Heirs of Augusto Salas vs Laperal Realty Corporation

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.
Facts:
The petitioners in this case are the heirs of Salas, Jr., who was judicially declared as a
presumptively dead for being missing for more than seven (7) years after leaving home for a
business trip to Nueva Icija.
It is also alleged in the facts that Laperal Realty has a contract with Salas, Jr.
denominated as an Owner-Contract Agreement the purpose of which is to render and provide
complete (horizontal) construction services on his land. The same contract provides an
arbitration clause under Article IV of said agreement which reads:
“ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNER’S 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.”

This instant case arose when the agent of Salas, Jr. to whom a Special Power of
Attorney has been executed, Laperal Realty, one of the respondents in this case, subdivided the
lands of Salas and sold the same to other respondents.

Petitioners as heirs of Salas, Jr. filed in the Regional Trial Court of Lipa City a
Complaint 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.

The respondents moved to dismiss the complaint invoking Art. IV of the Agreement
providing for Arbitration before resorting to court action.

Issue:
Whether of not the Arbitration Clause in the contract between Salas, Jr. and Laperal
Realty is binding upon the heirs of Salas, Jr.?

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 Ruling:

Yes. A submission to arbitration is a contract. As such, the Agreement, containing the

stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs. But only
they. Petitioners, as heirs of Salas, Jr., and respondent Laperal Realty are certainly bound by
the Agreement.

Respondent Laperal Realty, as a contracting party to the Agreement, has the right to
compel petitioners to first arbitrate before seeking judicial relief.

In a catena of cases inspired by Justice Malcolm’s provocative dissent in Vega v. San

Carlos Milling Co., this Court has recognized arbitration agreements as valid, binding,
enforceable and not contrary to public policy so much so that when there obtains a written
provision for arbitration which is not complied with, the trial court should suspend the
proceedings and order the parties to proceed to arbitration in accordance with the terms of their
agreement Arbitration is the “wave of the future” in dispute resolution. To brush aside a
contractual agreement calling for arbitration in case of disagreement between parties would be
a step backward.

2
 Del Monte Corporation-USA vs CA
Facts:
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:

This Agreement shall be governed by the laws of the State of California and/or, if
applicable, the United States of America. All disputes arising out of or relating to this
Agreement or the parties’ relationship, including the termination thereof, shall be resolved by
arbitration in the City of San Francisco, State of California, under the Rules of the American
Arbitration Association. The arbitration panel shall consist of three members, one of whom
shall be selected by DMC-USA, one of whom shall be selected by MMI, and third of whom
shall be selected by the other two members and shall have relevant experience in the industry

In October 1994 the appointment of private respondent MMI as the sole and exclusive
distributor of Del Monte products in the Philippines was published in several newspapers in
the country.
According to private respondents, DMC-USA products to be brought into the country by
parallel importers despite the appointment of private respondents MMT as the sole and
exclusive distributor of Del Monte products thereby causing them great embarrassment and
substantial damage.
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.
Petitioners filed a Motion to suspend proceedings invoking arbitration clause in their
agreement with private respondents.
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 –
Private respondents claim, on the other hand, that their causes of action are rooted in Arts.
20, 21 and 23 of the Civil Code, 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

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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.

Issue:
Whether the dispute between the parties warrants an order compelling them to submit to
arbitration.

Held:
There is no doubt that arbitration is valid and constitutional in our jurisdiction. Even
before the enactment of RA 876, the 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.
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. 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.
The object of arbitration is to allow the expeditious determination of a dispute. Clearly, the
issue before the court could not be speedily and efficiently resolved in its entirety if the court
allows 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.

4
 National Steel Corporation vs RTC of Lanao del Norte
Facts:
Edward Wilkom Enterprises Inc (EWEI) and National Steel Corporation (NSC) executed a
contract whereby the former jointly undertook the Contract for Site Development for the
latter's Integrated Iron and Steel Mills Complex to be established at Iligan City.
When EWEI sent to NSC its final billing, the NSC refused to pay such alleging that EWEI
failed to complete the works as agreed upon and that NSC used the fund withheld from EWEI
to cover the cost differential paid to another contractor who finished the work allegedly left
uncompleted by EWEI.
EWEI then filed a civil case before RTC praying essentially for the payments of P458,381.001
with interest from the time of delay; the price adjustment as provided by PD 1594; and
exemplary damages in the amount of P50,000.00 and attorney's fees. NSC filed an answer with
counterclaim to plaintiff's complaints.
The RTC dismissed the said complaint and counterclaim since both parties to desired to
implement Sec. 19 of the contract, providing for a resolution of any conflict by arbitration, by
which the contract also stipulated who will consist the Arbitration Board.
Arbitrators rendered the decision directing NSC to pay EWEI, as follows:
(a) P458, 381.00 representing EWEI's last billing with interest thereon at the rate of
1-1/4% per month from January 1, 1985 to actual date of payment;
(b) P1,335,514.20 representing price escalation adjustment under PD No. 1594, with
interest thereon at the rate of 1-1/4 % per month from January 1, 1985 to actual date of
payment;
(c) P50,000 as and for exemplary damages;
The RTC confirmed and affirmed the award in toto. NSC filed a Petition to Vacate Award, a
Motion for Reconsideration and lastly an appeal to Supreme Court via Rule 65 since the first
two was unheeded.
Petitioner alleged the following grounds in vacating the award (a) That there was evident
partiality in the assailed decision of the Arbitrators in favor of the respondent; and (b) That
there was mistaken appreciation of the facts and application of the law by the Arbitrators.
(Sec 24, RA 876)
Issue:

Whether or not the lower court acted with grave abuse of discretion in not vacating the
arbitrator's award?
Ruling:

No, the court did not act with grave abuse of discretion.
(a) Refute on the issue of partiality of Arbitrators – Court finds that petitioner merely averred
evident partiality without any proof to back it up. Petitioner was never deprived of the

5
 right to present evidence nor was there any showing that the Board showed signs of any
bias in favor of EWEI. And that the Arbitrator’s conclusion is well-founded is fully
supported by substantial evidence. The allegation of evident partiality is not well-taken
because the petitioner failed to substantiate the same.

(b) On the issue of mistaken appreciation of the facts – Petitioner was claiming that it has
right to withheld the payment of EWEI due to its failure to complete the work agreed upon
and that it paid another contractor to finished the job. "To authenticate the extent of
unfinished work, quantity, unit cost differential and amount, NSC was required by the
Arbitrators to submit copies of payment vouchers and/or job awards extended to the other
contractor engaged to complete the works. However, it failed to produce documentary
proofs. NSC failed to substantiate such allusion of completion by another contractor three
unfinished items of works, actual quantities accomplished and unit cost differential paid
chargeable against EWEI. Also, EWEI final billing would not have passed processing for
payment but since based on NSC’s evaluation report, there is no finding of unfinished work,
the contract was terminated.

(c) Petitioner contends that EWEI is not entitled to price escalation absent any stipulation to
that effect in the contract. Reading from the contract of the parties, it can be inferred that
the contract price of the work shall be that agreed upon by the parties at the time of the
execution of the contract. It does not prohibit from imposing future increases or price
escalation. Price escalation is expressly allowed under Presidential Decree 1594, which law
allows price escalation in all contracts involving government projects.

(d) Lastly even if the RTC did not act on grave abuse of discretion, the award of Arbitrator’s
affirmed by RTC is modified by the SC to wit:
 Instead of 1-1/4% interest per month from January 1, 1985 to actual date of
payment the SC applied the legal rate of 6% per annum on both the amount of final
billing and the escalation price from Jan. 1, 1985 until this decision becomes final
and executor since there was no stipulation in the contract about the interest.
 The award of P50,000 for exemplary damages and attorney's fees of P350,000 are
deleted; and
 The cost of arbitration of P35,000 to supplement arbitration agreement has to be
paid.

6
 Asset Privatization Trust vs CA
Facts:
Republic of the Philippines thru the Surigao Mineral Reservation Board, granted Marinduque
Mining and Industrial Corporation (MMIC) the exclusive right to explore, develop and exploit
nickel, cobalt and other minerals in the Surigao mineral reservation. The Philippine Government
undertook to support the financing of MMIC by purchase of MMIC debenture and extension
of guarantees. , MMIC, PNB and DBP executed a Mortgage Trust Agreement whereby
MMIC, as mortgagor, agreed to constitute a mortgage in favor of PNB and DBP as
mortgagees, over all MMIC’s assets, subject of real estate and chattel mortgage including assets
of whatever kind, nature or description, which the mortgagor may acquire. MMIC was having
a difficult time meeting its financial obligations a total of P22.6B thus, a financial
restructuring plan (FRP) designed to reduce MMIC'’ interest expense through debt conversion
to equity was drafted. However, the proposed FRP had never been formally adopted, approved
or ratified by either PNB or DBP, instead, they exercise their right to extra judicially foreclose
the mortgages in accordance with the Mortgage Trust Agreement. The foreclosed assets were
sold to PNB as the lone bidder which were transferred to the Asset Privatization Trust (APT)
later on.
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. In the course of the trial, private respondents and
petitioner APT, as successor of the DBP and PNB’s interest in MMIC, mutually agreed to
submit the case to arbitration by entering into a “Compromise and Arbitration Agreement.
The issues to be submitted for the Committee’s resolution shall be:
(a) Whether the MMIC stockholders 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.
The agreement was presented for approval to RTC of Makati Branch 62, the court
ordered a decision that this case submitted to him was now “dismissed”.
In their award, 2 of the arbitrators concluded that the fore closure was not legally and
validly done therefore MMIC shall continue to pay APT the P22.6B. However they hold that
FRP is valid, DBP’s equity in MMIC is raised to 87% so the 87% equity of DBP is hereby
deducted from the actual damages of P19.4B resulting in the net actual damages of P2.5B plus
interest. This must be offset from the outstanding loan of MMIC to APT. They further ordered
APT to pay the MMIC and Jesus Cabarrus, Sr. for moral and exemplary damages.
After the award has been promulgated, MMIC then filed a motion to the same court
(RTC of Makati, Branch 62) a Motion to Confirm the Award and it was confirmed by RTC
and the CS subsequently. APT now is raising the issue among others, whether RTC of Makati,
Branch 62 has still the jurisdiction to confirm the award and invoking Section 24 of Rep. Act
876, stating that 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.

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Issue 1:

Whether the RTC of Makati, Branch 62, has jurisdiction to confirm the arbitral award?

Ruling:

No, the RTC of Makati, Branch 62, do not have jurisdiction to confirm the arbitral award.
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. Branch 62 should have merely suspended the case and not
dismissed it. By its own action, Branch 62 had lost jurisdiction over the case. It could not have
validly reacquired jurisdiction over the said case on mere motion of one of the parties.
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.

Issue 2:

Whether the RTC and CA acted with grave abuse of discretion in confirming the award made
by the arbitrators

Ruling 2:

Yes, the RTC and CA acted with grave abuse of discretion in confirming the award made by the
arbitrators that should have been vacated.
The Arbitrators exceeded beyond the nature and limits of the Arbitrators’ powers. The
arbitrators cannot resolve issues beyond the scope of the submission agreement. Art. 2044 of the
Civil Code provides that the finality of the arbitrators’ awards is not absolute and without
exceptions. Additionally, under Sections 24 and 25, of the Arbitration Law, there are grounds
for vacating, modifying or rescinding an arbitrator’s award. SC finds that the arbitrators came
out with an award in excess of their powers and palpably devoid of factual and legal basis
 The arbiters overstepped their powers by declaring as valid the proposed Financial
Restructuring Program. The DBP and PNB did not ratify the FRP, as a contract, they
did not consent to such, thus making it inexistent. Since there was no financial
structuring program the foreclosure of mortgage then was fully justified.

 The arbiters exceeded their authority in awarding damages to MMIC, which is not
impleaded as a party to the derivative suit and in awarding moral damages to Jesus S.
Cabarrus, Sr.

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 In a derivative suit, the corporation is the real party in interest while the
stockholder filing suit for the corporation’s behalf is only nominal party. The
corporation should be included as a party in the suit. Award of damages to MMIC,
which was not a party before the Arbitration Committee, is a complete nullity.
The properties foreclosed belonged to MMIC, not to its stockholders. Hence, if
wrong was committed in the foreclosure, it was done against the corporation, thus, Jesus
S. Cabarrus, Sr. cannot directly claim damages for himself. The Arbitration Committee,
therefore, passed upon matters not submitted to it.

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.

WHEREFORE, the Decision of the CA affirming the RTC is hereby REVERSED and SET
ASIDE, and the decision of the Arbitration Committee is hereby VACATED.

9
 National Irrigation Administration vs CA and CIAC and Hydro Resources
Corporation
Facts:

In a competitive bidding held by Petitioner NIA, Hydro Resources Contractors Corporation

(HYDRO) was awarded Contract for the construction of the main civil works of the Magat
River Multi-Purpose Project. The contract provided that Respondent HYDRO would be paid
partly in Philippine pesos and partly in U.S. dollars. Respondent HYDRO substantially
completed the works under the contract in 1982 and final acceptance by Petitioner NIA was
made in 1984. Respondent HYDRO thereafter determined that it still had an account
receivable from Petitioner NIA representing the dollar rate differential of the price escalation
for the contract.

After unsuccessfully pursuing its case with Petitioner NIA, Respondent HYDRO filed with
the CIAC a Request for Adjudication of the aforesaid claim. Petitioner NIA filed its Answer
wherein it questioned the jurisdiction of the CIAC alleging lack of cause of action, laches and
estoppel in view of Respondent HYDRO’s alleged failure to avail of its right to submit the
dispute to arbitration within the prescribed period as provided in the contract.

Later, Petitioner NIA filed a Motion to Dismiss alleging lack of jurisdiction over the disputes.

The arbitral body constituted by both parties issued an order 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 Petitioner NIA did not seem to be “indubitable.” Petitioner NIA filed a
Motion for Reconsideration of the aforesaid Order. CIAC in denying the Motion for
Reconsideration ruled that it has jurisdiction over the Respondent HYDRO’s claim over
Petitioner NIA pursuant to E.O 1008 and that the hearing should proceed as scheduled. CIAC
then rendered a decision in the main case in favor of Respondent HYDRO.

Petitioner NIA filed with the CA an Original Action of Certiorari and Prohibition with prayer
for Restraining Order and/or Injunction which dismissed the same.

Hence, the present Petition for Certiorari and Prohibition with urgent prayer for Temporary
Restraining Order and Writ of Preliminary Injunction.

Issue:

Whether or not CIAC has jurisdiction to hear and try the dispute between the parties?

Ruling:

YES. Contrary to the claim of Petitioner NIA, the CIAC has jurisdiction over the controversy.

EO 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

10
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.

The complaint of Respondent HYDRO against Petitioner 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.

Petitioner NIA’s 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.

It is undisputed that the contracts between Respondent HYDRO and Petitioner 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 Respondent HYDRO having arisen from the contract is arbitrable. Petitioner NIA’s
reliance with the ruling on the case of Tesco Services Incorporated v. Vera, is misplaced.

The 1988 CIAC Rules of Procedure which were applied by this Court in the 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
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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.

Moreover, it is undeniable that Petitioner NIA agreed to submit the dispute for arbitration to
the CIAC. Petitioner 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 Respondent HYDRO after Petitioner NIA asked for the originals of
the said documents.

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 Agan vs Philippine International Air Terminals Co., INC.
Facts:

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, 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

13
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

7.5%

iii. Next 10 years

10.0%

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.

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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 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 Joint Venture instead of increasing each corporation's current
authorized capital stock just for prequalification purposes.

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

15
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

16
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 Government granted PIATCO the franchise to
operate and maintain the said terminal during the concession period and to collect the fees,
17
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.

18
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 Malacañang
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.
19
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.

Issue:

Whether or not the Court has jurisdiction over the case.

Ruling:

Yes. The court held that:

There is one more procedural obstacle which must be overcome. The Court is aware that
arbitration proceedings pursuant to Section 10.02 of the ARCA have been filed at the instance
of respondent PIATCO. Again, we hold that the arbitration step taken by PIATCO will not
oust this Court of its jurisdiction over the cases at bar.

In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the arbitration
clause in the Distributorship Agreement in question is valid and the dispute between the parties
is arbitrable, this Court affirmed the trial court's decision denying petitioner's Motion to
Suspend Proceedings pursuant to the arbitration clause under the contract. In so ruling, this
Court held that as contracts produce legal effect between the parties, their assigns and heirs,
only the parties to the Distributorship Agreement are bound by its terms, including the
arbitration clause stipulated therein. This Court ruled that arbitration proceedings could be
called for but only with respect to the parties to the contract in question. Considering that there
are parties to the case who are neither parties to the Distributorship Agreement nor heirs or
assigns of the parties thereto, this Court, citing its previous ruling in Salas, Jr. v. Laperal
Realty Corporation,21 held that to tolerate the splitting of proceedings by allowing arbitration
as to some of the parties on the one hand and trial for the others on the other hand would, in
effect, 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.

20
 Maria Luisa Park Association, Inc. vs Samantha Marie Almendras

Facts: Respondents Samantha and Pia Almendras purchased from MRO Development
Corporation a residential lot located in Cebu City. Respondents filed with petitioner Maria
Luisa Park Association, Inc (MLPAI) an application to construct a residential house which
was approved. Upon ocular inspection of the house, MLPAI found out that respondents
violated the prohibition against multi-dwelling stated in MPLAI’s Deed of Restriction.
MLPAI sent a letter to the respondents, demanding that they rectify the structure. However,
the respondents denied that they violated MLPAI’s Deed of Restriction. Thus, respondents
filed with the RTC for Injunction, Declaratory Relief, Annulment of Provisions of Articles and
By-Laws. The petitioner contends that the HLURB (Housing and Land Use Regulatory
Board) has exclusive jurisdiction over the controversy wherein it being a dispute between a
subdivision lot owner and a subdivision association and that the complaint must be dismissed
on the ground of lack of jurisdiction and failure to comply with the arbitration clause. On the
other hand, the respondents assert that the complaint they filed is outside the competence of the
HLURB to resolve.
Issue: Whether or not the HLURB and not the RTC has jurisdiction over the case.
Held: Yes. The HLURB has original and exclusive jurisdiction over the case. Under PD 957,
it provides for an appropriate government agency, the HLURB, to which all the parties
aggrieved in the implementation of provisions and the enforcement of contractual rights with
respect to said category of real estate may take recourse. The business of developing subdivisions
and corporations being imbued with public interest and welfare, any question arising from the
exercise of that prerogative should be brought to the HLURB which has the technical know-
how on the matter. Furthermore, the court found out that the parties failed to abide by the
arbitration agreement in the MLPAI by-laws. Article XII of the MLPAI by-laws provides,
“any dispute or claim against the association or any of its officers and governors shall be settled
first amicably. If an amicable settlement fails, such dispute shall be brought by the member to
an arbitration panel for final settlement. The arbitral award shall be valid and binding between
the parties.” The terms of the by-laws clearly express the intention of the parties to bring first to
the arbitration process all disputes between them before a party can file the appropriate action.
The agreement to submit all disputes to arbitration is a contract. Respondents, being members
of MLPAI are bound by its by-laws and are expected to abide by it in good faith. In the case at
bar, parties made no earnest effort to resolve their differences in accordance with the arbitration
clause provided for in their by-laws. Such arbitration must be respected by the parties otherwise
to brush aside a contractual agreement calling for arbitration in case of disagreement between
the parties would therefore be a step backward.

21
 Fort Bonifacio Development Corporation vs. Manuel Domingo
Facts:
Petitioner entered into a Trade Contract with LMM Construction for partial structural and
architectural works on its Bonifacio Ridge Condominium. It was provided in their contract
that the petitioner had the right to withhold the retention money equivalent to 5% of the
contract price for a period of one year after the completion of the project. Due to the defect and
delay in the work of LMM Construction, petitioner unilaterally terminated the Trade Contract
and hired another contractor to finish the rest of the work left undone by LMM Construction.
However, the petitioner was liable to pay LMM Construction a fraction of the contract price in
proportion to the works already performed by the latter. Petitioner received the first notice of
garnishment against the receivables of LMM construction issued by CIAC. The petitioner also
received a letter from respondent inquiring on the retention money supposedly due to LMM
construction and informing petitioner that a portion of the amount receivable by the LMM
construction was already assigned to him as evidenced by the Deed of Assignment executed by
LMM construction in respondent’s favor. On the other hand, the petitioner asserts that the
retention money was not yet due and demandable and may be ascertained after the completion
of the works. A second notice of garnishment against the receivables of LMM construction was
issued by the NLRC to the petitioner. Thus, respondent file a complaint for collection of sum of
money against LMM construction and petitioner. Petitioner argued that since respondent
merely stepped into the shoes of LMM construction as its assignor, it was the CIAC and not
the regular courts that had jurisdiction over the dispute as provided in the Trade Contract.
Issue: Whether or not the RTC has the jurisdiction over the instant case.
Held: Yes. The RTC and not the CIAC has the jurisdiction over the case at bar. The
jurisdiction of the CIAC is limited to settling disputes arising among contractors, developers
and/or owners of construction projects. It does not include the determination of who among the
many creditors of the contractor should enjoy preference in payment of its receivables from the
developer/owner. In the case at bar, the allegations in respondent’s complaint are clear and
simple that his cause of action springs not from a violation of the provisions of the Trade
Contract, but from the non-payment of the monetary obligation of LMM Construction to him.
It is encouraged that disputes arising from construction contracts be referred first to the CIAC
for their arbitration and settlement since such cases would often require expertise and technical
knowledge in construction. The court emphasized that the respondent’s claim is not even
construction related at all and the right to the receivables of LMM construction from petitioner
under the Trade Contract is not being impugned herein. This court recognizes the laudable
objective of voluntary arbitration but it cannot, however, altogether surrender to arbitration
those cases, such as the one at bar, the extant facts of which plainly call for the exercise of
jurisdiction by the regular courts for their resolution.

22
 Fort Bonifacio Development Corporation vs Sorongon and Fong

Facts:

Petitioner Fort Bonifacio Development Corporation entered into a trade contract with L & M
Maxco Specialist Construction’s (Maxco) wherein Maxco would undertake the structural and
partial architectural package of the Bonifacio Ridge Condominium Phase 1 (BRCP 1). Later,
petitioner accused Maxco of delay in completion of its work and sent the latter a notice of
termination.

Subsequently, Maxco was sued by its creditors including respondent for debts unrelated to
BRCP 1. In order to settle the collection suit, Maxco assigned its receivables representing its
retention money from the BRCP 1 in the amount of P1,577,115.90. Respondent Valentin Fong
informed petitioner regarding Maxco’s assignment in his favor and asked to confirm the
validity of Maxco’s receivables.

Petitioner informed respondent Fong that there is no more amount due to Maxco from
petitioner after the rectification of defect as well as the satisfaction of notices of garnishment
dated July 30, 2004 and January 26, 2006.

Respondent Fong filed a complaint for a sum of money against petitioner and Maxco in the
Regional Trial Court of Mandaluyong City. Petitioner argued that since respondent merely
stepped into the shoes of Maxco as its assignee, it was the CIAC and not the regular courts that
had jurisdiction over the dispute as provided in the Trade Contract.

ISSUE:

Whether or not CIAC has jurisdiction over the claims of Valentin Fong?

HELD:

No, CIAC has no jurisdiction on such claims.

An examination of the allegations in Fong’s complaint reveals that his cause of action springs
not from a violation of the provisions of the Trade Contract, but from the assignment of
Maxco’s retention money to him and failure of petitioner to turn over the retention money.

Although the jurisdiction of the CIAC is not limited to the instances enumerated in Section 4 of
E. O. No. 1008, Fong’s claim is not even construction-related at all. This court has held that:
"Construction is defined as referring to 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." Thus, petitioner’s insistence on the application of
the arbitration clause of the Trade Contract to Fong is clearly anchored on an erroneous premise
that the latter is seeking to enforce a right under the trade contract. Fong’s demand that the
portion of retention money should have been paid to him before the other creditors of Maxco
clearly, does not require the CIAC’s expertise and technical knowledge of construction.

23
 Hutama-Resa Joint Operations, INC. vs Citra Manila Tollways Corporation
Facts:

Petitioner HUTAMA-RSEA Joint Operations Incorpora and Respondent Citra Metro Manila
Tollways Corporation entered into an Engineering Procurement Construction Contract (EPCC)
whereby petitioner would undertake the construction of Stage 1 of the Skyway Project. As
consideration for petitioner’s undertaking, respondent obliged itself under the EPCC to pay the
former a total amount of US$369,510,304.00.
During the construction of the Skyway Project, petitioner wrote respondent on several
occasions requesting payment of the former’s 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.

Petitioner finally filed with the Construction Industry Arbitration Commission (CIAC) a
Request for Arbitration, seeking to enforce its money claims against respondent. Respondent
averred that the CIAC had no jurisdiction because the filing by petitioner of said case was
premature by reason that 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.

Issue:

Whether or not prior resort by the parties to DAB is a condition precedent to the submission of
their dispute to CIAC?

Rule:

No, prior resort by the parties to DAB is not a condition precedent to the submission of parties'
dispute to CIAC.

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."

24
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. The arbitration clause in the construction contract ipso facto vested the
CIAC with jurisdiction. This rule applies, regardless of whether the parties specifically choose
another forum or make reference to another arbitral body. 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. 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.

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.

25
 Equitable PCI vs RCBC

Facts:
On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB) and the individual
shareholders of Bankard, Inc., as sellers, and respondent RCBC Capital Corporation (RCBC), as
buyer, executed a Share Purchase Agreement5(SPA) for the purchase of petitioners’ interests in
Bankard, representing 226,460,000 shares, for the price of PhP 1,786,769,400. To expedite the
purchase, RCBC agreed to dispense with the conduct of a due diligence audit on the financial
status of Bankard.
Under the SPA, RCBC undertakes, on the date of contract execution, to deposit, as
downpayment, 20% of the purchase price, or PhP 357,353,880, in an escrow account. The
escrowed amount, the SPA stated, should be released to petitioners on an agreed-upon release
date and the balance of the purchase price shall be delivered to the share buyers upon the
fulfillment of certain conditions agreed upon, in the form of a manager’s check.
On June 2, 2000, RCBC deposited the stipulated down payment amount in an escrow
account after which it was given full management and operational control of Bankard. June 2,
2000 is also considered by the parties as the Closing Date referred to in the SPA.
On December 28, 2000, RCBC paid the balance of the contract price. The corresponding deeds
of sale for the shares in question were executed in January 2001.

Thereafter, in a letter of May 5, 2003, RCBC informed petitioners of its having overpaid
the purchase price of the subject shares, claiming that there was an overstatement of valuation
of accounts amounting to PhP 478 million, resulting in the overpayment of over PhP 616
million.

Following unsuccessful attempts at settlement, RCBC, in accordance with Sec. 10 of the

SPA, filed a Request for Arbitration dated May 12, 20048 with the ICC-ICA. In the
request, RCBC charged Bankard with deviating from, contravening and not following
generally accepted accounting principles and practices in maintaining their books. Due to
these improper accounting practices, RCBC alleged that both the audited and unaudited
financial statements of Bankard prior to the stock purchase were far from fair and
accurate and, hence, violated the representations and warranties of petitioners in the
SPA. Per RCBC, its overpayment amounted to PhP 556 million. It thus prayed for the
rescission of the SPA, restitution of the purchase price, payment of actual damages in the
amount of PhP 573,132,110, legal interest on the purchase price until actual restitution,
moral damages, and litigation and attorney’s fees. As alternative to rescission and
restitution, RCBC prayed for damages in the amount of at least PhP 809,796,092 plus
legal interest.

After drawn out proceedings with each party alleging deviation and non-compliance by the
other with arbitration rules, the tribunal, with Justice Kapunan dissenting, rendered a Partial
Award dated September 27, 2007, in favour of RCBC
15.2 A further Procedural Order will be necessary subsequent to the delivery of this
Partial Award to deal with the determination of quantum and in particular, whether

26
 there should be an Expert appointed by the Tribunal under Article 20(4) of the ICC
Rules to assist the Tribunal in this regard.

On January 8, 2008, the RTC issued the first assailed order confirming the Partial Award and
denying the adverted separate motions to vacate and to suspend and inhibit. From this order,
petitioners sought reconsideration, but their motion was denied by the RTC in the equally
assailed second order of March 17, 2008.

Issue:

Whether or not the petitioners appeal was proper to overturn the partial arbitral award?

Ruling:

On Procedural Misstep of Direct Appeal to This Court

As earlier recited, the ICC-ICA’s Partial Award dated September 27, 2007 was confirmed by
the RTC in its first assailed order of January 8, 2008. Thereafter, the RTC, by order of March
17, 2008, denied petitioners’ motion for reconsideration. Therefrom, petitioners came directly to
this Court on a petition for review under Rule 45 of the Rules of Court.
This is a procedural miscue for petitioners who erroneously bypassed the Court of Appeals (CA)
in pursuit of its appeal. While this procedural gaffe has not been raised by RCBC, still we
would be remiss in not pointing out the proper mode of appeal from a decision of the RTC
confirming, vacating, setting aside, modifying, or correcting an arbitral award.

Rule 45 is not the remedy available to petitioners as the proper mode of appeal assailing
the decision of the RTC confirming as arbitral award is an appeal before the CA pursuant to
Sec. 46 of Republic Act No. (RA) 9285, otherwise known as the Alternative Dispute
Resolution Act of 2004, or completely, An Act to Institutionalize the Use of an Alternative
Dispute Resolution System in the Philippines and to Establish the Office for Alternative
Dispute Resolution, and for other Purposes, promulgated on April 2, 2004 and became effective
on April 28, 2004 after its publication on April 13, 2004.
In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the RTC decision of an
assailed arbitral award is appealable to the CA and may further be appealed to this Court, thus:

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved
party in cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral
award, thus:

SEC. 46. Appeal from Court Decision or Arbitral Awards.–A decision of the Regional
Trial Court confirming, vacating, setting aside, modifying or correcting an arbitral
award may be appealed to the Court of Appeals in accordance with the rules and
procedure to be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral
award shall be required by the appellate court to post a counterbond executed in favor of

27
 the prevailing party equal to the amount of the award in accordance with the rules to be
promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before this Court
through a petition for review under Rule 45 of the Rules of Court.15

It is clear from the factual antecedents that RA 9285 applies to the instant case. This law was
already effective at the time the arbitral proceedings were commenced by RCBC through a
request for arbitration filed before the ICC-ICA on May 12, 2004. Besides, the assailed
confirmation order of the RTC was issued on March 17, 2008. Thus, petitioners clearly took the
wrong mode of appeal and the instant petition can be outright rejected and dismissed.
Even if we entertain the petition, the outcome will be the same.
Petition is hereby denied.

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 Empire East Landholdings, Inc. vs Capitol Insudtrial Construction Groups
Facts:
On February 12, 1997, petitioner Empire East Land Holdings, Inc. and respondent Capitol
Industrial Corporation Groups, Inc. entered into a Construction Agreement whereby the latter
bound itself to undertake the complete supply and installation of “the building shell wet
construction” of the former’s building known as Gilmore Heights Phase I, located at Gilmore
cor. Castilla St., San Juan, Metro Manila.
Respondent further agreed that the construction work would be completed within 330 calendar
days from “Day 1,” upon the Construction Manager’s confirmation. Petitioner initially
considered February 20, 1997 as “Day 1” of the project. However, when respondent entered the
project site, it could not start work due to the on-going bulk excavation by another contractor.
Respondent thus asked petitioner to move “Day 1” to a later date, when the bulk excavation
contractor would have completely turned over the site.
After a series of correspondence between petitioner and respondent, February 25, 1997 was
proposed as “Day 1.” Accordingly, respondent’s completion date of the project was fixed on
January 21, 1998.
Prior to and during the construction period, changes in circumstances arose, prompting the
parties to make adjustments in the initial terms of their contract. On March 13, 1999,
respondent submitted its final billing, amounting to P4,442,430.90 representing its work
accomplishment and retention, less all deductions.
On March 23, 1999, a punch list was drawn as a result of the joint inspection undertaken by
the parties. Petitioner, on the other hand, refused to issue a certificate of completion. It,
instead, sent a letter to respondent informing the latter that it was already in default.
On September 14, 1999, respondent was constrained to file a Request for Adjudication with the
CIAC, which eventually rendered rendered a decision in favor of the respondent. CIAC however
found the Punch Item portion on the petitioner’s counterclaim to be rightful. Hence, there was
an OFFSETTING of the lesser amount due from Claimant with the bigger amount from the
Respondent.
As to petitioner’s counterclaim, the CIAC denied those which referred to masonry and other
works that it took over, considering that they were formally deleted from respondent’s scope of
work, which in turn caused the reduction of their total contract price. Petitioner’s claim for
liquidated damages was likewise found unmeritorious because it allowed respondent to
complete the works despite knowledge that the latter was already in default. On the other
hand, as the punch list was drawn after the joint inspection by the parties, CIAC found for the
petitioner and thus awarded a total amount of P248, 350.00

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Aggrieved, petitioner elevated the matter to the CA via a petition for review under Rule 43 of
the Rules of Court, which affirmed the decision of the CA with some modifications. Hence, the
present petition, raising the following
Issues:
I. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR WHEN IT ORDERED THE RELEASE OF RETENTION MONEY IN
FAVOR OF CICG.

II. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE

ERROR WHEN IT AWARDED THE CLAIM OF CICG FOR THE
EXCAVATION OF FOUNDATION.

III. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE

ERROR WHEN IT AFFIRMED CIAC’S OVERHEAD EXPENSES. AWARD
FOR THE PAYMENT OF ALLEGED

IV. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE

ERROR WHEN IT DENIED EMPIRE EAST’S CLAIM FOR MASONRY AND
OTHER WORKS, LIQUIDATED DAMAGES, AND COST OF MONEY FOR
PAYROLL ASSISTANCE AND MATERIALS ACCOMMODATION.[31]

HELD:
On the Release of Retention Money
In the construction industry, the ten percent (10%) retention money is a portion of the contract
price automatically deducted from the contractor’s billings, as security for the execution of
corrective work – if any becomes necessary.
Respondent relied solely on petitioner’s failure to issue the certificate of completion, which
prevented the acquisition of a guarantee bond and thus resulted in the non-release of the
retention money. While it is true that respondent was entitled to a certificate of completion as
the issuance thereof was just a ministerial duty of petitioner considering that the project had
already been completed, the certificate was not the only condition for said release. It was simply
a pre-requisite for the issuance of the guarantee bond. And there was no showing that the
absence of the certificate of completion was the only reason why no guarantee bond was issued.
On Respondent’s Right to Additional Overhead Costs Respondent, only presented its own
computation to substantiate its claim, hence, respondent is not entitled even to the reduced
amount of P1,397,642.70 which is 10% of its original claim. Supreme Court deny its prayer for
additional overhead costs.

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All other issues raised by the petitioners were denied by the Supreme Court.
As can be gleaned from the appealed CA decision, the appellate court had reviewed the case
based on the petition and annexes, and weighed them against the Comment of respondent and
the decision of the arbitral tribunal to arrive at the conclusion that the latter decision was
based on substantial evidence. In administrative or quasi-judicial bodies like the CIAC, a fact
may be established if supported by substantial evidence, or that amount of relevant evidence
which a reasonable mind might accept as adequate to justify a conclusion.
It is well established that under Rule 45 of the Rules of Court, only questions of law, not of
fact, may be raised before the Supreme Court. It must be stressed that this Court is not a trier of
facts and it is not its function to re-examine and weigh anew the respective evidence of the
parties. To be sure, findings of fact of lower courts are deemed conclusive and binding upon the
Supreme Court, save only in clear exceptional cases.

31
 ABS-CBN vs World Interactive Network Systems
Facts:
ABS-CBN Broadcasting Corporation v. World Interactive Network Systems (WINS) Japan
Co., Ltd. involved a television service provided by broadcasting giant ABS-CBN Broadcasting
Corporation (ABS-CBN) known as The Filipino Channel (TFC). This channel was licensed by
ABSCBN on 27 September 1999 to be distributed in Japan by World Interactive Network
Systems, or WINS, a Japanese corporation. WINS was, in fact, not only granted a license, but
an exclusive license to distribute and sublicense the distribution of the channel.
Trouble began when petitioner ABS-CBN accused respondent WINS of making “unauthorized
insertions” into TFC of WINS Weekly — a 35- minute community news program for Filipinos
in Japan. The petitioner claimed that such insertions constituted a “material breach” of their
agreement, thus prompting ABS-CBN to notify respondent on 9 May 2002 of its intention to
terminate their agreement effective 10 June 2002. It was at this point that WINS filed an
arbitration suit pursuant to the arbitration clause in their agreement. Professor Alfredo F.
Tadiar was appointed by the parties to act as sole arbitrator.
Respondent WINS claimed that the airing of WINS Weekly was made with ABS-CBN’s prior
approval. Further, WINS claimed that ABSCBN “only threatened to terminate their agreement
because it wanted to renegotiate the terms thereof to allow it to demand higher fees.”
Furthermore, respondent prayed for damages as ABS-CBN granted the license to distribute
TFC to another network — NHK (i.e. Japan Broadcasting Corporation).
The arbitrator ruled in favor of respondent WINS. He held that indeed, as shown by a series of
written exchanges, ABS-CBN gave its approval for the airing of WINS Weekly, and that it
threatened to terminate the contract only because it wanted to renegotiate their agreement. He
also stated that “even if respondent committed a breach of the agreement, the same was
seasonably cured.” Respondent was thus allowed to recover temperate damages, attorney’s fees,
and one-half of the amount paid as arbitrator’s fee. It was at this point that ABS-CBN filed
with the Court of Appeals alternative Petitions for Review under Rule 43 and for Certiorari
under Rule 65 of the 1997 Revised Rules of Civil Procedure. The petitioner alleged either serious
errors of fact or law and/or grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of the arbitrator. Meanwhile, respondent filed a petition for confirmation of the
arbitral award before the RTC of Quezon City.
This proceeding was held in abeyance however in view of the proceedings with the appellate
court.93 Nevertheless, ABS-CBN’s petition with the appellate body failed. The Court of
Appeals ruled that it had no jurisdiction on the matter, stating that it was the RTC which has
jurisdiction over matters relating the jurisdiction. It further stated that the appellate body’s
jurisdiction would only come to play once an appeal has been made as to the order of the RTC
confirming, modifying, or vacating the arbitral award. After its Motion for Reconsideration
32
was denied, ABS-CBN filed a Petition for Review on Certiorari under Rule 45 with the
Supreme Court. The Court’s Ruling.
Issue: Whether an aggrieved party may directly file with the Court of Appeals a Petition for
Review under Rule 43, or a Petition for Certiorari under Rule 65 of the 1997 Revised Rules of
Civil Procedure,
Ruling: The Court continued by citing Section 24 of R.A. No. 876 as the applicable provision in
a petition to vacate an award made by an arbitrator. The Supreme Court highlighted the fact
that Section 24 enumerated specific grounds for vacating an award, and that no other grounds
may be raised. Citing the legal maxim in statutory construction of expressio unius est exclusio
alterius, the Court said that errors of fact and/or law and grave abuse of discretion are not
grounds that may be raised in a petition to vacate an award in the RTC.97 However, while
errors of fact and/or law may not be raised with the RTC, they may still be raised with the
Court of Appeals under Rule 43 — this being the proper mode of review of the decision of the
arbitrator.98 Pointing to the case of Luzon Development Bank v. Association of Luzon
Development Bank Employees, the Supreme Court stated that voluntary arbitrators are
properly classified as a “quasi-judicial instrumentality,” falling within the ambit of Section 9
(3) of the Judiciary Reorganization Act, as amended. They have, therefore, been included under
Rule 43 of the 1997 Revised Rules of Civil Procedure. As to the remedy of Certiorari under Rule
65 of the 1997 Revised Rules of Civil Procedure, the Court only cited Section 1 of Article VIII
of the 1987 Constitution.
Thus, the Court ruled: “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 and there is no appeal, nor any plain, speedy remedy in the course of law.”
The Supreme Court finally outlined the judicial remedies of an aggrieved party to an arbitral
award as stated in Insular Savings Bank v. Far East Bank and Trust Company, thus: (1) a
petition in the proper RTC to issue an order to vacate the award on the grounds provided for in
Section 24 of R.A. [No.] 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, despite all the discussion on the proper mode of appeal, the Supreme
Court still disallowed the petition because of the fatal error of ABS-CBN of filing alternative
petitions under both Rules 43 and 65. “Time and again, we have ruled that the remedies of
appeal and certiorari are mutually exclusive and not alternative or successive.” The High Court
further stated that, “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. Thus, the alternative
petition filed in the CA, being an inappropriate mode of appeal, should have been dismissed
outright by the CA.”

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 LM POWER ENGINEERING CORP. Vs. CAPITOL CONSTRUCTION
GROUPS, INC.

Facts:
Petitioner and respondent entered into a subcontract Agreement involving electrical
work. 2 years thereafter, respondent took over some work contracted to petitioner. Allegedly the
latter had failed to finish it because of its inability to procure materials.
Upon completing its task under the contract, petitioner billed respondent in the amount
of P 6.7 M. resp. however, refused to pay and contested the accuracy of the amount of advances
and billable accomplishments listed by petitioner.
Resp. also took refuge in the termination clause of the Agreement. That clause allowed it
to set off the cost of the work that pet. Had failed to undertake due to termination or take over
against the amount it owed the latter.
Because of the dispute, pet filed with the RTC Makati a complaint for collection of the
amount representing the allege balance of subcontract.
RTC denied the motion to dismiss on the ground that the dispute did not involve the
interpretation of the agreement and was therefore, not covered by the arbitral clause.
On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration.
Issues:
1. W/N there exist a controversy/dispute between pet. And resp. regarding the
interpretation of the subcontract agreement that requires prior recourse to voluntary
arbitration.
2. W/N there is a need to file a request first with the CIAC in order to vest it with
jurisdiction to decide a construction dispute.
Held:
1. Yes. The case at bar involves technical discrepancies that are better left to the arbitral
body that has expertise in those areas.

2. No. There is no more need to file a request with CIAC in order to vest 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 the clause is binding they
are expected to abide by it in good faith. And because it covers the dispute between
the parties in the present case, either of them may compel the other to arbitrate.

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