such agreement exists, the proceedings shall
be dismissed.
In issuing the Order which denied petitioner's Motion to
Dismiss/Suspend Proceedings and to Refer Controversy to
Voluntary Arbitration, the RTC went beyond its authority of
determining only the issue of whether or not there is an
agreement in writing providing for arbitration by directing
petitioner to file an answer, instead of ordering the parties to
proceed to arbitration. In so doing, it acted in excess of its
jurisdiction and since there is no plain, speedy, and adequate
remedy in the ordinary course of law, petitioners resort to a
petition for certiorari is the proper remedy.
We now proceed to the substantive issue of whether
the CA erred in finding that this case cannot be brought under
the arbitration law for the purpose of suspending the
proceedings in the RTC.
We find merit in the petition.
Arbitration, as an alternative mode of settling disputes,
has long been recognized and accepted in our jurisdiction.
[16]
R.A. No. 876[17] authorizes arbitration of domestic
disputes. Foreign arbitration, as a system of settling commercial
disputes of an international character, is likewise recognized.
[18]
The enactment of R.A. No. 9285 on April 2, 2004 further
institutionalized the use of alternative dispute resolution
systems, including arbitration, in the settlement of disputes.[19]
A contract is required for arbitration to take place and
to be binding.[20] Submission to arbitration is a contract [21] and a
clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract.
[22]
The provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of the
contract and is itself a contract.[23]
In this case, the contract sued upon by respondent
provides for an arbitration clause, to wit:
ARBITRATION
Any dispute which the Buyer and Seller may not be
able to settle by mutual agreement shall be settled by
arbitration in the City of New York before the American
Arbitration Association, The Arbitration Award shall be
final and binding on both parties.
63
The CA ruled that arbitration cannot be ordered in this case,
since petitioner alleged that the contract between the parties
did not exist or was invalid and arbitration is not proper when
one of the parties repudiates the existence or validity of the
contract. Thus, said the CA:
Notwithstanding our ruling on the validity and
enforceability of the assailed arbitration clause
providing for foreign arbitration, it is our considered
opinion that the case at bench still cannot be brought
under the Arbitration Law for the purpose of
suspending the proceedings before the trial court. We
note that in its Motion to Dismiss/Suspend Proceedings,
etc, petitioner Cargill alleged, as one of the grounds
thereof, that the alleged contract between the parties
do not legally exist or is invalid. As posited by
petitioner, it is their contention that the said contract,
bearing the arbitration clause, was never consummated
by the parties. That being the case, it is but proper that
such issue be first resolved by the court through an
appropriate trial. The issue involves a question of fact
that the trial court should first resolve.
Arbitration is not proper when one of the parties
repudiates the existence or validity of the contract.
Apropos is Gonzales v. Climax Mining Ltd., 452 SCRA
607, (G.R.No.161957), where the Supreme Court held
that:
The question of validity of the
contract containing the agreement to
submit to arbitration will affect the
applicability of the arbitration clause
itself. A party cannot rely on the contract
and claim rights or obligations under it
and at the same time impugn its
existence or validity. Indeed, litigants are
enjoined from taking inconsistent
positions....
Consequently, the petitioner herein cannot claim that
the contract was never consummated and, at the same
time, invokes the arbitration clause provided for under
the contract which it alleges to be non-existent or
invalid. Petitioner claims that private respondent's
complaint lacks a cause of action due to the absence of
any valid contract between the parties. Apparently, the
arbitration clause is being invoked merely as a fallback
position. The petitioner must first adduce evidence in
support of its claim that there is no valid contract
between them and should the court a quo find the
claim to be meritorious, the parties may then be spared
the rigors and expenses that arbitration in a foreign
land would surely entail.[24]
However, the Gonzales case,[25] which the CA relied upon for not
ordering arbitration, had been modified upon a motion for
reconsideration in this wise:
x x x The adjudication of the petition in G.R. No.
167994 effectively modifies part of the Decision
dated 28 February 2005 in G.R. No. 161957.
Hence, we now hold that the validity of the
contract containing the agreement to submit to
arbitration does not affect the applicability of the
arbitration clause itself. A contrary ruling would
suggest that a party's mere repudiation of the
main contract is sufficient to avoid arbitration.
That is exactly the situation that the separability
doctrine, as well as jurisprudence applying it,
seeks to avoid. We add that when it was declared in
G.R. No. 161957 that the case should not be brought
for arbitration, it should be clarified that the case

referred to is the case actually filed by Gonzales before
the DENR Panel of Arbitrators, which was for the
nullification of the main contract on the ground of
fraud, as it had already been determined that the case
should have been brought before the regular courts
involving as it did judicial issues.[26]
In so ruling that the validity of the contract containing the
arbitration agreement does not affect the applicability of the
arbitration clause itself, we then applied the doctrine of
separability, thus:
The doctrine of separability, or severability as
other writers call it, enunciates that an arbitration
agreement is independent of the main contract. The
arbitration agreement is to be treated as a separate
agreement and the arbitration agreement does not
automatically terminate when the contract of which it is
a part comes to an end.
The separability of the arbitration agreement is
especially significant to the determination of whether
the invalidity of the main contract also nullifies the
arbitration clause. Indeed, the doctrine denotes that
the invalidity of the main contract, also referred to as
the "container" contract, does not affect the validity of
the arbitration agreement. Irrespective of the fact that
the main contract is invalid, the arbitration
clause/agreement still remains valid and enforceable. [27]
Respondent argues that the separability doctrine is not
applicable in petitioner's case, since in the Gonzalescase,
Climax-Arimco sought to enforce the arbitration clause of its
contract with Gonzales and the former's move was premised on
the existence of a valid contract; while Gonzales, who resisted
the move of Climax-Arimco for arbitration, did not deny the
existence of the contract but merely assailed the validity thereof
on the ground of fraud and oppression. Respondent claims that
in the case before Us, petitioner who is the party insistent on
arbitration also claimed in their Motion to Dismiss/Suspend
Proceedings that the contract sought by respondent to be
rescinded did not exist or was not consummated; thus, there is
no room for the application of the separability doctrine, since
there is no container or main contract or an arbitration clause to
speak of.
We are not persuaded.
Applying the Gonzales ruling, an arbitration agreement
which forms part of the main contract shall not be regarded as
invalid or non-existent just because the main contract is invalid
or did not come into existence, since the arbitration agreement
shall be treated as a separate agreement independent of the
main contract. To reiterate. a contrary ruling would suggest that
a party's mere repudiation of the main contract is sufficient to
avoid arbitration and that is exactly the situation that the
separability doctrine sought to avoid. Thus, we find that even
the party who has repudiated the main contract is not prevented
from enforcing its arbitration clause.
Moreover, it is worthy to note that respondent filed a
complaint for rescission of contract and damages with the RTC.
In so doing, respondent alleged that a contract exists between
respondent and petitioner. It is that contract which provides for
an arbitration clause which states that any dispute which the
Buyer and Seller may not be able to settle by mutual agreement
shall be settled before the City of New York by the American
Arbitration Association. The arbitration agreement clearly
expressed the parties' intention that any dispute between them
as buyer and seller should be referred to arbitration. It is for the
arbitrator and not the courts to decide whether a contract
between the parties exists or is valid.
Respondent contends that assuming that the existence of the
contract and the arbitration clause is conceded, the CA's
decision declining referral of the parties' dispute to arbitration is
still correct. It claims that its complaint in the RTC presents the
issue of whether under the facts alleged, it is entitled to rescind
64
the contract with damages; and that issue constitutes a judicial
question or one that requires the exercise of judicial function
and cannot be the subject of an arbitration proceeding.
Respondent cites our ruling in Gonzales, wherein we held that a
panel of arbitrator is bereft of jurisdiction over the complaint for
declaration of nullity/or termination of the subject contracts on
the grounds of fraud and oppression attendant to the execution
of the addendum contract and the other contracts emanating
from it, and that the complaint should have been filed with the
regular courts as it involved issues which are judicial in nature.
Such argument is misplaced and respondent cannot rely on
the Gonzales case to support its argument.
In Gonzales, petitioner Gonzales filed a complaint before the
Panel of Arbitrators, Region II, Mines and Geosciences Bureau, of
the Department of Environment and Natural Resources (DENR)
against respondents Climax- Mining Ltd, Climax-Arimco and
Australasian Philippines Mining Inc, seeking the declaration of
nullity or termination of the addendum contract and the other
contracts emanating from it on the grounds of fraud and
oppression. The Panel dismissed the complaint for lack of
jurisdiction. However, the Panel, upon petitioner's motion for
reconsideration, ruled that it had jurisdiction over the dispute
maintaining that it was a mining dispute, since the subject
complaint arose from a contract between the parties which
involved the exploration and exploitation of minerals over the
disputed area. Respondents assailed the order of the Panel of
Arbitrators via a petition for certiorari before the CA. The CA
granted the petition and declared that the Panel of Arbitrators
did not have jurisdiction over the complaint, since its jurisdiction
was limited to the resolution of mining disputes, such as those
which raised a question of fact or matter requiring the technical
knowledge and experience of mining authorities and not when
the complaint alleged fraud and oppression which called for the
interpretation and application of laws. The CA further ruled that
the petition should have been settled through arbitration under
R.A. No. 876 the Arbitration Law as provided under the
addendum contract.
On a review on certiorari, we affirmed the CAs finding that the
Panel of Arbitrators who, under R.A. No. 7942 of the Philippine
Mining Act of 1995, has exclusive and original jurisdiction to
hear and decide mining disputes, such as mining areas, mineral
agreements, FTAAs or permits and surface owners, occupants
and claimholders/concessionaires, is bereft of jurisdiction over
the complaint for declaration of nullity of the addendum
contract; thus, the Panels' jurisdiction is limited only to those
mining disputes which raised question of facts or matters
requiring the technical knowledge and experience of mining
authorities. We then said:
In Pearson v. Intermediate Appellate Court, this
Court observed that the trend has been to make the
adjudication of mining cases a purely administrative
matter. Decisions of the Supreme Court on mining
disputes have recognized a distinction between (1) the
primary powers granted by pertinent provisions of law
to the then Secretary of Agriculture and Natural
Resources (and the bureau directors) of an executive or
administrative nature, such as granting of license,
permits, lease and contracts, or approving, rejecting,
reinstating or canceling applications, or deciding
conflicting applications, and (2) controversies or
disagreements of civil or contractual nature between
litigants which are questions of a judicial nature that
may be adjudicated only by the courts of justice. This
distinction is carried on even in Rep. Act No. 7942. [28]
We found that since the complaint filed before the
DENR Panel of Arbitrators charged respondents with
disregarding and ignoring the addendum contract, and acting in
a fraudulent and oppressive manner against petitioner, the
complaint filed before the Panel was not a dispute involving
rights to mining areas, or was it a dispute involving claimholders
or concessionaires, but essentially judicial issues. We then said
that the Panel of Arbitrators did not have jurisdiction over such
issue, since it does not involve the application of technical
knowledge and expertise relating to mining. It is in this context
that we said that:

Arbitration before the Panel of Arbitrators is proper only
when there is a disagreement between the parties as to
some provisions of the contract between them, which
needs the interpretation and the application of that
particular knowledge and expertise possessed by
members of that Panel. It is not proper when one of the
parties repudiates the existence or validity of such
contract or agreement on the ground of fraud or
oppression as in this case. The validity of the contract
cannot be subject of arbitration proceedings.
Allegations of fraud and duress in the execution of a
contract are matters within the jurisdiction of the
ordinary courts of law. These questions are legal in
nature and require the application and interpretation of
laws and jurisprudence which is necessarily a judicial
function.[29]
In fact, We even clarified in our resolution on Gonzales motion
for reconsideration that when we declared that the case should
not be brought for arbitration, it should be clarified that the case
referred to is the case actually filed by Gonzales before the
DENR Panel of Arbitrators, which was for the nullification of the
main contract on the ground of fraud, as it had already been
determined that the case should have been brought before the
regular courts involving as it did judicial issues. We made such
clarification in our resolution of the motion for reconsideration
after ruling that the parties in that case can proceed to
arbitration under the Arbitration Law, as provided under the
Arbitration Clause in their Addendum Contract.
WHEREFORE, the petition is GRANTED. The Decision
dated July 31, 2006 and the Resolution dated November 13,
2006 of the Court of Appeals in CA-G.R. SP No. 50304
are REVERSED and SET ASIDE. The parties are
hereby ORDERED to SUBMIT themselves to the arbitration of
their dispute, pursuant to their July 11, 1996 agreement.
SO ORDERED. a. Unpaid accomplished work billings.
b. Material costs at site..
THIRD DIVISION April c. Equipment and labor standby costs..
4, 2011 G.R. d. Unrealized gross profit..
No. 167022 e. Attorneys fees..
f. Interest expenses ...
LICOMCEN
INCORPORATED,Petitioner,- versus -FOUNDATION
SPECIALISTS, INC.,Respondent.
THE FACTS
The petitioner, LICOMCEN Incorporated (LICOMCEN), is a
domestic corporation engaged in the business of operating
shopping malls in the country.
In March 1997, the City Government of Legaspi awarded to
LICOMCEN, after a public bidding, a lease contract over a lot
located in the central business district of the city. Under the
contract, LICOMCEN was obliged to finance the construction of a
commercial complex/mall to be known as the LCC Citimall
(Citimall). It was also granted the right to operate and manage
Citimall for 50 years, and was, thereafter, required to turn over
the ownership and operation to the City Government.[1]
For the Citimall project, LICOMCEN hired E.S. de Castro and
Associates (ESCA) to act as its engineering consultant. Since the
Citimall was envisioned to be a high-rise structure, LICOMCEN
contracted respondent Foundation Specialists, Inc. (FSI) to do
initial construction works, specifically, the construction and
installation of bored piles foundation. [2] LICOMCEN and FSI
signed the Construction Agreement,[3] and the accompanying
Bid Documents[4] and General Conditions of Contract [5] (GCC)
on September 1, 1997. Immediately thereafter, FSI purchased
the materials needed for the Citimall[6] project and began
working in order to meet the 90-day deadline set by LICOMCEN.
On December 16, 1997, LICOMCEN sent word to FSI that it was
considering major design revisions and the suspension of work
on the Citimall project. FSI replied on December 18, 1997,
expressing concern over the revisions and the suspension, as it
65
had fully mobilized its manpower and equipment, and had
ordered the delivery of steel bars. FSI also asked for the
payment of accomplished work amounting to P3,627,818.00.[7] A
series of correspondence between LICOMCEN and FSI then
followed.
ESCA wrote FSI on January 6, 1998, stating that the revised
design necessitated a change in the bored piles requirement
and a substantial reduction in the number of piles. Thus, ESCA
proposed to FSI that only 50% of the steel bars be delivered to
the jobsite and the rest be shipped back to Manila.
[8]
Notwithstanding this instruction, all the ordered steel bars
arrived in Legaspi City on January 14, 1998.[9]
On January 15, 1998, LICOMCEN instructed FSI to hold all
construction activities on the project, [10] in view of a pending
administrative case against the officials of the City Government
of Legaspi and LICOMCEN filed before the Ombudsman (OMB-
ADM-1-97-0622).[11] On January 19, 1998, ESCA formalized the
suspension of construction activities and ordered the
constructions demobilization until the case was resolved. [12] In
response, FSI sent ESCA a letter, dated February 3, 1998,
requesting payment of costs incurred on account of the
suspension which totaled P22,667,026.97.[13] FSI repeated its
demand for payment on March 3, 1998.[14]
ESCA replied to FSIs demands for payment on March 24,
1998, objecting to some of the claims. [15] It denied the claim
for the cost of the steel bars that were delivered, since the
delivery was done in complete disregard of its instructions. It
further disclaimed liability for the other FSI claims based on the
suspension, as its cause was not due to LICOMCENs fault. FSI
rejected ESCAs evaluation of its claims in its April 15,
1998 letter.[16]
On March 14, 2001, FSI sent a final demand
letter to LICOMCEN for payment of P29,232,672.83.
[17]
Since LICOMCEN took no positive action on FSIs demand for
payment,[18] FSI filed a petition for arbitration with the
Construction Industry Arbitration Commission (CIAC) on October
P 1,264,404.12
15,143,638.51
3,058,984.34
9,023,575.29
300,000.00
equivalent to 15% of the total claim
2, 2002, docketed as CIAC Case No. 37-2002. [19] In the
arbitration petition, FSI demanded payment of the following
amounts:
LICOMCEN again denied liability for the amounts
claimed by FSI. It justified its decision to indefinitely suspend the
Citimall project due to the cases filed against it involving its
Lease Contract with the City Government of Legaspi. LICOMCEN
also assailed the CIACs jurisdiction, contending that FSIs claims
were matters not subject to arbitration under GC-61 of the GCC,
but one that should have been filed before the regular courts
of Legaspi City pursuant to GC-05.[20]
During the preliminary conference of January 28, 2003,
LICOMCEN reiterated its objections to the CIACs jurisdiction,
which the arbitrators simply noted. Both FSI and LICOMCEN then
proceeded to draft the Terms of Reference. [21]
On February 4, 2003, LICOMCEN, through a collaborating
counsel, filed its Ex Abundati Ad Cautela Omnibus Motion,
insisting that FSIs petition before the CIAC should be dismissed
for lack of jurisdiction; thus, it prayed for the suspension of the
arbitration proceedings until the issue of jurisdiction was finally
settled. The CIAC denied LICOMCENs motion in its February 20,
2003 order,[22] finding that the question of jurisdiction depends
on certain factual conditions that have yet to be established by
ample evidence. As the CIACs February 20, 2003order stood
uncontested, the arbitration proceedings continued, with both
parties actively participating.
The CIAC issued its decision on July 7, 2003,[23] ruling in favor of
FSI and awarding the following amounts:

a. Unpaid accomplished work billings.
b. Material costs at site
c. Equipment and labor standby costs
d. Unrealized gross profit
LICOMCEN was also required to bear the costs of arbitration in
the total amount of P474,407.95.
LICOMCEN appealed the CIACs decision before the
Court of Appeals (CA). On November 23, 2004, the CA upheld
the CIACs decision, modifying only the amounts awarded by (a)
reducing LICOMCENs liability for material costs at site
to P5,694,939.87, and (b) deleting its liability for equipment and
labor standby costs and unrealized gross profit; all the other
awards were affirmed.[24] Both parties moved for the
reconsideration of the CAs Decision; LICOMCENs motion was
denied in the CAs February 4, 2005 Resolution, while FSIs
motion was denied in the CAs September 13,
2005 Resolution. Hence, the parties filed their own petition for
review on certiorari before the Court.[25]
LICOMCENs Arguments
LICOMCEM principally raises the question of the CIACs
jurisdiction, insisting that FSIs claims are non-arbitrable. In
support of its position, LICOMCEN cites GC-61 of the GCC:
GC-61. DISPUTES AND ARBITRATION
Should any dispute of any kind arise
between the LICOMCEN INCORPORATED and the
Contractor [referring to FSI] or the Engineer [referring
to ESCA] and the Contractor in connection with, or
arising out of the execution of the Works, such
dispute shall first be referred to and settled by the
LICOMCEN, INCORPORATED who shall within a period of
thirty (30) days after being formally requested by
either party to resolve the dispute, issue a written
decision to the Engineer and Contractor.
Such decision shall be final and binding upon
the parties and the Contractor shall proceed with the
execution of the Works with due diligence
notwithstanding any Contractor's objection to the
decision of the Engineer. If within a period of thirty (30)
days from receipt of the LICOMCEN, INCORPORATED's
decision on the dispute, either party does not officially
give notice to contest such decision through arbitration,
the said decision shall remain final and binding.
However, should any party, within thirty (30) days from
receipt of the LICOMCEN, INCORPORATED's decision,
contest said decision, the dispute shall be submitted for
arbitration under the Construction Industry Arbitration
Law, Executive Order 1008. The arbitrators appointed
under said rules and regulations shall have full power
to open up, revise and review any decision, opinion,
direction, certificate or valuation of the LICOMCEN,
INCORPORATED. Neither party shall be limited to the
evidence or arguments put before the LICOMCEN,
INCORPORATED for the purpose of obtaining his said
decision. No decision given by the LICOMCEN,
INCORPORATED shall disqualify him from being called
as a witness and giving evidence in the arbitration. It is
understood that the obligations of the LICOMCEN,
INCORPORATED, the Engineer and the Contractor shall
not be altered by reason of the arbitration being
conducted during the progress of the Works.[26]
LICOMCEN posits that only disputes in connection with or arising
out of the execution of the Works are subject to
arbitration. LICOMCEN construes the phrase execution of the
Works as referring to the physical construction activities, since
Works under the GCC specifically refer to the structures and
facilities required to be constructed and completed for the
Citimall project.[27] It considers FSIs claims as mere contractual
monetary claims that should be litigated before the courts
of Legaspi City, as provided in GC-05 of the GCC:
GC-05. JURISDICTION
Any question between the contracting
parties that may arise out of or in connection
66
P 1,264,404.12 with the
14,643,638.51 Contract, or
2,957,989.94 breach
5,120,000.00 thereof,
shall be litigated in the courts of Legaspi City except
where otherwise specifically stated or except when
such question is submitted for settlement thru
arbitration as provided herein.[28]
LICOMCEN also contends that FSI failed to comply with the
condition precedent for arbitration laid down in GC-61 of the
GCC. An arbitrable dispute under GC-61 must first be referred to
and settled by LICOMCEN, which has 30 days to resolve it. If
within a period of 30 days from receipt of LICOMCENs decision
on the dispute, either party does not officially give notice to
contest such decision through arbitration, the said decision shall
remain final and binding. However, should any party, within 30
days from receipt of LICOMCENs decision, contest said decision,
the dispute shall be submitted for arbitration under the
Construction Industry Arbitration Law.
LICOMCEN considers its March 24, 1998 letter as its final
decision on FSIs claims, but declares that FSIs reply letter
of April 15, 1998 is not the notice to contest required by GC-61
that authorizes resort to arbitration before the CIAC. It posits
that nothing in FSIs April 15, 1998 letter states that FSI will avail
of arbitration as a mode to settle its dispute with
LICOMCEN. While FSIs final demand letter of March 14,
2001 mentioned its intention to refer the matter to arbitration,
LICOMCEN declares that the letter was made three years after
its March 24, 1998letter, hence, long after the 30-day period
provided in GC-61. Indeed, FSI filed the petition for arbitration
with the CIAC only on October 2, 2002.[29] Considering FSIs
delays in asserting its claims, LICOMCEN also contends that FSIs
action is barred by laches.
With respect to the monetary claims of FSI, LICOMCEM alleges
that the CA erred in upholding its liability for material costs at
site for the reinforcing steel bars in the amount
of P5,694,939.87, computed as follows[30]:
2nd initial rebar requirements purchased from Pag-Asa Steel Wo
Inc..
Reinforcing steel bars purchased from ARCA Industrial Sales (t
net weight of 744,197.66 kilograms) 50% of net amount due.
Subtotal.
Less
Purchase cost of steel bars by Ramon Quinquileria..
TOTAL LIABILITY OF LICOMCEN TO FSI FOR MATER
COSTS AT SITE...
Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to
pay FSI [t]he cost of materials or goods reasonably ordered
for the Permanent or Temporary Works which have
been delivered to the Contractor but not yet used, and which
delivery has been certified by the Engineer.[31] None of these
requisites were allegedly complied with. It contends that FSI
failed to establish that the steel bars delivered in Legaspi City,
on January 14, 1998, were for the Citimall project. In fact, the
steel bars were delivered not at the site of the Citimall project,
but at FSIs batching plant called Tuanzon compound, a few
hundred meters from the site. Even if delivery to Tuanzon was
allowed, the delivery was done in violation of ESCAs instruction
to ship only 50% of the materials. Advised as early as December
1997 to suspend the works, FSI proceeded with the delivery of
the steel bars in January 1998. LICOMCEN declared that it should
not be made to pay for costs that FSI willingly incurred for itself.
[32]
Assuming that LICOMCEN is liable for the costs of the
steel bars, it argues that its liability should be minimized by the
fact that FSI incurred no actual damage from the purchase and
delivery of the steel bars. During the suspension of the works,
FSI sold 125,000 kg of steel bars for P500,000.00 to a third
person (a certain Ramon Quinquileria). LICOMCEN alleges that
FSI sold the steel bars for a ridiculously low price of P 4.00/kilo,
when the prevailing rate was P20.00/kilo. The sale could have
garnered a higher price that would offset LICOMCENs
liability. LICOMCEN also wants FSI to account for and deliver to it
the remaining 744 metric tons of steel bars not sold. Otherwise,

FSI would be unjustly enriched at LICOMCENs expense, receiving
payment for materials not delivered to LICOMCEN.[33]
LICOMCEN also disagrees with the CA ruling that declared it
solely liable to pay the costs of arbitration. The ruling was
apparently based on the finding that LICOMCENs failure or
refusal to meet its obligations, legal, financial, and moral,
caused FSI to bring the dispute to arbitration. [34] LICOMCEN
asserts that it was FSIs decision to proceed with the delivery of
the steel bars that actually caused the dispute; it insists that it is
not the party at fault which should bear the arbitration costs. [35]
FSIs Arguments
FSI takes exception to the CA ruling that modified the
amount for material costs at site, and deleted the awards for
equipment and labor standby costs and unrealized profits.
Proof of damage to FSI is not required for LICOMCEN to
be liable for the material costs of the steel bars. Under GC-42, it
is enough that the materials were delivered to the contractor,
although not used. FSI said that the 744 metric tons of steel
bars were ordered and paid for by it for the Citimall project as
early as November 1997. If LICOMCEN contends that these were
procured for other projects FSI also had in Legaspi City, it should
have presented proof of this claim, but it failed to do so. [36]
ESCAs January 6, 1998 letter simply suggested that
only 50% of the steel bars be shipped to Legaspi City; it was not
a clear and specific directive. Even if it was, the steel bars were
ordered and paid for long before the notice to suspend was
given; by then, it was too late to stop the delivery. FSI also
claims that since it believed in good faith that the Citimall
project was simply suspended, it expected work to resume soon
after and decided to proceed with the shipment.[37]
Contrary to LICOMCENs arguments, GC-42 of the GCC
does not require delivery of the materials at the site of the
Citimall project; it only requires delivery to the contractor, which
is FSI. Moreover, the Tuanzon compound, where the steel bars
were actually delivered, is very close to the Citimall project
site. FSI contends that it is a normal construction practice for
contractors to set up a staging site, to prepare the materials and
equipment to be used, rather than stock them in the crowded
job/project site. FSI also asserts that it was useless to have the
delivery certified by ESCA because by then the Citimall project
had been suspended. It would be unfair to demand FSI to
perform an act that ESCA and LICOMCEN themselves had
prevented from happening.[38]
The CA deleted the awards for equipment and labor
standby costs on the ground that FSIs documentary evidence
was inadequate. FSI finds the ruling erroneous, since LICOMCEN
never questioned the list of employees and equipments
employed and rented by FSI for the duration of the suspension.
[39]
FSI also alleges that LICOMCEN maliciously and
unlawfully suspended the Citimall project. While LICOMCEN cited
several other cases in its petition for review on certiorari as
grounds for suspending the works, its letters/notices of
suspension only referred to one case, OMB-ADM-1-97-0622, an
administrative case before the Ombudsman that was dismissed
as early as October 12, 1998. LICOMCEN never notified FSI of
the dismissal of this case. More importantly, no restraining order
or injunction was issued in any of these cases to justify the
suspension of the Citimall project.[40] FSI posits that LICOMCENs
true intent was to terminate its contract with it, but, to avoid
paying damages for breach of contract, simply declared it as
indefinitely suspended. That LICOMCEN conducted another
public bidding for the new designs is a telling indication of
LICOMCENs intent to ease out FSI.[41] Thus, FSI states that
LICOMCENs bad faith in indefinitely suspending the Citimall
project entitles it to claim unrealized profit. The restriction under
GC-41 that [t]he contractor shall have no claim for anticipated
profits on the work thus terminated,[42] will not apply because
the stipulation refers to a contract lawfully and properly
terminated. FSI seeks to recover unrealized profits under Articles
1170 and 2201 of the Civil Code.
THE COURTS RULING
The jurisdiction of the CIAC
67
The CIAC was created through Executive Order No.
1008 (E.O. 1008), in recognition of the need to establish an
arbitral machinery that would expeditiously settle construction
industry disputes. The prompt resolution of problems arising
from or connected with the construction industry was
considered of necessary and vital for the fulfillment of national
development goals, as the construction industry provides
employment to a large segment of the national labor force and
is a leading contributor to the gross national product. [43] Section
4 of E.O. 1008 states:
Sec. 4. Jurisdiction. The CIAC shall have
original and exclusive jurisdiction over disputes
arising from, or connected with, contracts
entered into by parties involved in
construction in the Philippines, whether the
dispute arises before or after the completion of
the contract, or after the abandonment or breach
thereof. These disputes may involve government or
private contracts. For the Board to acquire jurisdiction,
the parties to a dispute must agree to submit the same
to voluntary arbitration.
The jurisdiction of the CIAC may include but is
not limited to violation of specifications for materials
and workmanship; violation of the terms of agreement;
interpretation and/or application of contractual time
and delays; maintenance and defects; payment, default
of employer or contractor and changes in contract cost.
Excluded from the coverage of this law are
disputes arising from employer-employee relationships
which shall continue to be covered by the Labor Code
of the Philippines.
The jurisdiction of courts and quasi-judicial bodies is determined
by the Constitution and the law.[44] It cannot be fixed by the will
of the parties to a dispute;[45] the parties can neither expand nor
diminish a tribunals jurisdiction by stipulation or agreement. The
text of Section 4 of E.O. 1008 is broad enough to cover any
dispute arising from, or connected with construction contracts,
whether these involve mere contractual money claims or
execution of the works.[46] Considering the intent behind the law
and the broad language adopted, LICOMCEN erred in insisting on
its restrictive interpretation of GC-61. The CIACs jurisdiction
cannot be limited by the parties stipulation that only disputes in
connection with or arising out of the physical construction
activities (execution of the works) are arbitrable before it.
In fact, all that is required for the CIAC to acquire
jurisdiction is for the parties to a construction contract
to agree to submit their dispute to arbitration. Section 1,
Article III of the 1988 CIAC Rules of Procedure (as amended by
CIAC Resolution Nos. 2-91 and 3-93) states:
Section 1. Submission to CIAC Jurisdiction. An
arbitration clause in a construction contract or a
submission to arbitration of a construction
dispute shall be deemed an agreement to submit
an existing or future controversy to CIAC
jurisdiction, notwithstanding the reference to a
different arbitration institution or arbitral body
in such contract or submission. When a contract
contains a clause for the submission of a future
controversy to arbitration, it is not necessary for the
parties to enter into a submission agreement before
the claimant may invoke the jurisdiction of CIAC.
An arbitration agreement or a submission to arbitration
shall be in writing, but it need not be signed by the
parties, as long as the intent is clear that the parties
agree to submit a present or future controversy arising
from a construction contract to arbitration.
In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila
Tollways Corporation,[47] the Court declared that the bare fact
that the parties x x x incorporated an arbitration clause in [their
contract] is sufficient to vest the CIAC with jurisdiction over any
construction controversy or claim between the parties. The
arbitration clause in the construction contract ipso
facto vested the CIAC with jurisdiction.

Under GC-61 and GC-05 of the GCC, read singly and in relation
with one another, the Court sees no intent to limit resort to
arbitration only to disputes relating to the physical construction
activities.
First, consistent with the intent of the law, an
arbitration clause pursuant to E.O. 1008 should be interpreted at
its widest signification. Under GC-61, the voluntary arbitration
clause covers any dispute of any kind, not only arising of out the
execution of the works but also in connection therewith. The
payments, demand and disputed issues in this case namely,
work billings, material costs, equipment and labor standby
costs, unrealized profits all arose because of the construction
activities and/or are connected or related to these activities. In
other words, they are there because of the construction
activities. Attorneys fees and interests payment, on the other
hand, are costs directly incidental to the dispute. Hence, the
scope of the arbitration clause, as worded, covers all the
disputed items.
Second and more importantly, in insisting that
contractual money claims can be resolved only through court
action, LICOMCEN deliberately ignores one of the exceptions to
the general rule stated in GC-05:
GC-05. JURISDICTION
Any question between the contracting parties
that may arise out of or in connection with the
Contract, or breach thereof, shall be litigated in the
courts of Legaspi City except where otherwise
specifically stated or except when such question is
submitted for settlement thru arbitration as
provided herein.
The second exception clause authorizes the submission to
arbitration of any dispute between LICOMCEM and FSI, even if
the dispute does not directly involve the execution of physical
construction works. This was precisely the avenue taken by FSI
when it filed its petition for arbitration with the CIAC.
If the CIACs jurisdiction can neither be enlarged nor diminished
by the parties, it also cannot be subjected to a condition
precedent. GC-61 requires a party disagreeing with LICOMCENs
decision to officially give notice to contest such
decision through arbitration within 30 days from receipt of
the decision. However, FSIs April 15, 1998 letter is not the notice
contemplated by GC-61; it never mentioned FSIs plan to submit
the dispute to arbitration and instead requested LICOMCEN to
reevaluate its claims. Notwithstanding FSIs failure to make a
proper and timely notice, LICOMCENs decision (embodied in
its March 24, 1998 letter) cannot become final and binding so as
to preclude resort to the CIAC arbitration. To reiterate, all that is
required for the CIAC to acquire jurisdiction is for the parties to
agree to submit their dispute to voluntary arbitration:
[T]he mere existence of an arbitration clause in
the construction contract is considered by law as
an agreement by the parties to submit existing
or future controversies between them to CIAC
jurisdiction, without any qualification or
condition precedent. To affirm a condition precedent
in the construction contract, which would effectively
suspend the jurisdiction of the CIAC until compliance
therewith, would be in conflict with the recognized
intention of the law and rules to automatically vest
CIAC with jurisdiction over a dispute should the
construction contract contain an arbitration clause.[48]
The CIAC is given the original and exclusive
jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in
the Philippines.[49] This jurisdiction cannot be altered by
stipulations restricting the nature of construction disputes,
appointing another arbitral body, or making that bodys decision
final and binding.
The jurisdiction of the CIAC to resolve the dispute
between LICOMCEN and FSI is, therefore, affirmed.
The validity of the indefinite
suspension of the works on the
Citimall project
68
Before the Court rules on each of FSIs contractual
monetary claims, we deem it important to discuss the validity of
LICOMCENs indefinite suspension of the works on the Citimall
project. We quote below two contractual stipulations relevant to
this issue:
GC-38. SUSPENSION OF WORKS
The Engineer [ESCA] through the
LICOMCEN, INCORPORATED shall have the
authority to suspend the Works wholly or partly
by written order for such period as may be
deemed necessary, due to unfavorable weather or
other conditions considered unfavorable for the
prosecution of the Works, or for failure on the part of
the Contractor to correct work conditions which are
unsafe for workers or the general public, or failure or
refusal to carry out valid orders, or due to change of
plans to suit field conditions as found necessary during
construction, or to other factors or causes which,
in the opinion of the Engineer, is necessary in the
interest of the Works and to the LICOMCEN,
INCORPORATED. The Contractor [FSI] shall
immediately comply with such order to suspend
the work wholly or partly directed.
In case of total suspension or suspension of
activities along the critical path of the approved
PERT/CPM network and the cause of which is not due to
any fault of the Contractor, the elapsed time
between the effective order for suspending work
and the order to resume work shall be allowed
the Contractor by adjusting the time allowed for
his execution of the Contract Works.
The Engineer through LICOMCEN,
INCORPORATED shall issue the order lifting the
suspension of work when conditions to resume work
shall have become favorable or the reasons for the
suspension have been duly corrected.[50]
GC-41 LICOMCEN, INCORPORATED's RIGHT TO
SUSPEND WORK OR TERMINATE THE CONTRACT
xxxx
2. For Convenience of LICOMCEN,
INCORPORATED
If any time before completion of work
under the Contract it shall be found by the
LICOMCEN, INCORPORATED that reasons beyond
the control of the parties render it impossible
or against the interest of the LICOMCEN,
INCORPORATED to complete the work, the
LICOMCEN, INCORPORATED at any time, by
written notice to the Contractor, may discontinue
the work and terminate the Contract in whole or in
part. Upon the issuance of such notice of termination,
the Contractor shall discontinue to work in such
manner, sequence and at such time as the LICOMCEN,
INCORPORATED/Engineer may direct, continuing and
doing after said notice only such work and only until
such time or times as the LICOMCEN,
INCORPORATED/Engineer may direct.[51]
Under these stipulations, we consider LICOMCENs initial
suspension of the works valid. GC-38 authorizes the
suspension of the works for factors or causes which ESCA deems
necessary in the interests of the works and LICOMCEN. The
factors or causes of suspension may pertain to a change or
revision of works, as cited in the December 16, 1997 and
January 6, 1998 letters of ESCA, or to the pendency of a case
before the Ombudsman (OMB-ADM-1-97-0622), as cited in
LICOMCENs January 15, 1998 letter and ESCAs January 19, 1998
and February 17, 1998 letters. It was not necessary for
ESCA/LICOMCEN to wait for a restraining or injunctive order to
be issued in any of the cases filed against LICOMCEN before it
can suspend the works. The language of GC-38 gives
ESCA/LICOMCEN sufficient discretion to determine whether the

existence of a particular situation or condition necessitates the
suspension of the works and serves the interests of LICOMCEN.
Although we consider the initial suspension of the works
as valid, we find that LICOMCEN wrongfully prolonged
the suspension of the works (or indefinite suspension as
LICOMCEN calls it). GC-38 requires ESCA/LICOMCEN to issue an
order lifting the suspension of work when conditions to resume
work shall have become favorable or the reasons for the
suspension have been duly corrected. The Ombudsman case
(OMB-ADM-1-97-0622), which ESCA and LICOMCEN cited in their
letters to FSI as a ground for the suspension, was dismissed as
early as October 12, 1998, but neither ESCA nor LICOMCEN
informed FSI of this development.The pendency of the other
cases[52] may justify the continued suspension of the works, but
LICOMCEN never bothered to inform FSI of the existence of
these cases until the arbitration proceedings
commenced. By May 28, 2002, the City Government of Legaspi
sent LICOMCEN a notice instructing it to proceed with the
Citimall project;[53] again, LICOMCEN failed to relay this
information to FSI. Instead, LICOMCEN conducted a rebidding of
the Citimall project based on the new design. [54] LICOMCENs
claim that the rebidding was conducted merely to get cost
estimates for the new design goes against the established
practice in the construction industry. We find the CIACs
discussion on this matter relevant:
But what is more appalling and disgusting is the
allegation x x x that the x x x invitation to bid was
issued x x x solely to gather cost estimates on the
redesigned [Citimall project] x x x. This Arbitral Tribunal
finds said act of asking for bids, without any
intention of awarding the project to the lowest
and qualified bidder, if true, to be extremely
irresponsible and highly unprofessional. It might
even be branded as fraudulent x x x [since] the invited
bidders [were required] to pay P2,000.00 each for a set
of the new plans, which amount was non-
refundable. The presence of x x x deceit makes the
whole story repugnant and unacceptable.[55]
LICOMCENs omissions and the imprudent rebidding of
the Citimall project are telling indications of LICOMCENs
intent to ease out FSI and terminate their contract. As
with GC-31, GC-42(2) grants LICOMCEN ample discretion to
determine what reasons render it against its interest to
complete the work in this case, the pendency of the other cases
and the revised designs for the Citimall project. Given this
authority, the Court fails to the see the logic why LICOMCEN had
to resort to an indefinite suspension of the works, instead of
outrightly terminating the contract in exercise of its rights under
GC-42(2).
We now proceed to discuss the effects of these findings with
regard to FSIs monetary claims against LICOMCEN.
The claim for material costs at site
GC-42 of the GCC states:
GC-42 PAYMENT FOR TERMINATED CONTRACT
If the Contract is terminated as aforesaid, the
Contractor will be paid for all items of work executed,
satisfactorily completed and accepted by the
LICOMCEN, INCORPORATED up to the date of
termination, at the rates and prices provided for in the
Contract and in addition:
1. The cost of partially accomplished items of
additional or extra work agreed upon by the
LICOMCEN, INCORPORATED and the
Contractor.
2. The cost of materials or goods
reasonably ordered for the Permanent or
Temporary Works which have been
delivered to the Contractor but not yet
used and which delivery has been
certified by the Engineer.
3. The reasonable cost of demobilization
For any payment due the Contractor under the above
conditions, the LICOMCEN, INCORPORATED, however,
69
shall deduct any outstanding balance due from the
Contractor for advances in respect to mobilization and
materials, and any other sum the LICOMCEN,
INCORPORATED is entitled to be credited.[56]
For LICOMCEN to be liable for the cost of materials or goods,
item two of GC-42 requires that
a. the materials or goods were reasonably ordered for the
Permanent or Temporary Works;
b. the materials or goods were delivered to the
Contractor but not yet used; and
c. the delivery was certified by the Engineer.
Both the CIAC and the CA agreed that these requisites were met
by FSI to make LICOMCEN liable for the cost of the steel bars
ordered for the Citimall project; the two tribunals differed only to
the extent of LICOMCENs liability because the CA opined that it
should be limited only to 50% of the cost of the steel bars. A
review of the records compels us to uphold the CAs finding.
Prior to the delivery of the steel bars, ESCA informed
FSI of the suspension of the works; ESCAs January 6, 1998 letter
reads:
As per our information to you on December 16,
1997, a major revision in the design of the Legaspi
Citimall necessitated a change in the bored piles
requirement of the project. The change involved a
substantial reduction in the number and length
of piles.
We expected that you would have suspended the
deliveries of the steel bars until the new design
has been approved.
According to you[,] the steel bars had already
been paid and loaded and out of Manila on said
date.
In order to avoid double handling, storage,
security problems, we suggest that only 50% of
the total requirement of steel bars be delivered
at jobsite. The balance should be returned
to Manila where storage and security is better.
In order for us to consider additional cost due to the shi
pping of the excess steel bars, we need to know the
actual dates of purchase, payments and loading of the
steel bars. Obviously, we cannot consider the additional
cost if you have had the chance to delay the shipping
of the steel bars.[57]
From the above, it appears that FSI was informed of the
necessity of suspending the works as early as December 16,
1997. Pursuant to GC-38 of the GCC, FSI was expected
to immediately comply with the order to suspend the work.
[58]
Though ESCAs December 16, 1997 notice may not have been
categorical in ordering the suspension of the works, FSIs reply
letter of December 18, 1997 indicated that it actually complied
with the notice to suspend, as it said, We hope for the early
resolution of the new foundation plan and the resumption of
work.[59] Despite the suspension, FSI claimed that it could not
stop the delivery of the steel bars (nor found the need to do so)
because (a) the steel bars were ordered as early as November
1997 and were already loaded in Manila and expected to arrive
in Legaspi City by December 23, 1997, and (b) it expected
immediate resumption of work to meet the 90-day deadline.[60]
Records, however, disclose that these claims are not
entirely accurate. The memorandum of agreement and sale
covering the steel bars specifically stated that these would be
withdrawn from the Cagayan de Oro depot, not Manila[61];
indeed, the bill of lading stated that the steel bars were loaded
in Cagayan de Oro on January 11, 1998, and arrived
in Legaspi City within three days, on January 14, 1998.[62] The
loading and delivery of the steel bar thus happened after FSI
received ESCAs December 16, 1997 and January 6, 1998 letters
days after the instruction to suspend the works. Also, the same
stipulation that authorizes LICOMCEN to suspend the works
allows the extension of the period to complete the works. The
relevant portion of
GC-38 states:

In case of total suspension x x x and the cause
of which is not due to any fault of the Contractor
[FSI], the elapsed time between the effective
order for suspending work and the order to
resume work shall be allowed the Contractor by
adjusting the time allowed for his execution of
the Contract Works.[63]
The above stipulation, coupled
with the short period it took to ship the
steel bars from Cagayan de Oro to Legaspi City, thus negates
both FSIs
argument and the CIACs ruling[64] that there was no necessity to
stop the shipment so as to meet the 90-day deadline. These
circumstances prove that FSI acted imprudently in proceeding
with the delivery, contrary to LICOMCENs instructions. The CA
was correct in holding LICOMCEN liable for only 50% of the costs
of the steel bars delivered.
The claim for equipment and
labor standby costs
The Court upholds the CAs ruling deleting the award for
equipment and labor standby costs. We quote in agreement
pertinent portions of the CA decision:
The CIAC relied solely on the list of 37 pieces
of equipment respondent allegedly rented and
maintained at the construction site during the
suspension of the project with the prorated rentals
incurred x x x. To the mind of this Court, these lists
are not sufficient to establish the fact that
indeed [FSI] incurred the said expenses. Reliance
on said lists is purely speculative x x x the list of
equipments is a mere index or catalog of the
equipments, which may be utilized at the
construction site. It is not the best evidence to
prove that said equipment were in fact
rented and maintained at the construction site during
the suspension of the work. x x x [FSI] should have
presented the lease contracts or any similar
documents such as receipts of payments x x
x. Likewise, the list of employees does not in
anyway prove that those employees in the list
were indeed at the construction site or were required to
be on call should their services be needed and were
being paid their salaries during the suspension
of the project.Thus, in the absence of sufficient
evidence, We deny the claim for equipment and
labor standby costs.[65]
The claim for unrealized profit
FSI contends that it is not barred from recovering unrealized
profit under GC-41(2), which states:
GC-41. LICOMCEN, INCORPORATEDs RIGHT TO
SUSPEND WORK OR TERMINATE THE CONTRACT
xxxx
2. For Convenience of the LICOMCEN, INCORPORATED
x x x. The Contractor [FSI] shall not claim
damages for such discontinuance or termination
of the Contract, but the Contractor shall receive
compensation for reasonable expenses incurred in
good faith for the performance of the Contract and for
reasonable expenses associated with termination of the
Contract. The LICOMCEN, INCORPORATED will
determine the reasonableness of such expenses. The
Contractor [FSI] shall have no claim for
anticipated profits on the work thus terminated,
nor any other claim, except for the work actually
performed at the time of complete discontinuance,
including any variations authorized by the LICOMCEN,
INCORPORATED/Engineer to be done.
The prohibition, FSI posits, applies only where the contract was
properly and lawfully terminated, which was not the case at
bar. FSI also took pains in differentiating its claim for unrealized
profit from the prohibited claim for anticipated profits;
supposedly, unrealized profit is one that is built-in in the
contract price, while anticipated profit is not. We fail to see the
distinction, considering that the contract itself neither defined
70
nor differentiated the two terms. [A] contract must be
interpreted from the language of the contract itself, according to
its plain and ordinary meaning. [66] If the terms of a contract are
clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of the stipulations shall control. [67]
Nonetheless, on account of our earlier discussion of
LICOMCENs failure to observe the proper procedure in
terminating the contract by declaring that it was merely
indefinitely suspended, we deem that FSI is entitled to the
payment of nominal damages. Nominal damages may be
awarded to a plaintiff whose right has been violated or invaded
by the defendant, for the purpose of vindicating or recognizing
that right, and not for indemnifying the plaintiff for any loss
suffered by him.[68] Its award is, thus, not for the purpose of
indemnification for a loss but for the recognition and vindication
of a right. A violation of the plaintiffs right, even if only
technical, is sufficient to support an award of nominal damages.
[69]
FSI is entitled to recover the amount of P100,000.00 as
nominal damages.
The liability for costs of arbitration
Under the parties Terms of Reference, executed before the CIAC,
the costs of arbitration shall be equally divided between them,
subject to the CIACs determination of which of the parties shall
eventually shoulder the amount. [70] The CIAC eventually ruled
that since LICOMCEN was the party at fault, it should bear the
costs. As the CA did, we agree with this finding. Ultimately, it
was LICOMCENs imprudent declaration of indefinitely
suspending the works that caused the dispute between it and
FSI. LICOMCEN should bear the costs of arbitration.
WHEREFORE, premises considered, the petition for review
on certiorari of LICOMCEN INCORPORATED, docketed as G.R. No.
167022, and the petition for review on certiorari of FOUNDATION
SPECIALISTS, INC., docketed as G.R. No. 169678, are DENIED.
The November 23, 2004 Decision of the Court of Appeals in CA-
G.R. SP No. 78218 is MODIFIED to include the award of
nominal damages in favor of FOUNDATION SPECIALISTS, INC.
Thus, LICOMCEN INCORPORATED is ordered to pay FOUNDATION
SPECIALISTS, INC. the following amounts:
a. P1,264,404.12 for unpaid balance on FOUNDATION
SPECIALISTS, INC. billings;
b. P5,694,939.87 for material costs at site; and
c. P100,000.00 for nominal damages.
LICOMCEN INCORPORATED is also ordered to pay the costs of
arbitration. No costs.SO ORDERED.
THIRD DIVISION July 4, 2012 G.R. No. 172438
METROPOLITAN CEBU WATER DISTRICT,Petitioner,- versus
-MACTAN ROCK INDUSTRIES, INC.,Respondent.
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45
assailing the February 20, 2006 Decision[1] and the March 30,
2006 Resolution[2] of the Court of Appeals (CA) in CAG.R. CEB SP.
No. 00623.
THE FACTS
Petitioner Metropolitan Cebu Water District (MCWD) is a
government-owned and controlled corporation (GOCC) created
pursuant to Presidential Decree (PD) No. 198,[3] as amended,
with its principal office address at the MCWD Building,
Magallanes corner Lapu-Lapu Streets, Cebu City. [4] It is
mandated to supply water within its service area in the cities
of Cebu, Talisay, Mandaue, and Lapu-Lapu and the municipalities
of Compostela, Liloan, Consolacion, and Cordova in
the Province of Cebu.[5]
Respondent Metro Rock Industries, Inc. (MRII) is a
domestic corporation with principal office address at the
2nd Level of the Waterfront Cebu Hotel and Casino,
Lahug, Cebu City.[6]
On May 19, 1997, MCWD entered into a Water Supply
Contract[7] (the Contract) with MRII wherein it was agreed that
the latter would supply MCWD with potable water, in accordance

with the World Health Organization (WHO) standard or the
Philippine national standard, with a minimum guaranteed annual
volume.[8]
On March 15, 2004, MRII filed a Complaint[9] against
MCWD with the Construction Industry Arbitration
Commission (CIAC), citing the arbitration clause (Clause 18) [10] of
the Contract. The case was docketed as CIAC Case No. 12-2004.
In the said complaint, MRII sought the reformation of Clause 17
of the Contract, or the Price Escalation/De-Escalation Clause, in
order to include Capital Cost Recovery in the price escalation
formula, and to have such revised formula applied from 1996
when the bidding was conducted, instead of from the first day
when MRII started selling water to MCWD. It also sought the
payment of the unpaid price escalation/adjustment, and the
payment of unpaid variation/extra work order and interest/cost
of money up to December 31, 2003.[11]
On May 7, 2002, MCWD filed its Answer [12] dated April
27, 2004, which included a motion to dismiss the complaint on
the ground that the CIAC had no jurisdiction over the case, as
the Contract was not one for construction or infrastructure.
The CIAC thereafter issued an order [13] denying MCWDs
motion to dismiss, and calling the parties to a preliminary
conference for the review and signing of the Terms of Reference.
[14]
MCWD, thus, filed a petition for certiorari[15] under Rule
65 with the CA, questioning the jurisdiction of the CIAC. The
petition was docketed as CA-G.R. SP. No. 85579 (First Petition).
Meanwhile, the CIAC proceeded with the preliminary
conference scheduled on June 10 and July 22, 2004 which MWCD
opted not to attend. MRII and the CIAC both signed the Terms of
Reference. Pursuant to the Terms of Reference and the CIAC
Order dated July 22, 2004, MRII submitted its documentary
evidence and affidavits of its witnesses.[16]
On August 27, 2004, MRII submitted its Formal Offer of
Evidence and its memorandum of arguments in the form of a
proposed/draft decision. MCWD did not attend the hearings. It
did not submit evidence other than those annexed to its Answer.
Neither did it file a formal offer of evidence, or a memorandum
of legal arguments.[17]
Decision of the CIAC
The CIAC promulgated its Decision [18] on April 14, 2005,
the dispositive portion of which reads:
WHEREFORE[,] premises considered, judgment is hereby
rendered as follows:
1. Ordering the reformation of Clause 17 of the
Water Supply Contract to read:
17[.] Price Escalation and/or De-Escalation shall be based on
the parametric formula:
17.1 Power Rate Price Adjustment/Power Cost
Adjustment
Current Power Rate - Base Power Rate x 30% of base selling
price of water
Base Power Rate
17.2 Consumer Price Index (CPI) Adjustment/Operating Cost
Adjustment:
Current CPI Base CPI x 40% of base selling price of water
Base CPI
17.3 Capital Cost Recovery Adjustment:
Current Peso to Base Peso to US$
US$ Exchange Rate Exchange Rate x 30% of base selling
price of water
Base Peso to US $ Exchange Rate
Price escalation shall be reckoned from January 1999 when
the water was first delivered by Mactan Rock Industries, Inc.
to the MCWD facilities in Mactan. The base CPI, base US$
71
Exchange Rate and the Base Power Rate shall be the
prevailing rate in January 1999, while the Base Selling Price
of water shall mean the 1996 rate per cubic meter of water
as provided for in the Water Supply Contract.
2. Ordering Respondent Metropolitan Cebu Water
District to pay Claimant, Mactan Rock Industries, Inc[.] under
the reformed Clause 17 of the Water Supply Contract, the net
amount of Php12,126,296.70 plus legal interest of six
percent (6%) per annum from the (sic) March 15, 2004, the
date of filling (sic) of the case with the Construction Industry
Arbitration Commission, the rate increased to twelve percent
(12%) per annum from the date the herein Decision have
(sic) become final and executory until the foregoing amounts
shall have been fully paid[.]
3. Claimant Mactan Rock Industries, Inc. and
Metropolitan Cebu Water District shall share equally the cost
of arbitration.
SO ORDERED.[19]
Decision of the CA in CA-G.R. SP No. 85579 - Petition for
certiorari under Rule 65 with the Court of Appeals questioning
the jurisdiction of the CIAC
Meanwhile, on October 28, 2005, the CA in its
decision[20] in the First Petition upheld the jurisdiction of the CIAC
over the case. The CA held that when parties agree to settle
their disputes arising from or connected with construction
contracts, the CIAC acquires primary jurisdiction.
[21]
Citing Philrock Inc. v. Construction Industry Arbitration
Commission,[22] the CA stated that the CIAC may resolve not only
the merits of such controversies, but may also award damages,
interest, attorneys fees, and expenses of litigation, when
appropriate.[23]
Second, the CA held that the claims in question fall
under the jurisdiction of the CIAC. Thus:
Xxx Section 4 of Executive Order No. 1008,
otherwise known as the Construction Industry
Arbitration Law delineates CIACs jurisdiction as original
and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties
involved in construction in the Philippines, whether the
disputes arise before or after the completion of the
contract, or after abandonment thereof. Moreover,
Section 5 (k) of Republic Act No. 9184 otherwise known
as [the] Government Procurement Reform Act expressly
defines infrastructure project as including water
supply[,] construction, rehabilitation[,] demolition,
repair, restoration and maintenance.
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. It is to be highlighted that the
dispute in the case at bar arose from the parties
incongruent positions with regard to clause 17 of the
Water Supply Contract[,] specifically the price
escalation/adjustment. The instant case involves
technical discrepancies that are better left to an arbitral
body that has expertise in those areas. Nevertheless, in
any event, the inclusion of an arbitration clause in a
contract does not ipso facto divest the courts of
jurisdiction to pass upon the findings of arbitral bodies,
because the awards are still judicially reviewable under
certain conditions.[24] (Citations omitted.)
MCWDs motion for reconsideration of the decision in the First
Petition was still pending when it filed the petition for
review[25] under Rule 43 (Second Petition) appealing the decision
of the CIAC. The motion for reconsideration was eventually
denied in a Resolution[26] dated May 3, 2006. MCWD did not
appeal from the denial of the motion. It, thus, became final and
executory.[27]

Decision of the CA in CA-G.R. CEB SP. No. 00623 Petition
for review under Rule 43 appealing the decision of the CIAC
Aggrieved by the CIAC Decision, MCWD filed a petition
for review under Rule 43 with the CA which was docketed as CA-
G.R. CEB SP. No. 00623.
The CA, however, dismissed the petition in its Decision
dated February 20, 2006. The Court therein stated that the issue
of jurisdiction had already been resolved by the 18 th Division in
the First Petition, where the CA upheld the jurisdiction of the
CIAC over Arbitration Case No. 12-2004.
Citing jurisprudence, the CA also ruled that there being
an arbitration clause in the Contract, the action for reformation
of contract instituted by MRII in this case fell squarely within the
jurisdiction of the CIAC, not the courts. In relation to this, the CA
noted that the present rule is that courts will look with favor
upon amicable agreements to settle disputes through
arbitration, and will only interfere with great reluctance to
anticipate or nullify the action of the arbitrator. MCWD being a
signatory and a party to the Water Supply Contract, it cannot
escape its obligation under the arbitration clause. [28]
The CA also held that the CIAC did not err in finding
that the Water Supply Contract is clear on the matter of the
reckoning period for the computation of the escalation cost
from January 9, 1999, or the first day of delivery of water.
Moreover, the CA found that the CIAC did not err in ruling that
the contract be reformed to include Capital Cost Recovery in the
parametric formula for price escalation. Neither did it err in
holding that the Capital Cost Recovery shall be 30% of the Base
Selling Price of water as a consequence of the reformation of
Clause 17.
Finally, the CA stressed that factual findings of
administrative agencies which are deemed to have acquired
expertise in matters within their respective jurisdictions are
generally accorded not only respect but even finality when
supported by substantial evidence.[29]
MCWD filed a motion for reconsideration but it was
denied in the CA Resolution dated March 30, 2006.
Thus, this petition.
ISSUES
MCWD raises the following issues in its petition for
review:
MAY THE CONSTRUCTION INDUSTRY
[ARBITRATION] COMMISSION EXERCISE
JURISDICTION OVER DISPUTES ARISING FROM A
WATER SUPPLY CONTRACT?
MAY A PARTY, WHO IS A SIGNATORY TO THE
WATER SUPPLY CONTRACT[,] IN EFFECT
SUBMITTING ITSELF TO THE JURISDICTION OF
THE CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION, QUESTION THE JURISDICTION OF
[THE] CIAC?
DOES THE CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION HAVE THE (SIC)
JURISDICTION OVER A COMPLAINT PRAYING FOR
A REFORMATION OF A WATER SUPPLY CONTRACT?
MAY THE COURT OF APPEALS REFUSE TO RENDER
A [SIC] JUDGMENT ON AN ISSUE BECAUSE THIS
HAS BEEN ALREADY SETTLED IN A DECISION
RENDERED BY ANOTHER DIVISION OF THE COURT
OF APPEALS IN A PETITION FOR CERTIORARI,
EVEN IF THE SAID DECISION HAS NOT YET BEEN
(SIC) FINAL DUE TO A TIMELY FILING OF A
MOTION FOR RECONSIDERATION?[30]
RULING OF THE COURT
Creation of the CIAC
72
The Construction Industry Arbitration
Commission (CIAC) was created in 1985 under Executive
Order (E.O.) No. 1008 (Creating an Arbitration Machinery for the
Philippine Construction Industry), in recognition of the need to
establish an arbitral machinery that would expeditiously settle
construction industry disputes. The prompt resolution of
problems arising from, or connected to, the construction
industry was considered necessary and vital for the fulfillment of
national development goals, as the construction industry
provided employment to a large segment of the national labor
force, and was a leading contributor to the gross national
product. [31]
Under Section 4 of E.O. No. 1008, the CIACs jurisdiction
was specifically delineated as follows:
SECTION 4. Jurisdiction - The CIAC shall
have original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into
by parties involved in construction in the Philippines,
whether the disputes arise before or after the
completion of the contract, or after the abandonment
or breach thereof. These disputes may involve
government or private contracts. For the Board to
acquire jurisdiction, the parties to a dispute must agree
to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is
not limited to violation of specifications for materials
and workmanship; violation of the terms of agreement;
interpretation and/or application of contractual
provisions; amount of damages and penalties;
commencement time and delays; maintenance and
defects; payment default of employer or contractor and
changes in contract cost.
Excluded from the coverage of this law are
disputes arising from employer-employee relationships
which shall continue to be covered by the Labor Code
of the Philippines. (Underscoring supplied)
The jurisdiction of the CIAC as a quasi-judicial body is
confined to construction disputes,[32] that is, those arising from,
or connected to, contracts involving all on-site works on
buildings or altering structures from land clearance through
completion including excavation, erection and assembly and
installation of components and equipment.[33] The CIAC has
jurisdiction over all such disputes whether the dispute arises
before or after the completion of the contract.[34]
Whether the CIAC has jurisdiction over the dispute
As earlier stated, following the denial of its motion to dismiss by
CIAC, MCWD filed the First Petition with the CA, which decided in
favor of MRII and upheld the jurisdiction of the CIAC.
Not being in conformity, MCWD filed a motion for
reconsideration.
While the said motion was pending with the CA, MCWD filed the
Second Petition with the same court. Eventually, the motion was
denied, and MCWD never appealed the case. Thus, the decision
of the CA in the First Petition became final and executory.
The question now is whether such final and executory
decision is binding such that courts are generally precluded from
passing judgment on the issue of jurisdiction in the present
petition.
The Court finds in the affirmative.
This Court has held time and again that a final and
executory judgment, no matter how erroneous, cannot be
changed, even by this Court. Nothing is more settled in law than
that once a judgment attains finality, it thereby becomes
immutable and unalterable. It may no longer be modified in any
respect, even if such modification is meant to correct what is
perceived to be an erroneous conclusion of fact or law, and

regardless of whether the modification is attempted to be made
by the court rendering it or by the highest court of the land.[35]
In its Decision in the First Petition, the CA affirmed the arbitral
bodys finding in CIAC Case No. 12-2004 that the case was within
its jurisdiction. Such decision having become final, it is beyond
the jurisdiction of this Court, or any court or body, for that
matter, to review or modify, even supposing for the sake of
argument, that it is indeed erroneous.
Also, the parties apparently characterized the Contract
as one involving construction, as its arbitration clause
specifically refers disputes, controversies or claims arising out of
or relating to the Contract or the breach, termination or validity
thereof, if the same cannot be settled amicably, to an arbitration
tribunal, in accordance with E.O. No. 1008, or the Construction
Industry Arbitration Law:
V. DISPUTES AND JURISDICTION:
18. Any dispute, controversy or claim arising
out of or relating to this contract or the breach,
termination or invalidity thereof, if the same cannot be
settled amicably, may be submitted for arbitration to
an Arbitration Tribunal in accordance with Executive
Order No. 1008 dated 4 February 1985, otherwise
known as the Construction Industry Arbitration Law and
the place of arbitration shall be the City of Cebu,
Philippines, otherwise said dispute or controversy
arising out of the contract or breach thereof shall be
submitted to the court of law having jurisdiction thereof
in the city where MCWD is located.[36]
Had the parties been of the mutual understanding that
the Contract was not of construction, they could have instead
referred the matter to arbitration citing Republic Act (R.A.) No.
876, or The Arbitration Law. Having been passed into law in
1953, the said statute was already in existence at the time the
contract was entered into, and could have been applied to
arbitration proceedings other than those specifically within the
arbitral jurisdiction of the CIAC.
Whether the CA erred in refusing to render judgment on
the issue of jurisdiction ___________
On a related matter, MWCD also raises the issue of
whether the 19th Division of the CA, Cebu City, erred in refusing
to render judgment on the issue of jurisdiction raised in the
Second Petition on the ground that it had already been settled
by the 18th Division in its decision in the First Petition, even if the
18th Division decision had not yet become final due to a timely
filing of a motion for reconsideration.
The Court rules in the negative.
The 19th Division was correct in refusing to render
judgment on the issue of jurisdiction as, at that time, the issue
was still pending before another division of the CA.
Litis pendentia is predicated on the principle that a
party should not be allowed to vex another more than once
regarding the same subject matter and for the same cause of
action. It is founded on the public policy that the same subject
matter should not be the subject of controversy in courts more
than once, in order that possible conflicting judgments may be
avoided for the sake of the stability of the rights and status of
persons, and also to avoid the costs and expenses incident to
numerous suits. [37]
With the two petitions then pending before the CA, all
the elements of litis pendentia were present, that is, identity of
the parties in the two actions, substantial identity in the causes
of action and in the reliefs sought by the parties, and identity
between the two actions such that any judgment that may be
rendered in one case, regardless of which party is successful,
would amount to res judicata in the other.[38]
In both cases, MCWD was the petitioner and MRII, the
respondent. Although they differ in form, in essence, the two
cases involved a common issue, that is, MCWDs challenge to the
jurisdiction of the CIAC over the arbitration proceedings arising
73
from the Water Supply Contract between the petitioner and
respondent.
To determine whether there is identity of the rights
asserted and reliefs prayed for, grounded on the same facts and
bases, the following tests may be utilized: (1) whether the same
evidence would support and sustain both the first and the
second causes of action, also known as the same evidence test;
or (2) whether the defenses in one case may be used to
substantiate the complaint in the other.[39] Also fundamental is
the test of determiningwhether the cause of action in the
second case existed at the time of the filing of the first case. [40]
In the First Petition, MCWD argued that the CIACs
issuance of its Order[41] dated May 28, 2004 was tainted with
grave abuse of discretion amounting to excess or lack of
jurisdiction. Thus, MCWD stated in its prayer:
WHEREFORE, in light of the premises laid
down, petitioner most respectfully prays:
1. Upon the filing of this Petition, a Writ of
Preliminary Injunction or restraining order be
issued forthwith, enjoining the respondent
from proceeding with the hearing of the case
until further orders from the Honorable Court
of Appeals;
2. After consideration, petitioner also prays
that the Order dated May 28, 2004, denying
petitioners motion to dismiss be declared
without force and effect;
3. Petitioner also prays that the Construction
Industry Arbitration Commission be barred
from hearing the case filed by Mactan Rock
Industries, Inc., private respondent herein.
Other measures of relief, which are just and
equitable under the foregoing premise are also prayed
for.[42]
The Second Petition, on the other hand, raised the
following issues:
a. Whether or not the Arbitral Tribunal of CIAC gravely
erred in taking and exercising jurisdiction over the
complaint filed by the respondent;
b. Whether or not the Arbitral
Tribunal of CIAC gravely erred in reforming Clause 17 of
the Contract;
c. Whether or not the same
tribunal gravely committed an error in considering
Capital Cost Recovery Adjustment in awarding in favor
of the complainant, when the same is extraneous to the
provisions of the contract;[43]
Thus, it prayed:
WHEREFORE, PREMISES CONSIDERED, it is
most respectfully prayed of the Honorable Court that a
Judgment be issued reversing the findings of the
Arbitral Tribunal of the Construction Industry Arbitration
Commission in its Decision dated April 14, 2005, as far
as the order of reformation of the water supply contract
and in granting the monetary award.
It is further prayed that the decision rendered
by the Arbitral Tribunal be declared invalid for want of
jurisdiction to arbitrate and to order the reformation of
the water supply contract;
It is also prayed that the decision awarding
money to the respondent be strike (sic) down as
erroneous and without legal basis for lack of jurisdiction
by the Arbitral Tribunal, which rendered the Decision.
It is also prayed that a Temporary Restraining
Order and a Writ of Preliminary Injunction be issued at
the outset, ordering the stay of execution pending the
resolution of the issues raised in the Petition.

Other measures of relief, which are just and
equitable, are also prayed for.[44]
In both cases, the parties also necessarily relied on the
same laws and arguments in support of their respective
positions on the matter of jurisdiction.
In the First Petition, in support of its argument, that the
CIAC had no jurisdiction to arbitrate the causes of action raised
by MRII, MCWD cited the portions of the Contract on the
obligations of the water supplier, E.O. No. 1008 (specifically
Section 4 on jurisdiction), the Rules of Procedure Governing
Construction Arbitration (Section 1, Article III). It also alleged
that in issuing the order denying its motion to dismiss, the CIAC
misread the provisions of LOI No. 1186 and R.A. No. 9184 on the
definition of an infrastructure project.[45]
MRII, however, opined that the CIAC had jurisdiction
over the complaint and, therefore, correctly denied petitioners
motion to dismiss. MRII argued that certiorari was not a proper
remedy in case of denial of a motion to dismiss and that the
claims fell squarely under CIACs original and exclusive
jurisdiction. MRII, in support of its position, cited Section 1 of LOI
No. 1186 and Section 5(k) of R.A. No. 9184. MRII further
proposed that, as shown by MCWDs pro-forma Water Supply
Contract, Specifications, Invitation to Submit Proposal, Pre-Bid
Conference minutes, Addendum No. 1, and MRIIs Technical and
Financial Proposals, the undertaking contemplated by the
parties is one of infrastructure and of works, rather than one of
supply or mere services.[46]
In the Second Petition, in support of the issue of
jurisdiction, MCWD again relied on Section 4 of E.O. No. 1008
and Section 1, Article III of the Rules of Procedure Governing
Construction Arbitration. It also brought to fore the alleged
faulty conclusion of MRII that a water supply contract is
subsumed under the definition of an infrastructure project under
LOI 1186.[47]
In its Comment, MRII reiterated and adopted its
arguments before the CIAC, and insisted that the undertaking
contemplated by the parties was one of infrastructure and of
works, as distinguished from mere supply from off-the-shelf or
from mere services.[48] Section 1 of LOI No. 1186, to define
infrastructure and Section 5(k) of R.A. No. 9184 to include water
supply, were again cited. In support of its arguments, MRII cited
anew MCWDs pro-forma Water Supply Contract, Specifications
(in its Invitation to Submit Proposal), pronouncements at the Pre-
Bid Conference, Addendum No. 1, and MRIIs Technical and
Financial Proposals. MRII further extensively reproduced the
content of the joint affidavit of Messrs. Antonio P. Tompar and
Lito R. Maderazo, MRIIs President/CEO and Financial Manager,
respectively.[49]
Given that the same arguments were raised on the
matter of CIAC jurisdiction, the parties thus relied on
substantially the same evidence in both petitions. MCWD
annexed to both petitions copies of the Water Supply Contract,
the complaint filed by MRII with the CIAC, and its Answer to the
said complaint. On the other hand, MRII presented Addendum
No. 1 to the Water Supply Contract and its Technical and
Financial Proposals.
Moreover, the first cause of action in the Second
Petition, that is, the CIACs having assumed jurisdiction, allegedly
unlawfully, over the dispute arising from the Water Supply
Contract, obviously existed at the time the First Petition was
filed, as the latter case dealt with the jurisdiction of the CIAC
over the complaint filed.
Finally, any judgment that may be rendered in the First
Petition on the matter of whether the CIAC has jurisdiction over
the arbitration proceedings, regardless of which party was
successful, would amount to res judicata in the Second Petition,
insofar as the issue of jurisdiction is concerned. In fact, what
MCWD should have done was to appeal to the Court after the
denial of its motion for reconsideration in the First Petition. For
not having done so, the decision therein became final and,
therefore, immutable.
Thus, following the above discussion, the 19th Division
was correct in refusing to render judgment on the issue of
jurisdiction in the Second Petition.
74
Whether the CIAC had jurisdiction to order the
reformation of the Water Supply Contract
The jurisdiction of courts and quasi-judicial bodies is
determined by the Constitution and the law.[50] It cannot be fixed
by the will of the parties to the dispute, nor can it be expanded
or diminished by stipulation or agreement. [51] The text of Section
4 of E.O. No. 1008 is broad enough to cover any dispute arising
from, or connected with, construction contracts, whether these
involve mere contractual money claims or execution of the
works. This jurisdiction cannot be altered by stipulations
restricting the nature of construction disputes, appointing
another arbitral body, or making that bodys decision final and
binding.[52]
Thus, unless specifically excluded, all incidents and
matters relating to construction contracts are deemed to be
within the jurisdiction of the CIAC. Based on the previously cited
provision outlining the CIACs jurisdiction, it is clear that with
regard to contracts over which it has jurisdiction, the only
matters that have been excluded by law are disputes arising
from employer-employee relationships, which continue to be
governed by the Labor Code of the Philippines. Moreover, this is
consistent with the policy against split jurisdiction.
In fact, in National Irrigation Administration v. Court of
Appeals,[53] it was held that the CIAC had jurisdiction over the
dispute, and not the contract. Therefore, even if the contract
preceded the existence of the CIAC, since the dispute arose
when the CIAC had already been constituted, the arbitral board
was exercising current, and not retroactive, jurisdiction. In the
same case, it was held that as long as the parties agree to
submit to voluntary arbitration, regardless of what forum they
may choose, their agreement will fall within the jurisdiction of
the CIAC, such that, even if they specifically choose another
forum, the parties will not be precluded from electing to submit
their dispute to the CIAC because this right has been vested
upon each party by law.
This is consistent with the principle that when an
administrative agency or body is conferred quasi-judicial
functions, all controversies relating to the subject matter
pertaining to its specialization are deemed to be included within
its jurisdiction since the law does not sanction a split of
jurisdiction, as stated in Pea v. Government Service Insurance
System.[54]
In Pea, the Court held that although the complaint for
specific performance, annulment of mortgage, and damages
filed by the petitioner against the respondent included title to,
possession of, or interest in, real estate, it was well within the
jurisdiction of the Housing and Land Use Regulatory
Board (HLURB), a quasi-judicial body, as it involved a claim
against the subdivision developer, Queens Row Subdivision, Inc.,
as well as the Government Service Insurance System (GSIS).
This case was later cited in Badillo v. Court of Appeals,[55] where
the Court concluded that the HLURB had jurisdiction over
complaints for annulment of title. The Court also held that courts
will not determine a controversy where the issues for resolution
demand the exercise of sound administrative discretion, such as
that of the HLURB, the sole regulatory body for housing and land
development. It was further pointed out that the extent to which
an administrative agency may exercise its powers depends on
the provisions of the statute creating such agency.
The ponencia further quoted from C.T. Torres
Enterprises, Inc. v. Hibionada:[56]
The argument that only courts of justice can adjudicate
claims resoluble under the provisions of the Civil Code
is out of step with the fast-changing times. There are
hundreds of administrative bodies now performing this
function by virtue of a valid authorization from the
legislature. This quasi-judicial function, as it is called, is
exercised by them as an incident of the principal power
entrusted to them of regulating certain activities falling
under their particular expertise.
In the Solid Homes case for example the Court affirmed
the competence of the Housing and Land Use
Regulatory Board to award damages although this is an
essentially judicial power exercisable ordinarily only by
the courts of justice. This departure from the traditional
allocation of governmental powers is justified by
expediency, or the need of the government to respond

swiftly and competently to the pressing problems of
the modern world.
In Bagunu v. Spouses Aggabao,[57] the Court ruled
that the RTC must defer the exercise of its jurisdiction on related
issues involving the same subject matter properly within its
jurisdiction, such as the distinct cause of action for reformation
of contracts involving the same property, since the DENR
assumed jurisdiction over the lot in question, pursuant to its
mandate.
In National Housing Authority v. First United Constructors
Corporation,[58] the Court held that there was no basis for the
exclusion of claims for business losses from the jurisdiction of
the CIAC because E.O. No. 1008 excludes from the coverage of
the law only those disputes arising from employer-employee
relationships which are covered by the Labor Code, conveying
an intention to encompass a broad range of arbitrable issues
within the jurisdiction of CIAC.[59] Section 4 provides that (t)he
jurisdiction of the CIAC may include but is not limited to xx x,
underscoring the expansive character of the CIACs jurisdiction.
Very clearly, the CIAC has jurisdiction over a broad range of
issues and claims arising from construction disputes, including
but not limited to claims for unrealized profits and opportunity
or business losses. What E.O. No. 1008 emphatically excludes is
only disputes arising from employer-employee relationships.[60]
Where the law does not delineate, neither should we.
Neither the provisions of the Civil Code on reformation of
contracts nor the law creating the CIAC exclude the reformation
of contracts from its jurisdiction. Jurisprudence further dictates
that the grant of jurisdiction over related and incidental matters
is implied by law. Therefore, because the CIAC has been held to
have jurisdiction over the Contract, it follows that it has
jurisdiction to order the reformation of the Contract as well.
Whether MCWD can validly refuse to participate in the
arbitration proceedings
In light of the finality of the CA decision on the matter of
jurisdiction, the only remaining issue to be disposed of is
whether the CIAC could proceed with the case even if the MCWD
refused to participate in the arbitration proceedings.
The Court rules in the affirmative. Though one party
can refuse to participate in the arbitration proceedings,
this cannot prevent the CIAC from proceeding with the case and
issuing an award in favor of one of the parties.
Section 4.2 of the Revised Rules of Procedure
Governing Construction Arbitration (CIAC Rules) specifically
provides that where the jurisdiction of the CIAC is properly
invoked by the filing of a Request for Arbitration in accordance
with CIAC Rules, the failure of a respondent to appear, which
amounts to refusal to arbitrate, will not stay the proceedings,
notwithstanding the absence of the respondent or the lack of
participation of such party. In such cases, the CIAC is mandated
to appoint the arbitrator/s in accordance with the Rules, and the
arbitration proceedings shall continue. The award shall then be
made after receiving the evidence of the claimant.
In such a case, all is not lost for the party who did not
participate. Even after failing to appear, a respondent is still
given the opportunity, under the CIAC Rules, to have the
proceedings reopened and be allowed to present evidence,
although with the qualification that this is done before an award
is issued:
4.2.1 In the event that, before award, the
Respondent who had not earlier questioned the
jurisdiction of the Tribunal, appears and offers to
present his evidence, the Arbitral Tribunal may, for
reasons that justifies (sic) the failure to appear, reopen
the proceedings, require him to file his answer with or
without counterclaims, pay the fees, where required
under these Rules, and allow him to present his
evidence, with limited right to cross examine witnesses
already in the discretion of the Tribunal. Evidence
already admitted shall remain. The Tribunal shall decide
the effect of such controverting evidence presented by
the Respondent on evidence already admitted prior to
such belated appearance.
75
Thus, under the CIAC Rules, even without the
participation of one of the parties in the proceedings, the CIAC is
still required to proceed with the hearing of the construction
dispute.[61]
This Court has held that the CIAC has jurisdiction over a
dispute arising from a construction contract even though only
one of the parties requested for arbitration. [62] In fact,
in Philrock, Inc. v. Construction Industry Arbitration Commission,
[63]
the Court held that the CIAC retained jurisdiction even if both
parties had withdrawn their consent to arbitrate.
In this case, there being a valid arbitration clause
mutually stipulated
by the parties, they are bothcontractually bound to settle their d
ispute
through arbitration before the CIAC. MCWD refused to
participate, but this should not affect the authority of the CIAC
to conduct the proceedings, and, thereafter, issue an arbitral
award.
Now, with the CIAC decision being questioned by
MCWD, the Court takes a cursory reading of the said decision. It
reveals that the conclusions arrived at by CIAC are supported by
facts and the law. Article 1359 of the Civil Code states that when
there has been a meeting of the minds of the parties to a
contract, but their true intention is not expressed in the
instrument purporting to embody the agreement by reason of
mistake, fraud, inequitable conduct or accident, one of the
parties may ask for the reformation of the instrument to the end
that such true intention may be expressed. The CIAC, in this
case, found that the parametric formula for price escalation
reflected in the Water Supply Contract involved two items:
Power Rate Price Adjustment (30% of the base selling price of
water) and Consumer Price Index Adjustment (40% of the base
selling price of water). The remaining 30% of the selling price of
water, which should have been for Capital Cost Recovery, was
inadvertently left out in this parametric formula. Thus, the
Contract should be reformed accordingly to reflect the intention
of the parties to include in the price escalation formula the
Capital Cost Recovery Adjustment. These conclusions were
affirmed by the CA in the assailed decision of February 20, 2006.
As noted by MCWD in its reply, however, the dispositive
portion of the CIAC decision reforming the price escalation
formula is inconsistent with what was stated in the body of the
decision. The formula contained in the body of the decision is as
follows:
PRICE ADJUSTMENT COMPUTATION
Based on Reformed Clause 17 of the Water
Supply Contract
1. Power Cost Adjustment:
xxx
Current Power Rate Base Power Rate x 30% of Base Selling
Price of water
Base Power Rate
xxx
2. Operating Cost Adjustment - Local
xxx
Current CPI Base CPI x 30% of 40% of Base Selling Price of
Water
Base CPI
xxx
3. Operating Cost Adjustment Foreign
xxx
Current Forex Base Forex x 70% of 40% of Base Selling Price
of Water
Base Forex
xxx
Capital Cost Adjustment Local

xxx
Current CPI Base CPI x 30% of 30% of Base Selling
Price of Water
Base CPI
xxx
Capital Cost Adjustment Foreign
xxx
Current Forex Base Forex x 70% of 30% of Base
Selling Price of Water
Base Forex
xxx[64]
The dispositive portion of the decision, however,
reads:
WHEREFORE[,] premises considered, judgment is
hereby rendered as follows:
1. Ordering the reformation of Clause 17 of the Water Supply
Contract to read:
17[.] Price Escalation and/or De-Escalation shall be based on
the parametric formula:
17.1 Power Rate Price Adjustment/Power Cost
Adjustment
Current Power Rate Base Power Rate x 30% of Base Selling
Price of water
Base Power Rate
17.2 Consumer Price Index (CPI) Adjustment/Operatiing
(sic) Cost Adjustment:
Current CPI Base CPI x 40% of Base Selling Price of Water
Base CPI
17.3 Capital Cost Recovery Adjustment:
Current Peso to Base Peso to US$
US$ Exchange Rate Exchange Rate x 30% of base selling price
of water
Base Peso to US $ Exchange Rate
The general rule is that where there is a conflict
between the fallo, or the dispositive part, and the body of the
decision or order, the fallo prevails on the theory that the fallo is
the final order and becomes the subject of execution, while the
body of the decision merely contains the reasons or conclusions
of the court ordering nothing. However, where one can clearly
and unquestionably conclude from the body of the decision that
there was a mistake in the dispositive portion, the body of the
decision will prevail.[65]
Following the reasoning of the CIAC in this case, there
are three components to price adjustment: (1) Power Cost
Adjustment (30% of the base selling price of water); (2)
Operating Cost Adjustment (40% of the base selling price of
water); and (3) Capital Cost Adjustment (30% of the base selling
price of water).
In turn, the second componentOperating Cost
Adjustmentis computed based on Local Operating Cost
Adjustment (30%), and Foreign Operating Cost Adjustment
(70%).
Capital Cost Adjustment, on the other hand, is
composed of Local Capital Cost Adjustment (30%), and Foreign
Capital Cost Adjustment (70%).
This is consistent with the formula set forth in the body
of the CIAC decision. If the formula in the dispositive portion
were to be followed, Operating Cost Adjustment would be
computed with the Local Operating Cost Adjustment
representing the entire 40% of the base selling price of water
instead of just 30% of the Operating Cost Adjustment. Moreover,
if the Capital Cost Recovery Adjustment were to be computed
based solely on Foreign Capital Cost Recovery Adjustment, it
would represent the entire 30% of the base selling price of
76
water, and not just 70% of the Capital Cost Recovery
Adjustment. The omission of the marked portions of the formula
as stated in the body of the CIAC decision represents substantial
changes to the formula for price escalation. It is thus clear that
the formula as stated in the body of the decision should govern.
WHEREFORE, the petition is DENIED. The Decision
and Resolution of the Court of Appeals in C.A.-G.R. CEB SP. No.
00623 are AFFIRMED with the modification that the formula for
the computation of the Capital Cost Recovery Adjustment in the
fallo of the CIAC decision should be amended to read as follows:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. Ordering the reformation of Clause 17 of the Water
Supply Contract to read:
17. Price Escalation and/or De-Escalation shall be based on
the parametric formula:
17.1. Power Rate Price Adjustment/Power Cost
Adjustment
Current Power Rate - Base Power Rate x 30% of base selling
price of water
Base Power Rate
17.2 Consumer Price Index (CPI) Adjustment/Operating Cost
Adjustment:
Current CPI Base CPI x 30% of 40% of base selling price of
water
Base CPI
17.3 Capital Cost Recovery Adjustment:
Current Peso to Base Peso to US$
US$ Exchange Rate Exchange Rate x 70% of 30% of base
selling price of water
Base Peso to US $ Exchange Rate
Price escalation shall be reckoned from January 1999 when
the water was first delivered by Mactan Rock Industries, Inc.
to the MCWD facilities in Mactan. The base CPI, base US$
Exchange Rate and the Base Power Rate shall be the
prevailing rate in January 1999, while the Base Selling Price
of water shall mean the 1996 rate per cubic meter of water
as provided for in the Water Supply Contract.
2. Ordering Respondent Metropolitan Cebu Water District
to pay Claimant, Mactan Rock Industries, Inc. under the
reformed Clause 17 of the Water Supply Contract, the net
amount of Php12,126,296.70 plus legal interest of six
percent (6%) per annum from March 15, 2004, the date of
filing of the case with the Construction Industry Arbitration
Commission, and twelve percent (12%) per annum from the
date this Decision becomes final and executory, until the
foregoing amounts shall have been fully paid.
3. Claimant Mactan Rock Industries, Inc. and Metropolitan
Cebu Water District shall share the cost of arbitration equally.
SO ORDERED.
SECOND DIVISIONG.R. No. 179628 January 16,
2013
THE MANILA INSURANCE COMPANY, INC., Petitioner,
vs.
SPOUSES ROBERTO and AIDA AMURAO, Respondents.
DEL CASTILLO, J.:
The jurisdiction of the Construction Industry Arbitration
Commission (CIAC) is conferred by law. Section 4 1 of Executive
Order (E.O.) No. I 008, otherwise known as the Construction
Industry Arbitration Law, "is broad enough to cover any dispute
arising from, or connected with construction contracts, whether
these involve mere contractual money claims or execution of
the works."2

This Petition for Review on Certiorari 3 under Rule 45 of the Rules
of Court assails the Decision 4 dated June 7, 2007 and the
Resolution5 dated September 7, 2007 of the Court of Appeals
(CA) in CA-G.R. SP No. 96815.
Factual Antecedents
On March 7, 2000, respondent-spouses Roberto and Aida
Amurao entered into a Construction Contract Agreement
(CCA)6 with Aegean Construction and Development Corporation
(Aegean) for the construction of a six-storey commercial building
in Tomas Morato corner E. Rodriguez Avenue, Quezon City.7 To
guarantee its full and faithful compliance with the terms and
conditions of the CCA, Aegean posted performance bonds
secured by petitioner The Manila Insurance Company,
Inc.8 (petitioner) and Intra Strata Assurance Corporation (Intra
Strata).9
On November 15, 2001, due to the failure of Aegean to
complete the project, respondent spouses filed with the Regional
Trial Court (RTC) of Quezon City, Branch 217, a
Complaint,10 docketed as Civil Case No. Q-01-45573, against
petitioner and Intra Strata to collect on the performance bonds
they issued in the amounts of P2,760,000.00
and P4,440,000.00, respectively.11
Intra Strata, for its part, filed an Answer 12 and later, a Motion to
Admit Third Party Complaint,13 with attached Third Party
Complaint14 against Aegean, Ronald D. Nicdao, and Arnel A.
Mariano.
Petitioner, on the other hand, filed a Motion to Dismiss 15 on the
grounds that the Complaint states no cause of action 16 and that
the filing of the Complaint is premature due to the failure of
respondent-spouses to implead the principal contractor,
Aegean.17 The RTC, however, denied the motion in an
Order18 dated May 8, 2002. Thus, petitioner filed an Answer with
Counterclaim and Cross-claim,19 followed by a Third Party
Complaint20 against Aegean and spouses Ronald and Susana
Nicdao.
During the pre-trial, petitioner and Intra Strata discovered that
the CCA entered into by respondent-spouses and Aegean
contained an arbitration clause.21
Hence, they filed separate Motions to Dismiss 22 on the grounds
of lack of cause of action and lack of jurisdiction.
Ruling of the Regional Trial Court
On May 5, 2006, the RTC denied both motions. 23 Petitioner and
Intra Strata separately moved for reconsideration but their
motions were denied by the RTC in its subsequent Order 24 dated
September 11, 2006.
Aggrieved, petitioner elevated the case to the CA by way of
special civil action for certiorari.25
Ruling of the Court of Appeals
On June 7, 2007, the CA rendered a Decision 26 dismissing the
petition. The CA ruled that the presence of an arbitration clause
in the CCA does not merit a dismissal of the case because under
the CCA, it is only when there are differences in the
interpretation of Article I of the construction agreement that the
parties can resort to arbitration.27 The CA also found no grave
abuse of discretion on the part of the RTC when it disregarded
the fact that the CCA was not yet signed at the time petitioner
issued the performance bond on February 29, 2000.28 The CA
explained that the performance bond was intended to be
coterminous with the construction of the building. 29 It pointed
out that "if the delivery of the original contract is
contemporaneous with the delivery of the suretys obligation,
77
each contract becomes completed at the same time, and the
consideration which supports the principal contract likewise
supports the subsidiary one." 30 The CA likewise said that,
although the contract of surety is only an accessory to the
principal contract, the suretys liability is direct, primary and
absolute.31 Thus:
WHEREFORE, we resolve to DISMISS the petition as we find that
no grave abuse of discretion attended the issuance of the order
of the public respondent denying the petitioners motion to
dismiss.
IT IS SO ORDERED.32
Petitioner moved for reconsideration but the CA denied the
same in a Resolution33 dated September 7, 2007.
Issues
Hence, this petition raising the following issues:
A.THE HONORABLE CA ERRED WHEN IT HELD THAT IT IS ONLY
WHEN THERE ARE DIFFERENCES IN THE INTERPRETATION OF
ARTICLE I OF THE CONSTRUCTION AGREEMENT THAT THE
PARTIES MAY RESORT TO ARBITRATION BY THE CIAC.
B.THE HONORABLE CA ERRED IN TREATING PETITIONER AS A
SOLIDARY DEBTOR INSTEAD OF A SOLIDARY GUARANTOR.
C.THE HONORABLE [CA] OVERLOOKED AND FAILED TO
CONSIDER THE FACT THAT THERE WAS NO ACTUAL AND
EXISTING CONSTRUCTION AGREEMENT AT THE TIME THE
MANILA INSURANCE BOND NO. G (13) 2082 WAS ISSUED ON
FEBRUARY 29, 2000.34
Petitioners Arguments
Petitioner contends that the CA erred in ruling that the parties
may resort to arbitration only when there is difference in the
interpretation of the contract documents stated in Article I of the
CCA.35 Petitioner insists that under Section 4 of E.O. No. 1008, it
is the CIAC that has original and exclusive jurisdiction over
construction disputes, such as the instant case.36
Petitioner likewise imputes error on the part of the CA in treating
petitioner as a solidary debtor instead of a solidary
guarantor.37 Petitioner argues that while a surety is bound
solidarily with the obligor, this does not make the surety a
solidary co-debtor.38 A surety or guarantor is liable only if the
debtor is himself liable.39 In this case, since respondent-spouses
and Aegean agreed to submit any dispute for arbitration before
the CIAC, it is imperative that the dispute between respondent-
spouses and Aegean must first be referred to arbitration in order
to establish the liability of Aegean.40 In other words, unless the
liability of Aegean is determined, the filing of the instant case is
premature.41
Finally, petitioner puts in issue the fact that the performance
bond was issued prior to the execution of the CCA. 42Petitioner
claims that since there was no existing contract at the time the
performance bond was executed, respondent-spouses have no
cause of action against petitioner.43 Thus, the complaint should
be dismissed.44
Respondent spouses Arguments
Respondent-spouses, on the other hand, maintain that the CIAC
has no jurisdiction over the case because there is no ambiguity
in the provisions of the CCA. 45 Besides, petitioner is not a party
to the CCA.46 Hence, it cannot invoke Article XVII of the CCA,
which provides for arbitration proceedings. 47 Respondent-
spouses also insist that petitioner as a surety is directly and
equally bound with the principal.48 The fact that the performance

bond was issued prior to the execution of the CCA also does not
affect the latters validity because the performance bond is
coterminous with the construction of the building. 49
Our Ruling
The petition has merit.
Nature of the liability of the surety
A contract of suretyship is defined as "an agreement whereby a
party, called the surety, guarantees the performance by another
party, called the principal or obligor, of an obligation or
undertaking in favor of a third party, called the obligee. It
includes official recognizances, stipulations, bonds or
undertakings issued by any company by virtue of and under the
provisions of Act No. 536, as amended by Act No. 2206." 50 We
have consistently held that a suretys liability is joint and
several, limited to the amount of the bond, and determined
strictly by the terms of contract of suretyship in relation to the
principal contract between the obligor and the obligee. 51 It bears
stressing, however, that although the contract of suretyship is
secondary to the principal contract, the suretys liability to the
obligee is nevertheless direct, primary, and absolute.52
In this case, respondent-spouses (obligee) filed with the RTC a
Complaint against petitioner (surety) to collect on the
performance bond it issued. Petitioner, however, seeks the
dismissal of the Complaint on the grounds of lack of cause of
action and lack of jurisdiction.
The respondent-spouses have cause of action against the
petitioner; the performance bond is coterminous with the CCA
Petitioner claims that respondent-spouses have no cause of
action against it because at the time it issued the performance
bond, the CCA was not yet signed by respondent-spouses and
Aegean.
We do not agree.
A careful reading of the Performance Bond reveals that the
"bond is coterminous with the final acceptance of the
project."53 Thus, the fact that it was issued prior to the execution
of the CCA does not affect its validity or effectivity.
But while there is a cause of action against petitioner, the
complaint must still be dismissed for lack of jurisdiction.
The CIAC has jurisdiction over the case
Section 4 of E.O. No. 1008 provides that:
SEC. 4. Jurisdiction. The CIAC shall have original and exclusive
jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private
contracts. For the Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to
violation of specifications for materials and workmanship,
violation of the terms of agreement, interpretation and/or
application of contractual time and delays, maintenance and
defects, payment, default of employer or contractor, and
changes in contract cost.
Excluded from the coverage of the law are disputes arising from
employer-employee relationships which shall continue to be
covered by the Labor Code of the Philippines.
78
Based on the foregoing, in order for the CIAC to acquire
jurisdiction two requisites must concur: "first, the dispute must
be somehow connected to a construction contract; and second,
the parties must have agreed to submit the dispute to
arbitration proceedings."54
In this case, both requisites are present.
The parties agreed to submit to arbitration proceedings "any
dispute arising in the course of the execution and performance
of the CCA by reason of difference in interpretation of the
Contract Documents x x x which the parties are unable to
resolve amicably between themselves."55 Article XVII of the CCA
reads:
ARTICLE XVII ARBITRATION
17.1 Any dispute arising in the course of the execution and
performance of this Agreement by reason of difference in
interpretation of the Contract Documents set forth in Article I
which the OWNER and the CONTRACTOR are unable to resolve
amicably between themselves shall be submitted by either party
to a board of arbitrators composed of Three (3) members
chosen as follows: One (1) member shall be chosen by the
CONTRACTOR AND One (1) member shall be chosen by the
OWNER. The said Two (2) members, in turn, shall select a third
member acceptable to both of them. The decision of the Board
of Arbitrators shall be rendered within Ten (10) days from the
first meeting of the board, which decision when reached through
the affirmative vote of at least Two (2) members of the board
shall be final and binding upon the OWNER and
CONTRACTOR.1wphi1
17.2 Matters not otherwise provided for in this Contract or by
Special Agreement of the parties shall be governed by the
provisions of the Arbitration Law, Executive Order No. 1008. 56
In William Golangco Construction Corporation v. Ray Burton
Development Corporation,57 we declared that monetary claims
under a construction contract are disputes arising from
"differences in interpretation of the contract" because "the
matter of ascertaining the duties and obligations of the parties
under their contract all involve interpretation of the provisions of
the contract."58 Following our reasoning in that case, we find
that the issue of whether respondent-spouses are entitled to
collect on the performance bond issued by petitioner is a
"dispute arising in the course of the execution and performance
of the CCA by reason of difference in the interpretation of the
contract documents."
The fact that petitioner is not a party to the CCA cannot remove
the dispute from the jurisdiction of the CIAC because the issue
of whether respondent-spouses are entitled to collect on the
performance bond, as we have said, is a dispute arising from or
connected to the CCA.
In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor
Land, Inc.,59 we rejected the argument that the jurisdiction of
CIAC is limited to the construction industry, and thus, cannot
extend to surety contracts. In that case, we declared that
"although not the construction contract itself, the performance
bond is deemed as an associate of the main construction
contract that it cannot be separated or severed from its
principal. The Performance Bond is significantly and
substantially connected to the construction contract that there
can be no doubt it is the CIAC, under Section 4 of E.O. No. 1008,
which has jurisdiction over any dispute arising from or
connected with it."60
In view of the foregoing, we agree with the petitioner that
juriisdiction over the instant case lies with the CIAC, and not
with the RTC. Thus, the Complaint filed by respondent-spouses
with the RTC must be dismissed.

WHEREFORE, the petition is hereby GRANTED. The Decision
dated June 7, 2007 and the Resolution dated September 7, 2007
of the Court of Appeals in CA-G.R. SP No. 96815 are hereby
ANNULLED and SET ASIDE. The Presiding Judge of the Regional
Trial Court of Quezon City, Branch 217 1s DIRECTED to dismiss
Civil Case No. Q-01-45573 for lack of jurisdiction.SO ORDERED.
FIRST DIVISION[G.R. No. 123871. August 31, 1998]
ALLIED BANKING CORPORATION, petitioner, vs. COURT OF
APPEALS and BANK OF THE PHILIPPINE ISLANDS,
INC., respondents.
DECISION
PANGANIBAN, J.:
As a general rule, a trial court that has established
jurisdiction over the main action also acquires jurisdiction over a
third-party complaint, even if it could not have done so had the
latter been filed as an independent action. This rule, however,
does not apply to banks that have agreed to submit their
disputes over check clearings to arbitration under the rules of
the Philippine Clearing House Corporation. In that event, primary
recourse should be to the PCHC Arbitration Committee, without
prejudice to an appeal to the trial courts. In other words, without
first resorting to the PCHC, the third-party complaint would be
premature.
The Case
Before us is a petition for review on certiorari under Rule
45, assailing the Decision dated February 12, 1996 promulgated
by the Court of Appeals[1] in CA-GR CV No. 44804; which
affirmed the trial courts Order dated September 16, 1991,
dismissing petitioners third-party complaint against private
respondent.[2]
Facts of the Case
The facts are undisputed. Reproduced hereunder is
Respondent Courts narration:
Hyatt Terraces Baguio issued two crossed checks drawn against
Allied Banking Corp. (hereinafter, ALLIED) in favor of appellee
Meszellen Commodities Services, Inc. (hereinafter,
MESZELLEN). Said checks were deposited on August 5, 1980 and
August 18, 1980, respectively, with the now defunct Commercial
Bank and Trust Company (hereinafter, COMTRUST). Upon receipt
of the above checks, COMTRUST stamped at the back thereof
the warranty All prior endorsements and/or lack of
endorsements guaranteed. After the checks were cleared
through the Philippine Clearing House Corporation (hereinafter,
PCHC), ALLIED BANK paid the proceeds of said checks to
COMTRUST as the collecting bank.
On March 17, 1981, the payee, MESZELLEN, sued the drawee,
ALLIED BANK, for damages which it allegedly suffered when the
value[s] of the checks were paid not to it but to some other
person.
Almost ten years later, or on January 10, 1991, before defendant
ALLIED BANK could finish presenting its evidence, it filed a third
party complaint against Bank of the Philippine Islands
(hereinafter, BPI, appellee herein) as successor-in-interest of
COMTRUST, for reimbursement in the event that it would be
adjudged liable in the main case to pay plaintiff,
MESZELLEN. The third party complaint was admitted [in] an
Order dated May 16, 1991 issued by the Regional Trial Court of
Pasig, Branch 162. On July 16, 1991, BPI filed a motion to
dismiss said third party complaint grounded on the following: 1)
that the court ha[d] no jurisdiction over the nature of the action;
79
and 2) that the cause of action of the third party plaintiff ha[d]
already prescribed.
On September 16, 1991, the trial court issued an order
dismissing the third party complaint. Defendant-third party
plaintiffs motion for reconsideration of this order was
subsequently denied.[3]
Respondent Courts Ruling
Respondent Court affirmed the trial court thus:
x x x Appellants submission that the cause of action of the third
party plaintiff against the third party defendant accrued only
when the complaint in the original case was filed on March 17,
1981 is untenable. As earlier discussed, the defendant has a
separate cause of action (in respect of plaintiffs complaint)
against a third party in the original and principal
case. Reviewing the third-party complaint below, that cause of
action is the supposed erroneous endorsement made by
COMTRUST for which ALLIED BANK is being held liable for
damages by the payee-appellee. Without COMTRUSTs warranties
as a general endorser, ALLIED BANK allegedly would not have
paid on the checks. Should such warranties prove to be false
and inaccurate, COMTRUST may be held liable for any damage
arising out of the falsity of its representation.
Based on the records the subject endorsement of COMTRUST
was made in August 1980[;] and in the same period, ALLIED
BANK paid on the subject checks. From that moment, ALLIED
BANK could have instituted an action against COMTRUST. It is
the legal possibility of bringing the action which determines the
starting point for the computation of the period (Tolentino, Civil
Code of the Philippines, Vol. IV, p. 41, citing Manresa). This is the
moment when a cause of action may be deemed to
accrue. Thus, considering that the third party complaint was
filed more than ten years from August 1980, specifically on
January 10, 1991, the same can no longer be entertained.
Even granting arguendo that the lower court had jurisdiction
over the third party complaint and the cause of action thereof
had not yet prescribed, the filing of the third party complaint
should nevertheless be disallowed considering that defendant
has already presented several witnesses and is about ready to
rest its case because, then, the allowance of the third party
complaint would only delay the resolution of the original
case. (Firestone Tire and Rubber Co. of the Phil. vs.
Tempengko, supra, p. 423).
A final word. We have noted the curious situation here where,
instead of the payee suing its bank, i.e., the collecting bank
(which is COMTRUST), it opted to sue the drawee bank (ALLIED
BANK). It is, however, up to the trial court to rule on the
propriety of the latter complaint.[4]
Not satisfied with the above ruling, petitioner filed the
present petition before this Court.[5]
The Issues
Petitioner raises the following issues:[6]
I. The Respondent Honorable Court of Appeals erred in holding
that the cause of action of the third-party complaint ha[d]
already prescribed.
II. The Respondent Honorable Court of Appeals erred in holding
that the filing of the third party complaint should be disallowed
as it would only delay the resolution of the case.
On the other hand, private respondent argues that the trial
court had no authority to admit a third-party claim that was filed
by one bank against another and involved a check cleared

through the Philippine Clearing House Corporation (PCHC). To
the mind of the Court, this is the critical issue.
The Courts Ruling
The petition is bereft of merit.
Critical Issue: Mandatory Recourse to PCHC
To buttress its claim, private respondent contends that
petitioners remedy rests with the PCHC, of which both Allied and
BPI are members, in consonance with the Clearing House Rules
and Regulations which, in part, states:
Sec. 38 - Arbitration
Any dispute or controversy between two or more clearing
participants involving any check/item cleared thru PCHC shall be
submitted to the Arbitration Committee, upon written complaint
of any involved participant by filing the same with the PCHC
serving the same upon the other party or parties, who shall
within fifteen (15) days after receipt thereof file with the
Arbitration Committee its written answer to such written
complaint and also within the same period serve the same upon
the complaining participant, xxx.
Private respondent cites Banco de Oro Savings and
Mortgage Bank v. Equitable Banking
Corporation[7] andAssociated Bank v. Court of Appeals,[8] which
upheld the right of the PCHC to settle and adjudicate disputes
between member banks. In Banco de Oro, the Court ruled:
The participation of the two banks, petitioner and private
respondent, in the clearing operations of PCHC is a
manifestation of their submission to its jurisdiction. Secs. 3 and
36.6 of the PCHC-CHRR clearing rules and regulations provide:
Sec. 3. AGREEMENT TO THESE RULES. - It is the general
agreement and understanding that any participant in the
Philippine Clearing House Corporation, MICR clearing
operations[,] by the mere fact of their participation, thereby
manifests its agreement to these Rules and Regulations and its
subsequent amendments.
Sec. 36.6. (ARBITRATION) - The fact that a bank participates in
the clearing operations of the PCHC shall be deemed its written
and subscribed consent to the binding effect of this arbitration
agreement as if it had done so in accordance with section 4 of
(the) Republic Act. No. 876, otherwise known as the Arbitration
Law.
Further[,] Section 2 of the Arbitration Law mandates:
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
any action, or the parties of any contract may in such contract
agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid and
irrevocable, save upon 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. (Italics supplied.)
Associated Bank also disallowed a similar
complaint, ruling thus:
Under the rules and regulations of the Philippine Clearing House
Corporation (PCHC), the mere act of participation of the parties
80
concerned in its operations in effect amounts to a manifestation
of agreement by the parties to abide by its rules and
regulations. As a consequence of such participation, a party
cannot invoke the jurisdiction of the courts over disputes and
controversies which fall under the PCHC Rules and Regulations
without first going through the arbitration processes laid out by
the body. Since claims relating to the regularity of checks
cleared by banking institutions are among those claims which
should first be submitted for resolution by the PCHCs Arbitration
Committee, petitioner Associated Bank, having voluntarily
bound itself to abide by such rules and regulations, is estopped
from seeking relief from the Regional Trial Court on the coattails
of a private claim and in the guise of a third party complaint
without first having obtained a decision adverse to its claim
from the said body. It cannot bypass the arbitration process on
the basis of its averment that its third party complaint is
inextricably linked to the original complaint in the Regional Trial
Court.
xxxxxxxxx
Clearly therefore, petitioner Associated Bank, by its voluntary
participation and its consent to the arbitration rules cannot go
directly to the Regional Trial Court when it finds it convenient to
do so. The jurisdiction of the PCHC under the rules and
regulations is clear, undeniable and is particularly applicable to
all the parties in the third party complaint under their obligation
to first seek redress of their disputes and grievances [from] the
PCHC before going to the trial court.
Finally, the contention that the third party complaint should not
have been dismissed for being a necessary and inseparable
offshoot of the main case over which the court a quo had
already exercised jurisdiction misses the fundamental point
about such pleading. A third party complaint is a mere
procedural device which under the Rules of Court is allowed only
with the courts permission. It is an action actually independent
of, separate and distinct from the plaintiffs complaint (s)uch
that, were it not for the Rules of Court, it would be necessary to
file the action separately from the original complaint by the
defendant against the third party. (Italics supplied.)
Banco de Oro and Associated Bank are clear and
unequivocal: a third-party complaint of one bank against
another involving a check cleared through the PCHC is
unavailing, unless the third-party claimant has first exhausted
the arbitral authority of the PCHC Arbitration Committee and
obtained a decision from said body adverse to its claim.
Recognizing the role of the PCHC in the arbitration of
disputes between participating banks, the Court in Associated
Bank further held: Pursuant to its function involving the clearing
of checks and other clearing items, the PCHC has adopted rules
and regulations designed to provide member banks with a
procedure whereby disputes involving the clearance of checks
and other negotiable instruments undergo a process of
arbitration prior to submission to the courts below. This
procedure not only ensures a uniformity of rulings relating to
factual disputes involving checks and other negotiable
instruments but also provides a mechanism for settling minor
disputes among participating and member banks which would
otherwise go directly to the trial courts.
We defer to the primary authority of PCHC over the present
dispute, because its technical expertise in this field enables it to
better resolve questions of this nature. This is not prejudicial to
the interest of any party, since primary recourse to the PCHC
does not preclude an appeal to the regional trial courts on
questions of law. Section 13 of the PCHC Rules reads:
third-party Sec. 13. The findings of facts of the decision or award rendered
by the Arbitration Committee or by the sole Arbitrator as the
case may be shall be final and conclusive upon all the parties in
said arbitration dispute. The decision or award of the Arbitration
Committee or of the Sole Arbitrator shall be appealable only on

questions of law to any of the Regional Trial Courts in the
National Capital Judicial Region where the Head Office of any of
the parties is located. The appellant shall perfect his appeal by
filing a notice of appeal to the Arbitration Secretariat and filing a
Petition with the Regional Trial Court of the National Capital
Region xxx.
Furthermore, when the error is so patent, gross and
prejudicial as to constitute grave abuse of discretion, courts may
address questions of fact already decided by the arbitrator.[9]
We are not unaware of the rule that a trial court, which has
jurisdiction over the main action, also has jurisdiction over the
third party complaint, even if the said court would have had no
jurisdiction over it had it been filed as an independent action.
[10]
However, this doctrine does not apply in the case of banks,
which have given written and subscribed consentto arbitration
under the auspices of the PCHC.
By participating in the clearing operations of the PCHC,
petitioner agreed to submit disputes of this nature to
arbitration. Accordingly, it cannot invoke the jurisdiction of the
trial courts without a prior recourse to the PCHC Arbitration
Committee. Having given its free and voluntary consent to the
arbitration clause, petitioner cannot unilaterally take it back
according to its whim. In the world of commerce, especially in
the field of banking, the promised word is crucial. Once given, it
may no longer be broken.
Upon the other hand, arbitration as an alternative method
of dispute-resolution is encouraged by this Court. Aside from
unclogging judicial dockets, it also hastens solutions especially
of commercial disputes.
In view of the foregoing, a discussion of the issues raised
by the petitioners is unnecessary.
WHEREFORE, the petition is DENIED for lack of
merit. Costs against petitioner.SO ORDERED.
SECOND DIVISIONG.R. No. 115412 November 19, 1999
HOME BANKERS SAVINGS AND TRUST
COMPANY, petitioner,
vs.
COURT OF APPEALS and FAR EAST BANK & TRUST CO.,
INC. respondents.
BUENA, J.:
This appeal by certiorari under Rule 45 of the Rules of Court
seeks to annul and set aside the decision 1 of the Court of
Appeals 2 dated January 21, 1994 in CA-G.R. SP No. 29725,
dismissing the petition for certiorari filed by petitioner to annul
the two (2) orders issued by the Regional Trial Court of
Makati 3 in Civil Case No. 92-145, the first, dated April 30, 1992,
denying petitioner's motion to dismiss and the second, dated
October 1, 1992 denying petitioner's motion for reconsideration
thereof.
The pertinent facts may be briefly stated as follows: Victor
Tancuan, one of the defendants in Civil Case No. 92-145, issued
Home Bankers Savings and Trust Company (HBSTC) check No.
193498 for P25,250,000.00 while Eugene Arriesgado issued Far
East Bank and Trust Company (FEBTC) check Nos. 464264,
464272 and 464271 for P8,600,000.00, P8,500,000.00 and
P8,100,000.00, respectively, the three checks amounting to
P25,200,000.00. Tancuan and Arriesgado exchanged each
other's checks and deposited them with their respective banks
for collection. When FEBTC presented Tancuan's HBSTC check for
clearing, HBSTC dishonored it for being "Drawn Against
Insufficient Funds." On October 15, 1991, HBSTC sent
Arriesgado's three (3) FEBTC checks through the Philippine
Clearing House Corporation (PCHC) to FEBTC but was returned
81
on October 18, 1991 as "Drawn Against Insufficient Funds."
HBSTC received the notice of dishonor on October 21, 1991 but
refused to accept the checks and on October 22, 1991, returned
them to FEBTC through the PCHC for the reason "Beyond
Reglementary Period," implying that HBSTC already treated the
three (3) FEBTC checks as cleared and allowed the proceeds
thereof to be withdrawn. 4 FEBTC demanded reimbursement for
the returned checks and inquired from HBSTC whether it had
permitted any withdrawal of funds against the unfunded checks
and if so, on what date. HBSTC, however, refused to make any
reimbursement and to provide FEBTC with the needed
information.
Thus, on December 12, 1991, FEBTC submitted the dispute for
arbitration before the PCHC Arbitration Committee, 5 under the
PCHC's Supplementary Rules on Regional Clearing to which
FEBTC and HBSTC are bound as participants in the regional
clearing operations administered by the PCHC. 6
On January 17, 1992, while the arbitration proceeding was still
pending, FEBTC filed an action for sum of money and damages
with preliminary
attachment 7 against HBSTC, Robert Young, Victor Tancuan and
Eugene Arriesgado with the Regional Trial Court of Makati,
Branch 133. A motion to dismiss was filed by HBSTC claiming
that the complaint stated no cause of action and accordingly
". . . should be dismissed because it seeks to enforce an arbitral
award which as yet does not exist." 8 The trial court issued an
omnibus order dated April 30, 1992 denying the motion to
dismiss and an order dated October 1, 1992 denying the motion
for reconsideration.
On December 16, 1992, HBSTC filed a petition for certiorari with
the respondent Court of Appeals contending that the trial court
acted with grave abuse of discretion amounting to lack of
jurisdiction in denying the motion to dismiss filed by HBSTC.
In a Decision 9 dated January 21, 1994, the respondent court
dismissed the petition for lack of merit and held that "FEBTC can
reiterate its cause of action before the courts which it had
already raised in the arbitration case" 10 after finding that the
complaint filed by FEBTC ". . . seeks to collect a sum of money
from HBT [HBSTC] and not to enforce or confirm an arbitral
award." 11 The respondent court observed that "[i]n the
Complaint, FEBTC applied for the issuance of a writ of
preliminary attachment over HBT's [HBSTC] property" 12 and
citing section 14 of Republic Act No. 876, otherwise known as
the Arbitration Law, maintained that "[n]ecessarily, it has to
reiterate its main cause of action for sum of money against HBT
[HBSTC]," 13 and that "[t]his prayer for conservatory relief [writ
of preliminary attachment] satisfies the requirement of a cause
of action which FEBTC may pursue in the courts." 14
Furthermore, the respondent court ruled that based on section 7
of the Arbitration Law and the cases of National Union Fire
Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines,
Inc., 15 and Bengson vs. Chan, 16 ". . . when there is a condition
requiring prior submission to arbitration before the institution of
a court action, the complaint is not to be dismissed but should
be suspended for arbitration." 17 Finding no merit in HBSTC's
contention that section 7 of the Arbitration Law ". . .
contemplates a situation in which a party to an arbitration
agreement has filed a court action without first resorting to
arbitration, while in the case at bar, FEBTC has initiated
arbitration proceedings before filing a court action," the
respondent court held that ". . . if the absence of a prior
arbitration may stay court action, so too and with more reason,
should an arbitration already pending as obtains in this case
stay the court action. A party to a pending arbitral proceeding
may go to court to obtain conservatory reliefs in connection with
his cause of action although the disposal of that action on the
merits cannot as yet be obtained." 18 The respondent court
discarded Puromines, Inc. vs. Court of Appeals, 19 stating that ". .
. perhaps Puromines may have been decided on a different
factual basis." 20

In the instant petition, 21 petitioner contends that first, "no party
litigant can file a non-existent complaint," 22 arguing that ". . .
one cannot file a complaint in court over a subject that is
undergoing arbitration." 23 Second, petitioner submits that
"[s]ince arbitration is a special proceeding by a clear provision of
law, 24 the civil suit filed below is, without a shadow of doubt,
barred by litis pendentia and should be dismissed de
plano insofar as HBSTC is concerned." 25 Third, petitioner insists
that "[w]hen arbitration is agreed upon and suit is filed without
arbitration having been held and terminated, the case that is
filed should be dismissed," 26 citing Associated Bank vs. Court of
Appeals, 27 Puromines, Inc. vs. Court of Appeals, 28 as
and Ledesma vs. Court of Appeals. 29 Petitioner demurs that
the Puromines ruling was deliberately not followed by the
respondent court which claimed that:
xxx xxx xxx
It would really be much easier for Us to rule to
dismiss the complaint as the petitioner here
seeks to do, following Puromines. But with
utmost deference to the Honorable Supreme
Court, perhaps Puromines may have been
decided on a different factual basis.
30
xxx xxx xxx
Petitioner takes exception to FEBTC's contention
that Puromines cannot modify or reverse the rulings
in National Union Fire Insurance Company of Pittsburg
vs. Stolt-Nielsen Philippines, Inc., 31 and Bengson
vs. Chan, 32 where this Court suspended the action filed
pending arbitration, and argues that "[s]ound policy
requires that the conclusion of whether a Supreme
Court decision has or has not reversed or modified [a]
previous doctrine, should be left to the Supreme Court
itself; until then, the latest pronouncement should
prevail." 33 Fourth, petitioner alleges that the writ of
preliminary attachment issued by the trial court is void
considering that the case filed before it "is a separate
action which cannot exist," 34 and ". . . there is even no
need for the attachment as far as HBSTC is concerned
because such automatic debit/credit procedure 35 may
be regarded as a security for the transactions involved
and, as jurisprudence confirms, one requirement in the
issuance of an attachment [writ of preliminary
attachment] is that the debtor has no sufficient
security." 36 Petitioner asserts further that a writ of
preliminary attachment is unwarranted because no
ground exists for its issuance. According to petitioner,
". . . the only allegations against it [HBSTC] are that it
refused to refund the amounts of the checks of FEBTC
and that it knew about the fraud perpetrated by the
other defendants," 37 which, at best, constitute only
"incidental fraud" and not causal fraud which justifies
the issuance of the writ of preliminary attachment.
Private respondent FEBTC, on the other hand, contends that ". . .
the cause of action for collection [of a sum of money] can
coexist in the civil suit and the arbitration [proceeding]" 38 citing
section 7 of the Arbitration Law which provides for the stay of
the civil action until an arbitration has been had in accordance
with the terms of the agreement providing for arbitration.
Private respondent further asserts that following section 4(3),
article VIII 39 of the 1987 Constitution, the subsequent case
of Puromines does not overturn the ruling in the earlier cases
of National Union Fire Insurance Company of Pittsburg vs. Stolt-
Nielsen Philippines, Inc., 40 and Bengson vs. Chan, 41 hence,
private respondent concludes that the prevailing doctrine is that
the civil action must be stayed rather than dismissed pending
arbitration.
In this petition, the lone issue presented for the consideration of
this Court is:
82
WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED
AN ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE
PHILIPPINE CLEARING HOUSE CORPORATION (PCHC) MAY
SUBSEQUENTLY FILE A SEPARATE CASE IN COURT OVER THE
SAME SUBJECT MATTER OF ARBITRATION DESPITE THE
PENDENCY OF THAT ARBITRATION, SIMPLY TO OBTAIN THE
PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE BANK THE
ADVERSE PARTY IN THE ARBITRATION PROCEEDING. 42
We find no merit in the petition. Section 14 of Republic Act 876,
otherwise known as the Arbitration Law, allows any party to the
arbitration proceeding to petition the court to take measures to
safeguard and/or conserve any matter which is the subject of
the dispute in arbitration, thus:
Sec. 14. Subpoena and subpoena duces tecum.
Arbitrators shall have the power to require any person to attend
a hearing as a witness. They shall have the power to subpoena
witnesses and documents when the relevancy of the testimony
and the materiality thereof has been demonstrated to the
arbitrators. Arbitrators may also require the retirement of any
witness during the testimony of any other witness. All of the
arbitrators appointed in any controversy must attend all the
hearings in that matter and hear all the allegations and proofs of
the parties; but an award by the majority of them is valid unless
the concurrence of all of them is expressly required in the
submission or contract to arbitrate. The arbitrator or arbitrators
shall have the power at any time, before rendering the award,
without prejudice to 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. (emphasis
supplied)
Petitioner's exposition of the foregoing provision deserves scant
consideration. Section 14 simply grants an arbitrator the power
to issue subpoena and subpoena duces tecum at any time
before rendering the award. The exercise of such power is
without prejudice to the right of a party to file a petition in court
to safeguard any matter which is the subject of the dispute in
arbitration. In the case at bar, private respondent filed an action
for a sum of money with prayer for a writ of preliminary
attachment. Undoubtedly, such action involved the same
subject matter as that in arbitration, i.e., the sum of
P25,200,000.00 which was allegedly deprived from private
respondent in what is known in banking as a "kiting scheme."
However, the civil action was not a simple case of a money
claim since private respondent has included a prayer for a writ
of preliminary attachment, which is sanctioned by section 14 of
the Arbitration Law.
Petitioner cites the cases of Associated Bank vs. Court of
Appeals, 43 Puromines, Inc. vs. Court of Appeals, 44 and Ledesma
vs. Court of Appeals 45 in contending that "[w]hen arbitration is
agreed upon and suit is filed without arbitration having been
held and terminated, the case that is filed should be
dismissed." 46 However, the said cases are not in point.
In Associated Bank, we affirmed the dismissal of the third-party
complaint filed by Associated Bank against Philippine
Commercial International Bank, Far East Bank & Trust Company,
Security Bank and Trust Company, and Citytrust Banking
Corporation for lack of jurisdiction, it being shown that the said
parties were bound by the Clearing House Rules and Regulations
on Arbitration of the Philippine Clearing House Corporation.
In Associated Bank, we declared that:
. . . . . .. Under the rules and regulations of the Philippine
Clearing House Corporation (PCHC), the mere act of
participation of the parties concerned in its operations in
effect amounts to a manifestation of agreement by the
parties to abide by its rules and regulations. As a
consequence of such participation, a party cannot invoke
the jurisdiction of the courts over disputes and
controversies which fall under the PCHC Rules and
Regulations without first going through the arbitration
processes laid out by the body. 47 (emphasis supplied)

And thus we concluded:
Clearly therefore, petitioner Associated Bank, by its
voluntary participation and its consent to the arbitration
rules cannot go directly to the Regional Trial Court when it
finds it convenient to do so. The jurisdiction of the PCHC
under the rules and regulations is clear, undeniable and is
particularly applicable to all the parties in the third party
complaint under their obligation to first seek redress of their
disputes and grievances with the PCHC before going to the
trial court. 48 (emphasis supplied)
Simply put, participants in the regional clearing operations of
the Philippine Clearing House Corporation cannot bypass the
arbitration process laid out by the body and seek relief directly
from the courts. In the case at bar, undeniably, private
respondent has initiated arbitration proceedings as required by
the PCHC rules and regulations, and pending arbitration has
sought relief from the trial court for measures to safeguard
and/or conserve the subject of the dispute under arbitration, as
sanctioned by section 14 of the Arbitration Law, and otherwise
not shown to be contrary to the PCHC rules and regulations.
Likewise, in the case of Puromines, Inc. vs. Court of
Appeals, 49 we have ruled that:
In any case, whether the liability of respondent should be
based on the sales contract or that of the bill of lading,
the parties are nevertheless obligated to respect the
arbitration provisions on the sales contract and/or bill of
lading. Petitioner being a signatory and party to the sales
contract cannot escape from his obligation under the
arbitration clause as stated therein.
In Puromines, we found the arbitration clause stated in
the sales contract to be valid and applicable, thus, we
ruled that the parties, being signatories to the sales
contract, are obligated to respect the arbitration
provisions on the contract and cannot escape from
such obligation by filing an action for breach of contract
in court without resorting first to arbitration, as agreed
upon by the parties.
At this point, we emphasize that arbitration, as an alternative
method of dispute resolution, is encouraged by this Court. Aside
from unclogging judicial dockets, it also hastens solutions
especially of commercial disputes. 50 The Court looks with favor
upon such amicable arrangement and will only interfere with
great reluctance to anticipate or nullify the action of the
arbitrator. 51
WHEREFORE, premises considered, the petition is hereby
DISMISSED and the decision of the court a quo is AFFIRMED.SO
ORDERED.
FIRST DIVISION[G.R. No. 134699. December 23, 1999]
UNION BANK OF THE PHILIPPINES, petitioner, vs. COURT
OF APPEALS and ALLIED BANK
CORPORATION, respondents.
DECISION
KAPUNAN, J.:
Section 2 of the Law on Secrecy of Bank Deposits, [1] as
amended, declares bank deposits to be absolutely confidential
except:
(1) In an examination made in the course of a special or
general examination of a bank that is specifically authorized by
the Monetary Board after being satisfied that there is reasonable
ground to believe that a bank fraud or serious irregularity has
83
been or is being committed and that it is necessary to look into
the deposit to establish such fraud or irregularity,
(2) In an examination made by an independent auditor
hired by the bank to conduct its regular audit provided that the
examination is for audit purposes only and the results thereof
shall be for the exclusive use of the bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of bribery or
dereliction of duty of public officials, or
(6) In cases where the money deposited or invested in the
subject matter of the litigation.
Whether or not the case at bar falls under the last
exception is the issue in the instant petition.
The facts are not disputed.
On March 21, 1990, a check (Check No. 11669677) dated
March 31, 1990 in the amount of One Million Pesos
(P1,000,000.00) was drawn against Account No. 0111-01854-8
with private respondent Allied Bank payable to the order of one
Jose Ch. Alvarez. The payee deposited the check with petitioner
Union Bank who credited the P1,000,000.00 to the account of
Mr. Alvarez. On May 21, 1990, petitioner sent the check for
clearing through the Philippine Clearing House Corporation
(PCHC). When the check was presented for payment, a clearing
discrepancy was committed by Union Banks clearing staff when
the amount of One Million Pesos (P1,000,000.00) was
erroneously under-encoded to One Thousand Pesos (P1,000.00)
only.
Petitioner only discovered the under-encoding almost a
year later. Thus, on May 7, 1991, Union Bank Notified Allied
Bank of the discrepancy by way of a charge slip for Nine
Hundred Ninety-Nine Thousand Pesos (P999,000.00) for
automatic debiting against the account of Allied Bank. The
latter, however, refused to accept the charge slip since [the]
transaction was completed per your [Union Banks] original
instruction and clients account is now insufficiently funded.
Subsequently, Union Bank filed a complaint against Allied
Bank before the PCHC Arbitration Committee (Arbicom), praying
that:
judgment be rendered in favor of plaintiff against defendant
sentencing it to pay plaintiff:
1. The sum of NINE HUNDRED NINETY-NINE THOUSAND PESOS
(P999,000.00);
2. The sum of THREE HUNDRED SIXTY-ONE AND FOUR HUNDRED
EIGHTY AND 20/XX P361,480.20 as of October 9, 1991
representing reimbursements for opportunity losses and interest
at the rate of 24% per annum arising from actual losses
sustained by plaintiff as of May 21, 1990;
3. The amount for attorneys fees at the rate of 25% of any and
all sums due;
4. Penalty Charges at the rate of 1/8 of 1% of P999,000.00 from
May 22, 1990 until payment thereof.
5. Exemplary and punitive damages against the defendant in
such amounts as may be awarded by this Tribunal in order to
serve a lesson to all member-Banks under the PCHC umbrella to
striclty comply with the provisions thereof;

6. The costs of suit which includes filing fee in addition to
litigation expenses which shall be proven in the course of
arbitration.
7. Such other damages thay may be awarded by this Tribunal.[2]
Thereafter, Union Bank filed in the Regional Trial court
(RTC) of Makati a petition for the examination of Account No.
111-01854-8. Judgment on the arbitration case was held in
abeyance pending the resolution of said petition.
Upon motion of private respondent, the RTC dismissed
Union Banks petition. The RTC held that:
The case of the herein petitioner does not fall under any of the
foregoing exceptions to warrant a disclosure of or inquiry into
the ledgers/books of account of Allied Checking Account No.
111-01854-8. Needless to say, the complaint filed by herein
petitioner against Allied Banking Corporation before the
Philippine Clearing House Corporation (PCHC) Arbitration
Committee and docketed therein as Arb[i]com Case No. 91-068
(Annex A, petition) is not one for bribery or dereliction of duty of
public officials much less is there any showing that the subject
matter thereof is the money deposited in the account in
question. Petitioners complaint primarily hing[e]s on the alleged
deliberate violation by Allied Bank Corporation of the provisions
of the PCHC Rule Book, Sec. 25[.]3, and as principal reliefs, it
seeks for [sic] the recovery of amounts of money as a
consequence of an alleged under-coding of check amount to
P1,000,000.00 and damage[s] by way of loss of interest income.
[3]
The Court of Appeals affirmed the dismissal of the petition,
ruling that the case was not one where the money deposited is
the subject matter of the litigation.
Petitioner collecting bank itself in its complaint filed before the
PCHC, Arbicom Case No. 91-068, clearly stated that its cause of
action against defendant arose from defendants deliberate
violation of the provisions of the PCHC Rule Book, Sec. 25.3,
specifically on Under-Encoding of check amouting to
P1,000,000.00 drawn upon defendants Tondo Branch which was
deposited with plaintiff herein on May 20, 1990, xxx which was
erroneously encoded at P1,000.00 which defendant as the
receiving bank thereof, never called nor notified the plaintiff of
the error committed thus causing actual losses to plaintiff in the
principal amount of P999,000.00 exclusive of opportunity losses
and interest.
Furthermore, a reading of petitioner collecting banks complaint
in the Arbicom case shows that its thrust is directed against
respondent drawee banks alleged failure to inform the former of
the under-encoding when Sec. 25.3 of the PCHC Rule Book is
clear that it is receiving banks (respondent drawee bank herein)
duty and obligation to notify the erring bank (petitioner
collecting bank herein) of any such under-encoding of any check
amount submitted for clearing within the member banks of the
PCHC not later than 10:00 a.m. of the following clearing day and
prays that respondent drawee bank be held liable to petitioner
collecting bank for penalties in view of the latters violation of
the notification requirement.
Prescinding from the above, we see no cogent reason to depart
from the time-honored general banking rule that all deposits of
whatever nature with banks are considered of absolutely
confidential nature and may not be examined, inquired or looked
into by any person, government official, bureau or office and
corollarily, that it is unlawful for any official or employee of a
bank to disclose to any person any information concerning
deposits.
Nowhere in petitioner collecting banks complaint filed before the
PCHC does it mention of the amount it seeks to recover from
Account No. 0111-018548 itself, but speaks of P999,000.00 only
as an incident of its alleged opportunity losses and interest as a
84
result of its own employees admitted error in encoding the
check.
The money depositied in Account No. 0111-018548 is not the
subject matter of the litigation in the Arbicom case for as clearly
stated by petitioner itself, it is the alleged violation by
respondent of the rules and regulations of the PCHC.[4]
Union Bank is now before this Court insisting that the
money deposited in Account No. 0111-01854-8 is the subject
matter of the litigation Petitioner cites the case of Mathay vs.
Consolidated Bank and Trust Company,[5] where we defined
subject matter of the action, thus:
xxx By the phrase subject matter of the action is meant the
physical facts, the things real or personal, the money, lands,
chattels, and the like, in relation to which the suit is prosecuted,
and not the delict or wrong committed by the defendant.
Petitioner contends that the Court of Appeals confuses the cause
of action with the subject of the action. In Yusingco vs. Ong Hing
Lian,[6] petitioner points out, this Court distinguished the two
concepts.
xxx The cause of action is the legal wrong threatened or
committed, while the object of the action is to prevent or
redress the wrong by obtaining some legal relief; but the subject
of the action is neither of these since it is not the wrong or the
relief demanded, the subject of the action is the matter or thing
with respect to which the controversy has arisen, concerning
which the wrong has been done, and this ordinarily is the
property, or the contract and its subject matter, or the thing in
dispute.
The argument is well taken. We note with approval the
difference between the subject of the action from the cause of
action. We also find petitioners definition of the phrase subject
matter of the action is consistent with the term subject matter
of the litigation, as the latter is used in the Bank Deposits
Secrecy Act.
In Mellon Bank, N.A. vs. Magsino,[7] where the petitioner
bank inadvertently caused the transfer of the amount of
US$1,000,000.00 instead of only US$1,000.00, the Court
sanctioned the examination of the bank accounts where part of
the money was subsequently caused to be deposited:
Section 2 of [Republic Act No. 1405] allows the disclosure of
bank deposits in cases where the money deposited is the
subject matter of the litigation. Inasmuch as Civil Case No.
26899 is aimed at recovering the amount converted by the
Javiers for their own benefit, necessarily, an inquiry into the
wherabouts of the illegally acquired amount extends to
whatever is concealed by being held or recorded in the name of
persons other than the one responsible for the illegal
acquisition.
Clearly, Mellon Bank involved a case where the money
deposited was the subject matter of the litigation since the
money so deposited was the very thing in dispute. This,
however, is not the case here.
Petitioners theory is that private respondent Allied Bank
should have informed petitioner of the under-encoding pursuant
to the provisions of Section 25.3.1 of the PCHC Handbook, which
states:
25.3.1. The Receiving Bank should inform the erring Bank about
the under-encoding of amount not later than 10:00 A.M. of the
following clearing day.
Failing in that duty, petitioner holds private
respondent directly liable for the P999,000.00 and other

damages. It does not appear that petitioner is seeking
reimbursement from the account of the drawer. This much is
evident in petitioners complaint before the Arbicom.
xxx plaintiffs cause of action against defendant arose from
defendants deliberate violation of the provisions of the PCHC
Rule Book, Sec. 25.3, specifically on Under-Encoding of check
amounting to P1,000,000.00 drawn upon defendants Tondo
Branch which was deposited with plaintiff herein sometime on
May 20, 1990. From the check amount of P1,000,000.00, it was
instead erroneously encoded at P1,000.00 which defendant as
the receiving bank thereof, never called nor notified the plaintiff
of the error committed thus causing actual losses to plaintiff in
the principal amount of P999,000.00 exclusive of opportunity
losses and interest thereon whatsoever. xxx[8]
Petitioner even requested private respondents Branch Manager
for reimbursement from private respondents account through
the automatic debiting system.
2.7. On May 6, 1991, plaintiffs Senior Vice-President, Ms.
ERLINDA V. VALENTON wrote defendants Tondo Branch Manager,
Mr. RODOLFO JOSE on the incident and requested assistance in
facilitating correction of the erroneous coding with request for
reimbursement thru the industrys automatic debiting of
defendants account.[9]
Further, petitioner rejected private respondents proposal that
the drawer issue postdated checks in favor of petitioner since
the identity and credit standing of the depositor were unknown
to petitioner.
2.9. On May 23, 1991, defendants Branch Manager, the same
Mr. Rodolfo Jose wrote plaintiffs Ms. Erlinda Valenton again
insisting on the execution of the Quitclaim and Release in favor
of defendant as the Branch has endeavored to negotiate with its
client for the collection of such amount. Upon a reading of the
terms of the Quitclaim and Release being proposed by
defendant, the unmistakable fact lies that again defendant
attempts for the second time to take advantage of plaintiffs
plight by indicating that the terms of the payment of the
principal amount of P999,000.00 is by way of several personal
postdated checks up to March 21, 1992 from a person whose
identity is not even disclosed to plaintiff.
To an ordinary person aggrieved already by having been taken
advantage of for 620 days more or less, the proposal of
defendant could not be acceptable for the reason that aside
from the interest lost already for the use of its money by
another party, no assurance is made as to the actual collection
thereof from a party whose credit standing, the recipient is not
at all aware of.[10]
Petitioner also believed that it had no privity with the depositor:
2.12. Plaintiff then replied to defendants letter by requesting
that in lieu of the post-dated checks from defendants client with
whom plaintiff has no privity whatsoever, if the defendant could
tender the full payment of the amount of P999,000.00 in
defendants own Managers check and that plaintiff is willing to
forego its further claims for interest and losses for a period of
620 days, more or less.[11]
The following argument adduced by petitioner in the
Arbicom case leaves no doubt that petitioner is holding private
respondent itself liable for the discrepancy:
Defendant by its acceptance thru the clearing exchange of the
check deposit from its client cannot be said to be free from any
liability for the unpaid portion of the check amount considering
that defendant as the drawee bank, is remiss in its duty of
verifying possible technicalities on the face of the check.
85
Since the provisions of the PCHC Rule Book has so imposed upon
the defendant being the Receiving Bank of a discrepant check
item to give that timely notification and defendant failing to
comply with such requirement, then it can be said that
defendant is guilty of negligence. He who is guilty of negligence
in the performance of its [sic] duty is liable for damages. (Art.
1170, New Civil Code.)
Art. 1172 of the Civil Code provides that:
Responsibility arising from negligence in the performance of
every kind of obligation is also demandable, but such liability
may be regulated by the courts, according to the circumstances.
[][12]
Petitioner points to its prayer in its complaint to show that
it sought reimbursement from the drawers account. The prayer,
however, does not specifically state that it was seeking recovery
of the amount from the depositors account. Petitioner merely
asked that judgment be rendered in favor of plaintiff against
defendant sentencing it to pay plaintiff: 1. The sum of NINE
HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00).[13]
On the other hand, the petition before this court reveals
that the true purpose for the examination is to aid petitioner in
proving the extent of Allied Banks liability:
Hence, the amount actually debited from the subject account
becomes very material and germane to petitioners claim for
reimbursement as it is only upon examination of subject account
can it be proved that indeed a discrepancy in the amount
credited to petitioner was committed, thereby, rendering
respondent Allied Bank liable to petitioner for the deficiency. The
money deposited in aforesaid account is undeniably the subject
matter of the litigation since the issue in the Arbicom case is
whether respondent Bank should be held liable to petitioner for
reimbursement of the amount of money constituting the
difference between the amount of the check and the amount
credited to petitioner, that is, P999,000.00, which has remained
deposited in aforesaid account.
On top of the allegations in the complaint, which can be verified
only by examining the subject bank account, the defense of
respondent Allied Bank that the reimbursement cannot be made
since clients account is not sufficiently funded at the time
petitioner sent its Charge Slip, bolsters petitioners contention
that the money in subject account is the very subject matter of
the pending Arbicom case.
Indeed, to prove the allegations in its Complaint before the
PCHC Arbitration Committee, and to rebut private respondents
defense on the matter, petitioner needs to determine:
1. how long respondent Allied Bank had willfully or negligently
allowed the difference of P999,000.00 to be maintained in the
subject account without remitting the same to petitioner;
2. whether indeed the subject account was no longer sufficiently
funded when petitioner sent its charge slip for reimbursement to
respondent bank on May 7, 1991; and
3. whether or not respondent Allied Banks actuations in refusing
to immediately reimburse the discrepancy was attended by
good or bad faith.
In other words, only a disclosure of the pertinent details and
information relating to the transactions involving subject
account will enable petitioner to prove its allegations in the
pending Arbicom case. xxx[14]
In short, petitioner is fishing for information so it can
determine the culpability of private respondent and the amount
of damages it can recover from the latter. It does not seek
 86
recovery of the very money contained in the deposit. The denied in the second assailed order dated July
subject matter of the dispute may be the amount of 20, 1994 (Emphasis and words in bracket added).
P999,000.00 that petitioner seeks from private respondent as a
result of the latters alleged failure to inform the former of the
discrepancy; but it is not the P999,000.00 deposited in the From the order denying its motion to discharge attachment by
drawers account. By the terms of R.A. No. 1405, the money counter-bond, petitioner went to the Court of Appeals on a
deposited itself should be the subject matter of the litigation. petition for certiorari thereat docketed as CA-G.R. SP No. 34876,
ascribing on the trial court the commission of grave abuse of
discretion amounting to lack of jurisdiction.
That petitioner feels a need for such information in order to
establish its case against private respondent does not, by itself, While acknowledging that [R]espondent Judge may have erred
warrant the examination of the bank deposits. The necessity of in his Order of June 13, 1994 that the counter-bond should be in
the inquiry, or the lack thereof, is immaterial since the case the amount of P27,237,700.00, in that he erroneously factored
does not come under any of the exceptions allowed by the Bank in, in arriving at such amount, unliquidated claim items, such as
Deposits Secrecy Act. actual and exemplary damages, legal interest, attorneys fees
and expenses of litigation, the CA, in the herein
assailed decision dated October 9, 1995, nonetheless denied
WHEREFORE, the petition is DENIED. due course to and dismissed the petition. For, according to the
appellate court, the RTCs order may be defended by, among
others, the provision of Section 12 of Rule 57 of the Rules of
SO ORDERED. G.R. NO. 123638 June 15, 2005
Court, infra. The CA added that, assuming that the RTC erred on
THIRD DIVISION
the matter of computing the amount of the discharging counter-
INSULAR SAVINGS BANK,Petitioner,- versus -COURT OF
bond, its error does not amount to grave abuse of discretion.
APPEALS, JUDGE OMAR U. AMIN, in his capacity as
Presiding Judge of Branch 135 of the Regional Trial Court
With its motion for reconsideration having been similarly denied,
of Makati, and FAR EAST BANK AND TRUST COMPANY,
petitioner is now with us, faulting the appellate court, as follows:
Respondents.
I. THE COURT OF APPEALS ERRED IN NOT RULING THAT
THE PRINCIPAL AMOUNT CLAIMED BY
RESPONDENT BANK SHOULD BE THE BASIS
GARCIA, J.:
FOR COMPUTING THE AMOUNT OF THE
COUNTER-BOND, FOR THE PRELIMINARY
Thru this appeal via a petition for review on certiorari under Rule
ATTACHMENT WAS ISSUED FOR THE SAID
45 of the Rules of Court, petitioner Insular Savings
AMOUNT ONLY.
Bank seeks to set aside the decision[1] dated October 9,
1995 of the Court of Appeals in CA-G.R. SP No. 34876 and
II. THE COURT OF APPEALS ERRED IN NOT RULING THAT
its resolution dated January 24, 1996, [2] denying petitioners
THE ARGUMENT THAT THE AMOUNT OF THE
motion for reconsideration.
COUNTER-BOND SHOULD BE BASED ON THE
VALUE OF THE PROPERTY ATTACHED CANNOT
The assailed decision of October 9, 1995 cleared the Regional
BE RAISED FOR THE FIRST TIME IN THE COURT
Trial Court (RTC) at Makati, Branch 135, of committing, as
OF APPEALS.
petitioner alleged, grave abuse of discretion in denying
petitioners motion to discharge attachment by counter-bond in
III. THE COURT OF APPEALS ERRED IN RULING THAT THE
Civil Case No. 92-145, while the equally assailed resolution of
AMOUNT OF THE COUNTER-BOND SHOULD BE
January 24, 1996 denied petitioners motion for reconsideration.
BASED ON THE VALUE OF THE PROPERTY
ATTACHED EVEN IF IT WILL RESULT IN MAKING
The undisputed facts are summarized in the appellate courts
THE AMOUNT OF THE COUNTER-BOND EXCEED
decision[3] under review, as follows:
THE AMOUNT FOR WHICH PRELIMINARY
ATTACHMENT WAS ISSUED.
On December 11, 1991, respondent Bank [Far East
Bank and Trust Company] instituted Arbitration Case
Simply put, the issue is whether or not the CA erred in not ruling
No. 91-069 against petitioner [Insular Savings Bank]
that the trial court committed grave abuse of discretion in
before the Arbitration Committee of the Philippine
denying petitioners motion to discharge attachment by counter-
Clearing House Corporation [PCHC]. The dispute
bond in the amount of P12,600,000.00.
between the parties involved three [unfunded] checks
with a total value of P25,200,000.00. The checks were
Says the trial court in its Order of June 13, 1994:
drawn against respondent Bank and were presented by
xxx (T)he counter-bond posted by [petitioner] Insular
petitioner for clearing. As respondent Bank returned
Savings Bank should include the unsecured portion of
the checks beyond the reglementary period, [but after
[respondents] claim of P12,600,000.00 as agreed by
petitioners account with PCHC was credited with the
means of arbitration between [respondent] and
amount of P25,200,000.00] petitioner refused to refund
[petitioner]; Actual damages at 25% percent per
the money to respondent Bank. While the dispute was
annum of unsecured amount of claim from October 21,
pending arbitration, on January 17, 1992, respondent
1991 in the amount of P7,827,500.00; Legal interest of
Bank instituted Civil Case No. 92-145 in the Regional
12% percent per annum from October 21, 1991 in the
Trial Court of Makati and prayed for the issuance of a
amount of P3,805,200.00; Exemplary damages in the
writ of preliminary attachment. On January 22, 1992,
amount of P2,000,000.00; and attorneys fees and
Branch 133 of the Regional Trial Court of Makati issued
expenses of litigation in the amount of P1,000,000.00
an Order granting the application for preliminary
with a total amount of P27,237,700.00 (Adlawan vs.
attachment upon posting by respondent Bank of an
Tomol, 184 SCRA 31 (1990).
attachment bond in the amount of P6,000,000.00.
On January 27, 1992, Branch 133 of the Regional Trial
Court of Makati issued a writ of preliminary attachment
Petitioner, on the other hand, argues that the starting point in
for the amount of P25,200,000.00. During the hearing
computing the amount of counter-bond is the amount of the
on February 11, 1992 before the Arbitration Committee
respondents demand or claim only, in this case P25,200,000.00,
of the Philippine Clearing House Corporation, petitioner
excluding contingent expenses and unliquidated amount of
and respondent Bank agreed to temporarily divide
damages. And since there was a mutual agreement between the
between them the disputed amount of P25,200,000.00
parties to temporarily, but equally, divide between themselves
while the dispute has not yet been resolved. As a
the said amount pending and subject to the final outcome of the
result, the sum of P12,600,000.00 is in the possession
arbitration, the amount of P12,600,000.00 should, so petitioner
of respondent Bank. On March 9, 1994, petitioner filed
argues, be the basis for computing the amount of the counter-
a motion to discharge attachment by counter-bond in
bond.
the amount of P12,600,000.00. On June 13, 1994,
respondent Judge issued the first assailed order
The Court rules for the petitioner.
denying the motion. On June 27, 1994, petitioner
filed a motion for reconsideration which was

The then pertinent provision of Rule 57 (Preliminary Attachment)
of the Rules of Court under which the appellate court issued its
assailed decision and resolution, provides as follows:
SEC. 12. Discharge of attachment upon giving counter-
bond. At any time after an order of attachment has
been granted, the party whose property has been
attached, . . . may upon reasonable notice to the
applicant, apply to the judge who granted the order or
to the judge of the court which the action is pending,
for an order discharging the attachment wholly or in
part on the security given. The judge shall, after
hearing, order the discharge of the attachment if a
cash deposit is made, or a counter-bond executed to
the attaching creditor is filed, on behalf of the adverse
party, with the clerk or judge of the court where the
application is made in an amount equal to the
value of the property attached as determined by
the judge, to secure the payment of any
judgment that the attaching creditor may
recover in the action. x x x . Should such counter-
bond for any reason be found to be, or become
insufficient, and the party furnishing the same fail to
file an additional counter-bond, the attaching party
may apply for a new order of attachment 4 (Emphasis
supplied).[4]
As may be noted, the amount of the counter-attachment bond
is, under the terms of the aforequoted Section 12, to be
measured against the value of the attached property, as
determined by the judge to secure the payment of any
judgment that the attaching creditor may recover in the action.
Albeit not explicitly stated in the same section and without
necessarily diminishing the sound discretion of the issuing judge
on matters of bond approval, there can be no serious objection,
in turn, to the proposition that the attached property - and
logically the counter-bond necessary to discharge the lien on
such property - should as much as possible correspond in value
to, or approximately match the attaching creditors principal
claim. Else, excessive attachment, which ought to be avoided at
all times, shall ensue. As we held in Asuncion vs. Court of
Appeals:[5]
We, however, find the counter-attachment bond in the
amount of P301,935.41 required of the private
respondent by the trial court as rather excessive under
the circumstances. Considering that the principal
amounts claimed by the petitioner . . . total only
P185,685.00, and that he had posted a bond of only
P80,000.00 for the issuance of the writ of preliminary
attachment, we deem it reasonable to lower the
amount of the counter-attachment bond to be posted
by the private respondent . . . to the sum of
P185,685.00.
The following excerpts from Herrera, REMEDIAL LAW, Vol. VII,
1997 ed., p. 61, citing retired Justice Jose Y. Feria, drive home
the same point articulated in Asuncion:
The sheriff is required to attach only so much
of the property of the party against whom the order is
issued as may be sufficient to satisfy the applicants
demand, the amount of which is stated in the
order, unless a deposit is made or a counter-bond
is given equal to said amount. However, if the value
of the property to be attached is less than the amount
of the demand, the amount of the applicants bond may
be equal to the value of said property, and the
amount of the adverse partys deposit or counter-
bond may be equal to the applicants bond. The
writ of preliminary attachment is issued upon approval
of the requisite bond. (Emphasis supplied).
Turning to the case at bar, the records show that the principal
claim of respondent, as plaintiff a quo, is in the amount
of P25,200,000.00,[6] representing the three (3) unfunded checks
drawn against, and presented for clearing to, respondent bank.
Jurisprudence teaches that a writ of attachment cannot be
issued for moral and exemplary damages, and other
unliquidated or contingent claim.[7]
The order of attachment dated January 22, 1992 fixed the bond
to be posted by respondent, as applicant, at P6,000,000.00. The
87
writ of attachment issued on January 27, 1992, in turn, expressly
indicated that petitioner is justly indebted to respondent in the
amount of P25,200,000.00.[8] On February 11, 1992, before the
Arbitration Committee of the Philippine Clearing House
Corporation, petitioner and respondent, however, agreed to
equally divide between themselves, albeit on a temporary basis,
the disputed amount of P25,200,000.00, subject to the outcome
of the arbitration proceedings. Thus, the release by petitioner of
the amount of P12,600,000.00 to respondent. On March 7, 1994,
petitioner filed a motion to discharge attachment by counter-
bond in the amount of P12,600,000.00[9] which, to petitioner, is
the extent that respondent may actually be prejudiced in the
event its basic complaint for recovery of money against
petitioner prospers.
As things stood, therefore, respondents principal claim against
petitioner immediately prior to the filing of the motion to
discharge attachment has effectively been pruned down
to P12,600,000.00. The trial court was fully aware of this reality.
Accordingly, it should have allowed a total discharge of the
attachment on a counter-bond based on the reduced claim of
respondent. If a portion of the claim is already secured, we see
no justifiable reason why such portion should still be subject of
counter-bond. It may be that a counter-bond is intended to
secure the payment of any judgment that the attaching party
may recover in the main action. Simple common sense, if not
consideration of fair play, however, dictates that a part of a
possible judgment that has veritably been preemptively
satisfied or secured need not be covered by the counter-bond.
With the view we take of this case, the trial court, in
requiring petitioner to post a counter-bond in the amount
of P27,237,700.00,
obviously glossed over one certain fundamental. We refer to the
fact that the attachment respondent applied for and the
corresponding writ issued was only for the amount of P25.2
Million. Respondent, it bears to stress, did not pray for
attachment on its other claims, contingent and unliquidated as
they were. Then, too, the attaching writ rightly excluded such
claims. While the records do not indicate, let alone provide a
clear answer as to the actual value of the property levied upon,
it may reasonably be assumed that it is equal to respondents
principal claim. Be that as it may, it was simply unjust for the
trial court to base the amount of the counter-bond on a figure
beyond the P25,200,000.00 threshold, as later reduced
to P12,600,200.00.
The trial court, therefore, committed grave abuse of discretion
when it denied petitioners motion to discharge attachment by
counter-bond in the amount of P12,600,000.00, an amount more
than double the attachment bond required of, and given by,
respondent. As a necessary consequence, the Court of Appeals
committed reversible error when it dismissed petitioners
recourse thereto in CA-G.R. SP No. 34876.
It bears to stress, as a final consideration, that the certiorari
proceedings before the appellate court and the denial of the
motion to discharge attachment subject of such proceedings,
transpired under the old rules on preliminary attachment which
has since been revised.[10] And unlike the former Section 12 of
Rule 57 of the Rules of Court where the value of the property
attached shall be the defining measure in the computation of
the discharging counter-attachment bond, the present less
stringent Section 12 of Rule 57 provides that the court shall
order the discharge of attachment if the movant makes a cash
deposit, or files a counter-bond . . . in an amount equal to that
fixed by the court in the order of attachment, exclusive of costs.
Not being in the nature of a penal statute, the Rules of Court
cannot be given retroactive effect.[11]
This disposition should be taken in the light of then Section 12,
Rule 57 of the Rules of Court.
WHEREFORE, the instant petition is GRANTED. Accordingly,
the assailed decision and resolution of the Courts of Appeals are
hereby REVERSED and SET ASIDE, along with the orders
dated June 13, 1994 and July 20, 1994 of the Regional Trial Court
at Makati, Branch 135, in Civil Case No. 92-145insofar they
denied petitioners motion to discharge attachment by counter-
bond in the amount of P12,600,000.00, and a new one
entered GRANTING such motion upon the reposting of the
same counter-bond.
SO ORDERED.

FIRST DIVISION June 22, 2006 G.R. No. 141818
INSULAR SAVINGS BANK, Petitioner,- versus - FAR EAST
BANK ANDTRUST COMPANY, Respondent.
YNARES-SANTIAGO, J.:
This petition for review on certiorari [1] assails the November 9,
1999 Order[2] of the Regional Trial Court of Makati City, Branch
135, in Civil Case No. 92-145 which dismissed the petition for
review for lack of jurisdiction and its February 1, 2000
Order[3] denying reconsideration thereof.
The antecedent facts are as follows:
On December 11, 1991, Far East Bank and Trust Company
(Respondent) filed a complaint against Home Bankers Trust and
Company (HBTC)[4] with the Philippine Clearing House
Corporations (PCHC) Arbitration Committee docketed as
Arbicom Case No. 91-069.[5] Respondent sought to recover from
the petitioner, the sum of P25,200,000.00 representing the total
amount of the three checks drawn and debited against its
clearing account.HBTC sent these checks to respondent for
clearing by operation of the PCHC clearing system. Thereafter,
respondent dishonored the checks for insufficiency of funds and
returned the checks to HBTC. However, the latter refused to
accept them since the checks were returned by respondent after
the reglementary regional clearing period.[6]
Meanwhile, on January 17, 1992, before the termination
of the arbitration proceedings, respondent filed another
complaint but this time with the Regional Trial Court (RTC)
in Makati City docketed as Civil Case No. 92-145 for Sum of
Money and Damages with Preliminary Attachment. The
complaint was filed not only against HBTC but also against
Robert Young, Eugene Arriesgado and Victor Tancuan
(collectively known as Defendants), who were the president and
depositors of HBTC respectively. [7] Aware of the arbitration
proceedings between respondent and petitioner, the RTC, in an
Omnibus Order dated April 30, 1992,[8] suspended the
proceedings in the case against all the defendants pending the
decision of the Arbitration Committee, to wit:
WHEREFORE, the Court hereby orders:
(a) Home Bankers & Trust Co. to produce and
permit plaintiff to inspect, copy and/or photograph the
checking account deposit ledger of Victor Tancuans
Account No. 1803-00605-3;
(b) The Motions to Dismiss filed by all
defendants denied, for lack of merit; and
(c) Proceedings in this case against all
defendants be suspended pending
award/decision in the arbitration proceedings
against Home Bankers and Trust Co.
88
SO ORDERED.[9] (Emphasis supplied)
The above Omnibus Order was amended by the trial
court in its October 1, 1992 Order,[10] the dispositive portion of
which reads as follows:
WHEREFORE, the Omnibus Order dated 30
April 1992 is hereby reconsidered by deleting the
phrase since the complaint also seeks exemplary
damages, attorneys fees, litigation expenses and costs
of suit against HBT, on page 4 thereof and par. C of its
dispositive portion is amended to read:
(c) Procedings against Home Bankers and
Trust Co. are suspended pending award/decision in the
arbitration proceedings while those against individual
defendants be immediately reinstated and continued.
HBT and Tancuans separate Motions for
Reconsiderations are hereby denied, for lack of merit.
SO ORDERED.[11]
On February 2, 1998, the PCHC Arbitration Committee rendered
its decision in favor of respondent,[12] thus:
IN VIEW OF ALL THE FOREGOING, judgment is hereby
rendered in favor of the plaintiff and against the
defendant sentencing the latter to pay the plaintiff the
sum of P25.2 million as principal. In view of the fact,
however, that this amount was split between the
plaintiff and the defendant in the course of the
proceedings, the amount to be paid by the defendant
to the plaintiff should only be P12,600,000.00 plus
interest on this latter amount at the rate of 12% per
annum from February 11, 1992, the date when the total
amount of P25.2 Million was split between plaintiff and
defendant up to the date of payment.
In view of the facts found by the committee, no
attorneys fees nor other damages are awarded.
SO ORDERED.[13]
The motion for reconsideration filed by petitioner was denied by
the Arbitration Committee.[14] Consequently, to appeal the
decision of the Arbitration Committee in Arbicom Case No. 91-
069, petitioner filed a petition for review in the earlier case
filed by respondent in Branch 135 of the RTC
of Makati and docketed as Civil Case No. 92-145.[15] In an

order dated January 20, 1999, the RTC directed both petitioner
and respondent to file their respective memoranda, after which,
said petition would be deemed submitted for resolution. [16]
Both parties filed several pleadings. On February 8, 1999,
respondent filed a Motion to Dismiss Petition for Review for Lack
of Jurisdiction,[17] which was opposed by the petitioner.
[18]
Respondent then filed its Reply to the opposition, [19] to which
petitioner filed a Rejoinder.[20] On August 16, 1999, respondent
submitted its Surrejoinder.[21]
On November 9, 1999, the RTC rendered the assailed Order
which held, thus:
Acting on plaintiff Far East Bank and Trust Companys
Motion To Dismiss Petition For Review For Lack Of
Jurisdiction, considering that the petition for review is a
separate and distinct case, the same must comply with
all the requirements for filing initiatory pleadings for
civil actions before this Court so that since the
commencement of the subject petition lacks the
mandatory requirements provided for, except the
payment of docket fees, for lack of jurisdiction, the
petition for review is hereby dismissed.
SO ORDERED.[22]
The RTC denied petitioners motion for reconsideration, [23] hence,
this petition on the sole ground, to wit:
THE REGIONAL TRIAL COURT ERRED IN DISMISSING THE
PETITION OF PETITIONER FOR LACK OF JURISDICTION
ON THE GROUND THAT IT SHOULD HAVE BEEN
DOCKETED AS A SEPARATE CASE.[24]
Petitioner contends that Civil Case No. 92-145 was merely
suspended to await the outcome of the arbitration case pending
before the PCHC. Thus, any petition questioning the decision of
the Arbitration Committee must be filed in Civil Case No. 92-145
and should not be docketed as a separate action. Likewise,
petitioner avers that had it filed a separate action, this would
have resulted in a multiplicity of suits, which is abhorred in
procedure.
Meanwhile respondent avers that the RTC correctly
dismissed the appeal from the award of private arbitrators since
there is no statutory basis for such appeal. Respondent argues
that petitioners claim that the parties by agreement had
conferred on the RTC appellate jurisdiction over decisions of
private arbitrators is erroneous because they cannot confer a
non-existent jurisdiction on the RTC or any court. Furthermore,
the petition for review filed by petitioner violated the rule on
commencing an original action under Section 5, Rule 1, and the
raffle of cases under Section 2, Rule 20 of the Rules of Court,
when it filed the same in Branch 135 of the RTC of Makati where
89
there was already a pending original action, i.e., Civil Case No.
92-145.
The petition lacks merit.
The Philippine Clearing House Corporation was created
to facilitate the clearing of checks of member banks. Among
these member banks exists a compromissoire,[25] or an
arbitration agreement embedded in their contract wherein they
consent that any future dispute or controversy between its PCHC
participants involving any check would be submitted to the
Arbitration Committee for arbitration. Petitioner and respondent
are members of PCHC, thus they underwent arbitration
proceedings.
The PCHC has its own Rules of Procedure for Arbitration
(PCHC Rules). However, this is governed by Republic Act No.
876, also known as The Arbitration Law[26] and supplemented by
the Rules of Court.[27] Thus, we first thresh out the remedy of
petition for review availed of by the petitioner to appeal the
order of the Arbitration Committee.
Sections 23, 24 and 29 of The Arbitration Law, and
Section 13 of the PCHC Rules, provide:
SEC. 23. Confirmation of award. At any time within one
month after the award is made, any party to the
controversy which was arbitrated may apply to the
court having jurisdiction, as provided in Section 28, for
an order confirming the award; and thereupon the
court must grant such order unless the award is
vacated, modified or corrected, as prescribed
herein. Notice of such motion must be served upon the
adverse party or his attorney as prescribed by law for the
service of such notice upon an attorney in action in the
same court.
SEC. 24. Grounds for vacating award. In any one of the
following cases, the court must make an order vacating
the award upon the petition of any party to the
controversy when such party proves affirmatively that in
the arbitration proceedings:
(a) The award was procured by corruption, fraud
or other undue means; or
(b) That there was evident partiality or corruption
in the arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct
in refusing to postpone the hearing upon sufficient cause
shown, or in refusing to hear evidence pertinent and
material to the controversy; that one or more of the
arbitrators was disqualified to act as such under section

nine hereof, and willfully refrained from disclosing such
disqualification or of any other misbehavior by which the
rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or
so imperfectly executed them, that a mutual, final and
definite award upon the subject matter submitted to them
was not made.
xxxx
SEC. 25. Grounds for modifying or correcting award. In any
one of the following cases, the court must make an order
modifying or correcting the award, upon the application of
any party to the controversy which was arbitrated:
(a) Where there was an evident miscalculation of
figures, or an evident mistake in the description of any
person, thing or property referred to in the award; or
(b) Where the arbitrators have awarded upon a
matter not submitted to them, not affecting the merits of
the decision upon the matter submitted; or
(c) Where the award is imperfect in a matter of
form not affecting the merits of the controversy, and if it
had been a commissioners report, the defect could have
been amended or disregarded by the court.
The order may modify and correct the award so
as to effect the intent thereof and promote justice between
the parties.
SEC. 29. Appeals. An appeal may be taken from an
order made in a proceeding under this Act, or from
judgment entered upon an award through certiorari
proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such an appeal,
including the judgment thereon shall be governed by the
Rules of Court insofar as they are applicable.
AMENDED ARBITRATION RULES OF PROCEDURE OF PCHC
Sec. 13. The findings of facts of the decision or
award rendered by the Arbitration Committee or by
the sole Arbitrator as the case may be shall be final
and conclusive upon all the parties in said
arbitration dispute. The decision or award of the
Arbitration Committee or of the Sole Arbitrator or of the
Board of Directors, as the case may be, shall
be appealable only on questions of law to any of the
Regional Trial Courts in the National Capital Region
where the Head Office of any of the parties is
located. The appellant shall perfect his appeal by filing a
notice of appeal to the Arbitration Secretariat and filing a
Petition with the Regional Trial Court of the National Capital
Region for the review of the decision or award of the
90
committee or sole arbitrator or of the Board of Directors,
as the case may be, within a non-extendible period of
fifteen (15) days from and after its receipt of the order
denying or granting said motion for reconsideration or new
trial had been filed, within a non-extendible period of
fifteen (15) days from and after its receipt of the order
denying or granting said motion for reconsideration or of
the decision rendered after the new trial if one had been
granted.
x x x x. (Emphasis supplied)
As provided in the PCHC Rules, the findings of facts of
the decision or award rendered by the Arbitration Committee
shall be final and conclusive upon all the parties in said
arbitration dispute.[28] Under Article 2044[29] of the New Civil
Code, the validity of any stipulation on the finality of the
arbitrators award or decision is recognized. However, where the
conditions described in Articles 2038, [30] 2039[31] and
2040[32] applicable to both compromises and arbitrations are
obtaining, the arbitrators award may be annulled or rescinded.
[33]
Consequently, the decision of the Arbitration Committee is
subject to judicial review.
Furthermore, petitioner had several judicial remedies
available at its disposal after the Arbitration Committee denied
its Motion for Reconsideration. It may petition the proper RTC to
issue an order vacating the award on the grounds provided for
under Section 24 of the Arbitration Law.[34] Petitioner likewise has
the option to file a petition for review under Rule 43 of the Rules
of Court with the Court of Appeals on questions of fact, of law, or
mixed questions of fact and law.[35] Lastly, petitioner may file a
petition for certiorari under Rule 65 of the Rules of Court on the
ground that the Arbitrator Committee acted without or in excess
of its jurisdiction or with grave abuse of discretion amounting to
lack or excess of jurisdiction. Since this case involves acts or
omissions of a quasi-judicial agency, the petition should be filed
in and cognizable only by the Court of Appeals. [36]
In this instance, petitioner did not avail of any of the
abovementioned remedies available to it. Instead it filed a
petition for review with the RTC where Civil Case No. 92-145 is
pending pursuant to Section 13 of the PCHC Rules to sustain its
action. Clearly, it erred in the procedure it chose for judicial
review of the arbitral award.
Having established that petitioner failed to avail of the
abovementioned remedies, we now discuss the issue of the
jurisdiction of the trial court with respect to the petition for
review filed by petitioner.
Jurisdiction is the authority to hear and determine a
cause - the right to act in a case. [37] Jurisdiction over the subject
matter is the power to hear and determine the general class to
which the proceedings in question belong. Jurisdiction over the
subject matter is conferred by law and not by the consent or
acquiescence of any or all of the parties or by erroneous belief
of the court that it exists.[38]

In the instant case, petitioner and respondent have
agreed that the PCHC Rules would govern in case of
controversy. However, since the PCHC Rules came about only as
a result of an agreement between and among member banks of
PCHC and not by law, it cannot confer jurisdiction to the
RTC. Thus, the portion of the PCHC Rules granting jurisdiction to
the RTC to review arbitral awards, only on questions of law,
cannot be given effect.
Consequently, the proper recourse of petitioner from
the denial of its motion for reconsideration by the Arbitration
Committee is to file either a motion to vacate the arbitral award
with the RTC, a petition for review with the Court of Appeals
under Rule 43 of the Rules of Court, or a petition for certiorari
under Rule 65 of the Rules of Court. In the case at bar, petitioner
filed a petition for review with the RTC when the same should
have been filed with the Court of Appeals under Rule 43 of the
Rules of Court. Thus, the RTC of Makati did not err in dismissing
the petition for review for lack of jurisdiction but not on the
ground that petitioner should have filed a separate case from
Civil Case No. 92-145 but on the necessity of filing the correct
petition in the proper court. It is immaterial whether petitioner
filed the petition for review in Civil Case No. 92-145 as an appeal
of the arbitral award or whether it filed a separate case in the
RTC, considering that the RTC will only have jurisdiction over an
arbitral award in cases of motions to vacate the
same. Otherwise, as elucidated herein, the Court of Appeals
retains jurisdiction in petitions for review or in petitions for
certiorari. Consequently, petitioners arguments, with respect to
the filing of separate action from Civil Case No. 92-145 resulting
in a multiplicity of suits, cannot be given due course.
Alternative dispute resolution methods or ADRs like
arbitration, mediation, negotiation and conciliation are
encouraged by the Supreme Court. By enabling parties to
resolve their disputes amicably, they provide solutions that are
less time-consuming, less tedious, less confrontational, and
more productive of goodwill and lasting relationships. [39] It must
be borne in mind that arbitration proceedings are mainly
governed by the Arbitration Law and suppletorily by the Rules of
Court.
WHEREFORE, in light of the foregoing, the petition
is DENIED. The November 9, 1999 Order of the Regional Trial
Court of Makati City, Branch 135, in Civil Case No. 92-145 which
dismissed the petition for review for lack of jurisdiction and the
February 1, 2000 Order denying its reconsideration,
are AFFIRMED.
SO ORDERED.
SECOND DIVISION[G.R. NO. 135362. December 13, 1999]
HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D.
SALAS for herself and as legal guardian of the
minor FABRICE CYRILL D. SALAS, MA. CRISTINA S.
LESACA, and KARINA TERESA D.
SALAS, petitioners, vs. LAPERAL REALTY
CORPORATION, ROCKWAY REAL ESTATE
CORPORATION, SOUTH RIDGE VILLAGE, INC.,
MAHARAMI DEVELOPMENT CORPORATION,
Spouses THELMA D. ABRAJANO and GREGORIO
ABRAJANO, OSCAR DACILLO, Spouses VIRGINIA D.
LAVA and RODEL LAVA, EDUARDO A. VACUNA,
FLORANTE DE LA CRUZ, JESUS VICENTE B.
91
CAPELLAN, and the REGISTER OF DEEDS FOR LIPA
CITY, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the
Order[1] of Branch 85 of the Regional Trial Court of Lipa
City[2] dismissing petitioners complaint[3] for rescission of several
sale transactions involving land owned by Augusto L. Salas, Jr.,
their predecessor-in-interest, on the ground that they failed to
first resort to arbitration.
Salas, Jr. was the registered owner of a vast tract of land in
Lipa City, Batangas spanning 1,484,354 square meters.
On May 15, 1987, he entered into an Owner-Contractor
Agreement[4] (hereinafter referred to as the Agreement) with
respondent Laperal Realty Corporation (hereinafter referred to
as Laperal Realty) to render and provide complete (horizontal)
construction services on his land.
On September 23, 1988, Salas, Jr. executed a Special
Power of Attorney in favor of respondent Laperal Realty to
exercise general control, supervision and management of the
sale of his land, for cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the morning for
a business trip to Nueva Ecija. He never returned.
On August 6, 1996, Teresita Diaz Salas filed with the
Regional Trial Court of Makati City a verified petition for the
declaration of presumptive death of her husband, Salas, Jr., who
had then been missing for more than seven (7) years. It was
granted on December 12, 1996.[5]
Meantime, respondent Laperal Realty subdivided the land
of Salas, Jr. and sold subdivided portions thereof to respondents
Rockway Real Estate Corporation and South Ridge Village, Inc.
on February 22, 1990; to respondent spouses Abrajano and Lava
and Oscar Dacillo on June 27, 1991; and to respondents Eduardo
Vacuna, Florante de la Cruz and Jesus Vicente Capalan on June
4, 1996 (all of whom are hereinafter referred to as respondent
lot buyers).
On February 3, 1998, petitioners as heirs of Salas, Jr. filed
in the Regional Trial Court of Lipa City a Complaint [6] for
declaration of nullity of sale, reconveyance, cancellation of
contract, accounting and damages against herein respondents
which was docketed as Civil Case No. 98-0047.
On April 24, 1998, respondent Laperal Realty filed a Motion
to Dismiss[7]on the ground that petitioners failed to submit their
grievance to arbitration as required under Article VI of the
Agreement which provides:
ARTICLE VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNERS
representative shall be referred to the committee represented
by:
a. One representative of the OWNER;
b. One representative of the CONTRACTOR;
c. One representative acceptable to both OWNER and
CONTRACTOR.[8]
On May 5, 1998, respondent spouses Abrajano and Lava
and respondent Dacillo filed a Joint Answer with Counterclaim
and Crossclaim[9] praying for dismissal of petitioners Complaint
for the same reason.

On August 9, 1998, the trial court issued the herein
assailed Order dismissing petitioners Complaint for non-
compliance with the foregoing arbitration clause.
Hence this petition.
Petitioners argue, thus:
The petitioners causes of action did not emanate from the
Owner-Contractor Agreement.
The petitioners causes of action for cancellation of contract and
accounting are covered by the exception under the Arbitration
Law.
Failure to arbitrate is not a ground for dismissal. [10]
In a catena of cases [11] inspired by Justice Malcolms
provocative dissent in Vega v. San Carlos Milling Co.[12], this
Court has recognized arbitration agreements as valid, binding,
enforceable and not contrary to public policy so much so that
when there obtains a written provision for arbitration which is
not complied with, the trial court should suspend the
proceedings and order the parties to proceed to arbitration in
accordance with the terms of their agreement[13] Arbitration is
the wave of the future in dispute resolution.[14] To brush aside a
contractual agreement calling for arbitration in case of
disagreement between parties would be a step backward.[15]
Nonetheless, we grant the petition.
A submission to arbitration is a contract. [16] As such, the
Agreement, containing the stipulation on arbitration, binds the
parties thereto, as well as their assigns and heirs. [17] But only
they. Petitioners, as heirs of Salas, Jr., and respondent Laperal
Realty are certainly bound by the Agreement. If respondent
Laperal Realty, had assigned its rights under the Agreement to a
third party, making the former, the assignor, and the latter, the
assignee, such assignee would also be bound by the arbitration
provision since assignment involves such transfer of rights as to
vest in the assignee the power to enforce them to the same
extent as the assignor could have enforced them against the
debtor[18] or in this case, against the heirs of the original party to
the Agreement. However, respondents Rockway Real Estate
Corporation, South Ridge Village, Inc., Maharami Development
Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo,
Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan
are not assignees of the rights of respondent Laperal Realty
under the Agreement to develop Salas, Jr.s land and sell the
same. They are, rather, buyers of the land that respondent
Laperal Realty was given the authority to develop and sell under
the Agreement. As such, they are not assigns contemplated in
Art. 1311 of the New Civil Code which provides that contracts
take effect only between the parties, their assigns and heirs.
Petitioners claim that they suffered lesion of more than
one-fourth (1/4) of the value of Salas, Jr.s land when respondent
Laperal Realty subdivided it and sold portions thereof to
respondent lot buyers. Thus, they instituted action [19]against
both respondent Laperal Realty and respondent lot buyers for
rescission of the sale transactions and reconveyance to them of
the subdivided lots. They argue that rescission, being their
cause of action, falls under the exception clause in Sec. 2 of
Republic Act No. 876 which provides that such submission [to] or
contract [of arbitration] shall be valid, enforceable and
irrevocable, save upon such grounds as exist at law for the
revocation of any contract.
The petitioners contention is without merit. For while
rescission, as a general rule, is an arbitrable issue,
[20]
they impleaded in the suit for rescission the respondent lot
buyers who are neither parties to the Agreement nor the latters
assigns or heirs.Consequently, the right to arbitrate as provided
92
in Article VI of the Agreement was never vested in respondent
lot buyers.
Respondent Laperal Realty, as a contracting party to the
Agreement, has the right to compel petitioners to first arbitrate
before seeking judicial relief. However, to split the proceedings
into arbitration for respondent Laperal Realty and trial for the
respondent lot buyers, or to hold trial in abeyance pending
arbitration between petitioners and respondent Laperal Realty,
would in effect result in multiplicity of suits, duplicitous
procedure and unnecessary delay. On the other hand, it would
be in the interest of justice if the trial court hears the complaint
against all herein respondents and adjudicates petitioners rights
as against theirs in a single and complete proceeding.
WHEREFORE, the instant petition is hereby GRANTED. The
Order dated August 19, 1998 of Branch 85 of the Regional Trial
Court of Lipa City is hereby NULLIFIED and SET ASIDE. Said court
is hereby ordered to proceed with the hearing of Civil Case No.
98-0047.
Costs against private respondents.
SO ORDERED.
THIRD DIVISION[G.R. No. 120105. March 27, 1998]
BF CORPORATION, petitioner, vs. COURT OF APPEALS,
SHANGRI-LA PROPERTIES, COLAYCO, ALFREDO C.
RAMOS, INC., RUFO B.
MAXIMO G. LICAUCO III and BENJAMIN C.
RAMOS, respondents.
ROMERO, J.:
The basic issue in this petition for review on certiorari is
whether or not the contract for the construction of the EDSA
Plaza between petitioner BF Corporation and respondent
Shangri-la Properties, Inc. embodies an arbitration clause in case
of disagreement between the parties in the implementation of
contractual provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI)
entered into an agreement whereby the latter engaged the
former to construct the main structure of the EDSA Plaza Project,
a shopping mall complex in the City of Mandaluyong.
The construction work was in progress when SPI decided to
expand the project by engaging the services of petitioner
again. Thus, the parties entered into an agreement for the main
contract works after which construction work began.
However, petitioner incurred delay in the construction work
that SPI considered as serious and substantial. [1] On the other
hand, according to petitioner, the construction works progressed
in faithful compliance with the First Agreement until a fire broke
out on November 30, 1990 damaging Phase I of the Project.
[2]
Hence, SPI proposed the re-negotiation of the agreement
between them.
Consequently, on May 30, 1991, petitioner and SPI entered
into a written agreement denominated as Agreement for the
Execution of Builders Work for the EDSA Plaza Project. Said
agreement would cover the construction work on said project as
of May 1, 1991 until its eventual completion.
According to SPI, petitioner failed to complete the
construction works and abandoned the project. [3] This resulted in
disagreements between the parties as regards their respective
liabilities under the contract. On July 12, 1993, upon SPIs
initiative, the parties respective representatives met in
conference but they failed to come to an agreement.[4]

Barely two days later or on July 14, 1993, petitioner filed
with the Regional Trial Court of Pasig a complaint for collection
of the balance due under the construction agreement. Named
defendants therein were SPI and members of its board of
directors namely, Alfredo C. Ramos, Rufo B. Colayco, Antonio B.
Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and
Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a
motion to suspend proceedings instead of filing an answer. The
motion was anchored on defendants allegation that the formal
trade contract for the construction of the project provided for a
clause requiring prior resort to arbitration before judicial
intervention could be invoked in any dispute arising from the
contract. The following day, SPI submitted a copy of the
conditions of the contract containing the arbitration clause that
it failed to append to its motion to suspend proceedings.
Petitioner opposed said motion claiming that there was no
formal contract between the parties although they entered into
an agreement defining their rights and obligations in
undertaking the project. It emphasized that the agreement did
not provide for arbitration and therefore the court could not be
deprived of jurisdiction conferred by law by the mere allegation
of the existence of an arbitration clause in the agreement
between the parties.
In reply to said opposition, SPI insisted that there was such
an arbitration clause in the existing contract between petitioner
and SPI. It alleged that suspension of proceedings would not
necessarily deprive the court of its jurisdiction over the case and
that arbitration would expedite rather than delay the settlement
of the parties respective claims against each other.
In a rejoinder to SPIs reply, petitioner reiterated that there
was no arbitration clause in the contract between the parties. It
averred that granting that such a clause indeed formed part of
the contract, suspension of the proceedings was no longer
proper. It added that defendants should be declared in default
for failure to file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of
petitioners admission of the due execution of the Articles of
Agreement. Thus, on page D/6 thereof, the signatures of Rufo B.
Colayco, SPI president, and Bayani Fernando, president of
petitioner appear, while page D/7 shows that the agreement is a
public document duly notarized on November 15, 1991 by
Notary Public Nilberto R. Briones as document No. 345, page 70,
book No. LXX, Series of 1991 of his notarial register.[5]
Thereafter, upon a finding that an arbitration clause indeed
exists, the lower court[6] denied the motion to suspend
proceedings, thus:
It appears from the said document that in the letter-
agreement dated May 30, 1991 (Annex C, Complaint),
plaintiff BF and defendant Shangri-La Properties, Inc.
agreed upon the terms and conditions of the Builders Work
for the EDSA Plaza Project (Phases I, II and Carpark),
subject to the execution by the parties of a formal trade
contract. Defendants have submitted a copy of the alleged
trade contract, which is entitled `Contract Documents For
Builders Work Trade Contractor dated 01 May 1991, page 2
of which is entitled `Contents of Contract Documents with
a list of the documents therein contained, and Section A
thereof consists of the abovementioned Letter-Agreement
dated May 30, 1991. Section C of the said Contract
Documents is entitled `Articles of Agreement and
Conditions of Contract which, per its Index, consists of Part
A (Articles of Agreement) and B (Conditions of
Contract). The said Articles of Agreement appears to have
been duly signed by President Rufo B. Colayco of Shangri-
La Properties, Inc. and President Bayani F. Fernando of BF
and their witnesses, and was thereafter acknowledged
before Notary Public Nilberto R. Briones of Makati, Metro
93
Manila on November 15, 1991. The said Articles of
Agreement also provides that the `Contract Documents'
therein listed `shall be deemed an integral part of this
Agreement, and one of the said documents is the
`Conditions of Contract which contains the Arbitration
Clause relied upon by the defendants in their Motion to
Suspend Proceedings.
This Court notes, however, that the `Conditions of Contract
referred to, contains the following provisions:
`3. Contract Document.
Three copies of the Contract Documents
referred to in the Articles of
Agreement shall be signed by the parties
to the contract and distributed to the
Owner and the Contractor for their safe
keeping. (underscoring supplied)
And it is significant to note further that the said
`Conditions of Contract is not duly signed by the parties on
any page thereof --- although it bears the initials of BFs
representatives (Bayani F. Fernando and Reynaldo M. de la
Cruz) without the initials thereon of any representative of
Shangri-La Properties, Inc.
Considering the insistence of the plaintiff that the said
Conditions of Contract was not duly executed or signed by
the parties, and the failure of the defendants to submit any
signed copy of the said document, this Court entertains
serious doubt whether or not the arbitration clause found
in the said Conditions of Contract is binding upon the
parties to the Articles of Agreement. (Underscoring
supplied.)
The lower court then ruled that, assuming that the
arbitration clause was valid and binding, still, it was too late in
the day for defendants to invoke arbitration. It quoted the
following provision of the arbitration clause:
Notice of the demand for arbitration of a dispute shall be
filed in writing with the other party to the contract and a
copy filed with the Project Manager. The demand for
arbitration shall be made within a reasonable time after
the dispute has arisen and attempts to settle amicably
have failed; in no case, however, shall the demand he
made be later than the time of final payment except as
otherwise expressly stipulated in the contract.
Against the above backdrop, the lower court found that per
the May 30, 1991 agreement, the project was to be completed
by October 31, 1991. Thereafter, the contractor would
pay P80,000 for each day of delay counted from November 1,
1991 with liquified (sic) damages up to a maximum of 5% of the
total contract price.
The lower court also found that after the project was
completed in accordance with the agreement that contained a
provision on progress payment billing, SPI took possession and
started operations thereof by opening the same to the public in
November, 1991. SPI, having failed to pay for the works,
petitioner billed SPI in the total amount of P110,883,101.52,
contained in a demand letter sent by it to SPI on February 17,
1993. Instead of paying the amount demanded, SPI set up its
own claim of P220,000,000.00 and scheduled a conference on
that claim for July 12, 1993. The conference took place but it
proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed Arbitration
Clause invoked by defendants, it is required that `Notice of
the demand for arbitration of a dispute shall be filed in

writing with the other party x x x x in no case x x x x later
than the time of final payment x x x x which apparently,
had elapsed, not only because defendants had taken
possession of the finished works and the plaintiffs billings
for the payment thereof had remained pending since
November, 1991 up to the filing of this case on July 14,
1993, but also for the reason that defendants have failed
to file any written notice of any demand for arbitration
during the said long period of one year and eight months,
this Court finds that it cannot stay the proceedings in this
case as required by Sec. 7 of Republic Act No. 876,
because defendants are in default in proceeding with such
arbitration.
The lower court denied SPIs motion for reconsideration for
lack of merit and directed it and the other defendants to file
their responsive pleading or answer within fifteen (15) days from
notice.
Instead of filing an answer to the complaint, SPI filed a
petition for certiorari under Rule 65 of the Rules of Court before
the Court of Appeals. Said appellate court granted the petition,
annulled and set aside the orders and stayed the proceedings in
the lower court. In so ruling, the Court of Appeals held:
The reasons given by the respondent Court in denying
petitioners motion to suspend proceedings are untenable.
1. The notarized copy of the articles of agreement attached as
Annex A to petitioners reply dated August 26, 1993, has been
submitted by them to the respondent Court (Annex G, petition).
It bears the signature of petitioner Rufo B. Colayco, president of
petitioner Shangri-La Properties, Inc., and of Bayani Fernando,
president of respondent Corporation (Annex G-1, petition). At
page D/4 of said articles of agreement it is expressly provided
that the conditions of contract are `deemed an integral part
thereof (page 188, rollo). And it is at pages D/42 to D/44 of the
conditions of contract that the provisions for arbitration are
found (Annexes G-3 to G-5, petition, pp. 227-229). Clause No. 35
on arbitration specifically provides:
Provided always that in case any dispute or difference shall arise
between the Owner or the Project Manager on his behalf and the
Contractor, either during the progress or after the completion or
abandonment of the Works as to the construction of this
Contract or as to any matter or thing of whatsoever nature
arising thereunder or in connection therewith (including any
matter or being left by this Contract to the discretion of the
Project Manager or the withholding by the Project Manager of
any certificate to which the Contractor may claim to be entitled
or the measurement and valuation mentioned in clause 30 (5)
(a) of these Conditions or the rights and liabilities of the parties
under clauses 25, 26, 32 or 33 of these Conditions), the Owner
and the Contractor hereby agree to exert all efforts to settle
their differences or dispute amicably. Failing these efforts then
such dispute or difference shall be referred to Arbitration in
accordance with the rules and procedures of the Philippine
Arbitration Law.
The fact that said conditions of contract containing the
arbitration clause bear only the initials of respondent
Corporations representatives, Bayani Fernando and Reynaldo de
la Cruz, without that of the representative of petitioner Shangri-
La Properties, Inc. does not militate against its effectivity. Said
petitioner having categorically admitted that the document,
Annex A to its reply dated August 26, 1993 (Annex G, petition),
is the agreement between the parties, the initial or signature of
said petitioners representative to signify conformity to
arbitration is no longer necessary. The parties, therefore, should
be allowed to submit their dispute to arbitration in accordance
with their agreement.
2. The respondent Court held that petitioners `are in default in
proceeding with such arbitration. It took note of `the fact that
under the supposed Arbitration Clause invoked by defendants, it
94
is required that Notice of the demand for arbitration of a dispute
shall be filed in writing with the other party x x x in no case x x x
later than the time of final payment, which apparently, had
elapsed, not only because defendants had taken possession of
the finished works and the plaintiffs billings for the payment
thereof had remained pending since November, 1991 up to the
filing of this case on July 14, 1993, but also for the reason that
defendants have failed to file any written notice of any demand
for arbitration during the said long period of one year and eight
months, x x x.
Respondent Court has overlooked the fact that under the
arbitration clause
Notice of the demand for arbitration dispute shall be filed in
writing with the other party to the contract and a copy filed with
the Project Manager. The demand for arbitration shall be made
within a reasonable time after the dispute has arisen and
attempts to settle amicably had failed; in no case, however,
shall the demand be made later than the time of final payment
except as otherwise expressly stipulated in the contract
(underscoring supplied)
quoted in its order (Annex A, petition). As the respondent Court
there said, after the final demand to pay the amount
of P110,883,101.52, instead of paying, petitioners set up its own
claim against respondent Corporation in the amount
of P220,000,000.00 and set a conference thereon on July 12,
1993. Said conference proved futile. The next day, July 14, 1993,
respondent Corporation filed its complaint against petitioners.
On August 13, 1993, petitioners wrote to respondent
Corporation requesting arbitration. Under the circumstances, it
cannot be said that petitioners resort to arbitration was made
beyond reasonable time. Neither can they be considered in
default of their obligation to respondent Corporation.
Hence, this petition before this Court. Petitioner assigns
the following errors:
A.
THE COURT OF APPEALS ERRED IN ISSUING THE
EXTRAORDINARY WRIT OF CERTIORARIALTHOUGH
THE REMEDY OF APPEAL WAS AVAILABLE TO
RESPONDENTS.
B.
THE COURT OF APPEALS ERRED IN FINDING GRAVE
ABUSE OF DISCRETION IN THE FACTUAL FINDINGS OF
THE TRIAL COURT THAT:
(i) THE PARTIES DID NOT ENTER INTO AN
AGREEMENT TO ARBITRATE.
(ii) ASSUMING THAT THE PARTIES DID ENTER
INTO THE AGREEMENT TO
ARBITRATE, RESPONDENTS ARE
ALREADY IN DEFAULT IN INVOKING
THE AGREEMENT TO ARBITRATE.
On the first assigned error, petitioner contends that the
Order of the lower court denying the motion to suspend
proceedings is a resolution of an incident on the merits. As such,
upon the continuation of the proceedings, the lower court would
appreciate the evidence adduced in their totality and thereafter
render a decision on the merits that may or may not sustain the
existence of an arbitration clause. A decision containing a
finding that the contract has no arbitration clause can then be
elevated to a higher court in an ordinary appeal where an
adequate remedy could be obtained.Hence, to petitioner, the
Court of Appeals should have dismissed the petition
for certiorari because the remedy of appeal would still be
available to private respondents at the proper time. [7]

The above contention is without merit.
The rule that the special civil action of certiorari may not
be invoked as a substitute for the remedy of appeal is succinctly
reiterated in Ongsitco v. Court of Appeals[8] as follows:
x x x. Countless times in the past, this Court has held that
`where appeal is the proper remedy, certiorari will not lie. The
writs of certiorari and prohibition are remedies to correct lack or
excess of jurisdiction or grave abuse of discretion equivalent to
lack of jurisdiction committed by a lower court. `Where the
proper remedy is appeal, the action for certiorari will not be
entertained. x x x. Certiorari is not a remedy for errors of
judgment. Errors of judgment are correctible by appeal, errors of
jurisdiction are reviewable by certiorari.
Rule 65 is very clear. The extraordinary remedies of certiorari,
prohibition and mandamus are available only when `there is no
appeal or any plain, speedy and adequate remedy in the
ordinary course of law x x x. That is why they are referred to as
`extraordinary. x x x.
The Court has likewise ruled that certiorari will not be
issued to cure errors in proceedings or correct erroneous
conclusions of law or fact. As long as a court acts within its
jurisdiction, any alleged errors committed in the exercise of its
jurisdiction will amount to nothing more than errors of judgment
which are reviewable by timely appeal and not by a special civil
action of certiorari.[9]v. Court of Appeals, 327 Phil. 1, 41-42
(1996).9
This is not exactly so in the instant case. While this Court
does not deny the eventual jurisdiction of the lower court over
the controversy, the issue posed basically is whether the lower
court prematurely assumed jurisdiction over it. If the lower court
indeed prematurely assumed jurisdiction over the case, then it
becomes an error of jurisdiction which is a proper subject of a
petition for certiorari before the Court of Appeals. And if the
lower court does not have jurisdiction over the controversy, then
any decision or order it may render may be annulled and set
aside by the appellate court.
However, the question of jurisdiction, which is a question
of law depends on the determination of the existence of the
arbitration clause, which is a question of fact. In the instant
case, the lower court found that there exists an arbitration
clause. However, it ruled that in contemplation of law, said
arbitration clause does not exist.
The issue, therefore, posed before the Court of Appeals in
a petition for certiorari is whether the Arbitration Clause does
not in fact exist. On its face, the question is one of fact which is
not proper in a petition for certiorari.
The Court of Appeals found that an Arbitration Clause does
in fact exist. In resolving said question of fact, the Court of
Appeals interpreted the construction of the subject contract
documents containing the Arbitration Clause in accordance with
Republic Act No. 876 (Arbitration Law) and existing
jurisprudence which will be extensively discussed hereunder. In
effect, the issue posed before the Court of Appeals was likewise
a question of law. Being a question of law, the private
respondents rightfully invoked the special civil action
of certiorari.
It is that mode of appeal taken by private respondents
before the Court of Appeals that is being questioned by the
petitioners before this Court. But at the heart of said issue is the
question of whether there exists an Arbitration Clausebecause if
an Arbitration Clause does not exist, then private respondents
took the wrong mode of appeal before the Court of Appeals.
For this Court to be able to resolve the question of whether
private respondents took the proper mode of appeal, which,
95
incidentally, is a question of law, then it has to answer the core
issue of whether there exists an Arbitration Clause which,
admittedly, is a question of fact.
Moreover, where a rigid application of the rule
that certiorari cannot be a substitute for appeal will result in a
manifest failure or miscarriage of justice, the provisions of the
Rules of Court which are technical rules may be relaxed. [10] As
we shall show hereunder, had the Court of Appeals dismissed
the petition for certiorari, the issue of whether or not an
arbitration clause exists in the contract would not have been
resolved in accordance with evidence extant in the record of the
case. Consequently, this would have resulted in a judicial
rejection of a contractual provision agreed by the parties to the
contract.
In the same vein, this Court holds that the question of the
existence of the arbitration clause in the contract between
petitioner and private respondents is a legal issue that must be
determined in this petition for review on certiorari.
Petitioner, while not denying that there exists an
arbitration clause in the contract in question, asserts that in
contemplation of law there could not have been one considering
the following points. First, the trial court found that the
conditions of contract embodying the arbitration clause is not
duly signed by the parties. Second, private respondents
misrepresented before the Court of Appeals that they produced
in the trial court a notarized duplicate original copy of the
construction agreement because what were submitted were
mere photocopies thereof. The contract(s) introduced in court by
private respondents were therefore of dubious authenticity
because: (a) the Agreement for the Execution of Builders Work
for the EDSA Plaza Project does not contain an arbitration
clause, (b) private respondents surreptitiously attached as
Annexes `G-3 to `G-5 to their petition before the Court of
Appeals but these documents are not parts of the Agreement of
the parties as there was no formal trade contract executed, (c) if
the entire compilation of documents is indeed a formal trade
contract, then it should have been duly notarized, (d) the
certification from the Records Management and Archives Office
dated August 26, 1993 merely states that the notarial record of
Nilberto Briones x x x is available in the files of (said) office
as Notarial Registry Entry only, (e) the same certification attests
that the document entered in the notarial registry pertains to
the Articles of Agreement only without any other accompanying
documents, and therefore, it is not a formal trade contract, and
(f) the compilation submitted by respondents are a mere hodge-
podge of documents and do not constitute a single intelligible
agreement.
In other words, petitioner denies the existence of the
arbitration clause primarily on the ground that the
representatives of the contracting corporations did not sign the
Conditions of Contract that contained the said clause. Its other
contentions, specifically that insinuating fraud as regards the
alleged insertion of the arbitration clause, are questions of fact
that should have been threshed out below.
This Court may as well proceed to determine whether the
arbitration clause does exist in the parties contract.Republic Act
No. 876 provides for the formal requisites of an arbitration
agreement as follows:
Section 4. Form of arbitration agreement. A contract to arbitrate
a controversy thereafter arising between the parties, as well as
a submission to arbitrate an existing controversy, shall be in
writing and subscribed by the party sought to be charged, or by
his lawful agent.
The making of a contract or submission for arbitration described
in section two hereof, providing for arbitration of any
controversy, shall be deemed a consent of the parties of the
province or city where any of the parties resides, to enforce such
contract of submission. (Underscoring supplied.)

The formal requirements of an agreement to arbitrate are
therefore the following: (a) it must be in writing and (b) it must
be subscribed by the parties or their representatives. There is no
denying that the parties entered into a written contract that was
submitted in evidence before the lower court. To subscribe
means to write underneath, as ones name; to sign at the end of
a document.[11] That word may sometimes be construed to mean
to give consent to or to attest.[12]
The Court finds that, upon a scrutiny of the records of this
case, these requisites were complied with in the contract in
question. The Articles of Agreement, which incorporates all the
other contracts and agreements between the parties, was
signed by representatives of both parties and duly
notarized. The failure of the private respondents representative
to initial the `Conditions of Contract would therefor not affect
compliance with the formal requirements for arbitration
agreements because that particular portion of the covenants
between the parties was included by reference in the Articles of
Agreement.
Petitioners contention that there was no arbitration clause
because the contract incorporating said provision is part of a
hodge-podge document, is therefore untenable. A contract need
not be contained in a single writing. It may be collected from
several different writings which do not conflict with each other
and which, when connected, show the parties, subject matter,
terms and consideration, as in contracts entered into by
correspondence.[13] A contract may be encompassed in several
instruments even though every instrument is not signed by the
parties, since it is sufficient if the unsigned instruments are
clearly identified or referred to and made part of the signed
instrument or instruments. Similarly, a written agreement of
which there are two copies, one signed by each of the parties, is
binding on both to the same extent as though there had been
only one copy of the agreement and both had signed it. [14]
The flaw in petitioners contentions therefore lies in its
having segmented the various components of the whole
contract between the parties into several parts. This
notwithstanding, petitioner ironically admits the execution of the
Articles of Agreement. Notably, too, the lower court found that
the said Articles of Agreement also provides that the `Contract
Documents therein listed `shall be deemed an integral part of
this Agreement, and one of the said documents is the
`Conditions of Contract which contains the Arbitration Clause. It
is this Articles of Agreement that was duly signed by Rufo B.
Colayco, president of private respondent SPI, and Bayani F.
Fernando, president of petitioner corporation. The same
agreement was duly subscribed before notary public Nilberto R.
Briones. In other words, the subscription of the principal
agreement effectively covered the other documents
incorporated by reference therein.
This Court likewise does not find that the Court of Appeals
erred in ruling that private respondents were not in default in
invoking the provisions of the arbitration clause which states
that (t)he demand for arbitration shall be made within a
reasonable time after the dispute has arisen and attempts to
settle amicably had failed. Under the factual milieu, private
respondent SPI should have paid its liabilities under the contract
in accordance with its terms. However, misunderstandings
appeared to have cropped up between the parties ostensibly
brought about by either delay in the completion of the
construction work or by force majeure or the fire that partially
gutted the project. The almost two-year delay in paying its
liabilities may not therefore be wholly ascribed to private
respondent SPI.
Besides, private respondent SPIs initiative in calling for a
conference between the parties was a step towards the agreed
resort to arbitration. However, petitioner posthaste filed the
complaint before the lower court. Thus, while private respondent
SPIs request for arbitration on August 13, 1993 might appear an
afterthought as it was made after it had filed the motion to
suspend proceedings, it was because petitioner also appeared to
96
act hastily in order to resolve the controversy through the
courts.
The arbitration clause provides for a reasonable time
within which the parties may avail of the relief under that
clause. Reasonableness is a relative term and the question of
whether the time within which an act has to be done is
reasonable depends on attendant circumstances. [15] This Court
finds that under the circumstances obtaining in this case, a one-
month period from the time the parties held a conference on
July 12, 1993 until private respondent SPI notified petitioner that
it was invoking the arbitration clause, is a reasonable time.
Indeed, petitioner may not be faulted for resorting to the court
to claim what was due it under the contract. However, we find
its denial of the existence of the arbitration clause as an attempt
to cover up its misstep in hurriedly filing the complaint before
the lower court.
In this connection, it bears stressing that the lower court
has not lost its jurisdiction over the case. Section 7 of Republic
Act No. 876 provides that proceedings therein have only been
stayed. After the special proceeding of arbitration [16] has been
pursued and completed, then the lower court may confirm the
award[17] made by the arbitrator.
It should be noted that in this jurisdiction, arbitration has
been held valid and constitutional. Even before the approval on
June 19, 1953 of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration.
[18]
Republic Act No. 876 was adopted to supplement the New
Civil Codes provisions on arbitration.[19] Its potentials as one of
the alternative dispute resolution methods that are now
rightfully vaunted as the wave of the future in international
relations, is recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement
between the parties would therefore be a step backward.
WHEREFORE, the questioned Decision of the Court of
Appeals is hereby AFFIRMED and the petition
for certiorariDENIED. This Decision is immediately
executory. Costs against petitioner.
SO ORDERED.
EN BANCG.R. No. L-27010 April 30, 1969
MARLENE DAUDEN-HERNAEZ, petitioner,
vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of
First Instance of Quezon City, HOLLYWOOD FAR EAST
PRODUCTIONS, INC., and RAMON
VALENZUELA, respondents.
REYES, J.B.L., Acting C.J.:
Petition for a writ of certiorari to set aside certain orders of the
Court of First Instance of Quezon City (Branch IV), in its Civil
Case No. Q-10288, dismissing a complaint for breach of contract
and damages, denying reconsideration, refusing to admit an
amended complaint, and declaring the dismissal final and
unappealable.
The essential facts are the following:
Petitioner Marlene Dauden-Hernaez, a motion picture actress,
had filed a complaint against herein private respondents,
Hollywood Far East Productions, Inc., and its President and
General Manager, Ramon Valenzuela, to recover P14,700.00
representing a balance allegedly due said petitioner for her
services as leading actress in two motion pictures produced by
the company, and to recover damages. Upon motion of
defendants, the respondent court (Judge Walfrido de los Angeles
presiding) ordered the complaint dismissed, mainly because the
"claim of plaintiff was not evidenced by any written document,

either public or private", and the complaint "was defective on its
face" for violating Articles 1356 and 1358 of the Civil, Code of
the Philippines, as well as for containing defective allege,
petitions. Plaintiff sought reconsideration of the dismissal and
for admission of an amended complaint, attached to the motion.
The court denied reconsideration and the leave to amend;
whereupon, a second motion for reconsideration was filed.
Nevertheless, the court also denied it for being pro forma, as its
allegations "are, more or less, the same as the first motion", and
for not being accompanied by an affidavit of merits, and further
declared the dismissal final and unappealable. In view of the
attitude of the Court of First Instance, plaintiff resorted to this
Court.
The answer sets up the defense that "the proposed amended
complaint did not vary in any material respect from the original
complaint except in minor details, and suffers from the same
vital defect of the original complaint", which is the violation of
Article 1356 of the Civil Code, in that the contract sued upon
was not alleged to be in writing; that by Article 1358 the writing
was absolute and indispensable, because the amount involved
exceeds five hundred pesos; and that the second motion for
reconsideration did not interrupt the period for appeal, because
it was not served on three days' notice.
We shall take up first the procedural question. It is a well
established rule in our jurisprudence that when a court sustains
a demurrer or motion to dismiss it is error for the court to
dismiss the complaint without giving the party plaintiff an
opportunity to amend his complaint if he so chooses. 1 Insofar as
the first order of dismissal (Annex D, Petition) did not provide
that the same was without prejudice to amendment of the
complaint, or reserve to the plaintiff the right to amend his
complaint, the said order was erroneous; and this error was
compounded when the motion to accept the amended complaint
was denied in the subsequent order of 3 October 1966 (Annex F,
Petition). Hence, the petitioner-plaintiff was within her rights in
filing her so-called second motion for reconsideration, which was
actually a first motion against the refusal to admit the amended
complaint.
It is contended that the second motion for reconsideration was
merely pro forma and did not suspend the period to appeal from
the first order of dismissal (Annex D) because (1) it merely
reiterated the first motion for reconsideration and (2) it was filed
without giving the counsel for defendant-appellee the 3 days'
notice provided by the rules. This argument is not tenable, for
the reason that the second motion for reconsideration was
addressed to the court' refusal to allow an amendment to the
original complaint, and this was a ground not invoked in the first
motion for reconsideration. Thus, the second motion to
reconsider was really not pro forma, as it was based on a
different ground, even if in its first part it set forth in greater
detail the arguments against the correctness of the first order to
dismiss. And as to the lack of 3 days' notice, the record shows
that appellees had filed their opposition (in detail) to the second
motion to reconsider (Answer, Annex 4); so that even if it were
true that respondents were not given the full 3 days' notice they
were not deprived of any substantial right. Therefore, the claim
that the first order of dismissal had become final and
unappealable must be overruled.
It is well to observe in this regard that since a motion to dismiss
is not a responsive pleading, the plaintiff-petitioner was entitled
as of right to amend the original dismissed complaint. In Paeste
vs. Jaurigue 94 Phil. 179, 181, this Court ruled as follows:
Appellants contend that the lower court erred in not
admitting their amended complaint and in holding that
their action had already prescribed. Appellants are right
on both counts.
Amendments to pleadings are favored and should be
liberally allowed in the furtherance of justice. (Torres vs.
Tomacruz, 49 Phil. 913). Moreover, under section 1 of
Rule 17, Rules of Court, a party may amend his
97
pleading once as a matter of course, that is, without
leave of court, at any time before a responsive pleading
is served. A motion to dismiss is not a "responsive
pleading". (Moran on the Rules of Court, vol. 1, 1952,
ed., p. 376). As plaintiffs amended their complaint
before it was answered, the motion to admit the
amendment should not have been denied. It is true
that the amendment was presented after the original
complaint had been ordered dismissed. But that order
was not yet final for it was still under reconsideration.
The foregoing observations leave this Court free to discuss the
main issue in this petition. Did the court below abuse its
discretion in ruling that a contract for personal services
involving more than P500.00 was either invalid of unenforceable
under the last paragraph of Article 1358 of the Civil Code of the
Philippines?
We hold that there was abuse, since the ruling herein contested
betrays a basic and lamentable misunderstanding of the role of
the written form in contracts, as ordained in the present Civil
Code.
In the matter of formalities, the contractual system of our Civil
Code still follows that of the Spanish Civil Code of 1889 and of
the "Ordenamiento de Alcala" 2 of upholding the spirit and intent
of the parties over formalities: hence, in general, contracts are
valid and binding from their perfection regardless of form
whether they be oral or written. This is plain from Articles 1315
and 1356 of the present Civil Code. Thus, the first cited
provision prescribes:
ART. 1315. Contracts are perfected by mere consent,
and from that moment the parties are bound not only
to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage
and law. (Emphasis supplied)
Concordantly, the first part of Article 1356 of the Code Provides:
ART. 1356. Contracts shall be obligatory in whatever
form they may have been entered into, provided all the
essential requisites for their validity are present....
(Emphasis supplied)
These essential requisites last mentioned are normally (1)
consent (2) proper subject matter, and (3) consideration
or causa for the obligation assumed (Article 1318). 3 So that once
the three elements exist, the contract is generally valid and
obligatory, regardless of the form, oral or written, in which they
are couched.lawphi1.nt
To this general rule, the Code admits exceptions, set forth in the
second portion of Article 1356:
However, when the law requires that a contract be in
some form in order that it may be valid or enforceable,
or that a contract be proved in a certain way, that
requirement is absolute and indispensable....
It is thus seen that to the general rule that the form (oral or
written) is irrelevant to the binding effect inter partes of a
contract that possesses the three validating elements of
consent, subject matter, and causa, Article 1356 of the Code
establishes only two exceptions, to wit:
(a) Contracts for which the law itself requires that they be in
some particular form (writing) in order to make them valid and
enforceable (the so-called solemn contracts). Of these the
typical example is the donation of immovable property that the
law (Article 749) requires to be embodied in a public instrument
in order "that the donation may be valid", i.e., existing or
binding. Other instances are the donation of movables worth

more than P5,000.00 which must be in writing, "otherwise the
donation shall be void" (Article 748); contracts to pay interest on
loans (mutuum) that must be "expressly stipulated in writing"
(Article 1956); and the agreements contemplated by Article
1744, 1773, 1874 and 2134 of the present Civil Code.
(b) Contracts that the law requires to be proved by some writing
(memorandum) of its terms, as in those covered by the old
Statute of Frauds, now Article 1403(2) of the Civil Code. Their
existence not being provable by mere oral testimony (unless
wholly or partly executed), these contracts are exceptional in
requiring a writing embodying the terms thereof for their
enforceability by action in court.
The contract sued upon by petitioner herein (compensation for
services) does not come under either exception. It is true that it
appears included in Article 1358, last clause, providing that "all
other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one." But
Article 1358 nowhere provides that the absence of written form
in this case will make the agreement invalid or unenforceable.
On the contrary, Article 1357 clearly indicates that contracts
covered by Article 1358 are binding and enforceable by action or
suit despite the absence of writing.
ART. 1357. If the law requires a document or other
special form, as in the acts and contracts enumerated
in the following article, the contracting parties may
compel each other to observe that form, once the
contract has been perfected. This right may be
exercised simultaneously with the action the contract.
(Emphasis supplied) .
It thus becomes inevitable to conclude that both the court a
quo as well as the private respondents herein were grossly
mistaken in holding that because petitioner Dauden's contract
for services was not in writing the same could not be sued upon,
or that her complaint should be dismissed for failure to state a
cause of action because it did not plead any written agreement.
The basic error in the court's decision lies in overlooking that in
our contractual system it is not enough that the law should
require that the contract be in writing, as it does in Article 1358.
The law must further prescribe that without the writing the
contract is not valid or not enforceable by action.
WHEREFORE, the order dismissing the complaint is set aside,
and the case is ordered remanded to the court of origin for
further proceedings not at variance with this decision.
Costs to be solidarity paid by private respondents Hollywood Far
East Productions, Inc., and Ramon Valenzuela.
SECOND DIVISION G.R. No. 143581 January 7, 2008
KOREA TECHNOLOGIES CO., Petitioner,- versus - HON.
ALBERTO A. LERMA, his capacity as Presiding Judge
of Branch 256 of Regional Trial
Court of Muntinlupa City, andPACIFIC GENERAL STEEL
MANUFACTURINGCORPORATION,Respondents.
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
98
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
99
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
100
dated July 17, 1998 in accordance with Section 8 of Rule 11,
1997 Revised Rules of Civil Procedure, the rule that was
effective at the time the Answer with Counterclaim was
filed. Sec. 8 on existing counterclaim or cross-claim states, A
compulsory counterclaim or a cross-claim that a defending party
has at the time he files his answer shall be contained therein.
On July 17, 1998, at the time PGSMC filed its Answer
incorporating its counterclaims against KOGIES, it was not liable
to pay filing fees for said counterclaims being compulsory in
nature. We stress, however, that effective August 16,
2004 under Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-
SC, docket fees are now required to be paid in compulsory
counterclaim or cross-claims.
As to the failure to submit a certificate of forum
shopping, PGSMCs Answer is not an initiatory pleading which
requires a certification against forum shopping under Sec. 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.
101
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 non-convention award as
a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A
foreign arbitral award when confirmed by a court of a foreign
country, shall be recognized and enforced as a foreign arbitral
award and not as a judgment of a foreign court.
102
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 Koreaby 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.
103
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.
104
Art. 17 J of UNCITRAL Model Law on ICA also grants courts
power and jurisdiction to issue interim measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an interim
measure in relation to arbitration proceedings, irrespective of
whether their place is in the territory of this State, as it has in
relation to proceedings in courts. The court shall exercise such
power in accordance with its own procedures in consideration
of the specific features of international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon
Hydro Corporation, we were explicit that even the pendency
of an arbitral proceeding does not foreclose resort to the
courts for provisional reliefs. We explicated this way:
As a fundamental point, the pendency of arbitral proceedings
does not foreclose resort to the courts for provisional reliefs.
The Rules of the ICC, which governs the parties arbitral
dispute, allows the application of a party to a judicial authority
for interim or conservatory measures. Likewise, Section 14 of
Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes
the rights of any party to petition the court to take measures
to safeguard and/or conserve any matter which is the subject
of the dispute in arbitration. In addition, R.A. 9285, otherwise
known as the Alternative Dispute Resolution Act of 2004,
allows the filing of provisional or interim measures with the
regular courts whenever the arbitral tribunal has no power to
act or to act effectively.[50]
It is thus beyond cavil that the RTC has authority and
jurisdiction to grant interim measures of protection.
Secondly, considering that the equipment and
machineries are in the possession of PGSMC, it has the right to
protect and preserve the equipment and machineries in the best
way it can. Considering that the LPG plant was non-operational,
PGSMC has the right to dismantle and transfer the equipment
and machineries either for their protection and preservation or
for the better way to make good use of them which is
ineluctably within the management discretion of PGSMC.
Thirdly, and of greater import is the reason that
maintaining the equipment and machineries in Worths property
is not to the best interest of PGSMC due to the prohibitive rent
while the LPG plant as set-up is not operational. PGSMC was
losing PhP322,560 as monthly rentals or PhP3.87M for 1998
alone without considering the 10% annual rent increment in
maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on
motions or petitions relating to the preservation or transfer of
the equipment and machineries as an interim measure, yet on
hindsight, the July 23, 1998 Order of the RTC allowing the
transfer of the equipment and machineries given the non-
recognition by the lower courts of the arbitral clause, has
accorded an interim measure of protection to PGSMC which
would otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already
been paid a substantial amount based on the
contract. Moreover, KOGIES is amply protected by the arbitral
action it has instituted before the KCAB, the award of which can
be enforced in our jurisdiction through the RTC. Besides, by our
decision, PGSMC is compelled to submit to arbitration pursuant
to the valid arbitration clause of its contract with KOGIES.
PGSMC to preserve the subject equipment and
machineries
Finally, while PGSMC may have been granted the right
to dismantle and transfer the subject equipment and
machineries, it does not have the right to convey or dispose of
the same considering the pending arbitral proceedings to settle
the differences of the parties. PGSMC therefore must preserve
and maintain the subject equipment and machineries with the
diligence of a good father of a 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.
EN BANCG.R. No. 78389 October 16, 1989
JOSE LUIS MARTIN C. GASCON, FAUSTINO "BONG" L.
LAPIRA, and SPOUSES ALBERTO and KARLA
LIM, petitioners,
vs.
The Hon. JOKER T. ARROYO, in his official capacity as
Executive Secretary to the President, Hon. TEODORO C.
BENIGNO, as Press Secretary, Hon. REINERIO REYES, as
the Secretary of Transportation and Communication,
Hon. JOSE ALCUAZ, as Chairman of the National
Telecommunications Commission, Hon. CONRADO A.
LIMCAOCO, JR., as the Officer-in-Charge of the People's
Television 4, ABS-CBN BROADCASTING CORPORATION,
and MESSRS. VICENTE ABAD SANTOS, PASTOR DEL
ROSARIO and CATALINO MACARAIG, JR., in their
respective capacities as Chairman and Members of the
"Arbitration Committee", respondents.
PADILLA, J.:
In this petition for certiorari and prohibition, with prayer for
issuance of writ of preliminary injunction or temporary
restraining order, petitioners seek to annul and set aside the
"Agreement to Arbitrate" entered into by and between the
Republic of the Philippines, represented by Executive Secretary
Joker T. Arroyo, and ABS-CBN Broadcasting Corporation,
represented by its President, Eugenio Lopez, Jr., dated 6 January
1987, to settle the claims of ABS-CBN for the return of radio and
television stations (TV Station Channel 4), and to enjoin the
Arbitration Committee created under the aforesaid agreement
from adjudicating the claims of ABS-CBN.
The record discloses the following facts:
The Lopez family is the owner of two (2) television stations,
namely: Channels 2 and 4 which they have operated through the
ABS-CBN Broadcasting Corporation.
When martial law was declared on 21 September 1972, TV
Channel 4 was closed by the military; thereafter, its facilities
were taken over by the Kanlaon Broadcasting System which
operated it as a commercial TV station.
In 1978, the said TV station and its facilities were taken over by
the National Media Production Center (NMPC), which operated it
as the Maharlika Broadcasting System TV 4 (MBS-4).
After the February 1986 EDSA revolution, the Presidential
Commission on Good Government (PCGG) sequestered the
aforementioned TV Stations, and, thereafter, the Office of Media
Affairs took over the operation of TV Channel 4.
105
On 17 April 1986, the Lopez family, through counsel, ex-Senator
Lorenzo Tanada, requested President Aquino to order the return
to the Lopez family of TV Stations 2 and 4. 1
On 13 June 1986, the Lopez family made a written request to
the PCGG for the return of TV Station Channel 2. On 18 June
1986, the PCGG approved the return of TV Station Channel 2 to
the Lopez family. 2 The return was made on 18 October 1986.
Thereafter, the Lopez family requested for the return of TV
Station Channel 4. Acting upon the request, respondent
Executive Secretary, by authority of the President, entered into
with the ABS-CBN Broadcasting Corporation, represented by its
President, Eugenio Lopez, Jr., an "Agreement to
Arbitrate", 3 pursuant to which an Arbitration Committee was
created, composed of Atty. Catalino Macaraig, Jr., for the
Republic of the Philippines, Atty. Pastor del Rosario, for ABS-CBN,
and retired Justice Vicente Abad Santos, as Chairman.
Thereupon, petitioners,as taxpayers, filed the instant petition.
Before discussing the issues raised in the present petition, the
Court will first resolve the question of whether or not the herein
petitioners have the legal personality or standing to the the
instant case.
There have been several cases wherein the Court recognized
the right of a taxpayer to file an action questioning the validity
or constitutionality of a statute or law, on the theory that the
expenditure of public funds by an officer of the government for
the purpose of administering or implementing an
unconstitutional or invalid law, constitutes a misapplication of
such funds. 4
The present case, however, is not an action to question the
constitutionality or validity of a statute or law. It is an action to
annul and set aside the "Agreement to Arbitrate", which, as
between the parties, is contractual in character. Petitioners have
not shown that they have a legal interest in TV Station Channel
4 and that they will be adversely affected if and when the said
television station is returned to the Lopez family. Petitioners,
therefore, have no legal standing to file the present petition.
In addition, the petition is devoid of merit.
Under the Provisional Constitution of the Republic of the
Philippines also known as the Freedom Constitution), which was
in force and effect when the "Agreement to Arbitrate" was
signed by the parties thereto on 6 January 1987, the President
exercised both the legislative and executive powers of the
Government. As Chief Executive, the President was (and even
now) "assisted by a Cabinet" composed of Ministers (now
Secretaries), who were appointed by and accountable to the
President. 5 In other words, the Members of the cabinet, as
heads of the various departments, are the assistants and agents
of the Chief Executive, and, except in cases where the Chief
Executive is required by the Constitution or the law to act in
person, or where the exigencies of the situation demand that he
act personally, the multifarious executive and administrative
functions of the Chief Executive are performed by and through
the executive departments, and the acts of the heads of such
departments performed in the regular course of business, are,
unless disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive. 6
Respondent Executive Secretary had, therefore, the power and
authority to enter into the "Agreement to Arbitrate" with the
ABS- CBN Broadcasting Corporation, as he acted for and in
behalf of the President when he signed it; hence, the aforesaid
agreement is valid and binding upon the Republic of the
Philippines, as a party thereto.
Moreover, the settlement of controversies is not vested in the
courts of justice alone to the exclusion of other agencies or

bodies. Whenever a controversy arises, either or both parties to
the controversy may file the proper action in court. However,
the parties may also resort to arbitration under RA 876 which is
a much faster way of settling their controversy, compared to
how long it would take if they were to go to court. In entering
into the "Agreement to Arbitrate", the Executive branch of the
government merely opted to avail itself of an alternative mode
of settling the claim of the private respondent ABS-CBN
Broadcasting Corporation for the return of TV Station Channel 4.
Court held that where the government takes property from a
private landowner for public use without going through the legal
process of expropriation or negotiated sale, the aggrieved party
may properly maintain a suit against the government without
thereby violating the doctrine of governmental immunity from
suit without its consent. That is, as it should be, for the doctrine
of governmental immunity from suit cannot serve as an
instrument for perpetrating an injustice to a citizen. 8
Finally, neither the "convening of Congress" nor the "recent
declaration of the President that PTV-4 shall remain as the
information arm of the government" can render "ineffective and
unenforceable" the "Agreement to Arbitrate" because at the
time of the signing of the said agreement, the President was
exercising both the legislative and executive powers of the
Government, and since the "Agreement to Arbitrate" is valid, it
is "enforceable and irrevocable, save upon such grounds as exist
at law for the revocation of any contract." 9
WHEREFORE, the petition is DISMISSED.SO ORDERED.
SECOND DIVISION[G.R. No. 136154. February 7, 2001]
DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR.,
DANIEL COLLINS and LUIS HIDALGO, petitioners,
vs. COURT OF APPEALS, JUDGE BIENVENIDO L.
REYES in his capacity as Presiding Judge, RTC-Br.
74, Malabon, Metro Manila, MONTEBUENO
MARKETING, INC., LIONG LIONG C. SY and
SABROSA FOODS, INC., respondents.
BELLOSILLO, J.:
This Petition for Review on certiorari assails the 17 July
1998 Decision[1] of the Court of Appeals affirming the 11
November 1997 Order[2] of the Regional Trial Court which denied
petitioners Motion to Suspend Proceedings in Civil Case No.
2637-MN. It also questions the appellate courts Resolution[3] of
30 October 1998 which denied petitioners Motion for
Reconsideration.
On 1 July 1994, in a Distributorship Agreement, petitioner
Del Monte Corporation-USA (DMC-USA) appointed private
respondent Montebueno Marketing, Inc. (MMI) as the sole and
exclusive distributor of its Del Monte products in the Philippines
for a period of five (5) years, renewable for two (2) consecutive
five (5) year periods with the consent of the parties. The
Agreement provided, among others, for an arbitration clause
which states -
12. GOVERNING LAW AND ARBITRATION[4]
This Agreement shall be governed by the laws of the State of
California and/or, if applicable, the United States of America. All
disputes arising out of or relating to this Agreement or the
parties relationship, including the termination thereof, shall be
resolved by arbitration in the City of San Francisco, State of
California, under the Rules of the American Arbitration
Association. The arbitration panel shall consist of three
members, one of whom shall be selected by DMC-USA, one of
whom shall be selected by MMI, and third of whom shall be
selected by the other two members and shall have relevant
experience in the industry x x x x
106
In October 1994 the appointment of private respondent
MMI as the sole and exclusive distributor of Del Monte products
in the Philippines was published in several newspapers in the
country. Immediately after its appointment, private respondent
MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of
petitioner DMC-USA, as MMIs marketing arm to concentrate on
its marketing and selling function as well as to manage its
critical relationship with the trade.
On 3 October 1996 private respondents MMI, SFI and MMIs
Managing Director Liong Liong C. Sy (LILY SY) filed a
Complaint[5] against petitioners DMC-USA, Paul E. Derby, Jr.,
[6]
Daniel Collins[7] and Luis Hidalgo,[8] and Dewey Ltd.[9] before
the Regional Trial Court of Malabon, Metro Manila. Private
respondents predicated their complaint on the alleged violations
by petitioners of Arts. 20,[10] 21[11] and 23[12] of the Civil
Code. According to private respondents, DMC-USA products
continued to be brought into the country by parallel importers
despite the appointment of private respondent MMI as the sole
and exclusive distributor of Del Monte products thereby causing
them great embarrassment and substantial damage. They
alleged that the products brought into the country by these
importers were aged, damaged, fake or counterfeit, so that in
March 1995 they had to cause, after prior consultation with
Antonio Ongpin, Market Director for Special Markets of Del
Monte Philippines, Inc., the publication of a "warning to the
trade" paid advertisement in leading newspapers. Petitioners
DMC-USA and Paul E. Derby, Jr., apparently upset with the
publication, instructed private respondent MMI to stop
coordinating with Antonio Ongpin and to communicate directly
instead with petitioner DMC-USA through Paul E. Derby, Jr.
Private respondents further averred that petitioners
knowingly and surreptitiously continued to deal with the former
in bad faith by involving disinterested third parties and by
proposing solutions which were entirely out of their
control. Private respondents claimed that they had exhausted all
possible avenues for an amicable resolution and settlement of
their grievances; that as a result of the fraud, bad faith, malice
and wanton attitude of petitioners, they should be held
responsible for all the actual expenses incurred by private
respondents in the delayed shipment of orders which resulted in
the extra handling thereof, the actual expenses and cost of
money for the unused Letters of Credit (LCs) and the substantial
opportunity losses due to created out-of-stock situations and
unauthorized shipments of Del Monte-USA products to the
Philippine Duty Free Area and Economic Zone; that the bad faith,
fraudulent acts and willful negligence of petitioners, motivated
by their determination to squeeze private respondents out of the
outstanding and ongoing Distributorship Agreement in favor of
another party, had placed private respondent LILY SY on
tenterhooks since then; and, that the shrewd and subtle manner
with which petitioners concocted imaginary violations by private
respondent MMI of the Distributorship Agreement in order to
justify the untimely termination thereof was a subterfuge. For
the foregoing, private respondents claimed, among other reliefs,
the payment of actual damages, exemplary damages, attorneys
fees and litigation expenses.
On 21 October 1996 petitioners filed a Motion to Suspend
Proceedings[13] invoking the arbitration clause in their
Agreement with private respondents.
In a Resolution[14] dated 23 December 1996 the trial court
deferred consideration of petitioners Motion to Suspend
Proceedingsas the grounds alleged therein did not constitute the
suspension of the proceedings considering that the action was
for damages with prayer for the issuance of Writ of Preliminary
Attachment and not on the Distributorship Agreement.
On 15 January 1997 petitioners filed a Motion for
Reconsideration to which private respondents filed
their Comment/Opposition.On 31 January 1997 petitioners filed
their Reply. Subsequently, private respondents filed an Urgent
Motion for Leave to Admit Supplemental Pleading dated 2 April

1997. This Motion was admitted, over petitioners opposition, in
an Order of the trial court dated 27 June 1997.
As a result of the admission of the Supplemental
Complaint, petitioners filed on 22 July 1997
a Manifestation adopting their Motion to Suspend Proceedings of
17 October 1996 and Motion for Reconsideration of 14 January
1997.
On 11 November 1997 the Motion to Suspend
Proceedings was denied by the trial court on the ground that
it "will not serve the ends of justice and to allow said suspension
will only delay the determination of the issues, frustrate the
quest of the parties for a judicious determination of their
respective claims, and/or deprive and delay their rights to seek
redress."[15]
On appeal, the Court of Appeals affirmed the decision of
the trial court. It held that the alleged damaging acts recited in
the Complaint, constituting petitioners causes of action, required
the interpretation of Art. 21 of the Civil Code [16] and that in
determining whether petitioners had violated it "would require a
full blown trial" making arbitration "out of the
question."[17]Petitioners Motion for Reconsideration of the
affirmation was denied. Hence, this Petition for Review.
The crux of the controversy boils down to whether the
dispute between the parties warrants an order compelling them
to submit to arbitration.
Petitioners contend that the subject matter of private
respondents causes of action arises out of or relates to the
Agreement between petitioners and private respondents. Thus,
considering that the arbitration clause of the Agreement
provides that all disputes arising out of or relating to the
Agreement or the parties relationship, including the termination
thereof, shall be resolved by arbitration, they insist on the
suspension of the proceedings in Civil Case No. 2637-MN as
mandated by Sec. 7 of RA 876[18] -
Sec. 7. Stay of Civil Action. If any suit or proceeding be brought
upon an issue arising out of an agreement providing for
arbitration thereof, the court in which such suit or proceeding is
pending, upon being satisfied that the issue involved in such
suit or proceeding is referable to arbitration, shall stay the
action or proceeding until an arbitration has been had in
accordance with the terms of the agreement. Provided, That the
applicant for the stay is not in default in proceeding with such
arbitration.
Private respondents claim, on the other hand, that their
causes of action are rooted in Arts. 20, 21 and 23 of the Civil
Code,[19]the determination of which demands a full blown trial,
as correctly held by the Court of Appeals. Moreover, they claim
that the issues before the trial court were not joined so that the
Honorable Judge was not given the opportunity to satisfy himself
that the issue involved in the case was referable to
arbitration. They submit that, apparently, petitioners filed a
motion to suspend proceedings instead of sending a written
demand to private respondents to arbitrate because petitioners
were not sure whether the case could be a subject of
arbitration. They maintain that had petitioners done so and
private respondents failed to answer the demand, petitioners
could have filed with the trial court their demand for arbitration
that would warrant a determination by the judge whether to
refer the case to arbitration. Accordingly, private respondents
assert that arbitration is out of the question.
Private respondents further contend that the arbitration
clause centers more on venue rather than on arbitration. They
finally allege that petitioners filed their motion for extension of
time to file this petition on the same date [20] petitioner DMC-USA
filed a petition to compel private respondent MMI to arbitrate
before the United States District Court in Northern California,
docketed as Case No. C-98-4446. They insist that the filing of
107
the petition to compel arbitration in the United States made the
petition filed before this Court an alternative remedy and, in a
way, an abandonment of the cause they are fighting for here in
the Philippines, thus warranting the dismissal of the present
petition before this Court.
There is no doubt that arbitration is valid and constitutional
in our jurisdiction.[21] Even before the enactment of RA 876, this
Court has countenanced the settlement of disputes through
arbitration. Unless the agreement is such as absolutely to close
the doors of the courts against the parties, which agreement
would be void, the courts will look with favor upon such
amicable arrangement and will only interfere with great
reluctance to anticipate or nullify the action of the arbitrator.
[22]
Moreover, as RA 876 expressly authorizes arbitration of
domestic disputes, foreign arbitration as a system of settling
commercial disputes was likewise recognized when the
Philippines adhered to the United Nations "Convention on the
Recognition and the Enforcement of Foreign Arbitral Awards of
1958" under the 10 May 1965 Resolution No. 71 of the Philippine
Senate, giving reciprocal recognition and allowing enforcement
of international arbitration agreements between parties of
different nationalities within a contracting state.[23]
A careful examination of the instant case shows that the
arbitration clause in the Distributorship Agreement between
petitioner DMC-USA and private respondent MMI is valid and the
dispute between the parties is arbitrable. However, this Court
must deny the petition.
The Agreement between petitioner DMC-USA and private
respondent MMI is a contract. The provision to submit to
arbitration any dispute arising therefrom and the relationship of
the parties is part of that contract and is itself a contract. As a
rule, contracts are respected as the law between the contracting
parties and produce effect as between them, their assigns and
heirs.[24] Clearly, only parties to the Agreement, i.e., petitioners
DMC-USA and its Managing Director for Export Sales Paul E.
Derby, Jr., and private respondents MMI and its Managing
Director LILY SY are bound by the Agreement and its arbitration
clause as they are the only signatories thereto. Petitioners
Daniel Collins and Luis Hidalgo, and private respondent SFI, not
parties to the Agreement and cannot even be considered
assigns or heirs of the parties, are not bound by the Agreement
and the arbitration clause therein. Consequently, referral to
arbitration in the State of California pursuant to the arbitration
clause and the suspension of the proceedings in Civil Case No.
2637-MN pending the return of the arbitral award could be
called for[25] but only as to petitioners DMC-USA and Paul E.
Derby, Jr., and private respondents MMI and LILY SY, and not as
to the other parties in this case, in accordance with the recent
case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty
Corporation,[26] which superseded that of Toyota Motor
Philippines Corp. v. Court of Appeals.[27]
In Toyota, the Court ruled that "[t]he contention that the
arbitration clause has become dysfunctional because of the
presence of third parties is untenable ratiocinating that
"[c]ontracts are respected as the law between the contracting
parties"[28] and that "[a]s such, the parties are thereby expected
to abide with good faith in their contractual
commitments."[29] However, in Salas, Jr., only parties to the
Agreement, their assigns or heirs have the right to arbitrate or
could be compelled to arbitrate. The Court went further by
declaring that in recognizing the right of the contracting parties
to arbitrate or to compel arbitration, the splitting of the
proceedings to arbitration as to some of the parties on one hand
and trial for the others on the other hand, or the suspension of
trial pending arbitration between some of the parties, should not
be allowed as it would, in effect, result in multiplicity of suits,
duplicitous procedure and unnecessary delay.[30]
The object of arbitration is to allow the expeditious
determination of a dispute.[31] Clearly, the issue before us could
not be speedily and efficiently resolved in its entirety if we allow
simultaneous arbitration proceedings and trial, or suspension of

trial pending arbitration. Accordingly, the interest of justice
would only be served if the trial court hears and adjudicates the
case in a single and complete proceeding.[32]
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals affirming the Order of the Regional Trial Court
of Malabon, Metro Manila, in Civil Case No. 2637-MN, which
denied petitioners Motion to Suspend Proceedings, is
AFFIRMED.The Regional Trial Court concerned is directed to
proceed with the hearing of Civil Case No. 2637-MN with
dispatch. No costs.SO ORDERED.
THIRD DIVISIONG.R. No. 102881 December 7, 1992
TOYOTA MOTOR PHILIPPINES CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, HON. FERNANDO V. GOROSPE,
JR. and SUN VALLEY MANUFACTURING & DEVELOPMENT
CORPORATION, respondents.
GUTIERREZ, JR., J.:
This case involves a boundary dispute between Toyota Motor
Phil. Corporation (Toyota) and Sun Valley Manufacturing and
Development Corporation (Sun Valley).
Both Toyota and Sun Valley are the registered owners of two (2)
adjoining parcels of land situated in La Huerta, Paraaque, Metro
Manila which they purchased from the Asset Privatization Trust
(APT).
The properties in question formerly belonged to Delta Motors
Corporation (DMC). They were foreclosed by the Philippine
National Bank (PNB) and later transferred to the national
government through the APT for disposition.
APT then proceeded to classify the DMC properties according to
the existing improvements, i.e., buildings, driveways, parking
areas, perimeter fence, walls and gates and the land on which
the improvements stood. The entire DMC property is called GC
III-Delta Motors Corporation, divided into Delta I, Delta II, and
Delta III. Further subdivisions for the separate catalogues were
made for each division e.g. Delta I into Lots 1, 2 and 3. After this
classification, APT parcelled out and catalogued the properties
for bidding and sale.
Part of the duly parcelled Delta I property (Lot 2) was sold to
Toyota through public bidding on May 12, 1988 for the amount
of P95,385,000.00. After its purchase, Toyota constructed a
concrete hollow block (CHB) perimeter fence around its alleged
property.
On October 5, 1990, another part of the parcelled Delta I (Lot 1)
covering an area of 55,236 square meters was purchased by
Sun Valley from APT for the bid price of P124,349,767.00.
Relying upon the title description of its property and the surveys
it had commissioned, Sun Valley claimed that Toyota's perimeter
fence overlaps Sun Valley's property along corners 11 to 15 by
322 square meters and corners 19 to 1 by 401 square meters
for a total of 723 square meters. (Rollo, p. 841)
Negotiations between the two (2) corporations for a possible
settlement of the dispute bogged down. Court battles ensued,
grounded on purely procedural issues. In pursuing the resolution
of the dispute, both Toyota and Sun Valley opted to file separate
actions. Much of the complications that arose and are now
before us can be traced to the two separate cases pursued by
both parties. There are other cases arising from the same
dispute but which are not before us.
Culled from the records, these are the antecedents of the two
cases which transpired below.
108
TOYOTA CASE (Civil Case No. 91-2504)
On September 11, 1991, Toyota filed a case against APT and Sun
Valley docketed as Civil Case No. 91-2504 with the Regional Trial
Court of Makati, Branch 146 presided by Judge Salvador
Tensuan. The complaint was for the reformation of the Deed of
Sale executed between Toyota and APT. Toyota alleges that the
instrument failed to reflect the true intention of the parties, as
evidenced by the failure of the title to include the 723 square
meters strip of land.
Toyota alleges that the discrepancy came about because of the
serious flaw in the classification/cataloguing of properties bidded
out for sale by APT. Toyota was made to understand that
included in its perimeter fence is the disputed strip of land.
Thus, Toyota sought the resurvey of the property to correct this
error in the title. Sun Valley was impleaded considering that it
purchased the adjoining land whose title allegedly included the
723 square meters property.
On September 11, 1991, upon Toyota's application, Judge
Tensuan issued a temporary restraining order (TRO) enjoining
Sun Valley and APT from any act of destruction and removal of
Toyota's walls and structures. Sun Valley and APT were
respectively served summons on the following day.
On September 16, 1991, Sun Valley filed a motion to dismiss, on
the ground that the Toyota complaint failed to state a cause of
action against it (1) since it was not a party to the contract of
the deed of sale between Toyota and APT, and (2) the complaint
was in effect a collateral attack on its title.
On September 27, 1991, Judge Tensuan initially denied Toyota's
application for preliminary injunction on the finding that there
was no evidence of any threatened destruction, removal or
dispossession of Toyota's property.
On October 10, 1991, Judge Tensuan denied Sun Valley's motion
to dismiss.
Both Toyota and Sun Valley filed their respective motions for
reconsideration. Toyota moved to reconsider the denial of its
injunctive application while Sun Valley moved to reconsider the
denial of its motion to dismiss.
On October 30, 1991, APT filed its answer with affirmative
defenses alleging that the complaint must be dismissed on the
ground that Toyota and APT should first have resorted to
arbitration as provided in Toyota's deed of sale with APT. On
December 4, 1991, Toyota filed a motion alleging that Sun
Valley's long threatened destruction and removal of Toyota's
walls and structures were actually being implemented to which
Judge Tensuan issued another TRO enjoining acts of destruction
and removal of the perimeter walls and structures on the
contested area.
Consequently, on December 17, 1991, Judge Tensuan
reconsidered his earlier denial of Toyota's application for
injunction and granted a writ of preliminary injunction enjoining
Sun Valley from proceeding with its threatened destruction and
removal of Toyota's walls and directed Sun Valley to restore the
premises to the status quo ante.
On December 11, 1991, Judge Tensuan denied Sun Valley's
motion for reconsideration of its motion to dismiss. Sun Valley
elevated this denial to the Court of Appeals. The case was
docketed as CA-G.R. Sp. No. 26942 and raffled to the Eleventh
(11th) Division.
Judge Tensuan's jurisdiction to act considering the defense of
prematurity of action for failure to arbitrate the validity of the

TRO issued on December 4, 1991 and the order granting
injunctive reliefs were challenged in a petition for certiorari filed
with the Court of Appeals and docketed as CA-G.R. No. 26813,
assigned to the Second (2nd) Division.
SUN VALLEY CASE (Civil Case No. 91-2550)
On September 16, 1991, Sun Valley, on the other hand, filed a
case for recovery of possession of the disputed 723 square
meters boundary with the Regional Trial Court (RTC) Makati,
Branch 61 presided by Judge Fernando Gorospe, Jr.
On the same day, Judge Gorospe issued a TRO enjoining Toyota
from committing further acts of dispossession against Sun
Valley.
On September 19, 1991, Toyota moved to lift the TRO and
opposed Sun Valley's application for injunction.
On September 23, 1991, Toyota filed a motion to dismiss on the
ground that the RTC has no jurisdiction over the case since the
complaint was a simple ejectment case cognizable by the
Metropolitan Trial Court (MTC). The motion to dismiss was set for
hearing on September 27, 1991.
On September 27, 1991, Sun Valley filed an amended complaint
to incorporate an allegation that Toyota's possession of the
alleged disputed area began in September, 1988 when Toyota
purchased the property.
Ruling that the amendment was a matter of right, Judge Gorospe
admitted the amended complaint. Toyota adopted its motion to
dismiss the original complaint as its motion to dismiss the
amended complaint. After the arguments to Toyota's motion to
dismiss, the same was submitted for resolution. Sun Valley's
application for prohibitory and mandatory injunction contained
in its complaint was set for hearing on October 1, 1991.
Protesting the admission of the amended complaint, Toyota went
to the Court of Appeals, on certiorari on October 1, 1991. This
petition was docketed as CA-G.R. No. 26152 raffled to the Tenth
(10th) Division.
Toyota was later prompted to file two supplemental petitions,
before the Court of Appeals as a result of Judge Gorospe's
alleged hasty issuance of four (4) Orders, all dated October 1,
1992. These are:
(1) First supplemental petition dated October 4, 1991 which
sought to nullify the Order denying Toyota's motion to dismiss
the amended complaint.
(2) Second supplemental petition dated October 23, 1991 which
sought the nullification of the orders granting Sun Valley's
application for preliminary prohibitory and mandatory injunction
and denying Toyota's motion to cross-examine Sun Valley's
witnesses on the latter's injunction application.
On November 27, 1991, respondent Court of Appeals' Tenth
Division promulgated its questioned decision which is primarily
the subject matter of the present petition before us.
The respondent court denied due course to the Toyota petition
on the finding that the amendment of Sun Valley's complaint
was a valid one as Sun Valley's action was not for unlawful
detainer but an accion publiciana. Furthermore, the
supplemental petitions filed by Toyota assailing the prohibitory
and mandatory injunctive writ were not ruled upon as they were
expunged from the records because of Toyota's failure to attach
a motion to admit these supplemental petitions.
109
Consequently, Toyota filed the present petition for certiorari on
December 9, 1991.
Earlier, upon an ex-parte motion to clarify filed by Sun Valley on
October 25, 1991, Judge Gorospe issued another order dated
December 2, 1991 which followed Sun Valley to break open and
demolish a portion of the Toyota perimeter walls, and eventually
to secure possession of the disputed area. Toyota was
constrained to come to this Court for relief.
On December 11, 1991, we issued a TRO enjoining the
implementation of Judge Gorospe's injunction and break-open
orders dated October 1, 1991 and December 2, 1991
respectively as well as further proceedings in Civil Case No. 91-
2550.
Meanwhile, the Court of Appeals' Second Division issued a TRO
ordering respondent Judge Tensuan and all other persons acting
in his behalf to cease and desist from further proceeding with
Civil Case No. 91-2504 and from enforcing the Order dated
December 17, 1991 and the writ of preliminary mandatory
injunction dated December 19, 1991.
This prompted Toyota to file a motion to quash the TRO and file
a supplemental petition with this Court impleading the Court of
Appeals' Second Division.
On January 13, 1992, we admitted the supplemental petition.
On January 10, 1992, the Court of Appeals' Second Division
issued the Resolution granting Sun Valley's application for
preliminary injunction which enjoined Judge Tensuan in the
Toyota case from implementing his injunction Order and from
proceeding with the case before him (Civil Case No. 91-2504).
Thus, Toyota filed its Second Supplemental Petition with this
Court challenging the validity of the injunction writ issued by the
Court of Appeals' Second Division.
This Second Supplemental Petition was admitted on February
10, 1992.
On February 10, 1992, we gave due course to Toyota's petition.
Subsequently, through a manifestation dated April 29, 1992,
Toyota informed the Court that on April 15, 1992, the Court of
Appeals' 11th Division (Sun Valley case) rendered a decision
dismissing the case before it for lack of merit. The Court of
Appeals ruled that the Toyota complaint was not a collateral
attack on Sun Valley's title and that misjoinder of parties is not a
ground for dismissal.
A subsequent motion for reconsideration was denied in a
resolution dated August 10, 1992.
In the instant petition Toyota raises the following issues, to wit:
1. The Court of Appeals' 10th Division gravely abused its
discretion when it ignored or pretended to ignore Toyota's
protests against Judge Gorospe's injunction orders.
2. Sun Valley is guilty of forum-shopping and Judge Gorospe of
case-grabbing.
Sun Valley, on the other hand raises the following:
1. Whether or not the petitioner availed of the proper mode of
elevating the case to this Court.

2. Whether or not the Court of Appeals committed grave abuse
of discretion in refusing to act upon petitioner's supplemental
petitions for certiorari.
3. Whether or not the complaint filed in the court below is
an accion publiciana which is within the jurisdiction of the RTC.
4. Whether or not Judge Salvador S. Tensuan had jurisdiction to
take cognizance of Civil Case No. 2504 for reformation of
instrument.
5. Whether or not respondent Judge Gorospe, Jr. committed
grave abuse of discretion in granting private respondent's
application for a writ of preliminary prohibitory/mandatory
injunction.
6. Whether or not Judge Tensuan committed grave abuse of
discretion in issuing the writ of mandatory injunction dated
December 19, 1991.
This case is far from settlement on the merits. Through legal
maneuverings, the parties have succeeded in muddling up the
vital issues of the case and getting the lower courts embroiled in
numerous appeals over technicalities. As it is now, there are
three appellate decisions/resolutions before us for review and
conflicting orders issued by lower courts as a result of the
separate cases filed by the parties. As in the case
of Consolidated Bank and Trust Corp. v. Court of Appeal,s 193
SCRA 158 [1991], the Court is explicit in stating that:
xxx xxx xxx
Where there are conflicting but inextricably interconnected
issues in one and the same complicated case, it is best that
these be resolved in one integrated proceeding where an overall
picture of the entirety of the case can be presented and
examined. Piecemeal determinations by several trial courts on
segments of the basic issue and disconnected appeals to
different Divisions of the Court of Appeals resulting in separate
decisions each dealing with only part of the problem are
discouraged. Needless multiplicity of suits is something which is
frowned upon.
xxx xxx xxx
Amid the clutter of extraneous materials which have certainly
bloated the records of this case, we find only two (2) issues vital
to the disposition of the petition: first, is the matter of
jurisdiction, who as between Judge Tensuan or Judge Gorospe
has jurisdiction over the dispute; and second, who as between
the parties has the rightful possession of the land.
Anent the issue on jurisdiction, we examine the two actions filed
by the parties.
Toyota filed an action for reformation on September 11, 1991,
before Judge Tensuan alleging that the true intentions of the
parties were not expressed in the instrument (Art. 1359 Civil
Code). The instrument sought to be reformed is the deed of sale
executed by APT in favor of Toyota. Toyota alleges that there
was a mistake in the designation of the real properties subject
matter of the contract. Sun Valley was impleaded in order to
obtain complete relief since it was the owner of the adjacent lot.
Sun Valley, however, argues that the complaint for reformation
states no cause of action against it since an action for
reformation is basically one strictly between the parties to the
contract itself. Third persons who are not parties to the contract
cannot and should not be involved. Thus, Sun Valley contends
that it should not have been impleaded as a defendant.
The Court of Appeals' 11th Division, in its decision promulgated
on April 15, 1992 where the denial of Sun Valley's motion to
110
dismiss was sustained, correctly ruled that misjoinder of parties
is not a ground for dismissal.
American jurisprudence from where provisions on reformation of
instruments were taken discloses that suits to reform written
instruments are subject to the general rule in equity that all
persons interested in the subject matter of the litigation,
whether it is a legal or an equitable interest should be made
parties, so that the court may settle all their rights at once and
thus prevent the necessity of a multiplicity of suits (Bevis
Construction Co. v. Grace [Fla App] 115 So 2d 84; Green v.
Stone, 54 N.J.E. 387, 34 A 1099). As a general rule, therefore, all
persons to be affected by the proposed reformation must be
made parties (American Fidelity & Casualty Co. v. Elder, 189 Ga
229, 5 SE 2d 668; Kemp v. Funderburk, 224 NC 353, 30 SE 2d
155). In an action to reform a deed, all parties claiming an
interest in the land or any part thereof purportedly conveyed by
the instrument sought to be reformed, and whose interests will
be affected by the reformation of the instrument are necessary
parties to the action (Kemp v. Funderburk, 224 NC 353, 30 SE 2d
155).
From the foregoing jurisprudence, it would appear that Toyota
was correct in impleading Sun Valley as party defendant.
However, these principles are not applicable under the
particular circumstances of this case. Under the facts of the
present case, Toyota's action for reformation is dismissible as
against Sun Valley.
Attention must first be brought to the fact that the contract of
sale executed between APT and Toyota provides an arbitration
clause which states that:
xxx xxx xxx
5. In case of disagreement or conflict arising out of this
Contract, the parties hereby undertake to submit the matter for
determination by a committee of experts, acting as arbitrators,
the composition of which shall be as follows:
a) One member to be appointed by the VENDOR;
b) One member to be appointed by the VENDEE;
c) One member, who shall be a lawyer, to be appointed by both
of the aforesaid parties;
The members of the Arbitration Committee shall be appointed
not later than three (3) working days from receipt of a written
notice from either or both parties. The Arbitration Committee
shall convene not later than three (3) weeks after all its
members have been appointed and proceed with the
arbitration of the dispute within three (3) calendar months
counted therefrom. By written mutual agreement by the parties
hereto, such time limit for the arbitration may be extended for
another calendar month. The decision of the Arbitration
Committee by majority vote of at least two (2) members shall
be final and binding upon both the VENDOR and the VENDEE;
(Rollo, pp. 816-817)
xxx xxx xxx
The contention that the arbitration clause has become
disfunctional because of the presence of third parties is
untenable.
Contracts are respected as the law between the contracting
parties (Mercantile Ins. Co. Inc. v. Felipe Ysmael, Jr. & Co., Inc.,
169 SCRA 66 [1989]). As such, the parties are thereby expected
to abide with good faith in their contractual commitments
(Quillan v. CA, 169 SCRA 279 [1989]). Toyota is therefore bound
to respect the provisions of the contract it entered into with APT.

Toyota filed an action for reformation of its contract with APT,
the purpose of which is to look into the real
intentions/agreement of the parties to the contract and to
determine if there was really a mistake in the designation of the
boundaries of the property as alleged by Toyota. Such questions
can only be answered by the parties to the contract themselves.
This is a controversy which clearly arose from the contract
entered into by APT and Toyota. Inasmuch as this concerns more
importantly the parties APT and Toyota themselves, the
arbitration committee is therefore the proper and convenient
forum to settle the matter as clearly provided in the deed of
sale.
Having been apprised of the presence of the arbitration clause
in the motion to dismiss filed by APT, Judge Tensuan should have
at least suspended the proceedings and directed the parties to
settle their dispute by arbitration (Bengson v. Chan, 78 SCRA
113 [1977], Sec. 7, RA 876). Judge Tensuan should have not
taken cognizance of the case.
But the more apparent reason which warrants the dismissal of
the action as against Sun Valley is the fact that the complaint for
reformation amounts to a collateral attack on Sun Valley's title,
contrary to the finding of the Court of Appeals' 11th Division.
It is disputed that Sun Valley has a Torrens title registered in its
name by virtue of its purchase of the land from APT.
Toyota contends that the 723 square meters strip of land which
it understood to be included in its purchase from APT was
erroneously included in Sun Valley's title. This is the reason why
reformation was sought to correct the mistake.
Well-settled is the rule that a certificate of title can not be
altered, modified, or cancelled except in a direct proceeding in
accordance with law (Section 48, P.D. No. 1529).
In the case of Domingo v. Santos Ongsiako, Lim y Sia (55 Phil.
361 [1930]), the Court held that:
. . . The fact should not be overlooked that we are here
confronted with what is really a collateral attack upon a
Torrens title. The circumstance that the action was directly
brought to recover a parcel of land does not alter the truth
that the proceeding involves a collateral attack upon a
Torrens title, because as we have found, the land in
controversy lies within the boundaries determined by that
title. The Land Registration Law defines the methods under
which a wrongful adjudication of title to land under the
Torrens system may be corrected . . .
While reformation may often be had to correct mistakes in
defining the boundary of lands conveyed so as to identify the
lands, it may not be used to pass other lands from those
intended to be bought and sold, notwithstanding a mistake in
pointing out the lines, since reformation under these
circumstances would be inequitable and unjust. (McCay v.
Jenkins, 244 Ala 650, 15 So 2d 409, 149 ALR 746)
Assuming that Toyota is afforded the relief prayed for in the
Tensuan court, the latter can not validly order the contested
portion to be taken out from the Sun Valley's TCT and award it in
favor of Toyota.
An action for reformation is in personam, not in rem (Cohen v.
Hellman Commercial Trust & Savings Bank, 133 Cal App 758, 24
P2d 960; Edwards v. New York Life Ins. Co. 173 Tenn 102, 114
SW 2d 808) even when real estate is involved (Agurs v. Holt, 232
La 1026, 95 So 2d 644; Vallee v. Vallee (La App) 180 So 2d 570).
It is merely an equitable relief granted to the parties where
through mistake or fraud, the instrument failed to express the
real agreement or intention of the parties. While it is a
recognized remedy afforded by courts of equity it may not be
applied if it is contrary to well-settled principles or rules. It is a
111
long standing principle that equity follows the law. It is applied in
the abscence of and never against statutory law (Zabat v. Court
of Appeals, 142 SCRA 587 [1986]). Courts are bound by rules of
law and have no arbitrary discretion to disregard them. (See
Arsenal v. Intermediate Appellate Court, 143 SCRA 40 [1986].)
Courts of equity must proceed with utmost caution especially
when rights of third parties may intervene. Thus in the instant
case, vis-a-vis well-settled principles or rules in land registration,
the equitable relief of reformation may not come into play in
order to transfer or appropriate a piece of land that one claims
to own but which is titled in the name of a third party.
On the other hand, Sun Valley filed an action for reconveyance
against Toyota to recover possession of the strip of land
encroached upon and occupied by the latter. What Sun Valley
seeks in its complaint is the recovery of possession de jure and
not merely possession de facto. Toyota moved to dismiss on the
assumption that the complaint was one for unlawful detainer
cognizable by the MTC.
We do not find any reversible error in the decision of the Court
of Appeals' 10th Division where it upheld Judge Gorospe's order
denying Toyota's motion to dismiss. An amendment to a
complaint before a responsive pleading is filed, is a matter of
right (Rule 10, Sec. 2). Whether or not the complaint was
amended, Sun Valley's complaint was one for accion
publiciana cognizable by the RTC. Its right over the land is
premised on the certificate of title registered in its name after it
had purchased said land from APT. As the registered owner it
had the right of possession of said land illegally occupied by
another (Ybaez v. IAC, 194 SCRA 743 [1991]). The case
of Banayos v. Susana Realty, Inc. (71 SCRA 557 [1976]) is quite
instructive:
xxx xxx xxx
We deem it advisable, at this point, to reiterate the essential
differences between three kinds of actions for the recovery of
possession of real property, namely: (1) the summary action
for forcible entry and unlawful detainer; (2) the accion
publiciana; and (3) the accion de reivindicacion.
The action for forcible entry may be brought where
dispossession of real property had taken place by any of the
means provided for in Section 1 of Rule 70 of the Revised
Rules of Court, and in the case of unlawful detainer, where
the possession is withheld after the expiration or termination
of the right to hold possession, by virtue of any contract
express or implied. These two actions must be filed within
one (1) year after such unlawful deprivation or withholding of
possession with the municipal or city court. These actions in
their essence are mere quieting processes by virtue of which
a party in possession of land may not be, by force,
dispossessed of that land, the law restoring to him such
possession in a summary manner, until the right of
ownership can be tried in due course of law. They are,
therefore, intended to provide an expeditious means of
protecting actual possession or right to possession of
property. The aforesaid Rule 70 does not, however, cover all
of the cases of dispossession of lands. Thus, "whenever the
owner is dispossessed by any other means than those
mentioned he may maintain his action in the Court of First
Instance, and it is not necessary for him to wait until the
expiration of twelve months before commencing an action to
be repossessed or declared to be owner of land." (Gumiran v.
Gumiran, 21 Phil. 174, 179. Cf. Medina, et al. v. Valdellon, 63
SCRA 278) Courts of First Instance have jurisdiction over
actions to recover possession of real property illegally
detained, together with rents due and damages, even though
one (1) year has not expired from the beginning of such
illegal detention, provided the question of ownership of such
property is also involved. In other words, if the party illegal
dispossessed desires to raise the question of illegal
dispossession as well as that of the ownership over the
property, he may commence such action in the Court of First
Instance immediately or at any time after such illegal
 112
dispossession. If he decides to raise the question of illegal As early as September, 1988 prior to the construction of the
dispossession only, and the action is filed more than one (1) perimeter fence, Toyota was already aware of the discrepancies
year after such deprivation or withholding of possession, in the property's description in the title and the actual survey.
then the Court of First Instance will have original jurisdiction
over the case. (Bishop of Cebu v. Mangoron, 6 Phil. 286; The letter of its surveyor company, Summa Kumagai thus
Catholic Church v. Tarlac and Victoria, 9 Phil. 450; Ledesma v. reveals:
Marcos, 9 Phil. 618; Medina, et al. v. Valdellon, supra) The
former is an accion de reivindicacion which seeks the
recovery of ownership as well as possession, while the latter 09 September, 1988
refers to an accion publiciana, which is the recovery of the
right to possess and is a plenary action in an ordinary TOYOTA MOTOR PHILIPPINES CORPORATION
proceeding in the Court of First Instance. (Sec. 88, Rep. Act 10th Floor, Metrobank Plaza
No. 296; Rule 70, Rules of Court; Manila Railroad Co. v. Sen. Gil J. Puyat Ave.
Attorney General, 20 Phil. 523; Lim Cay v. Del, 55 Phil. 692; Makati, Metro Manila
Central Azucarera de Tarlac v. De Leon, 56 Phil. 169; Navarro
v. Aguila, 66 Phil. 604; Luna v. Carandang, 26 SCRA 306;
ATTENTION: MR. FLORENCIO JURADO
Medina, et al. v. Valdellon, supra; Pasaqui, et al. v.
Finance Officer
Villablanca, et al., supra).

SUBJECT: PHASE I RENOVATION WORK

With the finding that Toyota's action for reformation is
dismissable as it is in effect a collateral attack on Sun Valley's
title, Sun Valley's action for recovery of possession filed before
Judge Gorospe now stands to be the proper forum where the
following dispute may be tried or heard.
We now come to the issue as to which of the parties has a legal
right over the property to warrant the issuance of the
preliminary mandatory/prohibitory injunction.
In actions involving realty, preliminary injunction will lie only
after the plaintiff has fully established his title or right thereto by
a proper action for the purpose. To authorize a temporary
injunction, the complainant must make out at least a prima
facie showing of a right to the final relief. Preliminary injunction
will not issue to protect a right not in esse (Buayan Cattle Co.
Inc. v. Quintillan, 128 SCRA 286-287 [1984]; Ortigas & Company,
Limited Partnership v. Ruiz, 148 SCRA 326 [1987]).
Two requisites are necessary if a preliminary injunction is to
issue, namely, the existence of the right to be protected, and
the facts against which the injunction is to be directed, are
violative of said right. In particular, for a writ of preliminary
injunction to issue, the existence of the right and the violation
must appear in the allegations of the complaint and an
injunction is proper also when the plaintiff appears to be entitled
to the relief demanded in his complaint. Furthermore, the
complaint for injunctive relief must be construed strictly against
the pleader (Ortigas & Company, Limited Partnership v.
Ruiz, supra).
PERIMETER FENCE
GENTLEMEN:
This is in connection with the construction of the Perimeter
Fence for the Toyota Motor Plant Facilities which to this date
we have not started yet due to the following reasons:
1. Lack of fencing permit which can only be applied to and
issued by the Paraaque Building Official upon receipt of the
transfer certificate to title and tax declaration.
2. Although the Building Official has verbally instructed us
to proceed with the renovation work and construction of
fence, we could not execute the fencing work due to
discrepancies on the consolidation plan and the existing
property monuments. These discrepancies was (sic)
confirmed with the representatives of the Geodetic
Engineer.
Kindly expedite the immediate confirmation with the
Geodetic Engineer on the final descriptions of the property
lines.
We would appreciate your usual prompt attention regarding
this matter.
Very truly yours,

In the instant case the existence of a "clear positive right" CESAR D. ELE
especially calling for judicial protection has been shown by Sun Project Manager (Emphasis supplied, Rollo, p. 811)
Valley.

Despite such notification, Toyota continued to build the

Toyota's claim over the disputed property is anchored on the perimeter fence. It is highly doubtful whether Toyota may be
fact of its purchase of the property from APT, that from the considered a builder in good faith to be entitled to protection
circumstances of the purchase and the intention of the parties, under Article 448 of the Civil Code.
the property including the disputed area was sold to it.

Sun Valley, on the other hand has TCT No. 49019 of the Registry
of Deeds of Paraaque embracing the aforesaid property in its
name, having been validly acquired also from APT by virtue of a
Deed of Sale executed in its favor on December 5, 1990 (Rollo,
pp. 823-825; 826-827).
There are other circumstances in the case which militate against
Toyota's claim for legal possession over the disputed area.
The records also reveal that Toyota's own surveyor, the Certeza
Surveying & Acrophoto Systems, Inc. confirmed in its reports
dated April 1 and April 5, 1991 that Toyota's perimeter fence
overlaps the boundaries of Sun Valley's lot (Rollo, pp. 833-383).
Even communication exchanges between and among APT,
Toyota & Sun Valley show that the parties are certainly aware
that the ownership of the disputed property more properly
pertains to Sun Valley. Among these are the following:91

The fact that Toyota has filed a suit for reformation seeking the MR. JOSE CH. ALVAREZ
inclusion of the 723 square meters strip of land is sufficient to President
deduce that it is not entitled to take over the piece of property it Sun Valley Manufacturing &
now attempts to appropriate for itself. Development Corp. (SVMDC)
Cor. Aurora Blvd. and Andrews Ave.
Pasay City, Metro Manila
 113
Dear Mr. Alvarez: TOYOTA MOTOR PHILIPPINES CORPORATION
Rm. 15, South Superhighway
Paraaque, Metro Manila
Thank you for honoring our invitation to a luncheon meeting
held at noon time today at Sugi Restaurant.
ATTENTION: MR. MASAO MITAKE
President
As per our understanding, we would like to propose as a
package the settlement of differences between your property
and ours as follows: Gentlemen:

1. Boundary Issue between TMP Main Office & Factory and the This refers to our several meetings regarding the property
recently acquired property of SVMDC. problems at "Lot 6" and your encroachment of SVMD LOT I.

The boundary lines to our property lines bidded early 1988
were determined after making full payment in August 1988
jointly by representatives of TMP/Metrobank Messrs. Mitake,
Pedrosa, Alonzo and Jurado, APT Mr. Bince together with
representatives of Geo-Resources who installed the
monuments and prepared the technical description of the
property. The construction of the fence utilized existing fence
marked yellow on Exhibit 1 and made sure that the new fence
to set boundaries were on top of the monuments set by Geo-
Resources. The replacement of existing wire fence were
affected by setting concrete walls on exactly the same
position.
We wish to thank you for finally acknowledging the legitimacy
of our demands on both properties. In order to start a good
business relationship, we propose that the property problem
at "LOT 6" which consists of the perimeter fence, water
reservoir, water pump and systems be settled first, in the
amount of P3,500,000.00 payable to CMANC.
We also would like to request you to allow us to continue
usage of the MERALCO posts and lines connecting to SVMD
power station which passes thru your property and allow entry
of MERALCO linemen from time to time.

Upon acceptance of these requests, I will confer which our

This is the reason why we are surprised top be informed that
our fence goes beyond the boundary lines set forth in the
Technical Description on the Transfer Certificate of Title (TCT)
to our property. This occurs even on fence already existing
and should have been maintained in the TCT.
Japanese partners to consider the selling of the 723 sq. m. of
land adjacent to your Assembly Plant which you continue to
use even after said property has been legally transferred to
us from last quarter of 1990.

In view of your present good behavior, we are hoping that this

Since we have manifested our intention when we set
boundaries to our property, we propose the following in
relation to the excess area occupied by TMP.
1. We offer to give way to an access road 5 m. wide more or
less from point 15 to 16 of Lot 2 (14.65 m. in length) at the
back of our Paint Storage Building (Exhibit 2).
2. We propose to pay for the balance of excess land inside
TMP fence (contested areas) at a price mutually agreed upon.
first problem be settled not later than July 15, 1991,
otherwise, we will consider the whole matter as unacceptable
to you and we, therefore, proceed as earlier demanded to
immediately demolish the CHB fence that prevents us from
using our property.
We hope for your immediate action to start the resolution of
these unwanted problems.
Ver)

II. Question of ownership of certain permanent improvements Moreover, Sun Valley puts forth evidence that Toyota has altered
(underground water reservoir and perimeter walls/fences) the boundaries of its own property by moving the monuments
located at Lot 6 which we won by bidding from APT on erected thereon by APT's surveyor Geo-Resources and
October 5, 1990. Consultancy, Inc. when Lot 2 was initially surveyed in August
1988:
We have made our position to APT that these permanent
improvements are part of Lot 6 on "as is where is" bid basis The Asset Privitalization Trust
(See explanatory map Exhibit 3). However, since you have 10th Floor, BA-Lepanto Building
relayed to us that the underground water reservoir is of no 9847 Paseo de Roxas Building
use to you, as part of the total package we are proposing to Metro Manila
pay for the underground water reservoir, the applicable
perimeter walls/fences and the water pump/pipings at a price
mutually agreed upon. Attention: Mr. Felipe B. Bince, Jr.
Associate Executive Trustee

We hope that through this proposal we would settle our

differences and look forward to a more cooperative
relationship between good neighbors.
We will appreciate your favorable
immediate attention on the matter.
Very truly yours,
MASAO
President
Dear Sirs:
This has reference to our letter to your office dated April 8,
consideration and 1991, a copy of which is attached, regarding the check
survey of Delta I. After asking some of the field men who
participated in the various surveys of Delta I from the
consolidation to subdivision surveys, we found out that
some more of the present corner points are not the same
points shown to them during the surveys. We shall show
MITAKE this during a meeting with the representatives of the
owners of Lots 1 and 2.

We hope this will clarify the discrepancies.

July 4, 1991 (Emphasis supplied; Rollo, p. 839)


There is therefore sufficient and convincing proof that Sun Valley
has a clear legal right to possession in its favor to warrant the
issuance of a writ of preliminary/mandatory injunction. Sun
Valley's TCT gives it that right to possession. On the other hand,
Toyota has not established its right over the said property
except for the assertion that there was a mistake in an
instrument which purportedly should have included the
questioned strip of land.
As between the two (2) parties, Sun Valley has a better right.
Under the circumstances, therefore, and considering that the
clear legal right of Toyota to possession of the disputed area has
not been established sufficient to grant the prayed for relief, a
writ of preliminary mandatory injunction may be
issued pendente lite. (See Mara, Inc. v. Estrella, 65 SCRA 471
[1975]; De Gracia v. Santos, 79 Phil. 365 [1947]; Rodulfa v.
Alfonso, 76 Phil. 225 [1946] and Torre v. Querubin, 101 Phil. 53
[1957])
In view of all the foregoing, the petition is hereby DISMISSED for
failure to show reversible error, much less grave abuse of
discretion, on the part of the respondent court.
EN BANC
G.R. No. 155001 May 5, 2003
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE
MARI B. REUNILLA, MANUEL ANTONIO B. BOE,
MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V.
DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON,
REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, MIASCOR
WORKERS UNION - NATIONAL LABOR UNION (MWU-NLU),
and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION
(PALEA), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC.,
MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS and SECRETARY LEANDRO M.
MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-
WINGS AVIATION SYSTEMS CORPORATION, MACROASIA-
EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT
SERVICES CORPORATION, MIASCOR CATERING SERVICES
CORPORATION, MIASCOR AIRCRAFT MAINTENANCE
CORPORATION, and MIASCOR LOGISTICS
CORPORATION, petitioners-in-intervention,
PUNO, J.:
Petitioners and petitioners-in-intervention filed the instant
petitions for prohibition under Rule 65 of the Revised Rules of
Court seeking to prohibit the Manila International Airport
Authority (MIAA) and the Department of Transportation and
Communications (DOTC) and its Secretary from implementing
the following agreements executed by the Philippine
Government through the DOTC and the MIAA and the Philippine
International Air Terminals Co., Inc. (PIATCO): (1) the Concession
Agreement signed on July 12, 1997, (2) the Amended and
Restated Concession Agreement dated November 26, 1999, (3)
the First Supplement to the Amended and Restated Concession
Agreement dated August 27, 1999, (4) the Second Supplement
to the Amended and Restated Concession Agreement dated
September 4, 2000, and (5) the Third Supplement to the
Amended and Restated Concession Agreement dated June 22,
2001 (collectively, the PIATCO Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the services of
Aeroport de Paris (ADP) to conduct a comprehensive
study of the Ninoy Aquino International Airport (NAIA)
and determine whether the present airport can cope
with the traffic development up to the year 2010. The
study consisted of two parts: first, traffic forecasts,
capacity of existing facilities, NAIA future requirements,
114
proposed master plans and development plans; and
second, presentation of the preliminary design of the
passenger terminal building. The ADP submitted a Draft
Final Report to the DOTC in December 1989.
Some time in 1993, six business leaders consisting of
John Gokongwei, Andrew Gotianun, Henry Sy, Sr., Lucio
Tan, George Ty and Alfonso Yuchengco met with then
President Fidel V. Ramos to explore the possibility of
investing in the construction and operation of a new
international airport terminal. To signify their
commitment to pursue the project, they formed the
Asia's Emerging Dragon Corp. (AEDC) which was
registered with the Securities and Exchange
Commission (SEC) on September 15, 1993.
On October 5, 1994, AEDC submitted an unsolicited
proposal to the Government through the DOTC/MIAA for
the development of NAIA International Passenger
Terminal III (NAIA IPT III) under a build-operate-and-
transfer arrangement pursuant to RA 6957 as amended
by RA 7718 (BOT Law).1
On December 2, 1994, the DOTC issued Dept. Order No. 94-832
constituting the Prequalification Bids and Awards Committee
(PBAC) for the implementation of the NAIA IPT III project.
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed
the proposal of AEDC to the National Economic and
Development Authority (NEDA). A revised proposal, however,
was forwarded by the DOTC to NEDA on December 13, 1995. On
January 5, 1996, the NEDA Investment Coordinating Council
(NEDA ICC) Technical Board favorably endorsed the project to
the ICC Cabinet Committee which approved the same, subject
to certain conditions, on January 19, 1996. On February 13,
1996, the NEDA passed Board Resolution No. 2 which approved
the NAIA IPT III project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication
in two daily newspapers of an invitation for competitive or
comparative proposals on AEDC's unsolicited proposal, in
accordance with Sec. 4-A of RA 6957, as amended. The
alternative bidders were required to submit three (3) sealed
envelopes on or before 5:00 p.m. of September 20, 1996. The
first envelope should contain the Prequalification Documents,
the second envelope the Technical Proposal, and the third
envelope the Financial Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing
the availment of the Bid Documents and the submission of the
comparative bid proposals. Interested firms were permitted to
obtain the Request for Proposal Documents beginning June 28,
1996, upon submission of a written application and payment of
a non-refundable fee of P50,000.00 (US$2,000).
The Bid Documents issued by the PBAC provided among others
that the proponent must have adequate capability to sustain the
financing requirement for the detailed engineering, design,
construction, operation, and maintenance phases of the project.
The proponent would be evaluated based on its ability to
provide a minimum amount of equity to the project, and its
capacity to secure external financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all
bidders to a pre-bid conference on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3
amending the Bid Documents. The following amendments were
made on the Bid Documents:
a. Aside from the fixed Annual Guaranteed Payment,
the proponent shall include in its financial proposal an
additional percentage of gross revenue share of the
Government, as follows:
i. First 5 years 5.0%

ii. Next 10 years
iii. Next 10 years
b. The amount of the fixed Annual Guaranteed Payment
shall be subject of the price challenge. Proponent may
offer an Annual Guaranteed Payment which need not
be of equal amount, but payment of which shall start
upon site possession.
c. The project proponent must have adequate
capability to sustain the financing requirement for the
detailed engineering, design, construction, and/or
operation and maintenance phases of the project as
the case may be. For purposes of pre-qualification, this
capability shall be measured in terms of:
i. Proof of the availability of the project
proponent and/or the consortium to provide
the minimum amount of equity for the project;
and
ii. a letter testimonial from reputable banks
attesting that the project proponent and/or the
members of the consortium are banking with
them, that the project proponent and/or the
members are of good financial standing, and
have adequate resources.
d. The basis for the prequalification shall be the
proponent's compliance with the minimum technical
and financial requirements provided in the Bid
Documents and the IRR of the BOT Law. The minimum
amount of equity shall be 30% of the Project Cost.
e. Amendments to the draft Concession Agreement
shall be issued from time to time. Said amendments
shall only cover items that would not materially affect
the preparation of the proponent's proposal.
On August 29, 1996, the Second Pre-Bid Conference was held
where certain clarifications were made. Upon the request of
prospective bidder People's Air Cargo & Warehousing Co., Inc
(Paircargo), the PBAC warranted that based on Sec. 11.6, Rule
11 of the Implementing Rules and Regulations of the BOT Law,
only the proposed Annual Guaranteed Payment submitted by
the challengers would be revealed to AEDC, and that the
challengers' technical and financial proposals would remain
confidential. The PBAC also clarified that the list of revenue
sources contained in Annex 4.2a of the Bid Documents was
merely indicative and that other revenue sources may be
included by the proponent, subject to approval by DOTC/MIAA.
Furthermore, the PBAC clarified that only those fees and charges
denominated as Public Utility Fees would be subject to
regulation, and those charges which would be actually deemed
Public Utility Fees could still be revised, depending on the
outcome of PBAC's query on the matter with the Department of
Justice.
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled
"Answers to the Queries of PAIRCARGO as Per Letter Dated
September 3 and 10, 1996." Paircargo's queries and the PBAC's
responses were as follows:
1. It is difficult for Paircargo and Associates to meet the
required minimum equity requirement as prescribed in
Section 8.3.4 of the Bid Documents considering that
the capitalization of each member company is so
115
structured to meet the requirements and needs of their
current respective business undertaking/activities. In
order to comply with this equity requirement, Paircargo
is requesting PBAC to just allow each member of (sic)
corporation of the Joint Venture to just execute an
agreement that embodies a commitment to infuse the
required capital in case the project is awarded to the
7.5% Joint Venture instead of increasing each corporation's
current authorized capital stock just for prequalification
purposes.
10.0%
In prequalification, the agency is interested in one's
financial capability at the time of prequalification, not
future or potential capability.
A commitment to put up equity once awarded the
project is not enough to establish that "present"
financial capability. However, total financial capability
of all member companies of the Consortium, to be
established by submitting the respective companies'
audited financial statements, shall be acceptable.
2. At present, Paircargo is negotiating with banks and
other institutions for the extension of a Performance
Security to the joint venture in the event that the
Concessions Agreement (sic) is awarded to them.
However, Paircargo is being required to submit a copy
of the draft concession as one of the documentary
requirements. Therefore, Paircargo is requesting that
they'd (sic) be furnished copy of the approved
negotiated agreement between the PBAC and the
AEDC at the soonest possible time.
A copy of the draft Concession Agreement is included in
the Bid Documents. Any material changes would be
made known to prospective challengers through bid
bulletins. However, a final version will be issued before
the award of contract.
The PBAC also stated that it would require AEDC to sign
Supplement C of the Bid Documents (Acceptance of Criteria and
Waiver of Rights to Enjoin Project) and to submit the same with
the required Bid Security.
On September 20, 1996, the consortium composed of People's
Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and
Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security
Bank) (collectively, Paircargo Consortium) submitted their
competitive proposal to the PBAC. On September 23, 1996, the
PBAC opened the first envelope containing the prequalification
documents of the Paircargo Consortium. On the following day,
September 24, 1996, the PBAC prequalified the Paircargo
Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of
its reservations as regards the Paircargo Consortium, which
include:
a. The lack of corporate approvals and financial
capability of PAIRCARGO;
b. The lack of corporate approvals and financial
capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the
General Banking Act) on the amount that Security Bank
could legally invest in the project;
d. The inclusion of Siemens as a contractor of the
PAIRCARGO Joint Venture, for prequalification purposes;
and
e. The appointment of Lufthansa as the facility
operator, in view of the Philippine requirement in the
operation of a public utility.

The PBAC gave its reply on October 2, 1996, informing AEDC
that it had considered the issues raised by the latter, and that
based on the documents submitted by Paircargo and the
established prequalification criteria, the PBAC had found that
the challenger, Paircargo, had prequalified to undertake the
project. The Secretary of the DOTC approved the finding of the
PBAC.
The PBAC then proceeded with the opening of the second
envelope of the Paircargo Consortium which contained its
Technical Proposal.
On October 3, 1996, AEDC reiterated its objections, particularly
with respect to Paircargo's financial capability, in view of the
restrictions imposed by Section 21-B of the General Banking Act
and Sections 1380 and 1381 of the Manual Regulations for
Banks and Other Financial Intermediaries. On October 7, 1996,
AEDC again manifested its objections and requested that it be
furnished with excerpts of the PBAC meeting and the
accompanying technical evaluation report where each of the
issues they raised were addressed.
On October 16, 1996, the PBAC opened the third envelope
submitted by AEDC and the Paircargo Consortium containing
their respective financial proposals. Both proponents offered to
build the NAIA Passenger Terminal III for at least $350 million at
no cost to the government and to pay the government: 5%
share in gross revenues for the first five years of operation,
7.5% share in gross revenues for the next ten years of
operation, and 10% share in gross revenues for the last ten
years of operation, in accordance with the Bid Documents.
However, in addition to the foregoing, AEDC offered to pay the
government a total of P135 million as guaranteed payment for
27 years while Paircargo Consortium offered to pay the
government a total of P17.75 billion for the same period.
Thus, the PBAC formally informed AEDC that it had accepted the
price proposal submitted by the Paircargo Consortium, and gave
AEDC 30 working days or until November 28, 1996 within which
to match the said bid, otherwise, the project would be awarded
to Paircargo.
As AEDC failed to match the proposal within the 30-day period,
then DOTC Secretary Amado Lagdameo, on December 11, 1996,
issued a notice to Paircargo Consortium regarding AEDC's failure
to match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into
Philippine International Airport Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue preference
given to PIATCO and reiterated its objections as regards the
prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession
agreement for the second-pass approval of the NEDA-ICC.
On April 16, 1997, AEDC filed with the Regional Trial Court of
Pasig a Petition for Declaration of Nullity of the Proceedings,
Mandamus and Injunction against the Secretary of the DOTC,
the Chairman of the PBAC, the voting members of the PBAC and
Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC
Technical Committee.
On April 17, 1997, the NEDA-ICC conducted an ad referendum to
facilitate the approval, on a no-objection basis, of the BOT
agreement between the DOTC and PIATCO. As the ad
referendum gathered only four (4) of the required six (6)
signatures, the NEDA merely noted the agreement.
On July 9, 1997, the DOTC issued the notice of award for the
project to PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary
Arturo T. Enrile, and PIATCO, through its President, Henry T. Go,
signed the "Concession Agreement for the Build-Operate-and-
Transfer Arrangement of the Ninoy Aquino International Airport
Passenger Terminal III" (1997 Concession Agreement). The
116
Government granted PIATCO the franchise to operate and
maintain the said terminal during the concession period and to
collect the fees, rentals and other charges in accordance with
the rates or schedules stipulated in the 1997 Concession
Agreement. The Agreement provided that the concession period
shall be for twenty-five (25) years commencing from the in-
service date, and may be renewed at the option of the
Government for a period not exceeding twenty-five (25) years.
At the end of the concession period, PIATCO shall transfer the
development facility to MIAA.
On November 26, 1998, the Government and PIATCO signed an
Amended and Restated Concession Agreement (ARCA). Among
the provisions of the 1997 Concession Agreement that were
amended by the ARCA were: Sec. 1.11 pertaining to the
definition of "certificate of completion"; Sec. 2.05 pertaining to
the Special Obligations of GRP; Sec. 3.02 (a) dealing with the
exclusivity of the franchise given to the Concessionaire; Sec.
4.04 concerning the assignment by Concessionaire of its interest
in the Development Facility; Sec. 5.08 (c) dealing with the
proceeds of Concessionaire's insurance; Sec. 5.10 with respect
to the temporary take-over of operations by GRP; Sec. 5.16
pertaining to the taxes, duties and other imposts that may be
levied on the Concessionaire; Sec. 6.03 as regards the periodic
adjustment of public utility fees and charges; the entire Article
VIII concerning the provisions on the termination of the contract;
and Sec. 10.02 providing for the venue of the arbitration
proceedings in case a dispute or controversy arises between the
parties to the agreement.
Subsequently, the Government and PIATCO signed three
Supplements to the ARCA. The First Supplement was signed on
August 27, 1999; the Second Supplement on September 4,
2000; and the Third Supplement on June 22, 2001 (collectively,
Supplements).
The First Supplement to the ARCA amended Sec. 1.36 of the
ARCA defining "Revenues" or "Gross Revenues"; Sec. 2.05 (d) of
the ARCA referring to the obligation of MIAA to provide sufficient
funds for the upkeep, maintenance, repair and/or replacement
of all airport facilities and equipment which are owned or
operated by MIAA; and further providing additional special
obligations on the part of GRP aside from those already
enumerated in Sec. 2.05 of the ARCA. The First Supplement also
provided a stipulation as regards the construction of a surface
road to connect NAIA Terminal II and Terminal III in lieu of the
proposed access tunnel crossing Runway 13/31; the swapping of
obligations between GRP and PIATCO regarding the
improvement of Sales Road; and the changes in the timetable. It
also amended Sec. 6.01 (c) of the ARCA pertaining to the
Disposition of Terminal Fees; Sec. 6.02 of the ARCA by inserting
an introductory paragraph; and Sec. 6.02 (a) (iii) of the ARCA
referring to the Payments of Percentage Share in Gross
Revenues.
The Second Supplement to the ARCA contained provisions
concerning the clearing, removal, demolition or disposal of
subterranean structures uncovered or discovered at the site of
the construction of the terminal by the Concessionaire. It
defined the scope of works; it provided for the procedure for the
demolition of the said structures and the consideration for the
same which the GRP shall pay PIATCO; it provided for time
extensions, incremental and consequential costs and losses
consequent to the existence of such structures; and it provided
for some additional obligations on the part of PIATCO as regards
the said structures.
Finally, the Third Supplement provided for the obligations of the
Concessionaire as regards the construction of the surface road
connecting Terminals II and III.
Meanwhile, the MIAA which is charged with the maintenance
and operation of the NAIA Terminals I and II, had existing
concession contracts with various service providers to offer
international airline airport services, such as in-flight catering,
passenger handling, ramp and ground support, aircraft
maintenance and provisions, cargo handling and warehousing,
and other services, to several international airlines at the NAIA.
Some of these service providers are the Miascor Group, DNATA-
Wings Aviation Systems Corp., and the MacroAsia Group.
Miascor, DNATA and MacroAsia, together with Philippine Airlines

(PAL), are the dominant players in the industry with an
aggregate market share of 70%.
On September 17, 2002, the workers of the international airline
service providers, claiming that they stand to lose their
employment upon the implementation of the questioned
agreements, filed before this Court a petition for prohibition to
enjoin the enforcement of said agreements.2
On October 15, 2002, the service providers, joining the cause of
the petitioning workers, filed a motion for intervention and a
petition-in-intervention.
On October 24, 2002, Congressmen Salacnib Baterina, Clavel
Martinez and Constantino Jaraula filed a similar petition with this
Court.3
On November 6, 2002, several employees of the MIAA likewise
filed a petition assailing the legality of the various agreements. 4
On December 11, 2002. another group of Congressmen, Hon.
Jacinto V. Paras, Rafael P. Nantes, Eduardo C. Zialcita, Willie B.
Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin
Cast Abayon and Benasing O. Macaranbon, moved to intervene
in the case as Respondents-Intervenors. They filed their
Comment-In-Intervention defending the validity of the assailed
agreements and praying for the dismissal of the petitions.
During the pendency of the case before this Court, President
Gloria Macapagal Arroyo, on November 29, 2002, in her speech
at the 2002 Golden Shell Export Awards at Malacaang Palace,
stated that she will not "honor (PIATCO) contracts which the
Executive Branch's legal offices have concluded (as) null and
void."5
Respondent PIATCO filed its Comments to the present petitions
on November 7 and 27, 2002. The Office of the Solicitor General
and the Office of the Government Corporate Counsel filed their
respective Comments in behalf of the public respondents.
On December 10, 2002, the Court heard the case on oral
argument. After the oral argument, the Court then resolved in
open court to require the parties to file simultaneously their
respective Memoranda in amplification of the issues heard in the
oral arguments within 30 days and to explore the possibility of
arbitration or mediation as provided in the challenged contracts.
In their consolidated Memorandum, the Office of the Solicitor
General and the Office of the Government Corporate Counsel
prayed that the present petitions be given due course and that
judgment be rendered declaring the 1997 Concession
Agreement, the ARCA and the Supplements thereto void for
being contrary to the Constitution, the BOT Law and its
Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the Court that
on March 4, 2003 PIATCO commenced arbitration proceedings
before the International Chamber of Commerce, International
Court of Arbitration (ICC) by filing a Request for Arbitration with
the Secretariat of the ICC against the Government of the
Republic of the Philippines acting through the DOTC and MIAA.
In the present cases, the Court is again faced with the task of
resolving complicated issues made difficult by their intersecting
legal and economic implications. The Court is aware of the far
reaching fall out effects of the ruling which it makes today. For
more than a century and whenever the exigencies of the times
demand it, this Court has never shirked from its solemn duty to
dispense justice and resolve "actual controversies involving
rights which are legally demandable and enforceable, and to
determine whether or not there has been grave abuse of
discretion amounting to lack or excess of jurisdiction." 6 To be
sure, this Court will not begin to do otherwise today.
We shall first dispose of the procedural issues raised by
respondent PIATCO which they allege will bar the resolution of
the instant controversy.
117
Petitioners' Legal Standing to File the present Petitions
a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are employees of
various service providers7 having separate concession contracts
with MIAA and continuing service agreements with various
international airlines to provide in-flight catering, passenger
handling, ramp and ground support, aircraft maintenance and
provisions, cargo handling and warehousing and other services.
Also included as petitioners are labor unions MIASCOR Workers
Union-National Labor Union and Philippine Airlines Employees
Association. These petitioners filed the instant action for
prohibition as taxpayers and as parties whose rights and
interests stand to be violated by the implementation of the
PIATCO Contracts.
Petitioners-Intervenors in the same case are all corporations
organized and existing under Philippine laws engaged in the
business of providing in-flight catering, passenger handling,
ramp and ground support, aircraft maintenance and provisions,
cargo handling and warehousing and other services to several
international airlines at the Ninoy Aquino International Airport.
Petitioners-Intervenors allege that as tax-paying international
airline and airport-related service operators, each one of them
stands to be irreparably injured by the implementation of the
PIATCO Contracts. Each of the petitioners-intervenors have
separate and subsisting concession agreements with MIAA and
with various international airlines which they allege are being
interfered with and violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees of MIAA
and Samahang Manggagawa sa Paliparan ng Pilipinas - a
legitimate labor union and accredited as the sole and exclusive
bargaining agent of all the employees in MIAA. Petitioners
anchor their petition for prohibition on the nullity of the
contracts entered into by the Government and PIATCO regarding
the build-operate-and-transfer of the NAIA IPT III. They filed the
petition as taxpayers and persons who have a legitimate
interest to protect in the implementation of the PIATCO
Contracts.
Petitioners in both cases raise the argument that the PIATCO
Contracts contain stipulations which directly contravene
numerous provisions of the Constitution, specific provisions of
the BOT Law and its Implementing Rules and Regulations, and
public policy. Petitioners contend that the DOTC and the MIAA,
by entering into said contracts, have committed grave abuse of
discretion amounting to lack or excess of jurisdiction which can
be remedied only by a writ of prohibition, there being no plain,
speedy or adequate remedy in the ordinary course of law.
In particular, petitioners assail the provisions in the 1997
Concession Agreement and the ARCA which grant PIATCO the
exclusive right to operate a commercial international passenger
terminal within the Island of Luzon, except those international
airports already existing at the time of the execution of the
agreement. The contracts further provide that upon the
commencement of operations at the NAIA IPT III, the
Government shall cause the closure of Ninoy Aquino
International Airport Passenger Terminals I and II as international
passenger terminals. With respect to existing concession
agreements between MIAA and international airport service
providers regarding certain services or operations, the 1997
Concession Agreement and the ARCA uniformly provide that
such services or operations will not be carried over to the NAIA
IPT III and PIATCO is under no obligation to permit such carry
over except through a separate agreement duly entered into
with PIATCO.8
With respect to the petitioning service providers and their
employees, upon the commencement of operations of the NAIA
IPT III, they allege that they will be effectively barred from
providing international airline airport services at the NAIA
Terminals I and II as all international airlines and passengers will
be diverted to the NAIA IPT III. The petitioning service providers
will thus be compelled to contract with PIATCO alone for such
services, with no assurance that subsisting contracts with MIAA
and other international airlines will be respected. Petitioning
service providers stress that despite the very competitive

market, the substantial capital investments required and the
high rate of fees, they entered into their respective contracts
with the MIAA with the understanding that the said contracts will
be in force for the stipulated period, and thereafter, renewed so
as to allow each of the petitioning service providers to recoup
their investments and obtain a reasonable return thereon.
Petitioning employees of various service providers at the NAIA
Terminals I and II and of MIAA on the other hand allege that with
the closure of the NAIA Terminals I and II as international
passenger terminals under the PIATCO Contracts, they stand to
lose employment.
118
agencies or instrumentalities." 16 Further, "insofar as taxpayers'
suits are concerned . . . (this Court) is not devoid of
discretion as to whether or not it should be entertained." 17 As
such ". . . even if, strictly speaking, they [the petitioners] are not
covered by the definition, it is still within the wide discretion of
the Court to waive the requirement and so remove the
impediment to its addressing and resolving the serious
constitutional questions raised." 18 In view of the serious legal
questions involved and their impact on public interest, we
resolve to grant standing to the petitioners.
Other Procedural Matters

The question on legal standing is whether such parties have
"alleged such a personal stake in the outcome of the
controversy as to assure that concrete adverseness which
sharpens the presentation of issues upon which the court so
largely depends for illumination of difficult constitutional
questions."9 Accordingly, it has been held that the interest of a
person assailing the constitutionality of a statute must be direct
and personal. He must be able to show, not only that the law or
any government act is invalid, but also that he sustained or is in
imminent danger of sustaining some direct injury as a result of
its enforcement, and not merely that he suffers thereby in some
indefinite way. It must appear that the person complaining has
been or is about to be denied some right or privilege to which he
is lawfully entitled or that he is about to be subjected to some
burdens or penalties by reason of the statute or act complained
of.10
Respondent PIATCO further alleges that this Court is without
jurisdiction to review the instant cases as factual issues are
involved which this Court is ill-equipped to resolve. Moreover,
PIATCO alleges that submission of this controversy to this Court
at the first instance is a violation of the rule on hierarchy of
courts. They contend that trial courts have concurrent
jurisdiction with this Court with respect to a special civil action
for prohibition and hence, following the rule on hierarchy of
courts, resort must first be had before the trial courts.
After a thorough study and careful evaluation of the issues
involved, this Court is of the view that the crux of the instant
controversy involves significant legal questions. The facts
necessary to resolve these legal questions are well established
and, hence, need not be determined by a trial court.

The rule on hierarchy of courts will not also prevent this Court
We hold that petitioners have the requisite standing. In the
from assuming jurisdiction over the cases at bar. The said rule
above-mentioned cases, petitioners have a direct and
may be relaxed when the redress desired cannot be obtained in
substantial interest to protect by reason of the implementation
the appropriate courts or where exceptional and compelling
of the PIATCO Contracts. They stand to lose their source of
circumstances justify availment of a remedy within and calling
livelihood, a property right which is zealously protected by the
for the exercise of this Court's primary jurisdiction.19
Constitution. Moreover, subsisting concession agreements
between MIAA and petitioners-intervenors and service contracts
between international airlines and petitioners-intervenors stand It is easy to discern that exceptional circumstances exist in
to be nullified or terminated by the operation of the NAIA IPT III the cases at bar that call for the relaxation of the rule. Both
under the PIATCO Contracts. The financial prejudice brought petitioners and respondents agree that these cases are
about by the PIATCO Contracts on petitioners and petitioners- of transcendental importance as they involve the
intervenors in these cases are legitimate interests sufficient to construction and operation of the country's premier international
confer on them the requisite standing to file the instant airport. Moreover, the crucial issues submitted for resolution are
petitions. of first impression and they entail the proper legal interpretation
of key provisions of the Constitution, the BOT Law and its
Implementing Rules and Regulations. Thus, considering the
b. G.R. No. 155547
nature of the controversy before the Court, procedural bars may
be lowered to give way for the speedy disposition of the instant
In G.R. No. 155547, petitioners filed the petition for prohibition cases.
as members of the House of Representatives, citizens and
taxpayers. They allege that as members of the House of
Legal Effect of the Commencement of Arbitration
Representatives, they are especially interested in the PIATCO
Proceedings by
Contracts, because the contracts compel the Government
and/or the House of Representatives to appropriate funds
necessary to comply with the provisions therein. 11 They cite PIATCO
provisions of the PIATCO Contracts which require disbursement
of unappropriated amounts in compliance with the contractual
There is one more procedural obstacle which must be overcome.
obligations of the Government. They allege that the Government
The Court is aware that arbitration proceedings pursuant to
obligations in the PIATCO Contracts which compel government
Section 10.02 of the ARCA have been filed at the instance of
expenditure without appropriation is a curtailment of their
respondent PIATCO. Again, we hold that the arbitration step
prerogatives as legislators, contrary to the mandate of the
taken by PIATCO will not oust this Court of its jurisdiction over
Constitution that "[n]o money shall be paid out of the treasury
the cases at bar.
except in pursuance of an appropriation made by law." 12

In Del Monte Corporation-USA v. Court of Appeals, 20 even after

Standing is a peculiar concept in constitutional law because in
finding that the arbitration clause in the Distributorship
some cases, suits are not brought by parties who have been
Agreement in question is valid and the dispute between the
personally injured by the operation of a law or any other
parties is arbitrable, this Court affirmed the trial court's decision
government act but by concerned citizens, taxpayers or voters
denying petitioner's Motion to Suspend Proceedings pursuant to
who actually sue in the public interest. Although we are not
the arbitration clause under the contract. In so ruling, this Court
unmindful of the cases of Imus Electric Co. v. Municipality of
held that as contracts produce legal effect between the parties,
Imus13 and Gonzales v. Raquiza14 wherein this Court held that
their assigns and heirs, only the parties to the Distributorship
appropriation must be made only on amounts immediately
Agreement are bound by its terms, including the arbitration
demandable, public interest demands that we take a more
clause stipulated therein. This Court ruled that arbitration
liberal view in determining whether the petitioners suing
proceedings could be called for but only with respect to the
as legislators, taxpayers and citizens have locus standi
parties to the contract in question. Considering that there are
to file the instant petition. In Kilosbayan, Inc. v.
parties to the case who are neither parties to the Distributorship
Guingona,15 this Court held "[i]n line with the liberal policy of
Agreement nor heirs or assigns of the parties thereto, this Court,
this Court on locus standi, ordinary taxpayers, members of
citing its previous ruling in Salas, Jr. v. Laperal Realty
Congress, and even association of planters, and non-profit civic
Corporation,21 held that to tolerate the splitting of proceedings
organizations were allowed to initiate and prosecute actions
by allowing arbitration as to some of the parties on the one
before this Court to question the constitutionality or validity of
hand and trial for the others on the other hand would, in effect,
laws, acts, decisions, rulings, or orders of various government

result in multiplicity of suits, duplicitous procedure and
unnecessary delay.22 Thus, we ruled that the interest of justice
would best be served if the trial court hears and adjudicates the
case in a single and complete proceeding.
It is established that petitioners in the present cases who
have presented legitimate interests in the resolution of the
controversy are not parties to the PIATCO Contracts.
Accordingly, they cannot be bound by the arbitration clause
provided for in the ARCA and hence, cannot be compelled to
submit to arbitration proceedings. A speedy and decisive
resolution of all the critical issues in the present
controversy, including those raised by petitioners,
cannot be made before an arbitral tribunal. The object of
arbitration is precisely to allow an expeditious determination of
a dispute. This objective would not be met if this Court were to
allow the parties to settle the cases by arbitration as there are
certain issues involving non-parties to the PIATCO Contracts
which the arbitral tribunal will not be equipped to resolve.
Now, to the merits of the instant controversy.
I
Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo Consortium,
PIATCO's predecessor, was not a duly pre-qualified bidder on the
unsolicited proposal submitted by AEDC as the Paircargo
Consortium failed to meet the financial capability required under
the BOT Law and the Bid Documents. They allege that in
computing the ability of the Paircargo Consortium to meet the
minimum equity requirements for the project, the entire net
worth of Security Bank, a member of the consortium,
should not be considered.
PIATCO relies, on the other hand, on the strength of the
Memorandum dated October 14, 1996 issued by the DOTC
Undersecretary Primitivo C. Cal stating that the Paircargo
Consortium is found to have a combined net worth of
P3,900,000,000.00, sufficient to meet the equity requirements
of the project. The said Memorandum was in response to a letter
from Mr. Antonio Henson of AEDC to President Fidel V. Ramos
questioning the financial capability of the Paircargo Consortium
on the ground that it does not have the financial resources to
put up the required minimum equity of P2,700,000,000.00. This
contention is based on the restriction under R.A. No. 337, as
amended or the General Banking Act that a commercial bank
cannot invest in any single enterprise in an amount more than
15% of its net worth. In the said Memorandum, Undersecretary
Cal opined:
The Bid Documents, as clarified through Bid Bulletin
Nos. 3 and 5, require that financial capability will be
evaluated based on total financial capability of all the
member companies of the [Paircargo] Consortium. In
this connection, the Challenger was found to have a
combined net worth of P3,926,421,242.00 that could
support a project costing approximately P13 Billion.
It is not a requirement that the net worth must be
"unrestricted." To impose that as a requirement now
will be nothing less than unfair.
The financial statement or the net worth is not the sole
basis in establishing financial capability. As stated in
Bid Bulletin No. 3, financial capability may also be
established by testimonial letters issued by reputable
banks. The Challenger has complied with this
requirement.
To recap, net worth reflected in the Financial Statement
should not be taken as the amount of the money to be
used to answer the required thirty percent (30%) equity
of the challenger but rather to be used in establishing if
there is enough basis to believe that the challenger can
comply with the required 30% equity. In fact, proof of
sufficient equity is required as one of the conditions for
award of contract (Section 12.1 IRR of the BOT Law) but
119
not for pre-qualification (Section 5.4 of the same
document).23
Under the BOT Law, in case of a build-operate-and-transfer
arrangement, the contract shall be awarded to the bidder
"who, having satisfied the minimum financial, technical,
organizational and legal standards" required by the law,
has submitted the lowest bid and most favorable terms of
the project.24 Further, the 1994 Implementing Rules and
Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
xxx xxx xxx
c. Financial Capability: The project proponent must have
adequate capability to sustain the financing requirements for
the detailed engineering design, construction and/or
operation and maintenance phases of the project, as the
case may be. For purposes of pre-qualification, this capability
shall be measured in terms of (i) proof of the ability of
the project proponent and/or the consortium to
provide a minimum amount of equity to the project,
and (ii) a letter testimonial from reputable banks
attesting that the project proponent and/or members
of the consortium are banking with them, that they
are in good financial standing, and that they have
adequate resources. The government agency/LGU
concerned shall determine on a project-to-project basis and
before pre-qualification, the minimum amount of equity
needed. (emphasis supplied)
Pursuant to this provision, the PBAC issued PBAC Bulletin No.
3 dated August 16, 1996 amending the financial capability
requirements for pre-qualification of the project proponent as
follows:
6. Basis of Pre-qualification
The basis for the pre-qualification shall be on the compliance
of the proponent to the minimum technical and financial
requirements provided in the Bid Documents and in the IRR
of the BOT Law, R.A. No. 6957, as amended by R.A. 7718.
The minimum amount of equity to which the proponent's
financial capability will be based shall be thirty percent
(30%) of the project cost instead of the twenty
percent (20%) specified in Section 3.6.4 of the Bid
Documents. This is to correlate with the required debt-to-
equity ratio of 70:30 in Section 2.01a of the draft concession
agreement. The debt portion of the project financing should
not exceed 70% of the actual project cost.
Accordingly, based on the above provisions of law, the Paircargo
Consortium or any challenger to the unsolicited proposal of
AEDC has to show that it possesses the requisite financial
capability to undertake the project in the minimum
amount of 30% of the project cost through (i) proof of the
ability to provide a minimum amount of equity to the project,
and (ii) a letter testimonial from reputable banks attesting that
the project proponent or members of the consortium are
banking with them, that they are in good financial standing, and
that they have adequate resources.
As the minimum project cost was estimated to be
US$350,000,000.00 or roughly P9,183,650,000.00,25 the
Paircargo Consortium had to show to the satisfaction of the
PBAC that it had the ability to provide the minimum equity for
the project in the amount of at least P2,755,095,000.00.
Paircargo's Audited Financial Statements as of 1993 and 1994
indicated that it had a net worth of P2,783,592.00 and
P3,123,515.00 respectively.26 PAGS' Audited Financial
Statements as of 1995 indicate that it has approximately
P26,735,700.00 to invest as its equity for the project. 27 Security
Bank's Audited Financial Statements as of 1995 show that it has
a net worth equivalent to its capital funds in the amount of
P3,523,504,377.00.28

We agree with public respondents that with respect to Security
Bank, the entire amount of its net worth could not be invested
in a single undertaking or enterprise, whether allied or non-
allied in accordance with the provisions of R.A. No. 337, as
amended or the General Banking Act:
Sec. 21-B. The provisions in this or in any other Act to
the contrary notwithstanding, the Monetary Board,
whenever it shall deem appropriate and necessary to
further national development objectives or support
national priority projects, may authorize a Further, the determination of whether or not a bidder is pre-
commercial bank, a bank authorized to provide
commercial banking services, as well as a
government-owned and controlled bank, to
operate under an expanded commercial banking
authority and by virtue thereof exercise, in
addition to powers authorized for commercial
banks, the powers of an Investment House as
provided in Presidential Decree No. 129, invest in
the equity of a non-allied undertaking, or own a
majority or all of the equity in a financial intermediary
other than a commercial bank or a bank authorized to
provide commercial banking services: Provided,
That (a) the total investment in equities shall not
exceed fifty percent (50%) of the net worth of the
bank; (b) the equity investment in any one
enterprise whether allied or non-allied shall not
exceed fifteen percent (15%) of the net worth of
the bank; (c) the equity investment of the bank, or of
its wholly or majority-owned subsidiary, in a single non-
allied undertaking shall not exceed thirty-five percent
(35%) of the total equity in the enterprise nor shall it
exceed thirty-five percent (35%) of the voting stock in
that enterprise; and (d) the equity investment in other
banks shall be deducted from the investing bank's net
worth for purposes of computing the prescribed ratio of
net worth to risk assets.
xxx xxx xxx
Further, the 1993 Manual of Regulations for Banks provides:
SECTION X383. Other Limitations and Restrictions.
The following limitations and restrictions shall also
apply regarding equity investments of banks.
a. In any single enterprise. The equity investments of
banks in any single enterprise shall not exceed at any
time fifteen percent (15%) of the net worth of the
investing bank as defined in Sec. X106 and Subsec.
X121.5.
Thus, the maximum amount that Security Bank could validly
invest in the Paircargo Consortium is only P528,525,656.55,
representing 15% of its entire net worth. The total net worth
therefore of the Paircargo Consortium, after considering
the maximum amounts that may be validly invested by each
of its members is P558,384,871.55 or only 6.08% of the
project cost,29 an amount substantially less than the
prescribed minimum equity investment required for the project
in the amount of P2,755,095,000.00 or 30% of the project cost.
The purpose of pre-qualification in any public bidding is to
determine, at the earliest opportunity, the ability of the bidder
to undertake the project. Thus, with respect to the bidder's
financial capacity at the pre-qualification stage, the law requires
the government agency to examine and determine the ability of
the bidder to fund the entire cost of the project by considering
the maximum amounts that each bidder may invest in
the project at the time of pre-qualification.
The PBAC has determined that any prospective bidder for the
construction, operation and maintenance of the NAIA IPT III
project should prove that it has the ability to provide equity in
the minimum amount of 30% of the project cost, in accordance
with the 70:30 debt-to-equity ratio prescribed in the Bid
Documents. Thus, in the case of Paircargo Consortium, the PBAC
should determine the maximum amounts that each member
of the consortium may commit for the construction, operation
and maintenance of the NAIA IPT III project at the time of pre-
120
qualification. With respect to Security Bank, the maximum
amount which may be invested by it would only be 15% of its
net worth in view of the restrictions imposed by the General
Banking Act. Disregarding the investment ceilings provided by
applicable law would not result in a proper evaluation of whether
or not a bidder is pre-qualified to undertake the project as for all
intents and purposes, such ceiling or legal restriction determines
the true maximum amount which a bidder may invest in the
project.
qualified to undertake the project requires an evaluation of the
financial capacity of the said bidder at the time the bid is
submitted based on the required documents presented by the
bidder. The PBAC should not be allowed to speculate on
the future financial ability of the bidder to undertake the
project on the basis of documents submitted. This would open
doors to abuse and defeat the very purpose of a public bidding.
This is especially true in the case at bar which involves the
investment of billions of pesos by the project proponent. The
relevant government authority is duty-bound to ensure that the
awardee of the contract possesses the minimum required
financial capability to complete the project. To allow the PBAC to
estimate the bidder's future financial capability would not
secure the viability and integrity of the project. A restrictive and
conservative application of the rules and procedures of public
bidding is necessary not only to protect the impartiality and
regularity of the proceedings but also to ensure the financial and
technical reliability of the project. It has been held that:
The basic rule in public bidding is that bids should be
evaluated based on the required documents submitted
before and not after the opening of bids. Otherwise, the
foundation of a fair and competitive public bidding
would be defeated. Strict observance of the rules,
regulations, and guidelines of the bidding
process is the only safeguard to a fair, honest
and competitive public bidding.30
Thus, if the maximum amount of equity that a bidder may
invest in the project at the time the bids are submitted falls
short of the minimum amounts required to be put up by the
bidder, said bidder should be properly disqualified. Considering
that at the pre-qualification stage, the maximum amounts which
the Paircargo Consortium may invest in the project fell short of
the minimum amounts prescribed by the PBAC, we hold that
Paircargo Consortium was not a qualified bidder. Thus the award
of the contract by the PBAC to the Paircargo Consortium, a
disqualified bidder, is null and void.
While it would be proper at this juncture to end the resolution of
the instant controversy, as the legal effects of the
disqualification of respondent PIATCO's predecessor would come
into play and necessarily result in the nullity of all the
subsequent contracts entered by it in pursuance of the project,
the Court feels that it is necessary to discuss in full the pressing
issues of the present controversy for a complete resolution
thereof.
II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the 1997
Concession Agreement is invalid as it contains provisions that
substantially depart from the draft Concession Agreement
included in the Bid Documents. They maintain that a substantial
departure from the draft Concession Agreement is a violation of
public policy and renders the 1997 Concession Agreement null
and void.
PIATCO maintains, however, that the Concession Agreement
attached to the Bid Documents is intended to be a draft, i.e.,
subject to change, alteration or modification, and that this
intention was clear to all participants, including AEDC, and
DOTC/MIAA. It argued further that said intention is expressed in
Part C (6) of Bid Bulletin No. 3 issued by the PBAC which states:
6. Amendments to the Draft Concessions Agreement

Amendments to the Draft Concessions Agreement shall
be issued from time to time. Said amendments shall
only cover items that would not materially affect the
preparation of the proponent's proposal.
By its very nature, public bidding aims to protect the public
interest by giving the public the best possible advantages
through open competition. Thus:
Competition must be legitimate, fair and honest. In the
field of government contract law, competition requires,
not only `bidding upon a common standard, a common
basis, upon the same thing, the same subject matter,
the same undertaking,' but also that it be
legitimate, fair and honest; and not designed to
injure or defraud the government.31
An essential element of a publicly bidded contract is that all
bidders must be on equal footing. Not simply in terms of
application of the procedural rules and regulations imposed by
the relevant government agency, but more importantly, on the
contract bidded upon. Each bidder must be able to bid on the
same thing. The rationale is obvious. If the winning bidder is
allowed to later include or modify certain provisions in the
contract awarded such that the contract is altered in any
material respect, then the essence of fair competition in the
public bidding is destroyed. A public bidding would indeed be a
farce if after the contract is awarded, the winning bidder may
modify the contract and include provisions which are favorable
to it that were not previously made available to the other
bidders. Thus:
121
through public bidding, when such subsequent amendment was
made without a new public bidding, is null and void:
The Court agrees with the contention of counsel for the
plaintiffs that the due execution of a contract after
public bidding is a limitation upon the right of the
contracting parties to alter or amend it without another
public bidding, for otherwise what would a public
bidding be good for if after the execution of a
contract after public bidding, the contracting
parties may alter or amend the contract, or even
cancel it, at their will? Public biddings are held for
the protection of the public, and to give the public the
best possible advantages by means of open
competition between the bidders. He who bids or offers
the best terms is awarded the contract subject of the
bid, and it is obvious that such protection and best
possible advantages to the public will disappear if the
parties to a contract executed after public bidding may
alter or amend it without another previous public
bidding.35
Hence, the question that comes to fore is this: is the 1997
Concession Agreement the same agreement that was offered for
public bidding, i.e., the draft Concession Agreement attached to
the Bid Documents? A close comparison of the draft Concession
Agreement attached to the Bid Documents and the 1997
Concession Agreement reveals that the documents differ in at
least two material respects:
a. Modification on the Public

It is inherent in public biddings that there shall be a fair Utility Revenues and Non-Public
competition among the bidders. The specifications in
such biddings provide the common ground or basis for
Utility Revenues that may be
the bidders. The specifications should, accordingly,
operate equally or indiscriminately upon all bidders.32
collected by PIATCO
The same rule was restated by Chief Justice Stuart of the
Supreme Court of Minnesota: The fees that may be imposed and collected by PIATCO under
the draft Concession Agreement and the 1997 Concession
Agreement may be classified into three distinct categories: (1)
The law is well settled that where, as in this case,
fees which are subject to periodic adjustment of once every two
municipal authorities can only let a contract for public
years in accordance with a prescribed parametric formula and
work to the lowest responsible bidder, the proposals
adjustments are made effective only upon written approval by
and specifications therefore must be so framed as to
MIAA; (2) fees other than those included in the first category
permit free and full competition. Nor can they enter
which maybe adjusted by PIATCO whenever it deems necessary
into a contract with the best bidder containing
without need for consent of DOTC/MIAA; and (3) new fees and
substantial provisions beneficial to him, not
charges that may be imposed by PIATCO which have not been
included or contemplated in the terms and
previously imposed or collected at the Ninoy Aquino
specifications upon which the bids were invited.33
International Airport Passenger Terminal I, pursuant to
Administrative Order No. 1, Series of 1993, as amended. The
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support glaring distinctions between the draft Concession Agreement
its argument that the draft concession agreement is subject to and the 1997 Concession Agreement lie in the types of fees
amendment, the pertinent portion of which was quoted above, included in each category and the extent of the supervision and
the PBAC also clarified that "[s]aid amendments shall only regulation which MIAA is allowed to exercise in relation thereto.
cover items that would not materially affect the
preparation of the proponent's proposal."
For fees under the first category, i.e., those which are subject
to periodic adjustment in accordance with a prescribed
While we concede that a winning bidder is not precluded from parametric formula and effective only upon written approval by
modifying or amending certain provisions of the contract bidded MIAA, the draft Concession Agreement includes the
upon, such changes must not constitute substantial or following:36
material amendments that would alter the basic
parameters of the contract and would constitute a denial
(1) aircraft parking fees;
to the other bidders of the opportunity to bid on the
same terms. Hence, the determination of whether or not a
modification or amendment of a contract bidded out constitutes (2) aircraft tacking fees;
a substantial amendment rests on whether the contract, when
taken as a whole, would contain substantially different terms
(3) groundhandling fees;
and conditions that would have the effect of altering the
technical and/or financial proposals previously submitted by
other bidders. The alterations and modifications in the contract (4) rentals and airline offices;
executed between the government and the winning bidder must
be such as to render such executed contract to be an entirely
(5) check-in counter rentals; and
different contract from the one that was bidded upon.

(6) porterage fees.

In the case of Caltex (Philippines), Inc. v. Delgado
Brothers, Inc.,34 this Court quoted with approval the ruling of
the trial court that an amendment to a contract awarded

Under the 1997 Concession Agreement, fees which are
subject to adjustment and effective upon MIAA approval are
classified as "Public Utility Revenues" and include:37
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
The implication of the reduced number of fees that are subject
to MIAA approval is best appreciated in relation to fees included
in the second category identified above. Under the 1997
Concession Agreement, fees which PIATCO may adjust
whenever it deems necessary without need for consent of
DOTC/MIAA are "Non-Public Utility Revenues" and is defined as
"all other income not classified as Public Utility Revenues
derived from operations of the Terminal and the Terminal
Complex."38 Thus, under the 1997 Concession Agreement,
ground handling fees, rentals from airline offices and porterage
fees are no longer subject to MIAA regulation.
Further, under Section 6.03 of the draft Concession
Agreement, MIAA reserves the right to regulate (1) lobby and
vehicular parking fees and (2) other new fees and charges that
may be imposed by PIATCO. Such regulation may be made by
periodic adjustment and is effective only upon written approval
of MIAA. The full text of said provision is quoted below:
Section 6.03. Periodic Adjustment in Fees and Charges.
Adjustments in the aircraft parking fees, aircraft tacking
fees, groundhandling fees, rentals and airline offices,
check-in-counter rentals and porterage fees shall be
allowed only once every two years and in accordance
with the Parametric Formula attached hereto as Annex
F. Provided that adjustments shall be made effective
only after the written express approval of the MIAA.
Provided, further, that such approval of the MIAA, shall
be contingent only on the conformity of the
adjustments with the above said parametric formula.
The first adjustment shall be made prior to the In-
Service Date of the Terminal.
The MIAA reserves the right to regulate under
the foregoing terms and conditions the lobby and
vehicular parking fees and other new fees and
charges as contemplated in paragraph 2 of
Section 6.01 if in its judgment the users of the
airport shall be deprived of a free option for the
services they cover.39
On the other hand, the equivalent provision under the 1997
Concession Agreement reads:
Section 6.03 Periodic Adjustment in Fees and Charges.
xxx xxx xxx
(c) Concessionaire shall at all times be judicious in
fixing fees and charges constituting Non-Public Utility
Revenues in order to ensure that End Users are not
unreasonably deprived of services. While the
vehicular parking fee, porterage fee and
greeter/well wisher fee constitute Non-Public
Utility Revenues of Concessionaire, GRP may
intervene and require Concessionaire to explain
and justify the fee it may set from time to time, if
in the reasonable opinion of GRP the said fees have
become exorbitant resulting in the unreasonable
deprivation of End Users of such services.40
Thus, under the 1997 Concession Agreement, with respect to
(1) vehicular parking fee, (2) porterage fee and (3) greeter/well
wisher fee, all that MIAA can do is to require PIATCO to explain
and justify the fees set by PIATCO. In the draft Concession
122
Agreement, vehicular parking fee is subject to MIAA regulation
and approval under the second paragraph of Section 6.03
thereof while porterage fee is covered by the first paragraph of
the same provision. There is an obvious relaxation of the extent
of control and regulation by MIAA with respect to the particular
fees that may be charged by PIATCO.
Moreover, with respect to the third category of fees that may
be imposed and collected by PIATCO, i.e., new fees and charges
that may be imposed by PIATCO which have not been previously
imposed or collected at the Ninoy Aquino International Airport
Passenger Terminal I, under Section 6.03 of the draft
Concession Agreement MIAA has reserved the right to
regulate the same under the same conditions that MIAA may
regulate fees under the first category, i.e., periodic adjustment
of once every two years in accordance with a prescribed
parametric formula and effective only upon written approval by
MIAA. However, under the 1997 Concession
Agreement, adjustment of fees under the third category is not
subject to MIAA regulation.
With respect to terminal fees that may be charged by
PIATCO,41 as shown earlier, this was included within the category
of "Public Utility Revenues" under the 1997 Concession
Agreement. This classification is significant because under
the 1997 Concession Agreement, "Public Utility Revenues"
are subject to an "Interim Adjustment" of fees upon the
occurrence of certain extraordinary events specified in the
agreement.42 However, under the draft Concession
Agreement, terminal fees are not included in the types of fees
that may be subject to "Interim Adjustment." 43
Finally, under the 1997 Concession Agreement, "Public Utility
Revenues," except terminal fees, are denominated in US
Dollars44 while payments to the Government are in Philippine
Pesos. In the draft Concession Agreement, no such
stipulation was included. By stipulating that "Public Utility
Revenues" will be paid to PIATCO in US Dollars while payments
by PIATCO to the Government are in Philippine currency under
the 1997 Concession Agreement, PIATCO is able to enjoy the
benefits of depreciations of the Philippine Peso, while being
effectively insulated from the detrimental effects of exchange
rate fluctuations.
When taken as a whole, the changes under the 1997 Concession
Agreement with respect to reduction in the types of fees that
are subject to MIAA regulation and the relaxation of such
regulation with respect to other fees are significant amendments
that substantially distinguish the draft Concession Agreement
from the 1997 Concession Agreement. The 1997 Concession
Agreement, in this respect, clearly gives PIATCO more
favorable terms than what was available to other bidders
at the time the contract was bidded out. It is not very
difficult to see that the changes in the 1997 Concession
Agreement translate to direct and concrete financial
advantages for PIATCO which were not available at the time
the contract was offered for bidding. It cannot be denied that
under the 1997 Concession Agreement only "Public Utility
Revenues" are subject to MIAA regulation. Adjustments of all
other fees imposed and collected by PIATCO are entirely within
its control. Moreover, with respect to terminal fees, under the
1997 Concession Agreement, the same is further subject to
"Interim Adjustments" not previously stipulated in the draft
Concession Agreement. Finally, the change in the currency
stipulated for "Public Utility Revenues" under the 1997
Concession Agreement, except terminal fees, gives PIATCO an
added benefit which was not available at the time of bidding.
b. Assumption by the Government of the liabilities of
PIATCO in the event of the latter's default thereof
Under the draft Concession Agreement, default by PIATCO of
any of its obligations to creditors who have provided, loaned or
advanced funds for the NAIA IPT III project does not result in the
assumption by the Government of these liabilities. In fact,
nowhere in the said contract does default of PIATCO's loans
figure in the agreement. Such default does not directly result in
any concomitant right or obligation in favor of the Government.
However, the 1997 Concession Agreement provides:

Section 4.04 Assignment.
xxx xxx xxx
(b) In the event Concessionaire should default in the
payment of an Attendant Liability, and the default has
resulted in the acceleration of the payment due date of
the Attendant Liability prior to its stated date of
maturity, the Unpaid Creditors and Concessionaire shall
immediately inform GRP in writing of such default. GRP
shall, within one hundred eighty (180) Days from
receipt of the joint written notice of the Unpaid
Creditors and Concessionaire, either (i) take over the
Development Facility and assume the Attendant
Liabilities, or (ii) allow the Unpaid Creditors, if qualified,
to be substituted as concessionaire and operator of the
Development Facility in accordance with the terms and
conditions hereof, or designate a qualified operator
acceptable to GRP to operate the Development Facility,
likewise under the terms and conditions of this
Agreement; Provided that if at the end of the 180-day
period GRP shall not have served the Unpaid Creditors
and Concessionaire written notice of its choice, GRP
shall be deemed to have elected to take over the
Development Facility with the concomitant assumption
of Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid
Creditors to be substituted as concessionaire, the latter
shall form and organize a concession company qualified
to take over the operation of the Development Facility.
If the concession company should elect to designate an
operator for the Development Facility, the concession
company shall in good faith identify and designate a
qualified operator acceptable to GRP within one
hundred eighty (180) days from receipt of GRP's written
notice. If the concession company, acting in good faith
and with due diligence, is unable to designate a
qualified operator within the aforesaid period, then GRP
shall at the end of the 180-day period take over the
Development Facility and assume Attendant Liabilities.
The term "Attendant Liabilities" under the 1997 Concession
Agreement is defined as:
Attendant Liabilities refer to all amounts recorded and
from time to time outstanding in the books of the
Concessionaire as owing to Unpaid Creditors who
have provided, loaned or advanced funds
actually used for the Project, including all interests,
penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related
expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-
contractors.
Under the above quoted portions of Section 4.04 in relation to
the definition of "Attendant Liabilities," default by PIATCO of
its loans used to finance the NAIA IPT III project triggers
the occurrence of certain events that leads to the
assumption by the Government of the liability for the
loans. Only in one instance may the Government escape the
assumption of PIATCO's liabilities, i.e., when the Government so
elects and allows a qualified operator to take over as
Concessionaire. However, this circumstance is dependent
on the existence and availability of a qualified operator
who is willing to take over the rights and obligations of
PIATCO under the contract, a circumstance that is not
entirely within the control of the Government.
Without going into the validity of this provision at this juncture,
suffice it to state that Section 4.04 of the 1997 Concession
Agreement may be considered a form of security for the loans
PIATCO has obtained to finance the project, an option that was
not made available in the draft Concession Agreement. Section
4.04 is an important amendment to the 1997 Concession
Agreement because it grants PIATCO a financial advantage or
benefit which was not previously made available during
the bidding process. This financial advantage is a significant
123
modification that translates to better terms and conditions for
PIATCO.
PIATCO, however, argues that the parties to the bidding
procedure acknowledge that the draft Concession Agreement is
subject to amendment because the Bid Documents permit
financing or borrowing. They claim that it was the lenders who
proposed the amendments to the draft Concession Agreement
which resulted in the 1997 Concession Agreement.
We agree that it is not inconsistent with the rationale and
purpose of the BOT Law to allow the project proponent or the
winning bidder to obtain financing for the project, especially in
this case which involves the construction, operation and
maintenance of the NAIA IPT III. Expectedly, compliance by the
project proponent of its undertakings therein would involve a
substantial amount of investment. It is therefore inevitable for
the awardee of the contract to seek alternate sources of funds
to support the project. Be that as it may, this Court maintains
that amendments to the contract bidded upon should always
conform to the general policy on public bidding if such
procedure is to be faithful to its real nature and purpose. By its
very nature and characteristic, competitive public bidding aims
to protect the public interest by giving the public the best
possible advantages through open competition. 45 It has been
held that the three principles in public bidding are (1) the offer
to the public; (2) opportunity for competition; and (3) a basis for
the exact comparison of bids. A regulation of the matter which
excludes any of these factors destroys the distinctive character
of the system and thwarts the purpose of its adoption. 46 These
are the basic parameters which every awardee of a contract
bidded out must conform to, requirements of financing and
borrowing notwithstanding. Thus, upon a concrete showing that,
as in this case, the contract signed by the government and the
contract-awardee is an entirely different contract from the
contract bidded, courts should not hesitate to strike down said
contract in its entirety for violation of public policy on public
bidding. A strict adherence on the principles, rules and
regulations on public bidding must be sustained if only to
preserve the integrity and the faith of the general public on the
procedure.
Public bidding is a standard practice for procuring government
contracts for public service and for furnishing supplies and other
materials. It aims to secure for the government the lowest
possible price under the most favorable terms and conditions, to
curtail favoritism in the award of government contracts and
avoid suspicion of anomalies and it places all bidders in equal
footing.47 Any government action which permits any
substantial variance between the conditions under which
the bids are invited and the contract executed after the
award thereof is a grave abuse of discretion amounting
to lack or excess of jurisdiction which warrants proper
judicial action.
In view of the above discussion, the fact that the foregoing
substantial amendments were made on the 1997 Concession
Agreement renders the same null and void for being contrary
to public policy. These amendments convert the 1997
Concession Agreement to an entirely different
agreement from the contract bidded out or the draft
Concession Agreement. It is not difficult to see that the
amendments on (1) the types of fees or charges that are subject
to MIAA regulation or control and the extent thereof and (2) the
assumption by the Government, under certain conditions, of the
liabilities of PIATCO directly translates concrete financial
advantages to PIATCO that were previously not available
during the bidding process. These amendments cannot be
taken as merely supplements to or implementing provisions of
those already existing in the draft Concession Agreement. The
amendments discussed above present new terms and conditions
which provide financial benefit to PIATCO which may have
altered the technical and financial parameters of other bidders
had they known that such terms were available.
III
Direct Government Guarantee

Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of
the 1997 Concession Agreement provides:
Section 4.04 Assignment
xxx xxx xxx
(b) In the event Concessionaire should default in the
payment of an Attendant Liability, and the default
resulted in the acceleration of the payment due date of the
Attendant Liability prior to its stated date of maturity, the
Unpaid Creditors and Concessionaire shall immediately
inform GRP in writing of such default. GRP shall within one
hundred eighty (180) days from receipt of the joint written
notice of the Unpaid Creditors and Concessionaire, either (i)
take over the Development Facility and assume the
Attendant Liabilities, or (ii) allow the Unpaid Creditors, if
qualified to be substituted as concessionaire and operator
of the Development facility in accordance with the terms
and conditions hereof, or designate a qualified operator
acceptable to GRP to operate the Development Facility,
likewise under the terms and conditions of this Agreement;
Provided, that if at the end of the 180-day period GRP shall
not have served the Unpaid Creditors and Concessionaire
written notice of its choice, GRP shall be deemed to
have elected to take over the Development Facility
with the concomitant assumption of Attendant
Liabilities.
(c) If GRP, by written notice, allow the Unpaid Creditors to be
substituted as concessionaire, the latter shall form and
organize a concession company qualified to takeover the
operation of the Development Facility. If the concession
company should elect to designate an operator for the
Development Facility, the concession company shall in good
faith identify and designate a qualified operator acceptable
to GRP within one hundred eighty (180) days from receipt of
GRP's written notice. If the concession company, acting in
good faith and with due diligence, is unable to designate a
qualified operator within the aforesaid period, then
GRP shall at the end of the 180-day period take over the
Development Facility and assume Attendant
Liabilities.
. provides:
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and
from time to time outstanding in the books of the
Concessionaire as owing to Unpaid Creditors who
have provided, loaned or advanced funds actually used for
the Project, including all interests, penalties, associated
fees, charges, surcharges, indemnities, reimbursements and
other related expenses, and further including amounts
owed by Concessionaire to its suppliers, contractors and
sub-contractors.48
It is clear from the above-quoted provisions that Government,
in the event that PIATCO defaults in its loan obligations,
is obligated to pay "all amounts recorded and from time to
time outstanding from the books" of PIATCO which the latter
owes to its creditors.49 These amounts include "all interests,
penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses."50 This obligation
of the Government to pay PIATCO's creditors upon PIATCO's
default would arise if the Government opts to take over NAIA IPT
III. It should be noted, however, that even if the Government
chooses the second option, which is to allow PIATCO's unpaid
creditors operate NAIA IPT III, the Government is still at a risk of
being liable to PIATCO's creditors should the latter be unable to
designate a qualified operator within the prescribed period. 51 In
effect, whatever option the Government chooses to take
in the event of PIATCO's failure to fulfill its loan
obligations, the Government is still at a risk of assuming
PIATCO's outstanding loans. This is due to the fact that the
Government would only be free from assuming PIATCO's debts if
the unpaid creditors would be able to designate a qualified
operator within the period provided for in the contract.
Thus, the Government's assumption of liability is virtually
124
out of its control. The Government under the circumstances
provided for in the 1997 Concession Agreement is at the mercy
of the existence, availability and willingness of a qualified
operator. The above contractual provisions constitute a direct
government guarantee which is prohibited by law.
One of the main impetus for the enactment of the BOT Law is
the lack of government funds to construct the infrastructure and
development projects necessary for economic growth and
development. This is why private sector resources are being
tapped in order to finance these projects. The BOT law allows
the private sector to participate, and is in fact encouraged to do
so by way of incentives, such as minimizing the unstable flow of
returns,52 provided that the government would not have to
unnecessarily expend scarcely available funds for the project
itself. As such, direct guarantee, subsidy and equity by the
government in these projects are strictly prohibited. 53 This is
but logical for if the government would in the end still be
at a risk of paying the debts incurred by the private
entity in the BOT projects, then the purpose of the law is
subverted.
Section 2(n) of the BOT Law defines direct guarantee as follows:
(n) Direct government guarantee An agreement
whereby the government or any of its agencies or local
government units assume responsibility for
the repayment of debt directly incurred by the
project proponent in implementing the project in
case of a loan default.
Clearly by providing that the Government "assumes" the
attendant liabilities, which consists of PIATCO's unpaid debts,
the 1997 Concession Agreement provided for a direct
government guarantee for the debts incurred by PIATCO in the
implementation of the NAIA IPT III project. It is of no moment
that the relevant sections are subsumed under the title of
"assignment". The provisions providing for direct government
guarantee which is prohibited by law is clear from the terms
thereof.
The fact that the ARCA superseded the 1997 Concession
Agreement did not cure this fatal defect. Article IV, Section
4.04(c), in relation to Article I, Section 1.06, of the ARCA
Section 4.04 Security
xxx xxx xxx
(c) GRP agrees with Concessionaire (PIATCO) that it shall
negotiate in good faith and enter into direct
agreement with the Senior Lenders, or with an agent of
such Senior Lenders (which agreement shall be subject to
the approval of the Bangko Sentral ng Pilipinas), in such
form as may be reasonably acceptable to both GRP and
Senior Lenders, with regard, inter alia, to the following
parameters:
xxx xxx xxx
(iv) If the Concessionaire [PIATCO] is in default under a
payment obligation owed to the Senior Lenders, and
as a result thereof the Senior Lenders have become entitled
to accelerate the Senior Loans, the Senior Lenders shall
have the right to notify GRP of the same, and without
prejudice to any other rights of the Senior Lenders or any
Senior Lenders' agent may have (including without
limitation under security interests granted in favor of the
Senior Lenders), to either in good faith identify and
designate a nominee which is qualified under sub-clause
(viii)(y) below to operate the Development Facility [NAIA
Terminal 3] or transfer the Concessionaire's [PIATCO] rights
and obligations under this Agreement to a transferee which
is qualified under sub-clause (viii) below;
xxx xxx xxx

(vi) if the Senior Lenders, acting in good faith and using
reasonable efforts, are unable to designate a nominee or
effect a transfer in terms and conditions satisfactory to the
Senior Lenders within one hundred eighty (180) days after
giving GRP notice as referred to respectively in (iv) or (v)
above, then GRP and the Senior Lenders shall endeavor in
good faith to enter into any other arrangement relating to
the Development Facility [NAIA Terminal 3] (other than a
turnover of the Development Facility [NAIA Terminal 3] to
GRP) within the following one hundred eighty (180) days. If
no agreement relating to the Development Facility [NAIA
Terminal 3] is arrived at by GRP and the Senior Lenders
within the said 180-day period, then at the end thereof
the Development Facility [NAIA Terminal 3] shall be
transferred by the Concessionaire [PIATCO] to GRP or
its designee and GRP shall make a termination
payment to Concessionaire [PIATCO] equal to the
Appraised Value (as hereinafter defined) of the
Development Facility [NAIA Terminal 3] or the sum of
the Attendant Liabilities, if greater. Notwithstanding
Section 8.01(c) hereof, this Agreement shall be deemed
terminated upon the transfer of the Development Facility
[NAIA Terminal 3] to GRP pursuant hereto;
xxx xxx xxx
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts in each case
supported by verifiable evidence from time to time owed
or which may become owing by Concessionaire
[PIATCO] to Senior Lenders or any other persons or
entities who have provided, loaned, or advanced funds
or provided financial facilities to Concessionaire
[PIATCO] for the Project [NAIA Terminal 3], including,
without limitation, all principal, interest, associated
fees, charges, reimbursements, and other related
expenses (including the fees, charges and expenses of any
agents or trustees of such persons or entities), whether
payable at maturity, by acceleration or otherwise, and
further including amounts owed by Concessionaire [PIATCO]
to its professional consultants and advisers, suppliers,
contractors and sub-contractors.54
It is clear from the foregoing contractual provisions that in the
event that PIATCO fails to fulfill its loan obligations to its Senior
Lenders, the Government is obligated to directly negotiate and
enter into an agreement relating to NAIA IPT III with the Senior
Lenders, should the latter fail to appoint a qualified nominee or
transferee who will take the place of PIATCO. If the Senior
Lenders and the Government are unable to enter into an
agreement after the prescribed period, the Government must
then pay PIATCO, upon transfer of NAIA IPT III to the
Government, termination payment equal to the appraised value
of the project or the value of the attendant liabilities
whichever is greater. Attendant liabilities as defined in the
ARCA includes all amounts owed or thereafter may be owed by
PIATCO not only to the Senior Lenders with whom PIATCO has
defaulted in its loan obligations but to all other persons who
may have loaned, advanced funds or provided any other type of
financial facilities to PIATCO for NAIA IPT III. The amount of
PIATCO's debt that the Government would have to pay as a
result of PIATCO's default in its loan obligations -- in case no
qualified nominee or transferee is appointed by the Senior
Lenders and no other agreement relating to NAIA IPT III has
been reached between the Government and the Senior Lenders
-- includes, but is not limited to, "all principal, interest,
associated fees, charges, reimbursements, and other related
expenses . . . whether payable at maturity, by acceleration or
otherwise."55
It is clear from the foregoing that the ARCA provides for
a direct guarantee by the government to pay PIATCO's
loans not only to its Senior Lenders but all other entities
who provided PIATCO funds or services upon PIATCO's
default in its loan obligation with its Senior Lenders. The
fact that the Government's obligation to pay PIATCO's lenders
for the latter's obligation would only arise after the Senior
Lenders fail to appoint a qualified nominee or transferee does
not detract from the fact that, should the conditions as stated in
the contract occur, the ARCA still obligates the Government to
125
pay any and all amounts owed by PIATCO to its lenders in
connection with NAIA IPT III. Worse, the conditions that would
make the Government liable for PIATCO's debts is triggered by
PIATCO's own default of its loan obligations to its Senior Lenders
to which loan contracts the Government was never a party to.
The Government was not even given an option as to what
course of action it should take in case PIATCO defaulted in the
payment of its senior loans. The Government, upon PIATCO's
default, would be merely notified by the Senior Lenders of the
same and it is the Senior Lenders who are authorized to appoint
a qualified nominee or transferee. Should the Senior Lenders fail
to make such an appointment, the Government is then
automatically obligated to "directly deal and negotiate" with the
Senior Lenders regarding NAIA IPT III. The only way the
Government would not be liable for PIATCO's debt is for a
qualified nominee or transferee to be appointed in place of
PIATCO to continue the construction, operation and maintenance
of NAIA IPT III. This "pre-condition", however, will not take the
contract out of the ambit of a direct guarantee by the
government as the existence, availability and willingness of a
qualified nominee or transferee is totally out of the
government's control. As such the Government is virtually at
the mercy of PIATCO (that it would not default on its loan
obligations to its Senior Lenders), the Senior Lenders (that they
would appoint a qualified nominee or transferee or agree to
some other arrangement with the Government) and the
existence of a qualified nominee or transferee who is able and
willing to take the place of PIATCO in NAIA IPT III.
The proscription against government guarantee in any
form is one of the policy considerations behind the BOT
Law. Clearly, in the present case, the ARCA obligates the
Government to pay for all loans, advances and obligations
arising out of financial facilities extended to PIATCO for the
implementation of the NAIA IPT III project should PIATCO default
in its loan obligations to its Senior Lenders and the latter fails to
appoint a qualified nominee or transferee. This in effect would
make the Government liable for PIATCO's loans should the
conditions as set forth in the ARCA arise. This is a form of direct
government guarantee.
The BOT Law and its implementing rules provide that in order for
an unsolicited proposal for a BOT project may be accepted, the
following conditions must first be met: (1) the project involves a
new concept in technology and/or is not part of the list of
priority projects, (2) no direct government guarantee,
subsidy or equity is required, and (3) the government
agency or local government unit has invited by publication other
interested parties to a public bidding and conducted the
same.56 The failure to meet any of the above conditions will
result in the denial of the proposal. It is further provided that the
presence of direct government guarantee, subsidy or equity will
"necessarily disqualify a proposal from being treated and
accepted as an unsolicited proposal." 57 The BOT Law clearly and
strictly prohibits direct government guarantee, subsidy and
equity in unsolicited proposals that the mere inclusion of a
provision to that effect is fatal and is sufficient to deny the
proposal. It stands to reason therefore that if a proposal can be
denied by reason of the existence of direct government
guarantee, then its inclusion in the contract executed after the
said proposal has been accepted is likewise sufficient to
invalidate the contract itself. A prohibited provision, the
inclusion of which would result in the denial of a proposal
cannot, and should not, be allowed to later on be inserted in the
contract resulting from the said proposal. The basic rules of
justice and fair play alone militate against such an occurrence
and must not, therefore, be countenanced particularly in this
instance where the government is exposed to the risk of
shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to the legal maxim
that those that cannot be done directly cannot be done
indirectly.58 To declare the PIATCO contracts valid despite
the clear statutory prohibition against a direct
government guarantee would not only make a mockery
of what the BOT Law seeks to prevent -- which is to
expose the government to the risk of incurring a
monetary obligation resulting from a contract of loan
between the project proponent and its lenders and to
which the Government is not a party to -- but would also
render the BOT Law useless for what it seeks to achieve
- to make use of the resources of the private sector in

the "financing, operation and maintenance of
infrastructure and development projects"59 which are
necessary for national growth and development but
which the government, unfortunately, could ill-afford to
finance at this point in time.
IV
Temporary takeover of business affected with public
interest
Article XII, Section 17 of the 1987 Constitution provides:
Section 17. In times of national emergency, when the
public interest so requires, the State may, during the
emergency and under reasonable terms prescribed by
it, temporarily take over or direct the operation of any
privately owned public utility or business affected with
public interest.
The above provision pertains to the right of the State in times of
national emergency, and in the exercise of its police power, to
temporarily take over the operation of any business affected
with public interest. In the 1986 Constitutional Commission, the
term "national emergency" was defined to include threat from
external aggression, calamities or national disasters, but not
strikes "unless it is of such proportion that would paralyze
government service."60 The duration of the emergency itself is
the determining factor as to how long the temporary takeover
by the government would last.61 The temporary takeover by the
government extends only to the operation of the business and
not to the ownership thereof. As such the government is not
required to compensate the private entity-owner of the
said business as there is no transfer of
ownership, whether permanent or temporary. The private
entity-owner affected by the temporary takeover cannot,
likewise, claim just compensation for the use of the said
business and its properties as the temporary takeover by the
government is in exercise of its police power and not of its
power of eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession Agreement
provides:
Section 5.10 Temporary Take-over of operations by GRP.
. requires a monopoly. As monopolies are subject to abuses that
(c) In the event the development Facility or any part
thereof and/or the operations of Concessionaire or any
part thereof, become the subject matter of or be
included in any notice, notification, or declaration
concerning or relating to acquisition, seizure or
appropriation by GRP in times of war or national
emergency, GRP shall, by written notice to
Concessionaire, immediately take over the operations
of the Terminal and/or the Terminal Complex. During
such take over by GRP, the Concession Period shall be
suspended; provided, that upon termination of war,
hostilities or national emergency, the operations shall
be returned to Concessionaire, at which time, the
Concession period shall commence to run
again.Concessionaire shall be entitled to
reasonable compensation for the duration of the
temporary take over by GRP, which compensation
shall take into account the reasonable cost for
the use of the Terminal and/or Terminal Complex,
(which is in the amount at least equal to the debt
service requirements of Concessionaire, if the
temporary take over should occur at the time when
Concessionaire is still servicing debts owed to project
lenders), any loss or damage to the Development
Facility, and other consequential damages. If the
parties cannot agree on the reasonable compensation
of Concessionaire, or on the liability of GRP as
aforesaid, the matter shall be resolved in accordance
with Section 10.01 [Arbitration]. Any amount
determined to be payable by GRP to Concessionaire
126
shall be offset from the amount next payable by
Concessionaire to GRP.62
PIATCO cannot, by mere contractual stipulation,
contravene the Constitutional provision on temporary
government takeover and obligate the government to
pay "reasonable cost for the use of the Terminal and/or
Terminal Complex."63 Article XII, section 17 of the 1987
Constitution envisions a situation wherein the exigencies of the
times necessitate the government to "temporarily take over or
direct the operation of any privately owned public utility or
business affected with public interest." It is the welfare and
interest of the public which is the paramount consideration in
determining whether or not to temporarily take over a particular
business. Clearly, the State in effecting the temporary takeover
is exercising its police power. Police power is the "most
essential, insistent, and illimitable of powers." 64 Its exercise
therefore must not be unreasonably hampered nor its exercise
be a source of obligation by the government in the absence of
damage due to arbitrariness of its exercise. 65 Thus, requiring the
government to pay reasonable compensation for the reasonable
use of the property pursuant to the operation of the business
contravenes the Constitution.
V
Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage vested in one
or more persons or companies, consisting in the exclusive right
(or power) to carry on a particular business or trade,
manufacture a particular article, or control the sale of a
particular commodity."66 The 1987 Constitution strictly
regulates monopolies, whether private or public, and even
provides for their prohibition if public interest so requires. Article
XII, Section 19 of the 1987 Constitution states:
Sec. 19. The state shall regulate or prohibit monopolies
when the public interest so requires. No combinations
in restraint of trade or unfair competition shall be
allowed.
Clearly, monopolies are not per se prohibited by the Constitution
but may be permitted to exist to aid the government in carrying
on an enterprise or to aid in the performance of various services
and functions in the interest of the public.67 Nonetheless, a
determination must first be made as to whether public interest
can inflict severe prejudice to the public, they are subject to a
higher level of State regulation than an ordinary business
undertaking.
In the cases at bar, PIATCO, under the 1997 Concession
Agreement and the ARCA, is granted the "exclusive right to
operate a commercial international passenger terminal within
the Island of Luzon" at the NAIA IPT III. 68This is with the
exception of already existing international airports in Luzon such
as those located in the Subic Bay Freeport Special Economic
Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in
Laoag City.69 As such, upon commencement of PIATCO's
operation of NAIA IPT III, Terminals 1 and 2 of NAIA would cease
to function as international passenger terminals. This, however,
does not prevent MIAA to use Terminals 1 and 2 as domestic
passenger terminals or in any other manner as it may deem
appropriate except those activities that would compete with
NAIA IPT III in the latter's operation as an international
passenger terminal.70 The right granted to PIATCO
to exclusively operate NAIA IPT III would be for a period of
twenty-five (25) years from the In-Service Date 71 and renewable
for another twenty-five (25) years at the option of the
government.72 Both the 1997 Concession Agreement and
the ARCA further provide that, in view of the exclusive
right granted to PIATCO, the concession contracts of the
service providers currently servicing Terminals 1 and 2
would no longer be renewed and those concession
contracts whose expiration are subsequent to the In-
Service Date would cease to be effective on the said
date.73

The operation of an international passenger airport terminal is
no doubt an undertaking imbued with public interest. In entering
into a BuildOperate-and-Transfer contract for the construction,
operation and maintenance of NAIA IPT III, the government has
determined that public interest would be served better if private
sector resources were used in its construction and an exclusive
right to operate be granted to the private entity undertaking the
said project, in this case PIATCO. Nonetheless, the privilege
given to PIATCO is subject to reasonable regulation and
supervision by the Government through the MIAA, which is the
government agency authorized to operate the NAIA complex, as
well as DOTC, the department to which MIAA is attached. 74
This is in accord with the Constitutional mandate that a
monopoly which is not prohibited must be regulated. 75While it is
the declared policy of the BOT Law to encourage private sector
participation by "providing a climate of minimum government
regulations,"76 the same does not mean that Government must
completely surrender its sovereign power to protect public
interest in the operation of a public utility as a monopoly. The
operation of said public utility can not be done in an arbitrary
manner to the detriment of the public which it seeks to serve.
The right granted to the public utility may be exclusive but the
exercise of the right cannot run riot. Thus, while PIATCO may be
authorized to exclusively operate NAIA IPT III as an international
passenger terminal, the Government, through the MIAA, has the
right and the duty to ensure that it is done in accord with public
interest. PIATCO's right to operate NAIA IPT III cannot also violate
the rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement and the
ARCA provide:
3.01 Concession Period
xxx xxx xxx
(e) GRP confirms that certain concession
agreements relative to certain services and
operations currently being undertaken at the Ninoy
Aquino International Airport passenger Terminal I have
a validity period extending beyond the In-Service
Date. GRP through DOTC/MIAA, confirms that these
services and operations shall not be carried over to
the Terminal and the Concessionaire is under no legal
obligation to permit such carry-over except
through a separate agreement duly entered into with
Concessionaire. In the event Concessionaire becomes
involved in any litigation initiated by any such
concessionaire or operator, GRP undertakes and hereby
holds Concessionaire free and harmless on full
indemnity basis from and against any loss and/or any
liability resulting from any such litigation, including the
cost of litigation and the reasonable fees paid or
payable to Concessionaire's counsel of choice, all such
amounts shall be fully deductible by way of an offset
from any amount which the Concessionaire is bound to
pay GRP under this Agreement.
During the oral arguments on December 10, 2002, the
counsel for the petitioners-in-intervention for G.R. No.
155001 stated that there are two service providers
whose contracts are still existing and whose validity
extends beyond the In-Service Date. One contract
remains valid until 2008 and the other until 2010.77
We hold that while the service providers presently operating at
NAIA Terminal 1 do not have an absolute right for the renewal or
the extension of their respective contracts, those contracts
whose duration extends beyond NAIA IPT III's In-Service-Date
should not be unduly prejudiced. These contracts must be
respected not just by the parties thereto but also by third
parties. PIATCO cannot, by law and certainly not by contract,
render a valid and binding contract nugatory. PIATCO, by the
mere expedient of claiming an exclusive right to operate, cannot
require the Government to break its contractual obligations to
the service providers. In contrast to the arrastre and stevedoring
service providers in the case of Anglo-Fil Trading
Corporation v. Lazaro78 whose contracts consist of temporary
hold-over permits, the affected service providers in the cases at
127
bar, have a valid and binding contract with the Government,
through MIAA, whose period of effectivity, as well as the other
terms and conditions thereof, cannot be violated.
In fine, the efficient functioning of NAIA IPT III is imbued with
public interest. The provisions of the 1997 Concession
Agreement and the ARCA did not strip government, thru the
MIAA, of its right to supervise the operation of the whole NAIA
complex, including NAIA IPT III. As the primary government
agency tasked with the job, 79 it is MIAA's responsibility to ensure
that whoever by contract is given the right to operate NAIA IPT
III will do so within the bounds of the law and with due regard to
the rights of third parties and above all, the interest of the
public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence of the
requisite financial capacity of the Paircargo Consortium,
predecessor of respondent PIATCO, the award by the PBAC of
the contract for the construction, operation and maintenance of
the NAIA IPT III is null and void. Further, considering that the
1997 Concession Agreement contains material and substantial
amendments, which amendments had the effect of converting
the 1997 Concession Agreement into an entirely different
agreement from the contract bidded upon, the 1997 Concession
Agreement is similarly null and void for being contrary to public
policy. The provisions under Sections 4.04(b) and (c) in relation
to Section 1.06 of the 1997 Concession Agreement and Section
4.04(c) in relation to Section 1.06 of the ARCA, which constitute
a direct government guarantee expressly prohibited by, among
others, the BOT Law and its Implementing Rules and Regulations
are also null and void. The Supplements, being accessory
contracts to the ARCA, are likewise null and void.
WHEREFORE, the 1997 Concession Agreement, the Amended
and Restated Concession Agreement and the Supplements
thereto are set aside for being null and void. SO ORDERED.
SECOND DIVISION G.R. No. L-47207 September 25, 1980
JOSE F. ESCANO, JESUS F. ESCANO, VICENTA F. ESCANO,
PILAR ESCANO-BERNAD, SAMUEL F. ESCANO, ANA MA. N.
ILANO, MARIA LOURDES E. NOEL, PILAR VICTORIA E.
NOEL and GABRIEL NOEL, for himself and the minor heirs
of his deceased wife LOURDES ESCANO, petitioners-
appellants,
vs.
COURT OF APPEALS and REPUBLIC OF THE
PHILIPPINES, respondents-appellees.
AQUINO, J.:
The petitioners complain about the judgment of the Court of
Appeals, engrafting conditions on their repurchase of ten lots,
which were expropriated to form part of the Lahug Airport in
Cebu City, as well as the failure of the Appellate Court to grant
them compensation for the use of the lots by the Civil
Aeronautics Administration (CAA) from the time that they
tendered the redemption price (Escano vs. Republic of the
Philippines, CA-G.R. No. 57188-R, March 17, 1977).
In 1964, those ten lots with a total area of 10,639 square meters
were sold for P31,977 by Mamerto Escano, Inc. to the Republic
for use by the CAA.
The sale was subject to the resolutory condition that when the
CAA would no longer use the lots as part of the airport, then the
title thereto would revert to the seller upon reimbursement of
the price of P31,977 without interest. That condition was
annotated on the title issued to the Republic of the Philippines.

In 1966, by means of two deeds of assignment and other
documents, the petitioners became the successors of Mamerto
Escano, Inc. to the reversionary right or the right to repurchase
the lots from the Republic of the Philippines.
In the meantime, or on April 27, 1966, the Mactan Airport
commenced its operation and the Philippine Airlines stopped
using the Lahug Airport. Filipinas Airways and Air Manila ceased
to use the Lahug Airport at the end of 1966 and thereafter used
the Mactan Airport. (pp. 28-29, Record on Appeal p. 38, Rollo).
On the premise that the above-mentioned resolutory condition
had already been fulfilled, meaning that the ten lots were no
longer being used as part of the Lahug Airport because of the
operation of the Mactan Airport, the petitioners, through
counsel, made on October 2, 1972 a written tender to the CAA
of the repurchase price of P31,977 (Exh. G).
The Director of Civil Aviation rejected the tender in his reply of
October 4, 1972. He reasoned out that because the Lahug
Airport was still being utilized for general aviation, the ten lots
could not yet be released and returned to the reversionary
owners (Exh. H).
On November 29, 1972, the petitioners sued the Republic of the
Philippines (CAA) in the Court of First Instance of Cebu for the
reconveyance of the ten lots (Civil Case No. L-13078).
After hearing, the trial court rendered a decision on October 30,
1974, ordering the CAA to reconvey to the petitioners the ten
lots after payment of the repurchase price of P31,977.
The trial court found that the lots were no longer needed for the
airport and that since 1964 they were never used for any Airport
facility.
The petitioners (plaintiffs) appealed because the lower court did
not award to them the reasonable compensation for the use and
occupation of the lots from the time that they tendered the
redemption price.
The Government appealed because it believed that the
resolutory condition for the repurchase had not yet materialized.
The Court of Appeals affirmed the trial court's judgment allowing
the repurchase but it went farther. The Appellate Court ruled
that the repurchase should be subject to the same five
conditions which were imposed in 1961 on the resale made by
the CAA to General Isagani Campo of his two lots which are in
proximity to petitioners' ten lots. Those conditions were as
follows (Exh. J-3):
(a) That all taxes imposed on the property
from the time the property is repossessed by
the said spouses shall be paid by them.
(b) That the repurchasers shall allow the CAA
to continue the property repurchased for
airfield purposes, until such time as the airport
operations are finally transferred to Mactan
Airport.
(c) That the CAA shall not pay any rents or
other charges for its continued use of the
property.
(d) That the repurchase price of the property
in question shall be based on the price paid by
the CAA for the acquisition.
(e) That the property shall not be resold by the
repurchasers until , the Lahug landing field is
finally transferred to Mactan Airport.
128
The petitioners appealed to this Court. The Government did not
appeal.
We hold that the Court of Appeals erred in imposing the said
conditions on the reconveyance of the ten lots to the petitioners,
a matter which was not raised in the pleadings.
The propriety of imposing those conditions was not in issue in
the trial court and in the Court of Appeals. It was an immaterial
point in the case. It was not included in any assignment of errors
in the Government's brief.
When the petitioners filed in the Court of Appeals their motion
for reconsideration, the Solicitor General did not oppose their
prayer that the imposition of the conditions be deleted from the
decision. The Solicitor General confined his opposition to
petitioners prayer that the CAA be adjudged liable to pay
compensation for the use of the lots.
The Court of Appeals ignored the rule that the questions to be
raised on appeal are those raised in the court below and within
the issues framed by the parties (Sec. 18, Rule 46, Rules of
Court).
It also disregarded the rule that "no error which does not affect
the jurisdiction over the subject matter will be considered unless
stated in the assignment of errors and properly argued in the
brief, save as the court, at its option, may notice plain errors not
specified, and also clerical errors" (Sec. 7, Rule 51, Rules of
Court).
It departed from the accepted and usual course of an appeal by
adjudicating a point which was not raised by the parties.
The 1964 contract of sale between the petitioners'
predecessors-in-interest and the Government is the law between
them. Had they intended that the conditions imposed in the
resale of General Campo's lots in 1961 should likewise be
imposed in the resale to the reversionary owners of the ten lots,
they could have easily made a stipulation to that effect in the
1964 deed of sale.
The fact that the contract of sale does not mention those
conditions means that they were never within the contemplation
of the parties. The Court of Appeals, in gratuitously imposing
those conditions, made a new contract for them.
In fact, the second condition "that the repurchases allow the
CAA to continue using the property repurchased for airfield
purposes, until such time as the airport operation is finally
transferred to Mactan Airport" nullifies the reversion or
resolutory condition and negatives the trial court's findings that
the Lahug Aiport had ceased to be operational and that it had
been replaced by the Mactan Airport.
The other point is that the Court of Appeals denied petitioners'
claim for reasonable compensation for the CAA's alleged use
and occupancy of the lots from October 2, 1972 when the tender
of the redemption price was made.
The trial court disallowed that claim because (1) the
compensation was not stipulated by the parties in the contract
of sale; (2) the claim is inconsistent with petitioners' theory that
the CAA never used their lots for aviation purposes; (3) the
Government, as owner, should not be required to pay rentals for
the lots registered in its name, and (4) the petitioners'
predecessors-in-interest were able to use the price of P31,977.
To those grounds, the Solicitor General adds that the CAA, as
owner, should not answer for the compensation for the use of
the lots before the issuance of a judicial declaration that the
resolutory condition had been fulfilled.

We hold that, while petitioners' claim for compensation may be
justified on the ground that the CAA should have reconveyed the
ten lots upon the tender of the redemption price, nevertheless,
it would seem to be inequitable to require the CAA to pay
compensation when it had not derived any benefit from the lots.
And, on the other hand, it is undeniable that during all the time
that the reconveyance has not been effected the petitioners
have been able to use the redemption price of P31,977 for their
own purposes.
If any damage had been suffered by the petitioners due to the
delay in the reconveyance, that damage might be equivalent to
damnum absque injuria which is damage without injury or
damage or injury inflicted without injustice, or loss or damage
without violation of a legal right, or a wrong done to a man for
which the law provides no remedy (1 Bouvier's Law Dictionary,
3rd Ed., p. 754).
The petitioners have been dealing with a governmental entity
whose activities are presumably dictated by policy
considerations and the public interest.
WHEREFORE, the decision of the Court of Appeals is modified by
deleting therefrom the five conditions for the reconveyance of
the ten lots to the petitioners. The trial court's judgment is
affirmed. No costs. SO ORDERED.
THIRD DIVISION G.R. No. 90426 December 15, 1989
SIME DARBY PILIPINAS, INC., petitioners,
vs.
DEPUTY ADMINISTRATOR BUENAVENTURA C. MAGSALIN
as Voluntary Arbitrator and the SIME DARBY EMPLOYEES
ASSOCIATION, respondents.
FELICIANO, J.:
The Petition for certiorari before us assails the award of
Voluntary Arbitrator Buenaventura Magsalin dated 17 August
1989 which directed petitioner Sime Darby Pilipinas, Inc. (Sime
Darby) to pay the members of private respondent Sime Darby
Employees Association (SDEA) a performance bonus equivalent
to seventy-five percent (75%) of their monthly basic pay for the
year 1988-1989.
On 13 June 1989, petitioner Sime Darby and private respondent
SDEA executed a Collective Bargaining Agreement (CBA)
providing, among others, that:
Article X, Section 1. A performance bonus shall
be granted, the amount of which [is] to be
determined by the Company depending on the
return of [sic] capital investment as reflected
in the annual financial statement.
On 31 July 1989, the Sime Darby Salaried Employees
Association- ALU (SDSEA-ALU) wrote petitioner demanding the
implementation of a provision Identical to the above contained
in their own CBA with petitioner. Subsequently, petitioner called
both respondent SDEA and SDEA-ALU to a meeting wherein the
former explained that it was unable to grant the performance
bonus corresponding to the fiscal year 1988-1989 on the ground
that the workers' performance during said period did not justify
the award of such bonus. On 27 July 1989, private respondent
SDEA filed with the National Conciliation and Mediation Board
(NCMB) an urgent request for preventive conciliation between
private respondent and petitioner.
On 1 August 1989, the parties were called to a conciliation
meeting and in such meeting, both parties agreed to submit
their dispute to voluntary arbitration. Their agreement to
arbitrate stated, among other things, that they were "submitting
129
the issue of performance bonus to voluntary arbitration" and
that "the decision/award of the voluntary arbitrator shall be
respected and implemented by the parties as final and
executory, in accordance with the law." 1
On 14 August 1989, petitioner filed its position paper which
aimed to show that the performance of the members of
respondent union during the year was below the production
goals or targets set by Sime Darby for 1988-1989 and below
previous years' levels for which reason the performance bonus
could not be granted. Petitioner there referred to the following
performance indicators: a) number of tires produced; b) degree
of wastage of production materials; and c) number of pounds of
tires produced per man hour. On that same day, 14 August
1989, petitioner manifested before the Voluntary Arbitrator that
it would file a Reply to the union's Position Paper submitted on
10 August 1989 not later than 18 August 1989.
However, before petitioner could submit its Reply to the union's
Position Paper, the Voluntary Arbitrator on 17 August 1989
issued an award which declared respondent union entitled to a
performance bonus equivalent to 75% of the monthly basic pay
of its members. In that award, the Voluntary Arbitrator held that
a reading of the CBA provision on the performance bonus would
show that said provision was mandatory hence the only issue to
be resolved was the amount of performance bonus. The
Voluntary Arbitrator further stated that petitioner company's
financial statements as of 30 June 1988 revealed retained
earnings in the amount of P 324,370,372.32. From the foregoing,
the Voluntary Arbitrator concluded that petitioner company
could well afford to give members of respondent union a
substantial performance bonus. The Voluntary Arbitrator also
stated that there was evidence to show that the company has
given performance bonuses to its managerial and non-unionized
employees as well as to monthly paid workers of the year 1988-
1989.
Petitioner filed a motion for reconsideration which motion was
not entertained by the Voluntary Arbitrator upon the ground that
under the ruling of this Court in Solidbank v. Bureau of Labor
Relations, (G.R. No. 64926, promulgated 8 October 1984;
unpublished) he, the Voluntary Arbitrator, had automatically lost
jurisdiction over the arbitration case upon the issuance of the
award.
In this Petition for Certiorari, petitioner mainly argues that
respondent Voluntary Arbitrator gravely abused his discretion in
holding that the grant of performance bonus was mandatory and
that the only issue before him was the amount of the bonus. It is
contended that since a performance bonus is a "gift" based on
the company's performance, the same is not justified when the
company's performance has been poor. Petitioner claims that
during the fiscal year of 1988-1989, the company performed
poorly as shown by the decline in tire production for the said
year as well as the increase of the rate of wastage of production
materials, and also by the decrease in the number of tires
produced per man hour. Petitioner also argues that even if a
performance bonus were justified, the Voluntary Arbitrator
gravely abused his discretion in giving an award of 75% of the
monthly basic rate without any evidence of the basis used in
arriving at such an award. It is insisted that under the relevant
CBA provision, the company determines the amount of the
bonus if the same be justified. Petitioner also alleged that
respondent Arbitrator gravely erred when he based the award
on the company's retained earnings the level of which
represents earnings accumulated during prior years and not
merely during the fiscal year 1988-1989.
On 8 November 1989, the Court temporarily restrained the
enforcement of the Voluntary Arbitrator's award to prevent the
petition at bar becoming moot and academic.
We are not persuaded by petitioner's arguments.

One point needs to be stressed at the outset: the award of a
Voluntary Arbitrator is final and executory after ten (10)
calendar days from receipt of the award by the parties. 2 There
was a time when the award of a Voluntary Arbitrator relating to
money claims amounting to more than P 100,000.00 or forty
percent (40%) of the paid-up capital of the employer (whichever
was lower), could be appealed to the National Labor Relations
Commission upon the grounds of (a) abuse of discretion; or (b)
gross incompetence, presumably of the arbitrator. 3 This is no
longer so today although, of course, certiorari will lie in
appropriate cases. A petition for certiorari under Rule 65 of the
Revised Rules of Court will lie only where a grave abuse of
discretion or an act without or in excess of jurisdiction on the
part of the Voluntary Arbitrator is clearly shown. It must be
borne in mind that the writ of certiorari is an extraordinary
remedy and that certiorari jurisdiction is not to be equated with
appellate jurisdiction. In a special civil action of certiorari, the
Court will not engage in a review of the facts found nor even of
the law as interpreted or applied by the Arbitrator unless the
supposed errors of fact or of law are so patent and gross and
prejudicial as to amount to a grave abuse of discretion or an
excess de pouvoir on the part of the Arbitrator. 4 The Labor Code
and its Implementing Rules thus clearly reflect the important
public policy of encouraging recourse to voluntary arbitration
and of shortening the arbitration process by rendering the
arbitral award non- appealable to the NLRC. The result is that a
voluntary arbitral award may be modified and set aside only
upon the same grounds on which a decision of the NLRC itself
may be modified or set aside, by this Court.
Examination of the pleadings in the instant Petition shows that
two (2) principal issues are raised: The first is whether or not the
Voluntary Arbitrator acted with grave abuse of discretion or
without or in excess of jurisdiction in passing upon both the
question of whether or not a performance bonus is to be granted
by petitioner Sime Darby to the private respondents and the
further question of the amount thereof. The second is whether or
not the award by the Arbitrator of a performance bonus
amounting to seventy five percent (75%) of the basic monthly
salary of members of private respondent union itself constituted
a grave abuse of discretion or an act without or in excess of
jurisdiction. We consider these issues seriatim
1. In respect of the first issue, petitioner Sime Darby urges
that the Arbitrator gravely abused his discretion in passing
upon not only the question of whether or not a performance
bonus is to be granted but also, in the affirmative case, the
matter of the amount thereof. The position of petitioner, to the
extent we can understand it, is that the Arbitrator was
authorized to determine only the question of whether or not a
performance bonus was to be granted, the second question
being reserved for determination by the employer Sime Darby.
We noted earlier that in their agreement to arbitrate, the
parties submitted to the Voluntary Arbitrator "the issue of
performance bonus." The language of the agreement to
arbitrate may be seen to be quite cryptic. There is no
indication at all that the parties to the arbitration agreement
regarded "the issue of performance bonus" as a two-tiered
issue, only one tier of which was being submitted to
arbitration. Possibly, Sime Darby's counsel considered that
issue as having dual aspects and intended in his own mind to
submit only one of those aspects to the Arbitrator; if he did,
however, he failed to reflect his thinking and intent in the
arbitration agreement.
It is thus essential to stress that the Voluntary Arbitrator had
plenary jurisdiction and authority to interpret the agreement
to arbitrate and to determine the scope of his own authority
subject only, in a proper case, to the certiorari jurisdiction of
this Court. The Arbitrator, as already indicated, viewed his
authority as embracing not merely the determination of the
abstract question of whether or not a performance bonus was
to be granted but also, in the affirmative case, the amount
thereof. The Arbitrator said in his award:
At this juncture, it would not be amiss to emphasize to the
parties that the matter of performance bonus necessarily
130
includes not only the determination of the existence of the
right of the union to this benefit but also the amount thereof.
This conclusion arises from a perusal of the terms of the
submission agreement entered into by Sime Darby Pilipinas,
Inc. and Sime Darby Employees Association which limited the
voluntary arbitration only with regard to submission of
position papers of the parties, disposition and rendition of the
award. Nary (sic) a trace of qualification as to the sole issue of
performance bonus may be gleaned from a review of said
agreement.
With that as a timely reminder, this Arbitrator now proceeds
to resolve the issues herein submitted for resolution. Without
doubt, the Sime Darby Employees Association is entitled to
performance bonus. This conclusion arises from an analysis of
the imperative terms of the CBA provision on production
bonus, hereinunder reproduced, to wit:
A performance bonus shall be granted the amount of which to
be determined by the Company depending on the return of
capital investment as reflected in the annual financial
statements. 5(Emphasis supplied)
Analysis of the relevant provisions of the CBA between the
parties and examination of the record of the instant case lead us
to the conclusion that the Arbitrator's reading of the scope of his
own authority must be sustained.
Article X, Section 1 of the CBA is, grammatically speaking, cast
in mandatory terms: "A performance bonus shall be granted ..."
The CBA provision goes on, however, immediately to say that
the amount of the performance bonus "[is] to be determined by
the Company." Thus, notwithstanding the literal or grammatical
tenor of Article X, Section 1, as a practical matter, only the issue
relating to the amount of the bonus to be declared appears
important. Not much reflection is needed to show that the
critical issue is the scope of authority of the company to
determine the amount of any bonus to be granted. If the
company's discretionary authority were to be regarded as
unlimited and if the company may declare in any event a merely
nominal bonus, the use of mandatory language in Article X,
Section 1, would seem largely illusory and cosmetic in effect.
Alternatively, even if one were to disregard the use of "shall"
rather than "may" in Article X, Section 1, the question of
whether or not a performance bonus is to be granted, still
cannot realistically be dissociated from the intensely practical
issue of the amount of the bonus to be granted. It is noteworthy
that petitioner Sime Darby itself did not spend much time
discussing as an abstract question whether or not the grant of a
performance bonus is per se obligatory upon the company.
Petitioner instead focused upon the production performance of
the company's employees as bearing upon the appropriateness
of any amount of bonus. Further, if petitioner Sime Darby's
argument were to be taken seriously, one must conclude that
the parties to the arbitration agreement intended to refer only a
theoretical and practically meaningless issue to the Voluntary
Arbitrator, a conclusion that we find thoroughly unacceptable.
2. We turn then to the issue of whether or not
the Voluntary Arbitrator gravely abused his discretion
or acted without or in excess of jurisdiction in awarding
an amount equivalent to seventy-five percent (75%) of
the basic monthly pay of members of respondent
union. Petitioner Sime Darby contends that that award
is devoid of factual basis. We understand this
contention to be that the Arbitrator did not apply the
relevant CBA provision.
Once more, we are not persuaded by petitioner's contention.
Article X, Section 1 of the CBA does not in express terms identify
whose performance is to appraised in determining an
appropriate amount to be awarded as performance bonus. The
Court considers that it is the performance of the company as a
whole, and not merely the production or manufacturing

performance of its employees, which is relevant in that
determination. The CBA provision refers to the return on
investment of the company (ROI). The return on the
stockholders' investment, as we understand it, relates basically
to the net profits shown by the company and therefore to many
more factors than simply the extent to which production targets
were achieved or the rise and fall of the manufacturing
efficiency ratios. Among those factors would be the cost of
production, the quality of the products, the cost of money, the
debt-equity ratio, the cost of sales, the level of taxes due and
payable, the gross revenues realized, and so forth.
We note upon the other hand, that petitioner's counsel failed to
discuss at all before the Voluntary Arbitrator the rate of return
on stockholders' investment achieved by Sime Darby for the
year 1988- 1989; as earlier noted, counsel confined his
argument and the evidence submitted by him to the number of
tires produced, the decrease in the rate of wastage of
manufacturing materials, and the productivity of the work force
measured in terms of the number of tires produced per man
hour.
The Voluntary Arbitrator, upon the other hand, explicitly
considered the net earnings of petitioner Sime Darby in 1988 (P
100,000,000.00) and in the first semester of 1989 (P
95,377,507.00) as well as the increase in the company's
retained earnings from P 265,729,826.00 in 1988 to P 324,
370,372.00 as of 30 June 1989. Thus, the Arbitrator impliedly or
indirectly took into account the return on stockholders'
investment realized for the fiscal year 1988-1989. It should also
be noted that the relevant CBA provision does not specify a
minimum rate of return on investment (ROI) which must be
realized before any particular amount of bonus may or should be
declared by the company.
The Voluntary Arbitrator also took into account, again in an
indirect manner, the performance of Sime Darby's employees by
referring in his award to "the total labor cost incurred by the
Company":
This Arbitrator, however, is well aware that
any effort in this regard must be tempered and
balanced as against the need to sustain the continued
viability of Sime Darby Pilipinas, Inc. in accordance with
the constitutional provision which recognizes the 'right
of enterprise to reasonable returns on investment and
to expansion and growth.' Furthermore, any award to
be rendered must likewise take into account the total
labor cost incurred by the Company. It should not
merely be confined to those pertaining to the members
of the Sime Darby Employees Association but
necessarily include that which shall be paid and
granted to all other employees of Sime Darby this
year. 6 (Emphasis supplied)
On balance, we believe and so hold that the award of the
Voluntary Arbitrator of a bonus amounting to seventy-five
percent (75%) of the basic monthly salary cannot be said to be
merely arbitrary or capricious or to constitute an excess de
pouvoir.
The remaining assertions of petitioner Sime Darby relating to
denial of procedural due process by the Voluntary Arbitrator,
consisting of failure to wait for petitioner's announced Reply
(basically reiterative and amplificatory in nature) to the union's
Position Paper and of alleged failure to consider evidence
submitted by petitioner, do not require extended consideration;
they are evidently bereft of merit.
WHEREFORE, the Petition for Certiorari is DISMISSED for lack of
merit. The Temporary Restraining Order issued on 8 November
1989 is hereby LIFTED. This Decision is immediately executory.
Costs against petitioner.SO ORDERED.
FIRST DIVISIONG.R. No. L-51996 November 23, 1988
131
WESTERN MINOLCO CORPORATION, petitioner,
vs.
COURT OF APPEALS and GREGORIAN MINING
COMPANY, respondents.
NARVASA, J.:
A series of contracts was entered into between Western Minolco
Corporation and Gregorian Mining Company, basically for the
operation by the former of the latter's mining claims. 1 One of
the stipulations in the contracts (a) declared certain particular
disputes to be subject to arbitration and (b) specified the
manner of enforcement by court action of the resulting
arbitration awards. 2 The stipulation reads as follows:
Article XII
12.01. Should any dispute, difference or
disagreement arise between the CLAIM-OWNER and the
COMPANY regarding the meaning, application or effect
of this Agreement or of any clause thereof, or in regard
to the amount and computation of the royalties,
deductions, or other item of expense hereinabove
provided, such dispute, difference or disagreement
shall be referred to a board of arbitration to be
composed of one arbitrator to be appointed by the
COMPANY, another to be appointed by the CLAIM-
OWNER, and a third to be selected by the two
aforementioned arbitrators, the decision of a majority
of the said arbitrators to be binding upon the parties,
insofar as the same is permitted by law. No action shall
be instituted in any Court by either party hereto, unless
the dispute, difference or disagreement, shall have
been first submitted to and received by said board of
arbitrators, and any such action shall be based upon
the award as obtained.
12.02The parties stipulate that the venue of
the actions referred to in Section 12.01 shall
be in the City of Manila.
There are, it will be noted, only two (2) classes of disputes or
disagreements governed by these provisions:
1) those "regarding the meaning, application or effect of the
agreement(s) or any clause thereof," and
2) those "in regard to the amount and computation of the
royalties, deductions, or other item of expense" provided in the
agreement.
It is made quite clear that these two (2) classes of disputes are
to be "referred to a board of arbitration." It is made equally clear
that no action concerning them may be instituted in any court
by either party (1) unless the controversy be "first submitted to
and received by said board of arbitrators," and (2) only if the
action "be based upon the award as obtained. " In the event of
such an action, the venue thereof "shall be in the City of
Manila."
Now, it appears that Western Minolco Corporation subsequently
executed another agreement with another firm, the Dreamers
Mining Association, for the validation of 36 mineral lode claims
in the latter's favor. As it happened, those 36 claims were
believed by Gregorian Mining Company to be in conflict with,
and had been superimposed on its own claims, which it had
earlier located and which were in fact subject of the series of
agreements signed by it and Western Minolco Corporation.
Gregorian Mining Company consequently brought suit against
Western Minolco Corporation in the Court of First Instance of
Baguio and Benguet, for the rescission of their agreements and
damages. 3

Western Minolco moved to dismiss the complaint, theorizing that
(a) venue had been improperly laid, and (b) the complaint
stated no cause of action. 4 Gregorian opposed the motion,
arguing that (a) the stipulation regarding venue in the parties'
agreements was merely permissive and did not preclude the
filing of an action conformably with the general rules of venue in
Section 2, Rule 4 of the Rules of Court, and (b) there was a
cause of action set forth in the complaint within the Trial Court's
jurisdiction because the action involved a dispute which was not
arbitrable in accordance with their contracts. 5 Western Minolco
filed a reply. 6 The Trial Court 7 denied Western Minolco's
motion to dismiss and required it to file its responsive pleading
within the prescribed period. 8 The Court also denied Western
Minolco's motion for reconsideration. 9
In the meantime, and while it was seeking reconsideration of the
Baguio Court's adverse order, Western Minolco filed a petition
with the Court of First Instance of Manila to compel arbitration,
in line with its agreement with Gregorian, and for recovery of
damages against the latter. 10 After an exchange of pleadings,
the petition was granted. 11 Gregorian sought to take an appeal
to the Court of Appeals; 12 but the Manila Court ruled that the
appeal should more properly be taken to this Court. 13
Gregorian decided to forego the appeal, and to await instead the
decision of the Court of Appeals on the petition for certiorari and
prohibition which Western Minolco had in the meantime filed to
assail the Orders of the CFI of Baguio and Benguet (refusing to
dismiss the action [Case No. 2272 (220)] brought against it by
Gregorian). 14 The Court of Appeals was not persuaded by
Western Minolco's arguments, and dismissed its petition, by
decision dated August 29, 1979. 15 It later denied Western
Minolco's motion for reconsideration. 16 This decision of August
29, 1979, and the order denying reconsideration, are challenged
in the instant appeal. The verdict must go against the petitioner,
Western Minolco Corporation.
It is Western Minolco's thesis that it was reversible error for the
Court of Appeals to find and declare that
a) the venue of the action instituted against it by Gregorian
Mining Co. was improperly laid;
b) the action could not be instituted until and unless the
dispute subject thereof had first been resolved by
arbitration, as covenanted by the parties;
c) public policy encourages arbitration and arbitration
agreements are to be liberally construed;
d) the Trial Court had no business interpreting the
provisions of the agreement the terms of which were
otherwise clear, unambiguous and unequivocal.
The terms of the applicable provision of the parties' agreements
are indeed "clear, unambiguous, and unequivocal." As pointed
out in the opening paragraphs of this opinion, only two (2) kinds
of "disputes, differences or disagreements" have been made
subject of arbitration:
1) those "regarding the meaning, application or effect of the
agreement(s) or any clause thereof;" and
2) those "in regard to the amount and computation of the
royalties, deduction, or other item of expense" provided in the
agreement.
The controversy involved in the action brought by Gregorian
against Western Minolco was the alleged violation by the latter
of its agreements with the former, consisting of its entering into
a contract with a third party for the validation of mining claims
which it knew had already been located by Gregorian. What was
involved, in other words, was the breach of faith, or the double
dealing of Western Minolco in undertaking to validate in favor of
132
a third party the selfsame claims which it had earlier
undertaken to operate for Gregorian. Clearly, such a controversy
does not fall within either of the two categories of disputes
which must first be submitted for arbitration. The stipulation in
question (for arbitration to be first had) did not therefore
constitute an impediment or a bar to the institution of the action
commenced by Gregorian against Western Minolco, for
rescission and damages.
Even if, for the sake of argument, some measure of tenability be
conceded to the opposite view: that the controversy subject of
Civil Case No. 2272 (220) might be considered as dealing with
the "meaning, application or effect" of the agreement
specifically, whether the claims therein described are the very
same mining claims subject of Western Minolco's subsequent
agreement with a third partyand therefore should first be
submitted to and resolved by a board of arbitrators, the worst
that could then be said of the orders of the Trial Court, affirmed
by the Court of Appeals, is that they are attended by an error in
the analysis and interpretation of the language and import of
the stipulation in question, but certainly not by that whimsical,
capricious, or totally groundless or tangential exercise of
adjudgment or discretion as would justify the issuance of the
extraordinary writ of certiorari or prohibition. 17 In no sense
may it be said that power has been exercised by either the
Appellate Court or the Trial Court in so arbitrary or despotic a
manner, as by reason of passion, prejudice or personal hostility,
or in so patently and grossly mistaken a manner as to amount to
an evasion of positive duty or a virtual refusal to perform a duty
enjoined or to act at all in contemplation of law, so as to make
needful the extension of this Court's correcting hand by the
peremptory writ of certiorari or prohibition. 18
Since the stipulation as to venue becomes relevant only when
an action has to be instituted "based upon the award as
obtained" (from the board of arbitrators) (i.e., as the mode of
enforcement of the award); and since there is here no such
award because no controversy subject to arbitration existed and
was ever submitted to arbitration, no error can possibly be
imputed to the Trial Court in not applying the stipulation to the
action a quo. In any event, it is not entirely amiss to restate the
doctrine that stipulations in a contract, which specify a definite
place for the institution of an action arising in connection
therewith, do not, as a rule, supersede the general rules on the
matter set out in Rule 4 of the Rules of Court, but should be
construed merely as an agreement on an additional forum, not
as limiting venue to the specified place. 19
WHEREFORE, the petition is DENIED, and the decision of the
Court of Appeals subject of the appeal is AFFIRMED. Costs
against petitioner.
SO ORDERED.
SECOND DIVISION[G.R. No. 115412. November 19, 1999]
HOME BANKERS SAVINGS AND TRUST
COMPANY, petitioner vs. COURT OF APPEALS and
FAR EAST BANK & TRUST COMPANY, respondents.
BUENA , J.:
This appeal by certiorari under Rule 45 of the Rules of
Court seeks to annul and set aside the decision [1] of the Court of
Appeals[2] dated January 21, 1994 in CA-G.R. SP No. 29725,
dismissing the petition for certiorari filed by petitioner to annul
the two (2) orders issued by the Regional Trial Court of
Makati[3] in Civil Case No. 92-145, the first, dated April 30, 1992,
denying petitioner's motion to dismiss and the second, dated
October 1, 1992 denying petitioner's motion for reconsideration
thereof.
The pertinent facts may be briefly stated as follows: Victor
Tancuan, one of the defendants in Civil Case No. 92-145, 0issued
Home Bankers Savings and Trust Company (HBSTC) check No.

193498 for P25,250,000.00 while Eugene Arriesgado issued Far
East Bank and Trust Company (FEBTC) check Nos. 464264,
464272 and 464271 for P8,600,000.00, P8,500,000.00
and P8,100,000.00, respectively, the three checks amounting
to P25,200,000.00. Tancuan and Arriesgado exchanged each
other's checks and deposited them with their respective banks
for collection. When FEBTC presented Tancuan's HBSTC check for
clearing, HBSTC dishonored it for being "Drawn Against
Insufficient Funds." On October 15, 1991, HBSTC sent
Arriesgado's three (3) FEBTC checks through the Philippine
Clearing House Corporation (PCHC) to FEBTC but was returned
on October 18, 1991 as "Drawn Against Insufficient Funds."
HBSTC received the notice of dishonor on October 21, 1991 but
refused to accept the checks and on October 22, 1991, returned
them to FEBTC through the PCHC for the reason "Beyond
Reglementary Period," implying that HBSTC already treated the
three (3) FEBTC checks as cleared and allowed the proceeds
thereof to be withdrawn.[4] FEBTC demanded reimbursement for
the returned checks and inquired from HBSTC whether it had
permitted any withdrawal of funds against the unfunded checks
and if so, on what date. HBSTC, however, refused to make any
reimbursement and to provide FEBTC with the needed
information.
Thus, on December 12, 1991, FEBTC submitted the dispute
for arbitration before the PCHC Arbitration Committee, [5] under
the PCHC's Supplementary Rules on Regional Clearing to which
FEBTC and HBSTC are bound as participants in the regional
clearing operations administered by the PCHC. [6]
On January 17, 1992, while the arbitration proceedings was
still pending, FEBTC filed an action for sum of money and
damages with preliminary attachment[7] against HBSTC, Robert
Young, Victor Tancuan and Eugene Arriesgado with the Regional
Trial Court of Makati, Branch 133. A motion to dismiss was filed
by HBSTC claiming that the complaint stated no cause of action
and accordingly should be dismissed because it seeks to enforce
an arbitral award which as yet does not exist. [8] The trial court
issued an omnibus order dated April 30, 1992 denying the
motion to dismiss and an order dated October 1, 1992 denying
the motion for reconsideration.
On December 16, 1992, HBSTC filed a petition
for certiorari with the respondent Court of Appeals contending
that the trial court acted with grave abuse of discretion
amounting to lack of jurisdiction in denying the motion to
dismiss filed by HBSTC.
In a Decision[9] dated January 21, 1994, the respondent
court dismissed the petition for lack of merit and held that
"FEBTC can reiterate its cause of action before the courts which
it had already raised in the arbitration case" [10] after finding that
the complaint filed by FEBTC "seeks to collect a sum of money
from HBT [HBSTC] and not to enforce or confirm an arbitral
award."[11] The respondent court observed that "[i]n the
Complaint, FEBTC applied for the issuance of a writ of
preliminary attachment over HBT's [HBSTC] property" [12] and
citing section 14 of Republic Act No. 876, otherwise known as
the Arbitration Law, maintained that "[n]ecessarily, it has to
reiterate its main cause of action for sum of money against HBT
[HBSTC],"[13] and that "[t]his prayer for conservatory relief [writ
of preliminary attachment] satisfies the requirement of a cause
of action which FEBTC may pursue in the courts."[14]
Furthermore, the respondent court ruled that based on
section 7 of the Arbitration Law and the cases of National
Union Fire Insurance Company of Pittsburg vs. Slolt-
Nielsen Philippines, Inc.,[15] and Bengson vs. Chan,[16] "when
there is a condition requiring prior submission to arbitration
before the institution of a court action, the complaint is not to be
dismissed but should be suspended for arbitration."[17] Finding no
merit in HBSTC's contention that section 7 of the Arbitration Law
"contemplates a situation in which a party to an arbitration
agreement has filed a court action without first resorting to
arbitration, while in the case at bar, FEBTC has initiated
arbitration proceedings before filing a court action," the
133
respondent court held that "if the absence of a prior arbitration
may stay court action, so too and with more reason, should an
arbitration already pending as obtains in this case stay the court
action. A party to a pending arbitral proceeding may go to court
to obtain conservatory reliefs in connection with his cause of
action although the disposal of that action on the merits cannot
as yet be obtained."[18] The respondent court
discarded Puromines, Inc. vs. Court of Appeals,[19] stating that
"perhaps Puromines may have been decided on a different
factual basis."[20]
In the instant petition,[21] petitioner contends that first, "no
party litigant can file a non-existent complaint," [22] arguing that
"one cannot file a complaint in court over a subject that is
undergoing arbitration."[23] Second, petitioner submits that
"[s]ince arbitration is a special proceeding by a clear provision of
law,[24] the civil suit filed below is, without a shadow of doubt,
barred by litis pendencia and should be dismissed de
plano insofar as HBSTC is concerned." [25] Third, petitioner insists
that "[w]hen arbitration is agreed upon and suit is filed without
arbitration having been held and terminated, the case that is
filed should be dismissed,"[26] citing Associated Bank vs. Court of
Appeals,[27] Puromines, Inc. vs. Court of Appeals, [28] and Ledesma
vs. Court of Appeals.[29] Petitioner demurs that
the Puromines ruling was deliberately not followed by the
respondent court which claimed that:
"xxx xxx.
It would really be much easier for Us to rule to dismiss the
complainant as the petitioners here seeks to do, following
Puromines. But with utmost deference to the Honorable
Supreme Court, perhaps Puromines may have been decided on
a different factual basis.
xxx xxx."[30]
Petitioner takes exception to FEBTC's contention
that Puromines cannot modify or reverse the rulings in National
Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen
Philippines, Inc.,[31] and Bengson vs. Chan,[32] where this Court
suspended the action filed pending arbitration, and argues that
"[s]ound policy requires that the conclusion of whether a
Supreme Court decision has or has not reversed or modified [a]
previous doctrine, should be left to the Supreme Court itself;
until then, the latest pronouncement should prevail." [33] Fourth,
petitioner alleges that the writ of preliminary attachment issued
by the trial court is void considering that the case filed before it
"is a separate action which cannot exist,"[34] and "there is even
no need for the attachment as far as HBSTC is concerned
because such automatic debit/credit procedure [35] may be
regarded as a security for the transactions involved and, as
jurisprudence confirms, one requirement in the issuance of an
attachment [writ of preliminary attachment] is that the debtor
has no sufficient security." [36] Petitioner asserts further that a
writ of preliminary attachment is unwarranted because no
ground exists for its issuance. According to petitioner, "the only
allegations against it [HBSTC] are that it refused to refund the
amounts of the checks of FEBTC and that it knew about the
fraud perpetrated by the other defendants,"[37] which, at best,
constitute only "incidental fraud" and not causal fraud which
justifies the issuance of the writ of preliminary attachment.
Private respondent FEBTC, on the other hand, contends
that "the cause of action for collection [of a sum of money] can
coexist in the civil suit and the arbitration [proceeding]" [38] citing
section 7 of the Arbitration Law which provides for the stay of
the civil action until an arbitration has been had in accordance
with the terms of the agreement providing for
arbitration. Private respondent further asserts that following
section 4(3), article VIII [39]of the 1987 Constitution, the
subsequent case of Puromines does not overturn the ruling in
the earlier cases of National Union Fire Insurance Company of
Pittsburg vs. Stolt-Nielsen Philippines, Inc.
[40]
and Bengson vs. Chan,[41] hence, private respondents

concludes that the prevailing doctrine is that the civil action
must be stayed rather than dismissed pending arbitration.
In this petition, the lone issue presented for
consideration of this Court is:
WHETHER OR NOT PRIVATE RESPONDENT WHICH
COMMENCED AN ARBITRATION PROCEEDING UNDER
THE AUSPICES OF THE PHILIPPINE CLEARING HOUSE
CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A
SEPARATE CASE IN COURT OVER THE SAME SUBJECT
MATTER OF ARBITRATION DESPITE THE PENDENCY OF
THAT ARBITRATION, SIMPLY TO OBTAIN THE
PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE
BANK, THE ADVERSE PARTY IN THE ARBITRATION
PROCEEDINGS."[42]
We find no merit in the petition. Section 14 of Republic Act
876, otherwise known as the Arbitration Law, allows any party to
the arbitration proceeding to petition the court to take measures
to safeguard and/or conserve any matter which is the subject of
the dispute in arbitration, thus:
134
act of participation of the parties concerned in its
operations in effect amounts to a manifestation of
agreement by the parties to abide by its rules and
regulations. As a consequence of such
the
participation, a party cannot invoke the
jurisdiction of the courts over disputes and
controversies which fall under the PCHC Rules
and Regulations without first going through the
arbitration processes laid out by the
body."[47] (emphasis supplied)
And thus we concluded:
"Clearly therefore, petitioner Associated Bank,
by its voluntary participation and its consent to
the arbitration rules cannot go directly to the
Regional Trial Court when it finds it convenient to
do so. The jurisdiction of the PCHC under the rules and
regulations is clear, undeniable and is particularly
applicable to all the parties in the third party complaint
under their obligation to first seek redress of their
disputes and grievances with the PCHC before going to
the trial court."[48](emphasis supplied)

Section 14. Subpoena and subpoena duces tecum. - Arbitrators

shall have the power to require any person to attend a hearing
as a witness. They shall have the power to subpoena witnesses
and documents when the relevancy of the testimony and the
materiality thereof has been demonstrated to the
arbitrators. Arbitrators may also require the retirement of any
witness during the testimony of any other witness. All of the
arbitrators appointed in any controversy must attend all the
hearings in that matter and hear all the allegations and proofs of
the parties; but an award by the majority of them is valid unless
the concurrence of all of them is expressly required in the
submission or contract to arbitrate. The arbitrator or
arbitrators shall have the power at any time, before
rendering the award, without prejudice to 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. (emphasis supplied)
Petitioner's exposition of the foregoing provision deserves
scant consideration. Section 14 simply grants an arbitrator the
power to issue subpoena and subpoena duces tecum at any
time before rendering the award. The exercise of such power is
without prejudice to the right of a party to file a petition in court
to safeguard any matter which is the subject of the dispute in
arbitration. In the case at bar, private respondent filed an action
for a sum of money with prayer for a writ of preliminary
attachment. Undoubtedly, such action involved the same
subject matter as that in arbitration, i.e., the sum
of P25,200,000.00 which was allegedly deprived from private
respondent in what is known in banking as a "kiting scheme."
However, the civil action was not a simple case of a money
claim since private respondent has included a prayer for a writ
of preliminary attachment, which is sanctioned by section 14 of
the Arbitration Law.
Petitioner cites the cases of Associated Bank vs. Court of
Appeals,[43] Puromines, Inc. vs. Court of Appeals, [44] and Ledesma
vs. Court of Appeals[45] in contending that "[w]hen arbitration is
agreed upon and suit is filed without arbitration having been
held and terminated, the case that is filed should be
dismissed."[46] However, the said cases are not in
point. In Associated Bank, we affirmed the dismissal of the
third-party complaint filed by Associated Bank against Philippine
Commercial International Bank, Far East Bank & Trust Company,
Security Bank and Trust Company and Citytrust Banking
Corporation for lack of jurisdiction, it being shown that the said
parties were bound by the Clearing House Rules and Regulations
on Arbitration of the Philippine Clearing House
Corporation. In Associated Bank, we declared that:
Simply put, participants in the regional clearing operations
of the Philippine Clearing House Corporation cannot bypass
the arbitration process laid out by the body and seek
relief directly from the courts. In the case at bar,
undeniably, private respondent has initiated arbitration
proceedings as required by the PCHC rules and regulations, and
pending arbitration has sought relief from the trial court for
measures to safeguard and/or conserve the subject of the
dispute under arbitration, as sanctioned by section 14 of the
Arbitration Law, and otherwise not shown to be contrary to the
PCHC rules and regulations.
Likewise, in the case of Puromines, Inc. vs. Court of
Appeals,[49] we have ruled that:
"In any case, whether the liability of respondent should
be based on the sales contract or that of the bill of
lading, the parties are nevertheless obligated to
respect the arbitration provisions on the sales contract
and/or bill of lading. Petitioner being a signatory and
party to the sales contract cannot escape from his
obligation under the arbitration clause as stated
therein."
In Puromines, we found the arbitration clause stated in
the sales contract to be valid and applicable, thus, we ruled that
the parties, being signatories to the sales contract, are obligated
to respect the arbitration provisions on the contract and cannot
escape from such obligation by filing an action for breach of
contract in court without resorting first to arbitration, as agreed
upon by the parties.
At this point, we emphasize that arbitration, as an
alternative method of dispute resolution, is encouraged by this
Court. Aside from unclogging judicial dockets, it also hastens
solutions especially of commercial disputes. [50] The Court looks
with favor upon such amicable arrangement and will only
interfere with great reluctance to anticipate or nullify the action
of the arbitrator.[51]
WHEREFORE, premises considered, the petition is hereby
DISMISSED and the decision of the court a quo is AFFIRMED.
SO ORDERED.
SECOND DIVISIONG.R. No. 129916 March 26, 2001

MAGELLAN CAPITAL MANAGEMENT CORPORATION and

"xxx xxx. Under the rules and regulations of the
MAGELLAN CAPITAL HOLDINGS CORPORATION, petitioners,
Philippine Clearing House Corporation (PCHC), the mere
vs.
 135
ROLANDO M. ZOSA and HON. JOSE P. SOBERANO, JR., in having jurisdiction thereof, with costs of the arbitration
his capacity as Presiding Judge of Branch 58 of the to be borne equally by the parties, except that each
Regional Trial Court of Cebu, 7th Judicial party shall pay the fees and expenses of its own
Region, respondents. counsel in the arbitration."

BUENA, J.: On November 10, 1995, respondent Zosa designated his

brother, Atty. Francis Zosa, as his representative in the
arbitration panel9 while MCHC designated Atty. Inigo S.
Under a management agreement entered into on March 18,
Fojas10 and MCMC nominated Atty. Enrique I. Quiason 11as their
1994, Magellan Capital Holdings Corporation [MCHC] appointed
respective representatives in the arbitration panel. However,
Magellan Capital Management Corporation [MCMC] as manager
instead of submitting the dispute to arbitration, respondent
for the operation of its business and affairs. 1 Pursuant thereto,
Zosa, on April 17, 1996, filed an action for damages against
on the same month, MCHC, MCMC, and private respondent
petitioners before the Regional Trial Court of Cebu 12 to enforce
Rolando M. Zosa entered into an "Employment Agreement"
his benefits under the Employment Agreement.
designating Zosa as President and Chief Executive Officer of
MCHC.
On July 3, 1996, petitioners filed a motion to dismiss 13 arguing
that (1) the trial court has no jurisdiction over the instant case
Under the "Employment Agreement", the term of respondent
since respondent Zosa's claims should be resolved through
Zosa's employment shall be co-terminous with the management
arbitration pursuant to Section 23 of the Employment
agreement, or until March 1996,2 unless sooner terminated
Agreement with petitioners; and (2) the venue is improperly laid
pursuant to the provisions of the Employment Agreement. 3 The
since respondent Zosa, like the petitioners, is a resident of Pasig
grounds for termination of employment are also provided in the
City and thus, the venue of this case, granting without admitting
Employment Agreement.
that the respondent has a cause of action against the petitioners
cognizable by the RTC, should be limited only to RTC-Pasig City. 14
On May 10, 1995, the majority of MCHC's Board of Directors
decided not to re-elect respondent Zosa as President and Chief
Meanwhile, respondent Zosa filed an amended complaint dated
Executive Officer of MCHC on account of loss of trust and
July 5, 1996.
confidence4 arising from alleged violation of the resolution
issued by MCHC's board of directors and of the non-competition
clause of the Employment Agreement.5 Nevertheless, On August 1, 1996, the RTC Branch 58 of Cebu City issued an
respondent Zosa was elected to a new position as MCHC's Vice- Order denying petitioners motion to dismiss upon the findings
Chairman/Chairman for New Ventures Development. 6 that (1) the validity and legality of the arbitration provision can
only be determined after trial on the merits; and (2) the amount
of damages claimed, which is over P100,000.00, falls within the
On September 26, 1995, respondent Zosa communicated his
jurisdiction of the RTC.15 Petitioners filed a motion for
resignation for good reason from the position of Vice-Chairman
reconsideration which was denied by the RTC in an order
under paragraph 7 of the Employment Agreement on the ground
dated September 5, 1996.16
that said position had less responsibility and scope than
President and Chief Executive Officer. He demanded that he be
given termination benefits as provided for in Section 8 (c) (i) (ii) In the interim, on August 22, 1996, in compliance with the
and (iii) of the Employment Agreement.7 earlier order of the court directing petitioners to file responsive
pleading to the amended complaint, petitioners filed their
Answer Ad Cautelam with counterclaim reiterating their position
In a letter dated October 20, 1995, MCHC communicated its
that the dispute should be settled through arbitration and the
non-acceptance of respondent Zosa's resignation for good
court had no jurisdiction over the nature of the action.17
reason, but instead informed him that the Employment
Agreement is terminated for cause, effective November 19,
1995, in accordance with Section 7 (a) (v) of the said On October 21, 1996, the trial court issued its pre-trial order
agreement, on account of his breach of Section 12 thereof. declaring the pre-trial stage terminated and setting the case for
Respondent Zosa was further advised that he shall have no hearing. The order states:
further rights under the said Agreement or any claims against
the Manager or the Corporation except the right to receive "ISSUES:
within thirty (30) days from November 19, 1995, the amounts
stated in Section 8 (a) (i) (ii) of the Agreement.8
"The Court will only resolve one issue in so far as this
case is concerned, to wit:
Disagreeing with the position taken by petitioners, respondent
Zosa invoked the Arbitration Clause of the Employment
Agreement, to wit: "Whether or not the Arbitration Clause contained in
Sec. 23 of the Employment Agreement is void and of no
effect: and, if it is void and of no effect, whether or not
"23. Arbitration. In the event that any dispute, the plaintiff is entitled to damages in accordance with
controversy or claim arises out of or under any his complaint and the defendants in accordance with
provisions of this Agreement, then the parties hereto their counterclaim.
agree to submit such dispute, controversy or claim to
arbitration as set forth in this Section and the
determination to be made in such arbitration shall be "It is understood, that in the event the arbitration
final and binding. Arbitration shall be effected by a clause is valid and binding between the parties, the
panel of three arbitrators. The Manager, Employee and parties shall submit their respective claim to the
Corporation shall designate one (1) arbitrator who Arbitration Committee in accordance with the said
shall, in turn, nominate and elect who among them arbitration clause, in which event, this case shall be
shall be the chairman of the committee. Any such deemed dismissed."18
arbitration, including the rendering of an arbitration
award, shall take place in Metro Manila. The arbitrators On November 18, 1996, petitioners filed their Motion Ad
shall interpret this Agreement in accordance with the Cautelam for the Correction, Addition and Clarification of the
substantive laws of the Republic of the Philippines. The Pre-trial Order dated November 15, 1996, 19 which was denied by
arbitrators shall have no power to add to, subtract from the court in an order dated November 28, 1996.20
or otherwise modify the terms of Agreement or to grant
injunctive relief of any nature. Any judgment upon the
award of the arbitrators may be entered in any court

Thereafter, petitioners MCMC and MCHC filed a Motion Ad
Cautelam for the parties to file their Memoranda to support their
respective stand on the issue of the validity of the "arbitration
clause" contained in the Employment Agreement. In an order
dated December 13, 1996, the trial court denied the motion of
petitioners MCMC and MCHC.
On January 17, 1997, petitioners MCMC and MCHC filed a
petition for certiorari and prohibition under Rule 65 of the Rules
of Court with the Court of Appeals, questioning the trial court
orders dated August 1, 1996, September 5, 1996, and
December 13, 1996.21
On March 21, 1997, the Court of Appeals rendered a decision,
giving due course to the petition, the decretal portion of which
reads:
"WHEREFORE, the petition is GIVEN DUE COURSE. The
respondent court is directed to resolve the issue on the
validity or effectivity of the arbitration clause in the
Employment Agreement, and to suspend further
proceedings in the trial on the merits until the said
issue is resolved. The questioned orders are set aside
insofar as they contravene this Court's resolution of the
issues raised as herein pronounced.
"The petitioner is required to remit to this Court the
sum of P81.80 for cost within five (5) days from notice.
"SO ORDERED."22
Petitioners filed a motions for partial reconsideration of the CA
decision praying (1) for the dismissal of the case in the trial
court, on the ground of lack of jurisdiction, and (2) that the
parties be directed to submit their dispute to arbitration in
accordance with the Employment Agreement dated March 1994.
The CA, in a resolution promulgated on June 20, 1997, denied
the motion for partial reconsideration for lack of merit.
In compliance with the CA decision, the trial court, on July 18,
1997, rendered a decision declaring the "arbitration clause" in
the Employment Agreement partially void and of no effect. The
dispositive portion of the decision reads:
"WHEREFORE, premises considered, judgment is
hereby rendered partially declaring the arbitration
clause of the Employment Agreement void and of no
effect, only insofar as it concerns the composition of
the panel of arbitrators, and directing the parties to
proceed to arbitration in accordance with the
Employment Agreement under the panel of three (3)
arbitrators, one for the plaintiff, one for the defendants,
and the third to be chosen by both the plaintiff and
defendants. The other terms, conditions and
stipulations in the arbitration clause remain in force
and effect."23
In view of the trial court's decision, petitioners filed this petition
for review on certiorari, under Rule 45 of the Rules of Court,
assigning the following errors for the Court's resolution:
"I. The trial court gravely erred when it ruled that the
arbitration clause under the employment agreement is
partially void and of no effect, considering that:
"A. The arbitration clause in the employment
agreement dated March 1994 between
respondent Zosa and defendants MCHC and
MCMC is valid and binding upon the parties
thereto.
"B. In view of the fact that there are three
parties to the employment agreement, it is but
136
proper that each party be represented in the
arbitration panel.
"C. The trial court grievously erred in its
conclusion that petitioners MCMC and MCHC
represent the same interest.
"D. Respondent Zosa is estopped from
questioning the validity of the arbitration
clause, including the right of petitioner MCMC
to nominate its own arbitrator, which he
himself has invoked.
"II. In any event, the trial court acted without
jurisdiction in hearing the case below, considering that
it has no jurisdiction over the nature of the action or
suit since controversies in the election or appointment
of officers or managers of a corporation, such as the
action brought by respondent Zosa, fall within the
original and exclusive jurisdiction of the Securities and
Exchange Commission.
"III. Contrary to respondent Zosa's allegation, the issue
of the trial court's jurisdiction over the case below has
not yet been resolved with finality considering that
petitioners have expressly reserved their right to raise
said issue in the instant petition. Moreover, the
principle of the law of the case is not applicable in the
instant case.
"IV. Contrary to respondent Zosa's allegation,
petitioners MCMC and MCHC are not guilty of forum
shopping.
"V. Contrary to respondent Zosa's allegation, the
instant petition for review involves only questions of
law and not of fact."24
We rule against the petitioners.
It is error for the petitioners to claim that the case should fall
under the jurisdiction of the Securities and Exchange
Commission [SEC, for brevity]. The controversy does not in
anyway involve the election/appointment of officers of petitioner
MCHC, as claimed by petitioners in their assignment of errors.
Respondent Zosa's amended complaint focuses heavily on the
illegality of the Employment Agreement's "Arbitration Clause"
initially invoked by him in seeking his termination benefits under
Section 8 of the employment contract. And under Republic Act
No. 876, otherwise known as the "Arbitration Law," it is the
regional trial court which exercises jurisdiction over questions
relating to arbitration. We thus advert to the following
discussions made by the Court of Appeals, speaking thru Justice
Minerva P. Gonzaga-Reyes,25 in C.A.-G.R. S.P. No. 43059, viz.
"As regards the fourth assigned error, asserting that
jurisdiction lies with the SEC, which is raised for the
first time in this petition, suffice it to state that the
Amended Complaint squarely put in issue the question
whether the Arbitration Clause is valid and effective
between the parties. Although the controversy which
spawned the action concerns the validity of the
termination of the service of a corporate officer, the
issue on the validity and effectivity of the arbitration
clause is determinable by the regular courts, and do
not fall within the exclusive and original jurisdiction of
the SEC.
"The determination and validity of the agreement is not
a matter intrinsically connected with the regulation and
internal affairs of corporations (see Pereyra vs. IAC, 181
SCRA 244; Sales vs. SEC, 169 SCRA 121); it is rather an
ordinary case to be decided in accordance with the
general laws, and do not require any particular

expertise or training to interpret and apply (Viray vs.
CA, 191 SCRA 308)."26
Furthermore, the decision of the Court of Appeals in CA-G.R. SP
No. 43059 affirming the trial court's assumption of jurisdiction
over the case has become the "law of the case" which now binds
the petitioners. The "law of the case" doctrine has been defined
as "a term applied to an established rule that when an appellate
court passes on a question and remands the cause to the lower
court for further proceedings, the question there settled
becomes the law of the case upon subsequent appeal." 27 To
note, the CA's decision in CA-G.R. SP No. 43059 has already
attained finality as evidenced by a Resolution of this Court
ordering entry of judgment of said case, to wit:
"ENTRY OF JUDGMENT
This is to certify that on September 8, 1997 a
decision/resolution rendered in the above-entitled case
was filed in this Office, the dispositive part of which
reads as follows:
'G.R. No. 129615. (Magellan Capital
Management Corporation, et al. vs. Court of
Appeals, Rolando Zosa, et al.). Considering the
petitioner's manifestation dated August 11,
1997 and withdrawal of intention to file
petition for review on certiorari, the Court
Resolved to DECLARE THIS CASE TERMINATED
and DIRECT the Clerk of Court to INFORM the
parties that the judgment sought to be
reviewed has become final and executory, no
appeal therefore having been timely
perfected.'
and that the same has, on September 17, 1997,
become final and executory and is hereby recorded in
the Book of Entries of Judgments."28
Petitioners, therefore, are barred from challenging anew,
through another remedial measure and in any other forum, the
authority of the regional trial court to resolve the validity of the
arbitration clause, lest they be truly guilty of forum-shopping
which the courts consistently consider as a contumacious
practice that derails the orderly administration of justice.
Equally unavailing for the petitioners is the review by this Court,
via the instant petition, of the factual findings made by the trial
court that the composition of the panel of arbitrators would, in
all probability, work injustice to respondent Zosa. We have
repeatedly stressed that the jurisdiction of this Court in a
petition for review on certiorari under Rule 45 of the Revised
Rules of Court is limited to reviewing only errors of law, not of
fact, unless the factual findings complained of are devoid of
support by the evidence on record, or the assailed judgment is
based on misapprehension of facts.29
Even if procedural rules are disregarded, and a scrutiny of the
merits of the case is undertaken, this Court finds the trial court's
observations on why the composition of the panel of arbitrators
should be voided, incisively correct so as to merit our approval.
Thus,
"From the memoranda of both sides, the Court is of the
view that the defendants [petitioner] MCMC and MCHC
represent the same interest. There is no quarrel that
both defendants are entirely two different corporations
with personalities distinct and separate from each other
and that a corporation has a personality distinct and
separate from those persons composing the
corporation as well as from that of any other legal
entity to which it may be related.
137
"But as the defendants [herein petitioner] represent the
same interest, it could never be expected, in the
arbitration proceedings, that they would not protect
and preserve their own interest, much less, would both
or either favor the interest of the plaintiff. The
arbitration law, as all other laws, is intended for the
good and welfare of everybody. In fact, what is being
challenged by the plaintiff herein is not the law itself
but the provision of the Employment Agreement based
on the said law, which is the arbitration clause but only
as regards the composition of the panel of arbitrators.
The arbitration clause in question provides, thus:
'In the event that any dispute, controversy or claim arise out
of or under any provisions of this Agreement, then the
parties hereto agree to submit such dispute, controversy or
claim to arbitration as set forth in this Section and the
determination to be made in such arbitration shall be final
and binding. Arbitration shall be effected by a panel of three
arbitrators. The Manager, Employee, and Corporation shall
designate one (1) arbitrator who shall, in turn, nominate and
elect as who among them shall be the chairman of the
committee. Any such arbitration, including the rendering of
an arbitration award, shall take place in Metro Manila. The
arbitrators shall interpret this Agreement in accordance with
the substantive laws of the Republic of the Philippines. The
arbitrators shall have no power to add to, subtract from or
otherwise modify the terms of this Agreement or to grant
injunctive relief of any nature. Any judgment upon the award
of the arbitrators may be entered in any court having
jurisdiction thereof, with costs of the arbitration to be borne
equally by the parties, except that each party shall pay the
fees and expenses of its own counsel in the arbitration.'
(Emphasis supplied).
"From the foregoing arbitration clause, it appears that the
two (2) defendants [petitioners] (MCMC and MCHC) have one
(1) arbitrator each to compose the panel of three (3)
arbitrators. As the defendant MCMC is the Manager of
defendant MCHC, its decision or vote in the arbitration
proceeding would naturally and certainly be in favor of its
employer and the defendant MCHC would have to protect
and preserve its own interest; hence, the two (2) votes of
both defendants (MCMC and MCHC) would certainly be
against the lone arbitrator for the plaintiff [herein
defendant]. Hence, apparently, plaintiff [defendant] would
never get or receive justice and fairness in the arbitration
proceedings from the panel of arbitrators as provided in the
aforequoted arbitration clause. In fairness and justice to the
plaintiff [defendant], the two defendants (MCMC and MCHC)
[herein petitioners] which represent the same interest should
be considered as one and should be entitled to only one
arbitrator to represent them in the arbitration proceedings.
Accordingly, the arbitration clause, insofar as the
composition of the panel of arbitrators is concerned should
be declared void and of no effect, because the law says, "Any
clause giving one of the parties power to choose more
arbitrators than the other is void and of no effect" (Article
2045, Civil Code).
"The dispute or controversy between the defendants (MCMC
and MCHC) [herein petitioners] and the plaintiff [herein
defendant] should be settled in the arbitration proceeding in
accordance with the Employment Agreement, but under the
panel of three (3) arbitrators, one (1) arbitrator to represent
the plaintiff, one (1) arbitrator to represent both defendants
(MCMC and MCHC) [herein petitioners] and the third
arbitrator to be chosen by the plaintiff [defendant Zosa] and
defendants [petitioners].
"xxx xxx xxx"30
In this connection, petitioners' attempt to put respondent in
estoppel in assailing the arbitration clause must be struck down.
For one, this issue of estoppel, as likewise noted by the Court of
Appeals, found its way for the first time only on appeal. Well-

settled is the rule that issues not raised below cannot be
resolved on review in higher courts. 31 Secondly, employment
agreements such as the one at bar are usually contracts of
adhesion. Any ambiguity in its provisions is generally resolved
against the party who drafted the document. Thus, in the
relatively recent case of Phil. Federation of Credit Cooperatives,
Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC and Victoria
Abril,32 we had the occasion to stress that "where a contract of
employment, being a contract of adhesion, is ambiguous, any
ambiguity therein should be construed strictly against the party
who prepared it." And, finally, respondent Zosa never submitted
himself to arbitration proceedings (as there was none yet)
before bewailing the composition of the panel of arbitrators. He
in fact, lost no time in assailing the "arbitration clause" upon
realizing the inequities that may mar the arbitration proceedings
if the existing line-up of arbitrators remained unchecked.
We need only to emphasize in closing that arbitration
proceedings are designed to level the playing field among the
parties in pursuit of a mutually acceptable solution to their
conflicting claims. Any arrangement or scheme that would give
undue advantage to a party in the negotiating table is anathema
to the very purpose of arbitration and should, therefore, be
resisted.
WHEREFORE, premises considered, the petition is hereby
DISMISSED and the decision of the trial court dated July 18,
1997 is AFFIRMED.SO ORDERED.
EN BANCG.R. No. 120319 October 6, 1995
LUZON DEVELOPMENT BANK, petitioner,
vs.
ASSOCIATION OF LUZON DEVELOPMENT BANK
EMPLOYEES and ATTY. ESTER S. GARCIA in her capacity
as VOLUNTARY ARBITRATOR, respondents.
ROMERO, J.:
From a submission agreement of the Luzon Development Bank
(LDB) and the Association of Luzon Development Bank
Employees (ALDBE) arose an arbitration case to resolve the
following issue:
Whether or not the company has violated the
Collective Bargaining Agreement provision and
the Memorandum of Agreement dated April
1994, on promotion.
At a conference, the parties agreed on the submission of their
respective Position Papers on December 1-15, 1994. Atty. Ester
S. Garcia, in her capacity as Voluntary Arbitrator, received
ALDBE's Position Paper on January 18, 1995. LDB, on the other
hand, failed to submit its Position Paper despite a letter from the
Voluntary Arbitrator reminding them to do so. As of May 23,
1995 no Position Paper had been filed by LDB.
On May 24, 1995, without LDB's Position Paper, the Voluntary
Arbitrator rendered a decision disposing as follows:
WHEREFORE, finding is hereby made that the
Bank has not adhered to the Collective
Bargaining Agreement provision nor the
Memorandum of Agreement on promotion.
Hence, this petition for certiorari and prohibition seeking to set
aside the decision of the Voluntary Arbitrator and to prohibit her
from enforcing the same.
In labor law context, arbitration is the reference of a labor
dispute to an impartial third person for determination on the
basis of evidence and arguments presented by such parties who
138
have bound themselves to accept the decision of the arbitrator
as final and binding.
Arbitration may be classified, on the basis of the obligation on
which it is based, as either compulsory or voluntary.
Compulsory arbitration is a system whereby the parties to a
dispute are compelled by the government to forego their right to
strike and are compelled to accept the resolution of their dispute
through arbitration by a third party. 1The essence of arbitration
remains since a resolution of a dispute is arrived at by resort to
a disinterested third party whose decision is final and binding on
the parties, but in compulsory arbitration, such a third party is
normally appointed by the government.
Under voluntary arbitration, on the other hand, referral of a
dispute by the parties is made, pursuant to a voluntary
arbitration clause in their collective agreement, to an impartial
third person for a final and binding resolution. 2Ideally,
arbitration awards are supposed to be complied with by both
parties without delay, such that once an award has been
rendered by an arbitrator, nothing is left to be done by both
parties but to comply with the same. After all, they are
presumed to have freely chosen arbitration as the mode of
settlement for that particular dispute. Pursuant thereto, they
have chosen a mutually acceptable arbitrator who shall hear
and decide their case. Above all, they have mutually agreed to
de bound by said arbitrator's decision.
In the Philippine context, the parties to a Collective Bargaining
Agreement (CBA) are required to include therein provisions for a
machinery for the resolution of grievances arising from the
interpretation or implementation of the CBA or company
personnel policies. 3 For this purpose, parties to a CBA shall
name and designate therein a voluntary arbitrator or a panel of
arbitrators, or include a procedure for their selection, preferably
from those accredited by the National Conciliation and Mediation
Board (NCMB). Article 261 of the Labor Code accordingly
provides for exclusive original jurisdiction of such voluntary
arbitrator or panel of arbitrators over (1) the interpretation or
implementation of the CBA and (2) the interpretation or
enforcement of company personnel policies. Article 262
authorizes them, but only upon agreement of the parties, to
exercise jurisdiction over other labor disputes.
On the other hand, a labor arbiter under Article 217 of the Labor
Code has jurisdiction over the following enumerated cases:
. . . (a) Except as otherwise provided under this Code the
Labor Arbiters shall have original and exclusive jurisdiction to
hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without
extension, even in the absence of stenographic notes, the
following cases involving all workers, whether agricultural or
non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those
cases that workers may file involving wages, rates of pay,
hours of work and other terms and conditions of
employment;
4. Claims for actual, moral, exemplary and other forms of
damages arising from the employer-employee relations;
5. Cases arising from any violation of Article 264 of this
Code, including questions involving the legality of strikes and
lockouts;

6. Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other claims,
arising from employer-employee relations, including those of
persons in domestic or household service, involving an
amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanied with a claim for
reinstatement.
xxx xxx xxx
It will thus be noted that the jurisdiction conferred by law on a
voluntary arbitrator or a panel of such arbitrators is quite limited
compared to the original jurisdiction of the labor arbiter and the
appellate jurisdiction of the National Labor Relations
Commission (NLRC) for that matter. 4 The state of our present
law relating to voluntary arbitration provides that "(t)he award
or decision of the Voluntary Arbitrator . . . shall be final and
executory after ten (10) calendar days from receipt of the copy
of the award or decision by the parties," 5 while the "(d)ecision,
awards, or orders of the Labor Arbiter are final and executory
unless appealed to the Commission by any or both parties within
ten (10) calendar days from receipt of such decisions, awards, or
orders." 6 Hence, while there is an express mode of appeal from
the decision of a labor arbiter, Republic Act No. 6715 is silent
with respect to an appeal from the decision of a voluntary
arbitrator.
Yet, past practice shows that a decision or award of a voluntary
arbitrator is, more often than not, elevated to the Supreme
Court itself on a petition for certiorari, 7 in effect equating the
voluntary arbitrator with the NLRC or the Court of Appeals. In
the view of the Court, this is illogical and imposes an
unnecessary burden upon it.
In Volkschel Labor Union, et al. v. NLRC, et al., 8 on the settled
premise that the judgments of courts and awards of quasi-
judicial agencies must become final at some definite time, this
Court ruled that the awards of voluntary arbitrators determine
the rights of parties; hence, their decisions have the same legal
effect as judgments of a court. In Oceanic Bic Division (FFW), et
al. v. Romero, et al., 9 this Court ruled that "a voluntary
arbitrator by the nature of her functions acts in a quasi-judicial
capacity." Under these rulings, it follows that the voluntary
arbitrator, whether acting solely or in a panel, enjoys in law the
status of a quasi-judicial agency but independent of, and apart
from, the NLRC since his decisions are not appealable to the
latter. 10
Section 9 of B.P. Blg. 129, as amended by Republic Act No. 7902,
provides that the Court of Appeals shall exercise:
xxx xxx xxx
(B) Exclusive appellate jurisdiction over all
final judgments, decisions, resolutions, orders or
awards of Regional Trial Courts and quasi-judicial
agencies, instrumentalities, boards or commissions,
including the Securities and Exchange Commission, the
Employees Compensation Commission and the Civil
Service Commission, except those falling within the
appellate jurisdiction of the Supreme Court in
accordance with the Constitution, the Labor Code of the
Philippines under Presidential Decree No. 442, as
amended, the provisions of this Act, and of
subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17
of the Judiciary Act of 1948.
xxx xxx xxx
Assuming arguendo that the voluntary arbitrator or the panel of
voluntary arbitrators may not strictly be considered as a quasi-
judicial agency, board or commission, still both he and the panel
are comprehended within the concept of a "quasi-judicial
instrumentality." It may even be stated that it was to meet the
139
very situation presented by the quasi-judicial functions of the
voluntary arbitrators here, as well as the subsequent
arbitrator/arbitral tribunal operating under the Construction
Industry Arbitration Commission, 11 that the broader term
"instrumentalities" was purposely included in the above-quoted
provision.
An "instrumentality" is anything used as a means or
agency. 12 Thus, the terms governmental "agency" or
"instrumentality" are synonymous in the sense that either of
them is a means by which a government acts, or by which a
certain government act or function is performed. 13 The word
"instrumentality," with respect to a state, contemplates an
authority to which the state delegates governmental power for
the performance of a state function. 14 An individual person, like
an administrator or executor, is a judicial instrumentality in the
settling of an estate, 15 in the same manner that a sub-agent
appointed by a bankruptcy court is an instrumentality of the
court, 16 and a trustee in bankruptcy of a defunct corporation is
an instrumentality of the state. 17
The voluntary arbitrator no less performs a state function
pursuant to a governmental power delegated to him under the
provisions therefor in the Labor Code and he falls, therefore,
within the contemplation of the term "instrumentality" in the
aforequoted Sec. 9 of B.P. 129. The fact that his functions and
powers are provided for in the Labor Code does not place him
within the exceptions to said Sec. 9 since he is a quasi-judicial
instrumentality as contemplated therein. It will be noted that,
although the Employees Compensation Commission is also
provided for in the Labor Code, Circular No. 1-91, which is the
forerunner of the present Revised Administrative Circular No. 1-
95, laid down the procedure for the appealability of its decisions
to the Court of Appeals under the foregoing rationalization, and
this was later adopted by Republic Act No. 7902 in amending
Sec. 9 of B.P. 129.
A fortiori, the decision or award of the voluntary arbitrator or
panel of arbitrators should likewise be appealable to the Court of
Appeals, in line with the procedure outlined in Revised
Administrative Circular No. 1-95, just like those of the quasi-
judicial agencies, boards and commissions enumerated therein.
This would be in furtherance of, and consistent with, the original
purpose of Circular No. 1-91 to provide a uniform procedure for
the appellate review of adjudications of all quasi-judicial
entities 18 not expressly excepted from the coverage of Sec. 9 of
B.P. 129 by either the Constitution or another statute. Nor will it
run counter to the legislative intendment that decisions of the
NLRC be reviewable directly by the Supreme Court since,
precisely, the cases within the adjudicative competence of the
voluntary arbitrator are excluded from the jurisdiction of the
NLRC or the labor arbiter.
In the same vein, it is worth mentioning that under Section 22 of
Republic Act No. 876, also known as the Arbitration Law,
arbitration is deemed a special proceeding of which the court
specified in the contract or submission, or if none be specified,
the Regional Trial Court for the province or city in which one of
the parties resides or is doing business, or in which the
arbitration is held, shall have jurisdiction. A party to the
controversy may, at any time within one (1) month after an
award is made, apply to the court having jurisdiction for an
order confirming the award and the court must grant such order
unless the award is vacated, modified or corrected. 19
In effect, this equates the award or decision of the voluntary
arbitrator with that of the regional trial court. Consequently, in a
petition for certiorari from that award or decision, the Court of
Appeals must be deemed to have concurrent jurisdiction with
the Supreme Court. As a matter of policy, this Court shall
henceforth remand to the Court of Appeals petitions of this
nature for proper disposition.

ACCORDINGLY, the Court resolved to REFER this case to the
Court of Appeals.SO ORDERED.
SECOND DIVISIONA.M. No. RTJ-00-1568 February 15,
2001
HON. ROBERT Z. BARBERS, Secretary of the Interior and
Local Government, JUANITO DE GUZMAN and LUCIO
MARGALLO IV, petitioners,
vs.
JUDGE PERFECTO A.S. LAGUIO, JR., respondent.
DE LEON, JR., J.:
Before us is an administrative complaint for alleged violation of
Article 204 (Knowingly Rendering Unjust Judgment) of the
Revised Penal Code, section 3(e) of Republic Act No. 3019 and
sections 4(b) and (c) of Republic Act No. 6713, filed against
respondent judge in connection with his acquittal of the accused
LAWRENCE WANG y CHEN in Criminal Case Nos. 96-149990, 96-
149991 and 96-149992.
On April 10, 1997, complainants ROBERT Z. BARBERS,1 JUANITO
DE GUZMAN and LUCIO MARGALLO IV filed a joint complaint-
affidavit with the Office of the Ombudsman charging respondent
Judge PERFECTO A.S. LAGUIO, JR., of allegedly violating Article
204 of the Revised Penal Code, section 3(e) of Republic Act No.
3019,2and section 4, subsections (b) and (c) of Republic Act No.
6713.3 Considering the Evaluation Report4 with recommendation
of its Evaluation and Preliminary Investigation Bureau, the Office
of the Ombudsman endorsed 5the case to the Office of the Court
Administrator on May 9, 1997. It was pointed out in said
Evaluation Report "that respondent is primarily accused of
Knowingly Rendering Unjust Judgment."
The administrative complaint stemmed from the acquittal by
respondent judge of Lawrence Wang, a Hong Kong national who
was apprehended by elements of the Public Assistance and
Reaction Against Crime or PARAC, DILG, in Malate, Manila in the
early morning of May 17, 1996, the particulars of which are
described in the complainants' Joint Complaint-Affidavit 6 dated
April 1, 1997, as follows:
At about 7 p.m. on May 16, 1996, members of the
PARAC led by P/Sr. Insp. Lucio Margallo, IV effected the
arrest of SPO1 VERGEL DE DIOS, ROBERTO ANOBLING
and RESTITUTO ARELLANO during an entrapment
operation. This trio then called on their cohorts to bring
in additional batch of shabu. After four (4) hours, or at
about 11 p.m. of May 16, 1996, PIO REDENTOR TECH
and JOSEPH JUNIO arrived to deliver 150 grams of
shabu. Tech and Junio were likewise arrested at 11 p.m.
while they were delivering the shabu to de Dios and
company. When interrogated Tech and Junio disclosed
that a big transaction of shabu was about to be made
at an apartment along Maria Orosa St., Malate, Manila.
They also admitted that they worked for Lawrence
Wang. Accordingly, the PARAC immediately proceeded
to said place and conducted surveillance or stake-out
operations. After three (3) hours, or about 2:10 a.m. of
the following day, May 17, 1996, the PARAC agents saw
a man, previously described by TECH as Wang and
identified by a police asset, coming out of the aforesaid
apartment and walking towards a parked BMW car.
After Wang had opened the trunk compartment of the
car, the PARAC agents approached Wang and
confronted him to ascertain his identity. P/Sr. Insp.
Margallo also prevented Wang from closing the trunk.
They then saw the bags of shabu inside the trunk. A
further search yielded cash amount of P650,000.00 in
small denominations, one (1) mechanical scale and one
(1) electronic scale and two (2) unlicensed firearms,
namely: (1) AMT automatic pistol, cal. 380/9mm and (2)
Daewoo automatic pistol, cal. 9mm. Accordingly, the
accused was arrested. In all, three (3) arrests were
140
effected, one after the other, during the late hours of
May 16 and the wee hours of May 17, 1996, a time
span of only seven (7) hours.
Three (3) related informations7 were then filed against Wang,
which were consolidated in Branch 18 of the Regional Trial Court
(RTC, for brevity) of Manila, presided by the respondent judge.
The charges were docketed as Criminal Case No. 96-149990 (for
violation of section 16, Article III of Republic Act No. 6425,
otherwise known as the Dangerous Drugs Act, as amended),
Criminal Case No. 96-149991(for violation of Presidential Decree
No. 1866 [Illegal Possession of Firearms]), and Criminal Case No.
96-149992 (for violation of COMELEC Resolution 2828 in relation
to Republic Act No. 7166 [COMELEC Gun Ban]).
Prior to his arraignment, Wang filed a motion for preliminary
investigation dated June 11, 1996 which was granted by the trial
court in an Order dated June 27, 1996. During the preliminary
investigation before the prosecutor, Wang denied that illegal
drugs or unlicensed firearms were found in his possession. The
cases were later remanded to the trial court after Assistant City
Prosecutor Michaela M. Cua submitted a Resolution dated
August 22, 1996 finding probable cause against Wang. Fearing
that his objection to his warrantless arrest and search would be
waived by his entering a plea, Wang through counsel filed a
Manifestation on November 7, 1996 making of record his
continuing objection to his warrantless arrest and praying that
the trial court enter a plea of "not guilty" on his behalf. Acting on
Wang's Manifestation, respondent judge entered a plea of "not
guilty" for Wang as reflected in his Order of November 8, 1996.
During the trial, the prosecution presented and offered the
testimonies of Insp. Cielito Coronel and Reynaldo Cristobal of the
PARAC team who arrested Wang, and Felicisima Francisco,
forensic chemist of the National Bureau of Investigation, who
conducted laboratory tests to determine if the confiscated
substance was indeed "shabu", a prohibited drug.
During the hearing on December 6, 1996, the prosecution
formally rested its case. In turn, the defense filed a motion for
leave of court to file a Demurrer to Evidence. The trial court
granted the defense's motion in an Order of the same date and
gave Wang a period of twenty-five (25) days from receipt
thereof within which to file a Demurrer to Evidence, and the
prosecution a similar period to file its opposition thereto. An
undated Demurrer to Evidence was then filed by Wang through
counsel on January 9, 1997.
Subsequently, Assistant City Prosecutor Winnie M. Edad filed a
"Manifestation with Motion" stating that the prosecution is
resting its case against the accused, Wang, insofar as Criminal
Case No. 96-149990 only was concerned but excluding the two
(2) remaining cases for illegal possession of firearms and
violation of the COMELEC gun ban, wherein the prosecution
claimed it has not yet rested. Consequently, in an Order dated
January 14, 1997, the trial court set further hearings on the two
(2) remaining cases on January 21, February 5, 11 and 12, 1997.
On March 13, 1997, respondent judge issued a Resolution
granting Wang's Demurrer to Evidence and acquitting Wang in
the said three (3) closely related cases. Respondent judge
declared therein and made the finding that:
xxx xxx xxx
The threshold issue raised by accused in his
Demurrer to Evidence is whether his warrantless
arrest and search were lawful as argued by the
prosecution, or unlawful as asserted by the
defense.
Under Section 5, Rule 113 of the New Rules of Court, a
peace officer may arrest a person without a warrant:
(a) when, in his presence, the person to be arrested has
committed, is actually committing, or is attempting to

commit an offense; (b) when an offense has in fact just
been committed, and he has personal knowledge of
facts indicating that the person to be arrested has
committed it, and (c) when the person to be arrested is
a prisoner who has escaped from a penal establishment
or place where he is serving final judgment or
temporarily confined while being transferred from one
confinement to another. None of these circumstances
were present when the accused was arrested. The
accused was merely walking from the Maria Orosa
apartment and was about to enter the parked BMW car
when the police officers arrested and frisked him and
searched his car. The accused was not committing any
visible offense at the time of his arrest. Neither was
there an indication that he was about to commit a
crime or that he had just committed an offense. The
unlicensed AMT Cal. 380 9mm Automatic Back-up Pistol
[sic] that the accused had in his possession was
concealed inside the right front pocket of his pants. And
the handgun was bantam and slim in size that it would
not give an outward indication of a concealed gun if
placed inside the pants' side pocket as was done by the
accused. The arresting officers had no information
and knowledge that the accused was carrying an
unlicensed handgun, nor did they see him in
possession thereof immediately prior to his
arrest.
Ditto on the 32 bags of shabu and the other unlicensed
Daewoo Cal. 9mm Pistol with magazine that were found
and seized from the car. The contraband items in
the car were not in plain view. The 32 bags of
shabu were in the trunk compartment, and the
Daewoo handgun was underneath the driver's
seat of the car. The police officers had no
information, or knowledge that the banned
articles were inside the car, or that the accused
had placed them there. The police officers
searched the car on mere suspicion that there
was shabu therein.
xxx xxx xxx
Respondent judge then issued on the same day an Order dated
March 13, 1997 setting the promulgation of his aforequoted
Resolution on March 20, 1997.
On the day before the scheduled promulgation, SPO3 Cristobal
claimed that he received a telephone call from a person
claiming to be the branch clerk of court of RTC Manila, Branch
18. The caller, according to Cristobal, instructed him to bring to
court the next day the money confiscated from Wang. Cristobal
complied.
After the Resolution of March 13, 1997 was promulgated by the
trial court, Cristobal was presented with a special power-of-
attorney8 dated February 12, 1997 executed by Wang
authorizing his counsel, Atty. Oliver Lozano, to receive the
confiscated money. Cristobal handed over the money to Atty.
Oliver Lozano, but he first required Atty. Lozano to accomplish a
receipt written on the special power-of-attorney itself.
Not satisfied with Wang's acquittal, petitioners Barbers et. al.,
filed the said Joint Complaint-Affidavit against respondent judge
before the Office of the Ombudsman. They also filed an
administrative complaint against the trial prosecutor, Assistant
City Prosecutor Edad, for alleged gross neglect of duty in his
handling of the Wang cases. However, on September 6, 1999,
the Department of Justice issued its Resolution dismissing the
administrative complaint against Edad for lack of merit.
After the said Joint Complaint-Affidavit of the complainants
(herein petitioners) against respondent judge was endorsed by
the Ombudsman to the Office of the Court Administrator, this
Court required the respondent to comment thereon. After its
141
receipt of the respondent's comment strongly denying and
disputing the administrative charges against him and upon the
recommendation of OCA, this Court referred the matter to the
then Court of Appeals Associate Justice (now Supreme Court
Associate Justice) Consuelo Ynares-Santiago for investigation
and report. On September 7, 1998, she submitted her Report
recommending that respondent judge be reprimanded and
meted a fine equivalent to six (6) months salary. Her findings
were adopted by the Office of the Court Administrator, per its
Memorandum9 of December 2, 1999, to wit:
xxx xxx xxx
The conduct of respondent, given the peculiar facts prevailing
in this case, leaves much to be desired vis--vis these legal
yardsticks. The abruptness and inordinate haste in which he
dismissed the charges against the accused gave rise to the
suspicion that he railroaded the proceedings to favor the
accused.
The records show that two members of the team which
arrested Lawrence Wang, namely P/Insp. Cielito Coronel and
SPO3 Reynaldo Cristobal were the only witnesses who
testified on the facts regarding the warrantless arrest and
seizure. The principal witness and leader of the team, P/Sr.
Insp. Lucio Margallo IV, who more than anybody else has the
personal knowledge of the circumstances surrounding the
arrest of Wang was never presented as a witness. It must be
pointed out in this regard that Margallo, as leader of the
arresting team could have clarified the circumstances
surrounding the arrest of Wang and the seizure of the drugs,
firearms and cash found in the car especially the highly
contentious issue of whether or not the trunk of the car which
contained the "shabu" was already open with said prohibited
drug in plain view when he and his team members
approached. The record, however, discloses that after the
prosecutor handling the cases conferred with respondent,
thereafter, Margallo's testimony was dispensed with on the
dubious ground that it would merely be corroborative. xxx
The record also reveals that Margallo received only one
subpoena to appear in Crim. Case No. 96-149990 (Violation of
Dangerous Drugs Act) on December 6, 1996 xxx.
Unfortunately, he was not able to attend because he was on
leave at the time xxx and only learned about the hearing after
December 6, 1996 xxx. Curiously, no other summons were
served on him to testify despite his instructions to SPO3
Cristobal to manifest in Court that he be subpoenaed to testify
xxx. As in Crim. Case No. 96-149990, he also received only
one (1) subpoena in the other cases but the reason therefor
was for the Evidence Custodian namely, SPO3 Cristobal who
was under him, to bring the confiscated items in court xxx.
The only other time he received a subpoena was when he was
required to attend the scheduled hearing on March 20, 1997
and he was not aware that said notice requiring his presence
on said date was already for the promulgation of the order
granting the demurrer to evidence xxx.
The Resolution granting the demurrer to evidence dismissing
all three (3) cases against Wang is likewise anchored on infirm
legal moorings.
Section 15, Rule 119 of the Revised Rules of Criminal
Procedure provides that:
"Sec. 15. Demurrer to evidence. After the prosecution has
rested its case, the court may dismiss the case on the ground
of insufficiency of evidence: (1) on its own initiate (sic) after
giving the prosecution an opportunity to be heard; or (2) on
motion of the accused with prior leave of court.
If the court denies the motion for dismissal, the accused may
adduce evidence in his defense. When the accused files such
motion without the express leave of court, he waives the right

to present evidence and submits the case for judgment on the
basis of the evidence for the prosecution."
The rule is not applicable if the prosecution has not yet rested
its case xxx.
142
document which he required said counsel to sign xxx. The
date of the execution of the Special Power of Attorney which
was more than a month prior to the promulgation of the
resolution only fueled Cristobal's suspicion that the
proceedings were already rigged in Wang's favor xxx.

xxx xxx xxx

In this case, despite the statement in the resolution in
question as well as respondent's claims to the contrary, there
is ample evidence on record that the prosecution had not yet
rested its case in Criminal Cases Nos. 96-149991 and 96-
149992 xxx. Particularly revealing on this point is the
"Manifestation With Motion to Set Above-Entitled Cases for
Further Hearing and For Issuance of Subpoena to Prosecution
Witnesses" xxx which avers that:
"THE PEOPLE THRU THE UNDERSIGNED TRIAL PROSECUTOR,
to this Honorable Court most respectfully manifests that he
rested his case only in so far (sic) as the case of R.A. 6425 is
concerned, and not as regards the charge for violation of P.D.
L866 (sic) (Crim. Case No. 96-149991) and the case of
COMELEC Resolution No. 2828 (Crim. Case No. 96-149992);
WHEREFORE, the prosecution respectfully moves this
Honorable Court:
xxx
The factual finding of respondent judge that the "shabu" was
not in plain view when the accused was arrested becomes
open to question in the light of the evidence on record that
the compartment of the car containing the "shabu" was
actually already open and the accused attempted to close the
same but was prevented from doing so by the arresting
officers xxx much more so taking into consideration the fact
that P/Sr. Insp. Margallo, the principal witness for the
prosecution who could have shed light on the circumstances
of the arrest and seizure, was not given the change (sic) to
testify. Considering that the accused is a highly controversial
character on account of his notoriety as a big-time drug lord
not to mention the widespread media attention attracted by
the case, respondent judge should have proceeded with more
caution and circumspection in the handling thereof.
xxx xxx

1. To set Crim. Case Nos. 96-149991-92, for violation of P.D.

1866 and COMELEC Resolution 2828, respectively for further
hearing to enable the prosecution to present its evidence;
xxx xxx xxx
A circumspect scrutiny of the demurrer to evidence itself xxx
will show that the same can only pertain to Criminal Case No.
96-149990 for violation of the Dangerous Drugs
Act considering that it was filed on January 9, 1997 and the
prosecution had not yet rested in Criminal Cases Nos. 96-
149991 and 96-149992. In fact, in an Order dated January 14,
1997 xxx, respondent set hearings for the two (2) cases on
January 21, February 5, 11 and 12, 1997. It is interesting to
note in this regard that no demurrer to evidence was filed
after the prosecution had rested its case in Criminal Cases
Nos. 96-149991 and 96-149992. Neither was the prior
demurrer filed on January 9, 1997 subsequently amended to
include these two cases. Despite all these facts, respondent
judge still proceeded to dismiss all three (3) charges against
the accused.
xxx xxx xxx
Furthermore, the factual events surrounding the turnover of
the confiscated articles which oddly enough, with the
exception of the firearms, were not marked in evidence xxx
only increases the dubiousness of the proceedings. As has
been stated earlier, complainants were unaware, upon being
served with notice to appear on March 20, 1996 that a
Resolution dismissing all three (3) cases on the basis of the
undated demurrer to evidence would be promulgated xxx.
Indeed, the document served by the process server made no
mention of the fact that the cases were already submitted for
resolution and that the same would be promulgated on said
date xxx. In fact, SPO3 Cristobal who was Evidence Custodian
of the PARAC-DILG was not served a subpoena commanding
his presence on March 20, 1997. xxx Instead, he received a
telephone call on March 19, 1997 from a person who identified
herself as the Branch Clerk of respondent judge's sala
instructing him to bring the confiscated money to court the
next day xxx. Thus, upon appearing the next day, he was
surprised to learn that there would be a promulgation. xxx
During the proceedings held March 20, 1997, SPO3 Cristobal
was handed a Special Power of Attorney xxx dated February
12, 1997 executed by the accused authorizing his counsel to
receive the confiscated money in his behalf xxx. As a
precaution, Cristobal made a handwritten receipt on the said
However, there is an important aspect to this case which was
heretofore not considered. The respondent judge's Resolution in
question dated March 13, 1997 is one of acquittal. It is well-
settled that acquittal in a criminal case is immediately final and
executory upon its promulgation; accordingly, the State may not
seek its review without placing the accused in double
jeopardy.10 When the Investigating Justice submitted her Report
dated September 7, 1998, the questioned Resolution of
respondent judge acquitting Wang was already the subject of a
pending petition for review on certiorari (G.R. No.
128587)11 which was filed with this Court. It appeared that after
the State received a copy of the said Resolution of respondent
judge on March 20, 1997, the Office of the Solicitor General filed
a "Manifestation and Motion" on April 3, 1997 with this Court
praying for an extension of thirty (30) days (or until May 4,
1997, a Sunday) within which to file a petition for review
on certiorari. The motion was granted by the First Division of this
Court in a Resolution dated May 7, 1997. The said petition for
review on certiorari (G.R. No. 128587) which was filed on May 5,
1997 by the Solicitor General together with the Department of
Justice, is still pending in this Court. Following established
doctrine, the pendency of the appeal is sufficient cause for the
dismissal of the instant administrative complaint. 12 It has also
been held that the filing of an administrative complaint is not
the proper remedy for the correction of actions of a judge
perceived to have gone beyond the norms of propriety, where a
sufficient judicial remedy exists.13 Differently expounded in
another case,
As everyone knows, the law provides ample judicial
remedies against errors or irregularities being
committed by a Trial Court in the exercise of its
jurisdiction. The ordinary remedies against errors or
irregularities which may be regarded as normal in
nature (i.e., error in appreciation or admission of
evidence, or in construction or application of procedural
or substantive law or legal principle) include a motion
for reconsideration (or after rendition of a judgment or
final order, a motion for new trial), and appeal.
The extraordinary remedies against error or
irregularities which may be deemed extraordinary in
character (i.e., whimsical, capricious, despotic exercise
of power or neglect of duty, etc.) are inter alia the
special civil actions of certiorari, prohibition
or mandamus, or a motion for inhibition, a petition for
change of venue, as the case may be.
Now, the established doctrine and policy is that
disciplinary proceedings and criminal actions
against Judges are not complementary or

suppletory of, nor a substitute for, these judicial
remedies, whether ordinary or extraordinary.
Resort to and exhaustion of these judicial
remedies, as well as the entry of judgment in the
corresponding action or proceeding, are pre-
requisites for the taking of other measures
against the persons of the judges concerned,
whether of civil, administrative, or criminal
nature. It is only after the available judicial
remedies have been exhausted and the appellate
tribunals have spoken with finality, that the door
to an inquiry into his criminal, civil or
administrative liability may be said to have
opened, or closed.
xxxx Indeed, since judges must be free to judge,
without pressure or influence from external forces or
factors, they should not be subject to intimidation, the
fear of civil, criminal or administrative sanctions for
acts they may do and disposition they may make in the
performance of their duties and functions; and it is
sound rule, which must be recognized independently of
statute, that judges are not generally liable for acts
done within the scope of their jurisdiction and in good
faith; and that exceptionally, prosecution of a judge can
be had only if "there be a final declaration by a
competent court in some appropriate proceeding of the
manifestly unjust character of the challenged judgment
or order, and also evidence of malice or bad faith,
ignorance of inexcusable negligence, on the part of the
judge in rendering said judgment or order" or under the
stringent circumstances set out in Article 32 of the Civil
Code. xxxx14
The administrative case at bar involves an acquittal on an
accused by the respondent judge in three (3) closely related
criminal cases which were earlier consolidated in the court
presided by respondent judge. As a rule, acquittal is
immediately final and executory. Consequently, in view of the
pendency in this Court (First Division) of the petition for review
on certiorari (G.R. No. 128587), supra, we may not, ordinarily,
review here the said judgment of acquittal in those three (3)
criminal cases, the inquiry in this administrative case being
limited to the issue of whether the respondent judge is liable for
the charges brought against him.15 However, to resolve those
charges in the administrative case, it is indispensable that we
consider the respondent Judge's subject Resolution dated March
13, 1997 granting accused Wang's Demurrer to Evidence and
acquitting the latter in the closely related Criminal Cases Nos.
96-149990, 96-149991 and 96-149992.1wphi1.nt
In appealing Wang's acquittal, the State is relying on a
recognized exception to the general rule in that where the
assailed judgment is void, no double jeopardy results from the
re-filing of the criminal case.16 In view of the pendency of the
said appeal, we should, ordinarily, be constrained from resolving
the charge of violation of Art. 204 of the Revised Penal Code for
allegedly knowingly rendering an unjust judgment. However, in
this administrative case, justice demands that we resolve the
basic issue relative to the legality or illegality of Wang's
warrantless arrest and search, and the issue on the admissibility
of the bags of "shabu," scales and unlicensed firearms which
were confiscated during the warrantless search. These are the
very same issues being litigated in the said appeal. 17 Meanwhile,
there is as yet no definitive pronouncement by this Court in G.R.
No. 128587, supra, whether respondent's Resolution of acquittal
of Wang is patently erroneous. The jurisprudential rule is that
pendency of an appeal from a questioned judgment renders
the filing of administrative charges premature.18
Nevertheless, the foregoing considerations do not prevent us
from ruling upon the remaining charges brought against
respondent judge. The first involves an alleged violation of
section 3(e) of the Anti-Graft and Corrupt Practices Act, which
provides:
143
Corrupt practices of public officers.In addition to acts or
omissions of public officers already penalized by existing
law, the following shall constitute corrupt practices of any
public officer and are hereby declared to be unlawful:
xxx xxx xxx
(e) Causing any undue injury to any party, including the
Government, or giving any private party any unwarranted
benefits, advantage or preference in the discharge of his
official, administrative or judicial functions through
manifest partiality, evident bad faith or gross inexcusable
negligence. This provision shall apply to officers and
employees of offices or government corporations charged
with the grant of licenses or permits or other concessions.
xxx xxx xxx
The other charge is for the alleged violation of section 4,
subsections (b) and (c) of Republic Act No. 6713 otherwise
known as the Code of Conduct and Ethical Standards for
Public Officials and Employees, viz.:
Norms of Conduct of Public Officials and Employees. (A)
Every public official and employee shall observe the
following as standards of personal conduct in the
discharge and execution of official duties:
xxx xxx xxx
(b) Professionalism.Public officials and employees shall
perform and discharge their duties with the highest degree
of excellence, professionalism, intelligence and skill. They
shall enter public service with utmost devotion and
dedication to duty. They shall endeavor to discourage
wrong perceptions of their roles as dispensers or peddlers
of undue advantage.
(c) Justness and sincerity.Public officials and employees
shall remain true to the people at all times. They must act
with justness and sincerity and shall not discriminate
against anyone, especially the poor and the
underprivileged. They shall at all times respect the rights
of others, and shall refrain from doing acts contrary to law,
good morals, good customs, public policy, public order,
public safety and public interest. They shall not dispense
or extend undue favors on account of their office to their
relatives whether by consanguinity or affinity except with
respect to appointments of such relatives to positions
considered strictly confidential or as members of their
personal staff whose terms are coterminous with theirs.
xxx xxx xxx
Respondent judge's alleged transgressions consist principally of:
(a) resolving the Demurrer to Evidence when the prosecution
had not yet allegedly rested in all three (3) criminal cases; (b)
dismissing all three (3) criminal cases when the Demurrer to
Evidence allegedly referred only to Criminal Case No. 96-149990
relative to the drug charges; and (c) propounding questions
during the clarificatory hearing which revealed his alleged
partiality in favor of the accused. After reviewing the records, we
find scant evidence to support the charges as well as the
adverse conclusions of the Honorable Investigator.
A close scrutiny of the record does not support the conclusion of
the Investigator that respondent judge prematurely resolved the
Demurrer to Evidence without giving the prosecution ample
opportunity to prove its three (3) cases which were earlier
consolidated. The governing rule then, Section 15, Rule 119 of
the 1985 Rules of Criminal Procedure19 provides that:

Demurrer to evidence.After the prosecution has
rested its case, the court may dismiss the case on the
ground of insufficiency of evidence (1) on its own
initiative after giving the prosecution an opportunity to
be heard; or (2) on motion of the accused filed with
prior leave of court.
If the court denies the motion for dismissal, the
accused may adduce evidence in his defense. When
the accused files such motion to dismiss without
express leave of court, he waives the right to present
evidence and submits the case for judgment on the
basis of the evidence of the prosecution. (Underscoring
supplied)
During the hearing held on December 6, 1996, Assistant City
Prosecutor Winnie M. Edad stated that he was resting the
People's case.20 It was at this time that the defense asked for,
and was given, leave of court to file a Demurrer to Evidence.
Perhaps belatedly realizing that it had rested prematurely, the
prosecution filed a "Manifestation with Motion to Set Above-
Entitled Cases for Further Hearing and For the Issuance of
Subpoenas to Prosecution Witnesses"21 on December 19, 1996.
Respondent judge, in an Order dated January 14, 199722granted
that motion and set the two (2) remaining cases (Criminal Case
Nos. 96-149991 and 96-149992) for further hearings. This fact
belies the petitioners' claim that they were denied their day in
court. Significantly, during the hearing held on February
11, 1997, the prosecution rested in all the three (3)
cases for the second time,23 including Criminal Case Nos.
96-149991 and 96-149992. The prosecution was even able to
file an opposition to the Demurrer to Evidence. The record
shows that the proceedings were astened when the
defense filed a Manifestation on February 10, 1997 that
it was admitting the existence of the firearms and the
lack of license therefor. Hence, there was not even a
need to amend the Demurrer to Evidence inasmuch as
the Demurrer to Evidence, as worded, clearly prayed for
the dismissal of all the three (3) cases, namely, Criminal
Case Nos. 96-149990, 96-149991 and 96-149992.
Neither do we discern any impropriety when respondent judge
resolved to dismiss all the three (3) criminal cases filed against
Wang. Petitioners claim that the Demurrer to Evidence could
apply only to Criminal Case No. 96-149990 inasmuch as (1) the
State has rested allegedly only in that case, and (2) the docket
number stated on the first page of the Demurrer to Evidence
referred only to Criminal Case No. 96-149990. That claim is
erroneous. Even if the caption of the Demurrer to Evidence
stated only Criminal Case No. 96-149990, a plain reading of
the entire Demurrer to Evidence leaves no doubt that it also
covered Criminal Case Nos. 96-149991 and 96-149992. The
principal argument of the defense in those three (3) criminal
cases is that Wang was arrested illegally, without a warrant,
under circumstances not falling within recognized
exceptions.24 Accordingly, the accompanying search and seizure
which yielded the prohibited articles is also illegal and invalid.
Pursuant to constitutional dictates,25said articles are
inadmissible in evidence for being "fruits of a poisonous tree."
That defense is unequivocally set forth in the Demurrer to
Evidence. The caption of the Demurrer to Evidence which
indicated only Criminal Case No. 96-149990 is not controlling
because the body and prayer of the Demurrer to Evidence refer
to all the three (3) closely related cases.
Anent the charge that respondent judge displayed bias and
partiality during the trial when he asked numerous clarificatory
questions, we note that the participation of respondent judge in
the conduct of the trial was not by itself condemnable. He could
not be expected to remain an impassive and remote presence
during the proceedings, prohibited from asking questions when
proper and necessary, yet all these were done without
necessarily transgressing the boundaries of impartiality decreed
by judicial ethics. The mere fact that the presiding judge asked
clarificatory questions during the trial does not make him a
biased judge.26 "He must be accorded a reasonable leeway in
asking questions to witnesses as may be essential to elicit
144
relevant facts and to bring out the truth."27 Differently stated,
"questions to clarify points and to elicit additional relevant
evidence are not improper. The judge being the arbiter may
properly intervene in the presentation of evidence to expedite
and prevent unnecessary waste of time." 28 The pronouncement
of this Court in United States v. Hudieres29 is illuminating as
when it was made in 1914:
The first assignment of error has its basis in the claim
of counsel that the trial judge went to unjustifiable
lengths in examining some of the witnesses called for
the defense. It is very clear, however, from a review of
the whole proceedings that the only object of the trial
judge in propounding these questions was to endeavor
as far as possible to get at the truth as to the facts
which the witnesses were testifying. The right of a trial
judge to question the witnesses with a view to
satisfying his mind upon any material point which
presents itself during the trial of a case over which he
presides is too well established to need discussion. The
trial judges in this jurisdiction are judges of both the
law and the facts, and they would be negligent in the
performance of their duties if they permitted a
miscarriage of justice as a result of a failure to
propound a proper question to a witness which might
develop some material fact upon which the judgment in
the case should turn. So in a case where a trial judge
sees that the degree of credit which he is to give the
testimony of a given witness may have an important
bearing upon the outcome, there can be no question
that in the exercise of a sound discretion he may put
such questions to the witness as will enable him to
formulate a sound opinion as to the ability or the
willingness of the witness to tell the truth. The
questions asked by the trial judge in the case at bar
were in our opinion entirely proper, their only purpose
being to clarify certain obscure phases of the case; and
while we are inclined to agree with counsel that some
of the observations of the trial judge in the course of
his examination might well have been omitted, there is
no reason whatever to believe that the substantial
rights of the defendants were in anywise prejudiced
thereby.
The transcript of the clarificatory hearing held on February 26,
1997 is reproduced below to show that the tenor of respondent
judge's clarificatory questions, though numerous did not really
create the impression that respondent judge was biased or that
he has practically taken the cudgels for the defense.
xxx xxx xxx
THE COURT TO THE WITNESS:
Q: You, SPO3 Cristobal, were a member of the police
operatives that effected the arrest of the accused in this case?
A: Yes, sir.
Q: From your testimony and that of Police Inspector Cielito
Coronel, this Court has gathered that prior to the arrest of the
accused there were three 3) men that your team arrested. One of
whom is a police officer?
A: Yes, sir.
Q: SPO2 Vergel De Dios, Rogelio Anoble and a certain
Arellano?
A: Yes, sir.
Q: When were they arrested?
A; May 16 on or about 7:00 (interrupted)
Q: P.M.?
A: P.M., your Honor.
Q: And on the occasion of the arrest of these three men
shabu were confiscated from them?
A: Yes, sir.
Q: And in the course of the investigation of these three men
you were able to discover that Redentor Tech and Joseph Junio
were the source of the regulated drug that were confiscated from
the three men that you have arrested?
A: Yes, sir.
 145
Q: Now, thru entrapment [based] in your testimony you were A: Because of the parked BMW which was described by
able to apprehend also these two men, Redentor Tech and Joseph Redentor as the one used by the accused.
Junio? Q: So there was a BMW car parked in front (sic) of the
A: Yes, sir. apartment?
Q: And that was on the evening of what date? A: Yes, sir.
A: May 16. The same (interrupted) Q: And that was described as the car being used by the
Q: The same date? The same evening? accused?
A: Same evening. About 11:00 p.m. A: Yes, sir.
Q: These two men, Redentor and Joseph they were also Q: Was (sic) Redentor and Joseph with your team when you
investigated by your team? proceeded to the apartment?
A: Yes, sir. A: Initially they were with us but the rest of the members of
Q: You were present when they were investigated? the team brought them to our office.
A: I was the one who investigated them. Q: So when the accused came out from the apartment,
Q: This Redentor, he claimed that he was the talent manager Redentor and Joseph were no longer with your team?
of Glenmore Modelling Agency? A: No, sir.
A: Yes, sir. Q: Now, you stated or testified that when the accused came
Q: And you also stated that the agency was own (sic) by the out from the apartment, he was identified by your team. Who
accused in this case? identified the accused?
A: Yes, sir. A: We have in our company an asset who knows the accused.
Q: How about the other man, Joseph? Did he also say that he Q: When the accused was identified to your team as the
was an employee of the accused? employer mentioned by Redentor you immediately held him
A: He told me that he is a gym instructor. surrounded?
Q: So he was not working for the accused? A: Not immediately. We watched what they were about to do.
A: He is also working for the accused. Q: And what was the accused doing when you saw him
Q: As a gym instructor? coming out from the apartment?
A: Yes. A: They were two. One is supposed to be the driver.
Q: You mean to say that the gym is also own (sic) by the Q: So he has a male companion?
accused? A: Yes, sir.
A: He teaches aerobic. Q: The accused?
Q: In what establishment? A: Yes, sir.
A: In Glenmore. Q: They were walking together when they came out from the
Q: In Glenmore? apartment?
A: Yes. sir. A: The driver, sir, is already beside the car.
Q: These two, Redentor and Joseph at the time of the arrest Q: I see. So the driver was waiting inside the car?
they were in the xxx A: Not inside. Outside.
A: Yes, sir. Q: Outside of the car?
Q: In fact they were in xxx to you the three men which were A: Yes, sir.
previously arrested? Q: But near the car?
A: Yes, sir. A: Yes, sir.
Q: Did you ask Redentor and Joseph the source of shabu that Q: You narrated to this court when you saw the accused
you confiscated from them at the time of the arrest? coming out from the apartment walking where was the bound? To
A: Yes, sir. They refuse (sic) to say the source, however, they what direction was he walking? Towards the car?
told me that they were working for the accused. A: Towards the car.
Q: You also testified that Redentor informed you that there Q: Alright. From the apartment where he came out to the
was another delivery of shabu scheduled that morning of (stop) place where the car was parked, what was the distance? How
was it May 16 or May 17? The other delivery that is scheduled many meters?
on? A: A distance of more or less 15 to 20 meters.
A: On the 17th. Q: What did you observe while the accused was walking from
Q: So it was on the following morning? the apartment to his car which has a distance of about 15 to 20
A: Yes, sir. meters? What did you observe in the nature of the accused while
Q: Did he tell you where the delivery of the shabu was to be he was walking towards his car?
made? A: The accused stopped beside the car. He talked with the
A: No, sir. driver, supposed to be the driver and they talked for a while.
Q: Did he tell you who was to make the delivery? Q: So he walked on the left side of the car. Where (stop) in
A: No, sir. what portion of the car did he approached the driver?
Q: You said that your team decided to see the accused to ask A: Left side, sir.
him to shed light regarding the drug trafficking activities of Q: Left side?
Redentor and Joseph? A: Yes, Your Honor.
A: Yes, Your Honor. That is our initial purpose. Q: And you saw him talked with the driver?
Q: To ask him to shed light? A: Yes, sir.
A: Yes, sir. Q: Then what happened?
Q: At that time when you decided to look for the accused to A: After they talked, we saw them open the compartment of
ask him to shed light on the matter concerning the arrest of the car.
these two employees in possession of shabu. Did you and did Q: At this time your team were observing at the distance?
your team suspect the accused as being involved in the A: Yes, sir.
transaction that led to the arrest of Redentor and Joseph? Q: What was the distance?
A: Yes, sir. We suspected that he was the source of the shabu. A: More or less 15 to 20 meters. We were in a concealed
Q: So you were suspecting the accused as being involved? place.
A: Yes, sir. Q: And you were concealed. You could not be seen by the
Q: In the drug transaction? accused?
A: Yes, sir. A: Yes, sir.
Q: You also testified that you and your team proceeded to Q: What happened when you saw the accused and his driver
Maria Orosa apartment somewhere in Ermita? open the trunk of the car?
A: Yes, sir. A: It was Capt. Margallo and Police Inspector Colonel
Q: And that apartment was pinpointed to you by Redentor as approached them and upon seeing them I also went out of my
the place where the accused could be found? hiding place and the accused was accosted.
A: Yes, sir. Q: So that was the time when you and your team accosted
Q: And when you arrived at the apartment you did not enter the accused when the trunk of his car was open?
the apartment? A: Yes, sir.
A: We conducted a stake out. Q: And after you accosted the accused, what did you do?
Q: You waited outside? A: It was Capt. Margallo and I who prevented them from
A: Yes, sir. closing the compartment.
Q: Why? You were expecting the accused to come out from Q: The trunk?
the apartment? A: Yes, sir.
 146
Q: What transpired when you approached the accused at that bias against a party litigant. Thus, there is a case where the
point? When you and your (stop) what is the rank of this Coronel? questions asked of a witness by the judge therein were
A Capt. Margallo. Sr. Inspector Lucio Margallo. adversarial, malicious and hostile in character. 31 There is another
Q: No. No. Yes. He was the one that approached the accused? case where the sheer volume of questions asked by the judge
A: And Lt. Coronel. therein tended to be leading, misleading, if not baseless and
Q: And Police Inspector Coronel? hypothetical.32 It has also been held that clarificatory questions
A: Yes, sir. asked by the trial court must not amount to confrontation,
Q: But you were also nearby?
probing and insinuation, which are characteristics of a cross-
A: Yes, sir.
examination.33
Q: Who talked with the accused?
A: It was Capt. Margallo.
Q: What did he tell to the accused? In administrative proceedings, the complainant bears the onus
A: I was not able to get what they are talking because I of establishing, by substantial evidence, the averments of his
immediately told them that there were shabu at the complaint.34 All told, complainants herein failed to discharge that
compartment. burden. Besides, the charges, subject of the administrative case
Q: Who made that statement? against respondent judge, which were indorsed by the Office of
A: I was the one who told them that there were shabu in the
the Ombudsman to the OCA on May 9, 199735 also appear to be
compartment.
premature in view of the filing on May 5, 1997 and pendency in
Q: You told the accused?
A: No. I told Capt. Margallo that there were shabu inside the this Court of the petition for review on certiorari, entitled
compartment of the car. "People of the Philippines v. Lawrence Wang y Chen and Hon.
Q: Now, in your declaration and from that of the Coronel the Perfecto Laguio, Jr., etc.", docketed as G.R. No. 128587, supra,
accused was frisked? (see note no. 10). It has been held that the pendency of an
A: Yes, sir. appeal from a questioned judgment renders the filing of
Q: And from the pocket of the pants of the accused was taken administrative charges premature.36 Where a sufficient judicial
a back-up pistol? remedy exists, the filing of an administrative complaint is not
A: No, sir. I believe it was a Daewoo caliber pistol. the proper remedy to correct the actions of a judge.37
Q: Daewoo? The one that was taken from the possession of
the accused?
A: The AMT back up pistol was handed to me by Capt. WHEREFORE, the administrative complaint against respondent
Margallo. Judge Perfecto A.S. Laguio, Jr. is hereby DISMISSED.
Q: Yes. From whom it was taken?
A: It was taken from the accused. SO ORDERED.
Q: Correct. So when the accused was frisked what gun was
taken from him and it was discovered inside the pocket of his
pants? FIRST DIVISION[G.R. No. 156259. September 18, 2003]
A: Yes, sir.
Q: Which one occurred first? The bodily search of the accused
GROGUN, INCORPORATED, petitioner, vs. NATIONAL
or the search of the trunk or (sic) the car?
POWER CORPORATION, respondent.
A: I could say it was simultaneously being conducted (sic).
Q: At the same time?
A: Yes, Your Honor because they were here while I was at the DECISION
back.
Q: So while you and your othermembers (sic) of the team
were searching the trunk of the car, Police Inspector Coronel and YNARES-SANTIAGO, J.:
another officer, Capt. Margallo were subjecting the accused to
bodily searched? On August 13, 1992, the National Power Corporation
A: Yes, sir. (NAPOCOR) awarded the project of rehabilitating the Caliraya
Q: And you immediately discovered the shabu inside the Glory Hole Service Spillway (CGHSS) at Caliraya Reservoir,
trunk? Lumban, Laguna to GROGUN INC. (GROGUN). Among several
A: Yes, sir.
contractors, GROGUN offered the most workable and viable
Q: And there was another gun that was taken from the car
design at the lowest price.
and that is underneath the driver's seat?
A: Yes, sir.
Q: When you saw the accused walking towards his car, did The primary purpose of the Caliraya Reservoir was to keep
you know whether he was carrying a gun? the lakes water level within the specified limit not only for the
A: No, sir. It cannot be seen. protection of the dam but also to prevent the flooding of the
Q: It was concealed? towns surrounding the dam. Ever since the Caliraya Reservoir
A: Yes, sir. and the CGHSS were built in 1930, the CGHSS was regularly
Q: So the only time that you and your team learned that he
used to flush down excess water from the lake whenever the
was in possession of the gun is when he was bodily searched?
lakes water level reached critical level. Numerous leaks,
A: Yes, sir. That is the only time that I came to know about
when Capt. Margallo handed to me the gun. however occurred in the vertical shaft of CGHSS.
Q: Other than walking towards the car, the accused was not
doing anything else? It appears that prior to 1992, NAPOCOR engaged ALA
A: None, sir. Industries Corporation to repair the CGHSS. The design and
Q: That would invite your suspicion or give indication that he method, however adopted by ALA Industries Corporation were
was intending to do something unlawful or illegal? not workable. Leaks recurred in the vertical shaft of the CGHSS
A: No, sir.
immediately after the project was accepted by NAPOCOR.
Q: When you searched the car, did the accused protest or try
to prevent your team from searching his car?
A: No, sir.30 NAPOCOR failed to pay for the costs of the rehabilitation
despite the completion of the project. Thus, on March 22, 1994,
xxx xxx xxx GROGUN filed a request for adjudication before the Construction
Industry Arbitration Commission (CIAC), docketed as CIAC Case
No. 06-94,[1] pursuant to the arbitration clause[2] in their
The above-quoted questions propounded by respondent judge Contract.[3] However, finding no stipulation in the contract of the
were necessary for the purpose of determining and clarifying the parties providing for arbitration as a mode of settling disputes,
basis for resolving the all important issue of the legality or CIAC dismissed the case.[4]
illegality of the warrantless arrest of Wang and the warrantless
search of the latter's car. Herein respondent judge's aforequoted
questions contrast favorably against instances in other cases On September 10, 1996, GROGUN filed an action for
wherein it was clearly shown that the judges therein displayed collection of sum of money and damages before the Regional

Trial Court of Quezon City, Branch 216, which was docketed as
Civil Case No. Q-96-28731.[5] NAPOCOR filed its Answer with
Counterclaim[6] asserting that the poor quality of GROGUNS
workmanship led to numerous defects in the project.
After the pre-trial conference, the parties filed a Joint
Manifestation and Motion[7] submitting their dispute to
arbitration under Republic Act No. 876[8] taking into
consideration the highly technical nature of their contract. The
Arbitration Tribunal was composed of Atty. Alfredo F. Tadiar as
Chairman, Engineer Carlito T. Kingkay and Atty. Alejandro A.
Padaen as members.
On May 14, 1998, the Arbitration Tribunal rendered a
decision, the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered and AWARD is made
as follows:
FOR THE PLAINTIFF-CONTRACTOR:
Defendant is directed to pay the Plaintiff the following amounts
on its various claims:
P1,440,000.00 as bonus for early completion of works under
Article IV, Clause 6 of their contract.
P 670,369.61 as cost of standby or downtime overhead cost of
skeleton force during the forced work suspension in November,
1992.
P1,447,670.00 as the value of the accomplished works of the
Plaintiff that were destroyed by the waters released by the
opening of the spillway gates.
P3,558,039.61 Total claims awarded to the Plaintiff-Contractor.
FOR THE DEFENDANT-OWNER
Plaintiff is directed to pay the Defendant its counterclaim:
P1,047,850.00 as the cost of rectification of the defective works
performed by Plaintiff
OFFSETTING the two amounts mutually due to each other;
Defendant-Owner, National Power Corporation shall pay the net
amount remaining of P2,510,189.61 to the Plaintiff-Contractor,
GROGUN, INC. [9]
GROGUN submitted a copy of the above decision to the
trial court.
On May 20, 1998, GROGUN filed before the trial court
a Manifestation and Motion to Modify the Arbitral
Decision,alleging that the Arbitration Tribunal did not include in
its Decision a provision on who should bear the costs of
arbitration pursuant to the parties Agreement on Arbitration
Expenses.[10]
In its Comment, NAPOCOR argued that the foregoing
Motion is premature because the Arbitration Tribunal had not
submitted its recommendation to the trial court and the same
had not been approved or adopted by the trial court. [11]
In the meantime, GROGUN filed another
Manifestation[12] asking the trial court to grant its Manifestation
and Motion to Modify the Arbitral Award since NAPOCOR did not
file a motion to vacate, modify or correct the same within one
month from the time it was rendered, pursuant to Section 23 of
the Arbitration Law.
147
Confirmation of Award.Any time within one month after the
award is made, any party to the controversy which was
arbitrated may apply to the court having jurisdiction, as
provided in section twenty-eight, for an order confirming the
award, and thereupon the court must grant such order unless
the award is vacated, modified or corrected, as prescribed
herein. Notice of such motion must be served upon the adverse
party or his attorney as prescribed by law for the service of such
notice upon an attorney in action in the same court. (Italics
supplied)
On September 15, 1998, the trial court issued an
Order, viz:
WHEREFORE, the Arbitral Decision dated May 14, 1998 is hereby
ordered modified as follows:
a) the Arbitrators Fees of P420,836.28 shall be shared
by defendant NAPOCOR and plaintiff GROGUN
in proportion to their respective claims, i.e.,
69.94 % and 30.06%, respectively;
b) the defendant NAPOCOR is hereby ordered to
reimburse the plaintiff GROGUN the following
amounts: (1) P294,332.89 representing the
Arbitrators Fees; and (2) P25,000.00
representing the agreed 50% share of
NAPOCOR in the Administrative Costs; and
c) the rest of the Arbitral Decision is hereby
confirmed and maintained.[13]
NAPOCORs Motion for Reconsideration of the said
Order[14] was denied.[15]
Thus, NAPOCOR appealed to the Court of Appeals raising
the following errors:
I.
THE REGIONAL TRIAL COURT ERRED IN AFFIRMING THE
DECISION OF THE ARBITRAL TRIBUNAL DESPITE THE FACT THAT
A COPY OF THE ARBITRAL DECISION DATED MAY 14, 1998
SUBMITTED BY GROGUN WAS NOT VERIFIED.
II.
THE REGIONAL TRIAL COURT ERRED IN ADOPTING THE DECISION
OF THE ARBITRAL TRIBUNAL ALTHOUGH THE FINDINGS OF THE
ARBITRAL TRIBUNAL WERE NOT SUBSTANTIATED BY LAW AND
EVIDENCE.[16]
Instead of filing an Appellees Brief, GROGUN filed a Motion
to Dismiss[17] the appeal based on the following grounds: (a)
NAPOCOR failed to file the record on appeal required in an
arbitration proceeding under R.A. No. 876; (b) NAPOCOR failed
to contest the award before the Arbitration Tribunal or the trial
court; (c) NAPOCORs two assigned errors were not raised in the
trial court and (d) the appeal raised only questions of law.
On March 30, 2001, the Court of Appeals rendered a
decision,[18] reversing the Orders of the Regional Trial Court in
Quezon City, Branch 216 in Civil Case No. Q-96-28731, dated
September 15, 1998 and January 8, 1999 and remanded the
case to the trial court for further proceedings. [19]
GROGUN filed a Motion for Reconsideration [20] of the said
decision which was denied by the Court of Appeals in its
Resolution dated November 21, 2002.[21]
Hence, this petition for review on the following assignment
of errors:

I 5. DOES NOT AFFECT THE COURT OF ITS JURISDICTION;
THE COURT OF APPEALS PATENTLY ERRED IN NOT 6. SIMPLY AN ASSURANCE AGAINST PRODUCTS OF IMAGINATION;
DISMISSING THE APPEAL, DESPITE:
7. CANNOT BE RAISED AS AN OBJECTION FOR THE FIRST TIME ON
1. THE DEFECT OF NOT HAVING FILED A RECORD ON APPEAL WHICH
IS REQUIRED IN SPECIAL PROCEEDINGS SUCH AS
ARBITRATION UNDER REPUBLIC ACT NO. 876;
8. NOT NECESSARY WHERE AN OPPOSITION IS NOT BASED ON
2. THE FILING OF THE BRIEF HAVING BEEN DELAYED FOR MORE
THAN ONE (1) YEAR FROM THE NOTICE OF APPEAL;
3. IT HAVING FAILED TO REPUDIATE THE ARBITRAL AWARD WITHIN 9. HAS BEEN CURED/ OFFSET BY LACK OF OBJECTION THERETO AT
THE REGLEMENTARY PERIOD OF 30 DAYS UNDER
REPUBLIC ACT NO. 876;
10. DOES
4. THE ARBITRAL DECISION BY VIRTUE OF A JOINT SUBMISSION BY
THE PARTIES WAS EFFECTIVELY ONE OF A JUDGMENT BY
CONSENT, AS SUCH IT SHOULD HAVE BEEN FIRST
REPUDIATED BEFORE THE ARBITRAL TRIBUNAL. FAILING
TO REPUDIATE THE SAME BEFORE THE ARBITRAL
TRIBUNAL, ITS CONFIRMATION BY THE REGIONAL TRIAL
COURT BECAME MINISTERIAL. THUS THE REGIONAL TRIAL
COURTS CONFIRMATION THEREOF IS NOT APPEALABLE;
5. THE ONLY TWO ASSIGNMENT OF ERRORS ARE NOT APPEALABLE
AS THEY HAVE NOT BEEN RAISED IN THE REGIONAL TRIAL
COURT;
6. THE APPEAL, WHICH ULTIMATELY RAISES ONLY QUESTIONS OF
LAW, WAS IMPROPERLY FILED UNDER RULE 41 OF THE
RULES OF COURT; AND
7. IT APPEARS THAT THERE HAVE ALREADY BEEN A DISMISSAL OF
THE APPEAL FOR FAILURE TO FILE APPELLANTS BRIEF,
AND THE SAME DOES NOT APPEAR TO HAVE BEEN
RECONSIDERED YET.
II
THE COURT OF APPEALS PATENTLY ERRED IN CAVALIERLY
GRANTING THE RELIEF APPEALED FOR ON THE MERITS
WITHOUT YET GIVING APPELLEE THE OPPORTUNITY TO
FILE ITS BRIEF AND/OR WITHOUT YET THE COURT OF
APPEALS HAVING RESOLVED THE PENDING INCIDENT
WHICH IS THE MOTION TO DISMISS FILED UNDER RULE 50
OF THE RULES OF COURT.
III
THE COURT OF APPEALS PATENTLY ERRED IN SETTING
ASIDE THE ORDER OF THE REGIONAL TRIAL COURT
DATED 15 SEPTEMBER 1998 WHICH MODIFIED IN PART
AND CONFIRMED THE REST OF THE ARBITRAL DECISION
AND THE ORDER DATED 8 JANUARY 1999 WHICH DENIED
RESPONDENTS MOTION FOR RECONSIDERATION,
SUPPOSEDLY BECAUSE THE ARBITRAL DECISION WAS NOT
VERIFIED, WHEN SUCH A LACK OF VERIFICATION:
1. UNLIKE FOR AD HOC ARBITRATIONS WHICH ARE CONDUCTED
OUTSIDE THE AUSPICES OF THE COURTS, MAY NOT
REQUIRE A VERIFICATION FOR AUTHENTICATING THE
ARBITRAL AWARD;
2. IS MERELY A FORMAL DEFECT THAT IS NEITHER JURISDICTIONAL
NOR FATAL;
3. CAN BE DISPENSED WITH OR EXCUSED;
4. DOES NOT OPERATE TO MAKE THE COURT TO NECESSARILY
COMMIT REVERSIBLE ERROR;
148
APPEAL; HAS BEEN COMPLIED WITH BY PETITIONERS
MOTION TO CONFIRM/ MODIFY THE SAME;
FRAUD, ACCIDENT, MISTAKE OR EXCUSABLE
NEGLIGENCE;
FIRST INSTANCE IN THE COURT BELOW; AND
NOT BY ITS TECHNICALITY SACRIFICE SUBSTANTIAL
JUSTICE.[22]
The petition lacks merit.
Supreme Court Circular No. 2-90, which is based in a
Resolution of the Court En Banc in UDK-9748 (Anacleto Murillo v.
Rodolfo Consul), March 1, 1990, provides in 4(c) thereof:
c) xxx If an appeal under Rule 41 is taken from the regional trial
court to the Court of Appeals and therein the appellant raises
only questions of law, the appeal shall be dismissed, issues
purely of law not being reviewable by said Court. xxx (Italics
supplied)[23]
This was reproduced in Rule 50, Section 2 of the 1997 Rules of
Civil Procedure.
An appeal under Rule 41 taken from the Regional Trial Court to
the Court of Appeals raising only questions of law shall be
dismissed, issues purely of law not being reviewable by said
court. (Italics supplied)
Corollary thereto, in Roman Catholic Archbishop of Manila
v. Court of Appeals, et al.,[24] it was held that there is a question
of law when the issue does not call for an examination of the
probative value of evidence presented, the truth or falsehood of
facts being admitted and the doubt concerns the correct
application of law and jurisprudence on the matter.
The issues raised by NAPOCOR in its appeal to the Court of
Appeals are not purely questions of law. Specifically, NAPOCORs
arguments assailing the award by the trial court to GROGUN of
the amount of (a) P1,447,670.00 representing the value of its
accomplished works which were destroyed by the flood waters;
and (b) P670,369.61 representing the compensation for idle
time of manpower and equipment caused by the opening of the
CGHSS, raised factual issues. Furthermore, the determination of
the amount of damages NAPOCOR was entitled to under its
counterclaim depends on whether the leakages were causally
linked to any defective work performed by GROGUN.
Then, too, the mere filing of the notice of appeal is
sufficient. Rule 41, Section 2 of the 1997 Rule on Civil Procedure
categorically states:
(a) Ordinary appeal. The appeal to the Court of Appeals in cases
decided by the Regional Trial Court in the exercise of its original
jurisdiction shall be taken by filing a notice of appeal with the
court which rendered the judgment or final order appealed from
and serving a copy thereof upon the adverse party. No record on
appeal shall be required except in special proceedings and other
cases of multiple or separate appeals where the law or these
Rules so require. In such cases, the record on appeal shall be
filed and served in like manner.

This petition originated from an action for collection of a
sum of money filed with the Regional Trial Court,[25] which is an
ordinary civil action.[26] The decision of the parties to submit
their dispute to arbitration during the proceedings did not
change the nature of the original action to one of special
proceeding, under which an appeal shall be by record on appeal.
Section 22 of the Arbitration Law, [27] which provides that
arbitration is in the nature of a special proceeding, is not
applicable.
GROGUN argues that the Court of Appeals should have
dismissed the appeal because NAPOCOR filed its Appellants
Brief more than one year from the filing of the Notice of Appeal.
The argument is tenuous. Rule 44, Section 7 of the 1997
Rules of Civil Procedure provides that the appellant shall file his
brief within forty-five (45) days from receipt of notice from the
Court of Appeals. [28]
In the case at bar, NAPOCOR received notice from the
Court of Appeals to file its Brief within 45 days on October 26,
1999. On December 10, 1999, it filed a Motion for Extension of
forty five days, or until January 25, 2000, within which to file its
Brief, which was granted.[29] Hence, NAPOCORs Appellants Brief
filed on January 24, 2000 was on time.
GROGUN claims that the Court of Appeals had already
dismissed the appeal in its Resolution dated April 18, 2000,
to wit:
In view of the resolution dated March 3, 2000 which considered
the case DISMISSED for failure to file appellants brief, the
motion for extension of time to file brief by the OSG and the
motion for early resolution filed by plaintiff-appellee Grogun, Inc.
are merely noted. (Emphasis and italics supplied)
GROGUNs reliance is misplaced. In a subsequent
Resolution, the Court of Appeals corrected itself thus:
Considering that the resolution of this Court dated April 18, 2000
in CV NO. 62017 was intended for CV NO. 62357, the same is
hereby RECALLED and SET ASIDE.
We come now to the issue of whether the copy of the
arbitral award submitted by GROGUN to the trial court was valid.
GROGUN admits that the copy of the arbitral award it
submitted to the trial court was not verified. However, it argues
that the lack of verification is a formal defect which is not fatal,
and may be waived or dispensed with. It cites cases which,
however, refer to the effect of lack of verification in
the pleadings.
Verification in general is confirmation of correctness, truth,
or authenticity by affidavit, oath, or deposition.[30] The
verb verify is frequently used in its legal sense in legal
proceeding and matters of law, and as used and understood by
lawyers it has a technical signification, and means the swearing
to an affidavit; to affirm under oath; to confirm and substantiate
by oath; or even by agreement, to confirm by formal oath; to
testify or affirm formally or upon oath; to confirm or establish
the authority of; as by affirmation or competent evidence; to
confirm or substantiate by proof; to establish by evidence. [31]The
word verified, in connection with statutory reports, has a settled
or well known meaning; and refers to an affidavit attached to
the statement as to the truth of the matters therein set forth,
within the personal knowledge of the affiant, and it has been
held that the word means sworn to and ordinarily imports a
verity attested by the sanctity of an oath.[32]
In the case at bar, the copy of the arbitral award did not
meet the requirements of Section 20 of the Arbitration Law, and
consequently, therefore can not be the basis of the assailed
Orders of the trial court. Specifically, Section 20 provides:
149
Form and contents of award. The award must be made
in writing and signed and acknowledged by a majority of the
arbitrators, if more than one; and by the sole arbitrator, if there
is only one. Each party shall be furnished with a copy of the
award. The arbitrators in their award may grant any remedy or
relief which they may deem just and equitable and within the
scope of the agreement of the parties, which shall include, but
not be limited to, the specific performance of a contract. (Italics
supplied)
GROGUN argues that NAPOCOR did not raise as issue the
lack of verification of the copy of the arbitral award in the trial
court. Neither did NAPOCOR repudiate the arbitral award before
the Arbitration Tribunal and the trial court.
The argument is not well-taken. Ordinarily, points of law,
theories, issues and arguments not brought to the attention of
the lower court cannot be raised for the first time on appeal.[33]
In the case at bar, however, NAPOCOR could not have
raised the lack of verification of the copy of the arbitral award
submitted by GROGUN since it was assailing the authenticity
and due execution of the copy itself. It was only after the trial
court upheld the said copy as a valid arbitral award that
NAPOCOR was able to raise the issue, which was during the
filing of its appellants brief before the Court of Appeals.
GROGUN also argues that the Court of Appeals should
have first decided the Motion to Dismiss filed by the NAPOCOR
before resolving the merits of the appeal. It also alleges that the
Court of Appeals did not require it to file an Appellees Brief.
The contention is without merit. The grant or denial of the
Motion to Dismiss was within the sound discretion of the Court of
Appeals. Its resolution of the appeal on its merits meant that it
found the Motion to Dismiss to be without merit.On the other
hand, Rule 44, Section 8 of the 1997 Rules of Civil Procedure,
[34]
provides that the appellee shall file his brief within forty-five
days from receipt of the appellants brief. Hence, there was no
need for the Court of Appeals to require GROGUN to file its
appellees brief.
WHEREFORE, in view of the foregoing, the petition is
DENIED. The Decision of the Court of Appeals dated March 30,
2001, which set aside the Orders dated September 15, 1998 and
January 8, 1999 of the Regional Trial Court of Quezon City,
Branch 216, in Civil Case No. Q-96-28731, and remanded the
case to the trial court for further proceedings, is AFFIRMED.SO
ORDERED.
FIRST DIVISIONG.R. No. 94960 March 8, 1993
IMPERIAL TEXTILE MILLS, INC., petitioner,
vs.
HON. VLADIMIR P.L. SAMPANG and IMPERIAL TEXTILE
MILLS-MONTHLY EMPLOYEES ASSOCIATION (ITM-
MEA), respondents.
CRUZ, J.:
On March 20, 1987, petitioner Imperial Textile Mills, Inc. (the
Company, for brevity) and respondent Imperial Textile Mills-
Monthly Employees Association (the Union, for brevity) entered
into a collective bargaining agreement providing across-the-
board salary increases and other benefits retroactive to
November 1, 1986.
On August 21, 1987, they executed another agreement on the
job classification and wage standardization plan. This was also
to take effect retroactively on November 1, 1986.
A dispute subsequently arose in the interpretation of the two
agreements. The parties then submitted it to arbitration and

designated public respondent Vladimir P.L. Sampang as the
Voluntary Arbitrator. The understanding was that his decision
would be final, executory and inappealable. 1
The Company maintained that the wage of a particular
employee subject of possible adjustment on base pay should be
the pay with the first year CBA increase already integrated
therein.
The Union argued that the CBA increases should not be included
in adjusting the wages to the base pay level, as it was separate
and distinct from the increases resulting from the job
classification and standardization scheme.
On July 12, 1988, the Voluntary Arbitrator rendered a decision
upholding the formula used by the Company.
The Union filed a motion for reconsideration which was opposed
by the Company.
On December 14, 1988, after a conference with the parties, the
Voluntary Arbitrator rendered another decision, this time in favor
of the Union.
On January 20, 1989, the Company appealed to the NLRC. The
appeal was dismissed for lack of jurisdiction. The reason was
that the original rule allowing appeal if the Voluntary Arbitrator's
award was more than P100,000.00 had already been repealed
by BP 130. Moreover, under Article 262-A of the Labor Code, as
amended, awards or decisions of voluntary arbitrators become
final and executory after calendar 10 days from notice thereof to
the parties.
The Company then came to this Court in this petition
for certiorari under Rule 65 of the Rules of Court.
The Court has deliberated on the arguments of the parties in
light of the established facts and the applicable law and finds for
the Company.
The Union erred in filing a motion for reconsideration of the
decision dated July 12, 1988. So did the respondent Voluntary
Arbitrator in entertaining the motion and vacating his first
decision.
When the parties submitted their grievance to arbitration, they
expressly agreed that the decision of the Voluntary Arbitrator
would be final, executory and inappealable. In fact, even without
this stipulation, the first decision had already become so by
virtue of Article 263 of the Labor Code making voluntary
arbitration awards or decisions final and executory.
The philosophy underlying this rule was explained by Judge
Freedman in the case of La Vale Plaza, Inc., v. R.S. Noonan,
Inc., 2 thus:
It is an equally fundamental common law principle that
once an arbitrator has made and published a final award, his
authority is exhausted and be is functus officio and can do
nothing more in regard to the subject matter of the arbitration.
The policy which lies behind this is an unwillingness to permit
one who not a is judicial officer and who acts informally and
sporadically, to re-examine a final decision which he has already
rendered, because of the potential evil of outside
communication and unilateral influence which might affect a
new conclusion. The continuity of judicial office and the tradition
which surround judicial conduct is lacking in the isolated activity
of an arbitrator, although even here the vast increase in the
arbitration of labor disputes has created the office of the
specialized provisional arbitrator. (Washington-Baltimore N.G.,
Loc. 35 v. Washington Post Co., 442 F. 2d 1234 (1971], pp. 1238-
1239)
150
In the case of The Consolidated Bank & Trust Corporation
(SOLIDBANK) v. Bureau of Labor Relations, et al., 3this Court held
that the Voluntary Arbitrator lost jurisdiction over the case
submitted to him the moment be rendered his decision.
Therefore, he could no longer entertain a motion for
reconsideration of the decision for its reversal or modification.
Thus:
By modifying the original award, respondent arbitrator
exceeded his authority as such, a fact he was well aware
of, as shown by his previous Resolution of Inhibition
wherein he refused to act on the Union's motion for
reconsideration of the award or decision. Thus,
respondent arbitrator emphatically ruled:
It would be well to remind the Parties in this case that the
arbitration law or jurisprudence on the matter is explicit
in its stand against revocation and amendment of the
submission agreement and the arbitration award once
such has been made. The rationale behind this is that:
An award should be regarded as the judgment of a court
of last resort, so that all reasonable presumptions should
be ascertained in its favor and none to overthrow it.
Otherwise, arbitration proceedings, instead of being a
quick and easy mode of obtaining justice, would be
merely an unnecessary step in the course of litigation,
causing delay and expenses, but not finally settling
anything. Notwithstanding the natural reluctance of the
courts to interfere with matters determined by the
arbitrators. they will do so in proper cases where the law
ordains them. (Arbitration, Manguiat, citing U.S. v.
Gleason, 175 US 588)
The power and authority of the Voluntary Arbitrator to act
in the case commences from his appointment and
acceptance to act as such under the submission
agreement of the Parties and terminates upon his
rendition of his decision or award which is accorded the
benefits of the doctrine of res judicata as in judgments of
our regular courts of law. Since the power and authority
of the arbitrator to render a valid award, order or
resolution rest upon the continuing mutual consent of the
parties, and there is none shown here, the Voluntary
Arbitrator has no choice but to decline to rule on the
pleadings submitted by the parties. (Emphasis supplied)
It is true that the present rule makes the voluntary arbitration
award final and executory after ten calendar days from receipt
of the copy of the award or decision by the
parties. 4 Presumably, the decision may still be reconsidered by
the Voluntary Arbitrator on the basis of a motion for
reconsideration duly filed during that period. Such a provision,
being procedural, may be applied retroactively to pending
actions as we have held in a number of cases. 5 However, it
cannot be applied to a case in which the decision had become
final before the new provision took effect, as in the case at
bar. 6 R.A. 6715, which introduced amended Article 262-A of the
Labor Code, became effective on March 21, 1989. The first
decision of the Voluntary Arbitrator was rendered on July 12,
1988, when the law in force was Article 263 of the Labor Code,
which provided that:
Voluntary arbitration awards or decisions shall
be final, inappealable, and executory.
The above-quoted provision did not expressly fix the time when
the Voluntary Arbitrator's decision or award would become final.
We have held, however, that it would assume the attribute of
finality upon its issuance, subject only to judicial review in
appropriate cases. 7
The public respondent exceeded his authority when he acted on
the Union's motion for reconsideration and reversed his original
decision. Corollarily his second decision dated December 14,

1988, having been rendered in violation of law, must be
considered null and void and of no force and effect whatsoever. 8
WHEREFORE, the decision of the Voluntary Arbitrator dated
December 14, 1988, is SET ASIDE for lack of jurisdiction and his
decision dated July 12, 1988, is REINSTATED.
SO ORDERED.
THIRD DIVISIONG.R. No. 96283 February 25, 1992
CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors
and Officers namely: HUANG KUO-CHANG, HUANG AN-
CHUNG, JAMES J.R. CHEN, TRISTAN A. CATINDIG, VICENTE
B. AMADOR, ROCK A.C. HUANG, JEM S.C. HUANG, MARIA
TERESA SOLIVEN and VIRGILIO M. DEL
ROSARIO, petitioners,vs.COURT OF APPEALS, HON.
FRANCISCO X. VELEZ (Presiding Judge, Regional Trail
Court of Makati [Branch 57]) and ROBLECOR
PHILIPPINES, INC., respondents.
ROMERO, J.:
This is a special civil action for certiorari seeking to annul the
Resolutions of the Court of Appeals* dated October 22, 1990
and December 3, 1990 upholding the Orders of July 31, 1990
and August 23, 1990 of the Regional Trial Court of Makati,
Branch 57, in Civil Case No. 90-1335. Respondent Court of
Appeals affirmed the ruling of the trial court that herein
petitioners, after submitting themselves for arbitration and
agreeing to the terms and conditions thereof, providing that the
arbitration award shall be final and unappealable, are precluded
from seeking judicial review of subject arbitration award.
It appears that on May 17, 1989, petitioner Chung Fu Industries
(Philippines) (Chung Fu for brevity) and private respondent
Roblecor Philippines, Inc. (Roblecor for short) forged a
construction agreement 1 whereby respondent contractor
committed to construct and finish on December 31, 1989,
petitioner corporation's industrial/factory complex in Tanawan,
Tanza, Cavite for and in consideration of P42,000,000.00. In the
event of disputes arising from the performance of subject
contract, it was stipulated therein that the issue(s) shall be
submitted for resolution before a single arbitrator chosen by
both parties.
Apart from the aforesaid construction agreement, Chung Fu and
Roblecor entered into two (2) other ancillary contracts, to wit:
one dated June 23, 1989, for the construction of a dormitory and
support facilities with a contract price of P3,875,285.00, to be
completed on or before October 31, 1989; 2 and the other dated
August 12, 1989, for the installation of electrical, water and
hydrant systems at the plant site, commanding a price of P12.1
million and requiring completion thereof one month after civil
works have been finished. 3
However, respondent Roblecor failed to complete the work
despite the extension of time allowed it by Chung Fu.
Subsequently, the latter had to take over the construction when
it had become evident that Roblecor was not in a position to
fulfill its obligation.
Claiming an unsatisfied account of P10,500,000.00 and unpaid
progress billings of P2,370,179.23, Roblecor on May 18, 1990,
filed a petition for Compulsory Arbitration with prayer for
Temporary Restraining Order before respondent Regional Trial
Court, pursuant to the arbitration clause in the construction
agreement. Chung Fu moved to dismiss the petition and further
prayed for the quashing of the restraining order.
Subsequent negotiations between the parties eventually led to
the formulation of an arbitration agreement which, among
others, provides:
151
2. The parties mutually agree that the arbitration shall
proceed in accordance with the following terms and
conditions:
xxx xxx xxx
d. The parties mutually agree that they will abide by the
decision of the arbitrator including any amount that may be
awarded to either party as compensation, consequential
damage and/or interest thereon;
e. The parties mutually agree that the decision of the
arbitrator shall be final and unappealable. Therefore, there
shall be no further judicial recourse if either party disagrees
with the whole or any part of the arbitrator's award.
f. As an exception to sub-paragraph (e) above, the parties
mutually agree that either party is entitled to seek judicial
assistance for purposes of enforcing the arbitrator's award;
4
xxx xxx xxx
(Emphasis supplied)
Respondent Regional Trial Court approved the arbitration
agreement thru its Order of May 30, 1990. Thereafter, Engr.
Willardo Asuncion was appointed as the sole arbitrator.
On June 30, 1990, Arbitrator Asuncion ordered petitioners to
immediately pay respondent contractor, the sum of
P16,108,801.00. He further declared the award as final and
unappealable, pursuant to the Arbitration Agreement precluding
judicial review of the award.
Consequently, Roblecor moved for the confirmation of said
award. On the other hand, Chung Fu moved to remand the case
for further hearing and asked for a reconsideration of the
judgment award claiming that Arbitrator Asuncion committed
twelve (12) instances of grave error by disregarding the
provisions of the parties' contract.
Respondent lower court denied Chung Fu's Motion to Remand
thus compelling it to seek reconsideration therefrom but to no
avail. The trial court granted Roblecor's Motion for Confirmation
of Award and accordingly, entered judgment in conformity
therewith. Moreover, it granted the motion for the issuance of a
writ of execution filed by respondent.
Chung Fu elevated the case via a petition for certiorari to
respondent Court of Appeals. On October 22,1990 the assailed
resolution was issued. The respondent appellate court concurred
with the findings and conclusions of respondent trial court
resolving that Chung Fu and its officers, as signatories to the
Arbitration Agreement are bound to observe the stipulations
thereof providing for the finality of the award and precluding any
appeal therefrom.
A motion for reconsideration of said resolution was filed by
petitioner, but it was similarly denied by respondent Court of
Appeals thru its questioned resolution of December 3, 1990.
Hence, the instant petition anchored on the following grounds:
First
Respondents Court of Appeals and trial Judge gravely
abused their discretion and/or exceeded their jurisdiction,
as well as denied due process and substantial justice to
petitioners, (a) by refusing to exercise their judicial
authority and legal duty to review the arbitration award,
and (b) by declaring that petitioners are estopped from
questioning the arbitration award allegedly in view of the

stipulations in the parties' arbitration agreement that "the
decision of the arbitrator shall be final and unappealable"
and that "there shall be no further judicial recourse if
either party disagrees with the whole or any part of the
arbitrator's award."
Second
Respondent Court of Appeals and trial Judge gravely
abused their discretion and/or exceeded their jurisdiction,
as well as denied due process and substantial justice to
petitioner, by not vacating and annulling the award dated
30 June 1990 of the Arbitrator, on the ground that the
Arbitrator grossly departed from the terms of the parties'
contracts and misapplied the law, and thereby exceeded
the authority and power delegated to him. (Rollo, p. 17)
Allow us to take a leaf from history and briefly trace the
evolution of arbitration as a mode of dispute settlement.
Because conflict is inherent in human society, much effort has
been expended by men and institutions in devising ways of
resolving the same. With the progress of civilization, physical
combat has been ruled out and instead, more specific means
have been evolved, such as recourse to the good offices of a
disinterested third party, whether this be a court or a private
individual or individuals.
Legal history discloses that "the early judges called upon to
solve private conflicts were primarily the arbiters, persons not
specially trained but in whose morality, probity and good sense
the parties in conflict reposed full trust. Thus, in Republican
Rome, arbiter and judge (judex) were synonymous. The
magistrate or praetor, after noting down the conflicting claims of
litigants, and clarifying the issues, referred them for decision to
a private person designated by the parties, by common
agreement, or selected by them from an apposite listing
(the album judicium) or else by having the arbiter chosen by lot.
The judges proper, as specially trained state officials endowed
with own power and jurisdiction, and taking cognizance of
litigations from beginning to end, only appeared under the
Empire, by the so-called cognitio extra ordinem." 5
Such means of referring a dispute to a third party has also long
been an accepted alternative to litigation at common law. 6
Sparse though the law and jurisprudence may be on the subject
of arbitration in the Philippines, it was nonetheless recognized in
the Spanish Civil Code; specifically, the provisions on
compromises made applicable to arbitrations under Articles
1820 and 1821. 7 Although said provisions were repealed by
implication with the repeal of the Spanish Law of Civil
Procedure, 8 these and additional ones were reinstated in the
present Civil Code. 9
Arbitration found a fertile field in the resolution of labor-
management disputes in the Philippines. Although early on,
Commonwealth Act 103 (1936) provided for compulsory
arbitration as the state policy to be administered by the Court of
Industrial Relations, in time such a modality gave way to
voluntary arbitration. While not completely supplanting
compulsory arbitration which until today is practiced by
government officials, the Industrial Peace Act which was passed
in 1953 as Republic Act No. 875, favored the policy of free
collective bargaining, in general, and resort to grievance
procedure, in particular, as the preferred mode of settling
disputes in industry. It was accepted and enunciated more
explicitly in the Labor Code, which was passed on November 1,
1974 as Presidential Decree No. 442, with the amendments later
introduced by Republic Act No. 6715 (1989).
Whether utilized in business transactions or in employer-
employee relations, arbitration was gaining wide acceptance. A
consensual process, it was preferred to orders imposed by
government upon the disputants. Moreover, court litigations
152
tended to be time-consuming, costly, and inflexible due to their
scrupulous observance of the due process of law doctrine and
their strict adherence to rules of evidence.
As early as the 1920's, this Court declared:
In the Philippines fortunately, the attitude of the courts toward
arbitration agreements is slowly crystallizing into definite and
workable form. . . . The rule now is that unless the agreement is
such as absolutely to close the doors of the courts against the
parties, which agreement would be void, the courts will look with
favor upon such amicable arrangements and will only with great
reluctance interfere to anticipate or nullify the action of the
arbitrator. 10
That there was a growing need for a law regulating arbitration in
general was acknowledged when Republic Act No. 876 (1953),
otherwise known as the Arbitration Law, was passed. "Said Act
was obviously adopted to
supplement not to supplant the New Civil Code on
arbitration. It expressly declares that "the provisions of chapters
one and two, Title XIV, Book IV of the Civil Code shall remain in
force." 11
In recognition of the pressing need for an arbitral machinery for
the early and expeditious settlement of disputes in the
construction industry, a Construction Industry Arbitration
Commission (CIAC) was created by Executive Order No. 1008,
enacted on February 4, 1985.
In practice nowadays, absent an agreement of the parties to
resolve their disputes via a particular mode, it is the regular
courts that remain the fora to resolve such matters. However,
the parties may opt for recourse to third parties, exercising their
basic freedom to "establish such stipulation, clauses, terms and
conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public
policy." 12 In such a case, resort to the arbitration process may
be spelled out by them in a contract in anticipation of disputes
that may arise between them. Or this may be stipulated in a
submission agreement when they are actually confronted by a
dispute. Whatever be the case, such recourse to an extrajudicial
means of settlement is not intended to completely deprive the
courts of jurisdiction. In fact, the early cases on arbitration
carefully spelled out the prevailing doctrine at the time, thus: ". .
. a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitrators and to them
alone is contrary to public policy and cannot oust the courts of
Jurisdiction." 13
But certainly, the stipulation to refer all future disputes to an
arbitrator or to submit an ongoing dispute to one is valid. Being
part of a contract between the parties, it is binding and
enforceable in court in case one of them neglects, fails or
refuses to arbitrate. Going a step further, in the event that they
declare their intention to refer their differences to arbitration
first before taking court action, this constitutes a condition
precedent, such that where a suit has been instituted
prematurely, the court shall suspend the same and the parties
shall be directed forthwith to proceed to arbitration. 14
A court action may likewise be proven where the arbitrator has
not been selected by the parties. 15
Under present law, may the parties who agree to submit their
disputes to arbitration further provide that the arbitrators' award
shall be final, unappealable and executory?
Article 2044 of the Civil Code recognizes the validity of such
stipulation, thus:
Any stipulation that the arbitrators' award or
decision shall be final is valid, without
prejudice to Articles 2038, 2039 and 2040.

Similarly, the Construction Industry Arbitration Law provides that
the arbitral award "shall be final and inappealable except on
questions of law which shall be appealable to the Supreme
Court." 16
Under the original Labor Code, voluntary arbitration awards or
decisions were final, unappealable and executory. "However,
voluntary arbitration awards or decisions on money claims,
involving an amount exceeding One Hundred Thousand Pesos
(P100,000.00) or forty-percent (40%) of the paid-up capital of
the respondent employer, whichever is lower, maybe appealed
to the National Labor Relations Commission on any of the
following grounds: (a) abuse of discretion; and (b) gross
incompetence." 17 It is to be noted that the appeal in the
instances cited were to be made to the National Labor Relations
Commission and not to the courts.
With the subsequent deletion of the above-cited provision from
the Labor Code, the voluntary arbitrator is now mandated to
render an award or decision within twenty (20) calendar days
from the date of submission of the dispute and such decision
shall be final and executory after ten (10) calendar days from
receipt of the copy of the award or decision by the parties. 18
Where the parties agree that the decision of the arbitrator shall
be final and unappealable as in the instant case, the pivotal
inquiry is whether subject arbitration award is indeed beyond
the ambit of the court's power of judicial review.
We rule in the negative. It is stated explicitly under Art. 2044 of
the Civil Code that the finality of the arbitrators' award is not
absolute and without exceptions. Where the conditions
described in Articles 2038, 2039 and 2040 applicable to both
compromises and arbitrations are obtaining, the arbitrators'
award may be annulled or rescinded. 19 Additionally, under
Sections 24 and 25 of the Arbitration Law, there are grounds for
vacating, modifying or rescinding an arbitrator's award. 20 Thus,
if and when the factual circumstances referred to in the above-
cited provisions are present, judicial review of the award is
properly warranted.
What if courts refuse or neglect to inquire into the factual milieu
of an arbitrator's award to determine whether it is in accordance
with law or within the scope of his authority? How may the
power of judicial review be invoked?
This is where the proper remedy is certiorari under Rule 65 of
the Revised Rules of Court. It is to be borne in mind, however,
that this action will lie only where a grave abuse of discretion or
an act without or in excess of jurisdiction on the part of the
voluntary arbitrator is clearly shown. For "the writ of certiorari is
an extra-ordinary remedy and that certiorari jurisdiction is not to
be equated with appellate jurisdiction. In a special civil action
of certiorari, the Court will not engage in a review of the facts
found nor even of the law as interpreted or applied by the
arbitrator unless the supposed errors of fact or of law are so
patent and gross and prejudicial as to amount to a grave abuse
of discretion or an exces de pouvoir on the part of the
arbitrator." 21
Even decisions of administrative agencies which are declared
"final" by law are not exempt from judicial review when so
warranted. Thus, in the case of Oceanic Bic Division (FFW), et al.
v. Flerida Ruth P. Romero, et al., 22this Court had occasion to rule
that:
. . . Inspite of statutory provisions making
"final" the decisions of certain administrative
agencies, we have taken cognizance of
petitions questioning these decisions where
want of jurisdiction, grave abuse of discretion,
violation of due process, denial of substantial
justice or erroneous interpretation of the
law were brought to our
attention . . . 23 (Emphasis ours).
153
It should be stressed, too, that voluntary arbitrators, by the
nature of their functions, act in a quasi-judicial capacity. 24 It
stands to reason, therefore, that their decisions should not be
beyond the scope of the power of judicial review of this Court.
In the case at bar, petitioners assailed the arbitral award on the
following grounds, most of which allege error on the part of the
arbitrator in granting compensation for various items which
apparently are disputed by said petitioners:
1. The Honorable Arbitrator committed grave error in failing
to apply the terms and conditions of the Construction
Agreement, Dormitory Contract and Electrical Contract, and
in using instead the "practices" in the construction industry;
2. The Honorable Arbitrator committed grave error in
granting extra compensation to Roblecor for loss of
productivity due to adverse weather conditions;
3. The Honorable Arbitrator committed grave error in
granting extra compensation to Roblecor for loss due to
delayed payment of progress billings;
4. The Honorable Arbitrator committed grave error in
granting extra compensation to Roblecor for loss of
productivity due to the cement crisis;
5. The Honorable Arbitrator committed grave error in
granting extra compensation to Roblecor for losses
allegedly sustained on account of the failed coup d'tat;
6. The Honorable Arbitrator committed grave error in
granting to Roblecor the amount representing the alleged
unpaid billings of Chung Fu;
7. The Honorable Arbitrator committed grave error in
granting to Roblecor the amount representing the alleged
extended overhead expenses;
8. The Honorable Arbitrator committed grave error in
granting to Roblecor the amount representing expenses for
change order for site development outside the area of
responsibility of Roblecor;
9. The Honorable Arbitrator committed grave error in
granting to Roblecor the cost of warehouse No. 2;
10. The Honorable Arbitrator committed grave error in
granting to Roblecor extra compensation for airduct change
in dimension;
11. The Honorable Arbitrator committed grave error in
granting to Roblecor extra compensation for airduct
plastering; and
12. The Honorable Arbitrator committed grave error in
awarding to Roblecor attorney's fees.
After closely studying the list of errors, as well as petitioners'
discussion of the same in their Motion to Remand Case For
Further Hearing and Reconsideration and Opposition to Motion
for Confirmation of Award, we find that petitioners have amply
made out a case where the voluntary arbitrator failed to apply
the terms and provisions of the Construction Agreement which
forms part of the law applicable as between the parties, thus
committing a grave abuse of discretion. Furthermore, in granting
unjustified extra compensation to respondent for several items,
he exceeded his powers all of which would have constituted
ground for vacating the award under Section 24 (d) of the
Arbitration Law.

But the respondent trial court's refusal to look into the merits of
the case, despite prima facie showing of the existence of
grounds warranting judicial review, effectively deprived
petitioners of their opportunity to prove or substantiate their
allegations. In so doing, the trial court itself committed grave
abuse of discretion. Likewise, the appellate court, in not giving
due course to the petition, committed grave abuse of discretion.
Respondent courts should not shirk from exercising their power
to review, where under the applicable laws and jurisprudence,
such power may be rightfully exercised; more so where the
objections raised against an arbitration award may properly
constitute grounds for annulling, vacating or modifying said
award under the laws on arbitration.
WHEREFORE, the petition is GRANTED. The Resolutions of the
Court of Appeals dated October 22, 1990 and December 3, 1990
as well as the Orders of respondent Regional Trial Court dated
July 31, 1990 and August 23, 1990, including the writ of
execution issued pursuant thereto, are hereby SET ASIDE.
Accordingly, this case is REMANDED to the court of origin for
further hearing on this matter. All incidents arising therefrom are
reverted to the status quo ante until such time as the trial court
shall have passed upon the merits of this case. No costs.SO
ORDERED.
THIRD DIVISIONG.R. No. 121171 December 29, 1998
ASSET PRIVATIZATION TRUST, petitioner,
vs.
COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S.
CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL
CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U.
MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock-
Holders of Marinduque Mining and Industrial
Corporation, respondents.
KAPUNAN, J.:
The petition for review on certiorari before us seeks to reverse
and set aside the decision of the Court of Appeals which denied
due course to the petition for certiorari filed by the Asset
Privatization Trust (APT) assailing the order of the Regional Trial
Court (RTC) Branch 62, Makati City. The Makati RTC's order
upheld and confirmed the award made by the Arbitration
Committee in favor of Marinduque Mining and Industrial
Corporation (MMIC) and against the Government, represented
by herein petitioner APT for damages in the amount of P2.5
BILLION (or approximately P4.5 BILLION, including interest).
Ironically, the staggering amount of damages was imposed on
the Government for exercising its legitimate right of foreclosure
as creditor against the debtor MMIC as a consequence of the
latter's failure to pay its overdue and unpaid obligation of P22
billion to the Philippine National Bank (PNB) and the
Development Bank of the Philippines (DBP).
The antecedent facts
of the case.
The development, exploration and utilization of the mineral
deposits in the Surigao Mineral Reservation have been
authorized by Republic Act No. 1528, as amended by Republic
Acts Nos. 2077 and 4167, by virtue of which laws, a
Memorandum of Agreement was drawn on July 3, 1968, whereby
the Republic of the Philippines thru the Surigao Mineral
Reservation Board, granted MMIC the exclusive right to explore,
develop and exploit nickel, cobalt and other minerals in the
Surigao mineral reservation. 1 MMIC is a domestic corporation
engaged in mining with respondent Jesus S. Cabarrus, Sr. as
President and among its original stockholders.
The Philippine Government undertook to support the financing
of MMIC by purchase of MMIC debenture bonds and extension of
guarantees. Further, the Philippine Government obtained a firm
commitment form the DBP and/or other government financing
154
institutions to subscribe in MMIC and issue guarantee/s for
foreign loans or deferred payment arrangements secured from
the US Eximbank, Asian Development Bank, Kobe Steel, of
amount not exceeding US$100 Million. 2
DBP approved guarantees in favor of MMIC and subsequent
requests for guarantees were based on the unutilized portion of
the Government commitment. Thereafter, the Government
extended accommodations to MMIC in various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust
Agreement 3 whereby MMIC, as mortgagor, agreed to constitute
a mortgage in favor or PNB and DBP as mortgagees, over all
MMIC's assets; subject of real estate and chattel mortgage
executed by the mortgagor, and additional assets described and
identified, including assets of whatever kind, nature or
description, which the mortgagor may acquire whether in
substitution of, in replenishment, or in addition thereto.
Article IV of the Mortgage Trust Agreement provides for Events
of Default, which expressly includes the event that the
MORTGAGOR shall fail to pay any amount secured by this
Mortgage Trust Agreement when due. 4
Article V of the Mortgage Trust Agreement prescribes in detail,
and in addition to the enumerated events of defaults,
circumstances by which the mortgagor may be declared in
default, the procedure therefor, waiver of period to foreclose,
authority of Trustee before, during and after foreclosure,
including taking possession of the mortgaged properties. 5
In various requests for advances/remittances of loans if huge
amounts, Deeds of Undertaking, Promissory Notes, Loan
Documents, Deeds of Real Estate Mortgages, MMIC invariably
committed to pay either on demand or under certain terms the
loans and accommodations secured from or guaranteed by both
DBP and PNB.
By 1984, DBP and PNB's financial both in loans and in equity in
MMIC had reached tremendous proportions, and MMIC was
having a difficult time meeting its financial obligations. MMIC
had an outstanding loan with DBP in the amount of
P13,792,607,565.92 as of August 31, 1984 and with PNB in the
amount of P8,789,028,249.38 as July 15, 1984 or a total
Government expose of Twenty Two Billion Six Hundred Sixty-
Eight Million Five Hundred Thirty-Seven Hundred Seventy and
05/100 (P22, 668,537,770.05), Philippine Currency. 6 Thus, a
financial restructuring plan (FRP) designed to reduce MMIC's
interest expense through debt conversion to equity was drafted
by the Sycip Gorres Velayo accounting firm. 7 On April 30, 1984,
the FRP was approved by the Board of Directors of the
MMIC. 8 However, the proposed FRP had never been formally
adopted, approved or ratified by either PNB or DBP. 9
In August and September 1984, as the various loans and
advances made by DBP and PNB to MMIC had become overdue
and since any restructuring program relative to the loans was no
longer feasible, and in compliance with the directive of
Presidential Decree No. 385, DBP and PNB as mortgagees of
MMIC assets, decided to exercise their right to extrajudicially
foreclose the mortgages in accordance with the Mortgage Trust
Agreement. 10
The foreclosed assets were sold to PNB as the lone bidder and
were assigned to three newly formed corporations, namely,
Nonoc Mining Corporation, Maricalum Mining and Industrial
Corporation, and Island Cement Corporation. In 1986, these
assets were transferred to the Asset Privatization Trust (APT). 11
On February 28, 1985, Jesus S. Cabarrus, Sr., together with the
other stockholders of MMIC, filed a derivative suit against DBP
and PNB before the RTC of Makati, Branch 62, for Annulment of
Foreclosures, Specific Performance and Damages. 12 The suit,
docketed as Civil Case No. 9900, prayed that the court: (1)
annul the foreclosures, restore the foreclosed assets to MMIC,

and require the banks to account for their use and operation in
the interim; (2) direct the banks to honor and perform their
commitments under the alleged FRP; and (3) pay moral and
exemplary damages, attorney's fees, litigation expenses and
costs.
In the course of the trial, private respondents and petitioner
APT, as successor of the DBP and the PNB's interest in MMIC,
mutually agreed to submit the case to arbitration by entering
into a "Compromise and Arbitration Agreement,"
stipulating, inter alia:
NOW THEREFORE, for and in consideration of the foregoing
premises and the mutual covenants contained herein the
parties agree as follows:
1. Withdrawal and Compromise. The parties have agreed to
withdraw their respective claims from the Trial Court and to
resolve their dispute through arbitration by praying to the
Trial Court to issue a Compromise Judgment based on this
Compromise and Arbitration Agreement.
In withdrawing their dispute from the court and in choosing
to resolve it through arbitration, the parties have agreed
that:
(a) their respective money claims shall be reduced to purely
money claims; and
(b) as successor and assignee of the PNB and DBP interests
in MMIC and the MMIC accounts, APT shall likewise succeed
to the rights and obligations of PNB and DBP in respect of the
controversy subject of Civil Case No. 9900 to be transferred
to arbitration and any arbitral award/order against either PNB
and/or DBP shall be the responsibility be discharged by and
be enforceable against APT, the parties having agreed to
drop PNB and DBP from the arbitration.
2. Submission. The parties hereby agree that (a) the
controversy in Civil Case No. 9900 shall be submitted instead
to arbitration under RA 876 and (b) the reliefs prayed for in
Civil Case No. 9900 shall, with the approval of the Trial Court
of this Compromise and Arbitration Agreement, be
transferred and reduced to pure pecuniary/money claims
with the parties waiving and foregoing all other forms of
reliefs which they prayed for or should have prayed for in
Civil Case No. 9900. 13
The Compromise and Arbitration Agreement limited the
issues to the following:
5. Issues The issues to be submitted for the Committee's
resolution shall be (a) Whether PLAINTIFFS have the capacity
or the personality to institute this derivative suit in behalf of
the MMIC or its directors, (b) Whether or not the actions
leading to, and including,. the PNB-DBP foreclosure of the
MMIC assets were proper, valid and in good
faith. 14
This agreement was presented for approval to the trial court.
On October 14, 1992, the Makati RTC, Branch 61, issued an
order, to wit:
WHEREFORE, this Court orders:
1. Substituting PNB and DBP with the Asset Privatization
Trust as party defendant.
2. Approving the Compromise and Arbitration Agreement
dated October 6, 1997, attached as Annex "C" of the
Omnibus Motion.
155
3. Approving the Transformation of the reliefs prayed for [by]
the plaintiffs in this case into pure money claims; and
15
4. The Complaint is hereby DISMISSED.
The Arbitration Committee was composed of retired Supreme
Court Justice Abraham Sarmiento as Chairman, Atty. Jose C.
Sison and former Court of Appeals Justice Magdangal Elma as
Members. On November 24, 1993, after conducting several
hearings, the Arbitration Committee rendered a majority
decision in favor of MMIC, the pertinent portions of which read
as follows:
Since, as this Committee finds, there is no foreclosure at all as
it was not legally and validly done, the Committee holds and
so declares that the loans of PNB and DBP to MMIC. for the
payment and recovery of which the void foreclosure sales
were undertaken, continue to remain outstanding and unpaid.
Defendant APT as the successor-in-interest of PNB and DBP to
the said loans is therefore entitled and retains the right, to
collect the same from MMIC pursuant to, and based on the
loan documents signed by MMIC, subject to the legal and valid
defenses that the latter may duly and seasonably interpose.
Such loans shall, however, be reduced by the amount which
APT may have realized from the sale of the seized assets of
MMIC which by agreement should no longer be returned even
if the foreclosures were found to be null and void.
The documentary evidence submitted and adopted by the
parties (Exhibits "3", "3-B"; Exhibit "100"; and also Exhibit
"ZZZ") as their exhibits would show that the total outstanding
obligation due to DBP and PNB as of the date of foreclosure is
P22,668,537,770.05, more or less.
Therefore defendant APT can, and is still entitled to, collect
the outstanding obligations of MMIC to PNB and DBP
amounting to P22,668,537,770.05, more or less, with interest
thereon as stipulated in the loan documents from the date of
foreclosure up to the time they are fully paid less the
proportionate liability of DBP as owner of 87% of the total
capitalization of MMIC under the FRP. Simply put, DBP shall
share in the award of damages to, and in the obligations of,
MMIC in proportion to its 87% equity in tile total capital stock
of MMIC.
xxx xxx xxx
As this Committee holds that the FRP is valid, DBP's equity in
MMIC is raised to 87%. So pursuant to the above provision of
the Compromise and Arbitration Agreement, the 87% equity
of DBP is hereby deducted from the actual damages of
P19,486,118,654.00 resulting in the net actual damages of
P2,531,635,425.02 plus interest.
DISPOSITION
WHEREFORE, premises considered, judgment is hereby
rendered:
1. Ordering the defendant to pay to the Marinduque Mining
and Industrial Corporation, except the DBP, the sum of
P2,531,635,425.02 with interest thereon at the legal rate of
six per cent (6%) per annum reckoned from August 3, 9, and
24, 1984, pari passu, as and for actual damages. Payment of
these actual damages shall be offset by APT from the
outstanding and unpaid loans of MMIC with DBP and PNB,
which have not been converted into equity. Should there be
any balance due to MMIC after the offsetting, the same shall
be satisfied from the funds representing the purchase price of
the sale of the shares of Island Cement Corporation in the
amount of P503,000,000.00 held under escrow pursuant to
the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it

pursuant to paragraph (9) of the Compromise and Arbitration
Agreement;
2. Ordering the defendant to pay to the Marinduque Mining
and Industrial Corporation, except the DBP, the sum of
P13,000.000.00, as and for moral and exemplary damages.
Payment of these moral and exemplary damages shall be
offset by APT from the outstanding and unpaid loans of MMIC
with DBP and PNB, which have not been converted into equity.
Should there be any balance due to MMIC after the offsetting,
the same shall be satisfied from the funds representing the
purchase price of the sale of the shares of Island Cement
Corporation in the amount of P503,000,000.00 held under
escrow pursuant to the Escrow Agreement dated April 22,
1988 or to such subsequent escrow agreement that would
supercede [sic] it pursuant to paragraph (9) of the
Compromise and Arbitration Agreement;
3. Ordering the defendant to pay to the plaintiff, Jesus S.
Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it, pursuant to
paragraph (9) of the Compromise and Arbitration Agreement,
as and for moral damages; and
4. Ordering the defendant to pay arbitration costs.
This Decision is FINAL and EXECUTORY.
16
IT IS SO ORDERED.
Motions for reconsideration were filed by both parties, but the
same were denied.
On October 17, 1993, private respondents filed in the same Civil
Case No. 9900 an "Application/Motion for Confirmation of
Arbitration Award." Petitioner countered with an "Opposition and
Motion to Vacate Judgment" raising the following grounds.
1. The plaintiffs Application/Motion is improperly filed with
this branch of the Court, considering that the said motion is
neither a part nor the continuation of the proceedings in
Civil Case No. 9900 which was dismissed upon motion of
the parties. In fact, the defendants in the said Civil Case No.
9900 were the Development Bank of the Philippines and the
Philippine National Bank (PNB);
2. Under Section 71 of Rep. Act 876, an arbitration under a
contract or submission shall be deemed a special
proceedings and a party to the controversy which was
arbitrated may apply to the court having jurisdiction, (not
necessarily with this Honorable Court) for an order
confirming the award;
3. The issues submitted for arbitration have been limited to
two: (1) propriety of the plaintiffs filing the derivative suit
and (2) the regularity of the foreclosure proceedings. The
arbitration award sought to be confirmed herein, far
exceeded the issues submitted and even granted moral
damages to one of the herein plaintiffs;
4. Under Section 24 of Rep. Act 876, the Court must make
an order vacating the award where the arbitrators exceeded
their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter
submitted to them was not made. 17
156
Private respondents filed a "REPLY AND OPPOSITION" dated
November 10, 1984, arguing that a dismissal of Civil Case No.
9900 was merely a "qualified dismissal" to pave the way for the
submission of the controversy to arbitration and operated simply
as "a mere suspension of the proceedings" They denied that the
Arbitration Committee had exceeded its powers.
In an Order dated November 28, 1993, the trial court confirmed
the award of the Arbitration Committee. The dispositive portion
of said order reads:
WHEREFORE, premises considered, and in the light of the
parties [sic] Compromise and Arbitration Agreement dated
October 6, 1992, the Decision of the Arbitration Committee
promulgated on November 24, 1993, as affirmed in a
Resolution dated July 26, 1994, and finally settled and
clarified in the Separate Opinion dated September 2, 1994 of
Committee Member Elma, and the pertinent provisions of RA
876, also known as the Arbitration Law, this Court GRANTS
PLAINTIFFS' APPLICATION AND THUS CONFIRMS THE
ARBITRATION AWARD, AND JUDGMENT IS HEREBY
RENDERED:
(a) Ordering the defendant APT to the Marinduque Mining
and Industrial Corporation (MMIC), except the DBP, the sum
of P3,811,757,425.00, as and for actual damages, which
shall be partially satisfied from the funds held under escrow
in the amount of P503,000,000.00 pursuant to the Escrow
Agreement dated April 22, 1988. The balance of the award,
after the escrow funds are fully applied, shall be executed
against the APT;
(b) Ordering the defendant to pay to the MMIC, except the
DBP, the sum of P13,000,000.00 as and for moral and
exemplary damages;
(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr.,
the sum of P10,000,000.00 as and for moral damages; and
(d) Ordering the defendant to pay the herein
plaintiffs/applicants/movants the sum of P1,705,410.23 as
arbitration costs.
In reiteration of the mandates of Stipulation No. 10 and
Stipulation No. 8 paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict of the Arbitration
Committee's decision, and with this Court's Confirmation, the
issuance of the Arbitration Committee's Award shall
henceforth be final and executory.
18
SO ORDERED.
On December 27, 1994, petitioner filed its motion for
reconsideration of the Order dated November 28, 1994. Private
respondents, in turn, submitted their reply and opposition
thereto.
On January 18, 1995, the trial court handed down its order
denying APT's motion for reconsideration for lack of merit and
for having been filed out of time. The trial court declared that
"considering that the defendant APT, through counsel, officially
and actually received a copy of the Order of this Court dated
November 28, 1994 on December 6, 1994, the Motion for
Reconsideration thereof filed by the defendant APT on
December 27, 1994, or after the lapse of 21 days, was clearly
filed beyond the 15-day reglementary period prescribed
or provided for by law for the filing of an appeal from final
orders, resolutions, awards, judgments or decisions of any court
in all cases, and by necessary implication for the filing of a
motion for reconsideration thereof."
On February 7, 1995, petitioner received private respondents'
Motion for Execution and Appointment of Custodian of Proceeds
of Execution dated February 6, 1995.

Petitioner thereafter filed with the Court of Appeals a special
civil action for certiorari with temporary restraining order and/or
preliminary injunction dated February 13, 1996 to annul and
declare as void the Orders of the RTC-Makati dated November
28, 1994 and January 18, 1995 for having been issued without
or in excess of jurisdiction and/or with grave abuse of
discretion. 19 As ground therefor, petitioner alleged that:
I PERIOD TO FILE A MOTION FOR RECONSIDERATION. 21
THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED
JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY, TO
CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE
ORIGINAL CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN
DISMISSED.
II
THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF
DISCRETION AND ACTED WITHOUT OR IN EXCESS OF
JURISDICTION, IN ISSUING THE QUESTIONED ORDERS
CONFIRMING THE ARBITRAL AWARD AND DENYING THE
MOTION FOR RECONSIDERATION OF ORDER OF AWARD.
III
THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION
AND ACTED WITHOUT OR IN EXCESS OF AND WITHOUT
JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD
TO FILE MOTION FOR RECONSIDERATION, NOT FROM THE
DATE OF SERVICE OF THE COURT'S COPY CONFIRMING THE
AWARD, BUT FROM RECEIPT OF A XEROX COPY OF WHAT
PRESUMABLY IS THE OPPOSING COUNSEL'S COPY THEREOF. 20
On July 12, 1995, he Court of Appeals, through its Fifth-Division,
denied due course and dismissed the petition for certiorari.
Hence, the instant petition for review on certiorari imputing to
the Court of Appeals the following errors:
ASSIGNMENT OF ERRORS
I over the case. It could not have validly reacquired jurisdiction
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS
PREVIOUSLY DISMISSED CIVIL CASE NO. 9900 HAD LOST
JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER
THE SAME CIVIL CASE AND NOT RULING THAT THE
APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED
AS A NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT
BRANCHES OF THE RTC.
II
THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT
PETITIONER WAS ESTOPPED FROM QUESTIONING THE
ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE
JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT THE
SAME TIME MOVED TO VACATE THE ARBITRAL AWARD.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
RESPONDENT TRIAL COURT SHOULD HAVE EITHER
DISMISSED/DENIED PRIVATE RESPONDENTS'
MOTION/PETITION FOR CONFIRMATION OF ARBITRATION
AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS OF
THE MOTION TO VACATE ARBITRAL AWARD.
IV
157
THE COURT OF APPEALS ERRED IN NOT TREATING
PETITIONER APT'S PETITION FOR CERTIORARI AS AN APPEAL
TAKEN FROM THE ORDER CONFIRMING THE AWARD.
V
THE COURT OF APPEALS ERRED IN NOT RULING ON THE
LEGAL ISSUE OF WHEN TO RECKON THE COUNTING OF THE
The petition is impressed with merit.
I
The RTC of Makati, Branch 62, did not have jurisdiction to
confirm the arbitral award.
The use of the term "dismissed" is not "a mere semantic
imperfection". The dispositive portion of the Order of the trial
court dated October 14, 1992 stated in no uncertain terms:
4. The Complaint is hereby DISMISSED. 22
The term "dismiss" has a precise definition in law. "To
dispose of an action, suit, or motion without trial on the
issues involved. Conclude, discontinue, terminate,
quash." 23
Admittedly, the correct procedure was for the parties to go back
to the court where the case was pending to have the award
confirmed by said court. However, Branch 62 made
the fatal mistake of issuing a final order dismissing the case.
While Branch 62 should have merely suspended the case and
not dismissed it, 24 neither of the parties questioned said
dismissal. Thus, both parties as well as said court are bound by
such error.
It is erroneous then to argue, as private respondents do, that
petitioner APT was charged with the knowledge that the "case
was merely stayed until arbitration finished," as again, the order
of Branch 62 in very clear terms stated that the "complaint was
dismissed." By its own action, Branch 62 had lost jurisdiction
over the said case on mere motion of one of the parties. The
Rules of Court is specific on how a new case may be initiated
and such is not done by mere motion in a particular branch of
the RTC. Consequently, as there was no "pending action" to
speak of, the petition to confirm the arbitral award should have
been filed as a new case and raffled accordingly to one of the
branches of the Regional Trial Court.
II
Petitioner was not estopped from questioning the
jurisdiction of Branch 62 of the RTC of Makati.
The Court of Appeals ruled that APT was already estopped to
question the jurisdiction of the RTC to confirm the arbitral award
because it sought affirmative relief in said court by asking that
the arbitral award be vacated.
The rule is that "Where the court itself clearly has no jurisdiction
over the subject matter or the nature of the action, the
invocation of this defense may be done at any time. It is neither
for the courts nor for the parties to violate or disregard that rule,
let alone to confer that jurisdiction this matter being legislative
in character." 25 As a rule then, neither waiver nor estoppel shall
apply to confer jurisdiction upon a court barring highly
meritorious and exceptional circumstances. 26 One such
exception was enunciated in Tijam vs. Sibonghanoy, 27 where it
was held that "after voluntarily submitting a cause and
encountering an adverse decision on the merits, it is too late for
the loser to question the jurisdiction or power of the court."

Petitioner's situation is different because from the outset, it has
consistently held the position that the RTC, Branch 62 had no
jurisdiction to confirm the arbitral award; consequently, it
cannot be said that it was estopped from questioning the RTC's
jurisdiction. Petitioner's prayer for the setting aside of the
arbitral award was not inconsistent with its disavowal of the
court's jurisdiction.
III
Appeal of petitioner to the Court of Appeals thru certiorari under
Rule 65 was proper.
The Court of Appeals in dismissing APT's petition
for certiorari upheld the trial court's denial of APT's motion for
reconsideration of the trial court's order confirming the arbitral
award, on the ground that said motion was filed beyond the 15-
day reglementary period; consequently, the petition
for certiorari could not be resorted to as substitute to the lost
right of appeal.
We do not agree.
28
Section 99 of Republic Act No. 876, provides that:
. . . 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 aforequoted provision, however, does not preclude a party
aggrieved by the arbitral award from resorting to the
extraordinary remedy of certiorari under Rule 65 of the Rules of
Court where, as in this case, the Regional Trial Court to which
the award was submitted for confirmation has acted without
jurisdiction or with grave abuse of discretion and there is no
appeal, nor any plain, speedy remedy in the course of law.
Thus, Section 1 of Rule 65 provides:
Sec 1. Petition for Certiorari: When any tribunal,
board or officer exercising judicial functions, has acted without
or in excess of its or his jurisdiction, or with grave abuse of
discretion and there is no appeal, nor any plain, speed, and
adequate remedy in the ordinary 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, as the law
requires, of such tribunal, board or officer.
In the instant case, the respondent court erred in dismissing the
special civil action for certiorari, it being clear from the
pleadings and the evidence that the trial court lacked
jurisdiction and/or committed grave abuse of discretion in taking
cognizance of private respondents' motion to confirm the
arbitral award and, worse, in confirming said award which is
grossly and patently not in accord with the arbitration
agreement, as will be hereinafter demonstrated.
IVThe nature and limits of the Arbitrators' power.
As a rule, the award of an arbitrator cannot be set aside for
mere errors of judgment either as to the law or as to the
facts. 29 Courts are without power to amend or overrule merely
because of disagreement with matters of law or facts
determined by the arbitrators. 30 They will not review the
findings of law and fact contained in an award, and will not
undertake to substitute their judgment for that of the
arbitrators, since any other rule would make an award the
commencement, not the end, of litigation. 31 Errors of law and
fact, or an erroneous decision of matters submitted to the
158
judgment of the arbitrators, are insufficient to invalidate an
award fairly and honestly made. 32 Judicial review of an
arbitration is thus, more limited than judicial review of a trial. 33
Nonetheless, the arbitrators' award is not absolute and without
exceptions. The arbitrators cannot resolve issues beyond the
scope of the submission agreement. 34 The parties to such an
agreement are bound by the arbitrators' award only to the
extent and in the manner prescribed by the contract and only if
the award is rendered in conformity thereto. 35 Thus, Sections 24
and 25 of the Arbitration Law provide grounds for vacating,
rescinding or modifying an arbitration award. Where the
conditions described in Articles 2038, 36
2039, 37 and 1040 38 of the Civil Code applicable to compromises
and arbitration are attendant, the arbitration award may also be
annulled.
39
In Chung Fu Industries (Phils.) vs. Court of Appeals, we held:
. . . . It is stated explicitly under Art. 2044 of the Civil Code that
the finality of the arbitrators' award is not absolute and without
exceptions. Where the conditions described in Articles 2038,
2039 and 2040 applicable to both compromises and arbitrations
are obtaining, the arbitrator's award may be annulled or
rescended. Additionally, under Sections 24 and 25 of the
Arbitration Law, there are grounds for vacating, modifying or
rescinding an arbitrator's award. Thus, if and when the factual
circumstances referred to the above-cited provisions are
present, judicial review of the award is properly warranted.
According, Section 20 of R.A. 876 provides:
Sec. 20. Form and contents of award. The award must be
made in writing and signed and acknowledge by a majority of
the arbitrators, if more than one; and by the sole arbitrator, if
there is only only. Each party shall be furnished with a copy of
the award. The arbitrators in their award may grant any remedy
or relief which they deem just and equitable and within the
scope of the agreement of the parties, which shall include, but
not be limited to, the specific performance of a contract.
xxx xxx xxx
The arbitrators shall have the power to decide only those
matters which have been submitted to them. The terms of the
award shall be confined to such disputes. (Emphasis ours).
xxx xxx xxx
Sec. 24 of the same law enumerating the grounds for vacating
an award states:
Sec. 24. Grounds for vacating award. In any one of the
following cases, the court must make an order vacating the
award upon the petition of any party to the controversy
when such party proves affirmatively that in the arbitration
proceeding:
(a) The award was procured by corruption, fraud, or other
undue means; or
(b) That there was evident partiality or corruption in the
arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing
to postpone the hearing upon sufficient cause shown, or in
refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was
disqualified to act as such under section nine hereof, and
willfully refrained from disclosing such disqualifications or
any other misbehavior by which the rights of any party
have been materially prejudiced; or

(d) That the arbitrators exceeded their powers, or so
imperfectly executed them, that a mutual, final and definite
award upon the subject matter submitted to them was not
made. (Emphasis ours)
xxx xxx xxx.
Section 25 which enumerates the grounds for modifying the
award provides:
Sec. 25. Grounds for modifying or correcting award In
anyone of the following cases, the court must make an
order modifying or correcting the award, upon the
application of any party to the controversy which was
arbitrated:
(a) Where there was an evident miscalculation of figures, or
an evident mistake in the description of any person, thing or
property referred to in the award; or
(b) Where the arbitrators have awarded upon a matter not
submitted to them, not affecting the merits of the decision
upon the matter submitted; or
(c) Where the award is imperfect in a matter of form not
affecting the merits of the controversy, and if it had been a
commissioner's report, the defect could have been
amended or disregarded by the court.
xxx xxx xxx
Finally, it should be stressed that while a court is precluded from
overturning an award for errors in the determination of factual
issues, nevertheless, if an examination of the record reveals no
support whatever for the arbitrators determinations, their award
must be vacated. 40 in the same manner, an award must be
vacated if it was made in "manifest disregard of the law." 41
Against the backdrop of the foregoing provisions and principles,
we find that the arbitrators came out with an award in excess of
their powers and palpably devoid of factual and legal basis.
V xxx xxx xxx
There was no financialM structuring program: foreclosure of
mortgage was fully justified.
The point need not be belabored that PNB and DBP had the
legitimate right to foreclose of the mortgages of MMIC whose
obligations were past due. The foreclosure was not a wrongful
act of the banks and, therefore, could not be the basis of any
award of damages. There was no financial restructuring
agreement to speak of that could have constituted an
impediment to the exercise of the banks' right to foreclose.
As correctly stated by Mr. Jose C. Sison, a member of the
Arbitration Committee who wrote a separate opinion:
1. The various loans and advances made by DBP and PNB to
MMIC have become overdue and remain unpaid. The fact
that a FRP was drawn up is enough to establish that MMIC
has not been complying with the terms of the loan
agreement. Restructuring simply connotes that the
obligations are past due that is why it is "restructurable";
2. When MMIC thru its board and the stockholders agreed
and adopted the FRP, it only means that MMIC had been
informed or notified that its obligations were past due and
that foreclosure is forthcoming;
3. At that stage, MMIC also knew that PNB-DBP had the
option of either approving the FRP or proceeding with the
159
foreclosure. Cabarrus, who filed this case supposedly in
behalf of MMIC should have insisted on the FRP. Yet Cabarrus
himself opposed the FRP;
4. So when PNB-DBP proceeded with the foreclosure, it was
done without bad faith but with the honest and sincere belief
that foreclosure was the only alternative; a decision further
explained by Dr. Placido Mapa who testified that foreclosure
was, in the judgment of PNB, the best move to save MMIC
itself.
Q : Now in this portion of Exh. "L" which was marked as Exh.
"L-1", and we adopted as Exh. 37-A for the respondent, may I
know from you, Dr. Mapa what you meant by "that the
decision to foreclose was neither precipitate nor arbitrary"?
A : Well, it is not a whimsical decision but rather decision
arrived at after weighty consideration of the information that
we have received, and listening to the prospects which
reported to us that what we had assumed would be the
premises of the financial rehabilitation plan was not
materialized nor expected to materialize.
Q : And this statement that "it was premised upon the known
fact" that means, it was referring to the decision to foreclose,
was premised upon the known fact that the rehabilitation
plan earlier approved by the stockholders was no longer
feasible, just what is meant "by no longer feasible"?
A : Because the revenue that they were counting on to make
the rehabilitation plan possible, was not anymore expected
to be forthcoming because it will result in a short fall
compared to the prices that were actually taking place in the
market.
Q : And I suppose that was what you were referring to when
you stated that the production targets and assumed prices of
MMIC's products, among other projections, used in the
financial reorganization program that will make it viable were
not met nor expected to be met?
A : Yes.
Which brings me to my last point in this separate opinion.
Was PNB and DBP absolutely unjustified in foreclosing the
mortgages?
In this connection, it can readily be seen and it cannot quite
be denied that MMIC accounts in PNB-DBP were past due.
The drawing up of the FRP is the best proof of this. When
MMIC adopted a restructuring program for its loan, it only
meant that these loans were already due and unpaid. If
these loans were restructurable because they were already
due and unpaid, they are likewise "forecloseable". The option
is with the PNB-DBP on what steps to take.
The mere fact that MMIC adopted the FRP does not mean
that DBP-PNB lost the option to foreclose. Neither does it
mean that the FRP is legally binding and implementable. It
must be pointed that said FRP will, in effect, supersede the
existing and past due loans of MMIC with PNB-DBP. It will
become the new loan agreement between the lenders and
the borrowers. As in all other contracts, there must therefore
be a meeting of minds of the parties; the PNB and DBP must
have to validly adopt and ratify such FRP before they can be
bound by it; before it can be implemented. In this case, not
an iota of proof has been presented by the PLAINTIFFS
showing that PNB and DBP ratified and adopted the FRP.
PLAINTIFFS simply relied on a legal doctrine of promissory
estoppel to support its allegations in this regard. 42

Moreover, PNB and DBP had to initiate foreclosure proceedings
as mandated by P.D. No. 385, which took effect on January 31,
1974. The decree requires government financial institutions to
foreclose collaterals for loans where the arrearages amount to
20% of the total outstanding obligations. The pertinent
provisions of said decree read as follow:
Sec. 1. It shall be mandatory for government financial
institutions, after the lapse of sixty (60) days from the
issuance of this Decree, to foreclose the collaterals and/or
securities for any loan, credit, accommodation, and/or
guarantees granted by them whenever the arrearages on
such account, including accrued interest and other charges,
amount to at least twenty percent (20%) of the total
outstanding obligations, including interest and other charges,
as appearing in the books of account and/or related records
of the financial institutions concerned. This shall be without
prejudice to the exercise by the government financial
institutions of such rights and/or remedies available to them
under their respective contracts with their debtors, including
the right to foreclosure on loans, credits, accommodations
and/or guarantees on which the arrearages are less than
twenty percent (20%).
Sec. 2. No restraining order temporary or permanent
injunction shall be issued by the court against any
government financial institution in any action taken by such
institution in compliance with the mandatory foreclosure
provided in Section 1 hereof, whether such restraining order,
temporary or permanent injunction is sought by the
borrower(s) or any third party or parties, except after due
hearing in which it is established by the borrower and
admitted by the government financial institution concerned
that twenty percent (20%) of the outstanding arrearages has
been paid after the filing of foreclosure proceedings.
(Emphasis supplied.)
Private respondents' thesis that the foreclosure proceedings
were null and void because of lack of publication in the
newspaper is nothing more than a mere unsubstantiated
aliegation not borne out by the evidence. In any case, a
disputable presumption exists in favor of petitioner that official
duty has been regularly performed and ordinary course of
business has been followed. 43
VI
Not only was the foreclosure rightfully exercised by the PNB and
DBP, but also, from the facts of the case, the arbitrators in
making the award went beyond the arbitration agreement.
In their complaint filed before the trial court, private respondent
Cabarrus, et al. prayed for judgment in their favor:
1. Declaring the foreclosures effected by the defendants DBP
and PNB on the assets of MMIC null and void and directing
said defendants to restore the foreclosed assets to the
possession of MMIC, to render an accounting of their use
and/or operation of said assets and to indemnify MMIC for
the loss occasioned by its dispossession or the deterioration
thereof;
2. Directing the defendants DBP and PNB to honor and
perform their commitments under the financial
reorganization plan which was approved at the annual
stockholders' meeting of MMIC on 30 April 1984;
3. Condemning the defendants DBP and PNB, jointly and
severally to pay the plaintiffs actual damages consisting of
the loss of value of their investments amounting to not less
than P80,000,000, the damnum emergens and lucrum
cessans in such amount as may be established during the
trial, moral damages in such amount as this Honorable Court
may deem just and equitable in the premises, exemplary
damages in such amount as this Honorable Court may
160
consider appropriate for the purpose of setting an example
for the public good, attorney's fees and litigation expenses in
such amounts as may be proven during the trial, and the
costs legally taxable in this litigation.
Further, plaintiffs pray for such other reliefs as may be just
and equitable in the premises. 44
Upon submission for arbitration, the Compromise and
Arbitration Agreement of the parties clearly and explicitly
defined and limited the issues to the following:
(a) whether PLAINTIFFS have the capacity or the personality
to institute this derivative suit in behalf of the MMIC or its
directors;
(b) whether or not the actions leading to, and including, the
PNB-DBP foreclosure of the MMIC assets were proper, valid
and in good faith. 45
Item No. 8 of the Agreement provides for the period by which
the Committee was to render its decision, as well as the
nature thereof:
8. Decision. The committee shall issue a decision on the
controversy not later than six (6) months from the date of its
constitution.
In the event the committee finds that PLAINTIFFS have the
personality to file this suit and the extra-judicial foreclosure
of the MMIC assets wrongful, it shall make an award in favor
of the PLAINTIFFS (excluding DBP), in an amount as may be
established or warranted by the evidence which shall be
payable in Philippine Pesos at the time of the award. Such
award shall be paid by the APT or its successor-in-interest
within sixty (60) days from the date of the award in
accordance with the provisions of par. 9 hereunder. . . . . The
PLAINTIFFS' remedies under this Section shall be in addition
to other remedies that may be available to the PLAINTIFFS,
all such remedies being cumulative and not exclusive of each
other.
On the other hand, in case the arbitration committee finds
that PLAINTIFFS have no capacity to sue and/or that the
extra-judicial foreclosure is valid and legal, it shall also make
an award in favor of APT based on the counterclaims of DBP
and PNB in an amount as may be established or warranted
by the evidence. This decision of the arbitration committee in
favor of APT shall likewise finally settle all issues regarding
the foreclosure of the MMIC assets so that the funds held in
escrow mentioned in par. 9 hereunder will thus be released
in full in favor of
APT. 46
The clear and explicit terms of the submission notwithstanding,
the Arbitration Committee clearly exceeded its powers or so
imperfectly executed them: (a) in ruling on and declaring valid
the FRP; (b) in awarding damages to MMIC which was not a
party to the derivative suit; and (c) in awarding moral damages
to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid the
proposed Financial Restructuring Program.
The Arbitration Committee went beyond its mandate and thus
acted in excess of its powers when it ruled on the validity of,
and gave effect to, the proposed FRP.
In submitting the case to arbitration, the parties had mutually
agreed to limit the issue to the "validity of the foreclosure" and
to transform the relief prayed for therein into pure money
claims.

There is absolutely no evidence that the DBP and PNB agreed,
expressly or impliedly, to the proposed FRP. It cannot be
overemphasized that a FRP, as a contract, requires the consent
of the parties thereto. 47 The contract must bind both
contracting parties. 48 Private respondents even by their own
admission recognized that the FRP had yet not been carried out
and that the loans of MMIC had not yet been converted into
equity. 49
However, the Arbitration Committee not only declared the FRP
valid and effective, but also converted the loans of MMIC into
equity raising the equity of DBP to 87%. 50
The Arbitration Committee ruled that there was "a commitment
to carry out the FRP" 51 on the ground of promissory estoppel.
Similarly, the principle of promissory estoppel applies in the
present case considering as we observed, the fact that the
government (that is, Alfredo Velayo) was the FRP's
proponent. Although the plaintiffs are agreed that the
government executed no formal agreement, the fact
remains that the DBP itself which made representations that
the FRP constituted a "way out" for MMIC. The Committee
believes that although the DBP did not formally agree
(assuming that the board and stockholders' approvals were
not formal enough), it is bound nonetheless if only for its
conspicuous representations.
Although the DBP sat in the board in a dual capacity as
holder of 36% of MMIC's equity (at that time) and as MMIC's
creditor the DBP can not validly renege on its
commitments simply because at the same time, it held
interests against the MMIC.
The fact, of course, is that as APT itself asserted, the FRP
was being "carried out" although apparently, it would
supposedly fall short of its targets. Assuming that the FRP
would fail to meet its targets, the DBP and so this
Committee holds can not, in any event, brook any denial
that it was bound to begin with, and the fact is that
adequate or not (the FRP), the government is still bound by
virtue of its acts.
The FRP, of course, did not itself promise a resounding
success, although it raised DBP's equity in MMIC to 87%. It
is not an excuse, however, for the government to deny its
commitments. 52
Atty. Sison, however, did not agree and correctly observed
that:
But the doctrine of promissory estoppel can hardly find
application here. The nearest that there can be said of any
estoppel being present in this case is the fact that the board
of MMIC was, at the time the FRP was adopted, mostly
composed of PNB and DBP representatives. But those
representatives, singly or collectively, are not themselves
PNB or DBP. They are individuals with personalities separate
and distinct from the banks they represent. PNB and DBP
have different boards with different members who may
have different decisions. It is unfair to impose upon them
the decision of the board of another company and thus pin
them down on the equitable principle of estoppel. Estoppel
is a principle based on equity and it is certainly not
equitable to apply it in this particular situation. Otherwise
the rights of entirely separate distinct and autonomous
legal entities like PNB and DBP with thousands of
stockholders will be suppressed and rendered nugatory. 53
As a rule, a corporation exercises its powers, including the
power to enter into contracts, through its board of directors.
While a corporation may appoint agents to enter into a contract
in its behalf, the agent should not exceed his authority. 54 In the
case at bar, there was no showing that the representatives of
PNB and DBP in MMIC even had the requisite authority to enter
161
into a debt-for-equity swap. And if they had such authority, there
was no showing that the banks, through their board of directors,
had ratified the FRP.
Further, how could the MMIC be entitled to a big amount of
moral damages when its credit reputation was not exactly
something to be considered sound and wholesome. Under
Article 2217 of the Civil Code, moral damages include
besmirched reputation which a corporation may possibly suffer.
A corporation whose overdue and unpaid debts to the
Government alone reached a tremendous amount of P22 Billion
Pesos cannot certainly have a solid business reputation to brag
about. As Atty. Sison in his separate opinion persuasively put it:
Besides, it is not yet a well settled jurisprudence that
corporations are entitled to moral damages. While the Supreme
Court may have awarded moral damages to a corporation for
besmirched reputation in Mambulao vs. PNB, 22 SCRA 359, such
ruling cannot find application in this case. It must be pointed out
that when the supposed wrongful act of foreclosure was done,
MMIC's credit reputation was no longer a desirable one. The
company then was already suffering from serious financial crisis
which definitely projects an image not compatible with good and
wholesome reputation. So it could not be said that there was a
"reputation" besmirched by the act of foreclosure. 55
The arbiters exceeded their
authority in awarding damages
to MMIC, which is not impleaded
as a party to the derivative suit.
Civil Case No. 9900 filed before the RTC being a derivative suit,
MMIC should have been impleaded as a party. It was not joined
as a party plaintiff or party defendant at any stage of the
proceedings. As it is, the award of damages to MMIC, which was
not a party before the Arbitration Committee, is a complete
nullity.
Settled is the doctrine that in a derivative suit, the corporation is
the real party in interest while the stockholder filing suit for the
corporation's behalf is only a nominal party. The corporation
should be included as a party in the suit.
An individual stockholder is permitted to institute a derivative
suit on behalf of the corporation wherein he holds stock in
order to protect or vindicate corporate rights, whenever the
officials of the corporation refuse to sue, or are the ones to be
sued or hold the control of the corporation. In such actions,
the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. . . . . 56
It is a condition sine qua non that the corporation be
impleaded as a party because
. . . Not only is the corporation an indispensable party, but it is
also the present rule that it must be served with process. The
reason given is that the judgment must be made binding upon
the corporation in order that the corporation may get the
benefit of the suit and may not bring a subsequent suit
against the same defendants for the same cause of action. In
other words the corporation must be joined as party because
it is its cause of action that is being litigated and because
judgment must be a res ajudicata against it. 57
The reasons given for not allowing direct individual suit are:
(1) . . . "the universally recognized doctrine that a stockholder
in a corporation has no title legal or equitable to the corporate
property; that both of these are in the corporation itself for
the benefit of the stockholders." In other words, to allow

shareholders to sue separately would conflict with the
separate corporate entity principle;
(2) . . . that the prior rights of the creditors may be prejudiced.
Thus, our Supreme Court held in the case of Evangelista v.
Santos, that "the stockholders may not directly claim those
damages for themselves for that would result in the
appropriation by, and the distribution among them of part of
the corporate assets before the dissolution of the corporation
and the liquidation of its debts and liabilities, something which
cannot be legally done in view of section 16 of the
Corporation Law . . .;
(3) the filing of such suits would conflict with the duty of the
management to sue for the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in a ascertaining the effect of
partial recovery by an individual on the damages recoverable
by the corporation for the same act. 58
If at all an award was due MMIC, which it was not, the same
should have been given sans deduction, regardless of whether
or not the party liable had equity in the corporation, in view of
the doctrine that a corporation has a personality separate and
distinct from its individual stockholders or members. DBP's
alleged equity, even if it were indeed 87%, did not give it
ownership over any corporate property, including the monetary
award, its right over said corporate property being a mere
expectancy or inchoate right. 59 Notably, the stipulation even
had the effect of prejudicing the other creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding
moral damages to Jesus Cabarrus, Sr.
It is perplexing how the Arbitration Committee can in one breath
rule that the case before it is a derivative suit, in which the
aggrieved party or the real party in interest is supposedly the
MMIC, and at the same time award moral damages to an
individual stockholder, to wit:
WHEREFORE, premises considered, judgment
is hereby rendered:
xxx xxx xxx
3. Ordering the defendant to pay to the plaintiff, Jesus S.
Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent
escrow agreement that would supersede it, pursuant to
paragraph (9), Compromise and Arbitration Agreement, as and
for moral damages; . . . 60
The majority decision of the Arbitration Committee sought to
justify its award of moral damages to Jesus S. Cabarrus, Sr. by
pointing to the fact that among the assets seized by the
government were assets belonging to Industrial Enterprise Inc.
(IEI), of which Cabarrus is the majority stockholder. It then
acknowledged that Cabarrus had already recovered said assets
in the RTC, but that "he won no more than actual damages.
While the Committee cannot possibly speak for the RTC, there is
no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on
account of that specific foreclosure, damages the Committee
believes and so holds, he, Jesus S. Cabarrus, Sr., may be
awarded in this proceeding." 61
Cabarrus cause of action for the seizure of the assets belonging
to IEI, of which he is the majority stockholder, having been
ventilated in a complaint he previously filed with the RTC, from
which he obtained actual damages, he was barred by res
judicata from filing a similar case in another court, this time
162
asking for moral damages which he failed to get from the earlier
case. 62 Worse, private respondents violated the rule against
non-forum shopping.
It is a basic postulate that a corporation has a personality
separate and distinct from its stockholders. 63 The properties
foreclosed belonged to MMIC, not to its stockholders. Hence, if
wrong was committed in the foreclosure, it was done against the
corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot
directly claim those damages for himself that would result in the
appropriation by, and the distribution to, him part of the
corporation's assets before the dissolution of the corporation
and the liquidation of its debts and liabilities. The Arbitration
Committee, therefore, passed upon matters nor submitted to it.
Moreover, said cause of action had already been decided in a
separate case. It is thus quite patent that the arbitration
committee exceeded the authority granted to it by the parties'
Compromise and Arbitration Agreement by awarding moral
damages to Jesus S. Cabarrus, Sr.
Atty. Sison, in his separate opinion, likewise expressed
befuddlement to the award of moral damages to Jesus S.
Cabarrus, Sr.:
It is clear and it cannot be disputed therefore that based
on these stipulated issues, the parties themselves
have agreed that the basic ingredient of the causes of
action in this case is the wrong committed on the
corporation (MMIC) for the alleged illegal foreclosure of its
assets. By agreeing to this
stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit
that the cause of action pertains only to the corporation
(MMIC) and that they are filing this for and in behalf of
MMIC.
Perforce this has to be so because it is the basic rule in
Corporation Law that "the shareholders have no title, legal
or equitable to the property which is owned by the
corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil.
83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373,
the rule has been reiterated that "a stockholder is not the
co-owner of corporate property." Since the property or
assets foreclosed belongs [sic] to MMIC, the wrong
committed, if any, is done against the corporation. There
is therefore no direct injury or direct violation of the rights
of Cabarrus et al. There is no way, legal or equitable, by
which Cabarrus et al. could recover damages in their
personal capacities even assuming or just because the
foreclosure is improper or invalid. The Compromise and
Arbitration Agreement itself and the elementary principles
of Corporation Law say so. Therefore, I am constrained to
dissent from the award of moral damages to Cabarrus. 64
From the foregoing discussions, it is evident that, not only did
the arbitration committee exceed its powers or so imperfectly
execute them, but also, its findings and conclusions are palpably
devoid of any factual basis, and in manifest disregard of the law.
We do not find it necessary to remand this case to the RTC for
appropriate action. The pleadings and memoranda filed with this
Court, as well as in the Court of Appeals, raised and extensively
discussed the issues on the merits. Such being the case, there is
sufficient basis for us to resolve the controversy between the
parties anchored on the records and the pleadings before us. 65
WHEREFORE, the Decision of the Court of Appeals dated July 17,
1995, as well as the Orders of the Regional Trial Court of Makati,
Branch 62, dated November 28, 1994 and January 19, 1995, is
hereby REVERSED and SET ASIDE, and the decision of the
Arbitration Committee is hereby VACATED.SO ORDERED.
SECOND DIVISIONG.R. No. 196723 August 28,
2013

ASIAN CONSTRUCTION AND DEVELOPMENT
CORPORATION, Petitioner,
vs.
SUMITOMO CORPORATION, Respondent.
PERLAS-BERNABE, J.:
Before the Court are consolidated petitions for review on
certiorari which assail separate issuances of the Court of
Appeals (C A) in relation to the partial and final awards rendered
by the Construction Industry Arbitration Commission's (CIAC)
Arbitral Tribunal (Arbitral Tribunal) in CIAC Case No. 28-2008.
In particular, the petition in G.R. No. 196723 1 filed by Asian
Construction and Development Corporation (Asian Construction)
seeks to annul and set aside the CAs Resolutions dated July 23,
20102 and April 18, 20113 in CA-G.R. SP No. 112127 which
dismissed its appeal from the Arbitral Tribunals Partial
Award4 dated December 15, 2009 (Partial Award) on the ground
of forum shopping; while the petition in G.R. No. 196728 5 filed
by Sumitomo Corporation (Sumitomo) seeks to annul and set
aside the CAs Decision6 dated January 26, 2011 and
Resolution7dated April 29, 2011 in CA-G.R. SP No. 113828 which
modified the Arbitral Tribunals Final Award 8 dated March 17,
2010 (Final Award) by way of deleting the award of attorneys
fees in Sumitomos favor.
The Facts
On March 15, 1996, Asian Construction entered into a Civil Work
Agreement9 (Agreement) with Sumitomo for the construction of
a portion of the Light Rail Transit System along the Epifanio
Delos Santos Avenue, specifically, from Shaw Boulevard,
Mandaluyong City to Taft Avenue, Pasay City for a total cost of
US$19,982,000.00 (Project).10 The said Agreement provides that
the "validity, interpretation, enforceability, and performance of
the same shall be governed by and construed in accordance
with the law of the State of New York, U.S.A. (New York State
Law), without regard to, or legal effect of, the conflicts of law
provisions thereof"11 and that any dispute, controversy or claim
arising therefrom "shall be solely and finally settled by
arbitration."12
In May 1996, Sumitomo paid Asian Construction the amount of
US$2,997,300.00 as advance payment to be recovered in
accordance with the terms of the Agreement. Later, an
additional advance payment of US$1,998,200.00 was made in
October 1997.13 In all, Asian Construction received from
Sumitomo the amount of US$9,731,606.62, inclusive of the
advance payments (before withholding tax of US$97,308.44). 14
On September 1, 1998, Sumitomo informed Asian Construction
that it was terminating the Agreement effective September 5,
1998 due to the following reasons: (a) Asian Constructions
failure "to perform and complete the civil work for Notice to
Proceed issued construction areas within the duration of the
Time Schedule in the Contract Specification of Civil and
Architectural Works (Station No. 8 to Station No. 13) x x x"; (b)
Asian Constructions failure to "provide adequate traffic
management as required in the Scope of Works pursuant to
subparagraph 5.2.4 of the Contract Specification of Civil and
Architectural Work"; and (c) Asian Constructions failure to "pay
the suppliers of certain materials and equipment used in the
construction of the Project in violation of paragraph 3.1.3, Article
3 of the Agreement." 15 In view of the foregoing, Sumitomo
requested Asian Construction to "make the necessary
arrangements for the proper turnover of the Project x x
x."16 Asian Construction, however, claimed that the
accomplishments under Progress Billing No. (PB) 01817 dated
June 10, 1998 and PB 019 18 dated July 6, 1998, as well as other
various claims, were still left unpaid. 19 Hence, on December 22,
1998, it sent Sumitomo a letter, 20 demanding payment of the
total amount of US$6,371,530.89. This was followed by several
correspondences between the parties through 1999 to 2007 but
no settlement was achieved.21
163
The Proceedings Before the Arbitral Tribunal
On September 2, 2008, Asian Construction filed a
complaint22 with the CIAC, docketed as CIAC Case No. 28-2008,
seeking payment for its alleged losses and reimbursements
amounting to US$9,501,413.13, plus attorneys fees in the
amount of P2,000,000.00.23 As a matter of course, an Arbitral
Tribunal was constituted, with Alfredo F. Tadiar being designated
as Chairman, and Salvador P. Castro and Jesse B. Grove as
Members.24
For its part, Sumitomo filed a Motion to Dismiss,25 questioning
the CIACs jurisdiction over the dispute on the ground that the
arbitration should proceed in accordance with the Commercial
Arbitration Rules of Japan.26 However, the aforesaid motion was
denied.27 As such, Sumitomo filed an Answer,28 reiterating the
CIACs alleged lack of jurisdiction and further asserting that the
claim was already time-barred. It added that had Asian
Construction discharged its obligations under the Agreement to
itemize and justify its claims, the same could have been
amicably settled years ago. In this respect, it made a
counterclaim for the unutilized portion of the advance
payments, attorneys fees and costs of litigation in the amount
of at least P10,000,000.00.29
Subsequently, the parties signed a TOR,30 stipulating the
admitted facts and defining the issues to be determined in the
arbitration proceedings.
On December 15, 2009, the Arbitral Tribunal rendered the Partial
Award31 which affirmed its jurisdiction over the dispute but held
that the parties were bound by their Agreement that the
substantive New York State Law shall apply in the resolution of
the issues.32 It proceeded to dismiss both the claims and
counterclaims of the parties on the ground that these had
already prescribed under New York State Laws six-year statute
of limitations33 and ruled that, in any case, were it to resolve the
same on the merits, "it would not produce an affirmative
recovery for the claimant." 34
Aggrieved, Asian Construction filed before the CA, on January 5,
2010, a Rule 43 Petition for Review,35 docketed as CA-G.R. SP
No. 112127 (First CA Petition), seeking the reversal of the Partial
Award.
Meanwhile, notwithstanding its dismissal of the claims and
counterclaims, the Arbitral Tribunal further directed the parties
to itemize their respective claims for costs and attorneys fees
and to submit factual proof and legal bases for their entitlement
thereto.36 Pursuant to this directive, Sumitomo submitted
evidence to prove the costs it had incurred and paid as a result
of the arbitration proceedings.37 Asian Construction, on the other
hand, did not present any statement or document to
substantiate its claims but, instead, submitted an
Opposition38 dated March 8, 2010 (opposition) to Sumitomos
claim for costs. The Arbitral Tribunal did not act upon the
opposition because it was treated, in effect, as a motion for
reconsideration which was prohibited under the CIAC Revised
Rules of Procedure Governing Construction Arbitration (CIAC
Revised Rules).39
On March 17, 2010, the Arbitral Tribunal rendered the Final
Award40 which granted Sumitomos claim for attorneys fees in
the amount of US$200,000.00. It held that while the filing of the
arbitration suit cannot be regarded as "clearly unfounded"
because of the two progress billings that were left unpaid, Asian
Constructions disregard of the Agreement to have the dispute
resolved in accordance with New York State Law had forced
Sumitomo to incur attorneys fees in order to defend its
interest.41 It further noted that if Asian Construction had
accepted the settlement offered by Sumitomo, then, the
arbitration proceedings would have even been aborted.42On the
other hand, a similar claim for attorneys fees made by Asian
Construction was denied by reason of the latters failure to
submit, as directed, proof of its entitlement thereto. 43 As to the

matter of costs, the Arbitral Tribunal declared Sumitomo relieved
from sharing pro-rata in the arbitration costs and, consequently,
directed Asian Construction to shoulder the same costs in full
and reimburse Sumitomo the amount of P849,532.45. However,
it ordered Sumitomo to bear all the expenses related to the
appointment of the foreign arbitrator considering that such
service was secured upon its own initiative and without the
participation and consent of Asian Construction.44
Dissatisfied with the Arbitral Tribunals ruling, Asian Construction
filed another Rule 43 Petition for Review45before the CA, on May
3, 2010, docketed as CA-G.R. SP No. 113828 (Second CA
Petition), this time, to set aside the Final Award. In this light, it
claimed gross negligence and partiality on the part of the
Arbitral Tribunal and asserted, inter alia, that, apart from being a
non-arbitrable issue, an award of attorneys fees would be
premature since the prevailing party can only be determined
when the case is decided with finality. Moreover, it maintained
that both claims of Asian Construction and the counterclaims of
Sumitomo had already been dismissed for being time-barred. 46
The CA Ruling
On July 23, 2010, the CA rendered a Resolution 47 (July 23, 2010
Resolution), dismissing Asian Constructions First CA Petition
against the Partial Award on the ground of forum-shopping, after
it was shown that: (a) the aforesaid petition was filed while the
arbitration case was still pending final resolution before the
Arbitral Tribunal; and (b) Asian Constructions opposition to
Sumitomos claim for costs filed before the Arbitral Tribunal had,
in fact, effectively sought for the same relief and stated the
same allegations as those in its First CA Petition. The CA also
noted Asian Constructions premature resort to a petition for
review because what was sought to be nullified was not a final
award, but only a partial one. The CA eventually denied Asian
Constructions motion for reconsideration in a Resolution 48 dated
April 18, 2011. Hence, Asian Constructions petition before the
Court, docketed as G.R. No. 196723.
Meanwhile, the CA gave due course to Asian Constructions
Second CA Petition assailing the Final Award and rendered a
Decision49 on January 26, 2011, upholding the Arbitral Tribunals
ruling except the award of attorneys fees in favor of Sumitomo.
The CA held that the fact that Asian Construction initiated an
action or refused to compromise its claims cannot be considered
unjustified or made in bad faith as to entitle Sumitomo to the
aforesaid award. Consequently, Sumitomo moved for
reconsideration,50 asserting that Asian Constructions Second CA
Petition should have instead been dismissed in its entirety
considering their Agreement that the Arbitral Tribunals
decisions and awards would be final and non-appealable.
However, in a Resolution51 dated April 29, 2011, the CA denied
the motion for reconsideration. Thus, Sumitomos petition before
the Court, docketed as G.R. No. 196728.
The Issues Before the Court
The essential issues for the Courts resolution are as follows: (a)
in G.R. No. 196723, whether or not the CA erred in dismissing
Asian Constructions First CA Petition on the ground of forum
shopping; and (b) in G.R. No. 196728, whether or not the CA
erred in reviewing and modifying the Final Award which
Sumitomo insists to be final and unappealable.
The Courts Ruling
The petitions should be denied.
A. Dismissal of Asian
Constructions First CA
Petition; forum shopping.
164
Forum shopping is the act of a litigant who repetitively availed
of several judicial remedies in different courts, simultaneously or
successively, all substantially founded on the same transactions
and the same essential facts and circumstances, and all raising
substantially the same issues, either pending in or already
resolved adversely by some other court, to increase his chances
of obtaining a favorable decision if not in one court, then in
another. More particularly, forum shopping can be committed in
three ways, namely: (a) by filing multiple cases based on the
same cause of action and with the same prayer, the previous
case not having been resolved yet (where the ground for
dismissal is litis pendentia); (b) by filing multiple cases based on
the same cause of action and with the same prayer, the
previous case having been finally resolved (where the ground for
dismissal is res judicata); and (c) by filing multiple cases based
on the same cause of action but with different prayers (splitting
of causes of action, where the ground for dismissal is also either
litis pendentia or res judicata). 52 Forum shopping is treated as an
act of malpractice and, in this accord, constitutes a ground for
the summary dismissal of the actions involved. 53 To be sure, the
rule against forum shopping seeks to prevent the vexation
brought upon the courts and the litigants by a party who asks
different courts to rule on the same or related causes and grant
the same or substantially the same reliefs and in the process
creates the possibility of conflicting decisions being rendered by
the different fora upon the same issues.54
In this case, the Court finds that the CA committed no reversible
error in dismissing Asian Constructions First CA Petition on the
ground of forum shopping since the relief sought (i.e., the
reconsideration of the Partial Award) and the allegations stated
therein are identical to its opposition to Sumitomos claim for
costs filed before the Arbitral Tribunal while CIAC Case No. 28-
2008 was still pending. These circumstances clearly square with
the first kind of forum shopping which thereby impels the
dismissal of the First CA Petition on the ground of litis pendentia.
On this score, it is apt to point out that Asian Constructions
argument that it merely complied with the directive of the
Arbitral Tribunal cannot be given any credence since it (as well
as Sumitomo) was only directed to submit evidence to prove the
costs it had incurred and paid as a result of the arbitration
proceedings. However, at variance with the tribunals directive,
Asian Construction, in its opposition to Sumitomos claim for
costs, proceeded to seek the reversal of the Partial Award in the
same manner as its First CA Petition. It cannot, therefore, be
doubted that it treaded the course of forum shopping,
warranting the dismissal of the aforesaid petition.
In any case, the Court observes that the First CA Petition
remains dismissible since the CIAC Revised Rules provides for
the resort to the remedy of a petition for review only against a
final arbitral award,55 and not a partial award, as in this case.
In fine, the Court upholds the CAs dismissal of Asian
Constructions petition in CA-G.R. SP No. 112127 (First CA
Petition) and based on this, denies its petition in G.R. No.
196723.
B. Review and modification of the Final Award.
Sumitomo Corporation faults the CA for reviewing and modifying
a final and non-appealable arbitral award and insists that the
Asian Constructions Second CA Petition should have been,
instead, dismissed outright. It mainly argues that by entering
into stipulations in the arbitration clause which provides that
"the order or award of the arbitrators will be the sole and
exclusive remedy between the parties regarding any and all
claims and counterclaims with respect to the matter of the
arbitrated dispute"56 and that "the order or award rendered in
connection with an arbitration shall be final and binding upon
the parties,"57 Asian Construction effectively waived any and all
appeals from the Arbitral Tribunals decision or award.
Sumitomos argument is untenable.

A brief exegesis on the development of the procedural rules
governing CIAC cases clearly shows that a final award rendered
by the Arbitral Tribunal is not absolutely insulated from judicial
review.
To begin, Executive Order No. (EO) 1008, 58 which vests upon the
CIAC original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties
involved in construction in the Philippines, plainly states that the
arbitral award "shall be final and inappealable except on
questions of law which shall be appealable to the Court." 59 Later,
however, the Court, in Revised Administrative Circular (RAC) No.
1-95,60 modified this rule, directing that the appeals from the
arbitral award of the CIAC be first brought to the CA on
"questions of fact, law or mixed questions of fact and law." This
amendment was eventually transposed into the present CIAC
Revised Rules which direct that "a petition for review from a final
award may be taken by any of the parties within fifteen (15)
days from receipt thereof in accordance with the provisions of
Rule 43 of the Rules of Court." 61 Notably, the current provision is
in harmony with the Courts pronouncement that "despite
statutory provisions making the decisions of certain
administrative agencies final, the Court still takes cognizance
of petitions showing want of jurisdiction, grave abuse of
discretion, violation of due process, denial of substantial justice
or erroneous interpretation of the law" and that, in particular,
"voluntary arbitrators, by the nature of their functions, act in a
quasi-judicial capacity, such that their decisions are within the
scope of judicial review."62
In this case, the Court finds that the CA correctly reviewed and
modified the Arbitral Tribunals Final Award insofar as the award
of attorneys fees in favor of Sumitomo is concerned since the
same arose from an erroneous interpretation of the law.1wphi1
To elucidate, jurisprudence dictates that in the absence of a
governing stipulation, attorneys fees may be awarded only in
case the plaintiff's action or defendant's stand is so untenable
as to amount to gross and evident bad faith. 63 This is embodied
in Article 2208 of the Civil Code which states:
Article 2208. In the absence of stipulation, attorney's fees and
expenses of litigation, other than judicial costs, cannot be
recovered, except:
xxxx
(5) Where the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff's64 plainly valid, just and
demandable claim;
xxxx
In this case, the parties agreed that reasonable attorneys fees
shall be paid by the defaulting party if it fails to perform any of
its obligations under the Agreement or by the party not
prevailing, if any dispute concerning the meaning and
interpretation thereto arises.65 However, since the parties
respective claims under the Agreement had already prescribed
pursuant to New York State Law, considering as well that the
dispute was not regarding the meaning or construction of any
provision under the Agreement,66 their stipulation on attorneys
fees should remain inoperative. Therefore, discounting the
application of the foregoing stipulation, the Court proceeds to
examine the matter under the lens of bad faith pursuant to the
above-discussed rules on attorneys fees.
After a careful scrutiny of the records, the Court observes that
there was no gross and evident bad faith on the part of Asian
Construction in filing its complaint against Sumitomo since it
was merely seeking payment of its unpaid works done pursuant
to the Agreement. Neither can its subsequent refusal to accept
Sumitomos offered compromise be classified as a badge of bad
faith since it was within its right to either accept or reject the
same owing to its contractual nature.67 Verily, absent any other
165
just or equitable reason to rule otherwise, 68 these incidents are
clearly off-tangent with a finding of gross and evident bad faith
which altogether negates Sumitomos entitlement to attorneys
fees.
Hence, finding the CAs review of the Final Award and its
consequent deletion of the award of attorneys fees to be
proper, the Court similarly denies Sumitomos petition in G.R.
No. 196728.
WHEREFORE, the petitions are DENIED. The Resolutions dated
July 23, 2010 and April 18, 2011 of the Court of Appeals in CA-
G.R. SP No. 112127, as well as its Decision dated January 26,
2011 and Resolution dated April 29, 2011 in CA-G.R. SP No.
113828 are hereby AFFIRMED.SO ORDERED.
FIRST DIVISION G.R. No. 169332 February 11, 2008
ABS-CBN BROADCASTING CORPORATION,Petitioner, - v e r
s u s - WORLD INTERACTIVENETWORK SYSTEMS
(WINS)JAPAN CO., LTD.,Respondent.
x-----------------------------------------
---------x
CORONA, J.:
This petition for review on certiorari under Rule 45 of the Rules
of Court seeks to set aside the February 16, 2005 decision [1] and
August 16, 2005 resolution[2] of the Court of Appeals (CA) in CA-
G.R. SP No. 81940.
On September 27, 1999, petitioner ABS-CBN Broadcasting
Corporation entered into a licensing agreement with respondent
World Interactive Network Systems (WINS) Japan Co., Ltd., a
foreign corporation licensed under the laws of Japan. Under the
agreement, respondent was granted the exclusive license to
distribute and sublicense the distribution of the television
service known as The Filipino Channel (TFC) in Japan. By virtue
thereof, petitioner undertook to transmit the TFC programming
signals to respondent which the latter received through its
decoders and distributed to its subscribers.
A dispute arose between the parties when petitioner accused
respondent of inserting nine episodes of WINS WEEKLY, a weekly
35-minute community news program for Filipinos in Japan, into
the TFC programming from March to May 2002. [3] Petitioner
claimed that these were unauthorized insertions constituting a
material breach of their agreement. Consequently, on May 9,
2002,[4] petitioner notified respondent of its intention to
terminate the agreement effective June 10, 2002.
Thereafter, respondent filed an arbitration suit pursuant to the
arbitration clause of its agreement with petitioner. It contended
that the airing of WINS WEEKLY was made with petitioner's prior
approval. It also alleged that petitioner only threatened to
terminate their agreement because it wanted to renegotiate the
terms thereof to allow it to demand higher fees. Respondent
also prayed for damages for petitioner's alleged grant of an
exclusive distribution license to another entity, NHK (Japan
Broadcasting Corporation).[5]
The parties appointed Professor Alfredo F. Tadiar to act as sole
arbitrator. They stipulated on the following issues in their terms
of reference (TOR)[6]:
1. Was the broadcast of WINS WEEKLY by the
claimant duly authorized by the respondent
[herein petitioner]?
2. Did such broadcast constitute a material
breach of the agreement that is a ground for
termination of the agreement in accordance
with Section 13 (a) thereof?
3. If so, was the breach seasonably cured under
the same contractual provision of Section 13
(a)?
4. Which party is entitled to the payment of
damages they claim and to the other reliefs
prayed for?

xxx xxx xxx
The arbitrator found in favor of respondent.[7] He held that
petitioner gave its approval to respondent for the airing of WINS
WEEKLY as shown by a series of written exchanges between the
parties. He also ruled that, had there really been a material
breach of the agreement, petitioner should have terminated the
same instead of sending a mere notice to terminate said
agreement. The arbitrator found that petitioner threatened to
terminate the agreement due to its desire to compel respondent
to re-negotiate the terms thereof for higher fees. He further
stated that even if respondent committed a breach of the
agreement, the same was seasonably cured. He then allowed
respondent to recover temperate damages, attorney's fees and
one-half of the amount it paid as arbitrator's fee.
Petitioner filed in the CA a petition for review under Rule 43 of
the Rules of Court or, in the alternative, a petition for certiorari
under Rule 65 of the same Rules, with application for temporary
restraining order and writ of preliminary injunction. It was
docketed as CA-G.R. SP No. 81940. It alleged serious errors of
fact and law and/or grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of the arbitrator.
Respondent, on the other hand, filed a petition for confirmation
of arbitral award before the Regional Trial Court (RTC) of Quezon
City, Branch 93, docketed as Civil Case No. Q-04-51822.
Consequently, petitioner filed a supplemental petition in the CA
seeking to enjoin the RTC of Quezon City from further
proceeding with the hearing of respondent's petition for
confirmation of arbitral award. After the petition was admitted
by the appellate court, the RTC of Quezon City issued an order
holding in abeyance any further action on respondent's petition
as the assailed decision of the arbitrator had already become
the subject of an appeal in the CA. Respondent filed a motion for
reconsideration but no resolution has been issued by the lower
court to date.[8]
On February 16, 2005, the CA rendered the assailed decision
dismissing ABS-CBNs petition for lack of jurisdiction. It stated
that as the TOR itself provided that the arbitrator's decision shall
be final and unappealable and that no motion for
reconsideration shall be filed, then the petition for review must
fail. It ruled that it is the RTC which has jurisdiction over
questions relating to arbitration. It held that the only instance it
can exercise jurisdiction over an arbitral award is an appeal from
the trial court's decision confirming, vacating or modifying the
arbitral award. It further stated that a petition for certiorari
under Rule 65 of the Rules of Court is proper in arbitration cases
only if the courts refuse or neglect to inquire into the facts of an
arbitrator's award. The dispositive portion of the CA decision
read:
WHEREFORE, the instant petition is
hereby DISMISSED for lack of jurisdiction. The
application for a writ of injunction and temporary
restraining order is likewise DENIED. The Regional Trial
Court of Quezon City Branch 93 is directed to proceed
with the trial for the Petition for Confirmation of Arbitral
Award.
SO ORDERED.
Petitioner moved for reconsideration. The same was denied.
Hence, this petition.
Petitioner contends that the CA, in effect, ruled that: (a) it
should have first filed a petition to vacate the award in the RTC
and only in case of denial could it elevate the matter to the CA
via a petition for review under Rule 43 and (b) the assailed
decision implied that an aggrieved party to an arbitral award
does not have the option of directly filing a petition for review
under Rule 43 or a petition for certiorari under Rule 65 with the
CA even if the issues raised pertain to errors of fact and law or
grave abuse of discretion, as the case may be, and not
dependent upon such grounds as enumerated under Section 24
(petition to vacate an arbitral award) of RA 876 (the Arbitration
Law). Petitioner alleged serious error on the part of the CA.
166
The issue before us is whether or not an aggrieved
party in a voluntary arbitration dispute may avail of, directly in
the CA, a petition for review under Rule 43 or a petition for
certiorari under Rule 65 of the Rules of Court, instead of filing a
petition to vacate the award in the RTC when the grounds
invoked to overturn the arbitrators decision are other than those
for a petition to vacate an arbitral award enumerated under RA
876.
RA 876 itself mandates that it is the Court of First
Instance, now the RTC, which has jurisdiction over questions
relating to arbitration,[9] such as a petition to vacate an arbitral
award.
Section 24 of RA 876 provides for the specific grounds for a
petition to vacate an award made by an arbitrator:
Sec. 24. Grounds for vacating award. - In any one of
the following cases, the court must make an
order vacating the award upon the petition of any
party to the controversy when such party proves
affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or
other undue means; or
(b) That there was evident partiality or corruption in the
arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in
refusing to postpone the hearing upon sufficient cause
shown, or in refusing to hear evidence pertinent and
material to the controversy; that one or more of the
arbitrators was disqualified to act as such under section
nine hereof, and willfully refrained from disclosing such
disqualifications or of any other misbehavior by which
the rights of any party have been materially prejudiced;
or
(d) That the arbitrators exceeded their powers, or so
imperfectly executed them, that a mutual, final and
definite award upon the subject matter submitted to
them was not made.
Based on the foregoing provisions, the law itself clearly
provides that the RTC must issue an order vacating an arbitral
award only in any one of the . . . cases enumerated therein.
Under the legal maxim in statutory construction expressio unius
est exclusio alterius, the explicit mention of one thing in a
statute means the elimination of others not specifically
mentioned. As RA 876 did not expressly provide for errors of fact
and/or law and grave abuse of discretion (proper grounds for a
petition for review under Rule 43 and a petition for certiorari
under Rule 65, respectively) as grounds for maintaining a
petition to vacate an arbitral award in the RTC, it necessarily
follows that a party may not avail of the latter remedy on the
grounds of errors of fact and/or law or grave abuse of discretion
to overturn an arbitral award.
Adamson v. Court of Appeals [10] gave ample warning that a
petition to vacate filed in the RTC which is not based on the
grounds enumerated in Section 24 of RA 876 should be
dismissed. In that case, the trial court vacated the arbitral award
seemingly based on grounds included in Section 24 of RA 876
but a closer reading thereof revealed otherwise. On appeal, the
CA reversed the decision of the trial court and affirmed the
arbitral award. In affirming the CA, we held:
The Court of Appeals, in reversing the trial court's
decision held that the nullification of the decision of the
Arbitration Committee was not based on the grounds
provided by the Arbitration Law and that xxx private
respondents (petitioners herein) have failed to
substantiate with any evidence their claim of partiality.
Significantly, even as respondent judge ruled against
the arbitrator's award, he could not find fault with their
impartiality and integrity. Evidently, the nullification
of the award rendered at the case at bar was not
made on the basis of any of the grounds
provided by law.
xxx xxx xxx

It is clear, therefore, that the award was vacated
not because of evident partiality of the
arbitrators but because the latter interpreted the
contract in a way which was not favorable to herein
petitioners and because it considered that herein
private respondents, by submitting the controversy to
arbitration, was seeking to renege on its obligations
under the contract.
xxx xxx xxx
It is clear then that the Court of Appeals reversed
the trial court not because the latter reviewed the
arbitration award involved herein, but because the
respondent appellate court found that the trial
court had no legal basis for vacating the
award. (Emphasis supplied).
In cases not falling under any of the aforementioned grounds to
vacate an award, the Court has already made several
pronouncements that a petition for review under Rule 43 or a
petition for certiorari under Rule 65 may be availed of in the CA.
Which one would depend on the grounds relied upon by
petitioner.
In Luzon Development Bank v. Association of Luzon
Development Bank Employees,[11] the Court held that a
voluntary arbitrator is properly classified as a quasi-judicial
instrumentality and is, thus, within the ambit of Section 9 (3) of
the Judiciary Reorganization Act, as amended. Under this
section, the Court of Appeals shall exercise:
xxx xxx xxx
(3) Exclusive appellate jurisdiction over all
final judgments, decisions, resolutions, orders or
awards of Regional Trial Courts and quasi-judicial
agencies, instrumentalities, boards or commissions,
including the Securities and Exchange Commission, the
Employees Compensation Commission and the Civil
Service Commission, except those falling within the
appellate jurisdiction of the Supreme Court in
accordance with the Constitution, the Labor Code of the
Philippines under Presidential Decree No. 442, as
amended, the provisions of this Act and of
subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17
of the Judiciary Act of 1948. (Emphasis supplied)
As such, decisions handed down by voluntary arbitrators fall
within the exclusive appellate jurisdiction of the CA. This
decision was taken into consideration in approving Section 1 of
Rule 43 of the Rules of Court.[12] Thus:
SECTION 1. Scope. - This Rule shall apply to appeals
from judgments or final orders of the Court of Tax
Appeals and from awards, judgments, final orders or
resolutions of or authorized by any quasi-judicial
agency in the exercise of its quasi-judicial functions.
Among these agencies are the Civil Service
Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Office of the
President, Land Registration Authority, Social Security
Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National
Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department
of Agrarian Reform under Republic Act Number 6657,
Government Service Insurance System, Employees
Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction
Industry Arbitration Commission, and voluntary
arbitrators authorized by law. (Emphasis supplied)
This rule was cited in Sevilla Trading Company v. Semana,
[13]
Manila Midtown Hotel v. Borromeo,[14] and Nippon Paint
Employees Union-Olalia v. Court of Appeals.[15] These cases held
that the proper remedy from the adverse decision of a voluntary
arbitrator, if errors of fact and/or law are raised, is a petition for
review under Rule 43 of the Rules of Court. Thus, petitioner's
167
contention that it may avail of a petition for review under Rule
43 under the circumstances of this case is correct.
As to petitioner's arguments that a petition for certiorari under
Rule 65 may also be resorted to, we hold the same to be in
accordance with the Constitution and jurisprudence.
Section 1 of Article VIII of the 1987 Constitution provides that:
SECTION 1. The judicial power shall be vested in one
Supreme Court and in such lower courts as may be
established by law.
Judicial power includes the duty of the courts of
justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to
determine whether or not there has been a grave
abuse of discretion amounting to lack or excess
of jurisdiction on the part of any branch or
instrumentality of the Government. (Emphasis
supplied)
As may be gleaned from the above stated provision, it is well
within the power and jurisdiction of the Court to inquire whether
any instrumentality of the Government, such as a voluntary
arbitrator, has gravely abused its discretion in the exercise of its
functions and prerogatives. Any agreement stipulating that the
decision of the arbitrator shall be final and unappealable and
that no further judicial recourse if either party disagrees with the
whole or any part of the arbitrator's award may be availed of
cannot be held to preclude in proper cases the power of judicial
review which is inherent in courts. [16] We will not hesitate to
review a voluntary arbitrator's award where there is a showing
of grave abuse of authority or discretion and such is properly
raised in a petition for certiorari [17] and there is no appeal, nor
any plain, speedy remedy in the course of law. [18]
Significantly, Insular Savings Bank v. Far East Bank and
Trust Company[19] definitively outlined several judicial remedies
an aggrieved party to an arbitral award may undertake:
(1) a petition in the proper RTC to issue an
order to vacate the award on the grounds
provided for in Section 24 of RA 876;
(2) a petition for review in the CA under Rule
43 of the Rules of Court on questions of fact,
of law, or mixed questions of fact and law; and
(3) a petition for certiorari under Rule 65 of the
Rules of Court should the arbitrator have acted
without or in excess of his jurisdiction or with
grave abuse of discretion amounting to lack or
excess of jurisdiction.
Nevertheless, although petitioners position on the judicial
remedies available to it was correct, we sustain the dismissal of
its petition by the CA. The remedy petitioner availed of,
entitled alternative petition for review under Rule 43 or petition
for certiorari under Rule 65, was wrong.
Time and again, we have ruled that the remedies of appeal and
certiorari are mutually exclusive and not alternative or
successive.[20]
Proper issues that may be raised in a petition for review under
Rule 43 pertain to errors of fact, law or mixed questions of fact
and law.[21] While a petition for certiorari under Rule 65 should
only limit itself to errors of jurisdiction, that is, grave abuse of
discretion amounting to a lack or excess of jurisdiction.
[22]
Moreover, it cannot be availed of where appeal is the proper
remedy or as a substitute for a lapsed appeal. [23]
In the case at bar, the questions raised by petitioner in
its alternative petition before the CA were the following:
A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR
AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING
THAT THE BROADCAST OF WINS WEEKLY WAS DULY
AUTHORIZED BY ABS-CBN.
B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR
AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING
THAT THE UNAUTHORIZED BROADCAST DID NOT
CONSTITUTE MATERIAL BREACH OF THE AGREEMENT.
C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR
AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING
THAT WINS SEASONABLY CURED THE BREACH.

D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR
AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING
THAT TEMPERATE DAMAGES IN THE AMOUNT
OF P1,166,955.00 MAY BE AWARDED TO WINS.
E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR
AND/OR GRAVELY ABUSED HIS DISCRETION IN
AWARDING ATTORNEY'S FEES IN THE UNREASONABLE
AMOUNT AND UNCONSCIONABLE AMOUNT
OF P850,000.00.
F. THE ERROR COMMITTED BY THE SOLE ARBITRATOR IS
NOT A SIMPLE ERROR OF JUDGMENT OR ABUSE OF
DISCRETION. IT IS GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION.
A careful reading of the assigned errors reveals that the real
issues calling for the CA's resolution were less the alleged grave
abuse of discretion exercised by the arbitrator and more about
the arbitrators appreciation of the issues and evidence
presented by the parties. Therefore, the issues clearly fall under
the classification of errors of fact and law questions which may
be passed upon by the CA via a petition for review under Rule
43. Petitioner cleverly crafted its assignment of errors in such a
way as to straddle both judicial remedies, that is, by alleging
serious errors of fact and law (in which case a petition for review
under Rule 43 would be proper) and grave abuse of discretion
(because of which a petition for certiorari under Rule 65 would
be permissible).
It must be emphasized that every lawyer should be familiar with
the distinctions between the two remedies for it is not the duty
of the courts to determine under which rule the
petition should fall.[24] Petitioner's ploy was fatal to its
cause. An appeal taken either to this Court or the CA by the
wrong or inappropriate mode shall be dismissed. [25] Thus,
the alternative petition filed in the CA, being an inappropriate
mode of appeal, should have been dismissed outright by the CA.
WHEREFORE, the petition is hereby DENIED. The February 16,
2005 decision and August 16, 2005 resolution of the Court of
Appeals in CA-G.R. SP No. 81940 directing the Regional Trial
Court of Quezon City, Branch 93 to proceed with the trial of the
petition for confirmation of arbitral award is AFFIRMED.
Costs against petitioner.
SO ORDERED.
SECOND DIVISION October 23, 2009 G.R. No. 179537
PHILIPPINE ECONOMIC ZONE AUTHORITY,Petitioner-
versus -EDISON (BATAAN) COGENERATION CORPORATION,
Respondent.
CARPIO MORALES, J.:
Petitioner Philippine Economic Zone Authority (PEZA)
and Edison (Bataan) Cogeneration Corporation (respondent)
entered into a Power Supply and Purchase Agreement (PSPA or
agreement) for a 10-year period effective October 25, 1997
whereby respondent undertook to construct, operate, and
maintain a power plant which would sell, supply and deliver
electricity to PEZA for resale to business locators in the Bataan
Economic Processing Zone.
In the course of the discharge of its obligation,
respondent requested from PEZA a tariff increase with a
mechanism for adjustment of the cost of fuel and lubricating oil,
which request it reiterated on March 5, 2004.
PEZA did not respond to both requests, however,
drawing respondent to write PEZA on May 3, 2004. Citing a tariff
increase which PEZA granted to the East Asia Utilities
Corporation (EAUC), another supplier of electricity in the Mactan
Economic Zone, respondent informed PEZA of a violation of its
obligation under Clause 4.9 of the PSPA not to give preferential
treatment to other power suppliers.
After the lapse of 90 days, respondent terminated the
PSPA, invoking its right thereunder, and
demanded P708,691,543.00 as pre-termination fee. PEZA
disputed respondents right to terminate the agreement and
refused to pay the pre-termination fee, prompting respondent to
request PEZA to submit the dispute to arbitration pursuant to
the arbitration clause of the PSPA.
168
Petitioner refused to submit to arbitration, however,
prompting respondent to file a Complaint[1] against PEZA for
specific performance before the Regional Trial Court (RTC)
of Pasay, alleging that, inter alia:
xxxx
4. Under Clauses 14.1 and 14.2 of the Agreement, the
dispute shall be resolved through arbitration before an
Arbitration Committee composed of one representative of
each party and a third member who shall be mutually
acceptable to the parties: x x x
xxx
5. Conformably with the Agreement, plaintiff notified
defendant in a letter dated September 6, 2004 requesting
that the parties submit their dispute to arbitration. In a
letter dated September 8, 2004, which defendant received
on the same date, defendant unjustifiably refused to
comply with the request for arbitration, in violation of its
undertaking under the Agreement. Defendant likewise
refused to nominate its representative to the Arbitration
Committee as required by the Agreement.
6. Under Section 8 of Republic Act No. 876 (1953),
otherwise known as the Arbitration Law, (a) if either party
to the contract fails or refuses to name his arbitrator within
15 days after receipt of the demand for arbitration; or (b) if
the arbitrators appointed by each party to the contract, or
appointed by one party to the contract and by the proper
court, shall fail to agree upon or to select the third
arbitrator, then this Honorable Court shall appoint
the arbitrator or arbitrators.[2] (Emphasis and
underscoring supplied)
Respondent accordingly prayed for judgment
x x x (a) designating (i) an arbitrator to represent
defendant; and (ii) the third arbitrator who shall act as
Chairman of the Arbitration Committee; and (b) referring
the attached Request for Arbitration to the Arbitration
Committee to commence the arbitration.[3]
and for other just and equitable reliefs.
In its Answer,[4] PEZA (hereafter petitioner):
ADMIT[TED] the allegations in paragraphs 1, 2, 3, 4,
and 6 of the complaint, with the qualification that the
alleged dispute subject of the plaintiffs Request for
Arbitration dated October 20, 2004 is not an arbitrable
issue, considering that the provision on pre-termination
fee in the Power Sales and Purchase Agreement (PSPA),
is gravely onerous, unconscionable, greatly
disadvantageous to the government, against public policy
and therefore invalid and unenforceable.
ADMIT[TED] the allegation in paragraph 5 of the
complaint with the qualification that the refusal of the
defendant to arbitrate is justified considering that
the provision on the pre-termination fee subject of the
plaintiffs Request for Arbitration is invalid and
unenforceable.Moreover, the pre-termination of the PSPA
is whimsical, has no valid basis and in violation of the
provisions thereof, constituting breach of contract on the
part of the plaintiff.[5] (Emphasis and underscoring
supplied)
Xxxx
Respondent thereafter filed a Reply and Motion to
Render Judgment on the Pleadings,[6] contending that since
petitioner
x x x does not challenge the fact that (a) there
is a dispute between the parties; (b) the dispute must
be resolved through arbitration before a three-member
arbitration committee; and (c) defendant refused to
submit the dispute to arbitration by naming its
representative in the arbitration committee,

judgment may be rendered directing the appointment of the two
other members to complete the composition of the arbitration
committee that will resolve the dispute of the parties.[7]
By Order of April 5, 2005, Branch 118 of the Pasay City
RTC granted respondents Motion to Render Judgment on the
Pleadings, disposing as follows:
WHEREFORE, all the foregoing considered, this
Court hereby renders judgment in favor of the plaintiff
and against the defendant. Pursuant to Section 8 of RA
876, also known as the Arbitration Law, and Power
Sales and Purchase Agreement, this Court
hereby appoints, subject to their agreement as
arbitrators, retired Supreme Court Chief Justice Andres
Narvasa, as chairman of the committee, and retired
Supreme Court Justices Hugo Gutierrez, and Justice Jose
Y. Feria, as defendants and plaintiffs representative,
respectively, to the arbitration
committee. Accordingly, let the Request for Arbitration
be immediately referred to the Arbitration Committee
so that it can commence with the arbitration.
SO ORDERED.[8] (Underscoring supplied)
On appeal,[9] the Court of Appeals, by Decision of April
10, 2007, affirmed the RTC Order.[10] Its Motion for
Reconsideration[11] having been denied,[12] petitioner filed the
present Petition for Review on Certiorari,[13]faulting the appellate
court
I pre-termination fee clause is not arbitrable, citing Gonzales v.
. . . WHEN IT DISMISSED PETITIONERS APPEAL AND
AFFIRMED THE 05 APRIL 2004 ORDER OF THE TRIAL
COURT WHICH RENDERED JUDGMENT ON THE
PLEADINGS, DESPITE THE FACT THAT PETITIONERS
ANSWER TENDERED AN ISSUE.
II
. . . WHEN IT AFFIRMED THE ORDER OF THE TRIAL
COURT WHICH REFERRED RESPONDENTS REQUEST
FOR ARBITRATION DESPITE THE FACT THAT THE ISSUE
PRESENTED BY THE RESPONDENT IS NOT AN
ARBITRABLE ISSUE.[14] (Underscoring supplied)
The petition fails.
The dispute raised by respondent calls for a proceeding
under Section 6 of Republic Act No. 876, AN ACT TO AUTHORIZE
THE MAKING OF ARBITRATION AND SUBMISSION AGREEMENTS,
TO PROVIDE FOR THE APPOINTMENT OF ARBITRATORS AND THE
PROCEDURE FOR ARBITRATION IN CIVIL CONTROVERSIES, AND
FOR OTHER PURPOSES which reads:
SECTION 6. Hearing by court. A party aggrieved by the failure,
neglect or refusal of another to perform under an agreement in
writing providing for arbitration may petition the court for an
order directing that such arbitration proceed in the manner
provided for in such agreement. Five days notice in writing of
the hearing of such application shall be served either personally
or by registered mail upon the party in default. The court shall
hear the parties, and upon being satisfied that the making of the
agreement or such failure to comply therewith is not in issue,
shall make an order directing the parties to proceed to
arbitration in accordance with the terms of the agreement. If the
making of the agreement or default be in issue the court shall
proceed to summarily hear such issue. If the finding be that no
agreement in writing providing for arbitration was made, or that
there is no default in the proceeding thereunder, the proceeding
shall be dismissed. If the finding be that a written provision for
arbitration was made and there is a default in proceeding
thereunder, an order shall be made summarily directing the
parties to proceed with the arbitration in accordance with the
terms thereof.
x x x x (Underscoring supplied)
169
R.A. No. 876 explicitly confines the courts authority
only to the determination of whether or not there is an
agreement in writing providing for arbitration.[15] Given
petitioners admission of the material allegations of respondents
complaint including the existence of a written agreement to
resolve disputes through arbitration, the assailed appellate
courts affirmance of the trial courts grant of respondents Motion
for Judgment on the Pleadings is in order.
Petitioner argues that it tendered an issue in its Answer
as it disputed the legality of the pre-termination fee clause of
the PSPA. Even assuming arguendo that the clause is illegal, it
would not affect the agreement between petitioner and
respondent to resolve their dispute by arbitration.
The doctrine of separability, or severability as
other writers call it, enunciates that an arbitration
agreement is independent of the main contract. The
arbitration agreement is to be treated as a separate
agreement and the arbitration agreement does not
automatically terminate when the contract of which it is
a part comes to an end.
The separability of the arbitration agreement
is especially significant to the determination of whether
the invalidity of the main contract also nullifies the
arbitration clause. Indeed, the doctrine denotes that
the invalidity of the main contract, also referred to as
the container contract, does not affect the validity of
the arbitration agreement.Irrespective of the fact that
the main contract is invalid, the arbitration
clause/agreement still remains valid and enforceable.
[16]
(Emphasis in the original; underscoring supplied)
Petitioner nevertheless contends that the legality of the
Climax Mining Ltd. [17] which declared that the therein
complaint should be brought before the regular courts, and not
before an arbitral tribunal, as it involved a judicial issue. Held
the Court:
We agree that the case should not be brought
under the ambit of the Arbitration Law xxx. The
question of validity of the contract containing the
agreement to submit to arbitration will affect the
applicability of the arbitration clause itself. A party
cannot rely on the contract and claim rights or
obligations under it and at the same time impugn its
existence or validity. Indeed, litigants are enjoined from
taking inconsistent positions. As previously discussed,
the complaint should have been filed before the regular
courts as it involved issues which are judicial in nature.
[18]
The ruling in Gonzales was, on motion for reconsideration filed
by the parties, modified, however, in this wise:
x x x The adjudication of the petition in G.R.
No. 167994 effectively modifies part of the Decision
dated 28 February 2005 in G.R. No. 161957. Hence,
we now hold that the validity of the
contract containing the agreement to submit to
arbitration does not affect the applicability of the
arbitration clause itself. A contrary ruling would
suggest that a partys mere repudiation of the main
contract is sufficient to avoid arbitration. That is exactly
the situation that the separability doctrine, as well as
jurisprudence applying it, seeks to avoid. We add that
when it was declared in G.R. No. 161957 that the
case should not be brought for arbitration, it should be
clarified that the case referred to is the case actually
filed by Gonzales before the DENR Panel of Arbitrators,
which was for the nullification of the main
contract on the ground of fraud, as it had already
been determined that the case should have been
brought before the regular courts involving as it did
judicial issues.[19] (Emphasis and underscoring supplied)
It bears noting that respondent does not seek to nullify
the main contract. It merely submits these issues for resolution
by the arbitration committee, viz:

a. Whether or not the interest of Claimant in
the project or its economic return in its
investment was materially reduced as a result
of any laws or regulations of the Philippine
Government or any agency or body under its
control;
b. Whether or not the parties failed to reach
an agreement on the amendments to the
Agreement within 90 days from notice to
respondent on May 3, 2004 of the material
reduction in claimants economic return under
the Agreement;
c. Whether or not as a result of (a) and (b)
above, Claimant is entitled to terminate the
Agreement;
d. Whether or not Respondent accorded
preferential treatment to EAUC in violation of
the Agreement;
e. Whether or not as a result of (d) above,
Claimant is entitled to terminate the
Agreement;
f. Whether or not Claimant is entitled to a
termination fee equivalent to
P708,691,543.00; and
g. Who between Claimant and Respondent
shall bear the cost and expenses of the
arbitration, including arbitrators fees,
administrative expenses and legal fees.[20]
In fine, the issues raised by respondent are subject to
arbitration in accordance with the arbitration clause in the
parties agreement.
WHEREFORE, the petition is DENIED.SO ORDERED.
THIRD DIVISION September 8, 2010 G.R. No. 177240
PRUDENTIAL GUARANTEE AND ASSURANCE INC.,Petitioner, -
versus -
ANSCOR LAND, INC.,Respondent.
VILLARAMA, JR., J.:
This petition for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, as amended, assails the
[1]
Decision dated April 28, 2006 of the Court of Appeals (CA) in
CA-G.R. SP No. 72854 which modified the
Decision[2] promulgated on September 2, 2002 by the
Construction Industry Arbitration Commission (CIAC) to the
effect that herein petitioner Prudential Guarantee and Assurance
Inc. (PGAI) was declared solidarily liable with its principal Kraft
Realty and Development Corporation (KRDC) under the
performance bond.
The facts follow.
On August 2, 2000, Anscor Land, Inc. (ALI) and KRDC
entered into a Construction Contract [3] for the construction of an
8-unit townhouse (project) located in Capitol Hills, Quezon City.
Under the contract, KRDC was to build and complete
the project within 275 continuous calendar days from the date of
receipt of a notice to proceed for the consideration
of P18,800,000.00.
As part of its undertaking, KRDC submitted a surety
bond amounting to P4,500,000.00 to secure the reimbursement
of the down payment paid by ALI in case of failure to finish the
project and a performance bond amounting to P4,700,000.00 to
guarantee the supply of labor, materials, tools, equipment, and
necessary supervision to complete the project. The said bonds
were issued in favor of ALI by herein petitioner PGAI.
170
Under the Performance Bond,[4] the parties agreed on
a time-bar provision which states:
Furthermore, it is hereby agreed and understood that
PRUDENTIAL GUARANTEE AND ASSURANCE INC., shall
not be liable for any claim not discovered and
presented to the company within ten days from the
expiration of this bond or from the occurrence of the
default or failure of the principal, whichever is the
earliest, and that the obligee hereby waives his right to
file any claim against the Surety after the termination
of the period of ten days above mentioned after which
time this bond shall definitely terminate and be
deemed absolutely cancelled.
KRDC then received a notice to proceed on November
24, 1999. On October 16, 2000 or 325 days after KRDC received
the notice to proceed, and 50 days beyond the contract date of
completion, ALI sent PGAI a letter [5] notifying the latter that the
contract with KRDC was terminated due to very serious
delays. The letter also informed PGAI that ALI may be making
claims against the said bonds.
KRDC, through a letter on October 20, 2000, asked ALI
to reconsider its decision to terminate the contract and
requested that it be allowed to continue with the
project. On October 27, 2000, ALI replied [6] with regrets that it
stands by its earlier decision to terminate the construction
contract.
Through a letter[7] dated November 29, 2001, or
exactly one (1) year after the expiration date in the performance
bond, ALI reiterated its claim against the performance bond
issued by PGAI amounting to P3,852,800.84. PGAI however did
not respond to the letter.
On February 7, 2002, ALI commenced arbitration
proceedings against KRDC and PGAI in the CIAC.PGAI answered
with cross-claim contending that it was not a party to the
construction contract and that the claim of ALI against the
bonds was filed beyond the expiration period.
On September 2, 2002, the CIAC rendered
judgment[8] awarding a total of P7,552,632.74 to ALI and a total
of P1,292,487.81 to KRDC. CIAC also allowed the offsetting of
the awards to both parties which resulted to a net amount due
to ALI of P6,260,144.93 to be paid by KRDC. Meanwhile, the
CIAC found PGAI liable for the reimbursement of the
unliquidated portion of the down payment as a solidary liability
under the surety bond in the amount of P1,771,264.06.[9]
In the same judgment, the CIAC absolved PGAI from a
claim against the performance bond. It reasoned that ALI
belatedly filed its claim on the performance bond. The CIAC
accepted the view that the November 29, 2001 letter of ALI to
PGAI was the first and only claim on the performance bond,
which was filed unquestionably beyond the allowed period for
filing claims under the contract.
The CIAC ruled that the October 16, 2000 letter of ALI
to PGAI did not constitute a proper claim under the performance
bond. In so ruling, the CIAC relied on the tenor of the letter
which used the phrase may be making claims against the said
bonds. The CIAC interpreted this phrase as tentative at best and
far from a positive claim against PGAI. According to the CIAC,
the letter merely informed PGAI of the termination of the
construction contract between ALI and KRDC and in no sense did
such letter present a valid claim against the performance bond
issued by PGAI.
ALI then filed a petition for review on October 3,
2002[10] with the CA questioning the decision of the CIAC to
release PGAI from its solidary liability on the performance bond.

The CA found the petition meritorious in its questioned
Decision[11] dated April 28, 2006, to wit:
WHEREFORE, the petition is GRANTED. The
decretal portion of the decision is MODIFIED to the
effect that PGAI is hereby pronounced solidarily liable
with KRDC under the performance bond.
SO ORDERED.[12]
Petitioner PGAI now comes to this Court to seek relief.
Petitioner argues that the CIAC had no jurisdiction over
the dispute as regards the claim of ALI against the performance
bond because petitioner was not a party to the construction
contract. It maintains that Executive Order (EO) No. 1008 [13] did
not vest jurisdiction on the CIAC to settle disputes between a
party to a construction contract on one hand and a non-party on
the other.
The petitioner contends that CIACs jurisdiction was
limited to the construction industry and cannot extend to surety
or guarantee contracts. By reason of the lack of jurisdiction of
the CIAC over the dispute, the September 2,
2002 judgment[14] of the CIAC was void with regard to the
liability of PGAI.
As to the award made by the CIAC on ALIs claims,
petitioner maintains that it cannot be held liable under the
performance bond because clearly, under the time-bar
provision in the said bond, the claim made by ALI in its letter to
PGAI dated November 29, 2001 was submitted one (1) year
late. Petitioner points out that such letter was the first and only
definite claim that ALI made against the performance bond and
unfortunately, it was filed beyond the allowed period. Hence, the
Decision of the CA declaring PGAI solidarily liable with KRDC
under the performance bond is erroneous and should be struck
down.
On the other hand, respondent avers that the
construction contract itself provided that the performance and
surety bond shall be deemed part of the construction contract,
to wit:
Article 1
CONTRACT DOCUMENTS
1.1 The following shall form part of this Contract and
together with this Contract, are known as the
Contract Documents:
a. Bid Proposal
xxxx
d. Notice to proceed
xxxx
j. Appendices A & B (respectively, Surety Bond
for Performance and, Supply of Materials by
the Developer)[15]
By reason of this express provision in the construction
contract, respondent maintains that petitioner PGAI became a
party to such contract when it submitted its Surety and
Performance bonds. Consequently, petitioners argument that
CIAC has not acquired jurisdiction over PGAI because the latter
was not a party to the construction contract, is untenable.
As to the alleged lack of jurisdiction of CIAC over the
dispute arising from the surety contract, respondent cites EO
No. 1008, which provides that any dispute connected with a
construction contract comes within the original and exclusive
jurisdiction of the CIAC. The surety bond being an integral part
of the construction contract, it is necessarily connected thereto
which brings it under the jurisdiction of the CIAC.
171
On the issue of timeliness of the claim, respondent
insists that its letter dated October 16, 2000 was for all intents
and purposes a notification of termination of the construction
contract and at the same time a notice to petitioner that
respondent is in fact making a claim on the performance
bond. Contrary to PGAIs view that the November 29, 2001 letter
was the first and only claim made, respondent asserts that the
said letter was merely a reiteration of its earlier October 16,
2000 claim.
In fine, there are two (2) main issues for this Court to
resolve, to wit:
I.
Whether or not the CIAC had jurisdiction over the
dispute.
II.
Whether or not the respondent made its claim on the
performance bond within the period allowed by
the time-bar provision.
First Issue Jurisdiction of the CIAC
Section 4 of EO No. 1008 defines the jurisdiction of the
CIAC:
Sec. 4. Jurisdiction. The CIAC shall have original and exclusive
jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in
the Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or
breach thereof. These disputes may involve government or
private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to
voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to
violation of specifications for materials and workmanship;
violation of the terms of agreement; interpretation and/or
application of contractual time and delays; maintenance and
defects; payment, default of employer or contractor and
changes in contract cost.
Excluded from the coverage of this law are disputes arising
from employer-employee relationships which shall continue
to be covered by the Labor Code of the Philippines. (Italics
supplied.)
EO No. 1008 expressly vests in the CIAC original and
exclusive jurisdiction over disputes arising from or connected
with construction contracts entered into by parties that have
agreed to submit their dispute to voluntary arbitration. Under
the aforequoted provision, it is apparent that a dispute must
meet two (2) requirements in order to fall under the jurisdiction
of the CIAC: first, the dispute must be somehow connected to a
construction contract; and second, the parties must have agreed
to submit the dispute to arbitration proceedings.
As regards the first requirement, the Performance Bond
issued by the petitioner was meant to guarantee the supply of
labor, materials, tools, equipment, and necessary supervision to
complete the project. A guarantee or a surety contract under
Article 2047[16] of the Civil Code of the Philippines is an
accessory contract because it is dependent for its existence
upon the principal obligation guaranteed by it.[17]
In fact, the primary and only reason behind the
acquisition of the performance bond by KRDC was to guarantee
to ALI that the construction project would proceed in accordance
with the contract terms and conditions. In effect, the
performance bond becomes liable for the completion of the
construction project in the event KRDC fails in its contractual
undertaking.
Because of the performance bond, the construction
contract between ALI and KRDC is guaranteed to be performed
even if KRDC fails in its obligation. In practice, a performance
bond is usually a condition or a necessary component of
construction contracts. In the case at bar, the performance bond

was so connected with the construction contract that the former
was agreed by the parties to be a condition for the latter to push
through and at the same time, the former is reliant on the latter
for its existence as an accessory contract.
Although not the construction contract itself, the
performance bond is deemed as an associate of the main
construction contract that it cannot be separated or severed
from its principal. The Performance Bond is significantly and
substantially connected to the construction contract that there
can be no doubt it is the CIAC, under Section 4 of EO No. 1008,
which has jurisdiction over any dispute arising from or
connected with it.
On the second requirement that the parties to a dispute
must have previously agreed to submit to arbitration, it is clear
from Article 24 of the Construction Contract itself that the
parties have indeed agreed to submit their disputes to
arbitration, to wit:
Article 24
DISPUTES AND ARBITRATION
All disputes, controversies, or differences between the
parties arising out of or in connection with this
Contract, or arising out of or in connection with the
execution of the WORK shall be settled in accordance
with the procedures laid down by the Construction
Industry Arbitration Commission. The cost of arbitration
shall be borne jointly by both CONTRACTOR and
DEVELOPER on a fifty-fifty (50-50) basis.[18]
Petitioner however argues that such provision in the
construction contract does not bind it because it is not a party to
such contract and in effect did not give its consent to submit to
arbitration in case of any dispute on the performance
bond. Such argument is untenable. The Performance Bond
issued by petitioner states that PGAI agreed --
To guarantee the supply of labor, materials, tools,
equipment and necessary supervision to complete the
construction of Proposed Sigma Townhouses of the
Obligee as per Notice to Proceed dated November 23,
1999, copy of which is hereto attached and made an
integral part of this bond.[19]
When it executed the performance bond, PGAIs
undertaking thereunder was that of a surety to the obligation of
KRDC, the principal under the construction contract. PGAI should
not be allowed now to insist that it had nothing to do with the
construction contract and should be viewed as a non-party.
Since the liability of petitioner as surety is solidary with that of
KRDC, it was properly impleaded as it would be the party
ultimately answerable under the bond should KRDC be adjudged
liable for breach of contract. Furthermore, it is well settled that
accessory contracts should not be read independently of the
main contract. They should be construed together in order to
arrive at their true meaning.[20] In Velasquez v. Court of Appeals,
[21]
the Court labeled such rule as the complementary contracts
construed together doctrine. It states:
That the complementary contracts construed together
doctrine applies in this case finds support in the
principle that the surety contract is merely an
accessory contract and must be interpreted with its
principal contract, which in this case was the loan
agreement. This doctrine closely adheres to the spirit of
Art. 1374 of the Civil Code which states that
Art. 1374. The various stipulations of a
contract shall be interpreted together,
attributing to the doubtful ones that sense
which may result from all of them taken jointly.
In the case at bar, the performance bond was silent with regard
to arbitration. On the other hand, the construction contract was
clear as to arbitration in the event of disputes. Applying the said
doctrine, we rule that the silence of the accessory contract in
this case could only be construed as acquiescence to the main
172
contract. The construction contract breathes life into the
performance bond. We are not ready to assume that the
performance bond contains reservations with regard to some of
the terms and conditions in the construction contract where in
fact it is silent.On the other hand, it is more reasonable to
assume that the party who issued the performance bond
carefully and meticulously studied the construction contract that
it guaranteed, and if it had reservations, it would have and
should have mentioned them in the surety contract.
Second Issue Petitioners Liability Under the Performance
Bond
On the second issue, the crux of the controversy revolves upon
a letter dated October 16, 2000 sent by ALI to PGAI. It reads:
xxxx
This pertains to the contract between Kraft Realty
Development Corp. and Anscor Land, Inc., which is
covered by surety and performance bonds by your
good company.
Please be advised that we are now terminating the
contract of Kraft due to the breach by Kraft of the
terms and conditions of the construction contract. More
specifically, the project has accumulated very serious
delays, in spite of the full cooperation that this
company has extended to Kraft.
Kindly refer to the attached letter of termination
dated 16 October 2000.
Anscor Land [Inc.] may be making claims against the
said bonds and in this regard, kindly coordinate with
the following for any matter with which we can assist
you with.
Engr. Teodelito de Vera
Anscor Land, Inc.
Tel. 812-7941 to 48 Fax 813-5301
Thank you for your kind attention.[22] (Italics supplied.)
The question really is whether or not the foregoing letter
constituted a valid claim and effectively complied with the time-
bar provision in the performance bond.
It is clear that ALI communicated two (2) important points to PGAI
in the letter. First, that ALI is terminating the construction contract
with KRDC and second, that ALI may be making a claim on the
bonds issued by PGAI.
The time-bar provision in the Performance Bond provides that
any claim against the bond should be discovered and presented
to the company within ten days from the expiration of this bond
or from the occurrence of the default or failure of the principal,
whichever is the earliest. The purpose of this provision in the
performance bond is to give the issuer, in this case PGAI, notice
of the claim at the earliest possible time and to afford the issuer
sufficient time to evaluate, and examine the validity of the claim
while the evidence or indicators of breach are fresh. In the
construction industry, time is precious, delay costs money and
postponement in making a claim could cause additional
expenses.
In line with the rationale behind the time-bar provision, we rule
that the letter dated October 16, 2000 was a sufficient
claim. The tenor of the letter adequately put PGAI on notice that
ALI has terminated the contract because of serious delays
tantamount to breach by KRDC of its obligations. The letter
timely informed PGAI that ALI was in fact terminating the
construction contract and thereby giving rise to the obligation of
PGAI under the performance bond. PGAI was informed within
the time-bar provision and had all the opportunity to conduct its
evaluation and examination as to the validity of the termination.

The CA thus correctly ruled that:
The fact of contract termination had been made known
to PGAI as early as October 16, 2000. This
terminationconsequently meant that the principal
KRDC would no longer be able to supply labor,
materials, tools, equipment and necessary
supervision to complete the project. It was at this time,
therefore, that PGAIs obligation guaranteeing the
project completion arose, although the amount of
payment was still undetermined.
That ALI merely used the word may in expressing its
intent to proceed against the bond does not make its
claim any less categorical as argued by PGAI. The point
is the very condition giving rise to the obligation to pay,
i.e. KRDCs default and the resulting contract
termination, was clearly mentioned in the 16 October
2000 letter. The citation of this fact is more than
sufficient to place PGAI in notice that ALI shall be
making claims on the bonds.
xxxx
But the important consideration is that ALI, by its 16
October 2000 letter, was informing PGAI of the contract
termination, the very condition for its liabilities under
the performance bond to accrue. ALI had no other
purpose in sending the letter than to notify PGAI
that it was intending to proceed against the
performance bond. PGAI makes much out of ALIs
failure to identify the particular bond against which it
would be claiming. But the contract termination
necessarily implies that there would be hiatus in the
supply of labor and materials.
Surely, no bond would answer for the non-
implementation of contractual provisions other than the
performance bond.Further, the surety bond only
guarantees reimbursement of the portion of the
downpayment and not the supply of labor, materials
and equipment.[23] (Emphasis supplied, italics in the
original.)
In interpreting the time-bar provision, the absence of any
ambiguity in the words used would lead to the conclusion that
the generally accepted meaning of the words shall control. In
the time-bar provision, the word claim does not give rise to any
ambiguity in interpretation and does not call for a stretched
understanding.
In Finasia Investments and Finance Corporation v. Court of
Appeals,[24] the Court had the occasion to rule that:
The word claim is also defined as:
Right to payment, whether or not such right is reduced
to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured; or right to an
equitable remedy for breach of performance if such
breach gives rise to a right to payment, whether or not
such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured,
disputed, undisputed, secured, unsecured.
In conflicts of law, a receiver may be appointed in any
state which has jurisdiction over the defendant who
owes a claim.[25] (Italics supplied.)
In the case at bar, the claim of ALI against PGAI arose from the
failure of KRDC to perform its obligation under the construction
contract. ALI therefore already had the claim or right to payment
against PGAI in the maximum amount of P4,700,000.00 from the
moment KRDC failed to comply with its obligation. According to
the time-bar provision, in order to enforce such claim or recover
the said amount, ALI shall present its claim within ten (10) days
from the occurrence of the default or failure of KRDC.
173
The October 16, 2000 letter was the presentation of the
claim. ALIs intent to recover its claim was communicated clearly
to PGAI. By informing PGAI of the termination of the contract
with KRDC, ALI in effect presented a situation where PGAI is put
on notice that ALI in fact has a right to payment by virtue of the
performance bond and it intends to recover it. Undeniably, ALI
has substantially complied with the time-bar provision of the
performance bond.
WHEREFORE, the petition is DENIED and the Decision
dated April 28, 2006 of the Court of Appeals in CA-G.R. SP No.
72854 is hereby AFFIRMED.
With costs against the petitioner.SO ORDERED.
FIRST DIVISIONG.R. No. 189563 April 7, 2014
GILAT SATELLITE NETWORKS, LTD., Petitioner,
vs.
UNITED COCONUT PLANTERS BANK GENERAL INSURANCE
CO., INC., Respondent.
SERENO, CJ:
This is an appeal via a Petition for Review on Certiorari 1 filed 6
November 2009 assailing the Decision 2 and Resolution3 of the
Court of Appeals (CA) in CA-G.R. CV No. 89263, which reversed
the Decision4 of the Regional Trial Court (RTC), Branch 141,
Makati City in Civil Case No. 02-461, ordering respondent to pay
petitioner a sum of money.
The antecedent facts, as culled from the CA, are as follows:
On September 15, 1999, One Virtual placed with GILAT a
purchase order for various telecommunications equipment (sic),
accessories, spares, services and software, at a total purchase
price of Two Million One Hundred Twenty Eight Thousand Two
Hundred Fifty Dollars (US$2,128,250.00). Of the said purchase
price for the goods delivered, One Virtual promised to pay a
portion thereof totalling US$1.2 Million in accordance with the
payment schedule dated 22 November 1999. To ensure the
prompt payment of this amount, it obtained defendant UCPB
General Insurance Co., Inc.s surety bond dated 3 December
1999, in favor of GILAT.
During the period between [sic] September 1999 and June 2000,
GILAT shipped and delivered to One Virtual the purchased
products and equipment, as evidenced by airway bills/Bill of
Lading (Exhibits "F", "F-1" to "F-8"). All of the equipment
(including the software components for which payment was
secured by the surety bond, was shipped by GILAT and duly
received by One Virtual. Under an endorsement dated
December 23, 1999 (Exhibit "E"), the surety issued, with One
Virtuals conformity, an amendment to the surety bond, Annex
"A" thereof, correcting its expiry date from May 30, 2001 to July
30, 2001.
One Virtual failed to pay GILAT the amount of Four Hundred
Thousand Dollars (US$400,000.00) on the due date of May 30,
2000 in accordance with the payment schedule attached as
Annex "A" to the surety bond, prompting GILAT to write the
surety defendant UCPB on June 5, 2000, a demand letter
(Exhibit "G") for payment of the said amount of US$400,000.00.
No part of the amount set forth in this demand has been paid to
date by either One Virtual or defendant UCPB. One Virtual
likewise failed to pay on the succeeding payment instalment
date of 30 November 2000 as set out in Annex "A" of the surety
bond, prompting GILAT to send a second demand letter dated
January 24, 2001, for the payment of the full amount of
US$1,200,000.00 guaranteed under the surety bond, plus
interests and expenses (Exhibits "H") and which letter was
received by the defendant surety on January 25, 2001. However,
defendant UCPB failed to settle the amount of US$1,200,000.00

or a part thereof, hence, the instant complaint." 5 (Emphases in
the original)
On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a
Complaint6 against respondent UCPB General Insurance Co.,
Inc., to recover the amounts supposedly covered by the surety
bond, plus interests and expenses. After due hearing, the RTC
rendered its Decision,7 the dispositive portion of which is herein
quoted:
WHEREFORE, premises considered, the Court hereby renders
judgment for the plaintiff, and against the defendant, ordering,
to wit:
1. The defendant surety to pay the plaintiff the amount
of One Million Two Hundred Thousand Dollars
(US$1,200,000.00) representing the principal debt
under the Surety Bond, with legal interest thereon at
the rate of 12% per annum computed from the time the
judgment becomes final and executory until the
obligation is fully settled; and
2. The defendant surety to pay the plaintiff the amount
of Forty Four Thousand Four Dollars and Four Cents
(US$44,004.04) representing attorneys fees and
litigation expenses.
Accordingly, defendants counterclaim is hereby dismissed for
want of merit.
SO ORDERED. (Emphasis in the original)
In so ruling, the RTC reasoned that there is "no dispute that
plaintiff [petitioner] delivered all the subject equipments [sic]
and the same was installed. Even with the delivery and
installation made, One Virtual failed to pay any of the payments
agreed upon. Demand notwithstanding, defendant failed and
refused and continued to fail and refused to settle the
obligation."8
Considering that its liability was indeed that of a surety, as
"spelled out in the Surety Bond executed by and between One
Virtual as Principal, UCPB as Surety and GILAT as Creditor/Bond
Obligee,"9 respondent agreed and bound itself to pay in
accordance with the Payment Milestones. This obligation was
not made dependent on any condition outside the terms and
conditions of the Surety Bond and Payment Milestones.10
Insofar as the interests were concerned, the RTC denied
petitioners claim on the premise that while a surety can be held
liable for interest even if it becomes more onerous than the
principal obligation, the surety shall only accrue when the delay
or refusal to pay the principal obligation is without any justifiable
cause.11 Here, respondent failed to pay its surety obligation
because of the advice of its principal (One Virtual) not to
pay.12 The RTC then obligated respondent to pay petitioner the
amount of USD1,200,000.00 representing the principal debt
under the Surety Bond, with legal interest at the rate of 12% per
annum computed from the time the judgment becomes final and
executory, and USD44,004.04 representing attorneys fees and
litigation expenses.
On 18 October 2007, respondent appealed to the CA. 13 The
appellate court rendered a Decision14 in the following manner:
WHEREFORE, this appealed case is DISMISSED for lack of
jurisdiction. The trial courts Decision dated December 28, 2006
is VACATED. Plaintiff-appellant Gilat Satellite Networks Ltd., and
One Virtual are ordered to proceed to arbitration, the outcome of
which shall necessary bind the parties, including the surety,
defendant-appellant United Coconut Planters Bank General
Insurance Co., Inc.
174
SO ORDERED. (Emphasis in the original)
The CA ruled that in "enforcing a surety contract, the
complementary-contracts-construed-together doctrine finds
application." According to this doctrine, the accessory contract
must be construed with the principal agreement. 15In this case,
the appellate court considered the Purchase Agreement entered
into between petitioner and One Virtual as the principal
contract,16 whose stipulations are also binding on the parties to
the suretyship.17 Bearing in mind the arbitration clause
contained in the Purchase Agreement18 and pursuant to the
policy of the courts to encourage alternative dispute resolution
methods,19 the trial courts Decision was vacated; petitioner and
One Virtual were ordered to proceed to arbitration.
On 9 September 2008, petitioner filed a Motion for
Reconsideration with Motion for Oral Argument. The motion was
denied for lack of merit in a Resolution 20 issued by the CA on 16
September 2009.
Hence, the instant Petition.
On 31 August 2010, respondent filed a Comment21 on the
Petition for Review. On 24 November 2010, petitioner filed a
Reply.22
ISSUES
From the foregoing, we reduce the issues to the following:
1. Whether or not the CA erred in dismissing the case
and ordering petitioner and One Virtual to arbitrate;
and
2. Whether or not petitioner is entitled to legal interest
due to the delay in the fulfilment by respondent of its
obligation under the Suretyship Agreement.
THE COURTS RULING
The existence of a suretyship agreement does not give the
surety the right to intervene in the principal contract, nor can an
arbitration clause between the buyer and the seller be invoked
by a non-party such as the surety.
Petitioner alleges that arbitration laws mandate that no court
can compel arbitration, unless a party entitled to it applies for
this relief.23 This referral, however, can only be demanded by
one who is a party to the arbitration agreement.24 Considering
that neither petitioner nor One Virtual has asked for a referral,
there is no basis for the CAs order to arbitrate.
Moreover, Articles 1216 and 2047 of the Civil Code 25 clearly
provide that the creditor may proceed against the surety without
having first sued the principal debtor.26 Even the Surety
Agreement itself states that respondent becomes liable upon
"mere failure of the Principal to make such prompt
payment."27 Thus, petitioner should not be ordered to make a
separate claim against One Virtual (via arbitration) before
proceeding against respondent.28
On the other hand, respondent maintains that a surety contract
is merely an accessory contract, which cannot exist without a
valid obligation.29 Thus, the surety may avail itself of all the
defenses available to the principal debtor and inherent in the
debt30 that is, the right to invoke the arbitration clause in the
Purchase Agreement.
We agree with petitioner.
In suretyship, the oft-repeated rule is that a suretys liability is
joint and solidary with that of the principal debtor. This

undertaking makes a surety agreement an ancillary contract, as
it presupposes the existence of a principal
contract.31 Nevertheless, although the contract of a surety is in
essence secondary only to a valid principal obligation, its
liability to the creditor or "promise" of the principal is said to be
direct, primary and absolute; in other words, a surety is directly
and equally bound with the principal.32 He becomes liable for the
debt and duty of the principal obligor, even without possessing a
direct or personal interest in the obligations constituted by the
latter.33Thus, a surety is not entitled to a separate notice of
default or to the benefit of excussion. 34 It may in fact be sued
separately or together with the principal debtor. 35
After a thorough examination of the pieces of evidence
presented by both parties,36 the RTC found that petitioner had
delivered all the goods to One Virtual and installed them.
Despite these compliances, One Virtual still failed to pay its
obligation,37 triggering respondents liability to petitioner as the
formers surety.1wphi1 In other words, the failure of One
Virtual, as the principal debtor, to fulfill its monetary obligation
to petitioner gave the latter an immediate right to pursue
respondent as the surety.
Consequently, we cannot sustain respondents claim that the
Purchase Agreement, being the principal contract to which the
Suretyship Agreement is accessory, must take precedence over
arbitration as the preferred mode of settling disputes.
First, we have held in Stronghold Insurance Co. Inc. v. Tokyu
Construction Co. Ltd.,38 that "[the] acceptance [of a surety
agreement], however, does not change in any material way the
creditors relationship with the principal debtor nor does it make
the surety an active party to the principal creditor-debtor
relationship. In other words, the acceptance does not give the
surety the right to intervene in the principal contract. The
suretys role arises only upon the debtors default, at which
time, it can be directly held liable by the creditor for payment as
a solidary obligor." Hence, the surety remains a stranger to the
Purchase Agreement. We agree with petitioner that respondent
cannot invoke in its favor the arbitration clause in the Purchase
Agreement, because it is not a party to that contract. 39 An
arbitration agreement being contractual in nature, 40 it is binding
only on the parties thereto, as well as their assigns and heirs.41
Second, Section 24 of Republic Act No. 9285 42 is clear in stating
that a referral to arbitration may only take place "if at least one
party so requests not later than the pre-trial conference, or upon
the request of both parties thereafter." Respondent has not
presented even an iota of evidence to show that either
petitioner or One Virtual submitted its contesting claim for
arbitration.
Third, sureties do not insure the solvency of the debtor, but
rather the debt itself. 43 They are contracted precisely to mitigate
risks of non-performance on the part of the obligor. This
responsibility necessarily places a surety on the same level as
that of the principal debtor.44 The effect is that the creditor is
given the right to directly proceed against either principal debtor
or surety. This is the reason why excussion cannot be
invoked.45 To require the creditor to proceed to arbitration would
render the very essence of suretyship nugatory and diminish its
value in commerce. At any rate, as we have held in Palmares v.
Court of Appeals,46 "if the surety is dissatisfied with the degree
of activity displayed by the creditor in the pursuit of his
principal, he may pay the debt himself and become subrogated
to all the rights and remedies of the creditor."
Interest, as a form of indemnity, may be awarded to a creditor
for the delay incurred by a debtor in the payment of the latters
obligation, provided that the delay is inexcusable.
Anent the issue of interests, petitioner alleges that it deserves
to be paid legal interest of 12% per annum from the time of its
first demand on respondent on 5 June 2000 or at most, from the
second demand on 24 January 2001 because of the latters
175
delay in discharging its monetary obligation. 47 Citing Article
1169 of the Civil Code, petitioner insists that the delay started
to run from the time it demanded the fulfilment of respondents
obligation under the suretyship contract. Significantly,
respondent does not contest this point, but instead argues that
it is only liable for legal interest of 6% per annum from the date
of petitioners last demand on 24 January 2001.
In rejecting petitioners position, the RTC stated that interests
may only accrue when the delay or the refusal of a party to pay
is without any justifiable cause.48 In this case, respondents
failure to heed the demand was due to the advice of One Virtual
that petitioner allegedly breached its undertakings as stated in
the Purchase Agreement.49 The CA, however, made no
pronouncement on this matter.
We sustain petitioner.
Article 2209 of the Civil Code is clear: "[i]f an obligation consists
in the payment of a sum of money, and the debtor incurs a
delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest."
Delay arises from the time the obligee judicially or
extrajudicially demands from the obligor the performance of the
obligation, and the latter fails to comply. 50 Delay, as used in
Article 1169, is synonymous with default or mora, which means
delay in the fulfilment of obligations.51 It is the nonfulfillment of
an obligation with respect to time.52 In order for the debtor (in
this case, the surety) to be in default, it is necessary that the
following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance
judicially or extrajudicially.53
Having held that a surety upon demand fails to pay, it can be
held liable for interest, even if in thus paying, its liability
becomes more than the principal obligation. 54 The increased
liability is not because of the contract, but because of the
default and the necessity of judicial collection.55
However, for delay to merit interest, it must be inexcusable in
nature. In Guanio v. Makati-Shangri-la Hotel, 56 citing RCPI v.
Verchez,57 we held thus:
In culpa contractual x x x the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the obligatory
force of contracts, will not permit a party to be set free from
liability for any kind of misperformance of the contractual
undertaking or a contravention of the tenor thereof. A breach
upon the contract confers upon the injured party a valid cause
for recovering that which may have been lost or suffered. The
remedy serves to preserve the interests of the promissee that
may include his "expectation interest," which is his interest in
having the benefit of his bargain by being put in as good a
position as he would have been in had the contract been
performed, or his "reliance interest," which is his interest in
being reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had
the contract not been made; or his "restitution interest," which
is his interest in having restored to him any benefit that he has
conferred on the other party. Indeed, agreements can
accomplish little, either for their makers or for society, unless
they are made the basis for action. The effect of every infraction
is to create a new duty, that is, to make RECOMPENSE to the
one who has been injured by the failure of another to observe
his contractual obligation unless he can show extenuating
circumstances, like proof of his exercise of due diligence x x x or
of the attendance of fortuitous event, to excuse him from his
ensuing liability. (Emphasis ours)
We agree with petitioner that records are bereft of proof to show
that respondents delay was indeed justified by the

circumstances that is, One Virtuals advice regarding
petitioners alleged breach of obligations. The lower courts
Decision itself belied this contention when it said that "plaintiff is
not disputing that it did not complete commissioning work on
one of the two systems because One Virtual at that time is
already in default and has not paid GILAT." 58 Assuming arguendo
that the commissioning work was not completed, respondent
has no one to blame but its principal, One Virtual; if only it had
paid its obligation on time, petitioner would not have been
forced to stop operations. Moreover, the deposition of Mr. Erez
Antebi, vice president of Gilat, repeatedly stated that petitioner
had delivered all equipment, including the licensed software;
and that the equipment had been installed and in fact, gone into
operation.59 Notwithstanding these compliances, respondent still
failed to pay.
As to the issue of when interest must accrue, our Civil Code is
explicit in stating that it accrues from the time judicial or
extrajudicial demand is made on the surety. This ruling is in
accordance with the provisions of Article 1169 of the Civil Code
and of the settled rule that where there has been an extra-
judicial demand before an action for performance was filed,
interest on the amount due begins to run, not from the date of
the filing of the complaint, but from the date of that extra-
judicial demand.60 Considering that respondent failed to pay its
obligation on 30 May 2000 in accordance with the Purchase
Agreement, and that the extrajudicial demand of petitioner was
sent on 5 June 2000,61 we agree with the latter that interest
must start to run from the time petitioner sent its first demand
letter (5 June 2000), because the obligation was already due and
demandable at that time.
With regard to the interest rate to be imposed, we take cue from
Nacar v. Gallery Frames,62 which modified the guidelines
established in Eastern Shipping Lines v. CA 63 in relation to
Bangko Sentral-Monetary Board Circular No. 799 (Series of
2013), to wit:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
176
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially
demanded.1wphi1 In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
xxxx
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
6% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit.
Applying the above-discussed concepts and in the absence of an
agreement as to interests, we are hereby compelled to award
petitioner legal interest at the rate of 6% per annum from 5 June
2000, its first date of extra judicial demand, until the satisfaction
of the debt in accordance with the revised guidelines enunciated
in Nacar.
WHEREFORE, the Petition for Review on Certiorari is hereby
GRANTED. The assailed Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 89263 are REVERSED. The Decision of
the Regional Trial Court, Branch 141, Makati City is REINSTATED,
with MODIFICATION insofar as the award of legal interest is
concerned. Respondent is hereby ordered to pay legal interest
at the rate of 6% per annum from 5 June 2000 until the
satisfaction of its obligation under the Suretyship Contract and
Purchase Agreement.
SO ORDERED.