SECOND DIVISION 1. Background and objectives.
The Licensor, co-owner
[G.R. No. 185582. February 29, 2012.]
TUNA PROCESSING, INC.,  petitioner, vs. PHILIPPINE
KINGFORD, INC.,  respondent.
DECISION
PEREZ, J  p:
Can a foreign corporation not licensed to do business in the
Philippines, but which collects royalties from entities in the Philippines,
sue here to enforce a foreign arbitral award?
In this  Petition for Review on Certiorari under Rule
45, 1 petitioner Tuna Processing, Inc. (TPI), a foreign corporation not
licensed to do business in the Philippines, prays that the
Resolution 2 dated 21 November 2008 of the Regional Trial Court (RTC)
of Makati City be declared void and the case be remanded to the RTC for
further proceedings. In the assailed Resolution, the RTC dismissed
petitioner's Petition for Confirmation, Recognition, and Enforcement of
Foreign Arbitral Award  3 against respondent Philippine Kingford, Inc.
(Kingford), a corporation duly organized and existing under the laws of
the Philippines, 4 on the ground that petitioner lacked legal capacity to
sue. 5
The Antecedents
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred
to as the "licensor"), co-patentee of U.S. Patent No. 5,484,619, Philippine
Letters Patent No. 31138, and Indonesian Patent No. ID0003911
(collectively referred to as the "Yamaoka Patent"), 6 and five (5)
Philippine tuna processors, namely, Angel Seafood Corporation, East
Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz
Seafoods, Inc., and respondent Kingford (collectively referred to as the
"sponsors"/"licensees") 7 entered into a Memorandum of Agreement
(MOA), 8 pertinent provisions of which read:
of U.S. Patent No. 5,484,619, Philippine Patent
No. 31138, and Indonesian Patent No.
ID0003911 . . . wishes to form an alliance with
Sponsors for purposes of enforcing his three
aforementioned patents, granting licenses under
those patents, and collecting royalties. TcIaHC
The Sponsors wish to be licensed under the
aforementioned patents in order to practice the
processes claimed in those patents in the United
States, the Philippines, and Indonesia, enforce
those patents and collect royalties in conjunction
with Licensor.
xxx xxx xxx
4. Establishment of Tuna Processors, Inc. The parties
hereto agree to the establishment of Tuna
Processors, Inc. ("TPI"), a corporation established
in the State of California, in order to implement the
objectives of this Agreement.
5. Bank account. TPI shall open and maintain bank
accounts in the United States, which will be used
exclusively to deposit funds that it will collect and
to disburse cash it will be obligated to spend in
connection with the implementation of this
Agreement.
6. Ownership of TPI. TPI shall be owned by the Sponsors
and Licensor. Licensor shall be assigned one
share of TPI for the purpose of being elected as
member of the board of directors. The remaining
shares of TPI shall be held by the Sponsors
according to their respective equity shares. 9
xxx xxx xxx
The parties likewise executed a Supplemental Memorandum of
Agreement 10 dated 15 January 2003 and an Agreement to Amend
Memorandum of Agreement 11 dated 14 July 2003.
Due to a series of events not mentioned in the petition, the
licensees, including respondent Kingford, withdrew from petitioner TPI
and correspondingly reneged on their obligations. 12 Petitioner submitted
the dispute for arbitration before the International Centre for Dispute
Resolution in the State of California, United States and won the case
against respondent. 13 Pertinent portions of the award read:
13.1 Within thirty (30) days from the date of
transmittal of this Award to the Parties, pursuant to the
terms of this award, the total sum to be paid
by RESPONDENT KINGFORD to CLAIMANT TPI, is the
sum of ONE MILLION SEVEN HUNDRED FIFTY
THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS
AND TEN CENTS ($1,750,846.10).
(A) For breach of the MOA by not paying past due
assessments, RESPONDENT KINGFORD shall
pay CLAIMANT the total sum of TWO HUNDRED
TWENTY NINE THOUSAND THREE HUNDRED AND
FIFTY FIVE DOLLARS AND NINETY CENTS
($229,355.90) which is 20% of MOA assessments since
September 1, 2005[;]
(B) For breach of the MOA in failing to cooperate
with CLAIMANT TPI in fulfilling the objectives of the MOA,
RESPONDENT KINGFORDshall pay CLAIMANT the total
sum of TWO HUNDRED SEVENTY ONE THOUSAND
FOUR HUNDRED NINETY DOLLARS AND TWENTY
CENTS ($271,490.20)[;] 14 and
(C) For violation of THE LANHAM ACT and
infringement of the YAMAOKA 619 PATENT,
RESPONDENT KINGFORD shall pay CLAIMANT the total
sum of ONE MILLION TWO HUNDRED FIFTY
THOUSAND DOLLARS AND NO CENTS
($1,250,000.00). . . .
xxx xxx xxx 15
To enforce the award, petitioner TPI filed on 10 October 2007
a Petition for Confirmation, Recognition, and Enforcement of Foreign
Arbitral Award before the RTC of Makati City. The petition was raffled to
Branch 150 presided by Judge Elmo M. Alameda.
At Branch 150, respondent Kingford filed a Motion to
Dismiss. 16 After the court denied the motion for lack of
merit, 17 respondent sought for the inhibition of Judge Alameda and
moved for the reconsideration of the order denying the motion. 18 Judge
Alameda inhibited himself notwithstanding "[t]he unfounded allegations
and unsubstantiated assertions in the motion." 19 Judge Cedrick O. Ruiz
of Branch 61, to which the case was re-raffled, in turn, granted
respondent's Motion for Reconsideration and dismissed the petition on
the ground that the petitioner lacked legal capacity to sue in the
Philippines. 20
Petitioner TPI now seeks to nullify, in this instant  Petition for
Review on Certiorari under Rule 45, the order of the trial court dismissing
its  Petition for Confirmation, Recognition, and Enforcement of Foreign
Arbitral Award.
Issue
The core issue in this case is whether or not the court a quo was
correct in so dismissing the petition on the ground of petitioner's lack of
legal capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly provides:
Sec. 133. Doing business without a license. —
No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns,
shall be permitted to maintain or intervene in any action,
suit or proceeding in any court or administrative agency of
the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or
administrative tribunals on any valid cause of action
recognized under Philippine laws.
It is pursuant to the aforequoted provision that the court a quo dismissed
the petition. Thus:
Herein plaintiff TPI's "Petition, etc." acknowledges
that it "is a foreign corporation established in the State of
California" and "was given the exclusive right to license or
sublicense the Yamaoka Patent" and "was assigned the
exclusive right to enforce the said patent and collect
corresponding royalties" in the Philippines. TPI likewise
admits that it does not have a license to do business in the
Philippines.
There is no doubt, therefore, in the mind of this
Court that TPI has been doing business in the Philippines,
but sans a license to do so issued by the concerned
government agency of the Republic of the Philippines,
when it collected royalties from "five (5) Philippine tuna
 processors[,] namely[,] Angel Seafood Corporation, East
Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa
Cruz Seafoods, Inc. and respondent Philippine Kingford,
Inc." This being the real situation, TPI cannot be permitted
to maintain or intervene in any action, suit or proceedings
in any court or administrative agency of the Philippines." A
priori, the "Petition, etc." extant of the plaintiff TPI should
be dismissed for it does not have the legal personality to
sue in the Philippines. 21
The petitioner counters, however, that it is entitled to seek for the
recognition and enforcement of the subject foreign arbitral award in
accordance with Republic Act No. 9285 (Alternative Dispute Resolution
Act of 2004), 22 the Convention on the Recognition and Enforcement of
Foreign Arbitral Awards drafted during the United Nations Conference on
International Commercial Arbitration in 1958 (New York Convention), and
the UNCITRAL Model Law on International Commercial
Arbitration (Model Law), 23 as none of these specifically requires that the
party seeking for the enforcement should have legal capacity to sue. It
anchors its argument on the following: cCSHET
In the present case, enforcement has been
effectively refused on a ground not found in
the [Alternative Dispute Resolution Act of 2004], New York
Convention, or  Model Law. It is for this reason that TPI
has brought this matter before this most Honorable Court,
as it [i]s imperative to clarify whether the Philippines'
international obligations and State policy to strengthen
arbitration as a means of dispute resolution may be
defeated by misplaced technical considerations not found
in the relevant laws. 24
Simply put, how do we reconcile the provisions of
the Corporation Code of the Philippines on one hand, and the  Alternative
Dispute Resolution Act of 2004, the New York Convention and
the Model Law on the other?
In several cases, this Court had the occasion to discuss the
nature and applicability of the Corporation Code of the Philippines, a
general law, viz-à-viz other special laws. Thus, in  Koruga v. Arcenas,
Jr., 25 this Court rejected the application of the Corporation Code and
applied the New Central Bank Act. It ratiocinated:
Koruga's invocation of the provisions of the
Corporation Code is misplaced. In an earlier case with
similar antecedents, we ruled that:
"The Corporation Code, however, is a
general law applying to all types of corporations,
while the New Central Bank Act regulates
specifically banks and other financial institutions,
including the dissolution and liquidation thereof. As
between a general and special law, the latter shall
prevail — generalia specialibus non
derogant." (Emphasis supplied) 26
Further, in the recent case of Hacienda Luisita, Incorporated v.
Presidential Agrarian Reform Council, 27 this Court held:
Without doubt, the Corporation Code is the
general law providing for the formation, organization and
regulation of private corporations. On the other hand, RA
6657 is the special law on agrarian reform. As between a
general and special law, the latter shall prevail
— generalia specialibus non derogant. 28
Following the same principle, the  Alternative Dispute Resolution
Act of 2004 shall apply in this case as the  Act, as its title —  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 — would suggest, is a law especially
enacted "to actively promote party autonomy in the resolution of disputes
or the freedom of the party to make their own arrangements to resolve
their disputes." 29 It specifically provides exclusive grounds available to
the party opposing an application for recognition and enforcement of the
arbitral award. 30
Inasmuch as the Alternative Dispute Resolution Act of 2004, a
municipal law, applies in the instant petition, we do not see the need to
discuss compliance with international obligations under the New York
Convention  and the  Model Law. After all, both already form part of the
law. DaIACS
In particular, the Alternative Dispute Resolution Act of
2004 incorporated the  New York Convention in the Act by specifically
providing:
SEC. 42. Application of the New York
Convention. — The New York Convention shall govern the
recognition and enforcement of arbitral awards covered by
the said Convention.
xxx xxx xxx
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 procedural 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.
It also expressly adopted the Model Law, to wit:
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 . . . ."
Now, does a foreign corporation not licensed to do business in
the Philippines have legal capacity to sue under the provisions of
the  Alternative Dispute Resolution Act of 2004? We answer in the
affirmative.
Sec. 45 of the Alternative Dispute Resolution Act of
2004 provides that the opposing party in an application for recognition
and enforcement of the arbitral award may raise only those grounds that
were enumerated under Article V of the  New York Convention, to wit:
Article V
1. Recognition and enforcement of the award may
be refused, at the request of the party against whom it is
invoked, only if that party furnishes to the competent
authority where the recognition and enforcement is sought,
proof that:
(a) The parties to the agreement referred to in
article II were, under the law applicable to them, under
some incapacity, or the said agreement is not valid under
the law to which the parties have subjected it or, failing any
indication thereon, under the law of the country where the
award was made; or
(b) The party against whom the award is invoked
was not given proper notice of the appointment of the
arbitrator or of the arbitration proceedings or was
otherwise unable to present his case; or
(c) The award deals with a difference not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to arbitration,
provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted,
that part of the award which contains decisions on matters
submitted to arbitration may be recognized and enforced;
or
(d) The composition of the arbitral authority or the
arbitral procedure was not in accordance with the
agreement of the parties, or, failing such agreement, was
not in accordance with the law of the country where the
arbitration took place; or
(e) The award has not yet become binding on the
parties, or has been set aside or suspended by a
competent authority of the country in which, or under the
law of which, that award was made.
2. Recognition and enforcement of an arbitral
award may also be refused if the competent authority in
the country where recognition and enforcement is sought
finds that:
(a) The subject matter of the difference is not
capable of settlement by arbitration under the law of that
country; or
(b) The recognition or enforcement of the award
would be contrary to the public policy of that country.
Clearly, not one of these exclusive grounds touched on the capacity to
sue of the party seeking the recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative
Dispute Resolution, 31 which was promulgated by the Supreme Court,
likewise support this position. CAcEaS
Rule 13.1 of the Special Rules provides that "[a]ny party to a
foreign arbitration may petition the court to recognize and enforce a
foreign arbitral award." The contents of such petition are enumerated in
Rule 13.5. 32 Capacity to sue is not included. Oppositely, in the Rule on
local arbitral awards or arbitrations in instances where "the place of
arbitration is in the Philippines," 33 it is specifically required that a petition
"to determine any question concerning the existence, validity and
enforceability of such arbitration agreement" 34 available to the parties
before the commencement of arbitration and/or a petition for "judicial
relief from the ruling of the arbitral tribunal on a preliminary question
upholding or declining its jurisdiction" 35 after arbitration has already
commenced should state "[t]he facts showing that the persons named as
petitioner or respondent have legal capacity to sue or be sued." 36
 Indeed, it is in the best interest of justice that in the enforcement
of a foreign arbitral award, we deny availment by the losing party of the
rule that bars foreign corporations not licensed to do business in the
Philippines from maintaining a suit in our courts. When a party enters into
a contract containing a foreign arbitration clause and, as in this case, in
fact submits itself to arbitration, it becomes bound by the contract, by the
arbitration and by the result of arbitration, conceding thereby the capacity
of the other party to enter into the contract, participate in the arbitration
and cause the implementation of the result. Although not on all fours with
the instant case, also worthy to consider is the wisdom of then Associate
Justice Flerida Ruth P. Romero in her Dissenting Opinion in  Asset
Privatization Trust v. Court of Appeals, 37 to wit:
. . . Arbitration, as an alternative mode of
settlement, is gaining adherents in legal and judicial circles
here and abroad. If its tested mechanism can simply be
ignored by an aggrieved party, one who, it must be
stressed, voluntarily and actively participated in the
arbitration proceedings from the very beginning, it will
destroy the very essence of mutuality inherent in
consensual contracts. 38
Clearly, on the matter of capacity to sue, a foreign arbitral award
should be respected not because it is favored over domestic laws and
procedures, but because Republic Act No. 9285 has certainly erased any
conflict of law question.
Finally, even assuming, only for the sake of argument, that the
court a quo correctly observed that the  Model Law, not the  New York
Convention, governs the subject arbitral award, 39 petitioner may still
seek recognition and enforcement of the award in Philippine court, since
the  Model Law prescribes substantially identical exclusive grounds for
refusing recognition or enforcement. 40
Premises considered, petitioner TPI, although not licensed to do
business in the Philippines, may seek recognition and enforcement of the
foreign arbitral award in accordance with the provisions of the Alternative
Dispute Resolution Act of 2004.
II
The remaining arguments of respondent Kingford are likewise
unmeritorious.
First. There is no need to consider respondent's contention that
petitioner TPI improperly raised a question of fact when it posited that its
act of entering into a MOA should not be considered "doing business" in
the Philippines for the purpose of determining capacity to sue. We
reiterate that the foreign corporation's capacity to sue in the Philippines is
not material insofar as the recognition and enforcement of a foreign
arbitral award is concerned.
Second. Respondent cannot fault petitioner for not filing a motion
for reconsideration of the assailed Resolution dated 21 November 2008
dismissing the case. We have, time and again, ruled that the prior filing
of a motion for reconsideration is not required in certiorari under Rule
45. 41
Third. While we agree that petitioner failed to observe the
principle of hierarchy of courts, which, under ordinary circumstances,
warrants the outright dismissal of the case, 42 we opt to relax the rules
following the pronouncement in Chua v. Ang, 43 to wit: IEaATD
[I]t must be remembered that [the principle of
hierarchy of courts] generally applies to cases involving
conflicting factual allegations. Cases which depend on
disputed facts for decision cannot be brought immediately
before us as we are not triers of facts. 44 A strict
application of this rule may be excused when the reason
behind the rule is not present in a case, as in the present
case, where the issues are not factual but purely legal. In
these types of questions, this Court has the ultimate say so
that we merely abbreviate the review process if we,
because of the unique circumstances of a case, choose to
hear and decide the legal issues outright. 45
Moreover, the novelty and the paramount importance of the issue herein
raised should be seriously considered. 46 Surely, there is a need to take
cognizance of the case not only to guide the bench and the bar, but if
only to strengthen arbitration as a means of dispute resolution, and
uphold the policy of the State embodied in the Alternative Dispute
Resolution Act of 2004, to wit:
Sec. 2. Declaration of Policy. — It is hereby
declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of
the party to make their own arrangements to resolve their
disputes. Towards this end, the State shall encourage and
actively promote the use of Alternative Dispute Resolution
(ADR) as an important means to achieve speedy and
impartial justice and declog court dockets. . . .
Fourth. As regards the issue on the validity and enforceability of
the foreign arbitral award, we leave its determination to the court a
quo where its recognition and enforcement is being sought.
 Fifth. Respondent claims that petitioner failed to furnish the court
of origin a copy of the motion for time to file petition for review
on certiorari before the petition was filed with this Court. 47 We, however,
find petitioner's reply in order. Thus:
26. Admittedly, reference to "Branch 67" in
petitioner TPI's "Motion for Time to File a Petition for
Review on Certiorari under Rule 45" is a typographical
error. As correctly pointed out by respondent Kingford, the
order sought to be assailed originated from Regional Trial
Court, Makati City, Branch 61.
27. . . . Upon confirmation with the Regional Trial
Court, Makati City, Branch 61, a copy of petitioner TPI's
motion was received by the Metropolitan Trial Court,
Makati City, Branch 67. On 8 January 2009, the motion
was forwarded to the Regional Trial Court, Makati City,
Branch 61. 48 cHECAS
All considered, petitioner TPI, although a foreign corporation not
licensed to do business in the Philippines, is not, for that reason alone,
precluded from filing the Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award before a Philippine court.
WHEREFORE, the Resolution dated 21 November 2008 of the
Regional Trial Court, Branch 61, Makati City in Special Proceedings No.
M-6533 is hereby REVERSED and SET ASIDE. The case
is REMANDED to Branch 61 for further proceedings. STEacI
SO ORDERED.
 SPECIAL SECOND DIVISION
[G.R. No. 161957. January 22, 2007.]
JORGE GONZALES and PANEL OF
ARBITRATORS,  petitioners, vs. CLIMAX MINING LTD.,
CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN
PHILIPPINES MINING INC.,  respondents.
[G.R. No. 167994. January 22, 2007.]
JORGE GONZALES,  petitioner, vs. HON. OSCAR B.
PIMENTEL, in his capacity as PRESIDING JUDGE of
BR. 148 of the REGIONAL TRIAL COURT of MAKATI
CITY, and CLIMAX-ARIMCO MINING
CORPORATION,  respondents.
RESOLUTION
TINGA,  J p:
This is a consolidation of two petitions rooted in the same disputed
Addendum Contract entered into by the parties. In G.R. No. 161957, the
Court in its Decision of 28 February 2005 1 denied the Rule 45 petition of
petitioner Jorge Gonzales (Gonzales). It held that the DENR Panel of
Arbitrators had no jurisdiction over the complaint for the annulment of the
Addendum Contract on grounds of fraud and violation of the Constitution and
that the action should have been brought before the regular courts as it
involved judicial issues. Both parties filed separate motions for
reconsideration. Gonzales avers in his Motion for Reconsideration 2 that the
Court erred in holding that the DENR Panel of Arbitrators was bereft of
jurisdiction, reiterating its argument that the case involves a mining dispute
that properly falls within the ambit of the Panel's authority. Gonzales adds
that the Court failed to rule on other issues he raised relating to the
sufficiency of his complaint before the DENR Panel of Arbitrators and the
timeliness of its filing.
Respondents Climax Mining Ltd., et al., (respondents) filed their
Motion for Partial Reconsideration and/or Clarification 3 seeking
reconsideration of that part of the Decision holding that the case should not
be brought for arbitration under Republic Act (R.A.) No. 876, also known as
the Arbitration Law. 4 Respondents, citing American jurisprudence 5 and the
UNCITRAL Model Law, 6 argue that the arbitration clause in the Addendum
Contract should be treated as an agreement independent of the other terms
of the contract, and that a claimed rescission of the main contract does not
avoid the duty to arbitrate. Respondents add that Gonzales's argument
relating to the alleged invalidity of the Addendum Contract still has to be
proven and adjudicated on in a proper proceeding; that is, an action separate
from the motion to compel arbitration. Pending judgment in such separate
action, the Addendum Contract remains valid and binding and so does the
arbitration clause therein. Respondents add that the holding in the Decision
that "the case should not be brought under the ambit of the Arbitration Law"
appears to be premised on Gonzales's having "impugn[ed] the existence or
validity" of the addendum contract. If so, it supposedly conveys the idea that
Gonzales's unilateral repudiation of the contract or mere allegation of its
invalidity is all it takes to avoid arbitration. Hence, respondents submit that
the court's holding that "the case should not be brought under the ambit of
the Arbitration Law" be understood or clarified as operative only where the
challenge to the arbitration agreement has been sustained by final judgment.
Both parties were required to file their respective comments to the
other party's motion for reconsideration/clarification. 7 Respondents filed their
Comment on 17 August 2005, 8 while Gonzales filed his only on 25 July
2006. 9
On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6
May 2005, or while the motions for reconsideration in G.R. No.
161957 10 were pending, wherein Gonzales challenged the orders of the
Regional Trial Court (RTC) requiring him to proceed with the arbitration
proceedings as sought by Climax-Arimco Mining Corporation (Climax-
Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were
consolidated upon the recommendation of the Assistant Division Clerk of
Court since the cases are rooted in the same Addendum Contract.
We first tackle the more recent case which is G.R. No. 167994. It
stemmed from the petition to compel arbitration filed by respondent Climax-
Arimco before the RTC of Makati City on 31 March 2000 while the complaint
for the nullification of the Addendum Contract was pending before the DENR
Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales a
Demand for Arbitration pursuant to Clause 19.1 11 of the Addendum
Contract and also in accordance with Sec. 5 of R.A. No. 876. The petition for
arbitration was subsequently filed and Climax-Arimco sought an order to
compel the parties to arbitrate pursuant to the said arbitration clause. The
case, docketed as Civil Case No. 00-444, was initially raffled to Br. 132 of the
RTC of Makati City, with Judge Herminio I. Benito as Presiding Judge.
Respondent Climax-Arimco filed on 5 April 2000 a motion to set the
application to compel arbitration for hearing.
On 14 April 2000, Gonzales filed a motion to dismiss which he
however failed to set for hearing. On 15 May 2000, he filed an Answer with
Counterclaim, 12 questioning the validity of the Addendum Contract
containing the arbitration clause. Gonzales alleged that the Addendum
Contract containing the arbitration clause is void in view of Climax-Arimco's
acts of fraud, oppression and violation of the Constitution. Thus, the
arbitration clause, Clause 19.1, contained in the Addendum Contract is also
null and void ab initio and legally inexistent.
On 18 May 2000, the RTC issued an order declaring Gonzales's
motion to dismiss moot and academic in view of the filing of his Answer with
Counterclaim. 13
On 31 May 2000, Gonzales asked the RTC to set the case for pre-
trial. 14 This the RTC denied on 16 June 2000, holding that the petition for
arbitration is a special proceeding that is summary in nature. 15 However, on
7 July 2000, the RTC granted Gonzales's motion for reconsideration of the
16 June 2000 Order and set the case for pre-trial on 10 August 2000, it being
of the view that Gonzales had raised in his answer the issue of the making of
the arbitration agreement. 16
Climax-Arimco then filed a motion to resolve its pending motion to
compel arbitration. The RTC denied the same in its 24 July 2000 order.
On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge
Herminio I. Benito for "not possessing the cold neutrality of an impartial
judge." 17 On 5 August 2000, Judge Benito issued an Order granting the
Motion to Inhibit and ordered the re-raffling of the petition for
arbitration. 18 The case was raffled to the sala of public respondent Judge
Oscar B. Pimentel of Branch 148. HSTAcI
On 23 August 2000, Climax-Arimco filed a motion for reconsideration
of the 24 July 2000 Order. 19 Climax-Arimco argued that R.A. No. 876 does
not authorize a pre-trial or trial for a motion to compel arbitration but directs
the court to hear the motion summarily and resolve it within ten days from
hearing. Judge Pimentel granted the motion and directed the parties to
arbitration. On 13 February 2001, Judge Pimentel issued the first assailed
order requiring Gonzales to proceed with arbitration proceedings and
appointing retired CA Justice Jorge Coquia as sole arbitrator. 20
Gonzales moved for reconsideration on 20 March 2001 but this was
denied in the Order dated 7 March 2005. 21
Gonzales thus filed the Rule 65 petition assailing the Orders dated
13 February 2001 and 7 March 2005 of Judge Pimentel. Gonzales contends
that public respondent Judge Pimentel acted with grave abuse of discretion
in immediately ordering the parties to proceed with arbitration despite the
proper, valid, and timely raised argument in his Answer with Counterclaim
that the Addendum Contract, containing the arbitration clause, is null and
void. Gonzales has also sought a temporary restraining order to prevent the
enforcement of the assailed orders directing the parties to arbitrate, and to
direct Judge Pimentel to hold a pre-trial conference and the necessary
hearings on the determination of the nullity of the Addendum
Contract. HSCAIT
In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:
Sec. 6. Hearing by court. — A party aggrieved by
the failure, neglect or refusal of another to perform under
an agreement in writing providing for arbitration may
petition the court for an order directing that such arbitration
proceed in the manner provided for in such agreement.
Five days notice in writing of the hearing of such
application shall be served either personally or by
registered mail upon the party in default. The court shall
hear the parties, and upon being satisfied that the making
of the agreement or such failure to comply therewith is not
in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in
issue the court shall proceed to summarily hear such
issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no
default in the proceeding thereunder, the proceeding shall
be dismissed. If the finding be that a written provision for
arbitration was made and there is a default in proceeding
thereunder, an order shall be made summarily directing
the parties to proceed with the arbitration in accordance
with the terms thereof.
The court shall decide all motions, petitions or
applications filed under the provisions of this Act, within ten
(10) days after such motions, petitions, or applications
have been heard by it.
Gonzales also cites Sec. 24 of R.A. No. 9285 or the "Alternative
Dispute Resolution Act of 2004:"
Sec. 24. Referral to Arbitration. — A court before
which an action is brought in a matter which is the subject
matter of an arbitration agreement shall, if at least one
 party so requests not later than the pre-trial conference, or
upon the request of both parties thereafter, refer the
parties to arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable of
being performed.
According to Gonzales, the above-quoted provisions of law outline
the procedure to be followed in petitions to compel arbitration, which the RTC
did not follow. Thus, referral of the parties to arbitration by Judge Pimentel
despite the timely and properly raised issue of nullity of the Addendum
Contract was misplaced and without legal basis. Both R.A. No. 876 and R.A.
No. 9285 mandate that any issue as to the nullity, inoperativeness, or
incapability of performance of the arbitration clause/agreement raised by one
of the parties to the alleged arbitration agreement must be determined by the
court prior to referring it to arbitration. They require that the trial court first
determine or resolve the issue of nullity, and there is no other venue for this
determination other than a pre-trial and hearing on the issue by the trial court
which has jurisdiction over the case. Gonzales adds that the assailed 13
February 2001 Order also violated his right to procedural due process when
the trial court erroneously ruled on the existence of the arbitration agreement
despite the absence of a hearing for the presentation of evidence on the
nullity of the Addendum Contract.
Respondent Climax-Arimco, on the other hand, assails the mode of
review availed of by Gonzales. Climax-Arimco cites Sec. 29 of R.A. No. 876:
Sec. 29. Appeals. — An appeal may be taken from
an order made in a proceeding under this Act, or from a
judgment entered upon an award
through certiorari proceedings, but such appeals shall be
limited to questions of law. The proceedings upon such an
appeal, including the judgment thereon shall be governed
by the Rules of Court in so far as they are applicable.
Climax-Arimco mentions that the special civil action
for certiorari employed by Gonzales is available only where there is no
appeal or any plain, speedy, and adequate remedy in the ordinary course of
law against the challenged orders or acts. Climax-Arimco then points out that
R.A. No. 876 provides for an appeal from such orders, which, under the
Rules of Court, must be filed within 15 days from notice of the final order or
resolution appealed from or of the denial of the motion for reconsideration
filed in due time. Gonzales has not denied that the relevant 15-day period for
an appeal had elapsed long before he filed this petition for certiorari. He
cannot use the special civil action of certiorari as a remedy for a lost appeal.
Climax-Arimco adds that an application to compel arbitration under
Sec. 6 of R.A. No. 876 confers on the trial court only a limited and special
jurisdiction, i.e., a jurisdiction solely to determine (a) whether or not the
parties have a written contract to arbitrate, and (b) if the defendant has failed
to comply with that contract. Climax-Arimco cites La Naval Drug Corporation
v. Court of Appeals, 22 which holds that in a proceeding to compel
arbitration, "[t]he arbitration law explicitly confines the court's authority only to
pass upon the issue of whether there is or there is no agreement in writing
providing for arbitration," and "[i]n the affirmative, the statute ordains that the
court shall issue an order 'summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.'" 23 Climax-Arimco argues
that R.A. No. 876 gives no room for any other issue to be dealt with in such a
proceeding, and that the court presented with an application to compel
arbitration may order arbitration or dismiss the same, depending solely on its
finding as to those two limited issues. If either of these matters is disputed,
the court is required to conduct a summary hearing on it. Gonzales's
proposition contradicts both the trial court's limited jurisdiction and the
summary nature of the proceeding itself.
Climax-Arimco further notes that Gonzales's attack on or repudiation
of the Addendum Contract also is not a ground to deny effect to the
arbitration clause in the Contract. The arbitration agreement is separate and
severable from the contract evidencing the parties' commercial or economic
transaction, it stresses. Hence, the alleged defect or failure of the main
contract is not a ground to deny enforcement of the parties' arbitration
agreement. Even the party who has repudiated the main contract is not
prevented from enforcing its arbitration provision. R.A. No. 876 itself treats
the arbitration clause or agreement as a contract separate from the
commercial, economic or other transaction to be arbitrated. The statute, in
particular paragraph 1 of Sec. 2 thereof, considers the arbitration stipulation
an independent contract in its own right whose enforcement may be
prevented only on grounds which legally make the arbitration agreement
itself revocable, thus:
Sec. 2. Persons and matters subject to arbitration.
— Two or more persons or parties may submit to the
arbitration of one or more arbitrators any controversy
existing, between them at the time of the submission and
which may be the subject of an action, or the parties to any
contract may in such contract agree to settle by arbitration
a controversy thereafter arising between them. Such
submission or contract shall be valid, enforceable and
irrevocable, save upon such grounds as exist at law for the
revocation of any contract.
xxx xxx xxx
The grounds Gonzales invokes for the revocation of the Addendum
Contract — fraud and oppression in the execution thereof — are also not
grounds for the revocation of the arbitration clause in the Contract, Climax-
Arimco notes. Such grounds may only be raised by way of defense in the
arbitration itself and cannot be used to frustrate or delay the conduct of
arbitration proceedings. Instead, these should be raised in a separate action
for rescission, it continues.
Climax-Arimco emphasizes that the summary proceeding to compel
arbitration under Sec. 6 of R.A. No. 876 should not be confused with the
procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an
application to compel arbitration where the court's authority is limited to
resolving the issue of whether there is or there is no agreement in writing
providing for arbitration, while Sec. 24 of R.A. No. 9285 refers to an ordinary
action which covers a matter that appears to be arbitrable or subject to
arbitration under the arbitration agreement. In the latter case, the statute is
clear that the court, instead of trying the case, may, on request of either or
both parties, refer the parties to arbitration, unless it finds that the arbitration
agreement is null and void, inoperative or incapable of being performed.
Arbitration may even be ordered in the same suit brought upon a matter
covered by an arbitration agreement even without waiting for the outcome of
the issue of the validity of the arbitration agreement. Art. 8 of the UNCITRAL
Model Law 24 states that where a court before which an action is brought in
a matter which is subject of an arbitration agreement refers the parties to
arbitration, the arbitral proceedings may proceed even while the action is
pending.
Thus, the main issue raised in the Petition for Certiorari is whether it
was proper for the RTC, in the proceeding to compel arbitration under R.A.
No. 876, to order the parties to arbitrate even though the defendant therein
has raised the twin issues of validity and nullity of the Addendum Contract
and, consequently, of the arbitration clause therein as well. The resolution of
both Climax-Arimco's Motion for Partial Reconsideration and/or Clarification
in G.R. No. 161957 and Gonzales's Petition for Certiorari in G.R. No. 167994
essentially turns on whether the question of validity of the Addendum
Contract bears upon the applicability or enforceability of the arbitration clause
contained therein. The two pending matters shall thus be jointly resolved.
We address the Rule 65 petition in G.R. No. 167994 first from the
remedial law perspective. It deserves to be dismissed on procedural grounds,
as it was filed in lieu of appeal which is the prescribed remedy and at that far
beyond the reglementary period. It is elementary in remedial law that the use
of an erroneous mode of appeal is cause for dismissal of the petition
for certiorari and it has been repeatedly stressed that a petition
for certiorari is not a substitute for a lost appeal. As its nature, a petition
for certiorari lies only where there is "no appeal," and "no plain, speedy and
adequate remedy in the ordinary course of law." 25 The Arbitration Law
specifically provides for an appeal by certiorari, i.e., a petition for review
under certiorari under Rule 45 of the Rules of Court that raises pure
questions of law. 26 There is no merit to Gonzales's argument that the use of
the permissive term "may" in Sec. 29, R.A. No. 876 in the filing of appeals
does not prohibit nor discount the filing of a petition for certiorari under Rule
65. 27 Proper interpretation of the aforesaid provision of law shows that the
term "may" refers only to the filing of an appeal, not to the mode of review to
be employed. Indeed, the use of "may" merely reiterates the principle that the
right to appeal is not part of due process of law but is a mere statutory
privilege to be exercised only in the manner and in accordance with law.
Neither can BF Corporation v. Court of Appeals  28 cited by
Gonzales support his theory. Gonzales argues that said case recognized and
allowed a petition for certiorari under Rule 65 "appealing the order of the
Regional Trial Court disregarding the arbitration agreement as an acceptable
remedy." 29 The BF Corporation case had its origins in a complaint for
collection of sum of money filed by therein petitioner BF Corporation against
Shangri-la Properties, Inc. (SPI). SPI moved to suspend the proceedings
alleging that the construction agreement or the Articles of Agreement
between the parties contained a clause requiring prior resort to arbitration
before judicial intervention. The trial court found that an arbitration clause
was incorporated in the Conditions of Contract appended to and deemed an
integral part of the Articles of Agreement. Still, the trial court denied the
motion to suspend proceedings upon a finding that the Conditions of Contract
were not duly executed and signed by the parties. The trial court also found
that SPI had failed to file any written notice of demand for arbitration within
the period specified in the arbitration clause. The trial court denied SPI's
motion for reconsideration and ordered it to file its responsive pleading.
Instead of filing an answer, SPI filed a petition for certiorari under Rule 65,
which the Court of Appeals, favorably acted upon. In a petition for review
before this Court, BF Corporation alleged, among others, that the Court of
Appeals should have dismissed the petition for certiorari since the order of
the trial court denying the motion to suspend proceedings "is a resolution of
an incident on the merits" and upon the continuation of the proceedings, the
trial court would eventually render a decision on the merits, which decision
could then be elevated to a higher court "in an ordinary appeal." 30
The Court did not uphold BF Corporation's argument. The issue
raised before the Court was whether SPI had taken the proper mode of
appeal before the Court of Appeals. The question before the Court of
Appeals was whether the trial court had prematurely assumed jurisdiction
over the controversy. The question of jurisdiction in turn depended on the
question of existence of the arbitration clause which is one of fact. While on
its face the question of existence of the arbitration clause is a question of fact
that is not proper in a petition for certiorari, yet since the determination of the
question obliged the Court of Appeals as it did to interpret the contract
documents in accordance with R.A. No. 876 and existing jurisprudence, the
question is likewise a question of law which may be properly taken
cognizance of in a petition for certiorari under Rule 65, so the Court held. 31
The situation in BF Corporation is not availing in the present petition.
The disquisition in BF Corporation led to the conclusion that in order that the
question of jurisdiction may be resolved, the appellate court had to deal first
with a question of law which could be addressed in a certiorari proceeding. In
the present case, Gonzales's petition raises a question of law, but not a
question of jurisdiction. Judge Pimentel acted in accordance with the
procedure prescribed in R.A. No. 876 when he ordered Gonzales to proceed
with arbitration and appointed a sole arbitrator after making the determination
that there was indeed an arbitration agreement. It has been held that as long
as a court acts within its jurisdiction and does not gravely abuse its discretion
in the exercise thereof, any supposed error committed by it will amount to
nothing more than an error of judgment reviewable by a timely appeal and
not assailable by a special civil action of certiorari. 32 Even if we overlook the
employment of the wrong remedy in the broader interests of justice, the
petition would nevertheless be dismissed for failure of Gonzalez to show
grave abuse of discretion.
Arbitration, as an alternative mode of settling disputes, has long been
recognized and accepted in our jurisdiction. The Civil Code is explicit on the
matter. 33 R.A. No. 876 also expressly authorizes arbitration of domestic
disputes. Foreign arbitration, as a system of settling commercial disputes of
an international character, was likewise recognized when the Philippines
adhered to the United Nations "Convention on the Recognition and the
Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965
Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and
allowing enforcement of international arbitration agreements between parties
of different nationalities within a contracting state. 34 The enactment of R.A.
No. 9285 on 2 April 2004 further institutionalized the use of alternative
dispute resolution systems, including arbitration, in the settlement of
disputes.
Disputes do not go to arbitration unless and until the parties have
agreed to abide by the arbitrator's decision. Necessarily, a contract is
required for arbitration to take place and to be binding. R.A. No. 876
recognizes the contractual nature of the arbitration agreement, thus:
Sec. 2.  Persons and matters subject to arbitration.
— Two or more persons or parties may submit to the
arbitration of one or more arbitrators any controversy
existing, between them at the time of the submission and
which may be the subject of an action, or the parties to any
contract may in such contract agree to settle by
arbitration a controversy thereafter arising between
them. Such submission or contract shall be valid,
enforceable and irrevocable, save upon such grounds
as exist at law for the revocation of any contract.
Such submission or contract may include question
arising out of valuations, appraisals or other controversies
which may be collateral, incidental, precedent or
subsequent to any issue between the parties.
A controversy cannot be arbitrated where one of
the parties to the controversy is an infant, or a person
judicially declared to be incompetent, unless the
appropriate court having jurisdiction approve a petition for
permission to submit such controversy to arbitration made
by the general guardian or guardian ad litem of the infant
or of the incompetent. [Emphasis added.]
Thus, we held in  Manila Electric Co. v. Pasay Transportation
Co. 35 that a submission to arbitration is a contract. A clause in a contract
providing that all matters in dispute between the parties shall be referred to
arbitration is a contract, 36 and in Del Monte Corporation-USA v. Court of
Appeals 37 that "[t]he provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of that contract and is
itself a contract. As a rule, contracts are respected as the law between the
contracting parties and produce effect as between them, their assigns and
heirs." 38
The special proceeding under Sec. 6 of R.A. No. 876 recognizes the
contractual nature of arbitration clauses or agreements. It provides:
Sec. 6. Hearing by court. — A party aggrieved by
the failure, neglect or refusal of another to perform under
an agreement in writing providing for arbitration may
petition the court for an order directing that such arbitration
proceed in the manner provided for in such agreement.
Five days notice in writing of the hearing of such
application shall be served either personally or by
registered mail upon the party in default. The court shall
hear the parties, and upon being satisfied that the making
of the agreement or such failure to comply therewith is
not in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in
issue the court shall proceed to summarily hear such
issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no
default in the proceeding thereunder, the proceeding shall
be dismissed. If the finding be that a written provision for
arbitration was made and there is a default in proceeding
thereunder, an order shall be made summarily directing
the parties to proceed with the arbitration in accordance
with the terms thereof.
The court shall decide all motions, petitions or
applications filed under the provisions of this Act, within ten
days after such motions, petitions, or applications have
been heard by it. [Emphasis added.]
 This special proceeding is the procedural mechanism for the
enforcement of the contract to arbitrate. The jurisdiction of the courts in
relation to Sec. 6 of R.A. No. 876 as well as the nature of the proceedings
therein was expounded upon in La Naval Drug Corporation v. Court of
Appeals. 39 There it was held that R.A. No. 876 explicitly confines the court's
authority only to the determination of whether or not there is an agreement in
writing providing for arbitration. In the affirmative, the statute ordains that the
court shall issue an order "summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof." If the court, upon the other
hand, finds that no such agreement exists, "the proceeding shall be
dismissed." 40 The cited case also stressed that the proceedings are
summary in nature. 41 The same thrust was made in the earlier case
of Mindanao Portland Cement Corp. v. McDonough Construction Co. of
Florida 42 which held, thus:
Since there obtains herein a written provision for
arbitration as well as failure on respondent's part to comply
therewith, the court a quo rightly ordered the parties to
proceed to arbitration in accordance with the terms of their
agreement (Sec. 6, Republic Act 876). Respondent's
arguments touching upon the merits of the dispute are
improperly raised herein. They should be addressed to the
arbitrators. This proceeding is merely a summary remedy
to enforce the agreement to arbitrate. The duty of the court
in this case is not to resolve the merits of the parties'
claims but only to determine if they should proceed to
arbitration or not. . . . 43
Implicit in the summary nature of the judicial proceedings is the
separable or independent character of the arbitration clause or agreement.
This was highlighted in the cases of Manila Electric Co. v. Pasay Trans.
Co. 44 and Del Monte Corporation-USA v. Court of Appeals. 45
The doctrine of separability, or severability as other writers call it,
enunciates that an arbitration agreement is independent of the main contract.
The arbitration agreement is to be treated as a separate agreement and the
arbitration agreement does not automatically terminate when the contract of
which it is part comes to an end. 46
The separability of the arbitration agreement is especially significant
to the determination of whether the invalidity of the main contract also
nullifies the arbitration clause. Indeed, the doctrine denotes that the invalidity
of the main contract, also referred to as the "container" contract,
does not affect the validity of the arbitration agreement. Irrespective of the
fact that the main contract is invalid, the arbitration clause/agreement still
remains valid and enforceable. 47
The separability of the arbitration clause is confirmed in Art. 16 (1) of
the UNCITRAL Model Law and Art. 21 (2) of the UNCITRAL Arbitration
Rules. 48
The separability doctrine was dwelt upon at length in the U.S. case
of Prima Paint Corp. v. Flood & Conklin Manufacturing Co. 49 In that case,
Prima Paint and Flood and Conklin (F & C) entered into a consulting
agreement whereby F & C undertook to act as consultant to Prima Paint for
six years, sold to Prima Paint a list of its customers and promised not to sell
paint to these customers during the same period. The consulting agreement
contained an arbitration clause. Prima Paint did not make payments as
provided in the consulting agreement, contending that F & C had fraudulently
misrepresented that it was solvent and able for perform its contract when in
fact it was not and had even intended to file for bankruptcy after executing
the consultancy agreement. Thus, F & C served Prima Paint with a notice of
intention to arbitrate. Prima Paint sued in court for rescission of the
consulting agreement on the ground of fraudulent misrepresentation and
asked for the issuance of an order enjoining F & C from proceeding with
arbitration. F & C moved to stay the suit pending arbitration. The trial court
granted F & C's motion, and the U.S. Supreme Court affirmed.
The U.S. Supreme Court did not address Prima Paint's argument
that it had been fraudulently induced by F & C to sign the consulting
agreement and held that no court should address this argument. Relying on
Sec. 4 of the Federal Arbitration Act — which provides that "if a party [claims
to be] aggrieved by the alleged failure . . . of another to arbitrate . . . , [t]he
court shall hear the parties, and upon being satisfied that the making of the
agreement for arbitration or the failure to comply therewith is not in issue, the
court shall make an order directing the parties to proceed to arbitration . . . . If
the making of the arbitration agreement or the failure, neglect, or refusal to
perform the same be in issue, the court shall proceed summarily to the trial
thereof" — the U.S. High Court held that the court should not order the
parties to arbitrate if the making of the arbitration agreement is in issue. The
parties should be ordered to arbitration if, and only if, they have contracted to
submit to arbitration. Prima Paint was not entitled to trial on the question of
whether an arbitration agreement was made because its allegations of
fraudulent inducement were not directed to the arbitration clause itself, but
only to the consulting agreement which contained the arbitration
agreement. 50 Prima Paint held that "arbitration clauses are 'separable' from
the contracts in which they are embedded, and that where no claim is made
that fraud was directed to the arbitration clause itself, a broad arbitration
clause will be held to encompass arbitration of the claim that the contract
itself was induced by fraud." 51
There is reason, therefore, to rule against Gonzales when he alleges
that Judge Pimentel acted with grave abuse of discretion in ordering the
parties to proceed with arbitration. Gonzales's argument that the Addendum
Contract is null and void and, therefore the arbitration clause therein is void
as well, is not tenable. First, the proceeding in a petition for arbitration under
R.A. No. 876 is limited only to the resolution of the question of whether the
arbitration agreement exists. Second, the separability of the arbitration clause
from the Addendum Contract means that validity or invalidity of the
Addendum Contract will not affect the enforceability of the agreement to
arbitrate. Thus, Gonzales's petition for certiorari should be dismissed.
This brings us back to G.R. No. 161957. The adjudication of the
petition in G.R. No. 167994 effectively modifies part of the Decision dated 28
February 2005 in G.R. No. 161957. Hence, we now hold that the validity of
the contract containing the agreement to submit to arbitration does not affect
the applicability of the arbitration clause itself. A contrary ruling would
suggest that a party's mere repudiation of the main contract is sufficient to
avoid arbitration. That is exactly the situation that the separability doctrine, as
well as jurisprudence applying it, seeks to avoid. We add that when it was
declared in G.R. No. 161957 that the case should not be brought for
arbitration, it should be clarified that the case referred to is the case actually
filed by Gonzales before the DENR Panel of Arbitrators, which was for the
nullification of the main contract on the ground of fraud, as it had already
been determined that the case should have been brought before the regular
courts involving as it did judicial issues.
The Motion for Reconsideration of Gonzales in G.R. No. 161957
should also be denied. In the motion, Gonzales raises the same question of
jurisdiction, more particularly that the complaint for nullification of the
Addendum Contract pertained to the DENR Panel of Arbitrators, not the
regular courts. He insists that the subject of his complaint is a mining dispute
since it involves a dispute concerning rights to mining areas, the Financial
and Technical Assistance Agreement (FTAA) between the parties, and it also
involves claimowners. He adds that the Court failed to rule on other issues he
raised, such as whether he had ceded his claims over the mineral deposits
located within the Addendum Area of Influence; whether the complaint filed
before the DENR Panel of Arbitrators alleged ultimate facts of fraud; and
whether the action to declare the nullity of the Addendum Contract on the
ground of fraud has prescribed.
These are the same issues that Gonzales raised in his Rule 45
petition in G.R. No. 161957 which were resolved against him in the Decision
of 28 February 2005. Gonzales does not raise any new argument that would
sway the Court even a bit to alter its holding that the complaint filed before
the DENR Panel of Arbitrators involves judicial issues which should properly
be resolved by the regular courts. He alleged fraud or misrepresentation in
the execution of the Addendum Contract which is a ground for the annulment
of a voidable contract. Clearly, such allegations entail legal questions which
are within the jurisdiction of the courts.
The question of whether Gonzales had ceded his claims over the
mineral deposits in the Addendum Area of Influence is a factual question
which is not proper for determination before this Court. At all events,
moreover, the question is irrelevant to the issue of jurisdiction of the DENR
Panel of Arbitrators. It should be pointed out that the DENR Panel of
Arbitrators made a factual finding in its Order dated 18 October 2001, which it
reiterated in its Order dated 25 June 2002, that Gonzales had, "through the
various agreements, assigned his interest over the mineral claims all in favor
of [Climax-Arimco]" as well as that without the complainant [Gonzales]
assigning his interest over the mineral claims in favor of [Climax-Arimco],
there would be no FTAA to speak of." 52 This finding was affirmed by the
Court of Appeals in its Decision dated 30 July 2003 resolving the petition
for certiorari filed by Climax-Arimco in regard to the 18 October 2001 Order of
the DENR Panel. 53
The Court of Appeals likewise found that Gonzales's complaint
alleged fraud but did not provide any particulars to substantiate it. The
complaint repeatedly mentioned fraud, oppression, violation of the
Constitution and similar conclusions but nowhere did it give any ultimate facts
or particulars relative to the allegations. 54
Sec. 5, Rule 8 of the Rules of Court specifically provides that in all
averments of fraud, the circumstances constituting fraud must be stated with
particularity. This is to enable the opposing party to controvert the particular
facts allegedly constituting the same. Perusal of the complaint indeed shows
that it failed to state with particularity the ultimate facts and circumstances
constituting the alleged fraud. It does not state what particulars about Climax-
Arimco's financial or technical capability were misrepresented, or how the
misrepresentation was done. Incorporated in the body of the complaint are
verbatim reproductions of the contracts, correspondence and government
issuances that reportedly explain the allegations of fraud and
misrepresentation, but these are, at best, evidentiary matters that should not
be included in the pleading.
As to the issue of prescription, Gonzales's claims of fraud and
misrepresentation attending the execution of the Addendum Contract are
grounds for the annulment of a voidable contract under the Civil
Code. 55 Under Art. 1391 of the Code, an action for annulment shall be
brought within four years, in the case of fraud, beginning from the time of the
discovery of the same. However, the time of the discovery of the alleged
fraud is not clear from the allegations of Gonzales's complaint. That being the
situation coupled with the fact that this Court is not a trier of facts, any ruling
on the issue of prescription would be uncalled for or even unnecessary.
WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is
DISMISSED. Such dismissal effectively renders superfluous formal action on
the Motion for Partial Reconsideration and/or Clarification filed by Climax
Mining Ltd., et al. in G.R. No. 161957.
 The Motion for Reconsideration filed by Jorge Gonzales in G.R. No.
161957 is DENIED WITH FINALITY. TEacSA
SO ORDERED.
 THIRD DIVISION
[G.R. No. 172438. July 4, 2012.]
METROPOLITAN CEBU WATER
DISTRICT,  petitioner, vs. MACTAN ROCK INDUSTRIES,
INC.,  respondent.
DECISION
MENDOZA, J  p:
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 CA-G.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 Mactan 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 DcAaSI
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 MCWD's 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 MCWD 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: STcDIE
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 Ratex30% of base
selling price of water
—————————————————————————
————————
Base Power Rate
17.2   Consumer Price Index (CPI)
Adjustment/Operating Cost
Adjustment:
Current CPI - Base CPIx40% of base selling price of
water
—————————————————————————
— of the CIAC
Base CPI
17.3   Capital Cost Recovery Adjustment:
Current Peso toBase Peso to US$
US$ Exchange Rate - Exchange Ratex30% 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. aITDAE
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
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, attorney's 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:
. . . Section 4 of Executive Order No. 1008,
otherwise known as the Construction Industry Arbitration
Law delineates CIAC's 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. CDAHaE
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 Finally, the CA stressed that "factual findings of administrative
price escalation/adjustment. The instant case involves agencies which are deemed to have acquired expertise in matters within their
technical discrepancies that are better left to an arbitral respective jurisdictions are generally accorded not only respect but even
body that has expertise in those areas. Nevertheless, in finality when supported by substantial evidence." 29
any event, the inclusion of an arbitration clause in a
contract does not  ipso facto  divest the courts of jurisdiction MCWD filed a motion for reconsideration but it was denied in the CA
to pass upon the findings of arbitral bodies, because the Resolution dated March 30, 2006.
awards are still judicially reviewable under certain Thus, this petition.
conditions. 24 (Citations omitted.)
ISSUES
MCWD's motion for reconsideration of the decision in the First
Petition was still pending when it filed the petition for review 25 under Rule MCWD raises the following issues in its petition for review:
43  (Second Petition)  appealing the decision of the CIAC. The motion for MAY THE CONSTRUCTION INDUSTRY [ARBITRATION]
reconsideration was eventually denied in a Resolution 26 dated May 3, 2006. COMMISSION EXERCISE JURISDICTION OVER
MCWD did not appeal from the denial of the motion. It, thus, became final DISPUTES ARISING FROM A WATER SUPPLY
and executory. 27 CONTRACT?
Decision of the CA in CA-G.R. CEB MAY A PARTY, WHO IS A SIGNATORY TO THE
SP. No. 00623 — Petition for review WATER SUPPLY CONTRACT[,] IN EFFECT
under Rule 43 appealing the decision SUBMITTING ITSELF TO THE JURISDICTION OF THE
of the CIAC CONSTRUCTION INDUSTRY ARBITRATION
Aggrieved by the CIAC Decision, MCWD filed a petition for review COMMISSION, QUESTION THE JURISDICTION OF
under Rule 43 with the CA which was docketed as CA-G.R. CEB SP. No. [THE] CIAC?
00623.
DOES THE CONSTRUCTION INDUSTRY ARBITRATION
The CA, however, dismissed the petition in its Decision dated COMMISSION HAVE THE (SIC) JURISDICTION OVER A
February 20, 2006. The Court therein stated that the issue of jurisdiction had COMPLAINT PRAYING FOR A REFORMATION OF A
already been resolved by the 18th Division in the First Petition, where the CA WATER SUPPLY CONTRACT?
upheld the jurisdiction of the CIAC over Arbitration Case No. 12-2004.
MAY THE COURT OF APPEALS REFUSE TO RENDER
Citing jurisprudence, the CA also ruled that there being an arbitration A [SIC]  JUDGMENT ON AN ISSUE BECAUSE THIS
clause in the Contract, the action for reformation of contract instituted by HAS BEEN ALREADY SETTLED IN A DECISION
MRII in this case fell squarely within the jurisdiction of the CIAC, not the RENDERED BY ANOTHER DIVISION OF THE COURT
courts. In relation to this, the CA noted that the present rule is that courts will OF APPEALS IN A PETITION FOR CERTIORARI, EVEN
look with favor upon amicable agreements to settle disputes through IF THE SAID DECISION HAS NOT YET
arbitration, and will only interfere with great reluctance to anticipate or nullify BEEN (SIC) FINAL DUE TO A TIMELY FILING OF A
the action of the arbitrator. MCWD being a signatory and a party to the Water MOTION FOR RECONSIDERATION? 30 HAaScT
Supply Contract, it cannot escape its obligation under the arbitration
clause. 28 AHSEaD RULING OF THE COURT
Creation of the CIAC
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 The Construction Industry Arbitration Commission  (CIAC)  was
computation of the escalation cost from January 9, 1999, or the first day of created in 1985 under Executive Order (E.O.) No. 1008 (Creating an
delivery of water. Moreover, the CA found that the CIAC did not err in ruling Arbitration Machinery for the Philippine Construction Industry), in recognition
that the contract be reformed to include Capital Cost Recovery in the of the need to establish an arbitral machinery that would expeditiously settle
parametric formula for price escalation. Neither did it err in holding that the construction industry disputes. The prompt resolution of problems arising
Capital Cost Recovery shall be 30% of the Base Selling Price of water as a from, or connected to, the construction industry was considered necessary
consequence of the reformation of Clause 17. 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 CIAC's 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. AETcSa
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 body's
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, MCWD 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. cSITDa
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, MCWD's challenge to the jurisdiction of the CIAC over the
arbitration proceedings arising 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
determining whether 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 CIAC's 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: IDTSaC
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
petitioner's 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. ICTacD
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 petitioner's 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 CIAC's 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 MCWD's pro-forma Water Supply Contract, Specifications,
Invitation to Submit Proposal, Pre-Bid Conference minutes, Addendum No. 1,
and MRII's 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 CDHSac
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 MCWD's  pro-
forma Water Supply Contract, Specifications (in its Invitation to Submit
Proposal), pronouncements at the Pre-Bid Conference, Addendum No. 1,
and MRII's Technical and Financial Proposals. MRII further extensively
reproduced the content of the joint affidavit of Messrs. Antonio P. Tompar
and Lito R. Maderazo, MRII's 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
CIAC's 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. ETHaDC
Thus, following the above discussion, the 19th Division was correct
in refusing to render judgment on the issue of jurisdiction in the Second
Petition.
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
body's 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 CIAC's 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  Peña v. Government Service Insurance System. 54
In Peña, 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, Queen's Row Subdivision, Inc., as well as
the Government Service Insurance System  (GSIS). SDTIaE
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. DSAICa
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 . . .," underscoring the expansive
character of the CIAC's 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. AaCcST
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.
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 both contractually bound to settle their dispute
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. CcSTHI
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 xxx xxx ————————————————————————————
————
Current Power Rate - Base Power Ratex30% of Base Selling Base Forex
Price of water
———————————————————————————— xxx xxx xxx 64
—————— The dispositive portion of the decision, however, reads:
Base Power Rate
xxx xxx xxx WHEREFORE[,] premises considered, judgment is
hereby rendered as follows:
2.   Operating Cost Adjustment — Local
1.   Ordering the reformation of Clause 17 of the
xxx xxx xxx Water Supply Contract to read:
Current CPI - Base CPIx30% of 40% of Base Selling Price of 17[.]   Price Escalation and/or De-
Water Escalation shall be based on the
———————————————————————————— parametric formula:
——
Base CPI 17.1   Power Rate Price
Adjustment/Power Cost Adjustment
xxx xxx xxx
Current Power Rate - Base Power Ratex30% of Base
3.   Operating Cost Adjustment — Foreign Selling Price of water
—————————————————————————
xxx xxx xxx
—————————
Current Forex - Base Forexx70% of 40% of Base Selling Price of Base Power Rate
Water 17.2   Consumer Price Index (CPI)
———————————————————————————— Adjustment/Operating (sic)  Cost
———— Adjustment:
Base Forex
Current CPI - Base CPIx40% of Base Selling Price of
 
Water
xxx xxx xxx —————————————————————————
——
4.   Capital Cost Adjustment — Local
Base CPI
xxx xxx xxx 17.3   Capital Cost Recovery Adjustment:
Current CPI - Base CPIx30% of 30% of Base Selling Price of Current Peso toBase Peso to US$
Water US$ Exchange Rate - Exchange Rate x 30% of base
———————————————————————————— selling price of water
—— —————————————————————————
Base CPI ————————
xxx xxx xxx Base Peso to US$ Exchange Rate

5.   Capital Cost Adjustment — Foreign 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
xxx xxx xxx 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
Current Forex - Base Forexx70% of  30% of Base Selling Price conclusions of the court ordering nothing. However, where one can clearly
of Water
and unquestionably conclude from the body of the decision that there was a Current Power Rate - Base Power Ratex30% of base
mistake in the dispositive portion, the body of the decision will prevail. 65 selling price of water
—————————————————————————
Following the reasoning of the CIAC in this case, there are three ————————
components to price adjustment: (1) Power Cost Adjustment (30% of the Base Power Rate
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 17.2   Consumer Price Index
selling price of water). (CPI)
Adjustment/Operating
In turn, the second component — Operating Cost Adjustment — is Cost Adjustment:
computed based on Local Operating Cost Adjustment (30%), and Foreign
Operating Cost Adjustment (70%). Current CPI - Base CPIx30% of 40% of base selling
price of water
Capital Cost Adjustment, on the other hand, is composed of Local —————————————————————————
Capital Cost Adjustment (30%), and Foreign Capital Cost Adjustment (70%). ————
Base CPI
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, 17.3   Capital Cost Recovery
Operating Cost Adjustment would be computed with the Local Operating Adjustment:
Cost Adjustment representing the entire 40% of the base selling price of
Current Peso toBase Peso to
water instead of just 30% of the Operating Cost Adjustment. Moreover, if the
US$ Exchange Rate - Exchange Ratex70% of 30% of
Capital Cost Recovery Adjustment were to be computed based solely on
base selling
Foreign Capital Cost Recovery Adjustment, it would represent the entire 30%
price of water
of the base selling price of 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
Base Peso to US$ Exchange Rate
formula for price escalation. It is thus clear that the formula as stated in the
body of the decision should govern. aTcSID Price escalation shall be reckoned from
January 1999 when the water was first
WHEREFORE, the petition is DENIED. The Decision and Resolution delivered by Mactan Rock Industries, Inc.
of the Court of Appeals in C.A.-G.R. CEB SP. No. 00623 are AFFIRMED with to the MCWD facilities in Mactan. The
the modification that the formula for the computation of the Capital Cost base CPI, base US$ Exchange Rate and
Recovery Adjustment in the fallo of the CIAC decision should be amended to the Base Power Rate shall be the
read as follows: prevailing rate in January 1999, while the
WHEREFORE, premises considered, judgment is Base Selling Price of water shall mean the
hereby rendered as follows: 1996 rate per cubic meter of water as
provided for in the Water Supply
1.   Ordering the reformation of Clause 17 of the Contract. cCaATD
Water Supply Contract to read:
2.   Ordering Respondent Metropolitan Cebu
17.   Price Escalation and/or De- Water District to pay Claimant, Mactan
Escalation shall be based on the Rock Industries, Inc. under the reformed
parametric formula: Clause 17 of the Water Supply Contract,
the net amount of Php12,126,296.70 plus
17.1.   Power Rate Price legal interest of six percent (6%) per
Adjustment/Power Cost annum from March 15, 2004, the date of
Adjustment 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.
 FIRST DIVISION
[G.R. No. 196171. December 10, 2012.]
RCBC CAPITAL CORPORATION, petitioner, vs. BANCO
DE ORO UNIBANK, INC.,  respondent.
[G.R. No. 199238. December 10, 2012.]
BANCO DE ORO UNIBANK, INC., petitioner, vs. COURT
OF APPEALS and RCBC CAPITAL
CORPORATION,  respondents.
DECISION
VILLARAMA, JR.,  J p:
Before the Court are two consolidated petitions separately filed
by the parties in an arbitration case administered by the International
Chamber of Commerce-International Court of Arbitration (ICC-ICA)
pursuant to the arbitration clause in their contract.
The Case
In G.R. No. 196171, a petition for review under Rule 45 of
the 1997 Rules of Civil Procedure, as amended, RCBC Capital
Corporation (RCBC) seeks to reverse the Court of Appeals (CA)
Decision 1 dated December 23, 2010 in CA-G.R. SP No. 113525 which
reversed and set aside the June 24, 2009 Order 2 of the Regional Trial
Court (RTC) of Makati City, Branch 148 in SP Proc. Case No. M-6046.
In G.R. No. 199238, a petition for certiorari under Rule 65,
Banco De Oro Unibank, Inc. (BDO) assails the Resolution 3 dated
September 13, 2011 in CA-G.R. SP No. 120888 which denied BDO's
application for the issuance of a stay order and/or temporary restraining
order (TRO)/preliminary injunction against the implementation of the Writ
of Execution 4 dated August 22, 2011 issued by the Makati City RTC,
Branch 148 in SP Proc. Case No. M-6046.
Factual Antecedents
On May 24, 2000, RCBC entered into a Share Purchase
Agreement 5 (SPA) with Equitable-PCI Bank, Inc. (EPCIB), George L.
Go and the individual shareholders 6 of Bankard, Inc. (Bankard) for the
sale to RCBC of 226,460,000 shares (Subject Shares) of Bankard,
constituting 67% of the latter's capital stock. After completing payment of
the contract price (P1,786,769,400), the corresponding deeds of sale
over the subject shares were executed in January 2001. ITcCaS
The dispute between the parties arose sometime in May 2003
when RCBC informed EPCIB and the other selling shareholders of an
overpayment of the subject shares, claiming there was an overstatement
of valuation of accounts amounting to P478 million and that the sellers
violated their warranty under Section 5 (g) of the SPA. 7
As no settlement was reached, RCBC commenced arbitration
proceedings with the ICC-ICA in accordance with Section 10 of the SPA
which states:
Section 10. Arbitration. —
Should there be any dispute arising between the
parties relating to this Agreement including the
interpretation or performance hereof which cannot be
resolved by agreement of the parties within fifteen (15)
days after written notice by a party to another, such matter
shall then be finally settled by arbitration under the Rules
of Conciliation and Arbitration of the International Chamber
of Commerce in force as of the time of arbitration, by three
arbitrators appointed in accordance with such rules. The
venue of arbitration shall be in Makati City, Philippines and
the arbitration proceedings shall be conducted in the
English language. Substantive aspects of the dispute shall
be settled by applying the laws of the Philippines. The
decision of the arbitrators shall be final and binding upon
the parties hereto and the expenses of arbitration
(including without limitation the award of attorney's fees to
the prevailing party) shall be paid as the arbitrators shall
determine. 8
In its Request for Arbitration 9 dated May 12, 2004, Claimant
RCBC charged Bankard with deviating from and contravening generally
accepted accounting principles and practices, due to which the financial
statements of Bankard prior to the stock purchase were far from fair and
accurate, and resulted in the overpayment of P556 million. For this
violation of sellers' representations and warranties under the SPA, RCBC
sought its rescission, as well as payment of actual damages in the
amount of P573,132,110, legal interest on the purchase price until actual
restitution, moral damages and litigation and attorney's fees, with
alternative prayer for award of damages in the amount of at least
P809,796,082 plus legal interest.
In their Answer, 10 EPCIB, Go and the other selling individual
shareholders (Respondents) denied RCBC's allegations contending that
RCBC's claim is one for overpayment or price reduction under Section 5
(h) of the SPA which is already time-barred, the remedy of rescission is
unavailable, and even assuming that rescission is permitted by the SPA,
RCBC failed to file its claim within a reasonable time. They further
asserted that RCBC is not entitled to its alternative prayer for damages,
being guilty of laches and failing to set out the details of the breach as
required under Section 7 of the SPA. A counterclaim for litigation
expenses and costs of arbitration in the amount of US$300,000, as well
as moral and exemplary damages, was likewise raised by the
Respondents. ASTIED
RCBC submitted a Reply 11 to the aforesaid Answer.
Subsequently, the Arbitration Tribunal was constituted. Mr. Neil
Kaplan was nominated by RCBC; Justice Santiago M. Kapunan (a retired
Member of this Court) was nominated by the Respondents; and Sir Ian
Barker was appointed by the ICC-ICA as Chairman.
On August 13, 2004, the ICC-ICA informed the parties that they
are required to pay US$350,000 as advance on costs pursuant to Article
30 (3) of the ICC Rules of Arbitration (ICC Rules). RCBC paid its share of
US$107,000, the balance remaining after deducting payments of
US$2,500 and US$65,000 it made earlier. Respondents' share of the
advance on costs was thus fixed at US$175,000.
Respondents filed an Application for Separate Advances on
Costs 12 dated September 17, 2004 under Article 30 (2) of the ICC
Rules, praying that the ICC fix separate advances on the cost of the
parties' respective claims and counterclaims, instead of directing them to
share equally on the advance cost of Claimant's (RCBC) claim.
Respondents deemed this advance cost allocation to be proper, pointing
out that the total amount of RCBC's claim is substantially higher — more
than 40 times — the total amount of their counterclaims, and that it would
be unfair to require them to share in the costs of arbitrating what is
essentially a price issue that is now time-barred under the SPA.
On September 20, 2004, the ICC-ICA informed Respondents
that their application for separate advances on costs was premature
pending the execution of the Terms of Reference (TOR). 13 The TOR
was settled by the parties and signed by the Chairman and Members of
the Arbitral Tribunal by October 11, 2004. On December 3, 2004, 14 the
ICC-ICA denied the application for separate advances on costs and
invited anew the Respondents to pay its share in the advance on costs.
However, despite reminders from the ICC-ICA, Respondents refused to
pay their share in the advance cost fixed by the ICC-ICA. On December
16, 2004, the ICC-ICA informed the parties that if Respondents still failed
to pay its share in the advance cost, it would apply Article 30 (4) of the
ICC Rules and request the Arbitration Tribunal to suspend its work and
set a new time limit, and if such requested deposit remains unpaid at the
expiry thereof, the counterclaims would be considered
withdrawn. 15 ECDAcS
In a fax-letter dated January 4, 2005, the ICC-ICA invited RCBC
to pay the said amount in substitution of Respondents. It also granted an
extension until January 17, 2005 within which to pay the balance of the
advance cost (US$175,000). RCBC replied that it was not willing to
shoulder the share of Respondents in the advance on costs but
nevertheless requested for a clarification as to the effect of such refusal
to substitute for Respondents' share. 16
On March 10, 2005, the ICC-ICA instructed the Arbitration
Tribunal to suspend its work and granted the parties a final time-limit of
15 days to pay the balance of the advance on costs, failing which the
claims shall be considered withdrawn, without prejudice to their
reintroduction at a later date in another proceeding. The parties were
advised that if any of them objects to the measure, it should make a
request in writing within such period. 17 For the same reason of non-
receipt of the balance of the advance cost, the ICC-ICA issued
Procedural Order No. 3 for the adjournment of the substantive hearings
and granting the Respondents a two-month extension within which to
submit their brief of evidence and witnesses.
RCBC objected to the cancellation of hearings, pointing out that
Respondents have been given ample time and opportunity to submit their
brief of evidence and prepare for the hearings and that their request for
postponement serves no other purpose but to delay the proceedings. It
alleged that Respondents' unjustified refusal to pay their share in the
advance on costs warrants a ruling that they have lost standing to
participate in the proceedings. It thus prayed that Respondents be
declared as in default, the substantive hearings be conducted as
originally scheduled, and RCBC be allowed to submit rebuttal evidence
and additional witness statements. 18
On December 15, 2005, the ICC-ICA notified the parties of its
decision to increase the advances on costs from US$350,000 to
US$450,000 subject to later readjustments, and again invited the
Respondents to pay the US$100,000 increment within 30 days from
notice. Respondents, however, refused to pay the increment, insisting
that RCBC should bear the cost of prosecuting its own claim and that
compelling the Respondents to fund such prosecution is inequitable.
Respondents reiterated that it was willing to pay the advance on costs for
their counterclaim. 19 HTScEI
On December 27, 2005, the ICC-ICA advised that it was not
possible to fix separate advances on costs as explained in its December
3, 2004 letter, and again invited Respondents to pay their share in the
advance on costs. Respondents' response contained in the letter dated
January 6, 2006 was still the same: it was willing to pay only the separate
advance on costs of their counterclaim. 20 In view of Respondents'
continuing refusal to pay its equal share in the advance on costs and
increment, RCBC wrote the ICC-ICA stating that the latter should compel
the Respondents to pay as otherwise RCBC will be prejudiced and the
inaction of the ICC-ICA and the Arbitration Tribunal will detract from the
effectiveness of arbitration as a means of settling disputes. In
accordance with Article 30 (4) of the ICC Rules, RCBC reiterated its
request to declare the Respondents as in default without any personality
to participate in the proceedings not only with respect to their
counterclaims but also to the claim of RCBC. 21
Chairman Ian Barker, in a letter dated January 25, 2006, stated
in part:
xxx xxx xxx
2. The Tribunal has no power under the ICC Rules to
order the Respondents to pay the advance on costs
sought by the ICC or to give the Claimant any relief
against the Respondents' refusal to pay. The ICC
Rules differ from, for example, the Rules of the LCIA
(Article 24.3) which enables a party paying the share of
costs which the other party has refused to pay, to
recover "that amount as a debt immediately due from
the defaulting party."
3. The only sanction under the ICC Rules is contained
within Article 30 (4). Where a request for an advance on
costs has not been complied with, after consultation with
the Tribunal, the Secretary-General may direct the
Tribunal to suspend its work. After expiry of a time limit,
all claims and counterclaims are then considered as
withdrawn. This provision cannot assist a Claimant who
is anxious to litigate its claim. Such a Claimant has to
pay the sums requested (including the Respondents'
share) if it wishes the arbitration to proceed.
4. It may be possible for a Claimant in the course of
the arbitral hearing (or whenever costs are being
considered by the Tribunal) to make submissions
based on the failure of the Respondents to pay their
share of the costs advance. What relief, if any, would
have to be then determined by the Tribunal after
having heard submissions from the
Respondents. cSHIaA
5. I should be pleased if the Claimant will advise the
Tribunal of its intention in relation to the costs advance. If
the costs are not paid, the arbitration cannot
proceed. 22 (Italics in the original; emphasis supplied)
RCBC paid the additional US$100,000 under the second
assessment to avert suspension of the Arbitration Tribunal's
proceedings.
Upon the commencement of the hearings, the Arbitration
Tribunal decided that hearings will be initially confined to issues of
liability (liability phase) while the substantial issues will be heard on a
later date (quantum phase).
Meanwhile, EPCIB's corporate name was officially changed to
Banco De Oro (BDO)-EPCIB after its merger with BDO was duly
approved by the Securities and Exchange Commission. As such, BDO
assumed all the obligations and liabilities of EPCIB under the SPA.
On September 27, 2007, the Arbitration Tribunal rendered a
Partial Award 23 (First Partial Award) in ICC-ICA Case No.
13290/MS/JB/JEM, as follows:
15AWARD AND DIRECTIONS
15.1 The Tribunal makes the following
declarations by way of Partial Award:
(a) The Claimant's claim is not time-barred under
the provisions of this SPA.
(b) The Claimant is not estopped by its conduct or
the equitable doctrine of laches from
pursuing its claim.
(c) As detailed in the Partial Award, the Claimant
has established the following breaches by
the Respondents of clause 5(g) of the
SPA:
i) the assets, revenue and net worth of
Bankard were overstated by
reason of its policy on and
recognition of Late Payment Fees;
 ii) reported receivables were higher than
their realisable values by reason
of the 'bucketing' method, thus
overstating Bankard's assets;
and cDACST
iii) the relevant Bankard statements were
inadequate and misleading in that
their disclosures caused readers
to be misinformed about
Bankard's accounting policies on
revenue and receivables.
(d) Subject to proof of loss the Claimant is entitled
to damages for the foregoing breaches.
(e) The Claimant is not entitled to rescission of the
SPA.
(f) All other issues, including any issue relating
to costs, will be dealt with in a further
or final award.
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 there should be an Expert appointed by the
Tribunal under Article 20(4) of the ICC Rules to assist the
Tribunal in this regard.
15.3 This Award is delivered by a majority of the
Tribunal (Sir Ian Barker and Mr. Kaplan). Justice Kapunan
is unable to agree with the majority's conclusion on the
claim of estoppel brought by the
Respondents. 24 (Emphasis supplied)
On October 26, 2007, RCBC filed with the Makati City RTC,
Branch 148 (SP Proc. Case No. M-6046) a motion to confirm the First
Partial Award, while Respondents filed a motion to vacate the same.
ICC-ICA by letter 25 dated October 12, 2007 increased the
advance on costs from US$450,000 to US$580,000. Under this third
assessment, RCBC paid US$130,000 as its share on the increment.
Respondents declined to pay its adjudged total share of US$290,000 on
account of its filing in the RTC of a motion to vacate the First Partial
Award. 26 The ICC-ICA then invited RCBC to substitute for Respondents
in paying the balance of US$130,000 by December 21, 2007. 27 RCBC
complied with the request, making its total payments in the amount of
US$580,000. 28
While RCBC paid Respondents' share in the increment
(US$130,000), it reiterated its plea that Respondents be declared as in
default and the counterclaims deemed as withdrawn. 29
Chairman Barker's letter dated December 18, 2007 states in
part: aHECST
xxx xxx xxx
8. Contrary to the Complainant's view, the Tribunal has no
jurisdiction to declare that the Respondents have
no right to participate in the proceedings
concerning the claim. Article 30(4) of the ICC
Rules applies only to any counterclaim of the
Respondents.
9. The Tribunal interprets the Claimant's latest letter as
an application by the Claimant to the Tribunal
for the issue of a partial award against the
Respondents in respect of their failure to pay
their share of the ICC's requests for advance
on costs.
10. I should be grateful if the Claimant would confirm that
this is the situation. If so, the Claimant should
propose a timetable for which written submissions
should be made by both parties. This is an
application which can be considered by the
Tribunal on written submissions. 30 (Emphasis
supplied)
RCBC, in a letter dated December 26, 2007, confirmed the
Arbitration Tribunal's interpretation that it was applying for a partial award
against Respondents' failure to pay their share in the advance on
costs. 31
Meanwhile, on January 8, 2008, the Makati City RTC, Branch
148 issued an order in SP Proc. Case No. M-6046 confirming the First
Partial Award and denying Respondents' separate motions to vacate and
to suspend and inhibit Barker and Kaplan. Respondents' motion for
reconsideration was likewise denied. Respondents directly filed with this
Court a petition for review on  certiorari under Rule 45, docketed as G.R.
No. 182248 and entitled Equitable PCI Banking Corporation v. RCBC
Capital Corporation. 32 In our Decision dated December 18, 2008, we
denied the petition and affirmed the RTC's ruling confirming the First
Partial Award.
On January 18, 2008, the Arbitration Tribunal set a timetable for
the filing of submission by the parties on whether it should issue a
Second Partial Award in respect of the Respondents' refusal to pay an
advance on costs to the ICC-ICA.
In compliance, RCBC filed on February 7, 2008 an Application
for Reimbursement of Advance on Costs Paid, praying for the issuance
of a partial award directing the Respondents to reimburse its payment in
the amount of US$290,000 representing Respondents' share in the
Advance on Costs and to consider Respondents' counterclaim for actual
damages in the amount of US$300,000, and moral and exemplary
damages as withdrawn for their failure to pay their equal share in the
advance on costs. RCBC invoked the plain terms of Article 30 (2) and (3)
to stress the liability of Respondents to share equally in paying the
advance on costs where the Arbitration Tribunal has fixed the
same. 33 ICAcHE
Respondents, on the other hand, filed their Opposition 34 to the
said application alleging that the Arbitration Tribunal has lost its
objectivity in an unnecessary litigation over the payment of Respondents'
share in the advance costs. They pointed out that RCBC's letter merely
asked that Respondents be declared as in default for their failure to pay
advance costs but the Arbitration Tribunal, while denying the request
offered an alternative to RCBC: a Partial Award for Respondents' share
in the advance costs even if it was clear from the language of RCBC's
December 11, 2007 letter that it had no intention of litigating for the
advance costs. Chairman Barker, after ruling earlier that it cannot grant
RCBC's request to declare the Respondents as having no right to
participate in the proceedings concerning the claim, interpreted RCBC's
letter as an application for the Arbitration Tribunal to issue a partial award
in respect of such refusal of Respondents to pay their share in the
advance on costs, and subsequently directed the parties to make
submissions on the matter. Aside from violating their right to due process
and to be heard by an impartial tribunal, Respondents also argued that in
issuing the award for advance cost, the Arbitration Tribunal decided an
issue beyond the terms of the TOR.
Respondents also emphasized that the parties agreed on a two-
part arbitration: the first part of the Tribunal's proceedings would
determine Respondents' liability, if any, for alleged violation of Section 5
(g) and (h) of the SPA; and the second part of the proceedings would
determine the amounts owed by one party to another as a consequence
of a finding of liability or lack thereof. An award for "reimbursement of
advances for costs" clearly falls outside the scope of either proceedings.
Neither can the Tribunal justify such proceedings under Article 23 of the
ICC Rules (Conservatory and Interim Measures) because that provision
does not contemplate an award for the reimbursement of advance on
costs in arbitration cases. Respondents further asserted that since the
advances on costs have been paid by the Claimant (RCBC), the main
claim and counterclaim may both be heard by the Arbitration Tribunal.
In his letter dated March 13, 2008, Chairman Barker advised the
parties, as follows:
1. The Tribunal acknowledges the Respondents' response
to the Claimant's application for a Partial Award,
based on the Respondents' failure to pay their
share of the costs, as requested by the
ICC. aESTAI
2. The Tribunal notes that neither party has referred to
an article by Mat[t]hew Secomb on this very
subject which appears in the ICC Bulletin Vol.
14 No. 1 (Spring 2003). To assist both sides and
to ensure that the Tribunal does not consider
material on which the parties have not been given
an opportunity to address, I attach a copy of this
article, which also contains reference to other
scholarly works on the subject.
3. The Tribunal will give each party seven days within
which to submit further written comments as a
consequence of being alerted to the above
authorities. 35 (Additional emphasis supplied)
The parties complied by submitting their respective comments.
RCBC refuted Respondents' allegation of partiality on the part of
Chairman Barker and reiterated the prayer in its application for
reimbursement of advance on costs paid to the ICC-ICA. RCBC
contended  that based on Mr. Secomb's article, whether the "contractual"
or "provisional measures" approach is applied, the Arbitration Tribunal is
vested with jurisdiction and authority to render an award with respect to
said reimbursement of advance cost paid by the non-defaulting party. 36
Respondents, on the other hand, maintained that RCBC's
application for reimbursement of advance cost has no basis under the
ICC Rules. They contended that no manifest injustice can be inferred
from an act of a party paying for the share of the defaulting party as this
scenario is allowed by the ICC Rules. Neither can a partial award for
advance cost be justified under the "contractual approach" since the
matter of costs for arbitration is between the ICC and the parties, not the
Arbitration Tribunal and the parties. An arbitration tribunal can issue
decisions on costs only for those costs not fixed by the ICC. 37
Respondents reiterated their position that Article 30 (3) envisions
a situation whereby a party would refuse to pay its share on the advance
on costs and provides a remedy therefor — the other party "shall be free
to pay the whole of the advance on costs." Such party's reimbursement
for payments of the defaulting party's share depends on the final arbitral
award where the party liable for costs would be determined. This is the
only remedy provided by the ICC Rules. 38
On May 28, 2008, the Arbitration Tribunal rendered the Second
Partial Award, 39 as follows: DEHcTI
7AWARD
7.1 Having read and considered the submissions of both
parties, the Tribunal AWARDS, DECLARES AND
ORDERS as follows:
(a) The Respondents are forthwith to pay to the
Claimant the sum of US$290,000.
(b) The Respondents' counterclaim is to be
considered as withdrawn.
(c) All other questions, including interest and
costs, will be dealt with in a subsequent
award. 40
The above partial award was received by RCBC and
Respondents on June 12, 2008.
On July 11, 2008, EPCIB filed a Motion to Vacate Second Partial
Award 41 in the Makati City RTC, Branch 148 (SP Proc. Case No. M-
6046). On July 10, 2008, RCBC filed in the same court a Motion to
Confirm Second Partial Award. 42
EPCIB raised the following grounds for vacating the Second
Partial Award: (a) the award is voidab initio having been rendered by the
arbitrators who exceeded their power or acted without it; and (b) the
award was procured by undue means or issued with evident partiality or
attended by misbehavior on the part of the Tribunal which resulted in a
material prejudice to the rights of the Respondents. EPCIB argued that
there is no express agreement either in the SPA or the ICC Rules for
such right of reimbursement. There is likewise no implied agreement
because from the ICC Rules, the only inference is that the parties agreed
to await the dispositions on costs liability in the Final Award, not before.
On the ruling of the Arbitration Tribunal that Respondents'
application for costs are not counterclaims, EPCIB asserted that this is
contrary to Philippine law as it is basic in our jurisdiction that
counterclaims for litigation expenses, moral and exemplary damages are
proper counterclaims, which rule should be recognized in view of Section
10 of the SPA which provides that "substantive aspects of the dispute
shall be settled by applying the laws of the Philippines." Finally, EPCIB
takes issue with Chairman Barker's interpretation of RCBC's December
11, 2007 letter as an application for a partial award for reimbursement of
the substituted payments. Such conduct of Chairman Barker is
prejudicial and proves his evident partiality in favor of RCBC. CSIHDA
RCBC filed its Opposition, 43 asserting that the Arbitration
Tribunal had jurisdiction to consider Respondents' counterclaim as
withdrawn, the same having been abandoned by not presenting any
computation or substantiation by evidence, their only computation relates
only to attorney's fees which are simply cost of litigation properly brought
at the conclusion of the arbitration. It also pointed out that the Arbitration
Tribunal was empowered by the parties' arbitral clause to determine the
manner of payment of expenses of arbitration, and that the Second
Partial Award was based on authorities and treatises on the mandatory
and contractual nature of the obligation to pay advances on costs.
In its Reply, 44 EPCIB contended that RCBC had the option to
agree to its proposal for separate advances on costs but decided against
it; RCBC's act of paying the balance of the advance cost in substitution of
EPCIB was for the purpose of having EPCIB defaulted and the latter's
counterclaim withdrawn. Having agreed to finance the arbitration until its
completion, RCBC is not entitled to immediate reimbursement of the
amount it paid in substitution of EPCIB under an interim award, as its
right to a partial or total reimbursement will have to be determined under
the final award. EPCIB asserted that the matter of reimbursement of
advance cost paid cannot be said to have properly arisen during
arbitration. EPCIB reiterated that Chairman Barker's interpretation of
RCBC's December 11, 2007 letter as an application for interim award for
reimbursement is tantamount to a promise that the award will be issued
in due course.
After a further exchange of pleadings, and other motions seeking
relief from the court in connection with the arbitration proceedings
(quantum phase), the Makati City RTC, Branch 148 issued the
Order 45 dated June 24, 2009 confirming the Second Partial Award and
denying EPCIB's motion to vacate the same. Said court held that since
the parties agreed to submit any dispute under the SPA to arbitration and
to be bound by the ICC Rules, they are also bound to pay in equal
shares the advance on costs as provided in Article 30 (2) and (3). It
noted that RCBC was forced to pay the share of EPCIB in substitution of
the latter to prevent a suspension of the arbitration proceedings, while
EPCIB's non-payment seems more like a scheme to delay such
proceedings. On the Arbitration Tribunal's ruling on EPCIB's
counterclaim, no error was committed in considering it withdrawn for
failure of EPCIB to quantify and substantiate it with supporting evidence.
As to EPCIB's claim for attorney's fees, the RTC agreed that these
should be brought only at the close of arbitration.
EPCIB moved to reconsider the June 24, 2009 Order and for the
voluntary inhibition of the Presiding Judge (Judge Oscar B. Pimentel) on
the ground that EPCIB's new counsel represented another client in
another case before him in which said counsel assailed his conduct and
had likewise sought his inhibition. Both motions were denied in the Joint
Order 46 dated March 23, 2010. cDHAaT
On April 14, 2010, EPCIB filed in the CA a petition for
review 47 with application for TRO and/or writ of preliminary injunction
(CA-G.R. SP No. 113525) in accordance with Rule 19, Section 4 of the
Special Rules of Court on Alternative Dispute Resolution 48 (Special
ADR Rules). EPCIB assailed the Makati City RTC, Branch 148 in
denying its motion to vacate the Second Partial Award despite (a) said
award having been rendered in excess of jurisdiction or power, and
contrary to public policy; (b) the fact that it was issued with evident
partiality and serious misconduct; (c) the award deals with a dispute not
contemplated within the terms of submission to arbitration or beyond the
scope of such submission, which therefore ought to be vacated pursuant
to Article 34 of the UNCITRAL Model Law; and (d) the Presiding Judge
having exhibited bias and prejudice against BDO and its counsel as
confirmed by his pronouncements in the Joint Order dated March 23,
2010 in which, instead of recusing himself, he imputed malice and
unethical conduct in the entry of appearance of Belo Gozon Elma
Asuncion and Lucila Law Offices in SP Proc. Case No. M-6046, which
warrants his voluntary inhibition.
Meanwhile, on June 16, 2010, the Arbitration Tribunal issued the
Final Award, 49 as follows:
15AWARD
15.1 The Tribunal by a majority (Sir Ian Barker & Mr.
Kaplan) awards, declares and adjudges as follows:
(a) the Respondents are to pay damages to the
Claimant for breach of the sale and
purchase agreement for Bankard shares
in the sum of P348,736,920.29.
(b) The Respondents are to pay to the Claimant
the sum of US$880,000 in respect of the
costs of the arbitration as fixed by the ICC
Court.
(c) The Respondents are to pay to the Claimant
the sum of US$582,936.56 for the fees
and expenses of Mr. Best.
(d) The Respondents are to pay to the Claimant
their expenses of the arbitration as
follows: cDCIHT
Experts' fees P7,082,788.55
Costs of without prejudice meeting P22,571.45
Costs of arbitration hearings P553,420.66
Costs of transcription service P483,597.26
  —————————
————
Total P8,144,377.62
  ===========
(e) The Respondents are to pay to the Claimant
the sum of P7,000,000 for party-and-party
legal costs.
(f) The Counterclaims of the Respondents are all
dismissed.
(g) All claims of the Claimant are dismissed, other
than those referred to above.
15.2 Justice Kapunan does not agree with the majority of
the members of the Tribunal and has issued a
dissenting opinion. He has refused to sign this
Award. 50
On July 1, 2010 BDO filed in the Makati City RTC a Petition to
Vacate Final Award Ad Cautelam, 51 docketed as SP Proc. Case No. M-
6995, which was raffled to Branch 65.
On July 28, 2010, RCBC filed with the Makati City RTC, Branch
148 (SP Proc. Case No. M-6046) a Motion to Confirm Final
Award. 52 BDO filed its Opposition with Motion to Dismiss 53 on grounds
that a Petition to Vacate Final Award Ad Cautelam  had already been
filed in SP Proc. Case No. M-6995. BDO also pointed out that RCBC did
not file the required petition but instead filed a mere motion which did not
go through the process of raffling to a proper branch of the RTC of
Makati City and the payment of the required docket/filing fees. Even
assuming that Branch 148 has jurisdiction over RCBC's motion to
confirm final award, BDO asserted that RCBC had filed before the
Arbitration Tribunal an Application for Correction and Interpretation of
Award under Article 29 of the ICC Rules, which is irreconcilable with its
Motion to Confirm Final Award before said court. Hence, the Motion to
Confirm Award was filed precipitately. TICDSc
On August 18, 2010, RCBC filed an Omnibus Motion in SP Proc.
Case No. M-6995 (Branch 65) praying for the dismissal of BDO's Petition
to Vacate Final Award or the transfer of the same to Branch 148 for
consolidation with SP Proc. Case No. M-6046. RCBC contended that
BDO's filing of its petition with another court is a blatant violation of the
Special ADR Rules and is merely a subterfuge to commit forum-
shopping. BDO filed its Opposition to the Omnibus Motion. 54
 On October 28, 2010, Branch 65 issued a Resolution 55 denying
RCBC's omnibus motion and directing the service of the petition to
RCBC for the latter's filing of a comment thereon. RCBC's motion for
reconsideration was likewise denied in the said court's Order dated
December 15, 2010. RCBC then filed its Opposition to the Petition to
Vacate Final Award  Ad Cautelam.
Meanwhile, on November 10, 2010, Branch 148 (SP Proc. Case
No. M-6046) issued an Order 56 confirming the Final Award "subject to
the correction/interpretation thereof by the Arbitral Tribunal pursuant to
the ICC Rules and the UNCITRAL Model Law," and denying BDO's
Opposition with Motion to Dismiss.
On December 30, 2010, George L. Go, in his personal capacity
and as attorney-in-fact of the other listed shareholders of Bankard, Inc. in
the SPA (Individual Shareholders), filed a petition in the CA, CA-G.R. SP
No. 117451, seeking to set aside the above-cited November 10, 2010
Order and to enjoin Branch 148 from further proceeding in SP Proc.
Case No. M-6046. By Decision 57 dated June 15, 2011, the CA
dismissed the said petition. Their motion for reconsideration of the said
decision was likewise denied by the CA in its Resolution 58 dated
December 14, 2011.
On December 23, 2010, the CA rendered its Decision in CA-G.R.
SP No. 113525, the dispositive portion of which states:
WHEREFORE, premises considered, the following
are hereby REVERSED and SET ASIDE:
1. the Order dated June 24, 2009 issued in SP
Proc. Case No. M-6046 by the Regional
Trial Court of Makati City, Branch 148,
insofar as it denied the Motion to Vacate
Second Partial Award dated July 8, 2008
and granted the Motion to Confirm Second
Partial Award dated July 10, 2008; cACEaI
2. the Joint Order dated March 23, 2010 issued in
SP Proc. Case No. M-6046 by the
Regional Trial Court of Makati City,
Branch 148, insofar as it denied the
Motion for Reconsideration dated July 28,
2009 relative to the motions concerning
the Second Partial Award immediately
mentioned above; and
3. the Second Partial Award dated May 28, 2008
issued in International Chamber of
Commerce Court of Arbitration Reference
No. 13290/MS/JB/JEM.
SO ORDERED. 59
RCBC filed a motion for reconsideration but the CA denied the
same in its Resolution 60 dated March 16, 2011. On April 6, 2011, it filed
a petition for review on  certiorari in this Court (G.R. No. 196171).
On February 25, 2011, Branch 65 rendered a Decision 61 in SP
Proc. Case No. M-6995, as follows:
WHEREFORE, premises considered, the Final
Award dated June 16, 2010 in ICC Ref. No.
13290/MS/JB/JEM is hereby VACATED with cost against
the respondent.
SO ORDERED. 62
In SP Proc. Case No. M-6046, Branch 148 issued an
Order 63 dated August 8, 2011 resolving the following motions: (1)
Motion for Reconsideration filed by BDO, Go and Individual Shareholders
of the November 10, 2010 Order confirming the Final Award; (2) RCBC's
Omnibus Motion to expunge the motion for reconsideration filed by Go
and Individual Shareholders, and for execution of the Final Award; (3)
Motion for Execution filed by RCBC against BDO; (4) BDO's Motion for
Leave to File Supplement to the Motion for Reconsideration; and (5)
Motion for Inhibition filed by Go and Individual Shareholders. Said Order
decreed:
WHEREFORE, premises considered, it is hereby
ORDERED, to wit: IcaEDC
1. Banco De Oro's Motion for Reconsideration,
Motion for Leave to File Supplement to Motion for
Reconsideration, and Motion to Inhibit are  DENIED for
lack of merit.
2. RCBC Capital's Motion to Expunge, Motion to
Execute against Mr. George L. Go and the Bankard
Shareholders, and the Motion to Execute against Banco
De Oro are hereby  GRANTED.
3. The damages awarded to RCBC Capital
Corporation in the amount of PhP348,736,920.29 is
subject to an interest of 6% per annum reckoned from the
date of RCBC Capital's extra-judicial demand or from May
5, 2003 until the confirmation of the Final Award. Likewise,
this compounded amount is subject to 12% interest per
annum from the date of the confirmation of the Final Award
 until its satisfaction. The costs of the arbitration amounting
to US$880,000.00, the fees and expenses of Mr. Best
amounting to US$582,936.56, the Claimant's expenses of
the arbitration amounting to PhP8,144,377.62, and the
party-and-party legal costs amounting to PhP7,000,000.00
all ruled in favor of RCBC Capital Corporation in the Final
Award of the Arbitral Tribunal dated June 16, 2010 are
subject to 12% legal interest per annum, also reckoned
from the date of the confirmation of the Final Award until its
satisfaction.
4. Pursuant to Section 40 of R.A. No. 9285,
otherwise known as the Alternative Dispute Resolution Act
of 2004 in relation to Rule 39 of the Rules of Court, since
the Final Award have been confirmed, the same shall be
enforced in the same manner as final and executory
decisions of the Regional Trial Court, let a writ of execution
be issued commanding the Sheriff to enforce this instant
Order confirming this Court's Order dated November 10,
2010 that judicially confirmed the June 16, 2010 Final
Award.
SO ORDERED. 64
Immediately thereafter, RCBC filed an Urgent Motion for
Issuance of a Writ of Execution. 65 On August 22, 2011, after approving
the execution bond, Branch 148 issued a Writ of Execution for the
implementation of the said court's "Order dated August 8, 2011
confirming the November 10, 2010 Order that judicially confirmed the
June 16, 2010 Final Award . . . ." 66 aDcHIS
BDO then filed in the CA, a "Petition for Review (With Application
for a Stay Order or Temporary Restraining Order and/or Writ of
Preliminary Injunction," docketed as CA-G.R. SP No. 120888. BDO
sought to reverse and set aside the Orders dated November 10, 2010
and August 8, 2011, and any writ of execution issued pursuant thereto,
as well as the Final Award dated June 16, 2010 issued by the Arbitration
Tribunal.
In its Urgent Omnibus Motion 67 to resolve the application for a
stay order and/or TRO/writ of preliminary injunction, and to quash the
Writ of Execution dated August 22, 2011 and lift the Notices of
Garnishment dated August 22, 2011, BDO argued that the assailed
orders of execution (Writ of Execution and Notice of Garnishment) were
issued with indecent haste and despite the non-compliance with the
procedures in Special ADR Rules of the November 10, 2010 Order
confirming the Final Award. BDO was not given sufficient time to respond
to the demand for payment or to elect the method of satisfaction of the
judgment debt or the property to be levied upon. In any case, with the
posting of a bond by BDO, Branch 148 has no jurisdiction to implement
the appealed orders as it would pre-empt the CA from exercising its
review under Rule 19 of the Special ADR Rules after BDO had perfected
its appeal. BDO stressed that the bond posted by RCBC was for a
measly sum of P3,000,000.00 to cause execution pending appeal of a
monetary award that may reach P631,429,345.29. RCBC also failed to
adduce evidence of "good cause" or "good reason" to justify discretionary
execution under Section 2 (a), Rule 39 of the Rules of Court.
BDO further contended that the writ of execution should be
quashed for having been issued with grave abuse of discretion
amounting to lack or excess of jurisdiction as Branch 148 modified the
Final Award at the time of execution by imposing the payment of
interests though none was provided therein nor in the Order confirming
the same.
During the pendency of CA-G.R. SP No. 120888, Branch 148
continued with execution proceedings and on motion by RCBC
designated/deputized additional sheriffs to replace Sheriff Flora who was
supposedly physically indisposed. 68 These court personnel went to the
offices/branches of BDO attempting to serve notices of garnishment and
to levy the furniture, fixtures and equipment. EcAHDT
On September 12, 2011, BDO filed a Very Urgent Motion to Lift
Levy and for Leave to Post Counter-Bond 69 before Branch 148 praying
for the lifting of the levy of BDO Private Bank, Inc. (BPBI) shares and the
cancellation of the execution sale thereof scheduled on September 15,
2011, which was set for hearing on September 14, 2011. BDO claimed
that the levy was invalid because it was served by the RTC Sheriffs not
to the authorized representatives of BPBI, as provided under Section 9
(b), Rule 39 in relation to Section 7, Rule 57 of the Rules of Court stating
that a notice of levy on shares of stock must be served to the president
or managing agent of the company which issued the shares. However,
BDO was advised by court staff that Judge Sarabia was on leave and the
case could not be set for hearing.
In its Opposition to BDO's application for injunctive relief, RCBC
prayed for its outright denial as BDO's petition raises questions of fact
and/or law which call for the CA to substitute its judgment with that of the
Arbitration Tribunal, in patent violation of applicable rules of procedure
governing domestic arbitration and beyond the appellate court's
jurisdiction. RCBC asserted that BDO's application has become moot
and academic as the writ of execution was already implemented and/or
enforced. It also contended that BDO has no clear and unmistakable
right to warrant injunctive relief because the issue of jurisdiction was
already ruled upon in CA-G.R. SP No. 117451 which dismissed the
petition filed by Go and the Individual Shareholders of Bankard
questioning the authority of Branch 148 over RCBC's motion to confirm PARTIAL AWARD IN PATENT CONTRAVENTION OF
the Final Award despite the earlier filing by BDO in another branch of the THE SPECIAL ADR RULES WHICH EXPRESSLY
RTC (Branch 65) of a petition to vacate the said award. PROHIBITS THE COURTS, IN AN APPLICATION TO
VACATE AN ARBITRAL AWARD, FROM DISTURBING
On September 13, 2011, BDO, to avert the sale of the BPBI
THE FINDINGS OF FACT AND/OR
shares scheduled on September 15, 2011 and prevent further disruption
INTERPRE[TA]TION OF LAW OF THE ARBITRAL
in the operations of BDO and BPBI, paid under protest by tendering a
TRIBUNAL. 71
Manager's Check in the amount of P637,941,185.55, which was
accepted by RCBC as full and complete satisfaction of the writ of BDO raises the following arguments in G.R. No. 199238:
execution. BDO manifested before Branch 148 that such payment was
made without prejudice to its appeal before the CA. 70 THE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR
On even date, the CA denied BDO's application for a stay order EXCESS OF JURISDICTION IN PERFUNCTORILY
and/or TRO/preliminary injunction for non-compliance with Rule 19.25 of DENYING PETITIONER BDO'S APPLICATION FOR
the Special ADR Rules. The CA ruled that BDO failed to show the STAY ORDER, AND/OR TEMPORARY RESTRAINING
existence of a clear right to be protected and that the acts sought to be ORDER AND PRELIMINARY INJUNCTION DESPITE
enjoined violated any right. Neither was BDO able to demonstrate that THE EXISTENCE AND CONCURRENCE OF ALL THE
the injury to be suffered by it is irreparable or not susceptible to ELEMENTS FOR THE ISSUANCE OF SAID
mathematical computation. PROVISIONAL RELIEFS EICScD
BDO did not file a motion for reconsideration and directly filed A. PETITIONER BDO HAS CLEAR AND UNMISTAKABLE
with this Court a petition for certiorari with urgent application for writ of RIGHTS TO BE PROTECTED BY THE
preliminary mandatory injunction (G.R. No. 199238). ISSUANCE OF THE INJUNCTIVE RELIEF
The Petitions PRAYED FOR, WHICH, HOWEVER, WERE
DISREGARDED BY PUBLIC RESPONDENT
In G.R. No. 196171, RCBC set forth the following grounds for the WHEN IT DENIED PETITIONER BDO'S PRAYER
reversal of the CA Decision dated December 23, 2010: FOR ISSUANCE OF A STAY ORDER AND/OR
I. TRO

THE COURT OF APPEALS ACTED CONTRARY TO B. PETITIONER BDO'S RIGHT TO DUE PROCESS AND
LAW AND PRIOR RULINGS OF THIS HONORABLE EQUAL PROTECTION OF THE LAW WAS
COURT AND COMMITTED REVERSIBLE ERROR IN GROSSLY VIOLATED BY THE RTC-MAKATI
VACATING THE SECOND PARTIAL AWARD ON THE CITY BRANCH 148, THE DEPUTIZED SHERIFFS
BASIS OF CHAIRMAN BARKER'S ALLEGED AND RESPONDENT RCBC CAPITAL, WHICH
PARTIALITY, WHICH IT CLAIMS IS INDICATIVE OF VIOLATION WAS AIDED BY PUBLIC
BIAS CONSIDERING THAT THE ALLEGATIONS RESPONDENT'S INACTION ON AND
CONTAINED IN BDO/EPCIB'S PETITION FALL SHORT EVENTUAL DENIAL OF THE PRAYER FOR
OF THE JURISPRUDENTIAL REQUIREMENT THAT STAY ORDER AND/OR TRO
THE SAME BE SUPPORTED BY CLEAR AND C. DUE TO THE ACTS AND ORDERS OF RTC BRANCH
CONVINCING EVIDENCE. IaEHSD 148, PETITIONER BDO SUFFERED
II. IRREPARABLE DAMAGE AND INJURY, AND
THERE WAS DIRE AND URGENT NECESSITY
THE COURT OF APPEALS ACTED CONTRARY TO FOR THE ISSUANCE OF THE INJUNCTIVE
LAW AND PRIOR RULINGS OF THIS HONORABLE RELIEF PRAYED FOR WHICH PUBLIC
COURT AND COMMITTED REVERSIBLE ERROR RESPONDENT DENIED IN GRAVE ABUSE OF
WHEN IT REVERSED THE ARBITRAL TRIBUNAL'S DISCRETION 72
FINDINGS OF FACT AND LAW IN THE SECOND
 Essentially, the issues to be resolved are: (1) whether there is
legal ground to vacate the Second Partial Award; and (2) whether BDO is
entitled to injunctive relief in connection with the execution proceedings
in SP Proc. Case No. M-6046.
In their TOR, the parties agreed on the governing law and rules
as follows:
Laws to be Applied
13 The Tribunal shall determine the issues to be resolved
in accordance with the laws of the Republic of the
Philippines.
Procedure to be Applied
14 The proceedings before the Tribunal shall be governed
by the ICC Rules of Arbitration (1 January 1998)
and the law currently applicable to arbitration in
the Republic of the Philippines. 73
As stated in the Partial Award dated September 27, 2007,
although the parties provided in Section 10 of the SPA that the arbitration
shall be conducted under the ICC Rules, it was nevertheless arbitration
under Philippine law since the parties are both residents of this country.
The provisions of Republic Act No. 876 74 (RA 876), as amended by
Republic Act No. 9285 75 (RA 9285) principally applied in the arbitration
between the herein parties. 76 aCSDIc
The pertinent provisions of R.A. 9285 provide:
SEC. 40. Confirmation of Award. — The
confirmation of a domestic arbitral award shall be
governed by Section 23 of R.A. 876.
A domestic arbitral award when confirmed shall be
enforced in the same manner as final and executory
decisions of the Regional Trial Court.
The confirmation of a domestic award shall be
made by the regional trial court in accordance with the
Rules of Procedure to be promulgated by the Supreme
Court.
xxx xxx xxx
SEC. 41. Vacation Award. — A party to a
domestic arbitration may question the arbitral award with
the appropriate regional trial court in accordance with the
rules of procedure to be promulgated by the Supreme
Court only on those grounds enumerated in Section 25 of
Republic Act No. 876. Any other ground raised against a
domestic arbitral award shall be disregarded by the
regional trial court.
Rule 11.4 of the Special ADR Rules sets forth the grounds for
vacating an arbitral award:
Rule 11.4. Grounds. — (A)  To vacate an arbitral
award. — The arbitral award may be vacated on the
following grounds:
a. The arbitral award was procured through
corruption, fraud or other undue means;
b. There was evident partiality or corruption in
the arbitral tribunal or any of its members;
c. The arbitral tribunal was guilty of misconduct or
any form of misbehavior that has materially prejudiced the
rights of any party such as refusing to postpone a hearing
upon sufficient cause shown or to hear evidence pertinent
and material to the controversy;
d. One or more of the arbitrators was disqualified
to act as such under the law and willfully refrained from
disclosing such disqualification; or cDEHIC
e. The arbitral tribunal exceeded its powers, or
so imperfectly executed them, such that a complete, final
and definite award upon the subject matter submitted to
them was not made.
The award may also be vacated on any or all of
the following grounds:
a. The arbitration agreement did not exist, or is
invalid for any ground for the revocation of a contract or is
otherwise unenforceable; or
b. A party to arbitration is a minor or a person
judicially declared to be incompetent.
xxx xxx xxx
In deciding the petition to vacate the arbitral
award, the court shall disregard any other ground than
those enumerated above. (Emphasis supplied)
Judicial Review
At the outset, it must be stated that a review brought to this Court
under the Special ADR Rules is not a matter of right. Rule 19.36 of said
Rules specified the conditions for the exercise of this Court's
discretionary review of the CA's decision.
Rule 19.36. Review discretionary.  — A review by
the Supreme Court is not a matter of right, but of sound
judicial discretion, which will be granted only for serious
and compelling reasons resulting in grave prejudice to
the aggrieved party. The following, while neither
controlling nor fully measuring the court's discretion,
indicate the serious and compelling, and necessarily,
restrictive nature of the grounds that will warrant the
exercise of the Supreme Court's discretionary
powers, when the Court of Appeals:
a. Failed to apply the applicable standard or
test for judicial review prescribed in these Special
ADR Rules in arriving at its decision resulting in
substantial prejudice to the aggrieved party; acCETD
b. Erred in upholding a final order or decision
despite the lack of jurisdiction of the court that rendered
such final order or decision;
c. Failed to apply any provision, principle, policy or
rule contained in these Special ADR Rules resulting in
substantial prejudice to the aggrieved party; and
d. Committed an error so egregious and harmful to
a party as to amount to an undeniable excess of
jurisdiction.
The mere fact that the petitioner disagrees with the
Court of Appeals' determination of questions of fact, of law
or both questions of fact and law, shall not warrant the
exercise of the Supreme Court's discretionary power. The
error imputed to the Court of Appeals must be
grounded upon any of the above prescribed grounds
for review or be closely analogous thereto.
A mere general allegation that the Court of
Appeals has committed serious and substantial error or
that it has acted with grave abuse of discretion resulting in
substantial prejudice to the petitioner without indicating
with specificity the nature of such error or abuse of
discretion and the serious prejudice suffered by the
petitioner on account thereof, shall constitute sufficient
ground for the Supreme Court to dismiss outright the
petition. (Emphasis supplied)
The applicable standard for judicial review of arbitral awards in
this jurisdiction is set forth in Rule 19.10 which states:
Rule 19.10. Rule on judicial review on arbitration
in the Philippines. — As a general rule, the court can only
vacate or set aside the decision of an arbitral tribunal upon
a clear showing that the award suffers from any of the
infirmities or grounds for vacating an arbitral award
under Section 24 of Republic Act No. 876 or under
Rule 34 of the Model Law in a domestic arbitration, or for
setting aside an award in an international arbitration under
Article 34 of the Model Law, or for such other grounds
provided under these Special Rules.
xxx xxx xxx
The court shall not set aside or vacate the award
of the arbitral tribunal merely on the ground that the arbitral
tribunal committed errors of fact, or of law, or of fact and
law, as the court cannot substitute its judgment for that of
the arbitral tribunal. (Emphasis supplied) DAaHET
The above rule embodied the stricter standard in deciding
appeals from arbitral awards established by jurisprudence. In the case
of Asset Privatization Trust v. Court of Appeals, 77 this Court held:
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. Courts are without power to amend or overrule
merely because of disagreement with matters of law or
facts determined by the arbitrators. 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. 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. Judicial review of an
arbitration is, thus, more limited than judicial review of a
trial. 78
Accordingly, we examine the merits of the petition before us
solely on the statutory ground raised for vacating the Second Partial
Award: evident partiality, pursuant to Section 24 (b) of the Arbitration Law
(RA 876) and Rule 11.4 (b) of the Special ADR Rules.
Evident Partiality
Evident partiality is not defined in our arbitration laws. As one of
the grounds for vacating an arbitral award under the Federal Arbitration
Act (FAA) in the United States (US), the term "encompasses both an
arbitrator's explicit bias toward one party and an arbitrator's inferred bias
when an arbitrator fails to disclose relevant information to the parties." 79
From a recent decision 80 of the Court of Appeals of Oregon, we
quote a brief discussion of the common meaning of evident partiality:
To determine the meaning of "evident partiality,"
we begin with the terms themselves. The common
meaning of "partiality" is "the inclination to favor one
side." Webster's Third New Int'l Dictionary 1646
(unabridged ed 2002); see also id. (defining "partial" as
"inclined to favor one party in a cause or one side of a
question more than the other: biased, predisposed"
(formatting in original)). "Inclination," in turn, means "a
particular disposition of mind or character: propensity,
bent" or "a tendency to a particular aspect, state,
character, or action."  Id. at 1143 (formatting in
original); see also id. (defining "inclined" as "having
inclination, disposition, or tendency"). ECcTaS
The common meaning of "evident" is "capable of
being perceived esp[ecially] by sight: distinctly visible:
being in evidence: discernable[;] . . . clear to the
understanding: obvious, manifest, apparent."  Id. at 789
(formatting in original); see also id. (stating that synonyms
of "evident" include "apparent, patent, manifest, plain,
clear, distinct, obvious, [and] palpable" and that, "[s]ince
evident rather naturally suggests  evidence, it may
imply the existence of signs and indications that must
lead to an identification or inference" (formatting in
original)). (Emphasis supplied)
Evident partiality in its common definition thus implies "the
existence of signs and indications  that must lead to an identification or
inference" of partiality. 81 Despite the increasing adoption of arbitration in
many jurisdictions, there seems to be no established standard for
determining the existence of evident partiality. In the US, evident
partiality "continues to be the subject of somewhat conflicting and
inconsistent judicial interpretation when an arbitrator's failure to disclose
prior dealings is at issue." 82
The first case to delineate the standard of evident partiality in
arbitration proceedings was  Commonwealth Coatings Corp. v.
Continental Casualty Co., et al. 83 decided by the US Supreme Court in
1968. The Court therein addressed the issue of whether the requirement
of impartiality applies to an arbitration proceeding. The plurality opinion
written by Justice Black laid down the rule that the arbitrators must
disclose to the parties "any dealings that might create an impression of
possible bias," 84 and that underlying such standard is "the premise that
any tribunal permitted by law to try cases and controversies not only
must be unbiased but also must avoid even the appearance of
bias." 85 In a separate concurring opinion, Justice White joined by
Justice Marshall, remarked that "[t]he Court does not decide today that
arbitrators are to be held to the standards of judicial decorum of Article III
judges, or indeed of any judges." 86 He opined that arbitrators should not
automatically be disqualified from an arbitration proceeding because of a
business relationship where both parties are aware of the relationship in
advance, or where the parties are unaware of the circumstances but the
relationship is trivial. However, in the event that the arbitrator has a
"substantial interest" in the transaction at hand, such information must be
disclosed. HSDIaC
Subsequent cases decided by the US Court of Appeals Circuit
Courts adopted different approaches, given the imprecise standard of
evident partiality in  Commonwealth Coatings.
In Morelite Construction Corp. v. New York District Council
Carpenters Benefit Funds, 87 the Second Circuit reversed the judgment
of the district court and remanded with instructions to vacate the
arbitrator's award, holding that the existence of a father-son relationship
between the arbitrator and the president of appellee union provided
strong evidence of partiality and was unfair to appellant construction
contractor. After examining prior decisions in the Circuit, the court
concluded that —
. . . we cannot countenance the promulgation of a
standard for partiality as insurmountable as "proof of actual
bias" — as the literal words of Section 10  might suggest.
Bias is always difficult, and indeed often impossible, to
"prove." Unless an arbitrator publicly announces his
partiality, or is overheard in a moment of private
admission, it is difficult to imagine how "proof" would be
obtained. Such a standard, we fear, occasionally would
require that we enforce awards in situations that are clearly
repugnant to our sense of fairness, yet do not yield "proof"
of anything.
If the standard of "appearance of bias" is too
low for the invocation of Section 10, and "proof of
actual bias" too high, with what are we left? Profoundly
aware of the competing forces that have already been
discussed, we hold that "evident partiality" within the
meaning of 9 U.S.C. § 10 will be found where a
reasonable person would have to conclude that an
arbitrator was partial to one party to the
arbitration. . . . 88 (Emphasis supplied)
 In Apperson v. Fleet Carrier Corporation, 89 the Sixth Circuit
agreed with the Morelite court's analysis, and accordingly held that to
invalidate an arbitration award on the grounds of bias, the challenging
party must show that "a reasonable person would have to conclude that
an arbitrator was partial" to the other party to the arbitration.
This "myriad of judicial interpretations and approaches to evident
partiality" resulted in a lack of a uniform standard, leaving the courts "to
examine evident partiality on a case-by-case basis." 90 The case at bar
does not present a non-disclosure issue but conduct allegedly showing
an arbitrator's partiality to one of the parties. TAHCEc
EPCIB/BDO, in moving to vacate the Second Partial Award
claimed that the Arbitration Tribunal exceeded its powers in deciding the
issue of advance cost not contemplated in the TOR, and that Chairman
Barker acted with evident partiality in making such award. The RTC held
that BDO failed to substantiate these allegations. On appeal, the CA
likewise found that the Arbitration Tribunal did not go beyond the
submission of the parties because the phrasing of the scope of the
agreed issues in the TOR ("[t]he issues to be determined by the Tribunal
are those issues arising from the said Request for Arbitration, Answer
and Reply and such other issues as may properly arise during the
arbitration") is broad enough to accommodate a finding on the liability
and the repercussions of BDO's failure to share in the advances on
costs. Section 10 of the SPA also gave the Arbitration Tribunal authority
to decide how the costs should be apportioned between them.
However, the CA found factual support in BDO's charge of
partiality, thus:
On the issue on evident partiality, the rationale in
the American case of Commonwealth Coatings Corp. v.
Continental Cas. Co. appears to be very prudent.
In Commonwealth, the United States Supreme Court
reasoned that courts "should . . . be even more scrupulous
to safeguard the impartiality of arbitrators than judges,
since the former have completely free rein to decide the
law as well as the facts, and are not subject to appellate
review" in general. This taken into account, the Court
applies the standard demanded of the conduct of
magistrates by analogy. After all, the ICC Rules require
that an arbitral tribunal should act fairly and impartially.
Hence, an arbitrator's conduct should be beyond
reproach and suspicion. His acts should be free from
the appearances of impropriety.
An examination of the circumstances claimed to
be illustrative of Chairman Barker's partiality is indicative of
bias. Although RCBC had repeatedly asked for
reimbursement and the withdrawal of BDO's counterclaims
prior to Chairman Barker's December 18, 2007 letter, it is
baffling why it is only in the said letter that RCBC's
prayer was given a complexion of being an application
for a partial award. To the Court, the said letter
signaled a preconceived course of action that the
relief prayed for by RCBC will be granted. HaTISE
That there was an action to be taken beforehand is
confirmed by Chairman Barker's furnishing the parties with
a copy of the Secomb article. This article ultimately
favored RCBC by advancing its cause. Chairman
Barker makes it appear that he intended good to be
done in doing so but due process dictates the cold
neutrality of impartiality. This means that "it is not
enough . . . [that] cases [be decided] without bias and
favoritism. Nor is it sufficient that . . . prepossessions [be
rid of]. [A]ctuations should moreover inspire that belief."
These put into the equation, the furnishing of the Secomb
article further marred the trust reposed in Chairman
Barker. The suspicion of his partiality on the subject matter
deepened. Specifically, his act established that he had pre-
formed opinions.
Chairman Barker's providing of copies of the said
text is easily interpretable that he had prejudged the matter
before him. In any case, the Secomb article tackled bases
upon which the Second Partial Award was founded. The
subject article reflected in advance the disposition of
the ICC arbitral tribunal. The award can definitely be
viewed as an affirmation that the bases in the Secomb
article were adopted earlier on. To the Court, actuations of
arbitrators, like the language of judges, "must be guarded
and measured lest the best of intentions be misconstrued."
xxx xxx xxx 91 (Emphasis supplied)
We affirm the foregoing findings and conclusion of the appellate
court save for its reference to the  obiter in  Commonwealth Coatings that
arbitrators are held to the same standard of conduct imposed on judges.
Instead, the Court adopts the  reasonable impression of
partiality standard, which requires a showing that a reasonable person
would have to conclude that an arbitrator was partial to the other party to
the arbitration. Such interest or bias, moreover, "must be direct, definite
and capable of demonstration rather than remote, uncertain, or
speculative." 92 When a claim of arbitrator's evident partiality is made,
"the court must ascertain from such record as is available whether the
arbitrators' conduct was so biased and prejudiced as to destroy
fundamental fairness." 93 HICSTa
Applying the foregoing standard, we agree with the CA in finding
that Chairman Barker's act of furnishing the parties with copies of
Matthew Secomb's article, considering the attendant circumstances, is
indicative of partiality such that a reasonable man would have to
conclude that he was favoring the Claimant, RCBC. Even before the
issuance of the Second Partial Award for the reimbursement of advance
costs paid by RCBC, Chairman Barker exhibited strong inclination to
grant such relief to RCBC, notwithstanding his categorical ruling that the
Arbitration Tribunal "has no power  under the ICC Rules to order the
Respondents to pay the advance on costs sought by the ICC or to give
the Claimant any relief against the Respondents' refusal to pay." 94 That
Chairman Barker was predisposed to grant relief to RCBC was shown by
his act of interpreting RCBC's letter, which merely reiterated its plea to
declare the Respondents in default and consider all counterclaims
withdrawn — as what the ICC Rules provide — as an application to the
Arbitration Tribunal to issue a partial award in respect of BDO's failure to
share in the advance costs. It must be noted that RCBC in said letter did
not contemplate the issuance of a partial order, despite Chairman
Barker's previous letter which mentioned the possibility of granting relief
upon the parties making submissions to the Arbitration Tribunal.
Expectedly, in compliance with Chairman Barker's December 18, 2007
letter, RCBC formally applied for the issuance of a partial award ordering
BDO to pay its share in the advance costs.
Mr. Secomb's article, "Awards and Orders Dealing with the
Advance on Costs in ICC Arbitration: Theoretical Questions and
Practical Problems" 95 specifically dealt with the situation when one of
the parties to international commercial arbitration refuses to pay its share
on the advance on costs. After a brief discussion of the provisions of ICC
Rules dealing with advance on costs, which did not provide for issuance
of a partial award to compel payment by the defaulting party, the author
stated:
4. As we can see, the Rules have certain mechanisms to
deal with defaulting parties. Occasionally, however,
parties have sought to use other methods to tackle the
problem of a party refusing to pay its part of the advance
on costs. These have included seeking an order or
award from the arbitral tribunal condemning the
defaulting party to pay its share of the advance on costs.
Such applications are the subject of this
article. 96 acSECT
By furnishing the parties with a copy of this article, Chairman
Barker practically armed RCBC with supporting legal arguments under
the "contractual approach" discussed by Secomb. True enough, RCBC in
its Application for Reimbursement of Advance Costs Paid utilized said
approach as it singularly focused on Article 30 (3) 97 of the ICC Rules
and fiercely argued that BDO was contractually bound to share in the
advance costs fixed by the ICC. 98 But whether under the "contractual
approach" or "provisional approach" (an application must be treated as
an interim measure of protection under Article 23 [1] rather than
enforcement of a contractual obligation), both treated in the Secomb
article, RCBC succeeded in availing of a remedy which was not
expressly allowed by the Rules but in practice has been resorted to by
parties in international commercial arbitration proceedings. It may also be
mentioned that the author, Matthew Secomb, is a member of the ICC
Secretariat and the "Counsel in charge of the file", as in fact he signed
some early communications on behalf of the ICC Secretariat pertaining
to the advance costs fixed by the ICC. 99 This bolstered the impression
that Chairman Barker was predisposed to grant relief to RCBC by issuing
a partial award.
Indeed, fairness dictates that Chairman Barker refrain from
suggesting to or directing RCBC towards a course of action to advance
the latter's cause, by providing it with legal arguments contained in an
article written by a lawyer who serves at the ICC Secretariat and was
involved or had participation — insofar as the actions or
recommendations of the ICC — in the case. Though done purportedly to
assist both parties, Chairman Barker's act clearly violated Article 15 of
the ICC Rules declaring that "[i]n all cases, the Arbitral Tribunal shall act
fairly and impartially and ensure that each party has a reasonable
opportunity to present its case." Having pre-judged the matter in dispute,
Chairman Barker had lost his objectivity in the issuance of the Second
Partial Award.
In fine, we hold that the CA did not err in concluding that the
article ultimately favored RCBC as it reflected in advance the disposition
of the Arbitral Tribunal, as well as "signalled a preconceived course of
action that the relief prayed for by RCBC will be granted." This
conclusion is further confirmed by the Arbitral Tribunal's pronouncements
in its Second Partial Award which not only adopted the "contractual
approach" but even cited Secomb's article along with other references,
thus: CScaDH
6.1 It appears to the Tribunal that the issue posed by this
application is essentially a contractual one. . . .
xxx xxx xxx
6.5 Matthew Secomb, considered these points in the
article in 14 ICC Bulletin No. 1 (2003) which was
sent to the parties. At Para. 19, the learned author
 quoted from an ICC Tribunal (Case No. 11330) as
follows:
"The Arbitral Tribunal concludes that the
parties in arbitrations conducted under
the ICC Rules have a mutually binding
obligation to pay the advance on costs
as determined by the ICC Court, based
on Article 30-3 ICC Rules which — by
reference — forms part of the parties'
agreement to arbitration under such
Rules." 100
The Court, however, must clarify that the merits of the parties'
arguments as to the propriety of the issuance of the Second Partial
Award are not in issue here. Courts are generally without power to
amend or overrule merely because of disagreement with matters of law
or facts determined by the arbitrators. 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. A contrary rule would make an
arbitration award the commencement, not the end, of litigation. 101 It is
the finding of evident partiality which constitutes legal ground for vacating
the Second Partial Award and not the Arbitration Tribunal's application of
the ICC Rules adopting the "contractual approach" tackled in Secomb's
article.
Alternative dispute resolution methods or ADRs — like
arbitration, mediation, negotiation and conciliation — are encouraged by
this 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
relationship. 102 Institutionalization of ADR was envisioned as "an
important means to achieve speedy and impartial justice and declog
court dockets." 103 The most important feature of arbitration, and indeed,
the key to its success, is the public's confidence and trust in the integrity
of the process. 104 For this reason, the law authorizes vacating an
arbitral award when there is evident partiality in the arbitrators. aAcHCT
Injunction Against Execution
of Arbitral Award
Before an injunctive writ can be issued, it is essential that the
following requisites are present: (1) there must be a right inesse  or the
existence of a right to be protected; and (2) the act against which
injunction to be directed is a violation of such right. The onus probandi  is
on movant to show that there exists a right to be protected, which is
directly threatened by the act sought to be enjoined. Further, there must
be a showing that the invasion of the right is material and substantial and
that there is an urgent and paramount necessity for the writ to prevent a
serious damage. 105
Rule 19.22 of the Special ADR Rules states:
Rule 19.22. Effect of appeal. — The appeal shall not stay
the award, judgment, final order or resolution sought to be
reviewed unless the Court of Appeals directs otherwise
upon such terms as it may deem just.
We find no reversible error or grave abuse of discretion in the
CA's denial of the application for stay order or TRO upon its finding that
BDO failed to establish the existence of a clear legal right to enjoin
execution of the Final Award confirmed by the Makati City RTC, Branch
148, pending resolution of its appeal. It would be premature to address
on the merits the issues raised by BDO in the present petition
considering that the CA still has to decide on the validity of said court's
orders confirming the Final Award. But more important, since BDO had
already paid P637,941,185.55 in manager's check, albeit under protest,
and which payment was accepted by RCBC as full and complete
satisfaction of the writ of execution, there is no more act to be enjoined.
Settled is the rule that injunctive reliefs are preservative
remedies for the protection of substantive rights and interests. Injunction
is not a cause of action in itself, but merely a provisional remedy, an
adjunct to a main suit. When the act sought to be enjoined has
become fait accompli, the prayer for provisional remedy should be
denied. 106
Thus, the Court ruled in Go v. Looyuko 107 that when the events
sought to be prevented by injunction or prohibition have already
happened, nothing more could be enjoined or prohibited. Indeed, it is a
universal principle of law that an injunction will not issue to restrain the
performance of an act already done. This is so for the simple reason that
nothing more can be done in reference thereto. A writ of injunction
becomes moot and academic after the act sought to be enjoined has
already been consummated. ADTCaI
WHEREFORE, premises considered, the petition in G.R. No.
199238 is DENIED. The Resolution dated September 13, 2011 of the
Court of Appeals in CA-G.R. SP No. 120888 is AFFIRMED.
The petition in G.R. No. 196171 is DENIED. The Decision dated
December 23, 2010 of the Court of Appeals in CA-G.R. SP No. 113525
is hereby AFFIRMED.
SO ORDERED.
 SECOND DIVISION
[G.R. No. 198075. September 4, 2013.]
KOPPEL, INC. (formerly known as KPL AIRCON,
INC.), petitioner, vs. MAKATI ROTARY CLUB
FOUNDATION, INC.,  respondent.
DECISION
PEREZ, J  p:
This case is an appeal 1 from the Decision 2 dated 19 August 2011
of the Court of Appeals in C.A.-G.R. SP No. 116865.
The facts:
The Donation
Fedders Koppel, Incorporated (FKI), a manufacturer of air-
conditioning products, was the registered owner of a parcel of land located at
Km. 16, South Superhighway, Parañaque City (subject land). 3 Within the
subject land are buildings and other improvements dedicated to the business
of FKI. 4
In 1975, FKI 5 bequeathed the subject land (exclusive of the
improvements thereon) in favor of herein respondent Makati Rotary Club
Foundation, Incorporated by way of a conditional donation. 6 The respondent
accepted the donation with all of its conditions. 7 On 26 May 1975, FKI and
the respondent executed a Deed of Donation 8 evidencing their
consensus. DHcSIT
The Lease and the Amended Deed of Donation
One of the conditions of the donation required the respondent to
lease the subject land back to FKI under terms specified in their Deed of
Donation. 9 With the respondent's acceptance of the donation, a lease
agreement between FKI and the respondent was, therefore, effectively
incorporated in the Deed of Donation.
Pertinent terms of such lease agreement, as provided in the Deed of
Donation, were as follows:
1. The period of the lease is for twenty-five (25)
years, 10 or until the 25th of May 2000;
2. The amount of rent to be paid by FKI for the first twenty-
five (25) years is P40,126.00 per annum. 11
The Deed of Donationalso stipulated that the lease over the subject
property is renewable for another period of twenty-five (25) years "upon
mutual agreement"  of FKI and the respondent. 12 In which case, the amount
of rent shall be determined in accordance with item 2 (g) of the  Deed of
Donation, viz.:
g. The rental for the second 25 years shall be the
subject of mutual agreement and in case of disagreement
the matter shall be referred to a Board of three Arbitrators
appointed and with powers in accordance with the
Arbitration Law of the Philippines, Republic Act 878, whose
function shall be to decide the current fair market value of
the land excluding the improvements, provided, that, any
increase in the fair market value of the land shall not
exceed twenty five percent (25%) of the original value of
the land donated as stated in paragraph 2(c) of this Deed.
The rental for the second 25 years shall not exceed three
percent (3%) of the fair market value of the land excluding
the improvements as determined by the Board of
Arbitrators. 13
In October 1976, FKI and the respondent executed an  Amended
Deed of Donation 14 that reiterated the provisions of the  Deed of Donation,
including those relating to the lease of the subject land.
Verily, by virtue of the lease agreement contained in the Deed of
Donation and  Amended Deed of Donation, FKI was able to continue in its
possession and use of the subject land.
2000 Lease Contract
Two (2) days before the lease incorporated in the  Deed of
Donation and Amended Deed of Donation was set to expire, or on 23 May
2000, FKI and respondent executed another contract of lease (2000 Lease
Contract) 15 covering the subject land. In this 2000 Lease Contract, FKI and
respondent agreed on a new five-year lease to take effect on the 26th of May
2000, with annual rents ranging from P4,000,000 for the first year up to
P4,900,000 for the fifth year. 16
 The 2000 Lease Contract  also contained an arbitration clause
enforceable in the event the parties come to disagreement about
the "interpretation, application and execution"  of the lease, viz.: EcAHDT
19. Governing Law — The provisions of this [2000
Lease Contract] shall be governed, interpreted and
construed in all aspects in accordance with the laws of the
Republic of the Philippines.
Any disagreement as to the interpretation,
application or execution of this [2000 Lease Contract]
shall be submitted to a board of three (3) arbitrators
constituted in accordance with the arbitration law of
the Philippines. The decision of the majority of the
arbitrators shall be binding upon [FKI and
respondent]. 17 (Emphasis supplied)
2005 Lease Contract
After the 2000 Lease Contract  expired, FKI and respondent agreed
to renew their lease for another five (5) years. This new lease (2005 Lease
Contract) 18 required FKI to pay a fixed annual rent of P4,200,000. 19 In
addition to paying the fixed rent, however, the  2005 Lease Contract  also
obligated FKI to make a yearly "donation" of money to the
respondent. 20 Such donations ranged from P3,000,000 for the first year up
to P3,900,000 for the fifth year. 21
Notably, the  2005 Lease Contract contained an arbitration clause
similar to that in the  2000 Lease Contract, to wit:
19. Governing Law — The provisions of this [2005
Lease Contract] shall be governed, interpreted and
construed in all aspects in accordance with the laws of the
Republic of the Philippines.
Any disagreement as to the interpretation,
application or execution of this [2005 Lease Contract]
shall be submitted to a board of three (3) arbitrators
constituted in accordance with the arbitration law of
the Philippines. The decision of the majority of the
arbitrators shall be binding upon [FKI and
respondent]. 22 (Emphasis supplied)
The Assignment and Petitioner's Refusal to Pay
From 2005 to 2008, FKI faithfully paid the rentals
and "donations" due it per the 2005 Lease Contract. 23 But in June of 2008,
FKI sold all its rights and properties relative to its business in favor of herein
petitioner Koppel, Incorporated. 24 On 29 August 2008, FKI and petitioner
executed an Assignment and Assumption of Lease and Donation 25 —
wherein FKI, with the conformity of the respondent, formally assigned all of
its interests and obligations under the Amended Deed of Donation  and
the  2005 Lease Contract in favor of petitioner. EDcICT
The following year, petitioner discontinued the payment of the rent
and "donation" under the 2005 Lease Contract.
Petitioner's refusal to pay such rent and "donation" emanated from
its belief that the rental stipulations of the 2005 Lease Contract, and even of
the 2000 Lease Contract, cannot be given effect because they violated one
of the "material conditions" of the donation of the subject land, as stated in
the Deed of Donation and Amended Deed of Donation. 26
According to petitioner, the Deed of Donation  and Amended Deed of
Donation  actually established not only one but two (2) lease agreements
between FKI and respondent, i.e., one lease for the first twenty-five (25)
years or from 1975 to 2000, and another lease for the next twenty-five (25)
years thereafter or from 2000 to 2025. 27 Both leases are material conditions
of the donation of the subject land.
Petitioner points out that while a definite amount of rent for the
second twenty-five (25) year lease was not fixed in the  Deed of
Donation  and Amended Deed of Donation, both deeds nevertheless
prescribed rules and limitations by which the same may be determined. Such
rules and limitations ought to be observed in any succeeding lease
agreements between petitioner and respondent for they are, in themselves,
material conditions of the donation of the subject land. 28
In this connection, petitioner cites item 2 (g) of the  Deed of
Donation and  Amended Deed of Donation that supposedly limits the amount
of rent for the lease over the second twenty-five (25) years to only "three
percent (3%) of the fair market value of the [subject] land excluding the
improvements." 29
For petitioner then, the rental stipulations of both the 2000 Lease
Contract  and 2005 Lease Contract  cannot be enforced as they are clearly, in
view of their exorbitant exactions, in violation of the aforementioned threshold
in item 2 (g) of the Deed of Donation and Amended Deed of Donation.
Consequently, petitioner insists that the amount of rent it has to pay thereon
is and must still be governed by the limitations prescribed in the  Deed of
Donation and  Amended Deed of Donation. 30 cIECaS
The Demand Letters
On 1 June 2009, respondent sent a letter (First Demand Letter) 31 to
petitioner notifying the latter of its default "per Section 12 of the [2005 Lease
Contract]"  and demanding for the settlement of the rent and "donation" due
for the year 2009. Respondent, in the same letter, further intimated of
cancelling the 2005 Lease Contract  should petitioner fail to settle the said
obligations. 32 Petitioner received the  First Demand Letter on 2 June
2009. 33
On 22 September 2009, petitioner sent a reply 34 to respondent
expressing its disagreement over the rental stipulations of the 2005 Lease
Contract  — calling them "severely disproportionate,"
"unconscionable"  and "in clear violation to the nominal rentals mandated by
the Amended Deed of Donation." In lieu  of the amount demanded by the
respondent, which purportedly totaled to P8,394,000.00, exclusive of
interests, petitioner offered to pay only P80,502.79, 35 in accordance with
the rental provisions of the Deed of Donation and  Amended Deed of
Donation. 36 Respondent refused this offer. 37
On 25 September 2009, respondent sent another letter (Second
Demand Letter) 38 to petitioner, reiterating its demand for the payment of the
obligations already due under the 2005 Lease Contract. The  Second
Demand Letter  also contained a demand for petitioner to "immediately
vacate the leased premises" should it fail to pay such obligations within
seven (7) days from its receipt of the letter. 39 The respondent warned of
taking "legal steps" in the event that petitioner failed to comply with any of
the said demands. 40 Petitioner received the Second Demand Letter  on 26
September 2009. 41
Petitioner refused to comply with the demands of the respondent.
Instead, on 30 September 2009, petitioner filed with the Regional Trial Court
(RTC) of Parañaque City a complaint 42 for the rescission or cancellation of
the Deed of Donation and  Amended Deed of Donation  against the
respondent. This case is currently pending before Branch 257 of the RTC,
docketed as Civil Case No. CV 09-0346.
The Ejectment Suit
On 5 October 2009, respondent filed an unlawful detainer
case 43 against the petitioner before the Metropolitan Trial Court (MeTC) of
Parañaque City. The ejectment case was raffled to Branch 77 and was
docketed as Civil Case No. 2009-307. DTEScI
On 4 November 2009, petitioner filed an  Answer  with Compulsory
Counterclaim. 44 In it, petitioner reiterated its objection over the rental
stipulations of the  2005 Lease Contract for being violative of the material
conditions of the  Deed of Donation and  Amended Deed of Donation. 45 In
addition to the foregoing, however, petitioner also interposed the following
defenses:
1. The MeTC was not able to validly acquire jurisdiction
over the instant unlawful detainer case in view of
the insufficiency of respondent's
demand. 46 The First Demand Letter  did not
contain an actual demand to vacate the premises
and, therefore, the refusal to comply therewith
does not give rise to an action for unlawful
detainer. 47
2. Assuming that the MeTC was able to acquire
jurisdiction, it may not exercise the same until the
disagreement between the parties is first referred
to arbitration pursuant to the arbitration clause of
the  2005 Lease Contract. 48
3. Assuming further that the MeTC has jurisdiction that it
can exercise, ejectment still would not lie as
the  2005 Lease Contract is void ab initio. 49 The
stipulation in the  2005 Lease Contract  requiring
petitioner to give yearly "donations" to respondent
is a simulation, for they are, in fact, parts of the
rent. 50 Such grants were only denominated
as "donations"  in the contract so that the
respondent — a non-stock and non-profit
corporation — could evade payment of the taxes
otherwise due thereon. 51
In due course, petitioner and respondent both submitted their
position papers, together with their other documentary
evidence. 52 Remarkably, however, respondent failed to submit the  Second
Demand Letter as part of its documentary evidence.
Rulings of the MeTC, RTC and Court of Appeals
On 27 April 2010, the MeTC rendered judgment 53 in favor of the
petitioner. While the MeTC refused to dismiss the action on the ground that
the dispute is subject to arbitration, it nonetheless sided with the petitioner
with respect to the issues regarding the insufficiency of the respondent's
demand and the nullity of the  2005 Lease Contract. 54  The MeTC thus
disposed: DcCIAa
WHEREFORE, judgment is hereby rendered
dismissing the case . . ., without pronouncement as to
costs.
SO ORDERED. 55
The respondent appealed to the Regional Trial Court (RTC). This
appeal was assigned to Branch 274 of the RTC of Parañaque City and was
docketed as Civil Case No. 10-0255.
On 29 October 2010, the RTC reversed 56 the MeTC and ordered
the eviction of the petitioner from the subject land:
 WHEREFORE, all the foregoing duly considered,
the appealed Decision of the Metropolitan Trial Court,
Branch 77, Parañaque City, is hereby reversed, judgment
is thus rendered in favor of the plaintiff-appellant and
against the defendant-appellee, and ordering the latter —
(1) to vacate the lease[d] premises made subject of the
case and to restore the possession thereof to the
plaintiff-appellant;
(2) to pay to the plaintiff-appellant the amount of Nine
Million Three Hundred Sixty Two Thousand Four
Hundred Thirty Six Pesos (P9,362,436.00),
penalties and net of 5% withholding tax, for the
lease period from May 25, 2009 to May 25, 2010
and such monthly rental as will accrue during the
pendency of this case;
(3) to pay attorney's fees in the sum of P100,000.00 plus
appearance fee of P3,000.00;
(4) and costs of suit.
As to the existing improvements belonging to
the defendant-appellee, as these were built in good
faith, the provisions of Art. 1678 of the Civil Code shall
apply.
SO ORDERED. 57 DCcHAa
The ruling of the RTC is premised on the following ratiocinations:
1. The respondent had adequately complied with the
requirement of demand as a jurisdictional
precursor to an unlawful detainer
actions. 58 The  First Demand Letter, in substance,
contains a demand for petitioner to vacate when it
mentioned that it was a notice "per Section 12 of
the [2005 Lease Contract]."  59 Moreover, the
issue of sufficiency of the respondent's demand
ought to have been laid to rest by the Second
Demand Letter  which, though not submitted in
evidence, was nonetheless admitted by petitioner
as containing a "demand to eject"  in its Answer
with Compulsory Counterclaim. 60
2. The petitioner cannot validly invoke the arbitration
clause of the 2005 Lease Contract  while, at the
same time, impugn such contract's
validity. 61 Even assuming that it can, petitioner
still did not file a formal application before the
MeTC so as to render such arbitration clause
operational. 62 At any rate, the MeTC would not
be precluded from exercising its jurisdiction over
an action for unlawful detainer, over which, it has
exclusive original jurisdiction. 63
3. The  2005 Lease Contract  must be sustained as a valid
contract since petitioner was not able to adduce
any evidence to support its allegation that the
same is void. 64 There was, in this case, no
evidence that respondent is guilty of any tax
evasion. 65
Aggrieved, the petitioner appealed to the Court of Appeals.
On 19 August 2011, the Court of Appeals affirmed 66 the decision of
the RTC:
WHEREFORE, the petition is DENIED. The
assailed Decision of the Regional Trial Court of Parañaque
City, Branch 274, in Civil Case No. 10-0255 is AFFIRMED.
xxx xxx xxx
SO ORDERED. 67
Hence, this appeal. ACEIac
On 5 September 2011, this Court granted petitioner's prayer for the
issuance of a Temporary Restraining Order 68 staying the immediate
implementation of the decisions adverse to it.
OUR RULING
Independently of the merits of the case, the MeTC, RTC and Court of
Appeals all erred in overlooking the significance of the arbitration clause
incorporated in the  2005 Lease Contract. As the Court sees it, that is a fatal
mistake.
For this reason, We grant the petition.
Present Dispute is Arbitrable Under the
Arbitration Clause of the 2005 Lease
Agreement Contract
Going back to the records of this case, it is discernable that the
dispute between the petitioner and respondent emanates from the rental
stipulations of the  2005 Lease Contract. The respondent insists upon the
enforceability and validity of such stipulations, whereas, petitioner, in
substance, repudiates them. It is from petitioner's apparent breach of
the  2005 Lease Contract  that respondent filed the instant unlawful detainer
action.
One cannot escape the conclusion that, under the foregoing
premises, the dispute between the petitioner and respondent arose from
the application  or execution of the 2005 Lease Contract. Undoubtedly, such
kinds of dispute are covered by the arbitration clause of the  2005 Lease
Contract  to wit:
19. Governing Law — The provisions of this [2005
Lease Contract] shall be governed, interpreted and
construed in all aspects in accordance with the laws of the
Republic of the Philippines.
Any disagreement as to the interpretation,
application or execution of this [2005 Lease Contract]
shall be submitted to a board of three (3) arbitrators
constituted in accordance with the arbitration law of
the Philippines. The decision of the majority of the
arbitrators shall be binding upon [FKI and
respondent]. 69 (Emphasis supplied)
The arbitration clause of the  2005 Lease Contract stipulates
that "any disagreement" as to the "interpretation, application or execution" of
the  2005 Lease Contract ought to be submitted to arbitration. 70 To the mind
of this Court, such stipulation is clear and is comprehensive enough so as to
include virtually any kind of conflict or dispute that may arise from the  2005
Lease Contract  including the one that presently besets petitioner and
respondent.
The application of the arbitration clause of the  2005 Lease
Contract  in this case carries with it certain legal effects. However, before
discussing what these legal effects are, We shall first deal with the
challenges posed against the application of such arbitration clause. HcSCED
Challenges Against the Application of the
Arbitration Clause of the 2005 Lease
Contract
Curiously, despite the lucidity of the arbitration clause of the 2005
Lease Contract, the petitioner, as well as the MeTC, RTC and the Court of
Appeals, vouched for the non-application of the same in the instant case. A
plethora of arguments was hurled in favor of bypassing arbitration. We now
address them.
At different points in the proceedings of this case, the following
arguments were offered against the application of the arbitration clause of
the 2005 Lease Contract:
1. The disagreement between the petitioner and
respondent is non-arbitrable as it will inevitably
touch upon the issue of the validity of the 2005
Lease Contract. 71 It was submitted that one of
the reasons offered by the petitioner in justifying its
failure to pay under the 2005 Lease Contract was
the nullity of such contract for being contrary to law
and public policy. 72 The Supreme Court,
in Gonzales v. Climax Mining, Ltd., 73 held
that "the validity of contract cannot be subject of
arbitration proceedings" as such questions
are "legal in nature and require the application and
interpretation of laws and jurisprudence which is
necessarily a judicial function."  74
2. The petitioner cannot validly invoke the arbitration
clause of the 2005 Lease Contract  while, at the
same time, impugn such contract's validity. 75
3. Even assuming that it can invoke the arbitration clause
whilst denying the validity of the 2005 Lease
Contract, petitioner still did not file a formal
application before the MeTC so as to render such
arbitration clause operational. 76 Section 24 of
Republic Act No. 9285 requires the party seeking
arbitration to first file a "request"  or an application
therefor with the court not later than the
preliminary conference. 77
4. Petitioner and respondent already underwent Judicial
Dispute Resolution (JDR) proceedings before the
RTC. 78 Hence, a further referral of the dispute to
arbitration would only be circuitous. 79 Moreover,
an ejectment case, in view of its summary nature,
already fulfills the prime purpose of arbitration, i.e.,
to provide parties in conflict with an expedient
method for the resolution of their
dispute. 80 Arbitration then would no longer be
necessary in this case. 81
None of the arguments have any merit.
First. As highlighted in the previous discussion, the disagreement
between the petitioner and respondent falls within the all-encompassing
terms of the arbitration clause of the  2005 Lease Contract. While it may be
conceded that in the arbitration of such disagreement, the validity of
the  2005 Lease Contract, or at least, of such contract's rental stipulations
would have to be determined, the same would not render such disagreement
non-arbitrable. The quotation from Gonzales that was used to justify the
contrary position was taken out of context. A rereading of Gonzales would fix
its relevance to this case. AcIaST
In Gonzales, a complaint for arbitration was filed before the Panel of
Arbitrators of the Mines and Geosciences Bureau (PA-MGB) seeking the
nullification of a Financial Technical Assistance Agreement and other mining
related agreements entered into by private parties. 82 Grounds invoked for
the nullification of such agreements include fraud and
unconstitutionality. 83 The pivotal issue that confronted the Court then was
whether the PA-MGB has jurisdiction over that particular arbitration
complaint. Stated otherwise, the question was whether the complaint for
arbitration raises arbitrable issues that the PA-MGB can take cognizance of.
Gonzales decided the issue in the negative. In holding that the PA-
MGB was devoid of any jurisdiction to take cognizance of the complaint for
arbitration, this Court pointed out to the provisions of R.A. No. 7942, or the
Mining Act of 1995, which granted the PA-MGB with exclusive original
jurisdiction only over mining disputes, i.e., disputes involving "rights to mining
areas," "mineral agreements or permits," and "surface owners, occupants,
claimholders or concessionaires"  requiring the technical knowledge and
experience of mining authorities in order to be resolved. 84 Accordingly,
since the complaint for arbitration in Gonzales did not raise mining
disputes as contemplated under R.A. No. 7942 but only issues relating to the
validity of certain mining related agreements, this Court held that such
complaint could not be arbitrated before the PA-MGB. 85 It is in this context
that we made the pronouncement now in discussion:
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. 86 (Emphasis supplied) CDTHSI
The Court in Gonzalesdid not simply base its rejection of the
complaint for arbitration on the ground that the issue raised therein, i.e., the
validity of contracts, is per se non-arbitrable. The real consideration behind
the ruling was the limitation that was placed by R.A. No. 7942 upon the
jurisdiction of the PA-MGB as an arbitral body. Gonzales rejected the
complaint for arbitration because the issue raised therein is not a mining
dispute per R.A. No. 7942 and it is for this reason, and only for this reason,
that such issue is rendered non-arbitrable before the PA-MGB. As stated
beforehand, R.A. No. 7942 clearly limited the jurisdiction of the PA-MGB only
to mining disputes. 87
Much more instructive for our purposes, on the other hand, is the
recent case of Cargill Philippines, Inc. v. San Fernando Regal Trading,
Inc. 88 In Cargill, this Court answered the question of whether issues
involving the rescission of a contract are arbitrable. The respondent
in Cargill  argued against arbitrability, also citing therein Gonzales. After
dissecting Gonzales, this Court ruled in favor of arbitrability. 89 Thus, We
held:
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 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. 90 (Emphasis ours)
Second. Petitioner may still invoke the arbitration clause of the 2005
Lease Contract  notwithstanding the fact that it assails the validity of such
contract. This is due to the doctrine of separability. 91 EcTCAD
Under the doctrine of separability, an arbitration agreement is
considered as independent of the main contract. 92 Being a separate
contract in itself, the arbitration agreement may thus be invoked regardless of
the possible nullity or invalidity of the main contract. 93
 Once again instructive is Cargill, wherein this Court held that, as a
further consequence of the doctrine of reparability, even the very party who
repudiates the main contract may invoke its arbitration clause. 94
Third. The operation of the arbitration clause in this case is not at all
defeated by the failure of the petitioner to file a formal "request"  or
application therefor with the MeTC. We find that the filing of
a "request"  pursuant to Section 24 of R.A. No. 9285 is not  the sole means by
which an arbitration clause may be validly invoked in a pending suit.
Section 24 of R.A. No. 9285 reads:
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 that 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. [Emphasis
ours; italics original]
The "request"  referred to in the above provision is, in turn, implemented
by Rules 4.1 to 4.3 of A.M. No. 07-11-08-SC or the Special Rules of
Court on Alternative Dispute Resolution (Special ADR Rules):
RULE 4: REFERRAL TO ADR
Rule 4.1. Who makes the request. — A party to a
pending action filed in violation of the arbitration
agreement, whether contained in an arbitration clause or
in a submission agreement, may request the court to
refer the parties to arbitration in accordance with such
agreement. cCHITA
Rule 4.2. When to make request. — (A) Where the
arbitration agreement exists before the action is filed. —
The request for referral shall be made not later than the
pre-trial conference. After the pre-trial conference, the
court will only act upon the request for referral if it is
made with the agreement of all parties to the case.
(B)Submission agreement. — If there is no existing
arbitration agreement at the time the case is filed but the
parties subsequently enter into an arbitration agreement,
they may request the court to refer their dispute to
arbitration at any time during the proceedings.
Rule 4.3. Contents of request. — The request for referral
shall be in the form of a motion, which shall state that the
dispute is covered by an arbitration agreement.
Apart from other submissions, the movant shall attach to
his motion an authentic copy of the arbitration
agreement.
The request shall contain a notice of hearing addressed
to all parties specifying the date and time when it would
be heard. The party making the request shall serve it
upon the respondent to give him the opportunity to file a
comment or opposition as provided in the immediately
succeeding Rule before the hearing. [Emphasis ours;
italics original]
Attention must be paid, however, to the salient wordings of Rule 4.1.
It reads: "[a] party to a pending action filed in violation of the arbitration
agreement . . . may  request the court to refer the parties to arbitration in
accordance with such agreement."
In using the word "may"  to qualify the act of filing a "request"  under
Section 24 of R.A. No. 9285, the Special ADR Rules clearly did not intend to
limit the invocation of an arbitration agreement in a pending suit
solely via such "request." After all, non-compliance with an arbitration
agreement is a valid defense to any offending suit and, as such, may even be
raised in an answer  as provided in our ordinary rules of
procedure. 95 HIaTDS
In this case, it is conceded that petitioner was not able to file a
separate "request" of arbitration before the MeTC. However, it is equally
conceded that the petitioner, as early as in its  Answer with Counterclaim, had
already apprised the MeTC of the existence of the arbitration clause in
the  2005 Lease Contract  96 and, more significantly, of its desire to have the
same enforced in this case. 97 This act of petitioner is enough valid
invocation of his right to arbitrate.
Fourth. The fact that the petitioner and respondent already
underwent through JDR proceedings before the RTC, will not make the
subsequent conduct of arbitration between the parties unnecessary or
circuitous. The JDR system is substantially different from arbitration
proceedings.
The JDR framework is based on the processes of mediation,
conciliation or early neutral evaluation which entails the submission of a
dispute before a "JDR judge" who shall merely "facilitate
settlement" between the parties in conflict or make a "non-binding evaluation
or assessment of the chances of each party's case." 98  Thus in JDR, the
JDR judge lacks the authority to render a resolution of the dispute that is
binding upon the parties in conflict. In arbitration, on the other hand, the
dispute is submitted to an arbitrator/s  — a neutral third person or a group of
thereof — who shall have the authority to render a resolution binding upon
the parties. 99
Clearly, the mere submission of a dispute to JDR proceedings
would not necessarily render the subsequent conduct of arbitration a mere
surplusage. The failure of the parties in conflict to reach an amicable
settlement before the JDR may, in fact, be supplemented by their resort to
arbitration where a binding resolution to the dispute could finally be achieved.
This situation precisely finds application to the case at bench.
Neither would the summary nature of ejectment cases be a valid
reason to disregard the enforcement of the arbitration clause of the  2005
Lease Contract. Notwithstanding the summary nature of ejectment cases,
arbitration still remains relevant as it aims not only to afford the parties an
expeditious method of resolving their dispute. CIScaA
A pivotal feature of arbitration as an alternative mode of dispute
resolution is that it is, first and foremost, a product of party autonomy  or the
freedom of the parties to "make their own arrangements to resolve their own
disputes." 100  Arbitration agreements manifest not only the desire of the
parties in conflict for an expeditious resolution of their dispute. They also
represent, if not more so, the parties' mutual aspiration to achieve such
resolution outside of judicial auspices, in a more informal and less
antagonistic environment under the terms of their choosing. Needless to
state, this critical feature can never be satisfied in an ejectment case no
matter how summary it may be.
Having hurdled all the challenges against the application of the
arbitration clause of the  2005 Lease Agreement in this case, We shall now
proceed with the discussion of its legal effects.
Legal Effect of the Application of the
Arbitration Clause
Since there really are no legal impediments to the application of the
arbitration clause of the2005 Contract of Lease in this case, We find that the
instant unlawful detainer action was instituted in violation of such clause. The
Law, therefore, should have governed the fate of the parties and this suit:
R.A. No. 876
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]
R.A. No. 9285
Section 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 that 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. [Emphasis
supplied] CSAcTa
It is clear that under the law, the instant unlawful detainer action
should have been stayed; 101 the petitioner and the respondent should have
been referred to arbitration pursuant to the arbitration clause of the  2005
Lease Contract. The MeTC, however, did not do so in violation of the law —
which violation was, in turn, affirmed by the RTC and Court of Appeals on
appeal.
The violation by the MeTC of the clear directives under R.A. Nos.
876 and 9285 renders invalid all proceedings it undertook in the ejectment
case after the filing by petitioner of its  Answer with Counterclaim — the point
when the petitioner and the respondent should have been referred to
arbitration. This case must, therefore, be remanded to the MeTC and be
suspended at said point. Inevitably, the decisions of the MeTC, RTC and the
Court of Appeals must all be vacated and set aside.
The petitioner and the respondent must then be referred to
arbitration pursuant to the arbitration clause of the  2005 Lease Contract.
This Court is not unaware of the apparent harshness of the Decision
that it is about to make. Nonetheless, this Court must make the same if only
to stress the point that, in our jurisdiction,  bona fide arbitration agreements
are recognized as valid; 102 and that laws, 103 rules and regulations 104 do
exist protecting and ensuring their enforcement as a matter of state policy.
Gone should be the days when courts treat otherwise valid arbitration
agreements with disdain and hostility, if not outright "jealousy," 105  and then
get away with it. Courts should instead learn to treat alternative means of
dispute resolution as effective partners in the administration of justice and, in
the case of arbitration agreements, to afford them  judicial
restraint.  106 Today, this Court only performs its part in upholding a once
disregarded state policy.
Civil Case No. CV 09-0346
 This Court notes that, on 30 September 2009, petitioner filed with the Let a copy of this Decision be served to Branch 257 of the RTC of
RTC of Parañaque City, a complaint 107 for the rescission or cancellation of Parañaque for its consideration and, possible, application to Civil Case No.
the Deed of Donation and  Amended Deed of Donation against the CV 09-0346.
respondent. The case is currently pending before Branch 257 of the RTC,
docketed as Civil Case No. CV 09-0346. IcTaAH No costs.

This Court recognizes the great possibility that issues raised in Civil SO ORDERED.
Case No. CV 09-0346 may involve matters that are rightfully arbitrable per
the arbitration clause of the  2005 Lease Contract. However, since the
records of Civil Case No. CV 09-0346 are not before this Court, We can
never know with true certainty and only speculate.
In this light, let a copy of this Decision be also served to Branch 257
of the RTC of Parañaque for its consideration and, possible, application to
Civil Case No. CV 09-0346.
WHEREFORE, premises considered, the petition is
hereby GRANTED. Accordingly, We hereby render a Decision:
1. SETTING ASIDE all the proceedings undertaken by
the Metropolitan Trial Court, Branch 77, of
Parañaque City in relation to Civil Case No. 2009-
307 after  the filing by petitioner of its Answer with
Counterclaim;
2. REMANDING the instant case to the
MeTC, SUSPENDED at the point after the filing by
petitioner of its  Answer with Counterclaim;
3. SETTING ASIDE the following:
a. Decision dated 19 August 2011 of the Court of
Appeals in C.A.-G.R. SP No. 116865,
b. Decision dated 29 October 2010 of the Regional
Trial Court, Branch 274, of Parañaque City
in Civil Case No. 10-0255,
c. Decision dated 27 April 2010 of the Metropolitan
Trial Court, Branch 77, of Parañaque City
in Civil Case No. 2009-307; and
4. REFERRING the petitioner and the respondent to
arbitration pursuant to the arbitration clause of
the  2005 Lease Contract, repeatedly included in
the 2000 Lease Contract and in the 1976
Amended Deed of Donation. CIDaTc
 SECOND DIVISION
[G.R. No. 220546. December 7, 2016.]
LUZON IRON DEVELOPMENT GROUP CORPORATION
AND CONSOLIDATED IRON SANDS,
LTD., petitioners, vs. BRIDESTONE MINING AND
DEVELOPMENT CORPORATION and ANACONDA
MINING AND DEVELOPMENT
CORPORATION, respondents.
DECISION
MENDOZA, J  p:
This petition for review on certiorari with prayer for the issuance
of a writ of preliminary injunction and/or temporary restraining
order (TRO) seeks to reverse and set aside the September 8, 2015
Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 133296,
which affirmed the March 18, 2013 2 and September 18, 2013 3 Orders
of the Regional Trial Court, Branch 59, Makati City (RTC), in the
consolidated case for rescission of contract and damages.
The Antecedents
On October 25, 2012, respondents Bridestone Mining and
Development Corporation (Bridestone) and Anaconda Mining and
Development Corporation (Anaconda) filed separate complaints before
the RTC for rescission of contract and damages against petitioners
Luzon Iron Development Group Corporation (Luzon Iron) and
Consolidated Iron Sands, Ltd. (Consolidated Iron), docketed as Civil
Case No. 12-1053 and Civil Case No. 12-1054, respectively. Both
complaints sought the rescission of the Tenement Partnership and
Acquisition Agreement (TPAA) 4 entered into by Luzon Iron and
Consolidated Iron, on one hand, and Bridestone and Anaconda, on the
other, for the assignment of the Exploration Permit Application of the
former in favor of the latter. The complaints also sought the return of the
Exploration Permits to Bridestone and Anaconda. 5
Thereafter, Luzon Iron and Consolidated Iron filed their Special
Appearance with Motion to Dismiss 6 separately against Bridestone's
complaint and Anaconda's complaint. Both motions to dismiss presented
similar grounds for dismissal. They contended that the RTC could not
acquire jurisdiction over Consolidated Iron because it was a foreign
corporation that had never transacted business in the Philippines.
Likewise, they argued that the RTC had no jurisdiction over the subject
matter because of an arbitration clause in the TPAA. AScHCD
On December 19, 2012, the RTC ordered the consolidation of
the two cases. 7 Subsequently, Luzon Iron and Consolidated Iron filed
their Special Appearance and Supplement to Motions to Dismiss, 8 dated
January 31, 2013, seeking the dismissal of the consolidated cases. The
petitioners alleged that Bridestone and Anaconda were guilty of forum
shopping because they filed similar complaints before the Department of
Environment and Natural Resources (DENR), Mines and Geosciences
Bureau, Regional Panel of Arbitrators against Luzon Iron.
The RTC Orders
In its March 18, 2013 Order, the RTC denied the motions to
dismiss, as well as the supplemental motion to dismiss, finding that
Consolidated Iron was doing business in the Philippines, with Luzon Iron
as its resident agent. The RTC ruled that it had jurisdiction over the
subject matter because under clause 14.8 of the TPAA, the parties could
go directly to courts when a direct and/or blatant violation of the
provisions of the TPAA had been committed. The RTC also opined that
the complaint filed before the DENR did not constitute forum shopping
because there was neither identity of parties nor identity of reliefs sought.
Luzon Iron and Consolidated Iron moved for reconsideration, but
the RTC denied their motion in its September 18, 2013 Order.
Undaunted, they filed their petition for review with prayer for the
issuance of a writ of preliminary injunction and/or TRO before the CA.
The CA Ruling
In its September 8, 2015 Decision, the CA affirmed the March
18, 2013 and September 18, 2013 RTC Orders in denying the motions to
dismiss and the supplemental motions to dismiss. It agreed that the court
acquired jurisdiction over the person of Consolidated Iron because the
summons may be validly served through its agent Luzon Iron,
considering that the latter was merely the business conduit of the former.
The CA also sustained the jurisdiction of the RTC over the subject matter
opining that the arbitration clause in the TPAA provided for an exception
where parties could directly go to court.
Further, the CA also disregarded the averment of forum
shopping, explaining that in the complaint before the RTC, both
Consolidated Iron and Luzon Iron were impleaded but in the complaint
before the DENR only the latter was impleaded. It stated that there was
no identity of relief and no identity of cause of action.
Hence, this appeal raising the following:
ISSUES
I resort before the courts in exceptional circumstances. They cited
WHETHER THE COURT OF APPEALS ERRED IN
RULING THAT THE TRIAL COURT ACQUIRED
JURISDICTION OVER THE PERSON OF
CONSOLIDATED IRON;
II
WHETHER THE COURT OF APPEALS ERRED IN
RULING THAT THE TRIAL COURT HAS
JURISDICTION OVER THE SUBJECT MATTER OF
THE CONSOLIDATED CASES; AND
III
WHETHER THE COURT OF APPEALS ERRED IN
RULING THAT BRIDESTONE/ANACONDA WERE
NOT GUILTY OF FORUM SHOPPING. 9
Petitioners Luzon Iron and Consolidated Iron insist that the RTC
has no jurisdiction over the latter because it is a foreign corporation
which is neither doing business nor has transacted business in the
Philippines. They argue that there could be no means by which the trial
court could acquire jurisdiction over the person of Consolidated Iron
under any mode of service of summons. The petitioners claim that the
service of summons to Consolidated Iron was defective because the
mere fact that Luzon Iron was a wholly-owned subsidiary of Consolidated
Iron did not establish that Luzon Iron was the agent of Consolidated Iron.
They emphasize that Consolidated Iron and Luzon Iron are two distinct
and separate entities.
The petitioners further assert that the trial court had no
jurisdiction over the consolidated cases because of the arbitration clause
set forth in the TPAA. They reiterate that Luzon Iron and Consolidated
Iron were guilty of forum shopping because their DENR complaint
contained similar causes of action and reliefs sought. They stress that
the very evil sought to be prevented by the prohibition on forum shopping
had occurred when the DENR and the RTC issued conflicting orders in
dismissing or upholding the complaints filed before them.
Position of Respondents
In their Comment/Opposition, 10 dated January 7, 2016,
respondents Bridestone and Anaconda countered that the RTC validly
acquired jurisdiction over the person of Consolidated Iron. They posited
that Consolidated Iron was doing business in the Philippines as Luzon
Iron was merely its conduit. Thus, they insisted that summons could be
served to Luzon Iron as Consolidated Iron's agent. Likewise, they denied
that they were guilty of forum shopping as the issues and the reliefs
prayed for in the complaints before the RTC and the DENR differed.
Further, the respondents asserted that the trial court had
jurisdiction over the complaints because the TPAA itself allowed a direct
paragraph 14.8 thereof as basis explaining that when a direct and/or
blatant violation of the TPAA had been committed, a party could go
directly to the courts. They faulted the petitioners in not moving for the
referral of the case for arbitration instead of merely filing a motion to
dismiss. They added that actions that are subject to arbitration
agreement were merely suspended, and not dismissed. AcICHD
Reply of Petitioners
In their Reply, 11 dated April 29, 2016, the petitioners stated that
Consolidated Iron was not necessarily doing business in the Philippines
by merely establishing a wholly-owned subsidiary in the form of Luzon
Iron. Also, they asserted that Consolidated Iron had not been validly
served the summons because Luzon Iron is neither its resident agent nor
its representative in the Philippines. The petitioners explained that Luzon
Iron, as a wholly-owned subsidiary, had a separate and distinct
personality from Consolidated Iron.
The petitioners explained that Paragraph 14.8 of the TPAA
should not be construed as an authority to directly resort to court action
in case of a direct and/or blatant violation of the TPAA because such
interpretation would render the arbitration clause nugatory. They
contended that, even for the sake of argument, the judicial action under
the said provisions was limited to issues or matters which were inexistent
in the present case. They added that a party was not required to file a
formal request for arbitration before an arbitration clause became
operational. Lastly, they insisted that the respondents were guilty of
forum shopping in simultaneously filing complaints before the trial court
and the DENR.
The Court's Ruling
The petition is impressed with merit.
Filing of complaints
before the RTC and the
DENR is forum shopping
 Forum shopping is committed when multiple suits involving the
same parties and the same causes of action are filed, either
simultaneously or successively, for the purpose of obtaining a favorable
judgment through means other than appeal or certiorari. 12 The
prohibition on forum shopping seeks to prevent the possibility that
conflicting decisions will be rendered by two tribunals. 13
In Spouses Arevalo v. Planters Development Bank, 14 the Court
elaborated that forum shopping vexed the court and warranted the
dismissal of the complaints. Thus:
Forum shopping is the act of litigants who
repetitively avail themselves of multiple judicial remedies
in different fora, simultaneously or successively, all
substantially founded on the same transactions and the
same essential facts and circumstances; and raising
substantially similar issues either pending in or already
resolved adversely by some other court; or for the
purpose of increasing their chances of obtaining a
favorable decision, if not in one court, then in
another. The rationale against forum-shopping is that
a party should not be allowed to pursue
simultaneous remedies in two different courts, for to
do so would constitute abuse of court processes
which tends to degrade the administration of justice,
wreaks havoc upon orderly judicial procedure, and
adds to the congestion of the heavily burdened
dockets of the courts.
xxx xxx xxx
What is essential in determining the
existence of forum-shopping is the vexation caused
the courts and litigants by a party who asks different
courts and/or administrative agencies to rule on
similar or related causes and/or grant the same or
substantially similar reliefs, in the process creating
the possibility of conflicting decisions being
rendered upon the same issues.
xxx xxx xxx
We emphasize that the grave evil sought to be
avoided by the rule against forum-shopping is the
rendition by two competent tribunals of two separate and
contradictory decisions. To avoid any confusion, this
Court adheres strictly to the rules against forum
shopping, and any violation of these rules results in
the dismissal of a case. The acts committed and
described herein can possibly constitute direct
contempt. 15 [Emphases supplied]
There is forum shopping when the following elements are
present: (a) identity of parties, or at least such parties representing the
same interests in both actions; (b) identity of rights asserted and reliefs
prayed for, the relief being founded on the same facts; and (c) the
identity of the two preceding particulars, such that any judgment
rendered in the other action will, regardless of which party is successful,
amounts to res judicata in the action under consideration. 16 All the
above-stated elements are present in the case at bench.
First, there is identity of parties. In both the complaints before the
RTC and the DENR, Luzon Iron was impleaded as defendant while
Consolidated Iron was only impleaded in the complaint before the RTC.
Even if Consolidated Iron was not impleaded in the DENR complaint, the
element still exists. The requirement is only substantial, and not absolute,
identity of parties; and there is substantial identity of parties when there
is community of interest between a party in the first case and a party in
the second case, even if the latter was not impleaded in the other
case. 17 Consolidated Iron and Luzon Iron had a common interest under
the TPAA as the latter was a wholly-owned subsidiary of the former.
Second, there is identity of causes of action. A reading of the
complaints filed before the RTC and the DENR reveals that they had
almost identical causes of action and they prayed for similar reliefs as
they ultimately sought the return of their respective Exploration Permit on
the ground of the alleged violations of the TPAA committed by the
petitioners. 18 In Yap v. Chua, 19 the Court ruled that identity of causes
of action did not mean absolute identity. TAIaHE
Hornbook is the rule that identity of causes of
action does not mean absolute identity; otherwise, a
party could easily escape the operation of res judicata by
changing the form of the action or the relief sought. The
test to determine whether the causes of action are
identical is to ascertain whether the same evidence
will sustain both actions, or whether there is an
identity in the facts essential to the maintenance of
the two actions. If the same facts or evidence would
sustain both, the two actions are considered the
same, and a judgment in the first case is a bar to the
subsequent action. Hence, a party cannot, by varying
the form of action or adopting a different method of
presenting his case, escape the operation of the
principle that one and the same cause of action shall not
be twice litigated between the same parties or their
privies. xxx 20 [Emphases supplied]
 In the case at bench, both complaints filed before resident agent, service may, with leave
different fora involved similar facts and issues, the resolution of which of court, be effected out of the
depends on analogous evidence. Thus, the filing of two separate Philippines through any of the following
complaints by the petitioners with the RTC and the DENR clearly means:
constitutes forum shopping. a) By personal service coursed
through the appropriate court in
It is worth noting that the very evil which the prohibition against
the foreign country with the
forum shopping sought to prevent had happened — the RTC and the
assistance of the Department of
DENR had rendered conflicting decisions. The trial court ruled that it had
Foreign Affairs;
jurisdiction notwithstanding the arbitration clause in the TPAA. On the
b) By publication once in a
other hand, the DENR found that it was devoid of jurisdiction because
newspaper of general circulation
the matter was subject to arbitration.
in the country where the
Summons were not defendant may be found and by
validly served serving a copy of the summons
and the court order by
Section 12 of Rule 14 of the Revised Rules of Court provides registered mail at the last known
that "[w]hen the defendant is a foreign private juridical entity which address of the defendant;
has transacted business in the Philippines, service may be made on c) By facsimile or any
its resident agent designated in accordance with law for that purpose, or, recognized electronic means
if there be no such agent, on the government official designated by law to that could generate proof of
that effect, or on any of its officers or agents within the Philippines." service; or
The Rule on Summons, as it now reads, thus, makes the d) By such other means as the
question whether Consolidated Iron was "doing business in the court may in its discretion
Philippines" irrelevant as Section 12, Rule 14 of the Rules of Court was direct."
broad enough to cover corporations which have "transacted business in The petitioners are mistaken in arguing that it cannot be served
the Philippines." summons because under Section 15, Rule 14 of the Rules of Court,
In fact, under the present legal milieu, the rules on service of extrajudicial service of summons may be resorted to only when the
summons on foreign private juridical entities had been expanded as it action is in rem or quasi in rem and not when the action is in personam.
recognizes additional modes by which summons may be served. A.M. The premise of the petitioners is erroneous as the rule on extraterritorial
No. 11-3-6-SC 21 thus provides: service of summons provided in Section 15, Rule 14 of the Rules of
Court is a specific provision dealing precisely with the service of
Section 12, Rule 14 of the Rules of Court is summons on a defendant which does not reside and is not found in the
hereby amended to read as follows: Philippines. 22 On the other hand, Section 12, Rule 14 thereof,
"SEC. 12. Service upon foreign private specifically applies to a defendant foreign private juridical entity which
juridical entity. — When the defendant is had transacted business in the Philippines. Both rules may provide for
a foreign private juridical entity which similar modes of service of summons, nevertheless, they should only be
has transacted business in the applied in particular cases, with one applicable to defendants which do
Philippines, service may be made on its not reside and are not found in the Philippines and the other to foreign
resident agent designated in accordance private juridical entities which had transacted business in the Philippines.
with law for that purpose, or, if there be In the case at bench, it is crystal clear that Consolidated Iron
no such agent, on the government transacted business in the Philippines as it was a signatory in the TPAA
official designated by law to that effect, that was executed in Makati. Hence, as the respondents argued, it may
or on any of its officers or agents within be served with the summons in accordance with the modes provided
the Philippines. under Section 12, Rule 14 of the Rules of Court.
If the foreign private juridical entity is not
registered in the Philippines or has no
 In Atiko Trans, Inc. v. Prudential Guarantee and Assurance,
Inc., 23 the Court elucidated on the means by which summons could be
served on a foreign juridical entity, to wit: cDHAES
On this score, we find for the petitioners. Before
it was amended by A.M. No. 11-3-6-SC, Section 12 of
Rule 14 of the Rules of Court reads:
SEC. 12. Service upon foreign private
juridical entity. — When the defendant is
a foreign private juridical entity which
has transacted business in the
Philippines, service may be made on its
resident agent designated in accordance
with law for that purpose, or, if there be
no such agent, on the government
official designated by law to that effect,
or on any of its officers or agents within
the Philippines.
Elucidating on the above provision of the Rules
of Court, this Court declared in Pioneer International,
Ltd. v. Guadiz, Jr. that when the defendant is a foreign
juridical entity, service of summons may be made upon:
1. Its resident agent designated in accordance
with law for that purpose;
2. The government official designated by law to
receive summons if the corporation does
not have a resident agent; or,
3. Any of the corporation's officers or agents
within the Philippines. 24 [Emphasis
supplied]
The Court, however, finds that Consolidated Iron was not
properly served with summons through any of the permissible modes
under the Rules of Court. Indeed, Consolidated Iron was served with
summons through Luzon Iron. Such service of summons, however, was
defective.
It is undisputed that Luzon Iron was never registered before the
Securities and Exchange Commission (SEC) as Consolidated Iron's
resident agent. Thus, the service of summons to Consolidated Iron
through Luzon Iron cannot be deemed a service to a resident
agent 25 under the first mode of service.
Likewise, the respondents err in insisting that Luzon Iron could
be served summons as an agent of Consolidated Iron, it being a wholly-
owned subsidiary of the latter. The allegations in the complaint must
clearly show a connection between the principal foreign corporation and
its alleged agent corporation with respect to the transaction in question
as a general allegation of agency will not suffice. 26 In other words, the
allegations of the complaint taken as whole should be able to convey that
the subsidiary is but a business conduit of the principal or that by reason
of fraud, their separate and distinct personality should be
disregarded. 27 A wholly-owned subsidiary is a distinct and separate
entity from its mother corporation and the fact that the latter exercises
control over the former does not justify disregarding their separate
personality. It is true that under the TPAA, Consolidated Iron wielded
great control over the actions of Luzon Iron under the said agreement.
This, nonetheless, does not warrant the conclusion that Luzon Iron was a
mere conduit of Consolidated Iron. In Pacific Rehouse Corporation v.
CA, 28 the Court ruled:
Albeit the RTC bore emphasis on the alleged
control exercised by Export Bank upon its subsidiary E-
Securities, "[c]ontrol, by itself, does not mean that the
controlled corporation is a mere instrumentality or a
business conduit of the mother company. Even control
over the financial and operational concerns of a
subsidiary company does not by itself call for
disregarding its corporate fiction. There must be a
perpetuation of fraud behind the control or at least a
fraudulent or illegal purpose behind the control in order
to justify piercing the veil of corporate fiction. Such
fraudulent intent is lacking in this case. 29 [Emphasis
supplied]
In the case at bench, the complaint merely contained a general
statement that Luzon Iron was the resident agent of Consolidated Iron,
and that it was a wholly-owned subsidiary of the latter. There was no
allegation showing that Luzon Iron was merely a business conduit of
Consolidated Iron, or that the latter exercised control over the former to
the extent that their separate and distinct personalities should be set
aside. Thus, Luzon Iron cannot be deemed as an agent of Consolidated
Iron in connection with the third mode of service of summons.
To reiterate, the Court did not acquire jurisdiction over
Consolidated Iron because the service of summons, coursed through
Luzon Iron, was defective. Luzon Iron was neither the resident agent nor
the conduit or agent of Consolidated Iron.
On the abovementioned procedural issues alone, the dismissal
of the complaints before the RTC was warranted. Even granting that the
complaints were not procedurally defective, there still existed enough
reason for the trial court to refrain from proceeding with the case.
Controversy must be
referred for arbitration
 The petitioners insisted that the RTC had no jurisdiction over the
subject matter because under Paragraph 15.1 of the TPAA, any dispute
out of or in connection with the TPAA must be resolved by arbitration.
The said provision provides:
If, for any reasonable reason, the Parties cannot
resolve a material fact, material event or any dispute
arising out of or in connection with this TPAA, including
any question regarding its existence, validity or
termination, within 90 days from its notice, shall be
referred to and finally resolved by arbitration in
Singapore in accordance with the Arbitration Rules of the
Singapore International Arbitration Centre ("SIAC
Rules") for the time being in force, which rules are
deemed to be incorporated by reference in this clause
15.1. 30
The RTC, as the CA agreed, countered that Paragraph 14.8 of
the TPAA allowed the parties to directly resort to courts in case of a
direct and/or blatant violation of the provisions of the TPAA. Paragraph
14.8 stated:
Each Party agrees not to commence or procure
the commencement of any challenge or claim, action,
judicial or legislative enquiry, review or other
investigation into the sufficiency, validity, legality or
constitutionality of (i) the assignments of the Exploration
Permit Applications(s) (sic) to LIDGC, (ii) any other
assignments contemplated by this TPAA, and/or (iii)
or (sic) any agreement to which the Exploration Permit
Application(s) may be converted, unless a direct and/or
blatant violation of the provisions of the TPAA has been
committed. 31
In Bases Conversion Development Authority v. DMCI Project
Developers, Inc., 32 the Court emphasized that the State favored
arbitration, to wit:
The state adopts a policy in favor of
arbitration. Republic Act No. 9285 expresses this policy:
SEC. 2. Declaration of Policy. — It is hereby
declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of
the parties to make their own arrangements to resolve
their disputes. Towards this end, the State shall
encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an
important means to achieve speedy and impartial
justice and declog court dockets. As such, the State
shall provide means for the use of ADR as an
efficient tool and an alternative procedure for the
resolution of appropriate cases. Likewise, the State
shall enlist active private sector participation in the
settlement of disputes through ADR. This Act shall be
without prejudice to the adoption by the Supreme Court
of any ADR system, such as mediation, conciliation,
arbitration, or any combination thereof as a means of
achieving speedy and efficient means of resolving cases
pending before all courts in the Philippines which shall
be governed by such rules as the Supreme Court may
approve from time to time.
Our policy in favor of party autonomy in
resolving disputes has been reflected in our laws as
early as 1949 when our Civil Code was approved.
Republic Act No. 876 later explicitly recognized the
validity and enforceability of parties' decision to submit
disputes and related issues to arbitration.
Arbitration agreements are liberally
construed in favor of proceeding to arbitration. We
adopt the interpretation that would render effective
an arbitration clause if the terms of the agreement
allow for such interpretation. 33 [Emphases supplied]
Thus, consistent with the state policy of favoring arbitration, the
present TPAA must be construed in such a manner that would give life to
the arbitration clause rather than defeat it, if such interpretation is
permissible. With this in mind, the Court views the interpretation
forwarded by the petitioners as more in line with the state policy favoring
arbitration. cTDaEH
Paragraphs 14.8 and 15.1 of the TPAA should be harmonized in
such a way that the arbitration clause is given life, especially since such
construction is possible in the case at bench. A synchronized reading of
the abovementioned TPAA provisions will show that a claim or action
raising the sufficiency, validity, legality or constitutionality of: (a) the
assignments of the EP to Luzon Iron; (b) any other assignments
contemplated by the TPAA; or (c) any agreement to which the EPs may
be converted, may be instituted only when there is a direct and/or blatant
violation of the TPAA. In turn, the said action or claim is commenced by
proceeding with arbitration, as espoused in the TPAA.
The Court disagrees with the respondents that Paragraph 14.8 of
the TPAA should be construed as an exception to the arbitration clause
where direct court action may be resorted to in case of direct and/or
blatant violation of the TPAA occurs. If such interpretation is to be
espoused, the arbitration clause would be rendered inutile as practically
all matters may be directly brought before the courts. Such construction
is anathema to the policy favoring arbitration.
A closer perusal of the TPAA will also reveal that paragraph 14
and all its sub-paragraphs are general provisions, whereas paragraphs
15 and all its sub-clauses specifically refer to arbitration. When general
and specific provisions are inconsistent, the specific provision shall be
paramount and govern the general provision. 34
The petitioners' failure to refer the case for arbitration, however,
does not render the arbitration clause in the TPAA inoperative.
In Koppel, Inc. v. Makati Rotary Club Foundation, Inc. (Koppel), 35 the
Court explained that an arbitration clause becomes operative,
notwithstanding the lack of a formal request, when a party has appraised
the trial court of the existence of an arbitration clause, viz.:
xxx The operation of the arbitration clause in this
case is not at all defeated by the failure of the
petitioner to file a formal "request" or application
therefor with the MeTC. We find that the filing of
a "request" pursuant to Section 24 of RA. No. 9285
is not the sole means by which an arbitration clause may
be validly invoked in a pending suit.
Section 24 of R.A. No. 9285 reads:
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 that 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.
The "request" referred to in the above provision is, in
turn, implemented by Rules 4.1 to 4.3 of A.M. No. 07-11-
08-SC or the Special Rules of Court on Alternative
Dispute Resolution (Special ADR Rules):
RULE 4: REFERRAL TO ADR
Rule 4.1. Who makes the request. — A party to a
pending action filed in violation of the arbitration
agreement, whether contained in an arbitration clause or
in a submission agreement, may request the court to
refer the parties to arbitration in accordance with such
agreement.
xxx xxx xxx
Attention must be paid, however, to the salient
wordings of Rule 4.1. It reads: "[a] party to a pending
action filed in violation of the arbitration agreement xxx
may request the court to refer the parties to arbitration in
accordance with such agreement."
In using the word "may" to qualify the act of
filing a "request" under Section 24 of R.A. No. 9285,
the Special ADR Rules clearly did not intend to limit
the invocation of an arbitration agreement in a
pending suit solely via such "request." After all, non-
compliance with an arbitration agreement is a valid
defense to any offending suit and, as such, may even be
raised in an answer as provided in our ordinary rules of
procedure.
In this case, it is conceded that petitioner was
not able to file a separate "request" of arbitration before
the MeTC. However, it is equally conceded that the
petitioner, as early as in its Answer with
Counterclaim, had already apprised the MeTC of the
existence of the arbitration clause in the 2005 Lease
Contract and, more significantly, of its desire to have the
same enforced in this case. This act of petitioner is
enough valid invocation of his right to arbitrate.
xxx 36 [Emphases supplied; italics in the original]
It is undisputed that the petitioners Luzon Iron and Consolidated
Iron never made any formal request for arbitration. As expounded
in Koppel, however, a formal request is not the sole means of invoking
an arbitration clause in a pending suit. Similar to the said case, the
petitioners here made the RTC aware of the existence of the arbitration
clause in the TPAA as they repeatedly raised this as an issue in all their
motions to dismiss. As such, it was enough to activate the arbitration
clause and, thus, should have alerted the RTC in proceeding with the
case.
Moreover, judicial restraint should be exercised pursuant to the
competence-competence principle embodied in Rule 2.4 of the Special
Rules of Court on Alternative Dispute Resolution. 37 The said provision
reads:
RULE 2.4. Policy Implementing Competence-
Competence Principle. — The arbitral tribunal shall be
accorded the first opportunity or competence to rule on
the issue of whether or not it has the competence or
jurisdiction to decide a dispute submitted to it for
decision, including any objection with respect to the
existence or validity of the arbitration agreement. When
a court is asked to rule upon issue/s affecting the
competence or jurisdiction of an arbitral tribunal in a
 dispute brought before it, either before or after the
arbitral tribunal is constituted, the court must
exercise judicial restraint and defer to the
competence or jurisdiction of the arbitral tribunal by
allowing the arbitral tribunal the first opportunity to
rule upon such issues. cSaATC
Where the court is asked to make a
determination of whether the arbitration agreement is
null and void, inoperative or incapable of being
performed, under this policy of judicial restraint, the court
must make no more than a prima facie determination of
that issue.
Unless the court, pursuant to such prima
facie determination, concludes that the arbitration
agreement is null and void, inoperative or incapable of
being performed, the court must suspend the action
before it and refer the parties to arbitration pursuant to
the arbitration agreement. [Emphasis supplied]
Generally, the action of the court is stayed if the matter raised
before it is subject to arbitration. 38 In the case at bench, however, the
complaints filed before the RTC should have been dismissed considering
that the petitioners were able to establish the ground for their dismissal,
that is, violating the prohibition on forum shopping. The parties,
nevertheless, are directed to initiate arbitration proceedings as provided
under Paragraph 15.1 of the TPAA.
WHEREFORE, the petition is GRANTED. The September 8,
2015 Decision of the Court of Appeals in CA-G.R. SP No. 133296,
affirming the March 18, 2013 and September 18, 2013 Orders of the
Regional Trial Court, Branch 59, Makati City, is hereby SET ASIDE. The
complaints in Civil Case Nos. 12-1053 and 12-1054 are DISMISSED.
The parties, however, are ORDERED to commence arbitration
proceedings pursuant to Paragraph 15.1 of the Tenement Partnership
and Acquisition Agreement.
SO ORDERED.
 FIRST DIVISION
[G.R. No. 212081. February 23, 2015.]
DEPARTMENT OF ENVIRONMENT AND NATURAL
RESOURCES (DENR), petitioner, vs. UNITED
PLANNERS CONSULTANTS, INC. (UPCI), respondent.
DECISION
PERLAS-BERNABE, J  p:
Assailed in this petition for review on certiorari 1 is the
Decision 2 dated March 26, 2014 of the Court of Appeals (CA) in CA-G.R. SP
No. 126458 which dismissed the petition for certiorari  filed by petitioner the
Department of Environment and Natural Resources (petitioner).
The Facts
On July 26, 1993, petitioner, through the Land Management Bureau
(LMB), entered into an Agreement for Consultancy Services 3 (Consultancy
Agreement) with respondent United Planners Consultants, Inc. (respondent)
in connection with the LMB's Land Resource Management Master Plan
Project (LRMMP). 4 Under the Consultancy Agreement, petitioner committed
to pay a total contract price of P4,337,141.00, based on a predetermined
percentage corresponding to the particular stage of work accomplished. 5 In
December 1994, respondent completed the work required, which petitioner
formally accepted on December 27, 1994. 6 However, petitioner was able to
pay only 47% of the total contract price in the amount of
P2,038,456.30. 7 IcSEAH
On October 25, 1994, the Commission on Audit (COA) released the
Technical Services Office Report 8 (TSO) finding the contract price of the
Agreement to be 84.14% excessive. 9 This notwithstanding, petitioner, in a
letter dated December 10, 1998, acknowledged its liability to respondent in
the amount of P2,239,479.60 and assured payment at the soonest possible
time. 10
For failure to pay its obligation under the Consultancy Agreement
despite repeated demands, respondent instituted a Complaint 11 against
petitioner before the Regional Trial Court of Quezon City, Branch 222 (RTC),
docketed as Case No. Q-07-60321. 12
Upon motion of respondent, the case was subsequently referred to
arbitration pursuant to the arbitration clause of the Consultancy
Agreement, 13 which petitioner did not oppose. 14 As a result, Atty. Alfredo
F. Tadiar, Architect Armando N. Alli, and Construction Industry Arbitration
Commission (CIAC) Accredited Arbitrator Engr. Ricardo B. San Juan were
appointed as members of the Arbitral Tribunal. The court-referred arbitration
was then docketed as Arbitration Case No. A-001. 15
During the preliminary conference, the parties agreed to adopt the
CIAC Revised Rules Governing Construction Arbitration 16 (CIAC Rules) to
govern the arbitration proceedings. 17 They further agreed to submit their
respective draft decisions in lieu of memoranda of arguments on or before
April 21, 2010, among others. 18
On the due date for submission of the draft decisions, however, only
respondent complied with the given deadline, 19 while petitioner moved for
the deferment of the deadline which it followed with another motion for
extension of time, asking that it be given until May 11, 2010 to submit its draft
decision. 20
In an Order 21 dated April 30, 2010, the Arbitral Tribunal denied
petitioner's motions and deemed its non-submission as a waiver, but
declared that it would still consider petitioner's draft decision if submitted
before May 7, 2010, or the expected date of the final award's
promulgation. 22 Petitioner filed its draft decision 23 only on May 7, 2010.
The Arbitral Tribunal rendered its Award 24 dated May 7, 2010
(Arbitral Award) in favor of respondent, directing petitioner to pay the latter
the amount of  (a)  P2,285,089.89 representing the unpaid progress billings,
with interest at the rate of 12% per annum from the date of finality of the
Arbitral Award upon confirmation by the RTC until fully
paid;  (b)  P2,033,034.59 as accrued interest thereon; (c) P500,000.00 as
exemplary damages; and (d) P150,000.00 as attorney's fees. 25 It also
ordered petitioner to reimburse respondent its proportionate share in the
arbitration costs as agreed upon in the amount of P182,119.44. 26
Unconvinced, petitioner filed a motion for reconsideration, 27 which
the Arbitral Tribunal merely noted without any action, claiming that it had
already lost jurisdiction over the case after it had submitted to the RTC its
Report together with a copy of the Arbitral Award. 28
Consequently, petitioner filed before the RTC a Motion for
Reconsideration 29 dated May 19, 2010 (May 19, 2010 Motion for
Reconsideration) and a Manifestation and Motion 30 dated June 1, 2010
(June 1, 2010 Manifestation and Motion), asserting that it was denied the
opportunity to be heard when the Arbitral Tribunal failed to consider its draft
decision and merely noted its motion for reconsideration. 31 It also denied
receiving a copy of the Arbitral Award by either electronic or registered
mail. 32 For its part, respondent filed an opposition thereto and moved for the
confirmation 33 of the Arbitral Award in accordance with the Special Rules of
Court on Alternative Dispute Resolution (Special ADR Rules). 34
In an Order 35 dated March 30, 2011, the RTC merely noted
petitioner's aforesaid motions, finding that copies of the Arbitral Award
appear to have been sent to the parties by the Arbitral Tribunal, including the
OSG, contrary to petitioner's claim. On the other hand, the RTC confirmed
the Arbitral Award pursuant to Rule 11.2 (A) 36 of the Special ADR Rules
and ordered petitioner to pay respondent the costs of confirming the award,
as prayed for, in the total amount of P50,000.00. From this order, petitioner
did not file a motion for reconsideration.
Thus, on June 15, 2011, respondent moved for the issuance of a writ
of execution, to which no comment/opposition was filed by petitioner despite
the RTC's directive therefor. In an Order 37 dated September 12, 2011, the
RTC granted respondent's motion. 38
Petitioner moved to quash 39 the writ of execution, positing that
respondent was not entitled to its monetary claims. It also claimed that the
issuance of said writ was premature since the RTC should have first resolved
its May 19, 2010 Motion for Reconsideration and June 1, 2010 Manifestation
and Motion, and not merely noted them, thereby violating its right to due
process. 40
The RTC Ruling
In an Order 41 dated July 9, 2012, the RTC denied petitioner's
motion to quash.
It found no merit in petitioner's contention that it was denied due
process, ruling that its May 19, 2010 Motion for Reconsideration was a
prohibited pleading under Section 17.2, 42 Rule 17 of the CIAC Rules. It
explained that the available remedy to assail an arbitral award was to file a
motion for correction of final award pursuant to Section 17.1 43 of the CIAC
Rules, and not a motion for reconsideration of the said award itself. 44 On
the other hand, the RTC found petitioner's June 1, 2010 Manifestation and
Motion seeking the resolution of its May 19, 2010 Motion for Reconsideration
to be defective for petitioner's failure to observe the three-day notice
rule. 45 Having then failed to avail of the remedies attendant to an order of
confirmation, the Arbitral Award had become final and executory. 46
On July 12, 2012, petitioner received the RTC's Order dated July 9,
2012 denying its motion to quash. 47
Dissatisfied, it filed on September 10, 2012 a petition
for certiorari 48 before the CA, docketed as CA-G.R. SP No. 126458,
averring in the main that the RTC acted with grave abuse of discretion in
confirming and ordering the execution of the Arbitral Award.
The CA Ruling
In a Decision 49 dated March 26, 2014, the CA dismissed
the certiorari petition on two (2) grounds, namely: (a) the petition essentially
assailed the merits of the Arbitral Award which is prohibited under Rule
19.7 50 of the Special ADR Rules; 51 and  (b)  the petition was filed out of
time, having been filed way beyond 15 days from notice of the RTC's July 9,
2012 Order, in violation of Rule 19.28 52 in relation to Rule 19.8 53 of said
Rules which provide that a special civil action for  certiorari must be filed
before the CA within 15 days from notice of the judgment, order, or
resolution sought to be annulled or set aside (or until July 27, 2012).
Aggrieved, petitioner filed the instant petition.
The Issue Before the Court
The core issue for the Court's resolution is whether or not the CA
erred in applying the provisions of the Special ADR Rules, resulting in the
dismissal of petitioner's special civil action for certiorari.
The Court's Ruling
The petition lacks merit. AcDaEH
I.
Republic Act No. (RA) 9285, 54 otherwise known as the Alternative
Dispute Resolution Act of 2004," institutionalized the use of an Alternative
Dispute Resolution System (ADR System) 55 in the Philippines. The Act,
however, was without prejudice to the adoption by the Supreme Court of any
ADR system as a means of achieving speedy and efficient means of
resolving cases pending before all courts in the Philippines. 56
Accordingly, A.M. No. 07-11-08-SC was created setting forth the
Special Rules of Court on Alternative Dispute Resolution (referred herein as
Special ADR Rules) that shall govern the procedure to be followed by the
courts whenever  judicial intervention is sought in ADR proceedings in the
specific cases where it is allowed. 57
Rule 1.1 of the Special ADR Rules lists down the instances when the
said rules shall apply, namely: "(a) Relief on the issue of Existence, Validity,
or Enforceability of the Arbitration Agreement; (b) Referral to Alternative
Dispute Resolution ("ADR"); (c) Interim Measures of
Protection; (d) Appointment of Arbitrator;  (e)  Challenge to Appointment of
Arbitrator;  (f) Termination of Mandate of Arbitrator; (g) Assistance in Taking
Evidence;  (h) Confirmation, Correction or Vacation of Award in Domestic
Arbitration; (i) Recognition and Enforcement or Setting Aside of an Award in
International Commercial Arbitration;  (j) Recognition and Enforcement of a
Foreign Arbitral Award;  (k)  Confidentiality/Protective Orders; and (l) Deposit
and Enforcement of Mediated Settlement Agreements." 58
Notably, the Special ADR Rules do not automatically govern
the arbitration proceedings itself. A pivotal feature of arbitration as an
alternative mode of dispute resolution is that it is a product of party
autonomy or the freedom of the parties to make their own arrangements to
resolve their own disputes. 59 Thus, Rule 2.3 of the Special ADR Rules
explicitly provides that "parties are free to agree on the procedure to be
followed in the conduct of arbitral proceedings. Failing such agreement,
the arbitral tribunal may conduct arbitration in the manner it considers
appropriate." 60
In the case at bar, the Consultancy Agreement contained an
arbitration clause. 61 Hence, respondent, after it filed its complaint,
moved for its referral to arbitration 62 which was not objected to by
petitioner. 63 By its referral to arbitration, the case fell within the
coverage of the Special ADR Rules. However, with respect to the
arbitration proceedings itself, the parties had agreed to adopt the CIAC
Rules before the Arbitral Tribunal in accordance with Rule 2.3 of the
Special ADR Rules.
On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in
favor of respondent. Under Section 17.2, Rule 17 of the CIAC Rules, no
motion for reconsideration or new trial may be sought, but any of the parties
may file a motion for correction 64 of the final award, which shall interrupt the
running of the period for appeal, 65 based on any of the following grounds, to
wit:
a. an evident miscalculation of figures, a typographical or
arithmetical error;
b. an evident mistake in the description of any party,
person, date, amount, thing or property referred to
in the award;
c. where the arbitrators have awarded upon a matter not
submitted to them, not affecting the merits of the
decision upon the matter submitted;
d. where the arbitrators have failed or omitted to resolve
certain issue/s formulated by the parties in the
Terms of Reference (TOR) and submitted to them
for resolution, and
e. where the award is imperfect in a matter of form not
affecting the merits of the controversy.
The motion shall be acted upon by the Arbitral
Tribunal or the surviving/remaining members. 66
Moreover, the parties may appeal the final award to the CA through a
petition for review under Rule 43 of the Rules of Court. 67
Records do not show that any of the foregoing remedies were
availed of by petitioner. Instead, it filed the May 19, 2010 Motion for
Reconsideration of the Arbitral Award, which was a prohibited pleading under
the Section 17.2, 68 Rule 17 of the CIAC Rules, thus rendering the same
final and executory.
Accordingly, the case was remanded to the RTC for confirmation
proceedings pursuant to Rule 11 of the Special ADR Rules which requires
confirmation by the court of the final arbitral award. This is consistent with
Section 40, Chapter 7 (A) of RA 9285 which similarly requires a judicial
confirmation of a domestic award to make the same enforceable:
SEC. 40. Confirmation of Award. — The
confirmation of a domestic arbitral award shall be
governed by Section 23 69 of R.A. 876. 70
A domestic arbitral award when confirmed
shall be enforced in the same manner as final and
executory decisions of the regional trial court.
The confirmation of a domestic award shall be
made by the regional trial court in accordance with the
Rules of Procedure to be promulgated by the Supreme
Court.
A CIAC arbitral award need not be confirmed by
the regional trial court to be executory as provided under
E.O. No. 1008. (Emphases supplied)
During the confirmation proceedings, petitioners did not oppose the
RTC's confirmation by filing a petition to vacate the Arbitral Award under Rule
11.2 (D) 71 of the Special ADR Rules. Neither did it seek reconsideration of
the confirmation order in accordance with Rule 19.1 (h) thereof. Instead,
petitioner filed only on September 10, 2012 a special civil action
for certiorari before the CA questioning the propriety of (a) the RTC Order
dated September 12, 2011 granting respondent's motion for issuance of a
writ of execution, and  (b)  Order dated July 9, 2012 denying its motion to
quash. Under Rule 19.26 of the Special ADR Rules, "[w]hen the Regional
Trial Court, in making a ruling under the Special ADR Rules, has acted
without or in excess of its jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal or any
plain, speedy, and adequate remedy in the ordinary course of law, a
party may file a special civil action for certiorari  to annul or set aside a ruling
of the Regional Trial Court." Thus, for failing to avail of the foregoing
remedies before resorting to certiorari, the CA correctly dismissed its petition.
II.
Note that the special civil action for certiorari  described in Rule 19.26
above may be filed to annul or set aside the following orders of the Regional
Trial Court. AHCETa
a. Holding that the arbitration agreement is inexistent,
invalid or unenforceable;
b. Reversing the arbitral tribunal's preliminary
determination upholding its jurisdiction;
c. Denying the request to refer the dispute to arbitration;
d. Granting or refusing an interim relief;
e. Denying a petition for the appointment of an arbitrator;
f. Confirming, vacating or correcting a domestic arbitral
award;
g. Suspending the proceedings to set aside an
international commercial arbitral award and
referring the case back to the arbitral tribunal;
h. Allowing a party to enforce an international commercial
arbitral award pending appeal;
i. Adjourning or deferring a ruling on whether to set aside,
recognize and or enforce an international
commercial arbitral award;
j. Allowing a party to enforce a foreign arbitral award
pending appeal; and
k. Denying a petition for assistance in taking evidence.
(Emphasis supplied)
Further, Rule 19.7 72 of the Special ADR Rules precludes a party to
an arbitration from filing a petition for certiorari  questioning the merits of an
arbitral award.
If so falling under the above-stated enumeration, Rule 19.28 of the
Special ADR Rules provide that said certiorari  petition should be filed "with
the [CA] within fifteen (15) days from notice of the judgment, order or
resolution sought to be annulled or set aside. No extension of time to file the
petition shall be allowed."
In this case, petitioner asserts that its petition is not covered by the
Special ADR Rules (particularly, Rule 19.28 on the 15-day reglementary
period to file a petition for certiorari) but by Rule 65 of the Rules of Court
(particularly, Section 4 thereof on the 60-day reglementary period to file a
petition for certiorari), which it claimed to have suppletory application in
arbitration proceedings since the Special ADR Rules do not explicitly provide
for a procedure on execution.
The position is untenable.
Execution is fittingly called the  fruit and end of suit and the life of the
law. A judgment, if left unexecuted, would be nothing but an empty victory for
the prevailing party. 73
While it appears that the Special ADR Rules remain silent on the
procedure for the execution of a confirmed arbitral award, it is the Court's
considered view that the Rules' procedural mechanisms cover not only
aspects of confirmation but necessarily extend to a confirmed award's
execution in light of the doctrine of necessary implication which states that
every statutory grant of power, right or privilege is deemed to include all
incidental power, right or privilege. In  Atienza v. Villarosa, 74 the doctrine
was explained, thus:
No statute can be enacted that can provide all the
details involved in its application. There is always an
omission that may not meet a particular situation. What is
thought, at the time of enactment, to be an all-embracing
legislation may be inadequate to provide for the unfolding
of events of the future. So-called gaps in the law develop
as the law is enforced. One of the rules of statutory
construction used to fill in the gap is the doctrine of
necessary implication. The doctrine states that what is
implied in a statute is as much a part thereof as that which
is expressed. Every statute is understood, by
implication, to contain all such provisions as may be
necessary to effectuate its object and purpose, or to
make effective rights, powers, privileges or
jurisdiction which it grants, including all such
collateral and subsidiary consequences as may be
 fairly and logically inferred from its terms. Ex
necessitate legis. And every statutory grant of power,
right or privilege is deemed to include all incidental
power, right or privilege. This is so because the greater
includes the lesser, expressed in the maxim, in eo plus sit,
simper inest et minus. 75 (Emphases supplied)
As the Court sees it, execution is but a necessary incident to the
Court's confirmation of an arbitral award. To construe it otherwise would
result in an absurd situation whereby the confirming court previously applying
the Special ADR Rules in its confirmation of the arbitral award would later
shift to the regular Rules of Procedure come execution. Irrefragably, a court's
power to confirm a judgment award under the Special ADR Rules should be
deemed to include the power to order its execution for such is but a collateral
and subsidiary consequence that may be fairly and logically inferred from the
statutory grant to regional trial courts of the power to confirm domestic
arbitral awards.
All the more is such interpretation warranted under the principle
of ratio legis est anima which provides that a statute must be read according
to its spirit or intent, 76 for what is within the spirit is within the statute
although it is not within its letter, and that which is within the letter but not
within the spirit is not within the statute. 77 Accordingly, since the Special
ADR Rules are intended to achieve speedy and efficient resolution of
disputes and curb a litigious culture, 78 every interpretation thereof should be
made consistent with these objectives.
Thus, with these principles in mind, the Court so concludes that the
Special ADR Rules, as far as practicable, should be made to apply not only
to the proceedings on confirmation but also to the confirmed award's
execution.
Further, let it be clarified that — contrary to petitioner's stance —
resort to the Rules of Court even in a suppletory capacity is not allowed. Rule
22.1 of the Special ADR Rules explicitly provides that "[t]he provisions of the
Rules of Court that are applicable to the proceedings enumerated in Rule 1.1
of these Special ADR Rules have either been  included and  incorporated in
these Special ADR Rules or specifically referred  to herein." 79 Besides,
Rule 1.13 thereof provides that "[i]n situations where no specific rule is
provided under the Special ADR Rules, the court shall resolve such matter
summarily and be guided by the spirit and intent of the Special ADR Rules
and the ADR Laws."
As above-mentioned, the petition for certiorari permitted under the
Special ADR Rules must be filed within a period of fifteen (15) days from
notice of the judgment, order or resolution sought to be annulled or set
aside. 80 Hence, since petitioner's filing of its certiorari  petition in CA-G.R.
SP No. 126458 was made nearly two months after its receipt of the RTC's
Order dated July 9, 2012, or on September 10, 2012, 81 said petition was
clearly dismissible. 82
III.
Discounting the above-discussed procedural considerations, the
Court still finds that the  certiorari petition had no merit. AIaDcH
Indeed, petitioner cannot be said to have been denied due process
as the records undeniably show that it was accorded ample opportunity to
ventilate its position. There was clearly nothing out of line when the Arbitral
Tribunal denied petitioner's motions for extension to file its submissions
having failed to show a valid reason to justify the same or in rendering the
Arbitral Award  sans petitioner's draft decision which was filed only on the day
of the scheduled promulgation of final award on May 7, 2010. 83 The
touchstone of due process is basically the opportunity to be heard. Having
been given such opportunity, petitioner should only blame itself for its own
procedural blunder.
On this score, the petition for certiorari  in CA-G.R. SP No. 126458
was likewise properly dismissed.
IV.
Nevertheless, while the Court sanctions the dismissal by the CA of
the petition for certiorari  due to procedural infirmities, there is a need to
explicate the matter of execution of the confirmed Arbitral Award against the
petitioner, a government agency, in the light of Presidential Decree No. (PD)
1445 84 otherwise known as the "Government Auditing Code of the
Philippines."
Section 26 of PD 1445 expressly provides that execution of money
judgment against the Government or any of its subdivisions, agencies and
instrumentalities is within the primary jurisdiction of the COA, to wit:
SEC. 26. General jurisdiction. — The authority
and powers of the Commission shall extend to and
comprehend all matters relating to auditing procedures,
systems and controls, the keeping of the general accounts
of the Government, the preservation of vouchers pertaining
thereto for a period of ten years, the examination and
inspection of the books, records, and papers relating
to those accounts; and the audit and settlement of the
accounts of all persons respecting funds or property
received or held by them in an accountable capacity,
as well as the examination, audit, and settlement of all
debts and claims of any sort due from or owing to the
 Government or any of its subdivisions, agencies and
instrumentalities. The said jurisdiction extends to all
government-owned or controlled corporations, including
their subsidiaries, and other self-governing boards,
commissions, or agencies of the Government, and as
herein prescribed, including non-governmental entities
subsidized by the government, those funded by donation
through the government, those required to pay levies or
government share, and those for which the government
has put up a counterpart fund or those partly funded by the
government. (Emphases supplied)
From the foregoing, the settlement of respondent's money claim is
still subject to the primary jurisdiction of the COA despite finality of the
confirmed arbitral award by the RTC pursuant to the Special ADR
Rules. 85 Hence, the respondent has to first seek the approval of the COA of
their monetary claim. This appears to have been complied with by the latter
when it filed a "Petition for Enforcement and Payment of Final and Executory
Arbitral Award" 86 before the COA. Accordingly, it is now the COA which has
the authority to rule on this latter petition.
WHEREFORE, the petition is DENIED. The Decision dated March
26, 2014 of the Court of Appeals in CA-G.R. SP No. 126458 which dismissed
the petition for certiorari  filed by petitioner the Department of Environment
and Natural Resources is hereby AFFIRMED.
SO ORDERED.
 FIRST DIVISION of technical and advisory or management services to the
respondent, 8 effective for five years, or from January 4, 1999 until
December 31, 2003. 9 On the same date, the respondent, pursuant to
[G.R. No. 160071. June 6, 2016.] Clause 6 of the TSA, 10 submitted a Side Letter, 11 the relevant portions
of which stated:
ANDREW D. FYFE, RICHARD T. NUTTALL, and For and in consideration of the services to be faithfully
RICHARD J. WALD,  petitioners,  vs. PHILIPPINE performed by Regent Star in accordance with the terms
AIRLINES, INC.,  respondent. and conditions of the Agreement, the Company agrees
to pay Regent Star as follows:
1.1 Upon execution of the Agreement,
DECISION Four Million Seven Hundred Thousand
US Dollars (US$4,700,000.00),
representing advisory fees for two (2)
years from the date of signature of the
BERSAMIN, J  p: Agreement, with an additional amount of
This case concerns the order issued by the Regional Trial Court not exceeding One Million Three
granting the respondent's application to vacate the adverse arbitral Hundred Thousand US Dollars
award of the panel of arbitrators, and the propriety of the recourse from (US$1,300,000.00) being due and
such order. demandable upon Regent Star's notice
to the Company of its engagement of an
The Case individual to assume the position of CCA
Under review are the resolutions promulgated in C.A.-G.R. No. under the Agreement;
71224 entitled Andrew D. Fyfe, Richard T. Nuttall and Richard J. Wald v. xxx xxx xxx
Philippine Airlines, Inc.  on May 30, 2003 1 and September 19,
2003, 2 whereby the Court of Appeals (CA) respectively granted the In addition to the foregoing, the
respondent's Motion to Dismiss Appeal (without Prejudice to the Filing of Company agrees as follows:
Appellee's Brief)  and denied the petitioners'  Motion for Reconsideration. xxx xxx xxx
Antecedents In the event of a full or partial
In 1998, the respondent underwent rehabilitation proceedings in termination of the Agreement for
the Securities and Exchange Commission (SEC), 3 which issued an whatever reason by either the Company
order dated July 1, 1998 decreeing, among others, the suspension of all or a Senior Technical Adviser/Regent
claims for payment against the respondent. 4 To convince its creditors to Star prior to the end of the term of the
approve the rehabilitation plan, the respondent decided to hire technical Agreement, the following penalties are
advisers with recognized experience in the airline industry. This led the payable by the terminating party:
respondent through its then Director Luis Juan K. Virata to consult with A. During the first 2 years
people in the industry, and in due course came to meet Peter W. Foster,
formerly of Cathay Pacific Airlines. 5 Foster, along with Michael R. 1. Senior Company Adviser (CCA) - US$800,000.00
Scantlebury, negotiated with the respondent on the details of a proposed 2. Senior Commercial Adviser (SCA) - 800,000.00
technical services agreement. 6 Foster and Scantlebury subsequently
organized Regent Star Services Ltd. (Regent Star) under the laws of the 3. Senior Financial Adviser (FSA) - 700,000.00
British Virgin Islands. 7 On January 4, 1999, the respondent and Regent 4. Senior Ground Services and    
Star entered into a Technical Services Agreement (TSA) for the delivery   Training Adviser (SAG) - 500,000.00
5. Senior Engineering and    
  Maintenance Adviser (SAM) - 500,000.00
 
xxx xxx xxx
For the avoidance of doubt, it is
understood and agreed that in the event
that the terminating party is an individual
Senior Technical Adviser the liability to
pay such Termination Amount to the
Company shall rest with that individual
party, not with RSS. Similarly, if the
terminating party is the Company, the
liability to the aggrieved party shall be
the individual Senior Technical Adviser,
not to RSS. 12
Regent Star, through Foster, conformed to the terms stated in
the Side Letter. 13 The SEC approved the TSA on January 19, 1999. 14
In addition to Foster and Scantlebury, Regent Star engaged the
petitioners in respective capacities, specifically: Andrew D. Fyfe as
Senior Ground Services and Training Adviser; Richard J. Wald as Senior
Maintenance and Engineering Adviser; and Richard T. Nuttall as Senior
Commercial Adviser. The petitioners commenced to render their services
to the respondent immediately after the TSA was executed. 15
On July 26, 1999, the respondent dispatched a notice to Regent
Star terminating the TSA on the ground of lack of confidence effective
July 31, 1999. 16 In its notice, the respondent demanded the offsetting of
the penalties due to the petitioners with the two-year advance advisory
fees it had paid to Regent Star, thus:
The side letter stipulates that "[i]n the event of a
full or partial termination of the Agreement for whatever
reason by either the Company or a Senior Technical
Adviser/Regent Star prior to the end of the term of the
Agreement, the following penalties are payable by the
terminating party:" CAIHTE
During the first 2 years:    
Senior Company Adviser - US$800,000.00
Senior Commercial Adviser - 800,000.00
Senior Financial Adviser - 700,000.00
Senior Ground Services and    
  Training Adviser - 500,000.00
Senior Engineering and    
  Maintenance Adviser - 500,000.00
      –––––––––––––––
TOTAL   US$3,300,000.00
      =============
 
There is, therefore, due to RSS from PAL the
amount of US$3,300,000.00 by way of stipulated
penalties.
However, RSS has been paid by PAL advance
"advisory fee for two (2) years from date of signature of
the Agreement" the amount of US$5,700,000. Since
RSS has rendered advisory services from 4 January to
31 July 1999, or a period of seven months, it is entitled
to retain only the advisory fees for seven months. This is
computed as follows:
US$5,700,000 = US$237,500/month x 7 = US$1,662,500
  ––––––––––––
  24 months
 
The remaining balance of the advance advisory
fee, which corresponds to the unserved period of 17
months, or US$4,037,500, should be refunded by RSS
to PAL.
Off-setting the amount of US$3,300,000 due
from PAL to RSS against the amount of US$4,037,500
due from RSS to PAL, there remains a net balance of
US$737,500 due and payable to PAL. Please settle this
amount at your early convenience, but not later than
August 15, 1999. 17
On June 8, 1999, the petitioners, along with Scantlebury and
Wald, wrote to the respondent, through its President and Chief Operating
Officer, Avelino Zapanta, to seek clarification on the status of the TSA in
view of the appointment of Foster, Scantleburry and Nuttall as members
of the Permanent Rehabilitation Receiver (PRR) for the respondent. 18 A
month later, Regent Star sent to the respondent another letter expressing
disappointment over the respondent's ignoring the previous letter, and
denying the respondent's claim for refund and set-off. Regent Star then
proposed therein that the issue be submitted to arbitration in accordance
with Clause 14 19 of the TSA. 20
 Thereafter, the petitioners initiated arbitration proceedings in the Agreement. Hence when PAL signed the Agreement
Philippine Dispute Resolution Center, Inc. (PDRCI) pursuant to the TSA. with RSS, it was for all intents and purposes an
Agreement signed individually with the Senior Technical
Ruling of the PDRCI
Advisers including the Complainants. The RSS and the
After due proceedings, the PDRCI rendered its decision ordering five (5) Senior Technical Advisers should be treated as
the respondent to pay termination penalties, 21 viz.: one and the same,
On issue No. 1 we rule that the Complainants The Arbitration Tribunals is not convinced.
are entitled to their claim for termination penalties.
xxx xxx xxx
When the PAL terminated the Technical
PAL cannot refuse to pay Complainants their
Services Agreement on July 26, 1999 which also
termination penalties by setting off against the unserved
resulted in the termination of the services of the senior
period of seventeen (17) months of their advance
technical advisers including those of the Complainants
advisory fees as the Agreement and the Side Letter
it admitted that the termination penalties in the amount
clearly do not allow refund. This Arbitration Tribunal
of US$3,300,000.00 as provided in the Letter dated
cannot read into the contract, which is the law between
January 4, 1999 are payable to the Senior Technical
the parties, what the contract does not provide or what
Advisers by PAL. . . . . PAL's admission of its liability to
the parties did not intend. It is basic in contract
pay the termination penalties to the complainants was
interpretation that contracts that are not ambiguous are
made also in its Answer. PAL's counsel even stipulated
to be interpreted according to their literal meaning
during the hearing that the airline company admits that it
and should not be interpreted beyond their obvious
is liable to pay Complainants the termination
intendment. . . . . The penalties work as security for the
penalties. . . . .
Complainants against the uncertainties of their work at
However, PAL argued that although it is liable to PAL whose closure was a stark reality they were facing.
pay termination penalties the Complainants are not (TSN Hearing on April 27, 2000, pp. 48-49) This would
entitled to their respective claims because considering not result in unjust enrichment for the Complainants
that PAL had paid RSS advance "advisory fees for two because the termination of the services was initiated by
(2) years" in the total amount of US$5,700,000.00 and PAL itself without cause. In fact, PAL admitted that at the
RSS had rendered advisory services for only seven (7) time their services were terminated the Complainants
months from January 4, 1999 to July 31, 1999 that would were performing well in their respective assigned
entitle RSS to an (sic) advisory fees of only works. 22 . . . .
US$1,662,500.00 and therefore the unserved period of
PAL also presented hypothetical situations and
17 months equivalent to US$4,037,500.00 should be
certain computations that it claims would result to an
refunded. And setting off the termination penalties of
"injustice" to PAL which would then "lose a very
US$3,300,000.00 due RSS from PAL against the
substantial amount of money" if the claimed refund is not
amount of US$4,037,500.00 still due PAL from RSS
allowed. PAL had chosen to pre-terminate the services
there would remain a net balance of US$737,500.00 still
of the complainants and must therefore pay the
due PAL from RSS and/or the Senior Technical Advisers
termination penalties provided in the Side Letter. If it
which the latter should pay pro-rata  as follows: Peter W.
finds itself losing "substantial" sums of money because
Forster, the sum of US$178,475.00; Richard T. Nuttall,
of its contractual commitments, there is nothing this
the sum of US$178,475.00; Michael R. Scantlebury; the
Arbitration Tribunal can do to remedy the situation.
sum of US$156,350.00, Andrew D. Fyfe, the sum of
Jurisprudence teaches us that neither the law nor the
US$111,362.50; and Richard J. Wald the sum of
courts will extricate a party from an unwise or
US$111,362.50. RSS is a special company which the
undesirable contract that he or she entered into with all
Senior Technical Advisers had utilized for the specific
the required formalities and with full awareness of its
purpose of providing PAL with technical advisory
services they as a group had contracted under the
 consequences. (Opulencia vs. Court of Appeals, 293
SCRA 385 (1998) 23
Decision of the RTC
Dissatisfied with the outcome, the respondent filed its Application
to Vacate Arbitral Award in the Regional Trial Court, in Makati City
(RTC), docketed as SP Proc. M-5147 and assigned to Branch
57, 24 arguing that the arbitration decision should be vacated in view of
the July 1, 1998 order of the SEC placing the respondent under a state of
suspension of payment pursuant to Section 6 (c) of Presidential Decree
No. 902-A, as amended by P.D. No. 1799. 25
The petitioners countered with their Motion to Dismiss, 26 citing
the following grounds, namely: (a) lack of jurisdiction over the persons of
the petitioners due to the improper service of summons; (b) the
remedy under Sections 24 and 26 of the Arbitration Law, and whether or
application did not state a cause of action; and (c) the application was an
not the July 1, 1998 order of the SEC deprived the Panel of Arbitrators of
improper remedy because the respondent should have filed an appeal in
the authority to hear the petitioners' claim, the RTC held:
the CA pursuant to Rule 43 of the Rules of Court. 27
On March 7, 2001, the RTC granted the respondent's Application
to Vacate Arbitral Award, 28 disposing:
WHEREFORE, the subject arbitral award dated
September 29, 2000 is hereby vacated and set aside,
without prejudice to the complainants' filing with the SEC
rehabilitation receiver of PAL their subject claim for
appropriate adjudication. The panel of arbitrators
composed of lawyers Beda Fajardo, Arturo de Castro
and Bienvenido Magnaye is hereby ordered discharged
on the ground of manifest partiality. DETACa
No pronouncement as to cost and attorney's
fees.
SO ORDERED. 29
Anent jurisdiction over the persons of the petitioners, the RTC
opined:
On the objection that the Court has not acquired
jurisdiction over the person of the complainants because
summonses were not issued and served on them, the
Court rules that complainants have voluntarily submitted
themselves to the jurisdiction of the Court by praying the
Court to grant them affirmative relief,  i.e., that the Court
confirm and declare final and executory the subject
arbitral award. Moreover, under Sections 22 and 26 of
the Arbitration Law (R.A. 876), an application or petition
to vacate arbitral award is deemed a motion and service
of such motion on the adverse party or his counsel is
enough to confer jurisdiction upon the Court over the
adverse party.
It is not disputed that complainants were duly
served by personal delivery with copies of the application
to vacate. In fact, they have appeared through counsel
and have filed pleadings. In line with this ruling, the
objection that the application to vacate does not state a
cause of action against complainants must necessarily
fall inasmuch as this present case is a special
proceeding (Sec. 22, Arbitration Law), and Section 3 (a),
Rule 1 of the 1997 Rules of Civil Procedure is
inapplicable here. 30
On whether or not the application to vacate was an appropriate
The rationale for the suspension is to enable the
rehabilitation receiver to exercise his powers without any
judicial or extra-judicial interference that might unduly
hinder the rescue of the distressed corporation. . . . . PD
No. 902-A does not provide for the duration of the
suspension; therefore, it is deemed to be effective during
the entire period that the corporate debtor is under SEC
receivership.
There is no dispute that PAL is under
receivership (Exhibits "1" and "2"). In its Order dated 1
July 1998, the SEC declared that "all claims for payment
against PAL are deemed suspended." This Order
effectively deprived all other tribunals of jurisdiction to
hear and decide all actions for claims against PAL for the
duration of the receivership.
xxx xxx xxx
Unless and until the SEC lifts the Order dated 1
July 1998, the Panel of Arbitrators cannot take
cognizance of complainant' claims against PAL without
violating the exclusive jurisdiction of the SEC. The law
has granted SEC the exclusive jurisdiction to pursue the
rehabilitation of a private corporation through the
appointment of a rehabilitation receiver (Sec. 6 (d), PD
No. 902-A, as amended by PD 1799). "exclusive
jurisdiction precludes the idea of co-existence and refers
to jurisdiction possessed to the exclusion of others. . . . .
Thus, "(I)nstead of vexing the courts with suits against
 the distressed firm, they are directed to file their claims The petitioners moved for reconsideration, 38 but the CA denied
with the receiver who is the duly appointed officer of the their motion. 39
SEC. . . . . 31
Hence, this appeal by the petitioners.
After their motion for reconsideration 32 was denied, 33 the
Issues
petitioners appealed to the CA by notice of appeal.
The petitioners anchor this appeal on the following grounds,
Resolution of the CA
namely:
The respondent moved to dismiss the appeal, 34 arguing against
I
the propriety of the petitioners' remedy, and positing that Section 29 of
the Arbitration Law limited appeals from an order issued in a proceeding SECTION 29 OF THE ARBITRATION LAW, WHICH
under the Arbitration Law to a review on certiorari  upon questions of LIMITS THE MODE OF APPEAL FROM THE ORDER
law. 35 OF A REGIONAL TRIAL COURT IN A PROCEEDING
MADE UNDER THE ARBITRATION LAW TO A
On May 30, 2003, the CA promulgated the now assailed
PETITION FOR REVIEW ON CERTIORARI UNDER
resolution granting the respondent's Motion to Dismiss Appeal. 36 It
RULE 45 OF THE RULES, IS UNCONSTITUTIONAL
declared that the appropriate remedy against the order of the RTC
FOR UNDULY EXPANDING THE JURISDICTION OF
vacating the award was a petition for review on certiorari  under Rule
THIS HONORABLE COURT WITHOUT THIS
45,  viz.:
HONORABLE COURT'S CONCURRENCE;
The term "certiorari"  in the aforequoted provision
II
refers to an ordinary appeal under Rule 45, not the
special action of certiorari under Rule 65. As Section 29 THE COURT OF APPEALS HAD JURISDICTION OVER
proclaims, it is an "appeal." This being the case, the THE CA APPEAL BECAUSE:
proper forum for this action is, under the old and the new
A.
rules of procedure, the Supreme Court. Thus, Section
2(c) of Rule 41 of the 1997 Rules of Civil Procedure THIS HONORABLE COURT HAS PREVIOUSLY
states that, UPHELD THE EXERCISE BY THE COURT OF
APPEALS OF JURISDICTION OVER AN APPEAL
"In all cases where only
INVOLVING QUESTIONS OF FACT OR OF MIXED
questions of law are raised or involved,
QUESTIONS OF FACT AND LAW FROM A REGIONAL
the appeal shall be to the Supreme
TRIAL COURT'S ORDER VACATING AN ARBITRAL
Court by petition for review on certiorari
AWARD
in accordance with Rule 45."
B.
Furthermore, Section 29 limits the appeal to
"questions of law," another indication that it is referring to WHERE, AS IN THIS CASE, THE ISSUES ON APPEAL
an appeal by certiorari under Rule 45 which, indeed, is CONCERNED THE ABSENCE OF EVIDENCE AND
the customary manner of reviewing such issues. LACK OF LEGAL BASIS TO SUPPORT THE
REGIONAL TRIAL COURT'S ORDER VACATING THE
Based on the foregoing, it is clear that
ARBITRAL AWARD, GRAVE MISCHIEF WOULD
complainants-in-arbitration/appellants filed the wrong
RESULT IF THE REGIONAL TRIAL COURT'S
action with the wrong forum.
BASELESS FINDINGS OF FACT OR MIXED FINDINGS
WHEREFORE, premises considered, the Motion OF FACT ARE PLACED BEYOND APPELLATE
to Dismiss Appeal (Without Prejudice to the Filing of REVIEW; AND
Appellee's Brief) is GRANTED and the instant appeal is
C.
hereby ordered DISMISSED.
THE COURT OF APPEALS' DISMISSAL OF THE CA
SO ORDERED. 37
APPEAL WOULD IN EFFECT RESULT IN THE
 AFFIRMATION OF THE REGIONAL TRIAL COURT'S
EXERCISE OF JURISDICTION, OVER PERSONS
UPON WHOM IT FAILED TO VALIDLY ACQUIRE
SUCH JURISDICTION AND OF APPELLATE
JURISDICTION OVER THE PDRCI ARBITRAL AWARD
EVEN IF SUCH APPELLATE POWER IS
EXCLUSIVELY LODGED WITH THE COURT OF
APPEALS UNDER RULE 43 OF THE RULES aDSIHc
III
INSTEAD OF DISMISSING THE CA APPEAL
OUTRIGHT, THE COURT OF APPEALS SHOULD
HAVE SHORTENED THE PROCEEDINGS AND
EXPEDITED JUSTICE BY EXERCISING ORIGINAL
JURISDICTION OVER THE APPLICATION TO VACATE
PURSUANT TO RULE 43 OF THE RULES,
ESPECIALLY CONSIDERING THAT THE PARTIES
HAD IN FACT ALREADY FILED THEIR RESPECTIVE
BRIEFS AND THE COMPLETE RECORDS OF BOTH
THE RTC APPLICATION TO VACATE AND THE PDRCI
ARBITRATION WERE ALREADY IN ITS POSSESSION;
AND
IV
IN THE EVENT THAT AN APPEAL FROM AN ORDER
VACATING AN ARBITRAL AWARD MAY BE MADE
ONLY IN CERTIORARI  PROCEEDINGS AND ONLY
TO THE SUPREME COURT, THE COURT OF
APPEALS SHOULD NOT HAVE DISMISSED THE CA
APPEAL, BUT IN THE HIGHER INTEREST OF
JUSTICE, SHOULD HAVE INSTEAD ENDORSED THE
SAME TO THIS HONORABLE COURT, AS WAS DONE
IN SANTIAGO V. GONZALES. 40
The petitioners contend that an appeal from the order arising
from arbitration proceedings cannot be by petition for review
on certiorari  under Rule 45 of the Rules of Court because the appeal
inevitably involves mixed questions of law and fact; that their appeal in
the CA involved factual issues in view of the RTC's finding that the panel
of arbitrators had been guilty of evident partiality even without having
required the respondent to submit independent proof thereon; that the
appropriate remedy was either a petition for  certiorari under Rule 65 of
the  Rules of Court,  or an ordinary appeal under Rule 41 of the Rules of
Court, conformably with the rulings in Asset Privatization Trust v. Court
of Appeals 41 and  Adamson v. Court of Appeals, 42 respectively; and
that the CA erroneously upheld the RTC's denial of their Motion to
Dismiss Appeal on the basis of their counsel's voluntary appearance to
seek affirmative relief because under Section 20, Rule 14 of the Rules of
Court their objection to the personal jurisdiction of the court was not a
voluntary appearance even if coupled with other grounds for a motion to
dismiss.
In riposte, the respondent avers that the petition for review
on certiorari  should be denied due course because of the defective
verification/certification signed by the petitioners' counsel; and that the
special powers of attorney (SPAs) executed by the petitioners in favor of
their counsel did not sufficiently vest the latter with the authority to
execute the verification/certification in their behalf.
On the merits, the respondent maintains that: (a) the
term certiorari used in Section 29 of the Arbitration Law refers to a
petition for review under Rule 45 of the Rules of Court; (b) the
constitutional challenge against Section 29 of the Arbitration Law was
belatedly made; (c) the petitioners' claim of lack of jurisdiction on the part
of the RTC should fail because an application to vacate an arbitral award
under Sections 22 and 26 of the Arbitration Law is only required to be in
the form of a motion; and (d)  the complete record of the arbitration
proceedings submitted to the RTC sufficiently proved the manifest
partiality and grave abuse of discretion on the part of the panel of
arbitrators.
To be resolved are: (a) whether or not the petition for review
should be dismissed for containing a defective verification/certification;
and (b) whether or not the CA erred in dismissing the appeal of the
petitioners for being an inappropriate remedy.
Ruling of the Court
We deny the petition for review on certiorari.
I
There was sufficient compliance with the rule on
verification and certification against forum shopping
The respondent insists that the verification/certification attached
to the petition was defective because it was executed by the petitioners'
counsel whose authority under the SPAs was only to execute the
certification of non-forum shopping; and that the signing by the counsel
of the certification could not also be allowed because the Rules of
Court and the pertinent circulars and rulings of the Court require that the
petitioners must themselves execute the same. ATICcS
The insistence of the respondent is unwarranted. The SPAs
individually signed by the petitioners vested in their counsel the authority,
among others, "to do and perform on my behalf any act and deed
relating to the case, which it could legally do and perform, including any
appeals or further legal proceedings."  The authority was sufficiently
broad to expressly and specially authorize their counsel, Atty. Ida
Maureen V. Chao-Kho, to sign the verification/certification on their behalf.
The purpose of the verification is to ensure that the allegations
contained in the verified pleading are true and correct, and are not the
product of the imagination or a matter of speculation; and that the
pleading is filed in good faith. 43 This purpose was met by the
verification/certification made by Atty. Chao-Kho in behalf of the
petitioners, which pertinently stated that:
2. Petitioners caused the preparation of the
foregoing Petition for Review on Certiorari,  and have
read and understood all the allegations contained
therein. Further, said allegations are true and correct
based on their own knowledge and authentic records in
their and the Firm's possession. 44
The tenor of the verification/certification indicated that the
petitioners, not Atty. Chao-Kho, were certifying that the allegations were
true and correct based on their knowledge and authentic records. At any
rate, a finding that the verification was defective would not render the
petition for review invalid. It is settled that the verification was merely a
formal requirement whose defect did not negate the validity or efficacy of
the verified pleading, or affect the jurisdiction of the court. 45
We also uphold the efficacy of the certification on non-forum
shopping executed by Atty. Chao-Kho on the basis of the authorization
bestowed under the SPAs by the petitioners. The lawyer of the party, in
order to validly execute the certification, must be "specifically authorized"
by the client for that purpose. 46 With the petitioners being non-residents
of the Philippines, the sworn certification on non-forum shopping by Atty.
Chao-Kho sufficiently complied with the objective of ensuring that no
similar action had been brought by them or the respondent against each
other, to wit:
5. Significantly, Petitioners are foreign residents
who reside and are presently abroad. Further, the Firm is
Petitioners' sole legal counsel in the Philippines, and
hence, is in a position to know that Petitioners have no
other cases before any court o[r] tribunal in the
Philippines; 47
In this regard, we ought not to exact a literal compliance with
Section 4, Rule 45, in relation to Section 2, Rule 42 of the Rules of
Court, that only the party himself should execute the certification. After
all, we have not been shown by the respondent any intention on the part
of the petitioners and their counsel to circumvent the requirement for the
verification and certification on non-forum shopping. 48
II
Appealing the RTC order
vacating an arbitral award
The petitioners contend that the CA gravely erred in dismissing
their appeal for being an inappropriate remedy, and in holding that a
petition for review on certiorari under Rule 45 was the sole remedy under
Section 29 of the Arbitration Law. They argue that the decision of the
RTC involving arbitration could be assailed either by petition
for certiorari under Rule 65, as held in Asset Privatization Trust, or by an
ordinary appeal under Rule 41, as opined in Adamson.
The petitioners are mistaken.
Firstly, the assailed resolution of the CA did not expressly
declare that the petition for review on  certiorari under Rule 45 was the
sole remedy from the RTC's order vacating the arbitral award. The CA
rather emphasized that the petitioners should have filed the petition for
review on certiorari  under Rule 45 considering that Section 29 of the
Arbitration Law has limited the ground of review to "questions of law."
Accordingly, the CA correctly dismissed the appeal of the petitioners
because pursuant to Section 2, 49 Rule 41 of the Rules of Court an
appeal of questions of law arising in the courts in the first instance is by
petition for review on certiorari  under Rule 45.
It is noted, however, that since the promulgation of the assailed
decision by the CA on May 30, 2003, the law on the matter underwent
changes. On February 4, 2004. Republic Act No. 9285 (Alternative
Dispute Resolution Act of 2004) was passed by Congress, and was
approved by the President on April 2, 2004. Pursuant to Republic Act No.
9285, the Court promulgated on September 1, 2009 in A.M. No. 07-11-
08-SC the Special Rules of Court on Alternative Dispute
Resolution,  which are now the present rules of procedure governing
arbitration. Among others, the Special Rules of Court on Alternative
Dispute Resolution requires an appeal by petition for review to the CA of
the final order of the RTC confirming, vacating, correcting or modifying  a
domestic arbitral award, to wit:
Rule 19.12  Appeal to the Court of Appeals. — An appeal
to the Court of Appeals through a petition for review
under this Special Rule shall only be allowed from the
following orders of the Regional Trial Court:
a. Granting or denying an interim measure of protection;
b. Denying a petition for appointment of an arbitrator;
c. Denying a petition for assistance in taking evidence;
d. Enjoining or refusing to enjoin a person from divulging
confidential information;
 e. Confirming, vacating or correcting/modifying a
domestic arbitral award;
f. Setting aside an international commercial arbitration
award;
g. Dismissing the petition to set aside an international
commercial arbitration award even if the court
does not decide to recognize or enforce such
award;
h. Recognizing and/or enforcing an international
commercial arbitration award;
i. Dismissing a petition to enforce an international
commercial arbitration award;
j. Recognizing and/or enforcing a foreign arbitral award;
k. Refusing recognition and/or enforcement of a foreign
arbitral award;
l. Granting or dismissing a petition to enforce a deposited
mediated settlement agreement; and
m. Reversing the ruling of the arbitral tribunal upholding its
jurisdiction.
Although the Special Rules of Court on Alternative Dispute
Resolution provides that the appropriate remedy from an order of the
RTC vacating a domestic arbitral award is an appeal by petition for
review in the CA, not an ordinary appeal under Rule 41 of the Rules of
Court, the Court cannot set aside and reverse the assailed decision on
that basis because the decision was in full accord with the law or rule in
force at the time of its promulgation.
The ruling in Asset Privatization Trust v. Court of
Appeals 50 cannot be the governing rule with respect to the order of the
RTC vacating an arbitral award. Asset Privatization Trust  justified the
resort to the petition for certiorari under Rule 65 only upon finding that
the RTC had acted without jurisdiction or with grave abuse of discretion
in confirming the arbitral award. Nonetheless, it is worth reminding that
the petition for certiorari cannot be a substitute for a lost appeals. 51
Also, the petitioners have erroneously assumed that the appeal
filed by the aggrieved party in Adamson v. Court of Appeals 52 was an
ordinary one. Adamson concerned the correctness of the ruling of the
CA in reversing the decision of the trial court, not the propriety of the
remedy availed of by the aggrieved party. Nor did Adamson expressly
declare that an ordinary appeal could be availed of to assail the RTC's
ruling involving arbitration. As such, the petitioners' reliance
on Adamson to buttress their resort to the erroneous remedy was
misplaced. TIADCc
We remind that the petitioners cannot insist on their chosen
remedy despite its not being sanctioned by the Arbitration Law. Appeal
as a remedy is not a matter of right, but a mere statutory privilege to be
exercised only in the manner and strictly in accordance with the
provisions of the law. 53
III
Panel of Arbitrators had no jurisdiction
to hear and decide the petitioners' claim
The petitioners' appeal is dismissible also because the arbitration
panel had no jurisdiction to hear their claim. The RTC correctly opined
that the SEC's suspension order effective July 1, 1998 deprived the
arbitration panel of the jurisdiction to hear any claims against the
respondent. The Court has clarified in Castillo v. Uniwide Warehouse
Club, Inc. 54 why the claim for payment brought against a distressed
corporation like the respondent should not prosper following the issuance
of the suspension order by the SEC, regardless of when the action was
filed, to wit:
Jurisprudence is settled that the suspension of
proceedings referred to in the law uniformly applies to all
actions for claims filed against a corporation, partnership
or association under management or receivership,
without distinction, except only those expenses incurred
in the ordinary course of business. In the oft-cited case
of Rubberworld (Phils.) Inc. v. NLRC, the Court noted
that aside from the given exception, the law is clear and
males no distinction as to the claims that are suspended
once a management committee is created or a
rehabilitation receiver is appointed. Since the law makes
no distinction or exemptions, neither should this
Court. Ubi lex non distinguit nec nos distinguere
debemos. Philippine Airlines, Inc. v. Zamora  declares
that the automatic suspension of an action for claims
against a corporation under a rehabilitation receiver or
management committee embraces all phases of the suit,
that is, the entire proceedings of an action or suit and not
just the payment of claims.
The reason behind the imperative nature of a
suspension or stay order in relation to the creditors
claims cannot be downplayed, for indeed the
indiscriminate suspension of actions for claims
intends to expedite the rehabilitation of the
 distressed corporation by enabling the management award was filed or delivered "as prescribed by law for the service upon
committee or the rehabilitation receiver to effectively an attorney in an action."
exercise its/his powers free from any judicial or
V
extrajudicial interference that might unduly hinder or
prevent the rescue of the debtor company. To allow Issue of the constitutionality of the
such other actions to continue would only add to the Arbitration Law is devoid of merit
burden of the management committee or
The constitutionality of Section 29 of the Arbitration Law is being
rehabilitation receiver, whose time, effort and
challenged on the basis that Congress has thereby increased the
resources would be wasted in defending claims
appellate jurisdiction of the Supreme Court without its advice and
against the corporation, instead of being directed
concurrence, as required by Section 30, Article VI of the 1987
toward its restructuring and rehabilitation.
Constitution, to wit:
At this juncture, it must be conceded that the
Section 30. No law shall be passed increasing
date when the claim arose, or when the action was
the appellate jurisdiction of the Supreme Court as
filed, has no bearing at all in deciding whether the
provided in this Constitution without its advice and
given action or claim is covered by the stay or
concurrence.
suspension order. What matters is that as long as
the corporation is under a management committee The challenge is unworthy of consideration. Based on the tenor
or a rehabilitation receiver, all actions for claims and text of Section 30, Article VI of the 1987 Constitution, the prohibition
against it, whether for money or otherwise, must against increasing the appellate jurisdiction of the Supreme Court without
yield to the greater imperative of corporate revival, its advice and concurrence applies prospectively, not retrospectively.
excepting only, as already mentioned, claims for Considering that the Arbitration Law had been approved on June 19,
payment of obligations incurred by the corporation 1953, and took effect under its terms on December 19, 1953, while the
in the ordinary course of business. 55 (Bold emphasis Constitution was ratified only on February 2, 1987, Section 29 of the
supplied) Arbitration Law could not be declared unconstitutional.
IV WHEREFORE, the Court DENIES the petition for review
on certiorari  for lack of merit; AFFIRMS the resolution promulgated on
The requirement of due process was observed
May 30, 2003 by the Court of Appeals in CA-G.R. CV No. 71224;
The petitioners' challenge against the jurisdiction of the RTC on and ORDERS the petitioners to pay the costs of suit.
the ground of the absence of the service of the summons on them also
SO ORDERED.
fails.
Under Section 22 56 of the Arbitration Law, arbitration is deemed
a special proceeding, by virtue of which any application should be made
in the manner provided for the making and hearing of motions, except as
otherwise expressly provided in the Arbitration Law.
The RTC observed that the respondent's Application to Vacate
Arbitral Award was duly served personally on the petitioners, who then
appeared by counsel and filed pleadings. The petitioners countered with
their Motion to Dismiss vis-à-vis  the respondent's application, specifying
therein the various grounds earlier mentioned, including the lack of
jurisdiction over their persons due to the improper service of summons.
Under the circumstances, the requirement of notice was fully complied
with, for Section 26 57 of the Arbitration Law required the application to
be served upon the adverse party or his counsel within 30 days after the
 SECOND DIVISION
[G.R. No. 174938. October 1, 2014.]
GERARDO LANUZA, JR. AND ANTONIO O.
OLBES, petitioners, vs. BF CORPORATION, SHANGRI-
LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B.
COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN
C. RAMOS,  respondents.
DECISION
LEONEN, J  p:
Corporate representatives may be compelled to submit to arbitration
proceedings pursuant to a contract entered into by the corporation they
represent if there are allegations of bad faith or malice in their acts
representing the corporation.
This is a Rule 45 petition, assailing the Court of Appeals' May 11,
2006 decision and October 5, 2006 resolution. The Court of Appeals affirmed
the trial court's decision holding that petitioners, as directors, should submit
themselves as parties to the arbitration proceedings between BF Corporation
and Shangri-La Properties, Inc. (Shangri-La).
In 1993, BF Corporation filed a collection complaint with the Regional
Trial Court against Shangri-La and the members of its board of directors:
Alfredo C. Ramos, Rufo B. Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr.,
Maximo G. Licauco III, and Benjamin C. Ramos. 1
BF Corporation alleged in its complaint that on December 11, 1989
and May 30, 1991, it entered into agreements with Shangri-La wherein it
undertook to construct for Shangri-La a mall and a multilevel parking
structure along EDSA. 2
Shangri-La had been consistent in paying BF Corporation in
accordance with its progress billing statements. 3 However, by October
1991, Shangri-La started defaulting in payment. 4
BF Corporation alleged that Shangri-La induced BF Corporation to
continue with the construction of the buildings using its own funds and credit
despite Shangri-La's default. 5 According to BF Corporation, Shangri-La
misrepresented that it had funds to pay for its obligations with BF
Corporation, and the delay in payment was simply a matter of delayed
processing of BF Corporation's progress billing statements. 6
BF Corporation eventually completed the construction of the
buildings. 7 Shangri-La allegedly took possession of the buildings while still
owing BF Corporation an outstanding balance. 8
BF Corporation alleged that despite repeated demands, Shangri-La
refused to pay the balance owed to it. 9 It also alleged that the Shangri-La's
directors were in bad faith in directing Shangri-La's affairs. Therefore, they
should be held jointly and severally liable with Shangri-La for its obligations
as well as for the damages that BF Corporation incurred as a result of
Shangri-La's default. 10
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,
Maximo G. Licauco III, and Benjamin C. Ramos filed a motion to suspend the
proceedings in view of BF Corporation's failure to submit its dispute to
arbitration, in accordance with the arbitration clause provided in its contract,
quoted in the motion as follows: 11
35. Arbitration
(1) 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 thing 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.
xxx xxx xxx
(6) The award of such Arbitrators shall be final and
binding on the parties. The decision of the
Arbitrators shall be a condition precedent
to any right of legal action that either party
may have against the
other. . . . 12 (Underscoring in the original)
On August 19, 1993, BF Corporation opposed the motion to suspend
proceedings. 13
In the November 18, 1993 order, the Regional Trial Court denied the
motion to suspend proceedings. 14
On December 8, 1993, petitioners filed an answer to BF
Corporation's complaint, with compulsory counterclaim against BF
Corporation and cross-claim against Shangri-La. 15 They alleged that they
had resigned as members of Shangri-La's board of directors as of July 15,
1991. 16
After the Regional Trial Court denied on February 11, 1994 the
motion for reconsideration of its November 18, 1993 order, Shangri-La,
Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and Benjamin
Ramos filed a petition for certiorari with the Court of Appeals. 17
On April 28, 1995, the Court of Appeals granted the petition
for certiorari and ordered the submission of the dispute to arbitration. 18
Aggrieved by the Court of Appeals' decision, BF Corporation filed a
petition for review on certiorari with this court. 19 On March 27, 1998, this
court affirmed the Court of Appeals' decision, directing that the dispute be
submitted for arbitration. 20
Another issue arose after BF Corporation had initiated arbitration
proceedings. BF Corporation and Shangri-La failed to agree as to the law
that should govern the arbitration proceedings. 21 On October 27, 1998, the
trial court issued the order directing the parties to conduct the proceedings in
accordance with Republic Act No. 876. 22
Shangri-La filed an omnibus motion and BF Corporation an urgent
motion for clarification, both seeking to clarify the term, "parties," and whether
Shangri-La's directors should be included in the arbitration proceedings and
served with separate demands for arbitration. 23
Petitioners filed their comment on Shangri-La's and BF Corporation's
motions, praying that they be excluded from the arbitration proceedings for
being non-parties to Shangri-La's and BF Corporation's agreement. 24
On July 28, 2003, the trial court issued the order directing service of
demands for arbitration upon all defendants in BF Corporation's
complaint. 25 According to the trial court, Shangri-La's directors were
interested parties who "must also be served with a demand for arbitration to
give them the opportunity to ventilate their side of the controversy, safeguard
their interest and fend off their respective positions." 26 Petitioners' motion
for reconsideration of this order was denied by the trial court on January 19,
2005. 27 SIcEHD
Petitioners filed a petition for certiorari with the Court of Appeals,
alleging grave abuse of discretion in the issuance of orders compelling them
to submit to arbitration proceedings despite being third parties to the contract
between Shangri-La and BF Corporation. 28
In its May 11, 2006 decision, 29 the Court of Appeals dismissed
petitioners' petition for certiorari. The Court of Appeals ruled that Shangri-La's
directors were necessary parties in the arbitration proceedings. 30 According
to the Court of Appeals:
[They were] deemed not third-parties to the
contract as they [were] sued for their acts in representation
of the party to the contract pursuant to Art. 31 of the
Corporation Code, and that as directors of the defendant
corporation, [they], in accordance with Art. 1217 of the Civil
Code, stand to be benefited or injured by the result of the
arbitration proceedings, hence, being necessary parties,
they must be joined in order to have complete adjudication
of the controversy. Consequently, if [they were] excluded
as parties in the arbitration proceedings and an arbitral
award is rendered, holding [Shangri-La] and its board of
directors jointly and solidarily liable to private respondent
BF Corporation, a problem will arise, i.e., whether
petitioners will be bound by such arbitral award, and this
will prevent complete determination of the issues and
resolution of the controversy. 31
The Court of Appeals further ruled that "excluding petitioners in the
arbitration proceedings . . . would be contrary to the policy against multiplicity
of suits." 32
The dispositive portion of the Court of Appeals' decision reads:
WHEREFORE, the petition is DISMISSED. The
assailed orders dated July 28, 2003 and January 19, 2005
 of public respondent RTC, Branch 157, Pasig City, in Civil
Case No. 63400, are AFFIRMED. 33
The Court of Appeals denied petitioners' motion for reconsideration
in the October 5, 2006 resolution. 34
On November 24, 2006, petitioners filed a petition for review of the
May 11, 2006 Court of Appeals decision and the October 5, 2006 Court of
Appeals resolution. 35
The issue in this case is whether petitioners should be made parties
to the arbitration proceedings, pursuant to the arbitration clause provided in
the contract between BF Corporation and Shangri-La.
Petitioners argue that they cannot be held personally liable for
corporate acts or obligations. 36 The corporation is a separate being, and
nothing justifies BF Corporation's allegation that they are solidarily liable with
Shangri-La. 37 Neither did they bind themselves personally nor did they
undertake to shoulder Shangri-La's obligations should it fail in its
obligations. 38 BF Corporation also failed to establish fraud or bad faith on
their part. 39
Petitioners also argue that they are third parties to the contract
between BF Corporation and Shangri-La. 40 Provisions including arbitration
stipulations should bind only the parties. 41 Based on our arbitration laws,
parties who are strangers to an agreement cannot be compelled to
arbitrate. 42
Petitioners point out that our arbitration laws were enacted to
promote the autonomy of parties in resolving their disputes. 43 Compelling
them to submit to arbitration is against this purpose and may be tantamount
to stipulating for the parties. 44
Separate comments on the petition were filed by BF Corporation,
and Maximo G. Licauco III, Alfredo C. Ramos and Benjamin C. Ramos. 45
Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos
agreed with petitioners that Shangri-La's directors, being non-parties to the
contract, should not be made personally liable for Shangri-La's acts. 46 Since
the contract was executed only by BF Corporation and Shangri-La, only they
should be affected by the contract's stipulation. 47 BF Corporation also failed
to specifically allege the unlawful acts of the directors that should make them
solidarily liable with Shangri-La for its obligations. 48
Meanwhile, in its comment, BF Corporation argued that the courts'
ruling that the parties should undergo arbitration "clearly contemplated the
inclusion of the directors of the corporation[.]" 49
BF Corporation also argued that while petitioners were not parties to
the agreement, they were still impleaded under Section 31 of the Corporation
Code. 50 Section 31 makes directors solidarily liable for fraud, gross
negligence, and bad faith. 51 Petitioners are not really third parties to the
agreement because they are being sued as Shangri-La's representatives,
under Section 31 of the Corporation Code. 52
BF Corporation further argued that because petitioners were
impleaded for their solidary liability, they are necessary parties to the
arbitration proceedings. 53 The full resolution of all disputes in the arbitration
proceedings should also be done in the interest of justice. 54
In the manifestation dated September 6, 2007, petitioners informed
the court that the Arbitral Tribunal had already promulgated its decision on
July 31, 2007. 55 The Arbitral Tribunal denied BF Corporation's claims
against them. 56 Petitioners stated that "[they] were included by the Arbitral
Tribunal in the proceedings conducted . . . notwithstanding [their] continuing
objection thereto. . ." 57 They also stated that "[their] unwilling participation in
the arbitration case was done ex abundante ad cautela, as manifested
therein on several occasions." 58 Petitioners informed the court that they
already manifested with the trial court that "any action taken on [the Arbitral
Tribunal's decision] should be without prejudice to the resolution of [this]
case." 59
Upon the court's order, petitioners and Shangri-La filed their
respective memoranda. Petitioners and Maximo G. Licauco III, Alfredo C.
Ramos, and Benjamin C. Ramos reiterated their arguments that they should
not be held liable for Shangri-La's default and made parties to the arbitration
proceedings because only BF Corporation and Shangri-La were parties to
the contract.
In its memorandum, Shangri-La argued that petitioners were
impleaded for their solidary liability under Section 31 of the Corporation
Code. Shangri-La added that their exclusion from the arbitration proceedings
will result in multiplicity of suits, which "is not favored in this jurisdiction." 60 It
pointed out that the case had already been mooted by the termination of the
arbitration proceedings, which petitioners actively participated
in. 61 Moreover, BF Corporation assailed only the correctness of the Arbitral
Tribunal's award and not the part absolving Shangri-La's directors from
liability. 62
BF Corporation filed a counter-manifestation with motion to
dismiss 63 in lieu of the required memorandum.
In its counter-manifestation, BF Corporation pointed out that since
"petitioners' counterclaims were already dismissed with finality, and the
claims against them were likewise dismissed with finality, they no longer
have any interest or personality in the arbitration case. Thus, there is no
longer any need to resolve the present Petition, which mainly questions the
inclusion of petitioners in the arbitration proceedings." 64 The court's decision
in this case will no longer have any effect on the issue of petitioners' inclusion
in the arbitration proceedings. 65
The petition must fail.
The Arbitral Tribunal's decision, absolving petitioners from liability,
and its binding effect on BF Corporation, have rendered this case moot and
academic.
The mootness of the case, however, had not precluded us from
resolving issues so that principles may be established for the guidance of the
bench, bar, and the public. In De la Camara v. Hon. Enage, 66 this court
disregarded the fact that petitioner in that case already escaped from prison
and ruled on the issue of excessive bails: DAcaIE
While under the circumstances a ruling on the
merits of the petition for certiorari is not warranted, still, as
set forth at the opening of this opinion, the fact that this
case is moot and academic should not preclude this
Tribunal from setting forth in language clear and
unmistakable, the obligation of fidelity on the part of lower
court judges to the unequivocal command of the
Constitution that excessive bail shall not be required. 67
This principle was repeated in subsequent cases when this court
deemed it proper to clarify important matters for guidance. 68
Thus, we rule that petitioners may be compelled to submit to the
arbitration proceedings in accordance with Shangri-La and BF Corporation's
agreement, in order to determine if the distinction between Shangri-La's
personality and their personalities should be disregarded.
This jurisdiction adopts a policy in favor of arbitration. Arbitration
allows the parties to avoid litigation and settle disputes amicably and more
expeditiously by themselves and through their choice of arbitrators.
The policy in favor of arbitration has been affirmed in our Civil
Code, 69 which was approved as early as 1949. It was later institutionalized
by the approval of Republic Act No. 876, 70 which expressly authorized,
made valid, enforceable, and irrevocable parties' decision to submit their
controversies, including incidental issues, to arbitration. This court
recognized this policy in Eastboard Navigation, Ltd. v. Ysmael and Company,
Inc.: 71
As a corollary to the question regarding the
existence of an arbitration agreement, defendant raises the
issue that, even if it be granted that it agreed to submit its
dispute with plaintiff to arbitration, said agreement is void
and without effect for it amounts to removing said dispute
from the jurisdiction of the courts in which the parties are
domiciled or where the dispute occurred. It is true that
there are authorities which hold that "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" (Manila Electric Co. vs. Pasay Transportation
Co., 57 Phil., 600, 603), however, there are authorities
which favor "the more intelligent view that arbitration,
as an inexpensive, speedy and amicable method of
settling disputes, and as a means of avoiding
litigation, should receive every encouragement from
the courts which may be extended without
contravening sound public policy or settled law" (3
Am. Jur., p. 835). Congress has officially adopted the
modern view when it reproduced in the new Civil Code
the provisions of the old Code on Arbitration. And only
recently it approved Republic Act No. 876 expressly
authorizing arbitration of future disputes. 72 (Emphasis
supplied)
In view of our policy to adopt arbitration as a manner of settling
disputes, arbitration clauses are liberally construed to favor arbitration. Thus,
in LM Power Engineering Corporation v. Capitol Industrial Construction
Groups, Inc., 73 this court said:
Being an inexpensive, speedy and amicable
method of settling disputes, 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. 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. 74 (Emphasis
supplied)
A more clear-cut statement of the state policy to encourage
arbitration and to favor interpretations that would render effective an
arbitration clause was later expressed in Republic Act No. 9285: 75
 SEC. 2. Declaration of Policy. — It is hereby
declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of
the party to make their own arrangements to resolve their
disputes. Towards this end, the State shall encourage
and actively promote the use of Alternative Dispute
Resolution (ADR) as an important means to achieve
speedy and impartial justice and declog court dockets.
As such, the State shall provide means for the use of ADR
as an efficient tool and an alternative procedure for the
resolution of appropriate cases. Likewise, the State shall
enlist active private sector participation in the settlement of
disputes through ADR. This Act shall be without prejudice
to the adoption by the Supreme Court of any ADR system,
such as mediation, conciliation, arbitration, or any
combination thereof as a means of achieving speedy and
efficient means of resolving cases pending before all
courts in the Philippines which shall be governed by such
rules as the Supreme Court may approve from time to
time.
xxx xxx xxx
SEC. 25.  Interpretation of the Act. — In
interpreting the Act, the court shall have due regard to
the policy of the law in favor of arbitration. Where
action is commenced by or against multiple parties, one or
more of whom are parties who are bound by the arbitration
agreement although the civil action may continue as to
those who are not bound by such arbitration agreement.
(Emphasis supplied)
Thus, if there is an interpretation that would render effective an
arbitration clause for purposes of avoiding litigation and expediting resolution
of the dispute, that interpretation shall be adopted.
Petitioners' main argument arises from the separate personality
given to juridical persons vis-à-vis their directors, officers, stockholders, and
agents. Since they did not sign the arbitration agreement in any capacity,
they cannot be forced to submit to the jurisdiction of the Arbitration Tribunal
in accordance with the arbitration agreement. Moreover, they had already
resigned as directors of Shangri-La at the time of the alleged default.
Indeed, as petitioners point out, their personalities as directors of
Shangri-La are separate and distinct from Shangri-La.
A corporation is an artificial entity created by fiction of law. 76 This
means that while it is not a person, naturally, the law gives it a distinct
personality and treats it as such. A corporation, in the legal sense, is an
individual with a personality that is distinct and separate from other persons
including its stockholders, officers, directors, representatives, 77 and other
juridical entities.
The law vests in corporations rights, powers, and attributes as if they
were natural persons with physical existence and capabilities to act on their
own. 78 For instance, they have the power to sue and enter into transactions
or contracts. Section 36 of the Corporation Code enumerates some of a
corporation's powers, thus: ScaHDT
Section 36. Corporate powers and capacity. —
Every corporation incorporated under this Code has the
power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the
period of time stated in the articles of incorporation and the
certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in
accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or
public policy, and to amend or repeal the same in
accordance with this Code;
6. In case of stock corporations, to issue or sell
stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to admit
members to the corporation if it be a non-stock
corporation;
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and otherwise deal
with such real and personal property, including securities
and bonds of other corporations, as the transaction of the
lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by
law and the Constitution;
8. To enter into merger or consolidation with other
corporations as provided in this Code;
9. To make reasonable donations, including those
for the public welfare or for hospital, charitable, cultural,
scientific, civic, or similar purposes: Provided, That no
corporation, domestic or foreign, shall give donations in aid
 of any political party or candidate or for purposes of
partisan political activity;
10. To establish pension, retirement, and other
plans for the benefit of its directors, trustees, officers and
employees; and
11. To exercise such other powers as may be
essential or necessary to carry out its purpose or purposes
as stated in its articles of incorporation. (13a)
Because a corporation's existence is only by fiction of law, it can only
exercise its rights and powers through its directors, officers, or agents, who
are all natural persons. A corporation cannot sue or enter into contracts
without them.
A consequence of a corporation's separate personality is that
consent by a corporation through its representatives is not consent of the
representative, personally. Its obligations, incurred through official acts of its
representatives, are its own. A stockholder, director, or representative does
not become a party to a contract just because a corporation executed a
contract through that stockholder, director or representative.
Hence, a corporation's representatives are generally not bound by
the terms of the contract executed by the corporation. They are not
personally liable for obligations and liabilities incurred on or in behalf of the
corporation.
Petitioners are also correct that arbitration promotes the parties'
autonomy in resolving their disputes. This court recognized in Heirs of
Augusto Salas, Jr. v. Laperal Realty Corporation 79 that an arbitration clause
shall not apply to persons who were neither parties to the contract nor
assignees of previous parties, thus:
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. 80 (Citations omitted)
Similarly, in Del Monte Corporation-USA v. Court of Appeals, 81 this
court ruled:
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 . . . are bound
by the Agreement and its arbitration clause as they are the
only signatories thereto. 82 (Citation omitted)
This court incorporated these rulings in Agan, Jr. v. Philippine
International Air Terminals Co., Inc. 83 and Stanfilco Employees v. DOLE
Philippines, Inc., et al. 84
As a general rule, therefore, a corporation's representative who did
not personally bind himself or herself to an arbitration agreement cannot be
forced to participate in arbitration proceedings made pursuant to an
agreement entered into by the corporation. He or she is generally not
considered a party to that agreement.
However, there are instances when the distinction between
personalities of directors, officers, and representatives, and of the
corporation, are disregarded. We call this piercing the veil of corporate fiction.
Piercing the corporate veil is warranted when "[the separate
personality of a corporation] is used as a means to perpetrate fraud or an
illegal act, or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues." 85 It is also
warranted in alter ego cases "where a corporation is merely a farce since it is
a mere alter ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another
corporation." 86
When corporate veil is pierced, the corporation and persons who are
normally treated as distinct from the corporation are treated as one person,
such that when the corporation is adjudged liable, these persons, too,
become liable as if they were the corporation.
Among the persons who may be treated as the corporation itself
under certain circumstances are its directors and officers. Section 31 of the
Corporation Code provides the instances when directors, trustees, or officers
may become liable for corporate acts:
Sec. 31. Liability of directors, trustees or
officers. — Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad
faith in directing the affairs of the corporation or acquire
any personal or pecuniary interest in conflict with their duty
as such directors or trustees shall be liable jointly and
severally for all damages resulting therefrom suffered by
the corporation, its stockholders or members and other
persons.
When a director, trustee or officer attempts to
acquire or acquires, in violation of his duty, any interest
adverse to the corporation in respect of any matter which
has been reposed in him in confidence, as to which equity
 imposes a disability upon him to deal in his own behalf, he
shall be liable as a trustee for the corporation and must
account for the profits which otherwise would have
accrued to the corporation. (n)
Based on the above provision, a director, trustee, or officer of a
corporation may be made solidarily liable with it for all damages suffered by
the corporation, its stockholders or members, and other persons in any of the
following cases:
a) The director or trustee willfully and knowingly voted for
or assented to a patently unlawful corporate act;
b) The director or trustee was guilty of gross negligence or
bad faith in directing corporate affairs; and
c) The director or trustee acquired personal or pecuniary
interest in conflict with his or her duties as director
or trustee.
Solidary liability with the corporation will also attach in the following
instances:
a) "When a director or officer has consented to the
issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the
corporate secretary his written objection
thereto"; 87
b) "When a director, trustee or officer has contractually
agreed or stipulated to hold himself personally and
solidarily liable with the corporation"; 88 and
c) "When a director, trustee or officer is made, by specific
provision of law, personally liable for his corporate
action." 89
When there are allegations of bad faith or malice against corporate
directors or representatives, it becomes the duty of courts or tribunals to
determine if these persons and the corporation should be treated as one.
Without a trial, courts and tribunals have no basis for determining whether
the veil of corporate fiction should be pierced. Courts or tribunals do not have
such prior knowledge. Thus, the courts or tribunals must first determine
whether circumstances exist to warrant the courts or tribunals to disregard
the distinction between the corporation and the persons representing it. The
determination of these circumstances must be made by one tribunal or court
in a proceeding participated in by all parties involved, including current
representatives of the corporation, and those persons whose personalities
are impliedly the same as the corporation. This is because when the court or
tribunal finds that circumstances exist warranting the piercing of the
corporate veil, the corporate representatives are treated as the corporation
itself and should be held liable for corporate acts. The corporation's distinct
personality is disregarded, and the corporation is seen as a mere
aggregation of persons undertaking a business under the collective name of
the corporation.
Hence, when the directors, as in this case, are impleaded in a case
against a corporation, alleging malice or bad faith on their part in directing the
affairs of the corporation, complainants are effectively alleging that the
directors and the corporation are not acting as separate entities. They are
alleging that the acts or omissions by the corporation that violated their rights
are also the directors' acts or omissions. 90 They are alleging that contracts
executed by the corporation are contracts executed by the directors.
Complainants effectively pray that the corporate veil be pierced because the
cause of action between the corporation and the directors is the
same. EADSIa
In that case, complainants have no choice but to institute only one
proceeding against the parties. Under the Rules of Court, filing of multiple
suits for a single cause of action is prohibited. Institution of more than one
suit for the same cause of action constitutes splitting the cause of action,
which is a ground for the dismissal of the others. Thus, in Rule 2:
Section 3. One suit for a single cause of action.
—  A party may not institute more than one suit for a single
cause of action. (3a)
Section 4. Splitting a single cause of action; effect
of. — If two or more suits are instituted on the basis of the
same cause of action, the filing of one or a judgment upon
the merits in any one is available as a ground for the
dismissal of the others. (4a)
It is because the personalities of petitioners and the corporation may
later be found to be indistinct that we rule that petitioners may be compelled
to submit to arbitration.
However, in ruling that petitioners may be compelled to submit to the
arbitration proceedings, we are not overturning Heirs of Augusto
Salas wherein this court affirmed the basic arbitration principle that only
parties to an arbitration agreement may be compelled to submit to arbitration.
In that case, this court recognized that persons other than the main
party may be compelled to submit to arbitration, e.g., assignees and heirs.
Assignees and heirs may be considered parties to an arbitration agreement
entered into by their assignor because the assignor's rights and obligations
are transferred to them upon assignment. In other words, the assignor's
rights and obligations become their own rights and obligations. In the same
way, the corporation's obligations are treated as the representative's
obligations when the corporate veil is pierced.
Moreover, in Heirs of Augusto Salas, this court affirmed its policy
against multiplicity of suits and unnecessary delay. This court said that "to
split the proceeding into arbitration for some parties and trial for other parties
would "result in multiplicity of suits, duplicitous procedure and unnecessary
delay." 91 This court also intimated that the interest of justice would be best
observed if it adjudicated rights in a single proceeding. 92 While the facts of
that case prompted this court to direct the trial court to proceed to determine
the issues of that case, it did not prohibit courts from allowing the case to
proceed to arbitration, when circumstances warrant.
Hence, the issue of whether the corporation's acts in violation of
complainant's rights, and the incidental issue of whether piercing of the
corporate veil is warranted, should be determined in a single proceeding.
Such finding would determine if the corporation is merely an aggregation of
persons whose liabilities must be treated as one with the corporation.
However, when the courts disregard the corporation's distinct and
separate personality from its directors or officers, the courts do not say that
the corporation, in all instances and for all purposes, is the same as its
directors, stockholders, officers, and agents. It does not result in an absolute
confusion of personalities of the corporation and the persons composing or
representing it. Courts merely discount the distinction and treat them as one,
in relation to a specific act, in order to extend the terms of the contract and
the liabilities for all damages to erring corporate officials who participated in
the corporation's illegal acts. This is done so that the legal fiction cannot be
used to perpetrate illegalities and injustices.
Thus, in cases alleging solidary liability with the corporation or
praying for the piercing of the corporate veil, parties who are normally treated
as distinct individuals should be made to participate in the arbitration
proceedings in order to determine if such distinction should indeed be
disregarded and, if so, to determine the extent of their liabilities.
In this case, the Arbitral Tribunal rendered a decision, finding that BF
Corporation failed to prove the existence of circumstances that render
petitioners and the other directors solidarily liable. It ruled that petitioners and
Shangri-La's other directors were not liable for the contractual obligations of
Shangri-La to BF Corporation. The Arbitral Tribunal's decision was made with
the participation of petitioners, albeit with their continuing objection. In view of
our discussion above, we rule that petitioners are bound by such decision.
WHEREFORE, the petition is DENIED. The Court of Appeals'
decision of May 11, 2006 and resolution of October 5, 2006 are AFFIRMED.
SO ORDERED
 SECOND DIVISION
[G.R. No. 182248. December 18, 2008.]
EQUITABLE PCI BANKING
CORPORATION, 1 GEORGE L. GO, PATRICK D. GO,
GENEVIEVE W.J. GO, FERDINAND MARTIN G.
ROMUALDEZ, OSCAR P. LOPEZ-DEE, RENE J.
BUENAVENTURA, GLORIA L. TAN-CLIMACO, ROGELIO
S. CHUA, FEDERICO C. PASCUAL, LEOPOLDO S.
VEROY, WILFRIDO V. VERGARA, EDILBERTO V.
JAVIER, ANTHONY F. CONWAY, ROMULAD U. DY
TANG, WALTER C. WESSMER, and ANTONIO N.
COTOCO, petitioners, vs. RCBC CAPITAL
CORPORATION,  respondent.
DECISION
VELASCO, JR., J  p:
The Case
This Petition for Review on  Certiorari  under Rule 45 seeks the
reversal of the January 8, 2008 2 and March 17, 2008 3 Orders of the
Regional Trial Court (RTC), Branch 148 in Makati City in SP Proc. Case
No. 6046, entitled In the Matter of ICC Arbitration Ref. No.
13290/MS/JB/JEM Between RCBC Capital Corporation, (Claimant), and
Equitable PCI Banking Corporation, Inc. et al., (Respondents). The
assailed January 8, 2008 Order confirmed the Partial Award dated
September 27, 2007 4 rendered by the International Chamber of
Commerce-International Court of Arbitration (ICC-ICA) in Case No.
13290/MS/JB/JEM, entitled RCBC Capital Corporation (Philippines) v.
Equitable PCI Bank, Inc. & Others (Philippines). The March 17, 2008
Order denied petitioners' motion for reconsideration of the January 8,
2008 Order. cADEHI
The 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 Agreement  5 (SPA) for the purchase of petitioners'
interests in Bankard, representing 226,460,000 shares, for the price of
PhP1,786,769,400. 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
PhP357,353,880, 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.
The other relevant provisions of the SPA are:
Section 5. Sellers' Representations and
Warranties. —
The SELLERS jointly and severally represent
and warrant to the BUYER that:
xxx xxx xxx
The Financial Condition of Bankard
g. The audited financial statements of Bankard
for the three (3) fiscal years ended December 31, 1997,
1998 and 1999, and the unaudited financial statements
for the first quarter ended 31 March 2000, are fair and
accurate, and complete in all material respects, and
have been prepared in accordance with generally
accepted accounting principles consistently followed
throughout the period indicated and:
i) the balance sheet of Bankard as of 31
December 1999, as prepared and certified by SGV
& Co. ("SGV"), and the unaudited balance sheet
for the first quarter ended 31 March 2000, present
a fair and accurate statement as of those dates, of
Bankard's financial condition and of all its assets
and liabilities, and is complete in all material
respects; and
ii) the statements of Bankard's profit and
loss accounts for the fiscal years 1996 to 1999, as
prepared and certified by SGV, and the unaudited
profit and loss accounts for the first quarter ended
31 March 2000, fairly and accurately present the
results of the operations of Bankard for the periods
 indicated, and are complete in all material
respects.
h. Except as disclosed in the Disclosures, and
except to the extent set forth or reserved in the audited
financial statements of Bankard as of 31 December 1999
and its unaudited financial statements as of 31 March
2000, Bankard, as of such dates and up to 31 May 2000,
had and shall have no liabilities, omissions or mistakes
in its records which will have material adverse effect on
the net worth or financial condition of Bankard to the
extent of more than One Hundred Million Pesos
(P100,000,000.00) in the aggregate. In the event such
material adverse effect on the net worth or financial
condition of Bankard exceeds One Hundred Million
Pesos (P100,000,000.00), the Purchase Price shall be
reduced in accordance with the following formula:
Reduction in Purchase Price = X multiplied by
226,460,000
where
 Amount by which negative
 adjustment exceeds P100 Million
 X = __________________________ (1.925)
 338,000,000
xxx xxx xxx
Section 7. Remedies for Breach of Warranties.
—
a. If any of the representations and warranties of
any or all of the SELLERS or the BUYER (the
"Defaulting Party") contained in Sections 5 and 6 shall
be found to be untrue when made and/or as of the
Closing Date, the other party, i.e., the BUYER if the
Defaulting Party is any or all of the SELLERS and the
SELLERS if the Defaulting Party is the BUYER
(hereinafter referred to as the "Non-Defaulting Party")
shall have the right to require the Defaulting Party, at the
latter's expense, to cure such breach, and/or seek
damages, by providing notice or presenting a claim to
the Defaulting Party, reasonably specifying therein the
particulars of the breach. The foregoing remedies shall
be available to the Non-Defaulting Party only if the
demand therefor is presented in writing to the Defaulting
Party within three (3) years from the Closing Date except
that the remedy for a breach of the SELLERS'
representation and warrant in Section 5 (h) shall be
available only if the demand therefor is presented to the
Defaulting Party in writing together with schedules and to
substantiate such demand, within six (6) months from
the Closing Date. 6 CIaHDc
On June 2, 2000, RCBC deposited the stipulated downpayment
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.
Thereafter, the parties executed an  Amendment to Share
Purchase Agreement (ASPA) dated September 19, 2000. 7 Its
paragraph 2 (e) provided that:
2. Notwithstanding any provisions to the contrary
in the Share Purchase Agreement and/or any
agreement, instrument or document entered into or
executed by the Parties in relation thereto (the "Related
Agreements"), the Parties hereby agree that:
xxx xxx xxx
e) Notwithstanding the provisions of Sec. 7 of
the Share Purchase Agreement to the contrary, the
remedy for a breach of the SELLERS' representation
and warranty in Section 5 (h) of the Share Purchase
Agreement shall be available if the demand therefor
is presented to the SELLERS in writing together with
schedules and data to substantiate such demand, on or
before 31 December 2000. (Emphasis added.)
Sometime in September 2000, RCBC had Bankard's accounts
audited, creating for the purpose an audit team led by a certain Rubio,
the Vice-President for Finance of RCBC at the time. Rubio's conclusion
was that the warranty, as contained in Section 5 (h) of the SPA (simply
Sec. 5 [h] hereinafter), was correct.
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
PhP478 million, resulting in the overpayment of over PhP616 million.
Thus, RCBC claimed that petitioners violated their warranty, as sellers,
embodied in Sec. 5 (g) of the SPA (Sec. 5 [g] hereinafter).
Following unsuccessful attempts at settlement, RCBC, in
accordance with Sec. 10 of the SPA, filed a  Request for Arbitration dated
May 12, 2004 8 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 PhP556 million. It thus prayed for the
rescission of the SPA, restitution of the purchase price, payment of
actual damages in the amount of PhP573,132,110, 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 PhP809,796,092 plus legal
interest. DcCEHI
To the Request for Arbitration, petitioners filed an Answer dated
July 28, 2004, 9 denying RCBC's inculpatory averments and setting up
the following affirmative allegations: the period for filing of the asserted
claim had already lapsed by force of Sec. 7 of the SPA; RCBC is not
entitled to rescission having had ample opportunity and reasonable time
to file a claim against petitioners; RCBC is not entitled to its alternative
prayer of damages, being guilty of laches and failing to set out the details
of the breach as required under Sec. 7.
Arbitration in the ICC-ICA proceeded after the formation of the
arbitration tribunal consisting of retired Justice Santiago M. Kapunan,
nominated by petitioners; Neil Kaplan, RCBC's nominee; and Sir Ian
Barker, appointed by the ICC-ICA.
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, 10 the dispositive portion of which states:
15 AWARD AND DIRECTIONS
15.1 The Tribunal makes the following
declarations by way of Partial Award:
(a) The Claimant's claim is not time-barred
under the provisions of this SPA.
(b) The Claimant is not estopped by its conduct
or the equitable doctrine of laches from pursuing its
claim.
(c) As detailed in the Partial Award, the Claimant
has established the following breaches by the
Respondents of clause 5(g) of the SPA:
i) the assets, revenue and net worth of
Bankard were overstated by reason of its policy on
and recognition of Late Payment Fees;
ii) reported receivables were higher than
their realizable values by reason of the 'bucketing'
method, thus overstating Bankard's assets;
and EaISTD
iii) the relevant Bankard statements were
inadequate and misleading in that their disclosures
caused readers to be misinformed about
Bankard's accounting policies on revenue and
receivables.
(d) Subject to proof of loss the Claimant is
entitled to damages for the foregoing breaches.
(e) The Claimant is not entitled to rescission of
the SPA.
(f) All other issues, including any issue relating
to costs, will be dealt with in a further or final award.
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 there should be an Expert appointed
by the Tribunal under Article 20(4) of the ICC Rules to
assist the Tribunal in this regard.
15.3 This Award is delivered by a majority of the
Tribunal (Sir Ian Barker and Mr. Kaplan). Justice
Kapunan is unable to agree with the majority's
conclusion on the claim of estoppel brought by the
respondents.
On the matter of prescription, the tribunal held that RCBC's claim
is not time-barred, the claim properly falling under the contemplation of
Sec. 5 (g) and not Sec. 5 (h). As such, the tribunal concluded, RCBC's
claim was filed within the three (3)-year period under Sec. 5 (g) and that
the six (6)-month period under Sec. 5 (h) did not apply.
The tribunal also exonerated RCBC from laches, the latter
having sought relief within the three (3)-year period prescribed in the
SPA. On the matter of estoppel suggested in petitioners' answer, the
tribunal stated in par. 10.27 of the Partial Award the following:
10.27 Clearly, there has to be both an admission
or representation by (in this case) the Claimant [RCBC],
plus reliance upon it by (in this case) the Respondents
 [herein petitioners]. The Tribunal cannot find as proved
any admission/representation that the Claimant was
abandoning a 5(g) claim, any reliance by the
Respondents on an admission, and any detriment to the
Respondents such as would entitle them to have the
Claimant deprived of the benefit of clause 5(g). These
aspects of the claim for estoppels are rejected. 11
Notably, the tribunal considered the rescission of the SPA and
ASPA as impracticable and "totally out of the question". 12
In his Dissenting Opinion 13 which he submitted to and which
was received on September 24, 2007 by the ICC-ICA, Justice Kapunan
stated the observation that RCBC's claim is time-barred, falling as such
claim did under Sec. 5 (h), which prescribes a comparatively shorter
prescriptive period, not 5 (g) as held by the majority of the tribunal, to wit:
Claimant admits that the Claim is for recovery of
P431 million on account of alleged "overvaluation of the
net worth of Bankard", allegedly for "improper accounting
practices" resulting in "its book value per share as of 31
December 1999 [being] overstated." Claimant's witness,
Dean Echanis asserts that "the inadequate provisioning
for Bankard's doubtful accounts result[ed] in an
overstatement of its December 31, 1999 total assets and
net worth of by [sic]  least P418.2 million."
In addition, Claimant's demand letter addressed
to the Respondents alleged that "we overpaid for the
Shares to the extent of the impact of the said
overstatement on the Book Value per share".
These circumstances establish beyond dispute
that the Claim is based on the alleged overstatement of
the 1999 net worth of Bankard, which the parties relied
on in setting the purchase price of the shares. Moreover,
it is clear that there was an overstatement because of
"improper accounting practices" which led Claimant to
overpay for the shares. cdasia
Ultimately, the Claim is one for recovery of
overpayment in the purchase price of the shares. . . .
As to the issue of estoppel, Justice Kapunan stated:
Moreover, Mr. Rubio's findings merely
corroborated the disclosures made in the Information
Memorandum that Claimant received from the
Respondents prior to the execution of the SPA. In this
connection, I note that Bankard's policy on provisioning
and setting of allowances using the Bucketed Method
and income recognition from AR/Principal, AR/Interest
and AR/LPFs were disclosed in the Information
Memorandum. Thus, these alleged improper accounting
practices were known to the Claimant even prior to the
execution of the SPA.
Thus, when Claimant paid the balance of the
purchase price, it did so with full knowledge of these
accounting practices of Bankard that it now assails. By
paying the balance of the purchase price without taking
exception or objecting to the accounting practices
disclosed through Mr. Rubio's review and the Information
Memorandum, Claimant is deemed to have accepted
such practices as correctly reporting the 1999 net
worth. . . .
xxx xxx xxx
As last point, I note that my colleagues invoke a
principle that for estoppels to apply there must be
positive indication that the right to sue was waived. I am
of the view that there is no such principle under
Philippine law. What is applicable is the holding
in Knecht and in Coca-Cola that prior knowledge of an
unfavorable fact is binding on the party who has such
knowledge; "when the purchaser proceeds to make
investigations by himself, and the vendor does nothing to
prevent such investigation from being as complete as the
former might wish, the purchaser cannot later allege that
the vendor made false representations to him" (Cf.
Songco v. Sellner, 37 Phil. 254 citations omitted).
Applied to this case, the Claimant cannot seek
relief on the basis that when it paid the purchase price in
December 2000, it was unaware that the accounting
practices that went into the reporting of the 1999 net
worth as amounting to P1,387,275,847 were not in
conformity with GAAP [generally accepted accounting
principles]. (Emphasis added.)
On October 26, 2007, RCBC filed with the RTC a Motion to
Confirm Partial Award. On the same day, petitioners countered with a
Motion to Vacate the Partial Award. On November 9, 2007, petitioners
again filed a Motion to Suspend and Inhibit Barker and Kaplan.
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.
From the assailed orders, petitioners came directly to this Court
through this petition for review.
The Issues
This petition seeks the review, reversal and
setting aside of the orders Annexes A and B and, in lieu
of them, it seeks judgment vacating the arbitrators'
liability award, Annex C, on these grounds:
(a) The trial court acted contrary to law
and judicial authority in refusing to vacate the
arbitral award, notwithstanding it was rendered in
plain disregard of the parties' contract and
applicable Philippine law, under which the claim in
arbitration was indubitably time-barred. aSCHcA
(b) The trial court acted contrary to law
and judicial authority in refusing to vacate and in
confirming the arbitral award, notwithstanding that
the arbitrators had plainly and admittedly failed to
accord petitioners' due process by denying them a
hearing on the basic factual matter upon which
their liability is predicated.
(c) The trial court committed grave error in
confirming the arbitrators' award, which held
petitioners-sellers liable for an alleged improper
recording of accounts, allegedly affecting the value
of the shares they sold, notwithstanding that the
respondent-buyer knew before contracting that the
accounts were kept in the manner complained of,
and in fact ratified and adopted the questioned
accounting practice and policies. 14
The Court's Ruling
The petition must be denied.
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 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. HDIaET
Even if we entertain the petition, the outcome will be the same.
The Court Will Not Overturn an Arbitral Award Unless it Was Made
in Manifest Disregard of the Law
In Asset Privatization Trust v. Court of Appeals, 16 the Court
passed on similar issues as the ones tendered in the instant petition. In
that case, the arbitration committee issued an arbitral award which the
trial court, upon due proceedings, confirmed despite the opposition of the
losing party. Motions for reconsideration by the losing party were denied.
An appeal interposed by the losing party to the CA was denied due
course. On appeal to this Court, we established the parameters by which
an arbitral award may be set aside, to wit:
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. Courts are without power
to amend or overrule merely because of
disagreement with matters of law or facts
determined by the arbitrators. 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. 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. Judicial review of an
arbitration is, thus, more limited than judicial review
of a trial.
Nonetheless, the arbitrators' awards is not
absolute and without exceptions. The arbitrators cannot
resolve issues beyond the scope of the submission
agreement. 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. 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, 2039 and 2040 of
the Civil Code applicable to compromises and arbitration
are attendant, the arbitration award may also be
annulled.
xxx xxx xxx
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. In the same manner, an award must be
vacated if it was made in "manifest disregard of the
law." 17 (Emphasis supplied.) cADEHI
Following Asset Privatization Trust, errors in law and fact would
not generally justify the reversal of an arbitral award. A party asking for
the vacation of an arbitral award must show that any of the grounds for
vacating, rescinding, or modifying an award are present or that the
arbitral award was made in manifest disregard of the law. Otherwise, the
Court is duty-bound to uphold an arbitral award.
The instant petition dwells on the alleged manifest disregard of
the law by the ICC-ICA.
The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Jaros 18 expounded on the phrase "manifest disregard of the law" in the
following wise:
This court has emphasized that manifest
disregard of the law is a very narrow standard of
review.  Anaconda Co. v. District Lodge No. 27, 693 F.2d
35 (6th Cir. 1982). A mere error in interpretation or
application of the law is insufficient. Anaconda, 693 F.2d
at 37-38. Rather, the decision must fly in the face of
clearly established legal precedent. When faced with
questions of law, an arbitration panel does not act in
manifest disregard of the law unless (1) the applicable
legal principle is clearly defined and not subject to
reasonable debate; and (2) the arbitrators refused to
heed that legal principle.
Thus, to justify the vacation of an arbitral award on account of
"manifest disregard of the law", the arbiter's findings must clearly and
unequivocally violate an established legal precedent. Anything less
would not suffice.
In the present case, petitioners, in a bid to establish that the
arbitral award was issued in manifest disregard of the law, allege that the
Partial Award violated the principles of prescription, due process, and
estoppel. A review of petitioners' arguments would, however, show that
their arguments are bereft of merit. Thus, the Partial Award dated
September 27, 2007 cannot be vacated.
RCBC's Claim Is Not Time-Barred
 Petitioners argue that RCBC's claim under Sec. 5 (g) is based on
overvaluation of Bankard's revenues, assets, and net worth, hence, for
price reduction falling under Sec. 5 (h), in which case it was belatedly
filed, for RCBC presented the claim to petitioners on May 5, 2003, when
the period for presenting it under Sec. 5 (h) expired on December 31,
2000. As a counterpoint, RCBC asserts that its claim clearly comes
under Sec. 5 (g) in relation to Sec. 7 which thus gave it three (3) years
from the closing date of June 2, 2000, or until June 1, 2003, within which
to make its claim. RCBC contends having acted within the required
period, having presented its claim-demand on May 5, 2003. TcIAHS
To make clear the issue at hand, we highlight the pertinent
portions of Secs. 5 (g), 5 (h), and 7 bearing on what petitioners
warranted relative to the financial condition of Bankard and the remedies
available to RCBC in case of breach of warranty:
g. The audited financial statements of Bankard for the
three (3) fiscal years ended December 31, 1997,
1998 and 1999, and the unaudited financial
statements for the first quarter ended 31 March
2000, are fair and accurate, and complete in all
material respects, and have been prepared in
accordance with generally accepted
accounting principles consistently followed
throughout the period indicated and:
i) the balance sheet of Bankard as of 31
December 1999, as prepared and
certified by SGV & Co. ("SGV"), and the
unaudited balance sheet for the first
quarter ended 31 March 2000, present a
fair and accurate statement as of those
dates, of Bankard's financial condition
and of all its assets and liabilities, and
is complete in all material respects; and
ii) the statements of Bankard's profit and loss
accounts for the fiscal years 1996 to
1999, as prepared and certified by
SGV, and the unaudited profit and loss
accounts for the first quarter ended 31
March 2000, fairly and accurately
present the results of the operations of
Bankard for the periods indicated,
and are complete in all material
respects.
h. Except as disclosed in the Disclosures, and except to
the extent set forth or reserved in the audited
financial statements of Bankard as of 31
December 1999 and its unaudited financial
statements for the first quarter ended 31 March
2000, Bankard, as of such dates and up to 31
May 2000, had and shall have no liabilities,
omissions or mistakes in its records which will
have a material adverse effect on the net worth
or financial condition of Bankard to the extent
of more than One Hundred Million Pesos
(P100,000,000.00) in the aggregate. In the event
such material adverse effect on the net worth or
financial condition of Bankard exceeds One
Hundred Million Pesos (P100,000,000.00), the
Purchase Price shall be reduced in accordance
with the following formula: IAcTaC
xxx xxx xxx
Section 7. Remedies for Breach of
Warranties. —
If any of the representations and warranties of
any or all of the SELLERS or the BUYER (the
"Defaulting Party") contained in Sections 5 and 6 shall
be found to be untrue when made and/or as of the
Closing Date, the other party, i.e., the BUYER if the
Defaulting is any of the SELLERS and the SELLERS if
the Defaulting Party is the BUYER (hereinafter referred
to as the "Non-Defaulting Party") shall have the right to
require the Defaulting Party, at the latter's expense,
to cure such breach, and/or seek damages, by
providing notice or presenting a claim to the
Defaulting Party, reasonably specifying therein the
particulars of the breach. The foregoing remedies shall
be available to the Non-Defaulting Party only if the
demand therefor is presented in writing to the
Defaulting Party within three (3) years from the
Closing Date, except that the remedy for a breach of
the SELLERS' representation and warranty in
Section 5 (h) shall be available only if the demand
therefor is presented to the Defaulting Party in writing
together with schedules and data to substantiate such
demand, within six (6) months from the Closing Date.
(Emphasis supplied.)
 Before we address the issue put forward by petitioners, there is a
necessity to determine the nature and application of the reliefs provided
under Sec. 5 (g) and Sec. 5 (h) in conjunction with Sec. 7, thus:
(1) The relief under Sec. 5 (h) is specifically for price reduction
as said section explicitly states that the "Purchase Price shall be reduced
in accordance with the following formula . . . ." In addition, Sec. 7 gives
the aggrieved party the right to ask damages based on the stipulation
that the non-defaulting party "shall have the right to require the Defaulting
Party, at the latter's expense, to cure such breach and/or seek
damages."
On the other hand, the remedy under Sec. 5 (g) in conjunction
with Sec. 7 can include specific performance, damages, and other
reliefs excluding price reduction.
(2) Sec. 5 (g) warranty covers the audited financial statements
(AFS) for the three (3) years ending December 31, 1997 to 1999 and the
unaudited financial statements (UFS) for the first quarter ending March
31, 2000. On the other hand, the Sec. 5 (h) warranty refers only to the
AFS for the year ending December 31, 1999 and the UFS up to May 31,
2000. It is undenied that Sec. 5 (h) refers to price reduction as it covers
"only the most up-to-date audited and unaudited financial statements
upon which the price must have been based." 19
(3) Under Sec. 5 (h), the responsibility of petitioners for its
warranty shall exclude the disclosures and reservations made in AFS of
Bankard as of December 31, 1999 and its UFS up to May 31, 2000. No
such exclusions were made under Sec. 5 (g) with respect to the warranty
of petitioners in the AFS and UFS of Bankard.
(4) Sec. 5 (h) gives relief only if there is material adverse effect in
the net worth in excess of PhP100 million and it provides a formula for
price reduction. 20 On the other hand, Sec. 5 (g) can be the basis for
remedies like specific performance, damages, and other reliefs, except
price reduction, even if the overvaluation is less or above PhP100 million
and there is no formula for computation of damages.
(5) Under Sec. 7, the aggrieved party shall present its written
demand to the defaulting party within three (3) years from closing date.
Under Sec. 5 (h), the written demand shall be presented within six (6)
months from closing date. In accordance with par. 2 (c) of the ASPA, the
deadline to file the demand under Sec. 5 (h) was extended to December
31, 2000.
From the above determination, it becomes clear that the
aggrieved party is entitled to two (2) separate alternative remedies under
Secs. 5 and 7 of the SPA, thus: CAHaST
1. A claim for price reduction under Sec. 5(h)
and/or damages based on the breach of warranty by
Bankard on the absence of liabilities, omissions and
mistakes on the financial statements as of 31 December
1999 and the UFS as of 31 May 2000, provided that the
material adverse effect on the net worth exceeds
PhP100M and the written demand is presented within six
(6) months from closing date (extended to 31 December
2000); and
2. An action to cure the breach like specific
performance and/or damages under Sec. 5(g) based on
Bankard's breach of warranty involving its AFS for the
three (3) fiscal years ending 31 December 1997, 1998,
and 1999 and the UFS for the first quarter ending 31
March 2000 provided that the written demand shall be
presented within three (3) years from closing date.
Has RCBC the option to choose between Sec. 5 (g) or Sec. 5
(h)?
The answer is yes. Sec. 5 and Sec. 7 are clear that it is
discretionary on the aggrieved parties to avail themselves of any remedy
mentioned above. They may choose one and dispense with the other. Of
course, the relief for price reduction under Sec. 5 (h) will have to conform
to the prerequisites and time frame of six (6) months; otherwise, it is
waived.
Preliminarily, petitioners' basic posture that RCBC's claim is for
the recovery of overpayment is specious. The records show that in
its  Request for Arbitration  dated May 12, 2004, RCBC prayed for the
rescission of the SPA, restitution of the whole purchase price, and
damages not for reduction of price or for the return of any overpayment.
Even in its May 5, 2000 letter, 21 RCBC did not ask for the recovery of
any overpayment or reduction of price, merely stating in it that the
accounts of Bankard, as reflected in its AFS for 1999, were overstated
which, necessarily, resulted in an overpayment situation. RCBC was
emphatic and unequivocal that petitioners violated their warranty covered
by Sec. 5 (g) of the SPA.
It is thus evident that RCBC did not avail itself of the option
under Sec. 5 (h), i.e., for price reduction or the return of any overpayment
arising from the overvaluation of Bankard's financial condition. Clearly,
RCBC invoked Sec. 5 (g) to claim damages from petitioners which is one
of the alternative reliefs granted under Sec. 7 in addition to rescission
and restitution of purchase price.
Petitioners do not deny that RCBC formally filed its claim under
Sec. 5 (g) which is anchored on the material overstatement or
overvaluation of Bankard's revenues, assets, and net worth and, hence,
the overstatement of the purchase price. They, however, assert that such
claim for overpayment is actually a claim under Sec. 5 (h) of the SPA for
price reduction which it forfeited after December 31, 2000.
We cannot sustain petitioners' position.
It cannot be disputed that an overstatement or overvaluation of
Bankard's financial condition as of closing date translates into a
misrepresentation not only of the accuracy and truthfulness of the
financial statements under Sec. 5 (g), but also as to Bankard's actual net
worth mentioned in Sec. 5 (h). Overvaluation presupposes mistakes in
the entries in the financial statements and amounts to a breach of
petitioners' representations and warranties under Sec. 5. Consequently,
such error in the financial statements would impact on the figure
representing the net worth of Bankard as of closing date. An
overvaluation means that the financial condition of Bankard as of closing
date, i.e., June 2, 2000, is overstated, a situation that will definitely result
in a breach of EPCIB's representations and warranties.
A scrutiny of Sec. 5 (g) and Sec. 5 (h) in relation to Sec. 7 of the
SPA would indicate the following remedies available to RCBC should it
be discovered, as of closing date, that there is overvaluation which will
constitute breach of the warranty clause under either Sec. 5 (g) or (h), to
wit:
(1) An overvaluation of Bankard's actual financial condition as of
closing date taints the veracity and accuracy of the AFS for 1997, 1998,
and 1999 and the UFS for the first quarter of 2000 and is an actionable
breach of petitioners' warranties under Sec. 5 (g). acCDSH
(2) An overvaluation of Bankard's financial condition as of May
31, 2000, encompassing the warranted financial condition as of
December 31, 1999 through the AFS for 1999 and as of March 31, 2000
through the UFS for the first quarter of 2000, is a breach of petitioners'
representations and warranties under Sec. 5 (h).
Thus, RCBC has two distinct alternative remedies in case of an
overvaluation of Bankard's financial condition. It may invoke Sec. 5 (h)
when the conditions of the threshold aggregate overvaluation and the
claim made within the six-month time-bar are present. In the alternative,
it may invoke Sec. 5 (g) when it finds that a claim for "curing the breach"
and/or damages will be more advantageous to its interests provided it is
filed within three (3) years from closing date. Since it has two remedies,
RCBC may opt to exercise either one. Of course, the exercise of either
one will preclude the other.
Moreover, the language employed in Sec. 5 (g) and Sec. 5 (h) is
clear and bereft of any ambiguity. The SPA's stipulations reveal that the
non-use or waiver of Sec. 5 (h) does not preclude RCBC from availing
itself of the second relief under Sec. 5 (g). Article 1370 of the Civil Code
is explicit that "if 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." Since the terms of a contract have the force of
law between the parties, 22 then the parties must respect and strictly
conform to it. Lastly, it is a long held cardinal rule that when the terms of
an agreement are reduced to writing, it is deemed to contain all the terms
agreed upon and no evidence of such terms can be admitted other than
the contents of the agreement itself. 23 Since the SPA is unambiguous,
and petitioners failed to adduce evidence to the contrary, then they are
legally bound to comply with it.
Petitioners agreed ultimately to the stipulation that:
Each of the representations and warranties of
the SELLERS is deemed to be a separate
representation and warranty, and the BUYER has
placed complete reliance thereon in agreeing to the
Purchase Price and in entering into this Agreement. The
representations and warranties of the SELLERS shall be
correct as of the date of this Agreement and as of the
Closing Date with the same force and effect as though
such representations and warranties had been made as
of the Closing Date. 24 (Emphasis supplied.)
The Court sustains the finding in the Partial Award that Sec. 5 (g)
of the SPA is a free standing warranty and not constricted by Sec. 5 (h)
of the said agreement.
Upon the foregoing premises and in the light of the undisputed
facts on record, RCBC's claim for rescission of the SPA and damages
due to overvaluation of Bankard's accounts was properly for a breach of
the warranty under Sec. 5 (g) and was not time-barred. To repeat, RCBC
presented its written claim on May 5, 2003, or a little less than a month
before closing date, well within the three (3)-year prescriptive period
provided under Sec. 7 for the exercise of the right provided under Sec. 5
(g). STaHIC
Petitioners bemoan the fact that "the arbitrators' liability award
(a) disregarded the 6-month contractual limitation for RCBC's 'overprice'
claim, and [b] substituted in its place the 3-year limitation under the
contract for other claims," 25 adopting in that regard the interpretation of
the SPA made by arbitral tribunal member, retired Justice Kapunan, in
his Dissenting Opinion, in which he asserted:
Ultimately, the Claim is one for recovery of
overpayment in the purchase price of the shares. And it
is in this context, that I respectfully submit that Section 5
 (h) and not Section 5 (g), applies to the present
controversy. 26
xxx xxx xxx
True, without Section 5(h), the Claim for price
recovery would fall under Section 5(g). The recovery of
the pecuniary loss of the Claimant in the form of the
excess price paid would be in the nature of a claim for
actual damages by way of compensation. In that
situation, all the accounts in the 1999 financial
statements would be the subject of the warranty in
Section 5(g).
However, since the parties explicitly included
Section 5(h) in their SPA, which assures the Claimant
that there were no "omissions or mistakes in the records"
that would misstate the 1999 net worth account, I am left
with no other conclusion but that the accuracy of the
net worth was the subject of the warranty in Section
5(h), while the accuracy or correctness of the  other
accounts  that did not bear on, or affect Bankard's
net worth, were guaranteed by Section 5(g).
xxx xxx xxx
This manner of reconciling the two provisions is
consistent with the principle in Rule 130, Section 12 of
the Rules of Court that "when a general and a particular
provision are inconsistent, the latter is paramount to the
former. . . [so] a particular intent will control a general
one that is inconsistent with it." This is also consistent
with existing doctrines on statutory construction, the
application of which is illustrated in the case
of Commissioner of Customs vs. Court of Tax
Appeals, G.R. No. L-41861, dated March 23, 1987 . . . .
xxx xxx xxx
The Claim is for recovery of the excess price
by way of actual damages. 27 . . . (Emphasis
supplied.) AHDTIE
Justice Kapunan noted that without Sec. 5 (h), RCBC's claim
would fall under Sec. 5 (g), impliedly admitting that both provisions could
very well cover RCBC's claim, except that Sec. 5 (h) excludes the
situation contemplated in it from the general terms of Sec. 5 (g).
Such view is incorrect.
While it is true that Sec. 5 (h), as couched, is a warranty on the
accuracy of the Bankard's net worth while Sec. 5 (g), as also couched, is
a warranty on the veracity, accuracy, and completeness of the AFS in all
material respects as prepared in accordance with generally accepted
accounting principles consistently followed throughout the period audited,
yet both warranties boil down to the same thing and stem from the same
accounts as summarized in the AFS. Since the net worth is the balance
of Bankard's assets less its liabilities, it necessarily includes all the
accounts under the AFS. In short, there are no accounts in the AFS
that do not bear on the net worth of Bankard. Moreover, as earlier
elucidated, any overvaluation of Bankard's net worth is necessarily a
misrepresentation of the veracity, accuracy, and completeness of the
AFS and also a breach of the warranty under Sec. 5 (g). Thus, the
subject of the warranty in Sec. 5 (h) is also covered by the warranty in
Sec. 5 (g), and Sec. 5 (h) cannot exclude such breach from the ambit of
Sec. 5 (g). There is no need to rely on Sec. 12, Rule 130 of the Rules of
Court for both Sec. 5 (g) and Sec. 5 (h) as alternative remedies are of
equal footing and one need not categorize one section as a general
provision and the other a particular provision.
More importantly, a scrutiny of the four corners of the SPA does
not explicitly reveal any stipulation nor even impliedly that the parties
intended to limit the scope of the warranty in Sec. 5 (g) or gave priority to
Sec. 5 (h) over Sec. 5 (g).
The arbitral tribunal did not find any legal basis in the SPA that
Sec. 5 (h) "somehow cuts down" the scope of Sec. 5 (g), thus:
9.10 In the opinion of the Tribunal, there is
nothing in the wording used in the SPA to give
priority to one warranty over the other. There is
nothing in the wording used to indicate that the
parties intended to limit the scope of the warranty in
5(g). If it be contended that, on a true construction of the
two warranties, 5(h) somehow cuts down the scope of
5(g), the Tribunal can find no justification for such
conclusion on the wording used. Furthermore, the
Tribunal is of the view that very clear words would be
needed to cut down the scope of the 5(g) warranty. 28
The Court upholds the conclusion of the tribunal and rules that
the claim of RCBC under Sec. 5 (g) is not time-barred. HTDCAS
Petitioners Were Not Denied Due Process
Petitioners impute on RCBC the act of creating summaries of the
accounts of Bankard which "in turn were used by its experts to conclude
that Bankard improperly recorded its receivables and committed material
deviations from GAAP requirements." 29 Later, petitioners would assert
that "the arbitrators' partial award admitted and used the Summaries as
evidence, and held on the basis of the 'information' contained in them
that petitioners were in breach of their warranty in GAAP compliance."
To petitioners, the ICC-ICA's use of such summaries but without
presenting the source documents violates their right to due process.
Pressing the point, petitioners had moved, but to no avail, for the
exclusion of the said summaries. Petitioners allege that they had
reserved the right to cross-examine the witnesses of RCBC who testified
on the summaries, pending the resolution of their motion to exclude. But,
according to them, they were effectively denied the right to cross-
examine RCBC's witnesses when the ICC-ICA admitted the summaries
of RCBC as evidence.
Petitioners' position is bereft of merit.
Anent the use but non-presentation of the source documents as
the jumping board for a claim of denial of due process, petitioners
cite Compania Maritima v. Allied Free Worker's Union. 30 It may be
stated, however, that such case is not on all fours with the instant case
and, therefore, cannot be applied here considering that it does not
involve an administrative body exercising quasi-judicial function but
rather the regular court.
In a catena of cases, we have ruled that "[t]he essence of due
process is the opportunity to be heard. What the law prohibits is not the
absence of previous notice but the absolute absence thereof and the lack
of opportunity to be heard." 31
We also explained in Lastimoso v. Asayo that "[d]ue process in
an administrative context does not require trial type proceedings similar
to those in courts of justice. Where an opportunity to be heard either
through oral arguments or through pleadings is accorded, there is no
denial of procedural due process." 32 ScAHTI
Were petitioners afforded the opportunity to refute the
summaries and pieces of evidence submitted by RCBC which became
the bases of the experts' opinion?
The answer is in the affirmative.
We recall the events that culminated in the issuance of the
challenged Partial Award, thus:
On May 17, 2004, the ICC-ICA received the  Request for
Arbitration dated May 12, 2004 from RCBC seeking rescission of the
SPA and restitution of all the amounts paid by RCBC to petitioners, with
actual and moral damages, interest, and costs of suit.
On August 8, 2004, petitioners filed an Answer to the Request
for Arbitration dated July 28, 2004, setting up a counterclaim for
USD300,000 for actual and exemplary damages.
RCBC filed its Reply 33 dated August 31, 2004 to petitioners'
Answer to the Request for Arbitration.
On October 4, 2004, the parties entered into the Terms of
Reference. 34 At the same time, the chairperson of the arbitral tribunal
issued a provisional timetable 35 for the arbitration.
On October 25, 2004, as previously agreed upon in the meeting
on October 4, 2004, petitioners filed a Motion to Dismiss 36 while RCBC
filed a "Claimant's Position Paper (Re: [Petitioners'] Assertion that RCBC
CAPITAL CORPORATION's Present Claim Is Time Barred)." 37
Then, the tribunal issued Procedural Order No. 1 dated January
12, 2005, 38 denying the motion to dismiss and setting the initial hearing
of the case on April 11, 2005.
In a letter dated February 9, 2005, 39 petitioners requested that
the tribunal direct RCBC to produce certain documents. At the same
time, petitioners sought the postponement of the hearing on April 11,
2005 to March 21, 2005, in light of their own request.
On February 11, 2005, petitioners received RCBC's brief of
evidence and supporting documentation in accordance with the
provisional timetable. 40 In the brief of evidence, RCBC provided
summaries of the accounts of Bankard, which petitioners now
question. aSTAHD
Later, in a letter dated February 14, 2005, 41 petitioners
complained to the tribunal with regard to their lack of access to RCBC's
external auditor. Petitioners sought an audit by an accounting firm of the
records of Bankard with respect to the claims of RCBC. By virtue of such
requests, petitioners also sought a rescheduling of the provisional
timetable, despite their earlier assurance to the tribunal that if they
received the documents that they requested on February 9, 2005 on or
before February 21, 2005, they would abide by the provisional timetable.
Thereafter, the tribunal issued Procedural Order No. 2 dated
February 18, 2005, 42 in which it allowed the discovery and inspection of
the documents requested by petitioners that were also scheduled on
February 18, 2005. The request for an audit of Bankard's accounts was
denied without prejudice to the conduct of such audit during the course of
the hearings. Consequently, the tribunal amended the provisional
timetable, extending the deadline for petitioners to file their brief of
evidence and documents to March 21, 2005. The date of the initial
hearing, however, remained on April 11, 2005.
 On February 18, 2005, petitioners were furnished the documents
that they requested RCBC. 43 The parties also agreed to meet again on
February 23, 2005 to provide petitioners with a "walk-through" of
Bankard's Statistical Analysis System and to provide petitioners with a
soft copy of all of Bankard's cardholders. 44
During the February 23, 2005 meeting, EPCIB's
counsels/representatives were accompanied to the Bankard's Credit-MIS
Group. There, Bankard's representative, Amor Lazaro, described and
explained to petitioners' representatives the steps involved in procuring
and translating raw data on customer transactions. Lazaro explained that
Bankard captures cardholder information and transactions through
encoding or electronic data capture. Thereafter, such data are
transmitted to its main credit card administration system. Such raw data
are then sent to Bankard's Information Technology Group. Using a
proprietary software called SAS, the raw data is then converted into SAS
files which may be viewed, handled, and converted into Excel files for
reporting purposes. During the walk-through, petitioners' representatives
asked questions which were answered in detail by Lazaro.
At the same time, another Bankard representative, Felix L.
Sincoñegue, accompanied two auditors/representatives of petitioners to
examine the journal vouchers and supporting documents of Bankard
consisting of several boxes. The auditors randomly sifted through the
boxes which they had earlier requested to be inspected. DAaIHT
In addition, petitioners were furnished with an electronic copy of
the details of all cardholders, including relevant data for aging of
receivables for the years 2000 to 2003, as well as data containing details
of written-off accounts from 1999 to March 2000 contained in compact
discs. 45
On March 4, 2005, petitioners sent a letter 46 to the tribunal
requesting for a postponement of the April 11, 2005 hearing of the case.
Petitioners claim that they could not confirm the summaries prepared by
RCBC, considering that RCBC allegedly did not cooperate in providing
data that would facilitate their verification. Petitioners specifically
mentioned the following data: (1) list of names of cardholders whose
accounts are sources of data gathered or calculated in the summaries;
(2) references to the basic cardholder documents from which such data
were collected; and (3) access to the underlying cardholder documents
at a time and under conditions mutually convenient to the parties. As
regards the compact discs of information provided to petitioners, it is
claimed that such information could not be accessed as the software
necessary for the handling of the data could not be made immediately
available to them.
In Procedural Order No. 3 dated March 11, 2005, 47 the initial
hearing was moved to June 13 to 16, 2005, considering that petitioners
failed to pay the advance on costs of the tribunal.
On March 23, 2005, RCBC paid the balance of the advance on
costs. 48
On April 22, 2005, petitioners sent the tribunal a
letter, 49 requesting for the postponement of the hearing scheduled on
June 13 to 16, 2005 on the ground that they could not submit their
witness' statements due to the volume of data that they acquired from
RCBC.
In a letter dated April 25, 2005, 50 petitioners demanded from
RCBC that they be allowed to examine the journal vouchers earlier made
available to them during the February 23, 2005 meeting. This demand
was answered by RCBC in a letter dated April 26, 2005, 51 stating that
such demand was being denied by virtue of Procedural Order No. 2, in
which it was ruled that further requests for discovery would not be made
except with leave of the chairperson of the tribunal.
In Procedural Order No. 4, 52 the tribunal granted petitioners'
request for the postponement of the hearing on June 13, 2005 and
rescheduled it to November 21, 2005 in light of the pending motions filed
by EPCIB with the RTC in Makati City. CHTcSE
On July 29, 2005, the parties held a meeting wherein it was
agreed that petitioners would be provided with hard and soft copies of
the inventory of the journal vouchers earlier presented to its
representatives, while making the journal vouchers available to
petitioners for two weeks for examination and photocopying. 53
On September 2, 2005, petitioners applied for the postponement
of the November 21, 2005 hearing due to the following: (1) petitioners
had earlier filed a motion dated August 11, 2005 with the RTC, in which
the issue of whether the non-Filipino members of the tribunal were
illegally practicing law in the Philippines by hearing their case, which was
still pending; and (2) the gathering and processing of the data and
documents made available by RCBC would require 26 weeks. 54 Such
application was denied by the tribunal in Procedural Order No. 5 dated
September 16, 2005. 55
On October 21, 2005, the tribunal issued Procedural Order No.
6, 56 postponing the November 21, 2005 hearing by virtue of an order
issued by the RTC in Makati City directing the tribunal to reset the
hearing for April 21 and 24, 2006.
Thereafter, in a letter dated January 18, 2006, 57 petitioners
wrote the tribunal requesting that RCBC be directed to: (1) provide
petitioners with information identifying the journal vouchers and other
supporting documents that RCBC used to arrive at the figures set out in
the summaries and other relevant information necessary to enable them
to reconstruct and/or otherwise understand the figures or amounts in
each summary; and (2) submit to petitioners the requested pieces of
information as soon as these are or have become available, or in any
case not later than five days.
In response to such letter, RCBC addressed a letter dated
January 31, 2006 58 to the tribunal claiming that the pieces of
information that petitioners requested are already known to petitioners
considering that RCBC merely maintained the systems that they
inherited when it bought Bankard from petitioners. RCBC added that the
documents that EPCIB originally transmitted to it when RCBC bought
Bankard were all being made available to petitioners; thus, any missing
supporting documents from these files were never transmitted to them in
the first place.
Later, petitioners sent to the tribunal a letter dated February 10,
2006, 59 asking that it direct RCBC to provide petitioners with the
supporting documents that RCBC mentioned in its letter dated January
31, 2006. Petitioners wrote that should RCBC fail to present such
documents, RCBC's summaries should be excluded from the
records. SIEHcA
In a letter dated March 10, 2006, 60 petitioners requested that
they be given an additional period of at least 47 days within which to
submit their evidence-in-chief with the corresponding request for the
cancellation of the hearing on April 24, 2006. Petitioners submit that
should such request be denied, RCBC's summaries should be excluded
from the records.
On April 6, 2006, petitioners filed their arbitration briefs and
witness statements. By way of reply, on April 17, 2006, RCBC submitted
Volumes IV and V of its exhibits and Volume II of its evidence-in-chief. 61
On April 18, 2006, petitioners requested the tribunal that they be
allowed to file rejoinder briefs, or otherwise exclude RCBC's reply brief
and witness statements. 62 In this request, petitioners also requested
that the hearing set for April 24, 2006 be moved. These requests were
denied.
Consequently, on April 24 to 27, 2006, the arbitral tribunal
conducted hearings on the case. 63
On December 4, 2006, petitioners submitted rejoinder affidavits,
raising new issues for the first time, to which RCBC submitted Volume III
of its evidence-in-chief by way of a reply.
On January 16, 2007, both parties simultaneously submitted
their memoranda. On January 26, 2007, both parties simultaneously filed
their reply to the other's memorandum. 64
Thus, on September 27, 2007, the Partial Award was rendered
by the Tribunal.
Later, petitioners moved to vacate the said award before the
RTC. Such motion was denied by the trial court in the first assailed order
dated January 8, 2008. Petitioners then moved for a reconsideration of
such order, but their motion was also denied in the second assailed order
dated March 17, 2008.
The foregoing events unequivocally demonstrate ample
opportunity for petitioners to verify and examine RCBC's summaries,
accounting records, and reports. The pleadings reveal that RCBC
granted petitioners' requests for production of documents and accounting
records. More so, they had more than three (3) years to prepare for their
defense after RCBC's submission of its brief of evidence. Finally, it must
be emphasized that petitioners had the opportunity to appeal the Partial
Award to the RTC, which they in fact did. Later, petitioners even moved
for the reconsideration of the denial of their appeal. Having been able to
appeal and move for a reconsideration of the assailed rulings, petitioners
cannot claim a denial of due process. 65 THIECD
Petitioners' right to due process was not breached.
As regards petitioners' claim that its right to due process was
violated when they were allegedly denied the right to cross-examine
RCBC's witnesses, their claim is also bereft of merit.
Sec. 15 of RA 876 or the Arbitration Law  provides that:
Section 15. Hearing by arbitrators. — Arbitrators
may, at the commencement of the hearing, ask both
parties for brief statements of the issues in controversy
and/or an agreed statement of facts. Thereafter the
parties may offer such evidence as they desire, and shall
produce such additional evidence as the arbitrators shall
require or deem necessary to an understanding and
determination of the dispute. The arbitrators shall be
the sole judge of the relevancy and materiality of the
evidence offered or produced, and shall not be
bound to conform to the Rules of Court pertaining to
evidence. Arbitrators shall receive as exhibits in
evidence any document which the parties may wish
to submit and the exhibits shall be properly
identified at the time of submission. All exhibits shall
remain in the custody of the Clerk of Court during the
course of the arbitration and shall be returned to the
 parties at the time the award is made. The arbitrators heard either through oral arguments or through
may make an ocular inspection of any matter or pleadings is accorded, there is no denial of procedural
premises which are in dispute, but such inspection shall due process. 67 (Emphasis supplied.) ITCcAD
be made only in the presence of all parties to the
Citing Vertudes v. Buenaflor, petitioners also cry denial of due
arbitration, unless any party who shall have received
process when they were allegedly denied the right to cross-examine the
notice thereof fails to appear, in which event such
witnesses presented by RCBC. It is true that in  Vertudes, we stated:
inspection shall be made in the absence of such party.
"The right of a party to confront and cross-examine opposing witnesses
(Emphasis supplied.)
in a judicial litigation, be it criminal or civil in nature, or in proceedings
The well-settled rule is that administrative agencies exercising before administrative tribunals with quasi-judicial powers, is a
quasi-judicial powers shall not be fettered by the rigid technicalities of fundamental right which is part of due process." 68
procedure, albeit they are, at all times required, to adhere to the basic
It is, however, equally true that:
concepts of fair play. The Court wrote in CMP Federal Security Agency,
Inc. v. NLRC: [T]he right is a personal one which may be
waived expressly or impliedly by conduct amounting to a
While administrative tribunals exercising quasi-
renunciation of the right of cross-examination. Thus,
judicial powers, like the NLRC and Labor Arbiters, are
where a party has had the opportunity to cross-
free from the rigidity of certain procedural requirements,
examine a witness but failed to avail himself of it, he
they are nonetheless bound by law and practice to
necessarily forfeits the right to cross-examine and
observe the fundamental and essential requirements of
the testimony given on direct examination of the
due process. The standard of due process that must be
witness will be received or allowed to remain in the
met in administrative tribunals allows a certain degree of
record. 69 (Emphasis supplied.)
latitude as long as fairness is not ignored. Hence, it
is not  legally objectionable, for being violative of due We also held in one case:
process, for the Labor Arbiter to resolve a case based
However, the right has always been
solely on the position papers, affidavits or documentary
understood as requiring not necessarily an actual
evidence submitted by the parties. The affidavits of
cross-examination but merely an opportunity to
witnesses in such case may take the place of their direct
exercise the right to cross-examine if desired. What
testimony. 66
is proscribed by statutory norm and jurisprudential
Of the same tenor is our holding in Quiambao v. Court of precept is the absence of the opportunity to cross-
Appeals: examine. The right is a personal one and may be
waived expressly or impliedly. There is an implied waiver
In resolving administrative cases, conduct of full-
when the party was given the opportunity to confront and
blown trial is not indispensable to dispense justice to the
cross-examine an opposing witness but failed to take
parties. The requirement of notice and hearing does not
advantage of it for reasons attributable to himself alone.
connote full adversarial proceedings. Submission of
If by his actuations, the accused lost his opportunity to
position papers may be sufficient for as long as the
cross-examine wholly or in part the witnesses against
parties thereto are given the opportunity to be heard. In
him, his right to cross-examine is impliedly
administrative proceedings, the essence of due
waived. 70 (Emphasis supplied.)
process is simply an opportunity to be heard, or an
opportunity to explain one's side or opportunity to And later in Velez v. De Vera, the Court  En Banc  expounded on
seek a reconsideration of the action or ruling the above rulings, adding that in administrative proceedings, cross-
complained of. This constitutional mandate is examination is not indispensable, thus:
deemed satisfied if a person is granted an
Due process of law in administrative cases is not
opportunity to seek reconsideration of an action or a
identical with "judicial process" for a trial in court is not
ruling. It does not require trial-type proceedings similar
always essential to due process. While a day in court is
to those in the courts of justice. Where opportunity to be
a matter of right in judicial proceedings, it is otherwise in
 administrative proceedings since they rest upon different
principles. The due process clause guarantees no
particular form of procedure and its requirements are not
technical. Thus, in certain proceedings of administrative
character, the right to a notice or hearing [is] not
essential to due process of law. The constitutional
requirement of due process is met by a fair hearing
before a regularly established administrative agency or
tribunal. It is not essential that hearings be had before
the making of a determination if thereafter, there is
available trial and tribunal before which all objections
and defenses to the making of such determination may
be raised and considered. One adequate hearing is all
that due process requires. What is required for "hearing"
may differ as the functions of the administrative bodies
differ. HSEIAT
The right to cross-examine is not an
indispensable aspect of due process. 71 . . .
(Emphasis supplied.)
Clearly, the right to cross-examine a witness, although a
fundamental right of a party, may be waived. Petitioners themselves
admit having had the opportunity to cross-examine RCBC's witnesses
during the hearings before the tribunal, but declined to do so by reserving
such right at a later time. Having had the opportunity to cross-examine
RCBC's witnesses, petitioners were not denied their right to due process.
RCBC is Not Estopped from Questioning the Financial Condition of
Bankard
On estoppel, petitioners contend that RCBC already knew the
recording of the Bankard accounts before it paid the balance of the
purchase price and could no longer challenge the financial statements of
Bankard. RCBC, they claim, had full control of the operations of Bankard
since June 2, 2000 and RCBC's audit team reviewed the accounts in
September 2000. Thus, RCBC is now precluded from denying the
fairness and accuracy of said accounts since it did not seek price
reduction under Sec. 5 (h). Lastly, they asseverate that RCBC continued
with Bankard's accounting policies and practices and found them to
conform to the generally accepted accounting principles, contrary to
RCBC's allegations.
It also bears stating that in his dissent, retired Justice Kapunan,
an arbitral tribunal member, argued that Bankard's accounting practices
were disclosed in the information memorandum provided to RCBC;
hence, RCBC was supposed to know such accounting practices and to
have accepted their propriety even before the execution of the SPA. He
then argued that when it paid the purchase price on December 29, 2000,
RCBC could no longer claim that the accounting practices that went into
the reporting of the 1999 AFS of Bankard were not in accord with
generally accepted accounting principles. He pointed out that RCBC was
bound by the audit conducted by a certain Rubio prior to the full payment
of the purchase price of Bankard. Anchored on these statements by
Justice Kapunan, petitioners conclude that RCBC is estopped from
claiming that the former violated their warranties under the SPA.
Petitioners' contention is not meritorious.
Art. 1431 of the Civil Code, on the subject of estoppel, provides:
"Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against
the person relying thereon." IAETSC
The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith, and justice; and its purpose is to forbid
one to speak against one's own acts, representations, or commitments to
the injury of one to whom they were directed and who reasonably relied
on them. 72
We explained the principle of estoppel in  Philippine Savings
Bank v. Chowking Food Corporation:
. . . The equitable doctrine of estoppel was
explained by this Court in Caltex (Philippines), Inc. v.
Court of Appeals:
Under the doctrine of estoppel, an
admission or representation is rendered
conclusive upon the person making it, and cannot
be denied or disproved as against the person
relying thereon. A party may not go back on his
own acts and representations to the prejudice of
the other party who relied upon them. In the law of
evidence, whenever a party has, by his own
declaration, act, or omission, intentionally and
deliberately led another to believe a particular
thing true, to act upon such belief, he cannot, in
any litigation arising out of such declaration, act, or
omission, be permitted to falsify it.
The principle received further elaboration
in  Maneclang v. Baun:
In estoppel by pais, as related to the party
sought to be estopped, it is necessary that there be a
concurrence of the following requisites: (a) conduct
amounting to false representation or concealment of
material facts or at least calculated to convey the
 impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently
attempts to assert; (b) intent, or at least expectation that
this conduct shall be acted upon, or at least influenced
by the other party; and (c) knowledge, actual or
constructive of the actual facts.
Estoppel may vary somewhat in definition, but all
authorities agree that a party invoking the doctrine
must have been misled to one's prejudice. That is the
final and, in reality, most important of the elements of
equitable estoppel. It is this element that is lacking
here. 73 (Emphasis supplied.)
The elements of estoppel pertaining to the party estopped are:
(1) conduct which amounts to a false
representation or concealment of material facts, or, at
least, which calculated to convey the impression that the
facts are otherwise than, and inconsistent with, those
which the party subsequently attempts to assert; (2)
intention, or at least expectation, that such conduct shall
be acted upon by the other party; and (3) knowledge,
actual or constructive, of the actual facts. 74 DHETIS
In the case at bar, the first element of estoppel in relation to the
party sought to be estopped is not present. Petitioners claim that RCBC
misrepresented itself when RCBC made it appear that they considered
petitioners to have sufficiently complied with its warranties under Sec. 5
(g) and 5 (h), in relation to Sec. 7 of the SPA. Petitioners' position is that
"RCBC was aware of the manner in which the Bankard accounts were
recorded, well before it consummated the SPA by taking delivery of the
shares and paying the outstanding 80% balance of the contract price." 75
Petitioners, therefore, theorize that in this case, the first element
of estoppel in relation to the party sought to be estopped is that RCBC
made a false representation that it considered Bankard's accounts to be
in order and, thus, RCBC abandoned any claim under Sec. 5 (g) and 5
(h) by its inaction.
Such contention is incorrect.
It must be emphasized that it was only after a second audit that
RCBC presented its claim to petitioners for violation of Sec. 5 (g), within
the three (3)-year period prescribed. In other words, RCBC, prior to such
second audit, did not have full and thorough knowledge of the
correctness of Bankard's accounts, in relation to Sec. 5 (g). RCBC,
therefore, could not have misrepresented itself considering that it was
still in the process of verifying the warranties covered under Sec. 5 (g).
Considering that there must be a concurrence of the elements of
estoppel for it to arise, on this ground alone such claim is already
negated. As will be shown, however, all the other elements of estoppel
are likewise absent in the case at bar.
As to the second element, in order to establish estoppel, RCBC
must have intended that petitioners would act upon its actions. This
element is also missing. RCBC by its actions did not mislead petitioners
into believing that it waived any claim for violation of a warranty. The
periods under Sec. 5 (g) and 5 (h) were still available to RCBC.
The element that petitioners relied on the acts and conduct of
RCBC is absent. The Court finds that there was no reliance on the part of
petitioners on the acts of RCBC that would lead them to believe that the
RCBC will forego the filing of a claim under Sec. 5 (g). The allegation that
RCBC knew that the Bankard accounts did not comply with generally
accepted accounting principles before payment and, hence, it cannot
question the financial statements of Bankard is meritless. Precisely, the
SPA explicitly provides that claims for violation of the warranties under
Sec. 5 (g) can still be filed within three (3) years from the closing date.
Petitioners' contention that RCBC had full control of Bankard operations
after payment of the price and that an audit undertaken by the Rubio
team did not find anything wrong with the accounts could not have
plausibly misled petitioners into believing that RCBC will waive its right to
file a claim under Sec. 5 (g). After all, the period to file a claim under Sec.
5 (g) is three (3) years under Sec. 7, much longer than the six (6)-month
period under Sec. 5 (h). Petitioners are fully aware that the warranties
under Sec. 5 (g) (1997 up to March 2000) are of a wider scope than that
of Sec. 5 (h) (AFS of 1999 and UFS up to May 31, 2000), necessitating a
longer audit period than the six (6)-month period under Sec. 5 (h).
The third element of estoppel in relation to the party sought to be
estopped is also absent considering that, as stated, RCBC was still in the
process of verifying the correctness of Bankard's accounts prior to
presenting its claim of overvaluation to petitioners. RCBC, therefore, had
no sufficient knowledge of the correctness of Bankard's accounts.
On another issue, RCBC could not have immediately changed
the Bankard accounting practices until it had conducted a more extensive
and thorough audit of Bankard's voluminous records and transactions to
uncover any irregularities. That would be the only logical explanation why
Bankard's alleged irregular practices were maintained for more than two
(2) years from closing date. The fact that RCBC continued with the audit
of Bankard's AFS and records after the termination of the Rubio audit
can only send the clear message to petitioners that RCBC is still
entertaining the possibility of filing a claim under Sec. 5 (g). It cannot
then be said that petitioners' reliance on RCBC's acts after full payment
of the price could have misled them into believing that no more claim will
be presented by RCBC.
 The Arbitral Tribunal explained in detail why estoppel is not
present in the case at bar, thus: EDHCSI
10.18 The audit exercise conducted by Mr. Legaspi and
Mr. Rubio was clearly not one comprehensive
enough to have discovered the problems later
unearthed by Dr. Laya and Dean Ledesma. . . .
10.19 Although the powers of the TC [Transition
Committee] may have been widely expressed in
the view of Mr. Rogelio Chua, then in charge of
Bankard . . . the TC conducted meetings only to
get updated on the status and progress of
Bankard's operations. Commercially, one would
expect that an unpaid vendor expecting to receive
80% of a large purchase price would not be
receptive to a purchaser making vast policy
changes in the operation of the business until the
purchaser has paid up its money. It is more likely
that, until the settlement date, there was a practice
of maintaining the  status quo at Bankard.
10.20 But neither the Claimant nor the TC did anything, in
the Tribunal's view, which would have given the
Respondents the impression that they were being
relieved over the next three years of susceptibility
to a claim under clause 5(g). Maybe the TC could
have been more proactive in commissioning
further or more in-depth audits but it was not. It did
not have to be. It is commercially unlikely that it
have been done so, with the necessary degree of
attention to detail, within the relatively short time
between the appointment of the TC and the
ultimate settlement date of the purchase — a
period of some three months. An interim
arrangement was obviously sensible to enable the
Claimant and its staff to become familiar with the
practices and procedures of Bankard.
10.21 The core consideration weighing with the Tribunal in
assessing these claims for estoppel is that the
SPA allowed two types of claim; one within six
months under 5(h) and one within three years
under 5(g). The Tribunal has already held the
present claim is not barred by clause 5(h). It must
therefore have been within the reasonable
contemplation of the parties that a 5(g) claim could
surface within the three-year period and that it
could be somewhat differently assessed than the
claim under 5(h). The Tribunal cannot find
estoppel by conduct either from the formation of
the TC or from the limited auditing exercise done
by Mr. Rubio and Mr. Legaspi. The onus proving
estoppel is on the Respondents and it has not
been discharged.
10.22 If the parties had wished the avenues of relief for
misrepresentation afforded to the Claimant to have
been restricted to a claim under Clause 5(h), then
they could have said so. The 'special audit' may
have provided an answer to any claim based on
clause 5(h) but it cannot do so in respect of a
claim based on Clause 5(g). Clause 5(g) imposed
a positive obligation on the Respondents from
which they cannot be excused, simply by reason
of either the formation and conduct of the TC or of
the limited audit. CSTDEH
10.23 The three-year limitation period obviously
contemplated that it could take some time to
ascertain whether there had been a breach of the
GAAP standards, etc. Such was the case. A six-
month limitation period under Clause 5(h), in
contrast, presaged a somewhat less stringent
enquiry of the kind carried out by Mr. Rubio and
Mr. Legaspi.
10.24 Clause 2(3) of the Amendment to the SPA
strengthens the conclusion that the parties were
concerned only with a 5(h) claim during the TC's
reign. The focus of the 'audit' — however intense it
was — conducted by Mr. Rubio and Mr. Legaspi,
was on establishing possible liability under that
section and thus as a possible reduction in the
price to be paid on settlement.
10.25 The fact that the purchase price was paid over in full
without any deduction in terms of clause 5(h) is not
a bar to the Claimant bringing a claim under 5(g)
within the three-year period. The fact that payment
was made can be, as the Tribunal has held, a
barrier to a claim for rescission and restitution ad
inegrum. A claim for estoppel needs a finding of
representation by words of conduct or a shared
presumption that a right would not be relied upon.
The party relying on estoppel has to show reliance
 to its detriment or that, otherwise, it would be
unconscionable to resile from the provision.
10.26 Article 1431 of the Civil Code states:
"Through estoppel an admission or representation
is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the
person relying thereon."
10.27 Clearly, there has to both an admission or
representation by (in this case) the Claimant, plus
reliance upon it by (in this case) the Respondents.
The Tribunal cannot find as proved any
admission/representation that the Claimant was
abandoning a 5(g) claim, any reliance by
Respondents on an admission, and any detriment
to the Respondents such as would entitle them to
have the Claimant deprived of the benefit of clause
5(g). These aspects of the claim of estoppel are
rejected.
xxx xxx xxx
10.42 The Tribunal is not the appropriate forum for
deciding whether there have been any regulatory
or ethical infractions by Bankard and/or the
Claimant in setting the 'buy-back' price. It has no
bearing on whether the Claimant must be
considered as having waived its right to claim
against the Respondents. HCSEIT
10.43 In the Tribunal's view, neither any infraction by
Bankard in failing to advise the Central Bank of the
experts' findings, nor a failure to put a tag on the
accounts nor to have said something to the
shareholders in the buy-back exercise operates as
a "technical knock-out" of Claimant's claim.
10.44 The Tribunal notes that the conciliation process
mandated by the SPA took most of 2003 and this
may explain a part of the delay in commencing
arbitral proceedings.
10.45 Whatever the status of Mr. Rubio's and Mr.
Legaspi's enquiries in late 2000, the Claimant was
quite entitled to commission subsequent reports
from Dr. Laya and Dr. Echanis and, on the basis of
those reports, make a timeous claim under clause
5(g) of the SPA.
10.46 In the Tribunal's view, therefore, there is no merit in
Respondents' various submissions that the
Claimant is debarred from prosecuting its claims
on the grounds of estoppel. There is just no proof
of the necessary representation to the
Respondent, nor any detriment to the Respondent
proved. The grounds of delay and laches are not
substantiated.
In summary, the tribunal properly ruled that petitioners failed to
prove that the formation of the Transition Committee and the conduct of
the audit by Rubio and Legaspi were admissions or representations by
RCBC that it would not pursue a claim under Sec. 5 (g) and that
petitioners relied on such representation to their detriment. We agree
with the findings of the tribunal that estoppel is not present in the
situation at bar.
Additionally, petitioners claim that in Knecht v. Court of
Appeals 76 and Coca-Cola Bottlers Philippines, Inc. v. Court of Appeals
(Coca-Cola), 77 this Court ruled that the absence of the element of
reliance by a party on the representation of another does not negate the
principle of estoppel. Those cases are, however, not on all fours with and
cannot be applied to this case.
In Knecht, the buyer had the opportunity of knowing the
conditions of the land he was buying early on in the transaction, but
proceeded with the sale anyway. According to the Court, the buyer was
estopped from claiming that the vendor made a false representation as to
the condition of the land. This is not true in the instant case. RCBC did
not conduct a due diligence audit in relation to Sec. 5 (g) prior to the sale
due to petitioners' express representations and warranties. The
examination conducted by RCBC, through Rubio, after the execution of
the SPA on June 2, 2000, was confined to finding any breach under Sec.
5 (h) for a possible reduction of the purchase price prior to the payment
of its balance on December 31, 2000. Further, the parties clearly agreed
under Sec. 7 of the SPA to a three (3)-year period from closing date
within which to present a claim for damages for violation of the
warranties under the SPA. Hence,  Knecht is not a precedent to the case
at bar.
So is Coca-Cola. As lessee, Coca-Cola Bottlers was well aware
of the nature and situation of the land relative to its intended use prior to
the signing of the contract. Its subsequent assertion that the land was not
suited for the purpose it was leased was, therefore, cast aside for being
unmeritorious. Such circumstance does not obtain in the instant case.
There was no prior due diligence audit conducted by RCBC, it having
relied, as earlier stated, on the warranties of petitioners with regard to the
financial condition of Bankard under Sec. 5 (g). As such, Sec. 5 (g)
guaranteed RCBC that it could file a claim for damages for any mistakes
in the AFS and UFS of Bankard. Clearly,  Coca-Cola  also cannot be
applied to the instant case.
It becomes evident from all of the foregoing findings that the
ICC-ICA is not guilty of any manifest disregard of the law on estoppel. As
shown above, the findings of the ICC-ICA in the Partial Award are well-
supported in law and grounded on facts. The Partial Award must be
upheld.
We close this disposition with the observation that a member of
the three-person arbitration panel was selected by petitioners, while
another was respondent's choice. The respective interests of the parties,
therefore, are very much safeguarded in the arbitration proceedings. Any
suggestion, therefore, on the partiality of the arbitration tribunal has to be
dismissed. DCcSHE
WHEREFORE, the instant petition is hereby DENIED. The
assailed January 8, 2008 and March 17, 2008 Orders of the RTC,
Branch 148 in Makati City are hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
 SECOND DIVISION
[G.R. No. 204689. January 21, 2015.]
STRONGHOLD INSURANCE COMPANY,
INC.,  petitioner, vs. SPOUSES RUNE and LEA
STROEM,  respondents.
DECISION
LEONEN, J  p:
For resolution is a Petition for Review 1 under Rule 45 of the Rules
of Court assailing the Decision 2 dated November 20, 2012 of the Court of
Appeals in CA-G.R. CV No. 96017. The Court of Appeals affirmed the
Decision 3 of the Regional Trial Court of Makati, Branch 133 in Civil Case
No. 02-1108 for collection of a sum of money.
This case involves the proper invocation of the Construction Industry
Arbitration Committee's (CIAC) jurisdiction through an arbitration clause in a
construction contract. The main issue here is whether the dispute — liability
of a surety under a performance bond — is connected to a construction
contract and, therefore, falls under the exclusive jurisdiction of the CIAC.
Spouses Rune and Lea Stroem (Spouses Stroem) entered into an
Owners-Contractor Agreement 4 with Asis-Leif & Company, Inc. (Asis-Leif)
for the construction of a two-storey house on the lot owned by Spouses
Stroem. The lot was located at Lot 4A, Block 24, Don Celso Tuason Street,
Valley Golf Subdivision, Barangay Mayamot, Antipolo, Rizal. 5
On November 15, 1999, pursuant to the agreement, Asis-Leif
secured Performance Bond No. LP/G(13)83056 in the amount of
P4,500,000.00 from Stronghold Insurance Company, Inc.
(Stronghold). 6 Stronghold and Asis-Leif, through Ms. Ma. Cynthia Asis-Leif,
bound themselves jointly and severally to pay the Spouses Stroem the
agreed amount in the event that the construction project is not completed. 7
Asis-Leif failed to finish the project on time despite repeated
demands of the Spouses Stroem. 8
Spouses Stroem subsequently rescinded the agreement. 9 They
then hired an independent appraiser to evaluate the progress of the
construction project. 10
Appraiser Asian Appraisal Company, Inc.'s evaluation resulted in the
following percentage of completion: 47.53% of the residential building,
65.62% of the garage, and 13.32% of the swimming pool, fence, gate, and
land development. 11
On April 5, 2001, Stronghold sent a letter to Asis-Leif requesting that
the company settle its obligations with the Spouses Stroem. No response
was received from Asis-Leif. 12
On September 12, 2002, the Spouses Stroem filed a Complaint (with
Prayer for Preliminary Attachment) 13 for breach of contract and for sum of
money with a claim for damages against Asis-Leif, Ms. Cynthia Asis-Leif, and
Stronghold. 14 Only Stronghold was served summons. Ms. Cynthia Asis-Leif
allegedly absconded and moved out of the country. 15
On July 13, 2010, the Regional Trial Court rendered a judgment in
favor of the Spouses Stroem. The trial court ordered Stronghold to pay the
Spouses Stroem P4,500,000.00 with 6% legal interest from the time of first
demand. 16 The dispositive portion of the trial court Decision reads: acTDCI
WHEREFORE, finding plaintiffs' cause of action to
be sufficiently established being supported by evidence on
records, judgement is hereby rendered in favor of the
plaintiff spouses Rune and Lea Stroem and against the
defendant Stronghold Insurance Company Incorporated
ordering the latter to pay the plaintiff the sums of:
1) Php4,500,000.00 with six (6%) percent legal
interest from the time of first demand and
interest due shall earn legal interest from
the time of judicial demand until fully paid.
2) Php35,000.00 by way of attorney's fees and
other litigation expenses.
Defendant is further ordered to pay the costs of
this suit.
SO ORDERED. 17
Both Stronghold and the Spouses Stroem appealed to the Court of
Appeals. 18
 The Court of Appeals affirmed with modification the trial court's
Decision. It increased the amount of attorney's fees to P50,000.00. 19
The dispositive portion of the Court of Appeals Decision reads:
WHEREFORE, the appeal of Stronghold
Company, Inc[.] is DISMISSED, while the appeal of
spouses Rune and Lea Stroem is PARTLY GRANTED.
The November 27, 2009 Decision of the Regional Trial
Court of Makati City
is AFFIRMED with MODIFICATION that the award of
attorney's fees is increased to P50,000.00.
SO ORDERED. 20
On March 20, 2013, this court required the Spouses Stroem to
submit their Comment on the Petition. 21
We noted the Spouses Stroem's Comment on July 31, 2013. 22 We
also required Stronghold to file its Reply to the Comment, 23 which was
noted on December 9, 2013. 24
Stronghold argues that the trial court did not acquire jurisdiction over
the case and, therefore, the Court of Appeals committed reversible error
when it upheld the Decision of the Regional Trial Court. 25 The lower courts
should have dismissed the case in view of the arbitration clause in the
agreement and considering that "[Republic Act No. 876] explicitly confines
the court's authority only to pass upon the issue of whether there is [an]
agreement . . . 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.'" 26
Moreover, "the stipulations in said Agreement are part and parcel of
the conditions in the bond. Were it not for such stipulations in said
agreement, [Stronghold] would not have agreed to issue a bond in favor of
the Spouses Stroem. The parties to the bond are ALB/Ms. Asis-[L]eif,
Spouses Stroem and [Stronghold] such that ALB/Ms. Asis-[L]eif never
ceased to be a party to the surety agreement." 27
In any case, Stronghold's liability under the performance bond is
limited only to additional costs for the completion of the project. 28 In
addition, the Court of Appeals erred in holding that Stronghold changed its
theory with regard to the notice requirement 29 and in modifying the trial
court's award of attorney's fees. 30
On the other hand, the Spouses Stroem argue that Stronghold
committed forum shopping warranting dismissal of the case. 31 According to
the Spouses Stroem, Stronghold deliberately committed forum shopping
when it filed the present petition despite the pendency of the Spouses
Stroem's Motion for Partial Reconsideration of the Court of Appeals Decision
dated November 20, 2012. 32
More importantly, the Owners-Contractor Agreement is "separate
and distinct from the Bond. The parties to the Agreement are ALB/Ms. Asis-
Leif and Spouses Stroem, while the parties to the Bond are Spouses Stroem
and Stronghold. The considerations for the two contracts are likewise distinct.
Thus, the arbitration clause in the Agreement is binding only on the parties
thereto, specifically ALB/Ms. Asis-Leif and Spouses Stroem[.]" 33
Contrary to Stronghold's argument, Spouses Stroem argues that
stronghold is liable for the full amount of the performance bond. The terms of
the bond clearly show that Stronghold is liable as surety. 34 Verily, notice to
Stronghold is not required for its liability to attach. 35
The issues for consideration are:
(1) Whether the dispute involves a construction contract;
(2) Whether the CIAC has exclusive jurisdiction over the
controversy between the parties;
(3) Whether the Regional Trial Court should have
dismissed the petition outright as required by law
and jurisprudence and referred the matter to the
CIAC; and
(4) Whether petitioner Stronghold Insurance Company,
Inc. is liable under Performance Bond No.
LP/G(13)83056. SDAaTC
(a) Whether petitioner Stronghold Insurance
Company, Inc. is only liable as to the
extent of any additional cost for the
completion of the project due to any
increase in prices for labor and materials.
(b) Whether the case involves ordinary suretyship
or corporate suretyship.
After considering the parties' arguments and the records of this case,
this court resolves to deny the Petition.
On forum-shopping
Respondents argue that petitioner committed forum shopping;
hence, the case should have been dismissed outright.
Records show that petitioner received a copy of the Decision of the
Court of Appeals on December 5, 2012. 36 Petitioner did not file a Motion for
Reconsideration of the assailed Decision. It filed before this court a Motion
for Extension of Time to File Petition for Review requesting an additional
period of 30 days from December 20, 2012 or until January 19, 2013 to file
the Petition. 37
Respondents filed their Motion for Partial Reconsideration of the
Court of Appeals Decision on December 11, 2012. 38 They sought the
modification of the Decision as to the amounts of moral damages, exemplary
damages, attorney's fees, and costs of the suit. 39
Respondents alleged in their Comment that as early as January 9,
2013, petitioner received a copy of the Court of Appeals' Resolution requiring
Comment on the Motion for Partial Reconsideration. 40 Still, petitioner did
not disclose in its Verification and Certification Against Forum Shopping the
pendency of respondents' Motion for Partial Reconsideration. 41
For its part, petitioner claims that it did not commit forum shopping. It
fully disclosed in its Petition that what it sought to be reviewed was the
Decision dated November 20, 2012 of the Court of Appeals. "Petitioner
merely exercised its available remedy with respect to the Decision of the
Court of Appeals by filing [the] Petition." 42 What the rules mandate to be
stated in the Certification Against Forum Shopping is the status of "any other
action." This other action involves the same issues and parties but is an
entirely different case.
Indeed, petitioner is guilty of forum shopping.
There is forum shopping when:
as a result of an adverse opinion in one forum, a party
seeks a favorable opinion (other than by appeal
or certiorari) in another. The principle applies not only
with respect to suits filed in the courts but also in
connection with litigations commenced in the courts
while an administrative proceeding is
pending[.] 43 (Citation omitted)
This court has enumerated the elements of forum-shopping: "(a)
identity of parties, or at least such parties as represent the same interests in
both actions; (b) identity of rights asserted and reliefs prayed for, the reliefs
being founded on the same facts; and (c) the identity with respect to the two
preceding particulars in the two cases is such that any judgment rendered in
the pending cases, regardless of which party is successful, amount to res
judicata in the other case." 44
Rule 42, Section 2 45 in relation to Rule 45, Section 4 of the Rules of
Court mandates petitioner to submit a Certification Against Forum Shopping
and promptly inform this court about the pendency of any similar action or
proceeding before other courts or tribunals. The rule's purpose is to deter the
unethical practice of pursuing simultaneous remedies in different forums,
which "wreaks havoc upon orderly judicial procedure." 46 Failure to comply
with the rule is a sufficient ground for the dismissal of the
petition. 47 aEcHCD
Records show that petitioner's duly authorized officer certified the
following on January 21, 2013:
4. I further certify that: (a) I have not commenced
any other action or proceeding involving the same issues
in the Supreme Court, Court of Appeals, or any other
tribunal or agency; (b) to the best of my knowledge, no
such action or proceeding is pending in the Supreme
Court, the Court of Appeals or different Divisions thereof,
or any tribunal or agency; (c) if I should thereafter learn
that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals,
or different Divisions thereof, or any other tribunal or
agency, I undertake to promptly inform the aforesaid courts
and such tribunal or agency of the fact within five (5) days
therefrom. 48
Petitioner failed to carry out its duty of promptly informing this court
of any pending action or proceeding before this court, the Court of Appeals,
or any other tribunal or agency. This court cannot countenance petitioner's
disregard of the rules.
This court has held before that:
[u]ltimately, what is truly important to consider in
determining whether forum-shopping exists or not is
the vexation caused the courts and parties-litigant by a
party who asks different courts and/or administrative
agencies to rule on the same or related causes and/or to
grant the same or substantially the same reliefs, in the
process creating the possibility of conflicting decisions
being rendered by the different fora upon the same
issue. 49 (Emphasis supplied)
On this basis, this case should be dismissed.
On arbitration and the CIAC's
jurisdiction
Petitioner changed the theory of its case since its participation in the
trial court proceedings. It raised the issue of lack of jurisdiction in view of an
arbitration agreement for the first time.
 Generally, parties may not raise issues for the first time on
appeal. 50 Such practice is violative of the rules and due process and is
frowned upon by the courts. However, it is also well-settled that jurisdiction
can never be waived or acquired by estoppe1. 51 Jurisdiction is conferred by
the Constitution or by law. 52 "Lack of jurisdiction of the court over an action
or the subject matter of an action cannot be cured by the silence, by
acquiescence, or even by express consent of the parties." 53
Section 4 of Executive Order No. 1008 54 is clear in defining the
exclusive jurisdiction of the CIAC:
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
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. ACcHIa
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 supplied)
Similarly, Section 35 of Republic Act No. 9285 or the Alternative
Dispute Resolution Act of 2004 states:
SEC. 35. Coverage of the Law. — Construction disputes
which fall within the original and exclusive jurisdiction of
the Construction Industry Arbitration Commission (the
"Commission") shall include those between or among
parties to, or who are otherwise bound by, an arbitration
agreement, directly or by reference whether such parties
are project owner, contractor, subcontractor, quantity
surveyor; bondsman or issuer of an insurance policy in a
construction project.
The Commission shall continue to exercise original and
exclusive jurisdiction over construction disputes although
the arbitration is "commercial" pursuant to Section 21 of
this Act. (Emphasis supplied)
In Heunghwa Industry Co., Ltd. v. DJ Builders Corporation, 55 this
court held that "there are two acts which may vest the CIAC with jurisdiction
over a construction dispute. One is the presence of an arbitration clause in a
construction contract, and the other is the agreement by the parties to submit
the dispute to the CIAC." 56
This court has ruled that when a dispute arises from a construction
contract, the CIAC has exclusive and original jurisdiction. 57 Construction
has been 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." 58
In this case, there is no dispute as to whether the Owners-Contractor
Agreement between Asis-Leif and respondents is a construction contract.
Petitioner and respondents recognize that CIAC has jurisdiction over
disputes arising from the agreement.
What is at issue in this case is the parties' agreement, or lack
thereof, to submit the case to arbitration. Respondents argue that petitioner is
not a party to the arbitration agreement. Petitioner did not consent to
arbitration. It is only respondent and Asis-Leif that may invoke the arbitration
clause in the contract.
This court has previously held that a performance bond, which is
meant "to guarantee the supply of labor, materials, tools, equipment, and
necessary supervision to complete the project[,]" 59 is significantly and
substantially connected to the construction contract and, therefore, falls
under the jurisdiction of the CIAC. 60
Prudential Guarantee and Assurance, Inc. v. Anscor Land,
Inc. 61 involved circumstances similar to the present case.
In Prudential, property owner Anscor Land, Inc. (ALI) entered into a contract
for the construction of an eight-unit townhouse located in Capitol Hills,
Quezon City with contractor Kraft Realty and Development Corporation
(KRDC). 62 KRDC secured the completion of the construction project
through a surety and performance bond issued by Prudential Guarantee and
Assurance, Inc. (PGAI). 63
The delay in the construction project resulted in ALI's termination of
the contract and claim against the performance bond. 64 "ALI [subsequently]
commenced arbitration proceedings against KRDC and PGAI in the
CIAC." 65 PGAI, however, argued that it was not a party to the construction
contract. 66
 The CIAC ruled that PGAI was not liable under the performance
bond. 67 Upon review, the Court of Appeals held that PGAI was jointly and
severally liable with KRDC under the performance bond. 68
PGAI appealed the Court of Appeals Decision and claimed that CIAC
did not have jurisdiction over the performance bond. 69 This court
ruled: SITCcE
A guarantee or a surety contract under Article
2047 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.
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. 70 (Emphasis supplied, citations omitted)
At first look, the Owners-Contractor Agreement and the performance
bond reference each other; the performance bond was issued pursuant to the
construction agreement.
A performance bond is a kind of suretyship agreement. A suretyship
agreement is 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 another party, called the obligee." 71 In
the same vein, a performance bond is "designed to afford the project owner
security that the . . . contractor, will faithfully comply with the requirements of
the contract . . . and make good [on the] damages sustained by the project
owner in case of the contractor's failure to so perform." 72
It is settled that the surety's solidary obligation for the performance of
the principal debtor's obligation is indirect and merely
secondary. 73 Nevertheless, the surety's liability to the "creditor or promisee
of the principal is said to be direct, primary and absolute; in other words, he is
directly and equally bound with the principal." 74
Verily, "[i]n enforcing a surety contract, the 'complementary-
contracts-construed-together' doctrine finds application. According to this
principle, an accessory contract must be read in its entirety and together with
the principal agreement." 75 Article 1374 of the Civil Code provides:
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.
Applying the "complementary-contracts-construed-together" doctrine,
this court in Prudential  held that the surety willingly acceded to the terms of
the construction contract despite the silence of the performance bond as to
arbitration:
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 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. 76 (Emphasis
supplied) EAcIST
This court, however, cannot apply the ruling in Prudential to the
present case. Several factors militate against petitioner's claim.
 The contractual stipulations in this case and in Prudential  are Article 1
different. The relevant provisions of the Owners-Contractor Agreement in this CONTRACT DOCUMENTS
case state:
1.1 The following shall form part of this Contract and
ARTICLE 5. THE CONTRACT DOCUMENTS. — together with this Contract, are known as the
"Contract Documents":
The following documents prepared by
the CONTRACTOR shall constitute an integral part of this a. Bid Proposal
contract as fully as if hereto attached or herein stated,
except as otherwise modified by mutual agreement of xxx xxx xxx
parties, and attached to this agreement. d. Notice to proceed
Attachment 5.1 Working Drawings xxx xxx xxx
Attachment 5.2 Outline Specifications j. Appendices A & B (respectively, Surety Bond for
Performance and, Supply of Materials by
Attachment 5.3 Bill of Quantities the Developer) 78 (Emphasis
Attachment 5.4 CONTRACTOR Business supplied) DHIcET
License This court in Prudential held that the construction contract expressly
xxx xxx xxx incorporated the performance bond into the contract. 79 In the present case,
Article 7 of the Owners-Contractor Agreement merely stated that a
ARTICLE 7. PERFORMANCE (SURETY) BOND. — performance bond shall be issued in favor of respondents, in which case
petitioner and Asis-Leif Builders and/or Ms. Ma. Cynthia Asis-Leif shall pay
7.1 Within 30 days of the signing of this P4,500,000.00 in the event that Asis-Leif fails to perform its duty under the
agreement, CONTRACTOR shall provide to OWNERS a Owners-Contractor Agreement. 80 Consequently, the performance bond
performance bond, issued by a duly licensed authority merely referenced the contract entered into by respondents and Asis-Leif,
acceptable to the OWNERS, and equal to the amount which pertained to Asis-Leif's duty to construct a two-storey residence
of PHP4,500,000.00 (Four Million and Five Hundred building with attic, pool, and landscaping over respondents' property. 81
Thousand Philippine Pesos), with the OWNERS as
beneficiary. To be clear, it is in the Owners-Contractor Agreement that the
arbitration clause is found. The construction agreement was signed only by
7.2 The performance bond will guarantee the respondents and the contractor, Asis-Leif, as represented by Ms. Ma.
satisfactory and faithful performance by Cynthia Asis-Leif. It is basic that "[c]ontracts take effect only between the
the CONTRACTOR of all provisions stated within this parties, their assigns and heirs[.]" 82 Not being a party to the construction
contract. agreement, petitioner cannot invoke the arbitration clause. Petitioner, thus,
ARTICLE 8. ARBITRATION. — cannot invoke the jurisdiction of the CIAC.

8.1 Any dispute between the parties hereto
which cannot be amicably settled shall be finally
settled by arbitration in accordance with the provision
of Republic Act 876, of The Philippines, as amended
by the Executive Order 1008 dated February 4,
1985. 77 (Emphasis in the original)
Moreover, petitioner's invocation of the arbitration clause
defeats the purpose of arbitration in relation to the construction
business. The state has continuously encouraged the use of dispute
resolution mechanisms to promote party autonomy. 83 In LICOMCEN,
Incorporated v. Foundation Specialists, Inc., 84 this court upheld the CIAC's
jurisdiction in line with the state's policy to promote arbitration:

In contrast, the provisions of the construction contract The CIAC was created through Executive Order
in Prudential provide: 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. 85 (Citation
omitted)
However, where a surety in a construction contract actively
participates in a collection suit, it is estopped from raising jurisdiction later.
Assuming that petitioner is privy to the construction agreement, we cannot
allow petitioner to invoke arbitration at this late stage of the proceedings
since to do so would go against the law's goal of prompt resolution of cases
in the construction industry.
WHEREFORE, the petition is DENIED. The case is DISMISSED.
Petitioner's counsel is STERNLY WARNED that a repetition or similar
violation of the rule on Certification Against Forum Shopping will be dealt with
more severely.
SO ORDERED.
 SECOND DIVISION 16. If any dispute arise hereunder which cannot be settled
by mutual accord between the parties to such
dispute, then that dispute shall be referred to
[G.R. No. 173137. January 11, 2016.] arbitration. The arbitration shall be held in
whichever place the parties to the dispute decide
BASES CONVERSION DEVELOPMENT and failing mutual agreement as to a location
AUTHORITY, petitioner, vs. DMCI PROJECT within twenty-one (21) days after the occurrence of
DEVELOPERS, INC.,  respondent. the dispute, shall be held in Metro Manila and shall
be conducted in accordance with the Philippine
Arbitration Law (Republic Act No. 876)
[G.R. No. 173170. January 11, 2016.] supplemented by the Rules of Conciliation and
Arbitration of the International Chamber of
Commerce. All award of such arbitration shall be
NORTH LUZON RAILWAYS final and binding upon the parties to the dispute. 5
CORPORATION,  petitioner,  vs. DMCI PROJECT
DEVELOPERS, INC.,  respondent. BCDA organized and incorporated Northrail. 6 Northrail was
registered with the Securities and Exchange Commission on August 22,
1995. 7
BCDA invited investors to participate in the railroad project's
DECISION
financing and implementation. Among those invited were D.M. Consunji,
Inc. and Metro Pacific Corporation. 8
On February 8, 1996, the Joint Venture Agreement was
LEONEN, J  p: amended to include D.M. Consunji, Inc. and/or its nominee as
An arbitration clause in a document of contract may extend to party. 9 Under the amended Joint Venture Agreement, D.M. Consunji,
subsequent documents of contract executed for the same purpose. Inc. shall be an additional investor of Northrail. 10 It shall subscribe to
Nominees of a party to and beneficiaries of a contract containing an 20% of the increase in Northrail's authorized capital stock. 11
arbitration clause may become parties to a proceeding initiated based on On February 8, 1996, BCDA and the other parties to the Joint
that arbitration clause. HTcADC Venture Agreement, including D.M. Consunji, Inc. and/or its nominee,
On June 10, 1995, Bases Conversion Development Authority entered into a Memorandum of Agreement. 12 Under this agreement,
(BCDA) entered into a Joint Venture Agreement 1 with Philippine the parties agreed that the initial seed capital of P600 million shall be
National Railways (PNR) and other foreign corporations. 2 infused to Northrail. 13 Of that amount, P200 million shall be D.M.
Consunji, Inc.'s share, which shall be converted to equity upon Northrail's
Under the Joint Venture Agreement, the parties agreed to privatization. 14 Later, D.M. Consunji, Inc.'s share was increased to P300
construct a railroad system from Manila to Clark with possible extensions million. 15
to Subic Bay and La Union and later, possibly to Ilocos Norte and Nueva
Ecija. 3 BCDA shall establish North Luzon Railways Corporation Upon BCDA and Northrail's request, 16 DMCI Project
(Northrail) for purposes of constructing, operating, and managing the Developers, Inc. (DMCI-PDI) deposited P300 million into Northrail's
railroad system. 4 The Joint Venture Agreement contained the following account with Land Bank of the Philippines. 17 The deposit was made on
provision: August 7, 1996 18 for its "future subscription of the Northrail shares of
stocks." 19 In Northrail's 1998 financial statements submitted to the
ARTICLE XVI Securities and Exchange Commission, this amount was reflected as
ARBITRATION "Deposits for Future Subscription." 20 At that time, Northrail's application
to increase its authorized capital stock was still pending with the
Securities and Exchange Commission. 21
 In letters 22 dated April 4, 1997, D.M. Consunji, Inc. informed
PNR and the other parties that DMCI-PDI shall be its designated
nominee for all the agreements it entered and would enter with
them in connection with the railroad project. Pertinent portions of the
letters provide:
[I]n order to formalize the inclusion of [DMCI Project
Developers, Inc.] as a party to the JVA and MOA, DMCI
would like to notify all the parties that it is designating
PDI as its nominee in both agreements and such other
agreements that may be signed by the parties in
furtherance of or in connection with the PROJECT. By
this nomination, all the rights, obligations, warranties and
commitments of DMCI under the JVA and MOA shall
henceforth be assumed performed and delivered by
PDI. 23 (Emphasis supplied) aScITE
Later, Northrail withdrew from the Securities and Exchange
Commission its application for increased authorized capital
stock. 24 Moreover, according to DMCI-PDI, BCDA applied for Official
Development Assistance from Obuchi Fund of Japan. 25 This required
Northrail to be a 100% government-owned and controlled corporation. 26
On September 27, 2000, DMCI-PDI started demanding from
BCDA and Northrail the return of its P300 million deposit. 27 DMCI-PDI
cited Northrail's failure to increase its authorized capital stock as reason
for the demand. 28 BCDA and Northrail refused to return the
deposit 29 for the following reasons:
a) At the outset, DMCI PDI/FBDC's participation in Northrail was
as a joint venture partner and co-investor in the Manila
Clark Rapid Railway Project, and as such, was granted
corresponding representation in the Northrail Board.
b) DMCI PDI/FBDC was privy to all the deliberations of the
Northrail Board and participated in the decisions made
and policies adopted to pursue the project.
c) DMCI PDI/FBDC had full access to the financial statements of
Northrail and was regularly informed of the corporation's
financial condition. 30
Upon BCDA's request, the Office of the Government Corporate
Counsel (OGCC) issued Opinion No. 116, Series of 2001 31 on June 27,
2001. The OGCC stated that "since no increase in capital stock was
implemented, it is but proper to return the investments of both FBDC and
DMCI[.]" 32
In a January 19, 2005 letter, 33 DMCI-PDI reiterated the request
for the refund of its P300 million deposit for future Northrail subscription.
On March 18, 2005, BCDA denied 34 DMCI-PDI's request:
We regret to say that we are of the position that the
P300 [million] contribution should not be returned to
DMCI for the following reasons:
a. the P300 million was in the nature of a
contribution, not deposits for future
subscription; and
b. DMCI, as a joint venture partner, must share in
profits and losses. 35
On August 17, 2005, 36 DMCI-PDI served a demand for
arbitration to BCDA and Northrail, citing the arbitration clause in the June
10, 1995 Joint Venture Agreement. 37 BCDA and Northrail failed to
respond. 38
DMCI-PDI filed before the Regional Trial Court of Makati 39 a
Petition to Compel Arbitration 40 against BCDA and Northrail, pursuant
to the alleged arbitration clause in the Joint Venture
Agreement. 41 DMCI-PDI prayed for "an order directing the parties to
proceed to arbitration in accordance with the terms and conditions of the
agreement." 42
BCDA filed a Motion to Dismiss 43 on the ground that there was
no arbitration clause that DMCI-PDI could enforce since DMCI-PDI was
not a party to the Joint Venture Agreement containing the arbitration
clause. 44 Northrail filed a separate Motion to Dismiss 45 on the ground
that the court did not have jurisdiction over it and that DMCI-PDI had no
cause for arbitration against it. 46
In the Decision 47 dated February 9, 2006, the trial court denied
BCDA's and Northrail's Motions to Dismiss and granted DMCI-PDI's
Petition to Compel Arbitration. The dispositive portion of the decision
reads:
WHEREFORE, the petition is granted. The
parties are ordered to present their dispute to arbitration
in accordance with Article XVI of the Joint Agreement.
SO ORDERED. 48
The trial court ruled that the arbitration clause in the Joint
Venture Agreement should cover all subsequent documents including the
amended Joint Venture Agreement and the Memorandum of Agreement.
The three (3) documents constituted one contract for the formation and
funding of Northrail. 49
 The trial court also ruled that even though DMCI-PDI was not a
signatory to the Joint Venture Agreement and the Memorandum of
Agreement, it was an assignee of D.M. Consunji, Inc.'s rights. Therefore,
it could invoke the arbitration clause in the Joint Venture
Agreement. 50 HEITAD
In an Order 51 dated June 9, 2006, the trial court denied BCDA
and Northrail's Motion for Reconsideration of the February 9, 2006 trial
court Decision.
BCDA filed a Rule 45 Petition before this court, assailing the
February 9, 2006 trial court Order granting DMCI-PDI's Petition to
Compel Arbitration and the June 9, 2006 Order denying BCDA and
Northrail's Motion for Reconsideration. 52
The issue in this case is whether DMCI-PDI may compel BCDA
and Northrail to submit to arbitration.
BCDA argued that only the parties to an arbitration agreement
can be bound by that agreement. 53 The arbitration clause that DMCI-
PDI sought to enforce was in the Joint Venture Agreement, to which
DMCI-PDI was not a party. 54 There was also no evidence that the right
to compel arbitration under the Joint Venture Agreement was assigned to
DMCI-PDI. 55 Assuming that there was such an assignment, BCDA did
not consent to or recognize it. 56 Therefore, the trial court's conclusion
that DMCI-PDI was D.M. Consunji, Inc.'s assignee had no basis. 57 In
BCDA's view, DMCI-PDI had no right to compel BCDA to submit to
arbitration. 58
BCDA also argued that the trial court decided the Motion to
Dismiss in violation of the parties' right to due process. The trial court
should have conducted a hearing so that the parties could have
presented their respective positions on the issue of assignment. The trial
court merely accepted DMCI-PDI's allegations, without basis. 59
In a separate Petition for Review, 60 Northrail argued that it
cannot be compelled to submit itself to arbitration because it was not a
party to the arbitration agreement. 61
Northrail also argued that DMCI-PDI cannot initiate an action to
compel BCDA and Northrail to arbitration because DMCI-PDI itself was
not a party to the arbitration agreement. DMCI-PDI was not D.M.
Consunji, Inc.'s assignee because BCDA did not consent to that
assignment. 62
In its Comment 63 on BCDA's Petition, DMCI-PDI argued that
Rule 45 was a wrong mode of appeal. 64 The issues raised by BCDA did
not involve questions of law. 65
DMCI-PDI pointed out that BCDA breached their agreement
when it failed to apply the P300 million deposit to Northrail subscriptions.
It turned out that such application was rendered impossible by the
alleged loan requirement that Northrail be wholly owned by the
government and by Northrail's withdrawal from the Securities and
Exchange Commission of its application for an increase in authorized
capital stock. 66
DMCI-PDI also argued that it is an assignee and nominee of
D.M. Consunji, Inc., which is a party to the contracts. Therefore, it is also
a party to the arbitration clause. 67
DMCI-PDI contended that the arbitration agreement extended to
all documents relating to the project. 68 Even though the agreement was
expressed only in the Joint Venture Agreement, its effect extends to the
amendment to the Joint Venture Agreement and Memorandum of
Agreement. 69
DMCI-PDI emphasized that BCDA had always recognized it as
D.M. Consunji's assignee in its correspondences with the OGCC and
with the President of DMCI, Mr. Isidro Consunji. 70 In those letters,
BCDA described DMCI-PDI's participation as being the "joint venture
partner . . . and co-investor in the Manila Clark Rapid Railway
Project[.]" 71 Hence, it is now estopped from denying its personality in
this case. 72 ATICcS
We rule for DMCI-PDI.
I
The state has a policy in favor of arbitration
At the outset, we must state that BCDA and Northrail invoked the
correct remedy. Rule 45 is applicable when the issues raised before this
court involved purely questions of law. In Villamor v. Balmores: 73
[t]here is a question of law "when there is doubt
or controversy as to what the law is on a certain [set] of
facts." The test is "whether the appellate court can
determine the issue raised without reviewing or
evaluating the evidence." Meanwhile, there is a question
of fact when there is "doubt . . . as to the truth or
falsehood of facts." The question must involve the
examination of probative value of the evidence
presented. 74
BCDA and Northrail primarily ask us to construe the arbitration
clause in the Joint Venture Agreement. They assert that the clause does
not bind DMCI-PDI and Northrail. This issue is a question of law. It does
not require us to examine the probative value of the evidence presented.
The prayer is essentially for this court to determine the scope of an
arbitration clause.
 Arbitration is a mode of settling disputes between
parties. 75 Like many alternative dispute resolution processes, it is a
product of the meeting of minds of parties submitting a pre-defined set of
disputes. They agree among themselves to a process of dispute
resolution that avoids extended litigation.
The state adopts a policy in favor of arbitration. Republic Act No.
9285 76 expresses this policy:
SEC. 2. Declaration of Policy. — It is hereby
declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of
the parties to make their own arrangements to resolve
their disputes. Towards this end, the State shall
encourage and actively promote the use of Alternative
Dispute Resolution (ADR) as an important means to
achieve speedy and impartial justice and declog court
dockets. As such, the State shall provide means for the
use of ADR as an efficient tool and an alternative
procedure for the resolution of appropriate cases.
Likewise, the State shall enlist active private sector
participation in the settlement of disputes through ADR.
This Act shall be without prejudice to the adoption by the
Supreme Court of any ADR system, such as mediation,
conciliation, arbitration, or any combination thereof as a
means of achieving speedy and efficient means of
resolving cases pending before all courts in the
Philippines which shall be governed by such rules as the
Supreme Court may approve from time to time.
(Emphasis supplied)
Our policy in favor of party autonomy in resolving disputes has
been reflected in our laws as early as 1949 when our Civil Code was
approved. 77 Republic Act No. 876 78 later explicitly recognized the
validity and enforceability of parties' decision to submit disputes and
related issues to arbitration. 79
Arbitration agreements are liberally construed in favor of
proceeding to arbitration. 80 We adopt the interpretation that would
render effective an arbitration clause if the terms of the agreement allow
for such interpretation. 81 In LM Power Engineering Corporation v.
Capitol Industrial Construction Groups, Inc., 82 this court said: TIADCc
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. 83
This manner of interpreting arbitration clauses is made explicit in
Section 25 of Republic Act No. 9285:
SEC. 25. Interpretation of the Act. — In interpreting the
Act, the court shall have due regard to the policy of the
law in favor of arbitration. Where action is commenced
by or against multiple parties, one or more of whom are
parties to an arbitration agreement, the court shall refer
to arbitration those parties who are bound by the
arbitration agreement although the civil action may
continue as to those who are not bound by such
arbitration agreement.
Hence, we resolve the issue of whether DMCI-PDI may compel
BCDA and Northrail to submit to arbitration proceedings in light of the
policy in favor of arbitration.
BCDA and Northrail assail DMCI-PDI's right to compel them to
submit to arbitration based on the assumption that DMCI-PDI was not a
party to the agreement containing the arbitration clause.
Three documents — (a) Joint Venture Agreement, (b) amended
Joint Venture Agreement, and (c) Memorandum of Agreement —
represent the agreement between BCDA, Northrail, and D.M. Consunji,
Inc. Among the three documents, only the Joint Venture Agreement
contains the arbitration clause. DMCI-PDI was allegedly not a party to
the Joint Venture Agreement.
To determine the coverage of the arbitration clause, the relation
among the three documents and DMCI-PDI's involvement in the
execution of these documents must first be understood.
The Joint Venture Agreement was executed by BCDA, PNR, and
some foreign corporations. 84 The purpose of the Joint Venture
Agreement was for the construction of a railroad system from Manila to
Clark with a possible extension to Subic Bay and later to San Fernando,
La Union, Laoag, Ilocos Norte, and San Jose, Nueva Ejica. 85 Under the
Joint Venture Agreement, BCDA agreed to incorporate Northrail, which
shall have an authorized capital stock of P5.5 billion. 86 The parties
agreed that BCDA/PNR shall have a 30% equity with Northrail. 87 Other
Filipino partners shall have a total of 50% equity, while foreign partners
shall have at most 20% equity. 88 Pertinent provisions of the Joint
Venture Agreement are as follows:
JOINT VENTURE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Joint Venture Agreement (JVA) made and
executed at Makati, Metro Manila, this __ day of June
1995 by and between:
The BASES CONVERSION DEVELOPMENT
AUTHORITY . . . hereinafter referred to as BASECON;
The PHILIPPINE NATIONAL RAILWAYS . . .;
The following corporations collectively referred to as
the Foreign Group:
a) CONSTRUCCIONES Y AUXILIAR
FERROCARRILES, S.A. . . .;
b) ENTRECANALES Y TAVORA, SA . . .;
c) CUBIERTAS MZOV, S.A. . . .;
d) COBRA, S.A. . . . ; and
e) Others who may later participate in the JVA.
- and -
EUROMA DEVELOPMENT CORPORATION . . .
WITNESSETH:
xxx xxx xxx
WHEREAS, a project identified pursuant to the
aforesaid policy is the establishment of a Premier
International Airport Complex located at the former Clark
Air Base as expressed in Executive Order 174 s. 1994 in
order to accommodate the expected heavy flow of
passenger and cargo traffic to and from the Philippines,
to start the development of the Northern Luzon Grid and
to accelerate the development of Central Luzon and
finally to decongest Metro Manila of its vehicular
traffic; AIDSTE
xxx xxx xxx
WHEREAS, in order to implement and provide
such a mass transit and access system, the parties
hereto agreed to construct a double-trac[k] railway
system from Manila to Clark with a possible extension to
Subic Bay and later to San Fernando, La Union, as the
second phase, and finally to Laoag, Ilocos Norte and to
San Jose, Nueva Ecija, as the third phase of the project,
hereinafter referred to as the PROJECT;
xxx xxx xxx
ARTICLE I
DEFINITION OF TERMS
xxx xxx xxx
1.5 "PROJECT" means the construction,
operation and management of a double-
track railway system from Manila to Clark
with an extension to Subic Bay, and a
possible extension to San Fernando, La
Union, as the second phase, and finally to
DE
Laoag, Ilocos Norte and to San Jose,
Nueva Ecija, as the third phase of the
PROJECT.
1.6 "North Luzon Railways Corporation
(NORTHRAIL)["] means the joint venture
corporation to be established in
accordance with Article II hereof.
xxx xxx xxx
ARTICLE II
THE NORTH LUZON RAILROAD CORPORATION
2.1 BASECON shall establish and incorporate in
accordance with the laws of the Republic
of the Philippines a corporation to be
known as NORTH LUZON RAILWAYS
CORPORATION (NORTHRAIL) with an
initial capitalization of one hundred million
pesos (P100,000,000.00).
2.2 NORTHRAIL shall eventually have an
authorized capital stock of FIVE BILLION
FIVE HUNDRED MILLION PESOS (P5.5
Billion) divided into 55,000,000 shares
with par value of P100 per share.
xxx xxx xxx
ARTICLE III
PURPOSE OF NORTHRAIL
A. PRIMARY PURPOSE
3.1 To construct, operate and manage a railroad
system to serve Northern and Central
Luzon; and to develop, construct, manage,
own, lease; sublease and operate
 establishments and facilities of all kinds
related to the railroad system;
xxx xxx xxx
ARTICLE IV
PARTICIPATION/TRANSFER/ENCUMBRANCE OF
SHARES
4.1 NORTHRAIL shall increase its authorized
capital stock upon the subscription
thereon by the parties to this JVA in
accordance with the following equity
proportion/participation:
Foreign Group up to 20%
Euroma/Filipino partners 50%
BASECON/PNR 30%
 
xxx xxx xxx
4.4 The shares owned by Filipino stockholders
including BASECON, PNR, EUROMA
Development Corporation and hereinafter
to be owned by Filipino corporations shall
not be less than sixty percent (60%) at any
given time. AaCTcI
xxx xxx xxx
ARTICLE XVI
ARBITRATION
16. If any dispute arise hereunder which cannot be
settled by mutual accord between the
parties to such dispute, then that dispute
shall be referred to arbitration. The
arbitration shall be held in whichever place
the parties to the dispute decide and
failing mutual agreement as to a location
within twenty-one (21) days after the
occurrence of the dispute, shall be held in
Metro Manila and shall be conducted in
accordance with the Philippine Arbitration
Law (Republic Act No. 876) as
supplemented by the Rules of Conciliation
and Arbitration of the International
Chamber of Commerce. All award of such
arbitration shall be final and binding upon
the parties to the dispute.
ARTICLE XVII
ASSIGNMENT
17.1 No party to this Agreement may assign,
transfer or convey this Agreement, create
or incur any encumbrance of its rights or
any part of its rights and obligations
hereunder or any shares of stocks of
NORTHRAIL to any person, firm or
corporation without the prior written
consent of the other parties or except as
provided in the Articles of Incorporation
and By-Laws of NORTHRAIL and this
Agreement.
17.2 This Agreement shall inure to the benefit of
and be binding upon the parties hereto
and their respective successors and
permitted assignees and designees or
nominees whenever possible. 89
The Joint Venture Agreement was amended on February 8,
1996 90 to include D.M. Consunji, Inc. and/or its nominee as
party. 91 The participations of the parties in Northrail were also
modified. 92 Pertinent provisions of the amended Joint Venture
Agreement are reproduced as follows:
This Amendment to the Joint Venture Agreement dated
10th of June 1995 (the Agreement) made and executed
at ______________, Metro Manila, on this 8th day of
February 1996 by and among:
BASES CONVERSION
DEVELOPMENT AUTHORITY . . .
hereinafter referred to as BASECON;
with
PHILIPPINE NATIONAL
RAILWAYS . . .
and
The following corporations collectively referred to as
the FOREIGN GROUP:
 CONSTRUCCIONES Y AUXILIAR DE
FERROCARRILES, S.A. . . .;
ENTRECANALES Y TAVORA,
S.A. . . .;
CUBIERTAS Y MZOV, S.A. . . .;
COBRA INSTALACIONES Y stock, which should not be less than sixty
SERVICIOS, S.A. . . .; and
Other investors who may later participate in the Joint
Venture;
and
Other local investors to be represented by EUROMA
DEVELOPMENT CORPORATION . . .
and
D.M. CONSUNJI, INC. and/or its nominee . . .
WITNESSETH THAT
WHEREAS, a Joint Venture Agreement (JVA) was
executed on the 10th of June 1995 between BASECON,
PNR, FOREIGN GROUP, and EUROMA;
xxx xxx xxx
NOW, THEREFORE, for and in consideration of the
foregoing premises and of the mutual covenant
contained therein, THE PARTIES HEREBY AGREE that
the JVA should be amended as follows: EcTCAD
1. In Article 1.3, D.M. CONSUNJI, INC. shall be
included as strategic partner, being one of
the Philippine registered companies
selected by BASECON, PNR and the
Lead Group on the basis of its
qualifications for the implementation of the
Project.
2. Article 4.1 should read as follows:
 "NORTHRAIL shall increase its authorized capital
stock upon the subscription thereon by the
Parties to this JVA in accordance with the
following equity proportion/participation:
SRG up to 10%
DMCI 20%
BASECON/PNR up to 30%
Others 40%
 
3. In Article 4.4, the Filipino corporations whose
total shares in NORTHRAIL's capital
percent (60%) at any given time, shall
include D.M. CONSUNJI,
INC. 93 (Underscoring supplied)
On February 8, 1996, the same date of the execution of the
amended Joint Venture Agreement, the same parties executed a
Memorandum of Agreement 94 "to set up the mechanics for raising the
seed capitalization needed by NORTHRAIL[.]" 95 Pertinent provisions of
the Memorandum of Agreement are reproduced as follows:
WITNESSETH THAT
WHEREAS, the Manila — Clark Rapid Railway System
Project, hereinafter referred to as the Project, was
identified as one of the major infrastructure projects to
accelerate the development of Central Luzon,
particularly the former U.S. bases at Clark and Subic;
xxx xxx xxx
WHEREAS, the North Luzon Railways Corporation
(NORTHRAIL) was organized and incorporated to
implement the development, construction, operation and
maintenance of the railway system in Northern Luzon;
WHEREAS, NORTHRAIL is wholly owned and
controlled by BASECON;
WHEREAS, the privatization of NORTHRAIL is
necessary in order to accelerate the implementation of
the Project by tapping the financial resources and
expertise of the private sector;
xxx xxx xxx
WHEREAS, the Parties of the Joint Venture Agreement
(JVA) of 10 June 1995, namely BASECON, PNR,
SPANISH RAILWAY GROUP and EUROMA, agreed to
invite other private investors to help in the financing and
implementation of the Project, and to raise the required
equity in order to accelerate the privatization of
NORTHRAIL;
WHEREAS, DMCI and other private investors . . . have be converted to equity when NORTHRAIL
manifested their desire to be strategic partners in is privatized. 96
implementing the Project;
There is no rule that a contract should be contained in a single
WHEREAS, DMCI and other private investors have the document. 97 A whole contract may be contained in several documents
financial capability to implement the Project; that are consistent with one other. 98
WHEREAS, Phase I of the Project covers the Manila — Moreover, at any time during the lifetime of an agreement,
Clark section of the North Luzon railway network as circumstances may arise that may cause the parties to change or add to
defined by the JVA of 10 June 1995 . . .[;] the terms they previously agreed upon. Thus, amendments or
supplements to the agreement may be executed by contracting parties to
xxx xxx xxx
address the circumstances or issues that arise while a contract subsists.
ARTICLE I
When an agreement is amended, some provisions are changed.
PURPOSE Certain parts or provisions may be added, removed, or corrected. These
changes may cause effects that are inconsistent with the wordings of the
1.1 Purpose. This Agreement is entered into by contract before the changes were applied. In that case, the old provisions
the Parties in order to set up the shall be deemed to have lost their force and effect, while the changes
mechanics for raising the seed shall be deemed to have taken effect. Provisions that are not affected by
capitalization needed by NORTHRAIL to the changes usually remain effective.
accelerate the implementation of the
Project. When a contract is supplemented, new provisions that are not
inconsistent with the old provisions are added. The nature, scope, and
xxx xxx xxx terms and conditions are expanded. In that case, the old and the new
ARTICLE II provisions form part of the contract.
TERMS OF AGREEMENT A reading of all the documents of agreement shows that they
were executed by the same parties. Initially, the Joint Venture Agreement
2.1 The Parties agree to put up the necessary was executed only by BCDA, PNR, and the foreign corporations. When
seed capitalization needed by the Joint Venture Agreement was amended to include D.M. Consunji,
NORTHRAIL to fast-track the Inc. and/or its nominee, D.M. Consunji, Inc. and/or its nominee were
implementation of the Rapid Rail Transit deemed to have been also a party to the original Joint Venture
System Project according to the following Agreement executed by BCDA, PNR, and the foreign corporations. D.M.
schedule: HSAcaE Consunji, Inc. and/or its nominee became bound to the terms of both the
BCDA/PNR PHP300 Million Joint Venture Agreement and its amendment.
DMCI PHP200 Million Moreover, each document was executed to achieve the single
SRG PHP100 Million purpose of implementing the railroad project, such that documents of
agreement succeeding the original Joint Venture Agreement merely
  –––––––––––––– amended or supplemented the provisions of the original Joint Venture
TOTAL PHP600 Million Agreement.
  ============= The first agreement — the Joint Venture Agreement — defined
  the project, its purposes, the parties, the parties' equity participation, and
their responsibilities. The second agreement — the amended Joint
xxx xxx xxx Venture Agreement — only changed the equity participation of the
parties and included D.M. Consunji, Inc. and/or its nominee as party to
2.3 The amounts contributed by BCDA/PNR,
the railroad project. The third agreement — the Memorandum of
DMCI, SRG, and others are committed to
Agreement — raised the seed capitalization of Northrail from P100
million as indicated in the first agreement to P600 million, in order to
accelerate the implementation of the same project defined in the first designees or nominees whenever
agreement. applicable. 102 (Emphasis supplied)
The Memorandum of Agreement is an implementation of the The principal parties to the agreement after its amendment
Joint Venture Agreement and the amended Joint Venture Agreement. It include D.M. Consunji, Inc. and/or its nominee:
could not exist without referring to the provisions of the original and
AMENDMENT TO THE JOINT VENTURE
amended Joint Venture Agreements. It assumes a prior knowledge of its
AGREEMENT
terms. Thus, it referred to "North Luzon railway network as defined by the
JVA of 10 June 1995[.]" 99 This Amendment to the Joint Venture Agreement dated
10th of June 1995 (the Agreement) made and executed
In other words, each document of agreement represents a step
at ______________, Metro Manila, on this 8th day of
toward the implementation of the project, such that the three agreements
February 1996 by and among:
must be read together for a complete understanding of the parties' whole
agreement. The Joint Venture Agreement, the amended Joint Venture BASES CONVERSION DEVELOPMENT AUTHORITY .
Agreement, and the Memorandum of Agreement should be treated as ..
one contract because they all form part of a whole agreement. HESIcT
with
Hence, the arbitration clause in the Joint Venture Agreement
PHILIPPINE NATIONAL RAILWAYS . . .
should not be interpreted as applicable only to the Joint Venture
Agreement's original parties. The succeeding agreements are deemed and
part of or a continuation of the Joint Venture Agreement. The arbitration
clause should extend to all the agreements and its parties since it is still xxx xxx xxx
consistent with all the terms and conditions of the amendments and D.M. CONSUNJI, INC. and/or its nominee, a domestic
supplements. corporation duly organized and created pursuant to the
II laws of the Republic of the
Philippines . . . 103 (Emphasis supplied)
BCDA and Northrail argued that they did not consent to D.M.
Consunji, Inc.'s assignment of rights to DMCI-PDI. Therefore, DMCI-PDI MEMORANDUM OF AGREEMENT
did not validly become a party to any of the agreement. Section 17.1 of This Agreement made and executed at Pasig, Metro
the Joint Venture Agreement provides that rights under the agreement Manila, Philippines on this 8[th] day of February 1996 by
may not be assigned, transferred, or conveyed without the consent of the and among:
other party. 100 Thus:
BASES CONVERSION DEVELOPMENT AUTHORITY .
17.1 No party to this Agreement may assign, transfer or ..
convey this Agreement, create or incur any
encumbrance of its rights or any part of its rights with
and obligations hereunder or any shares of stocks PHILIPPINE NATIONAL RAILWAYS . . .
of NORTHRAIL to any person, firm or corporation
without the prior written consent of the other and
parties or except as provided in the Articles of D.M. CONSUNJI, INC. and/or its nominee, a domestic
Incorporation and By-Laws of NORTHRAIL and corporation duly organized and created pursuant to the
the Agreement. 101 laws of the Republic of the
However, Section 17.2 of the Joint Venture Agreement provides Philippines . . . 104 (Emphasis supplied)
that the agreement shall be binding on nominees: Based on DMCI-PDI's letter to BCDA and Northrail dated April 4,
17.2 This Agreement shall inure to the benefit of and be 1997, D.M. Consunji, Inc. designated DMCI-PDI as its nominee for the
binding upon the parties . . . and their respective agreements it entered into in relation to the project: caITAC
successors and permitted assignees and
 [I]n order to formalize the inclusion of [DMCI Project
Developers, Inc.] as a party to the JVA and MOA, DMCI
would like to notify all the parties that it is designating
PDI as its nominee in both agreements and such other
agreements that may be signed by the parties in
furtherance of or in connection with the PROJECT. By
this nomination, all the rights, obligations, warranties and
commitments of DMCI under the JVA and MOA shall
henceforth be assumed performed and delivered by
PDI. 105 (Emphasis supplied)
Thus, lack of consent to the assignment is irrelevant because
there was no assignment or transfer of rights to DMCI-PDI. DMCI-PDI
was D.M. Consunji, Inc.'s nominee.
Section 17.2 of the Joint Venture Agreement clearly shows an
intent to treat assignment and nomination differently.
17.2 This Agreement shall inure to the benefit of and be
binding upon the parties . . . and their respective
successors and permitted assignees and
designees or nominees whenever
applicable. 106 (Emphasis supplied)
Assignment involves the transfer of rights after the perfection of
a contract. Nomination pertains to the act of naming the party with whom
it has a relationship of trust or agency.
In Philippine Coconut Producers Federation, Inc. (COCOFED) v.
Republic, 107 this court defined "nominee" as follows:
In its most common signification, the
term "nominee" refers to one who is designated to act for
another usually in a limited way; a person in whose
name a stock or bond certificate is registered but who is
not the actual owner thereof is considered a
nominee." Corpus Juris Secundum describes a nominee
as one:
". . . designated to act for
another as his representative in a rather
limited sense. It has no connotation,
however, other than that of acting for
another, in representation of another or
as the grantee of another. In its
commonly accepted meaning the term
connoted the delegation of authority to
the nominee in a representative or
nominal capacity only, and does not
connote the transfer or assignment to
the nominee of any property in, or
ownership of, the rights of the person
nominating him." 108 (Citations omitted)
Contrary to BCDA and Northrail's position, therefore, the
agreement's prohibition against transfers, conveyance, and assignment
of rights without the consent of the other party does not apply to
nomination.
DMCI-PDI is a party to all the agreements, including the
arbitration agreement. It may, thus, invoke the arbitration clause against
all the parties.
III
Northrail, although not a signatory to the contracts, is also bound
by the arbitration agreement.
In Lanuza v. BF Corporation, 109 we recognized that there are
instances when non-signatories to a contract may be compelled to
submit to arbitration. 110 Among those instances is when a non-
signatory is allowed to invoke rights or obligations based on the
contract. 111 ICHDca
The subject of BCDA and D.M. Consunji, Inc.'s agreement was
the construction and operation of a railroad system. Northrail was
established pursuant to this agreement and its terms, and for the same
purpose, thus:
ARTICLE III
PURPOSE OF NORTHRAIL
A. PRIMARY PURPOSE
3.1. To construct, operate and manage a railroad system
to serve Northern and Central Luzon; and to
develop, construct, manage, own, lease, sublease
and operate establishments and facilities of all
kinds related to the railroad system[.] 112
Northrail's capitalization and the composition of its subscribers
are also subject to the provisions of the original and amended Joint
Venture Agreements, and the subsequent Memorandum of Agreement. It
was pursuant to the terms of these agreements that Northrail demanded
from D.M. Consunji, Inc. the infusion of its share in subscription.
Therefore, Northrail cannot deny understanding that its
existence, purpose, rights, and obligations are tied to the agreements.
When Northrail demanded for the amount of D.M. Consunji, Inc.'s
subscription based on the agreements and later accepted the latter's
funds, it proved that it was bound by the agreements' terms. It is also
deemed to have accepted the term that such funds shall be used for its
privatization. It cannot choose to demand the enforcement of some of its
provisions if it is in its favor, and then later by whim, deny being bound by
its terms.
Hence, when BCDA and Northrail decided not to proceed with
Northrail's privatization and the transfer of subscriptions to D.M.
Consunji, Inc., any obligation to return its supposed subscription attached
not only to BCDA as party to the agreement but primarily to Northrail as
beneficiary that impliedly accepted the terms of the agreement and
received D.M. Consunji, Inc.'s funds.
There is, therefore, merit to DMCI-PDI's argument that if the Civil
Code 113 gives third party beneficiaries to a contract the right to demand
the contract's fulfillment in its favor, the reverse should also be
true. 114 A beneficiary who communicated his or her acceptance to the
terms of the agreement before its revocation may be compelled to abide
by the terms of an agreement, including the arbitration clause. In this
case, Northrail is deemed to have communicated its acceptance of the
terms of the agreements when it accepted D.M. Consunji, Inc.'s funds.
Finally, judicial efficiency and economy require a policy to avoid
multiplicity of suits. As we said in Lanuza:
Moreover, in Heirs of Augusto Salas, this court
affirmed its policy against multiplicity of suits and
unnecessary delay. This court said that "to split the
proceeding into arbitration for some parties and trial for
other parties would "result in multiplicity of suits,
duplicitous procedure and unnecessary delay." This
court also intimated that the interest of justice would be
best observed if it adjudicated rights in a single
proceeding. While the facts of that case prompted this
court to direct the trial court to proceed to determine the
issues of that case, it did not prohibit courts from
allowing the case to proceed to arbitration, when
circumstances warrant. 115
WHEREFORE, the petitions are DENIED. The February 9, 2006
Regional Trial Court Decision and the June 9, 2006 Regional Trial Court
Order are AFFIRMED.
SO ORDERED.
 SECOND DIVISION
[G.R. No. 204197. November 23, 2016.]
FRUEHAUF ELECTRONICS PHILIPPINES
CORPORATION, petitioner, vs. TECHNOLOGY
ELECTRONICS ASSEMBLY AND MANAGEMENT
PACIFIC CORPORATION, respondent.
DECISION
BRION, J  p:
The fundamental importance of this case lies in its delineation of
the extent of permissible judicial review over arbitral awards. We make
this determination from the prism of our existing laws on the subject and
the prevailing state policy to uphold the autonomy of arbitration
proceedings. HTcADC
This is a petition for review on certiorari of the Court of
Appeals' (CA) decision in CA-G.R. SP. No. 112384 that reversed an
arbitral award and dismissed the arbitral complaint for lack of
merit. 1 The CA breached the bounds of its jurisdiction when it reviewed
the substance of the arbitral award outside of the permitted grounds
under the Arbitration Law. 2
Brief Factual Antecedents
In 1978, Fruehauf Electronics Philippines
Corp. (Fruehauf) leased several parcels of land in Pasig City to Signetics
Filipinas Corporation (Signetics) for a period of 25 years (until May 28,
2003). Signetics constructed a semiconductor assembly factory on the
land on its own account.
In 1983, Signetics ceased its operations after the Board of
Investments (BOI) withdrew the investment incentives granted to
electronic industries based in Metro Manila.
In 1986, Team Holdings Limited (THL) bought Signetics. THL
later changed its name to Technology Electronics Assembly and
Management Pacific Corp. (TEAM).
In March 1987, Fruehauf filed an unlawful detainer case against
TEAM. In an effort to amicably settle the dispute, both parties executed a
Memorandum of Agreement (MOA) on June 9, 1988. 3 Under the MOA,
TEAM undertook to pay Fruehauf 14.7 million pesos as unpaid rent (for
the period of December 1986 to June 1988). aScITE
They also entered a 15-year lease contract 4 (expiring on June
9, 2003) that was renewable for another 25 years upon mutual
agreement. The contract included an arbitration agreement: 5
17. ARBITRATION
In the event of any dispute or disagreement
between the parties hereto involving the interpretation or
implementation of any provision of this Contract of
Lease, the dispute or disagreement shall be referred to
arbitration by a three (3) member arbitration committee,
one member to be appointed by the LESSOR, another
member to be appointed by the LESSEE, and the third
member to be appointed by these two members. The
arbitration shall be conducted in accordance with the
Arbitration Law (R.A. No. 876).
The contract also authorized TEAM to sublease the property.
TEAM subleased the property to Capitol Publishing House (Capitol) on
December 2, 1996 after notifying Fruehauf.
On May 2003, TEAM informed Fruehauf that it would not be
renewing the lease. 6
On May 31, 2003, the sublease between TEAM and Capitol
expired. However, Capitol only vacated the premises on March 5, 2005.
In the meantime, the master lease between TEAM and Fruehauf expired
on June 9, 2003.
On March 9, 2004, Fruehauf instituted SP Proc. No.
11449 before the Regional Trial Court (RTC) for "Submission of an
Existing Controversy for Arbitration." 7 It alleged: (1) that when the lease
expired, the property suffered from damage that required extensive
renovation; (2) that when the lease expired, TEAM failed to turn over the
premises and pay rent; and (3) that TEAM did not restore the property to
its original condition as required in the contract. Accordingly, the parties
are obliged to submit the dispute to arbitration pursuant to the stipulation
in the lease contract.
The RTC granted the petition and directed the parties to comply
with the arbitration clause of the contract. 8
 Pursuant to the arbitration agreement, the dispute was referred
to a three-member arbitration tribunal. TEAM and Fruehauf appointed
one member each while the Chairman was appointed by the first two
members. The tribunal was formally constituted on September 27, 2004
with retired CA Justice Hector L. Hofileña, as chairman, retired CA
Justice Mariano M. Umali and Atty. Maria Clara B. Tankeh-Asuncion as
members. 9 HEITAD
The parties initially submitted the following issues to the tribunal
for resolution: 10
1. Whether or not TEAM had complied with its obligation to
return the leased premises to Fruehauf after the
expiration of the lease on June 9, 2003.
1.1. What properties should be returned and in what
condition?
2. Is TEAM liable for payment of rentals after June 9, 2003?
2.1. If so, how much and for what period?
3. Is TEAM liable for payment of real estate taxes, insurance,
and other expenses on the leased premises after June 9,
2003?
4. Who is liable for payment of damages and how much?
5. Who is liable for payment of attorney's fees and how much?
Subsequently, the following issues were also submitted for
resolution after TEAM proposed 11 their inclusion:
1. Who is liable for the expenses of arbitration, including
arbitration fees?
2. Whether or not TEAM has the obligation to return the
premises to Fruehauf as a "complete, rentable, and fully
facilitized electronic plant." ATICcS
The Arbitral Award 12
On December 3, 2008, the arbitral tribunal awarded Fruehauf:
(1) 8.2 million pesos as (the balance of) unpaid rent from June 9, 2003
until March 5, 2005; and (2) 46.8 million pesos as damages. 13
The tribunal found that Fruehauf made several demands for the
return of the leased premises before and after the expiration of the
lease 14 and that there was no express or implied renewal of the lease
after June 9, 2003. It recognized that the sub-lessor, Capitol, remained in
possession of the lease. However, relying on the commentaries of Arturo
Tolentino on the subject, the tribunal held that it was not enough for
lessor to simply vacate the leased property; it is necessary that he place
the thing at the disposal of the lessor, so that the latter can receive it
without any obstacle. 15
For failing to return the property to Fruehauf, TEAM remained
liable for the payment of rents. However, if it can prove that Fruehauf
received rentals from Capitol, TEAM can deduct these from its
liability. 16 Nevertheless, the award of rent and damages was without
prejudice to TEAM's right to seek redress from its sub-lessee, Capitol. 17
With respect to the improvements on the land, the tribunal
viewed the situation from two perspectives:
First, while the Contract admitted that Fruehauf was only leasing
the land and not the buildings and improvements thereon, it nevertheless
obliged TEAM to deliver the buildings, installations and other
improvements existing at the inception of the lease upon its
expiration. 18
The other view, is that the MOA and the Contract recognized that
TEAM owned the existing improvements on the property and considered
them as separate from the land for the initial 15-year term of the
lease. 19 However, Fruehauf had a vested right to become the owner of
these improvements at the end of the 15-year term. Consequently, the
contract specifically obligated TEAM not to remove, transfer, destroy, or
in any way alienate or encumber these improvements without prior
written consent from Fruehauf. 20 TIADCc
Either way, TEAM had the obligation to deliver the existing
improvements on the land upon the expiration of the lease. However,
there was no obligation under the lease to return the premises as a
"complete, rentable, and fully facilitized electronics plant." 21 Thus,
TEAM's obligation was to vacate the leased property and deliver to
Fruehauf the buildings, improvements, and installations (including the
machineries and equipment existing thereon) in the same condition as
when the lease commenced, save for what had been lost or impaired by
the lapse of time, ordinary wear and tear, or any other inevitable
cause. 22
The tribunal found TEAM negligent in the maintenance of the
premises, machineries, and equipment it was obliged to deliver to
Fruehauf. 23 For this failure to conduct the necessary repairs or to notify
Fruehauf of their necessity, the tribunal held TEAM accountable for
damages representing the value of the repairs necessary to restore the
premises to a condition "suitable for the use to which it has been
devoted" less their depreciation expense. 24
On the other issues, the tribunal held that TEAM had no
obligation to pay real estate taxes, insurance, and other expenses on the
leased premises considering these obligations can only arise from a
renewal of the contract. 25 Further, the tribunal refused to award
attorney's fees, finding no evidence that either party acted in bad
faith. 26 For the same reason, it held both parties equally liable for the
expenses of litigation, including the arbitrators' fees. 27 cSEDTC
 TEAM moved for reconsideration 28 which the tribunal
denied. 29 Thus, TEAM petitioned the RTC to partially vacate or modify
the arbitral award. 30 It argued that the tribunal failed to properly
appreciate the facts and the terms of the lease contract.
The RTC Ruling
On April 29, 2009, the RTC 31 found insufficient legal
grounds under Sections 24 and 25 of the Arbitration Law to modify or
vacate the award. 32 It denied the petition and CONFIRMED the arbitral
award. 33 TEAM filed a Notice of Appeal.
On July 3, 2009, 34 the RTC refused to give due course to the
Notice of Appeal because according to Section 29 35 of the Arbitration
Law, an ordinary appeal under Rule 41 is not the proper mode of appeal
against an order confirming an arbitral award. 36 AIDSTE
TEAM moved for reconsideration but the RTC denied the motion
on November 15, 2009. 37 Thus, TEAM filed a petition
for certiorari 38 before the CA arguing that the RTC gravely abused its
discretion in: (1) denying due course to its notice of appeal; and (2)
denying the motion to partially vacate and/or modify the arbitral
award. 39
TEAM argued that an ordinary appeal under Rule 41 was the
proper remedy against the RTC's order confirming, modifying, correcting,
or vacating an arbitral award. 40 It argued that Rule 42 was not available
because the order denying its motion to vacate was not rendered in the
exercise of the RTC's appellate jurisdiction. Further, Rule 43 only applies
to decisions of quasi-judicial bodies. Finally, an appeal under Rule 45 to
the Supreme Court would preclude it from raising questions of fact or
mixed questions of fact and law. 41
TEAM maintained that it was appealing the RTC's order denying
its petition to partially vacate/modify the award, not the arbitral award
itself. 42 Citing Rule 41, Section 13 of the Rules of Court, the RTC's
authority to dismiss the appeal is limited to instances when it was filed
out of time or when the appellant fails to pay the docket fees within the
reglementary period. 43
TEAM further maintained that the RTC gravely abused its
discretion by confirming the Arbitral Tribunal's award when it evidently
had legal and factual errors, miscalculations, and ambiguities. 44
The petition was docketed as CA-G.R. SP. No. 112384.
The CA decision 45
The CA initially dismissed the petition. 46 As the RTC did, it cited
Section 29 of the Arbitration Law:
Section 29. Appeals. — An appeal may be taken from
an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari
proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such appeal,
including the judgment thereon shall be governed by the
Rules of Court in so far as they are applicable.
It concluded that the appeal contemplated under the law is an
appeal by certiorari limited only to questions of law. 47
The CA continued that TEAM failed to substantiate its claim as to
the "evident miscalculation of figures." It further held that disagreement
with the arbitrators' factual determinations and legal conclusions does not
empower courts to amend or overrule arbitral judgments. 48 AaCTcI
However, the CA amended its decision on October 25, 2012
upon a motion for reconsideration. 49
The CA held that Section 29 of the Arbitration Law does not
preclude the aggrieved party from resorting to other judicial
remedies. 50 Citing Asset Privatization Trust v. Court of Appeals, 51 the
CA held that the aggrieved party may resort to a petition
for certiorari when the RTC 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. 52
The CA further held that the mere filing of a notice of appeal is
sufficient as the issues raised in the appeal were not purely questions of
law. 53 It further cited Section 46 of the Alternative Dispute
Resolution (ADR) Law: 54
SEC. 46. Appeal from Court Decisions on 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 of
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 appellant court to post 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. 55
However, the CA made no further reference to A.M. No. 07-11-
08-SC, the Special Rules of Court on Alternative Dispute
Resolution (Special ADR Rules) which govern the appeal procedure.
 The CA further revisited the merits of the arbitral award and
found several errors in law and in fact. It held: (1) that TEAM was not
obliged to pay rent because it was Capitol, not TEAM, that remained in
possession of the property upon the expiration of the lease; 56 and (2)
that Fruehauf was not entitled to compensation for the repairs on the
buildings because it did not become the owner of the building until after
the expiration of the lease. 57 EcTCAD
Also citing Tolentino, the CA opined: (1) that a statement by the
lessee that he has abandoned the premises should, as a general rule,
constitute sufficient compliance with his duty to return the leased
premises; and (2) that any new arrangement made by the lessor with
another person, such as the sub-lessor, operates as a resumption of his
possession. 58
On the issue of damages, the CA held that TEAM can never be
liable for the damages for the repairs of the improvements on the
premises because they were owned by TEAM itself (through its
predecessor, Signetics) when the lease commenced. 59
The CA REVERSED AND SET ASIDE the arbitral award
and DISMISSED the arbitral complaint for lack of merit. 60
This CA action prompted Fruehauf to file the present petition for
review.
The Arguments
Fruehauf argues that courts do not have the power to substitute
their judgment for that of the arbitrators. 61 It also insists that an ordinary
appeal is not the proper remedy against an RTC's order confirming,
vacating, correcting or modifying an arbitral award but a petition for
review on certiorari under Rule 45. 62
Furthermore, TEAM's petition before the CA went beyond the
permissible scope of certiorari — the existence of grave abuse of
discretion or errors jurisdiction — by including questions of fact and law
that challenged the merits of the arbitral award. 63
However, Fruehauf inconsistently argues that the remedies
against an arbitral award are (1) a petition to vacate the award, (2) a
petition for review under Rule 43 raising questions of fact, of law, or
mixed questions of fact and law, or (3) a petition for certiorari under Rule
65. 64 Fruehauf cites an article from the Philippine Dispute Resolution
Center 65 and Insular Savings Bank v. Far East Bank and Trust, Co. 66
TEAM counters that the CA correctly resolved the substantive
issues of the case and that the arbitral tribunal's errors were sufficient
grounds to vacate or modify the award. 67 It insists that the RTC's
misappreciation of the facts from a patently erroneous award warranted
an appeal under Rule 41. 68
TEAM reiterates that it "disagreed with the arbitral award
mainly on questions of fact and not only on questions of law,"
specifically, "on factual matters relating to specific provisions in the
contract on ownership of structures and improvements thereon,
and the improper award of rentals and penalties." 69 Even assuming
that it availed of the wrong mode of appeal, TEAM posits that its appeal
should still have been given due course in the interest of substantial
justice. 70 HESIcT
TEAM assails the inconsistencies of Fruehauf's position as to the
available legal remedies against an arbitral award. 71 However, it
maintains that Section 29 of the Arbitration Law does not foreclose other
legal remedies (aside from an appeal by certiorari) against the RTC's
order confirming or vacating an arbitral award pursuant to Insular
Savings Bank and ABS-CBN Broadcasting Corporation v. World
Interactive Network Systems (WINS) Japan Co., Ltd. 72
The Issues
This case raises the following questions:
1. What are the remedies or the modes of appeal against an
unfavorable arbitral award?
2. What are the available remedies from an RTC decision
confirming, vacating, modifying, or correcting an arbitral
award?
3. Did the arbitral tribunal err in awarding Fruehauf damages for
the repairs of the building and rental fees from the
expiration of the lease?
Our Ruling
The petition is meritorious. caITAC
Arbitration is an alternative mode of dispute resolution outside
of the regular court system. Although adversarial in character,
arbitration is technically not litigation. It is a voluntary process in which
one or more arbitrators — appointed according to the parties' agreement
or according to the applicable rules of the Alternative Dispute
Resolution (ADR) Law — resolve a dispute by rendering an
award. 73 While arbitration carries many advantages over court litigation,
in many ways these advantages also translate into its disadvantages.
Resort to arbitration is voluntary. It requires consent from both
parties in the form of an arbitration clause that pre-existed the
dispute or a subsequent submission agreement. This written
arbitration agreement is an independent and legally enforceable contract
that must be complied with in good faith. By entering into an arbitration
agreement, the parties agree to submit their dispute to an arbitrator (or
tribunal) of their own choosing and be bound by the latter's resolution.
However, this contractual and consensual character means
that the parties cannot implead a third-party in the proceedings even if
the latter's participation is necessary for a complete settlement of the
dispute. The tribunal does not have the power to compel a person to
participate in the arbitration proceedings without that person's consent. It
also has no authority to decide on issues that the parties did not submit
(or agree to submit) for its resolution.
As a purely private mode of dispute resolution, arbitration
proceedings, including the records, the evidence, and the arbitral award,
are confidential 74 unlike court proceedings which are generally public.
This allows the parties to avoid negative publicity and protect their
privacy. Our law highly regards the confidentiality of arbitration
proceedings that it devised a judicial remedy to prevent or prohibit the
unauthorized disclosure of confidential information obtained
therefrom. 75
The contractual nature of arbitral proceedings affords the parties
substantial autonomy over the proceedings. The parties are free to
agree on the procedure to be observed during the proceedings. 76 This
lends considerable flexibility to arbitration proceedings as compared to
court litigation governed by the Rules of Court. ICHDca
The parties likewise appoint the arbitrators based on
agreement. There are no other legal requirements as to the competence
or technical qualifications of an arbitrator. Their only legal qualifications
are: (1) being of legal age; (2) full-enjoyment of their civil rights; and (3)
the ability to read and write. 77 The parties can tailor-fit the tribunal's
composition to the nature of their dispute. Thus, a specialized
dispute can be resolved by experts on the subject.
However, because arbitrators do not necessarily have a
background in law, they cannot be expected to have the legal mastery of
a magistrate. There is a greater risk that an arbitrator might misapply the
law or misappreciate the facts en route to an erroneous decision.
This risk of error is compounded by the absence of an effective
appeal mechanism. The errors of an arbitral tribunal are not subject to
correction by the judiciary. As a private alternative to court
proceedings, arbitration is meant to be an end, not the beginning, of
litigation. 78 Thus, the arbitral award is final and binding on the parties
by reason of their contract — the arbitration agreement. 79
An Arbitral Tribunal does not exercise
quasi-judicial powers
Quasi-judicial or administrative adjudicatory power is the power:
(1) to hear and determine questions of fact to which legislative policy is to
apply, and (2) to decide in accordance with the standards laid down by
the law itself in enforcing and administering the same law. 80 Quasi-
judicial power is only exercised by administrative agencies — legal
organs of the government.
Quasi-judicial bodies can only exercise such powers and
jurisdiction as are expressly or by necessary implication conferred upon
them by their enabling statutes. 81 Like courts, a quasi-judicial body's
jurisdiction over a subject matter is conferred by law and exists
independently from the will of the parties. As government organs
necessary for an effective legal system, a quasi-judicial tribunal's legal
existence continues beyond the resolution of a specific dispute. In other
words, quasi-judicial bodies are creatures of law. TCAScE
As a contractual and consensual body, the arbitral tribunal does
not have any inherent powers over the parties. It has no power to issue
coercive writs or compulsory processes. Thus, there is a need to resort
to the regular courts for interim measures of protection 82 and for the
recognition or enforcement of the arbitral award. 83
The arbitral tribunal acquires jurisdiction over the parties and the
subject matter through stipulation. Upon the rendition of the final award,
the tribunal becomes functus officio and — save for a few
exceptions 84 — ceases to have any further jurisdiction over the
dispute. 85 The tribunal's powers (or in the case of ad hoc tribunals, their
very existence) stem from the obligatory force of the arbitration
agreement and its ancillary stipulations. 86 Simply put, an arbitral
tribunal is a creature of contract.
Deconstructing the view that arbitral
tribunals are quasi-judicial agencies
We are aware of the contrary view expressed by the late Chief
Justice Renato Corona in ABS-CBN Broadcasting Corporation v. World
Interactive Network Systems (WINS) Japan Co., Ltd. 87
The ABS-CBN Case opined that a voluntary arbitrator is a
"quasi-judicial instrumentality" of the government 88 pursuant to Luzon
Development Bank v. Association of Luzon Development Bank
Employees, 89 Sevilla Trading Company v. Semana, 90 Manila Midtown
Hotel v. Borromeo, 91 and Nippon Paint Employees Union-Olalia v.
Court of Appeals. 92 Hence, voluntary arbitrators are included in the
Rule 43 jurisdiction of the Court of Appeals:
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. 93 (emphasis
supplied) cTDaEH
Citing Insular Savings Bank v. Far East Bank and Trust
Co., 94 the ABS-CBN Case pronounced that the losing party in an
arbitration proceeding may avail of three alternative remedies: (1) a
petition to vacate the arbitral award before the RTC; (2) a petition for
review with the CA under Rule 43 of the Rules of Court raising questions
of fact, of law, or of both; and (3) a petition for certiorari under Rule 65
should the arbitrator act beyond its jurisdiction or with grave abuse of
discretion. 95
At first glance, the logic of this position appears to be sound.
However, a critical examination of the supporting authorities would show
that the conclusion is wrong.
First, the pronouncements made in the ABS-CBN Case and in
the Insular Savings Bank Case (which served as the authority for the
ABS-CBN Case) were both obiter dicta.
In the ABS-CBN Case, we sustained the CA's dismissal of the
petition because it was filed as an "alternative petition for review under
Rule 43 or petition for certiorari under Rule 65." 96 We held that it was
an inappropriate mode of appeal because a petition for review and a
petition for certiorari are mutually exclusive and not alternative or
successive.
In the Insular Savings Bank case, the lis mota of the case was
the RTC's jurisdiction over an appeal from an arbitral award. The parties
to the arbitration agreement agreed that the rules of the arbitration
provider 97 — which stipulated that the RTC shall have jurisdiction to
review arbitral awards — will govern the proceedings. 98 The Court
ultimately held that the RTC does not have jurisdiction to review the
merits of the award because legal jurisdiction is conferred by law, not by
mere agreement of the parties. cSaATC
In both cases, the pronouncements as to the remedies against
an arbitral award were unnecessary for their resolution. Therefore, these
are obiter dicta — judicial comments made in passing which are not
essential to the resolution of the case and cannot therefore serve as
precedents. 99
Second, even if we disregard the obiter dicta character of both
pronouncements, a more careful scrutiny deconstructs their legal
authority.
The ABS-CBN Case committed the classic fallacy of
equivocation. It equated the term "voluntary arbitrator" used in Rule 43,
Section 1 and in the cases of Luzon Development Bank v. Association of
Luzon Development Bank Employees, Sevilla Trading Company v.
Semana, Manila Midtown Hotel v. Borromeo, and  Nippon Paint
Employees Union-Olalia v. Court of Appeals with the term
"arbitrator/arbitration tribunal."
The first rule of legal construction, verba legis, requires that,
wherever possible, the words used in the Constitution or in the statute
must be given their ordinary meaning except where technical terms are
employed. 100 Notably, all of the cases cited in the ABS-CBN
Case involved labor disputes.
The term "Voluntary Arbitrator" does not refer to an ordinary
"arbitrator" who voluntarily agreed to resolve a dispute. It is a technical
term with a specific definition under the Labor Code:
Art. 212. Definitions. — xxx
14. "Voluntary Arbitrator" means any person accredited
by the Board as such or any person named or
designated in the Collective Bargaining Agreement by
the parties to act as their Voluntary Arbitrator, or one
chosen with or without the assistance of the National
Conciliation and Mediation Board, pursuant to a
selection procedure agreed upon in the Collective
Bargaining Agreement, or any official that may be
authorized by the Secretary of Labor and Employment to
act as Voluntary Arbitrator upon the written request and
agreement of the parties to a labor dispute. 101
 Voluntary Arbitrators resolve labor disputes and grievances
arising from the interpretation of Collective Bargaining
Agreements. 102 These disputes were specifically excluded from the
coverage of both the Arbitration Law 103 and the ADR Law. 104 cHDAIS
Unlike purely commercial relationships, the relationship between
capital and labor are heavily impressed with public interest. 105 Because
of this, Voluntary Arbitrators authorized to resolve labor disputes have
been clothed with quasi-judicial authority.
On the other hand, commercial relationships covered by our
commercial arbitration laws are purely private and contractual in nature.
Unlike labor relationships, they do not possess the same compelling
state interest that would justify state interference into the autonomy of
contracts. Hence, commercial arbitration is a purely private system of
adjudication facilitated by private citizens instead of government
instrumentalities wielding quasi-judicial powers.
Moreover, judicial or quasi-judicial jurisdiction cannot be
conferred upon a tribunal by the parties alone. The Labor Code itself
confers subject-matter jurisdiction to Voluntary Arbitrators. 106
Notably, the other arbitration body listed in Rule 43 — the
Construction Industry Arbitration Commission (CIAC) — is also a
government agency 107 attached to the Department of Trade and
Industry. 108 Its jurisdiction is likewise conferred by statute. 109 By
contrast, the subject-matter jurisdiction of commercial arbitrators is
stipulated by the parties.
These account for the legal differences between "ordinary" or
"commercial" arbitrators under the Arbitration Law and the ADR Law, and
"voluntary arbitrators" under the Labor Code. The two terms
are not synonymous with each other. Interchanging them with one
another results in the logical fallacy of equivocation — using the same
word with different meanings.
Further, Rule 43, Section 1 enumerates quasi-judicial tribunals
whose decisions are appealable to the CA instead of the RTC. But where
legislation provides for an appeal from decisions of
certain administrative bodies to the CA, it means that such bodies are
co-equal with the RTC in terms of rank and stature, logically placing
them beyond the control of the latter. 110
However, arbitral tribunals and the RTC are not co-equal bodies
because the RTC is authorized to confirm or to vacate (but not reverse)
arbitral awards. 111 If we were to deem arbitrators as included in the
scope of Rule 43, we would effectively place it on equal footing with the
RTC and remove arbitral awards from the scope of RTC review. DHITCc
All things considered, there is no legal authority supporting the
position that commercial arbitrators are quasi-judicial bodies.
What are remedies from a final domestic
arbitral award?
The right to an appeal is neither a natural right nor an
indispensable component of due process; it is a mere statutory privilege
that cannot be invoked in the absence of an enabling statute. Neither the
Arbitration Law nor the ADR Law allows a losing party to appeal from the
arbitral award. The statutory absence of an appeal mechanism reflects
the State's policy of upholding the autonomy of arbitration proceedings
and their corresponding arbitral awards.
This Court recognized this when we enacted the Special Rules
of Court on Alternative Dispute Resolution in 2009: 112
Rule 2.1. General policies. — It is the policy of the State
to actively promote the use of various modes of ADR
and to respect party autonomy or the freedom of the
parties to make their own arrangements in the resolution
of disputes with the greatest cooperation of and the least
intervention from the courts. xxx
The Court shall exercise the power of judicial review as
provided by these Special ADR Rules. Courts shall
intervene only in the cases allowed by law or these
Special ADR Rules. 113
xxx xxx xxx
Rule 19.7. No appeal or certiorari on the merits of an
arbitral award. — An agreement to refer a dispute to
arbitration shall mean that the arbitral award shall be
final and binding. Consequently, a party to an arbitration
is precluded from filing an appeal or a petition
for certiorari questioning the merits of an arbitral
award. 114 (emphasis supplied)
More than a decade earlier in Asset Privatization Trust v.
Court of Appeals, we likewise defended the autonomy of arbitral awards
through our policy of non-intervention on their substantive
merits: cEaSHC
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. Courts are without power to amend or
overrule merely because of disagreement with
matters of law or facts determined by the arbitrators.
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 (d) the arbitrators exceeded their powers, or so imperfectly
commencement, not the end, of litigation. Errors of law executed them, that a mutual, final and definite award
and fact, or an erroneous decision of matters submitted upon the subject matter submitted to them was not
to the judgment of the arbitrators, are insufficient to made. 117
invalidate an award fairly and honestly made. Judicial
The award may also be vacated if an arbitrator who was
review of an arbitration is, thus, more limited than judicial
disqualified to act willfully refrained from disclosing his disqualification to
review of a trial. 115
the parties. 118 Notably, none of these grounds pertain to the
Nonetheless, an arbitral award is not absolute. Rule 19.10 of the correctness of the award but relate to the misconduct of arbitrators.
Special ADR Rules — by referring to Section 24 of the Arbitration Law
The RTC may also set aside the arbitral award based on Article
and Article 34 of the 1985 United Nations Commission on International
34 of the UNCITRAL Model Law. These grounds are reproduced in
Trade Law (UNCITRAL) Model Law — recognizes the very limited
Chapter 4 of the Implementing Rules and Regulations (IRR) of the 2004
exceptions to the autonomy of arbitral awards:
ADR Act:
Rule 19.10. Rule on judicial review on arbitration in
(i) the party making the application furnishes proof that:
the Philippines. — As a general rule, the court can only
(aa) a party to the arbitration agreement was
vacate or set aside the decision of an arbitral tribunal
under some incapacity; or the said
upon a clear showing that the award suffers from any of
agreement is not valid under the law to
the infirmities or grounds for vacating an arbitral
which the parties have subjected it or,
award under Section 24 of Republic Act No. 876 or
failing any indication thereon, under the
under Rule 34 of the Model Law in a domestic
law of the Philippines; or
arbitration, or for setting aside an award in an
(bb) the party making the application was not
international arbitration under Article 34 of the Model
given proper notice of the appointment of
Law, or for such other grounds provided under these
an arbitrator or of the arbitral proceedings
Special Rules.
or was otherwise unable to present his
If the Regional Trial Court is asked to set aside an
case; or
arbitral award in a domestic or international
(cc) the award deals with a dispute not
arbitration on any ground other than those provided
contemplated by or not falling within the
in the Special ADR Rules, the court shall entertain such
terms of the submission to arbitration, or
ground for the setting aside or non-recognition of the
contains decisions on matters beyond the
arbitral award only if the same amounts to a violation
scope of the submission to arbitration,
of public policy.
provided that, if the decisions on matters
The court shall not set aside or vacate the award of
submitted to arbitration can be separated
the arbitral tribunal merely on the ground that the
from those not so submitted, only the part
arbitral tribunal committed errors of fact, or of law,
of the award which contains decisions on
or of fact and law, as the court cannot substitute its
matters not submitted to arbitration may
judgment for that of the arbitral tribunal. 116
be set aside; or SaCIDT
The grounds for vacating a domestic arbitral award under (dd) the composition of the arbitral tribunal or the
Section 24 of the Arbitration Law contemplate the following scenarios: arbitral procedure was not in accordance
with the agreement of the parties, unless
(a) when the award is procured by corruption, fraud, or other
such agreement was in conflict with a
undue means; or
provision of ADR Act from which the
(b) there was evident partiality or corruption in the arbitrators or
parties cannot derogate, or, failing such
any of them; or
agreement, was not in accordance with
(c) the arbitrators were guilty of misconduct that materially
ADR Act; or
prejudiced the rights of any party; or CTIEac
(ii) The Court finds that:
 (aa) the subject-matter of the dispute is not
capable of settlement by arbitration
under the law of the Philippines; or
(bb) the award is in conflict with the public
policy of the Philippines. 119
Chapter 4 of the IRR of the ADR Act applies particularly to
International Commercial Arbitration. However, the abovementioned
grounds taken from the UNCITRAL Model Law are specifically made
applicable to domestic arbitration by the Special ADR Rules. 120
Notably, these grounds are not concerned with the correctness
of the award; they go into the validity of the arbitration agreement or the
regularity of the arbitration proceedings.
These grounds for vacating an arbitral award are exclusive.
Under the ADR Law, courts are obliged to disregard any other grounds
invoked to set aside an award:
SEC. 41. Vacation Award. — A party to a domestic
arbitration may question the arbitral award with the
appropriate regional trial court in accordance with the
rules of procedure to be promulgated by the Supreme
Court only on those grounds enumerated in Section 25
of Republic Act No. 876. Any other ground raised
against a domestic arbitral award shall be
disregarded by the regional trial court. 121
Consequently, the winning party can generally expect the
enforcement of the award. This is a stricter rule that makes Article
2044 122 of the Civil Code regarding the finality of an arbitral award
redundant. cHECAS
As established earlier, an arbitral award is not appealable via
Rule 43 because: (1) there is no statutory basis for an appeal from the
final award of arbitrators; (2) arbitrators are not quasi-judicial bodies; and
(3) the Special ADR Rules specifically prohibit the filing of an appeal to
question the merits of an arbitral award.
The Special ADR Rules allow the RTC to correct or modify an
arbitral award pursuant to Section 25 of the Arbitration Law. However,
this authority cannot be interpreted as jurisdiction to review the merits of
the award. The RTC can modify or correct the award only in the following
cases:
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;
b. Where the arbitrators have awarded upon a matter not
submitted to them, not affecting the merits of the
decision upon the matter submitted;
c. Where the arbitrators have omitted to resolve an issue
submitted to them for resolution; or
d. 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. 123
A losing party is likewise precluded from resorting
to certiorari under Rule 65 of the Rules of Court. 124 Certiorari is a
prerogative writ designed to correct errors of jurisdiction committed by a
judicial or quasi-judicial body. 125 Because an arbitral tribunal is not a
government organ exercising judicial or quasi-judicial powers, it is
removed from the ambit of Rule 65. AHDacC
Not even the Court's expanded certiorari jurisdiction under the
Constitution 126 can justify judicial intrusion into the merits of arbitral
awards. While the Constitution expanded the scope
of certiorari proceedings, this power remains limited to a review of the
acts of "any branch or instrumentality of the Government." As a purely
private creature of contract, an arbitral tribunal remains outside the scope
of certiorari.
Lastly, the Special ADR Rules are a self-contained body of rules.
The parties cannot invoke remedies and other provisions from the Rules
of Court unless they were incorporated in the Special ADR Rules:
Rule 22.1. Applicability of Rules of Court. — The
provisions of the Rules of Court that are applicable to
the proceedings enumerated in Rule 1.1 of these Special
ADR Rules have either been included and
incorporated in these Special ADR Rules or
specifically referred to herein.
In Connection with the above proceedings, the Rules of
Evidence shall be liberally construed to achieve the
objectives of the Special ADR Rules. 127
Contrary to TEAM'S position, the Special ADR Rules actually
forecloses against other remedies outside of itself. Thus, a losing party
cannot assail an arbitral award through a petition for review under Rule
43 or a petition for certiorari under Rule 65 because these remedies are
not specifically permitted in the Special ADR Rules.
In sum, the only remedy against a final domestic arbitral award is
to file petition to vacate or to modify/correct the award not later than thirty
(30) days from the receipt of the award. 128 Unless a ground to vacate
has been established, the RTC must confirm the arbitral award as a
matter of course.
The remedies against an order
confirming, vacating, correcting, or
modifying an arbitral award
Once the RTC orders the confirmation, vacation, or
correction/modification of a domestic arbitral award, the aggrieved party
may move for reconsideration within a non-extendible period of fifteen
(15) days from receipt of the order. 129 The losing party may also opt to
appeal from the RTC's ruling instead.
Under the Arbitration Law, the mode of appeal was via petition
for review on certiorari:
Section 29. Appeals. — An appeal may be taken from
an order made in a proceeding under this Act, or from a
judgment entered upon an award
through certiorari proceedings, but such appeals shall
be limited to questions of law. The proceedings upon
such appeal, including the judgment thereon shall be
governed by the Rules of Court in so far as they are
applicable. 130 IDSEAH
The Arbitration Law did not specify which Court had jurisdiction
to entertain the appeal but left the matter to be governed by the Rules of
Court. As the appeal was limited to questions of law and was described
as "certiorari proceedings," the mode of appeal can be interpreted as an
Appeal by Certiorari to this Court under Rule 45.
When the ADR Law was enacted in 2004, it specified that the
appeal shall be made to the CA in accordance with the rules of
procedure to be promulgated by this Court. 131 The Special ADR Rules
provided that the mode of appeal from the RTC's order confirming,
vacating, or correcting/modifying a domestic arbitral award was through a
petition for review with the CA. 132 However, the Special ADR Rules
only took effect on October 30, 2009.
In the present case, the RTC disallowed TEAM's notice of appeal
from the former's decision confirming the arbitral award on July 3, 2009.
TEAM moved for reconsideration which was likewise denied on
November 15, 2009. In the interim, the Special ADR Rules became
effective. Notably, the Special ADR Rules apply retroactively in light of its
procedural character. 133 TEAM filed its petition for certiorari soon after.
Nevertheless, whether we apply Section 29 of the Arbitration
Law, Section 46 of the ADR Law, or Rule 19.12 of the Special ADR
Rules, there is no legal basis that an ordinary appeal (via notice of
appeal) is the correct remedy from an order confirming, vacating, or
correcting an arbitral award. Thus, there is no merit in the CA's ruling that
the RTC gravely abused its discretion when it refused to give due course
to the notice of appeal. aCIHcD
The correctness or incorrectness
of the arbitral award
We have deliberately refrained from passing upon the merits of
the arbitral award — not because the award was erroneous — but
because it would be improper. None of the grounds to vacate an arbitral
award are present in this case and as already established, the merits of
the award cannot be reviewed by the courts.
Our refusal to review the award is not a simple matter of putting
procedural technicalities over the substantive merits of a case; it goes
into the very legal substance of the issues. There is no law granting the
judiciary authority to review the merits of an arbitral award. If we were to
insist on reviewing the correctness of the award (or consent to the CA's
doing so), it would be tantamount to expanding our jurisdiction without
the benefit of legislation. This translates to judicial legislation — a breach
of the fundamental principle of separation of powers.
The CA reversed the arbitral award — an action that it has no
power to do — because it disagreed with the tribunal's factual findings
and application of the law. However, the alleged incorrectness of the
award is insufficient cause to vacate the award, given the State's policy
of upholding the autonomy of arbitral awards.
The CA passed upon questions such as: (1) whether or not
TEAM effectively returned the property upon the expiration of the lease;
(2) whether or not TEAM was liable to pay rentals after the expiration of
the lease; and (3) whether or not TEAM was liable to pay Fruehauf
damages corresponding to the cost of repairs. These were the same
questions that were specifically submitted to the arbitral tribunal for its
resolution. 134
The CA disagreed with the tribunal's factual determinations and
legal interpretation of TEAM's obligations under the contract —
particularly, that TEAM's obligation to turn over the improvements on the
land at the end of the lease in the same condition as when the lease
commenced translated to an obligation to make ordinary repairs
necessary for its preservation. 135
Assuming arguendo that the tribunal's interpretation of the
contract was incorrect, the errors would have been simple errors of
law. It was the tribunal — not the RTC or the CA — that had jurisdiction
and authority over the issue by virtue of the parties' submissions; the
CA's substitution of its own judgment for the arbitral award cannot be
more compelling than the overriding public policy to uphold the autonomy
of arbitral awards. Courts are precluded from disturbing an arbitral
tribunal's factual findings and interpretations of law. 136 The CA's ruling mechanism — and found that its benefits (both legal and economic)
is an unjustified judicial intrusion in excess of its jurisdiction — a judicial outweighed the disadvantages. Without a showing that any of the
overreach. 137 cHaCAS grounds to vacate the award exists or that the same amounts to a
violation of an overriding public policy, the award is subject to
Upholding the CA's ruling would weaken our alternative dispute
confirmation as a matter of course. 140 DACcIH
resolution mechanisms by allowing the courts to "throw their weight
around" whenever they disagree with the results. It erodes the obligatory WHEREFORE, we GRANT the petition. The CA's decision
force of arbitration agreements by allowing the losing parties to "forum in CA-G.R. SP. No. 112384 is SET ASIDE and the RTC's
shop" for a more favorable ruling from the judiciary. order CONFIRMING the arbitral award in SP. Proc. No.
11449 is REINSTATED. aICcHA
Whether or not the arbitral tribunal correctly passed upon the
issues is irrelevant. Regardless of the amount of the sum involved in a SO ORDERED.
case, a simple error of law remains a simple error of law. Courts are
precluded from revising the award in a particular way, revisiting the
tribunal's findings of fact or conclusions of law, or otherwise encroaching
upon the independence of an arbitral tribunal. 138 At the risk of
redundancy, we emphasize Rule 19.10 of the Special ADR Rules
promulgated by this Court en banc:
Rule 19.10. Rule on judicial review on arbitration in the
Philippines. — As a general rule, the court can only
vacate or set aside the decision of an arbitral
tribunal upon a clear showing that the award suffers
from any of the infirmities or grounds for vacating an
arbitral award under Section 24 of Republic Act No.
876 or under Rule 34 of the Model Law in a domestic
arbitration, or for setting aside an award in an
international arbitration under Article 34 of the Model
Law, or for such other grounds provided under these
Special Rules.
If the Regional Trial Court is asked to set aside an
arbitral award in a domestic or international arbitration on
any ground other than those provided in the Special
ADR Rules, the court shall entertain such ground for the
setting aside or non-recognition of the arbitral
award only if the same amounts to a violation of
public policy.
The court shall not set aside or vacate the award of
the arbitral tribunal merely on the ground that the
arbitral tribunal committed errors of fact, or of law,
or of fact and law, as the court cannot substitute its
judgment for that of the arbitral tribunal.
In other words, simple errors of fact, of law, or of fact and law
committed by the arbitral tribunal are not justiciable errors in this
jurisdiction. 139
TEAM agreed to submit their disputes to an arbitral tribunal. It
understood all the risks — including the absence of an appeal
 FIRST DIVISION On September 16, 1996, Mabuhay, IDHI, and Sembcorp entered
into a Shareholders' Agreement 8 (Agreement) setting out the terms and
conditions governing their relationship in connection with a planned
[G.R. No. 212734. December 5, 2018.] business expansion of WJSC and WJNA. Sembcorp decided to invest in
the said corporations. As a result of Sembcorp's acquisition of shares,
MABUHAY HOLDINGS Mabuhay and IDHI's shareholding percentage in the said corporations
CORPORATION,  petitioner, vs. SEMBCORP LOGISTICS were reduced, as follows: 9
LIMITED, respondent.
  WJSC WJNA
Mabuhay 45.5% 45.5%
IDHI 19.5% 19.5%
DECISION Sembcorp 35.0% 35.0%
Pursuant to Article 13 of the Agreement, Mabuhay and IDHI
voluntarily agreed to jointly guarantee that Sembcorp would receive a
TIJAM,  J p: minimum accounting return of US$929,875.50 (Guaranteed Return) at
the end of the 24th month following the full disbursement of the
This is an appeal from the Decision 1 dated November 19, 2013 Sembcorp's equity investment in WJNA and WJSC. They further agreed
and the Resolution 2 dated June 3, 2014 of the Court of Appeals (CA) in that the Guaranteed Return shall be paid three (3) months from the
CA-G.R. CV No. 92296, reversing and setting aside the Decision of the completion of the special audits of WJSC and WJNA as per Article 13.3
Regional Trial Court (RTC) 3 of Makati City, Branch 149, in SP Proc. No. of the Agreement. 10
M-6064. The Agreement included an arbitration clause, viz.:
Article XIX. APPLICABLE LAW; ARBITRATION
Facts of the Case 19.1 This Agreement and the validity and
performance thereof shall be governed by the laws of the
Petitioner Mabuhay Holdings Corporation (Mabuhay) and Republic of the Philippines.
Infrastructure Development & Holdings, Inc. (IDHI) are corporations duly 19.2 Any dispute, controversy or claim arising
organized and existing under the Philippine Laws. 4 out of or relating to this Agreement, or a breach thereof,
Respondent Sembcorp Logistics Limited (Sembcorp), formerly other than intra-corporate controversies, shall be finally
known as Sembawang Maritime Limited, is a company incorporated in settled by arbitration in accordance with the rules of
the Republic of Singapore. 5 conciliation and arbitration of the International Chamber
of Commerce by one arbitrator with expertise in the
On January 23, 1996, Mabuhay and IDHI incorporated Water Jet matter at issue appointed in accordance with said rules.
Shipping Corporation (WJSC) in the Philippines to engage in the venture The arbitration proceeding including the rendering of the
of carrying passengers on a common carriage by inter-island fast ferry. award shall take place in Singapore and shall be
On February 5, 1996, they also incorporated Water Jet Netherlands conducted in the English Language. This arbitration shall
Antilles, N.V. (WJNA) in Curasao, Netherlands. 6 Their respective survive termination of this Agreement. Judgment upon
shareholding percentage are as follows: 7 the award rendered may be entered in any court having
jurisdiction or application may be made to such court for
  WJSC WJNA
a judicial acceptance of the award and an order of
Mabuhay 70% 70% enforcement, as the case may be. 11
IDHI 30% 30%
 On December 6, 1996, Sembcorp effected full payment of its
equity investment. Special audits of WJNA and WJSC were then carried
out and completed on January 8, 1999. Said audits revealed that WJSC
and WJNA both incurred losses. 12
On November 26, 1999, Sembcorp requested for the payment of
its Guaranteed Return from Mabuhay and IDHI. Mabuhay admitted its
liability but asserted that since the obligation is joint, it is only liable for
fifty percent (50%) of the claim or US$464,937.75. 13
On February 24, 2000, Sembcorp sent a Final Demand to
Mabuhay to pay the Guaranteed Return. Mabuhay requested for three
(3) months to raise the necessary funds but still failed to pay any amount
after the lapse of the said period. 14
On December 4, 2000, Sembcorp filed a Request for Arbitration
before the International Court of Arbitration of the International Chamber
of Commerce (ICC) in accordance with the Agreement and sought the
following reliefs:
(1) payment of the sum of US$929,875.50;
(2) alternatively, damages;
(3) interest on the above sum at such rate as the Arbitral
Tribunal deems fit and just;
(4) cost of the arbitration; and
(5) Such further and/or other relief as the Arbitral Tribunal deems
fit and just. 15
On April 20, 2004, a Final Award 16 was rendered by Dr. Anan
Chantara-Opakorn (Dr. Chantara-Opakorn), the Sole Arbitrator appointed
by the ICC. The dispositive portion of the award reads:
The Sole Arbitrator hereby decides that the Sole
Arbitrator has jurisdiction over the parties' dispute and
directs [Mabuhay] to make the following payments to
[Sembcorp]:
1. Half of the Guaranteed Return or an amount
of US$464,937.75 (Four Hundred Sixty-Four Thousand
Nine Hundred Thirty-Seven and Point Seventy-Five US
Dollars);
2. Interest at the rate of 12% per annum on the
said amount of US$464,937.75 calculated from the date
of this Final Award until the said amount of
US$464,937.75 is actually and completely paid by
[Mabuhay] to [Sembcorp]; and
3. A reimbursement of half of the costs of
arbitration fixed by the ICC Court at US$57,000 or the
aggregate half of which amount to US$28,500 together
with an interest at the rate of 12% per annum calculated
from the date of this Final Award until the said amount is
actually and completely paid by [Mabuhay] to
[Sembcorp]. 17
Consequently, on April 14, 2005, Sembcorp filed a Petition for
Recognition and Enforcement of a Foreign Arbitral Award 18 before the
RTC of Makati City, Branch 149. 19
Mabuhay filed an Opposition citing the following grounds for non-
enforcement under Article V of the 1958 Convention on the Recognition
and Enforcement of Foreign Arbitral Awards (New York Convention): (1)
the award deals with a conflict not falling within the terms of the
submission to arbitration; (2) the composition of the arbitral authority was
not in accordance with the agreement of the parties; and (3) recognition
or enforcement of the award would be contrary to the public policy of the
Philippines. 20
Mabuhay argued that the dispute is an intra-corporate
controversy, hence, excluded from the scope of the arbitration clause in
the Agreement. It alleged that on March 13, 1997, Sembcorp became the
controlling stockholder of IDHI by acquiring substantial shares of stocks
through its nominee, Mr. Pablo N. Sare (Sare). Mabuhay thus claimed
that it has already been released from the joint obligation with IDHI as
Sembcorp assumed the risk of loss when it acquired absolute ownership
over the aforesaid shares. Moreover, Mabuhay argued that the
appointment of Dr. Chantara-Opakorn was not in accordance with the
arbitral clause as he did not have the expertise in the matter at issue,
which involved application of Philippine law. Finally, Mabuhay argued
that the imposition of twelve percent (12%) interest from the date of the
Final Award was contrary to the Philippine law and jurisprudence. 21
Ruling of the RTC
In a Decision 22 dated May 23, 2008, the RTC dismissed the
petition and ruled that the Final Award could not be enforced.
The RTC ruled that the "simple contractual payment obligation"
of Mabuhay and IDHI to Sembcorp had been rescinded and modified by
the merger or confusion of the person of IDHI into the person of
Sembcorp. As a result, said obligation was converted into an intra-
corporate matter. 23
 The RTC also ruled on the issue of the lack of expertise of the
Sole Arbitrator. Thus, the dispositive portion of its Decision reads:
WHEREFORE, premises considered, this court
finds in favor of the defendant Mabuhay Holdings
Corporation, hence it hereby DISMISSED the petition for
the recognition and enforcement of the subject Arbitral
Award for the simple reason that it was issued in
violation of the agreement. Moreover, this court cannot
recognize the Arbitral Award because it was not the work
of an expert as required under the agreement. Finally,
the payment obligation in interest of 12% per annum on
the US Dollar Amounts ($464,937.75 and $28,500) as
ordered by the Sole Arbitrator is contrary to law and
existing jurisprudence, hence void. Thus, it cannot be
enforced by this Court.
Cost de oficio.
SO ORDERED. 24
Aggrieved, Sembcorp appealed to the CA via a Notice of Appeal
under Rule 41 of the Rules of Court. 25
Ruling of the CA
On November 19, 2013, the CA promulgated its
Decision 26 reversing and setting aside the RTC Decision.
The CA noted that the Final Award already settled the factual
issue on whether Sembcorp acquired the adverted shares of stock in
IDHI. Thus, RTC's contrary findings constituted an attack on the merits of
the Final Award. In sum, the CA held that the court shall not disturb the
arbitral tribunal's determination of facts and/or interpretation of the law. It
recognized the Final Award and remanded the case to the RTC for
proper execution. 27
Undaunted, Mabuhay moved for the reconsideration of the CA
Decision but the same was denied in a Resolution 28 dated June 3,
2014.
Hence, this petition.
Issue
The core issue for resolution is whether the RTC correctly
refused to enforce the Final Award. Stated differently, was Mabuhay able
to establish a ground for refusing the enforcement of the Final Award
under our applicable laws and jurisprudence on arbitration?
Our Ruling
We deny the petition.
I. Governing Laws
An assiduous analysis of the present case requires a prefatory
determination of the rules and other legal authorities that would govern
the subject arbitration proceedings and award.
The arbitration proceedings between the parties herein were
conducted in Singapore and the resulting Final Award was also rendered
therein. As such, the Final Award is a "foreign arbitral award" or an
award made in a country other than the Philippines. 29
The Philippines is among the first signatories of the 1958
Convention on the Recognition and Enforcement of Foreign Arbitral
Awards (New York Convention) and acceded to the same as early as
1967. 30 Singapore, on the other hand, became a Contracting State in
1986. 31 The New York Convention aims to provide common legislative
standards for the recognition of arbitration agreements and court
recognition and enforcement of foreign and non-domestic arbitral
awards. Thus, the New York Convention primarily governs the
recognition and enforcement of foreign arbitral awards by our courts. 32
In addition, as a member of the United Nations Commission in
International Trade Law (UNCITRAL), the Philippines also adopted the
UNCITRAL Model Law 33 (Model Law) as the governing law on
international commercial arbitrations. Hence, when the Congress
enacted Republic Act No. 9285 or the Alternative Dispute Resolution Act
of 2004 34 (ADR Act), it incorporated the Model Law in its entirety.
Sections 19 and 42 of the ADR Act expressly provided for the
applicability of the New York Convention and the Model Law in our
jurisdiction, viz.:
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
approved on December 11, 1985, copy of which is
hereto attached as Appendix "A".
 xxx xxx xxx
SEC. 42. Application of the New York
Convention. — The New York Convention shall
govern the recognition and enforcement of arbitral
awards covered by the said Convention.
The recognition and enforcement of such arbitral
awards shall be filled (sic) with 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 a party to
the New York Convention.
xxx xxx xxx (Emphasis ours)
Five years after the enactment of the ADR Act, the Department
of Justice issued the ADR Act's Implementing Rules and Regulations
(IRR), 35 and the Supreme Court issued the Special Rules of Court on
Alternative Dispute Resolution 36 (Special ADR Rules). These two rules,
in addition to the ADR Act incorporating the New York Convention and
the Model Law, are our arbitration laws.
In addition to our arbitration laws, our courts, in recognizing or
enforcing a foreign arbitral award, shall also take into consideration the
laws applied by the arbitral tribunal. These may comprise the substantive
law of the contract and the procedural rules or the rules governing the
conduct of arbitration proceedings.
As agreed upon by the parties herein under the arbitral clause in
their Agreement, the substantive law of the contract is the Philippine law
and the procedural rules are the ICC Rules. During the filing of the
request for Arbitration, the ICC Rules in effect was the ICC Rules of
Arbitration 1998. 37 Considering that the essence of arbitration is party
autonomy, the Court shall refer to the said Rules for purposes of
examining the procedural infirmities raised by the parties to the
arbitration.
II. Jurisdiction
Mabuhay argues that the CA seriously erred in not dismissing
outright the appeal of Sembcorp as it had no jurisdiction to act on the
appeal. Mabuhay's argument hinges on Rule 19.12 of the Special ADR
Rules, as follows:
Rule 19.12. Appeal to the Court of Appeals. —
An appeal to the Court of Appeals through a petition
for review under this Special Rule shall only be allowed
from the following final orders of the Regional Trial
Court:
xxx xxx xxx
k. Refusing recognition and/or enforcement of a
foreign arbitral award; (Emphasis supplied)
xxx xxx xxx
Mabuhay thus contends that filing a petition for review and not a
notice of appeal is the proper remedy to contest the RTC's refusal to
enforce the Final Award.
The Court notes, however, that the Special ADR Rules took
effect in 2009. Sembcorp's notice of appeal was filed only in 2008. The
ADR Act, which was already in effect at that time, did not specify the
proper remedy of appeal from the RTC to the CA. It merely provides that
"a decision of the regional trial court confirming, vacating, setting aside,
modifying or correcting an arbitral award may be appealed to the CA in
accordance with the rules of procedure to be promulgated by the
Supreme Court." 38
The Special ADR Rules shall retroactively apply to all pending
cases provided that no vested rights are impaired or prejudiced. 39 In
this case, Sembcorp filed a notice of appeal in accordance with Section 2
of Rule 41 40 as it is the only applicable rule existing at that time.
Sembcorp had a vested right to due process in relying on the said rule.
Consequently, the CA had jurisdiction to act on Sembcorp's appeal.
We now discuss the Court's jurisdiction to entertain the instant
petition. The Court's review of a CA Decision is discretionary and limited
to specific grounds provided under the Special ADR Rules. Thus:
Rule 19.36. Review discretionary. — A review
by the Supreme Court is not a matter of right, but of
sound judicial discretion, which will be granted only for
serious and compelling reasons resulting in grave
prejudice to the aggrieved party. The following, while
neither controlling nor fully measuring the court's
discretion, indicate the serious and compelling, and
necessarily, restrictive nature of the grounds that will
warrant the exercise of the Supreme Court's
discretionary powers, when the Court of Appeals:
 a. Failed to apply the applicable
standard or test for judicial review
prescribed in these Special ADR
Rules in arriving at its decision
resulting in substantial prejudice to
the aggrieved party;
b. Erred in upholding a final order or
decision despite the lack of jurisdiction
of the court that rendered such final
order or decision;
c. Failed to apply any provision,
principle, policy or rule contained in
these Special ADR Rules resulting in
substantial prejudice to the aggrieved
party; and
d. Committed an error so egregious and
harmful to a party as to amount to an
undeniable excess of jurisdiction.
The mere fact that the petitioner disagrees with
the Court of Appeals' determination of questions of fact,
of law or both questions of fact and law, shall not warrant
the exercise of the Supreme Court's discretionary power.
The error imputed to the Court of Appeals must be
grounded upon any of the above prescribed grounds for
review or be closely analogous thereto.
A mere general allegation that the Court of
Appeals has committed serious and substantial error or
that it has acted with grave abuse of discretion resulting
in substantial prejudice to the petitioner without
indicating with specificity the nature of such error or
abuse of discretion and the serious prejudice suffered by
the petitioner on account thereof, shall constitute
sufficient ground for the Supreme Court to dismiss
outright the petition. (Emphasis ours)
In relation to the applicable standard or test for judicial review by
the CA in arriving at its decision, the Special ADR Rules further provide:
Rule 19.20. Due course. — If upon the filing of a
comment or such other pleading or documents as may
be required or allowed by the Court of Appeals or upon
the expiration of the period for the filing thereof, and on
the basis of the petition or the records, the Court of
Appeals finds prima facie that the Regional Trial
Court has committed an error that would warrant
reversal or modification of the judgment, final order, or
resolution sought to be reviewed, it may give due course
to the petition; otherwise, it shall dismiss the same.
xxx xxx xxx
Rule 19.24. Subject of appeal restricted in
certain instance. — If the decision of the Regional Trial
Court refusing to recognize and/or enforce, vacating
and/or setting aside an arbitral award is premised on a
finding of fact, the Court of Appeals may inquire only
into such fact to determine the existence or non-
existence of the specific ground under the
arbitration laws of the Philippines relied upon by the
Regional Trial Court to refuse to recognize and/or
enforce, vacate and/or set aside an award. Any such
inquiry into a question of fact shall not be resorted to for
the purpose of substituting the court's judgment for that
of the arbitral tribunal as regards the latter's ruling on the
merits of the controversy. (Emphasis ours)
Here, Mabuhay did not specifically raise any of the grounds
under Rule 19.36 above in its petition before this Court. Nonetheless,
considering the dearth of jurisprudence on enforcement of foreign arbitral
awards and the fact that the CA reversed the RTC decision, the Court
exercises its discretion to review the CA decision solely for purposes of
determining whether the CA applied the aforecited standard of judicial
review.
III. Grounds for Refusing Enforcement or Recognition
We now delve into the core of the issue — whether there is a
ground for the RTC to refuse recognition and enforcement of the Final
Award in favor of Sembcorp.
Our jurisdiction adopts a policy in favor of arbitration. 41 The
ADR Act and the Special ADR Rules both declare as a policy that the
State shall encourage and actively promote the use of alternative dispute
resolution, such as arbitration, as an important means to achieve speedy
and impartial justice and declog court dockets. 42 This pro-arbitration
policy is further evidenced by the rule on presumption in favor of
enforcement of a foreign arbitral award under the Special ADR
Rules, viz.:
Rule 13.11. Court action. — It is presumed that
a foreign arbitral award was made and released in
due course of arbitration and is subject to
enforcement by the court.
 The court shall recognize and enforce a foreign
arbitral award unless a ground to refuse recognition or
enforcement of the foreign arbitral award under this rule
is fully established.
The decision of the court recognizing and
enforcing a foreign arbitral award is immediately
executory.
In resolving the petition for recognition and
enforcement of a foreign arbitral award in accordance
with these Special ADR Rules, the court shall either [a]
recognize and/or enforce or [b] refuse to recognize and
enforce the arbitral award. The court shall not disturb
the arbitral tribunal's determination of facts and/or
interpretation of law. (Emphasis ours)
Under Article V of the New York Convention, the grounds for
refusing enforcement and recognition of a foreign arbitral award are:
1. Recognition and enforcement of the award
may be refused, at the request of the party against
whom it is invoked, only if that party furnishes to the
competent authority where the recognition and
enforcement is sought, proof that:
(a) The parties to the agreement
referred to in article II were, under the
law applicable to them, under some
incapacity, or the said agreement is not
valid under the law to which the parties
have subjected it or, failing any
indication thereon, under the law of the
country where the award was made; or
(b) The party against whom the
award is invoked was not given proper
notice of the appointment of the
arbitrator or of the arbitration
proceedings or was otherwise unable to
present his case; or
(c) The award deals with a
difference not contemplated by or not
falling within the terms of the
submission to arbitration, or it
contains decisions on matters beyond
the scope of the submission to
arbitration, provided that, if the decisions
on matters submitted to arbitration can
be separated from those not so
submitted, that part of the award which
contains decisions on matters submitted
to arbitration may be recognized and
enforced; or
(d) The composition of the
arbitral authority or the arbitral
procedure was not in accordance
with the agreement of the parties, or,
failing such agreement, was not in
accordance with the law of the country
where the arbitration took place; or
(e) The award has not yet
become binding on the parties, or has
been set aside or suspended by a
competent authority of the country in
which, or under the law of which, that
award was made.
2. Recognition and enforcement of an arbitral
award may also be refused if the competent authority in
the country where recognition and enforcement is sought
finds that:
(a) The subject matter of the
difference is not capable of settlement
by arbitration under the law of that
country; or
(b) The recognition or
enforcement of the award would be
contrary to the public policy of that
country. (Emphasis ours)
The aforecited grounds are essentially the same grounds
enumerated under Section 36 43 of the Model Law. The list is exclusive.
Thus, Section 45 of the ADR Act provides:
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
procedural 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. (Emphasis ours)
 In Our jurisdiction, We have incorporated the grounds
enumerated under the New York Convention in our arbitration laws.
Article 4.36, Rule 6 44 of the IRR and Rule 13.4 45 of the Special ADR
Rules reiterated the exact same exclusive list of grounds.
After a careful review of the case, We find that Mabuhay failed to
establish any of the grounds for refusing enforcement and recognition of
a foreign arbitral award. We discuss the grounds raised by Mabuhay in
seriatim:
A. The arbitral authority, composed
of Dr. Chatara-Opakorn as the sole
arbitrator, was constituted in
accordance with the arbitration
agreement.
The first ground raised by Mabuhay is Article V (1) (d) of the New
York Convention, i.e., that the composition of the arbitral authority was
not in accordance with the agreement of the parties. Mabuhay and
Sembcorp stipulated in their Agreement that the sole arbitrator must
have "expertise in the matter at issue." Since they also agreed that the
validity and the performance of the Agreement shall be governed by the
Philippine law, Mabuhay argues that the phrase "expertise in the matter
at issue" necessarily means expertise in the Philippine law. Dr. Chatara-
Opakorn, a Thai national, does not possess any educational degree or
training in Philippine law.
The Agreement provides, however, that the arbitrator with
expertise in the matter at issue shall be appointed in accordance with the
ICC Rules. The ICC, thus, is the appointing authority agreed upon by the
parties. The "appointing authority" is the person or institution named in
the arbitration agreement as the appointing authority; or the regular
arbitration institution under whose rule the arbitration is agreed to be
conducted. 46 Where the parties have agreed to submit their dispute to
institutional arbitration rules, and unless they have agreed to a different
procedure, they shall be deemed to have agreed to procedure under
such arbitration rules for the selection and appointment of arbitrators. 47
The pertinent rules in the ICC Arbitration Rules of 1998 provide:
Article 9 — Appointment and Confirmation of the
Arbitrators
xxx xxx xxx
3. Where the Court is to appoint a sole arbitrator
or the chairman of an Arbitral Tribunal, it shall make the
appointment upon a proposal of a National Committee of
the ICC that it considers to be appropriate. If the Court
does not accept the proposal made, or if the National
Committee fails to make the proposal requested within
the time limit fixed by the Court, the Court may repeat its
request or may request a proposal from another National
Committee that it considers to be appropriate.
xxx xxx xxx
5. The sole arbitrator or the chairman of the
Arbitral Tribunal shall be of a nationality other than
those of the parties. However, in suitable
circumstances and provided that neither of the parties
objects within the time limit fixed by the Court, the sole
arbitrator or the chairman of the Arbitral Tribunal may be
chosen from a country of which any of the parties is a
national. (Emphasis ours)
In accordance with the aforecited rules, Dr. Chantara-Opakorn
was appointed upon the proposal of the Thai National Committee.
It bears stressing that the pro-arbitration policy of the State
includes its policy to respect party autonomy. Thus, Rule 2.3 of the
Special ADR Rules provides that "the parties are free to agree on the
procedure to be followed in the conduct of arbitral proceedings." The
procedure to be followed on the appointment of arbitrator are among the
procedural rules that may be agreed upon by the parties.
Moreover, under Rule 7.2 of the Special ADR Rules, a challenge
to the appointment of an arbitrator may be raised in court only when the
appointing authority fails or refuses to act on the challenge within such
period as may be allowed under the applicable rule or in the absence
thereof, within thirty (30) days from receipt of the request, that the
aggrieved party may renew the challenge in court. This is clearly not the
case for Mabuhay as it was able to challenge the appointment of Dr.
Chantara-Opakorn in accordance with Article 11 of the ICC Rules, but
the ICC Court rejected the same. 48 As such, the Court shall not
entertain any challenge to the appointment of arbitrator disguised as a
ground for refusing enforcement of an award.
At any rate, Mabuhay's contention that the sole arbitrator must
have the expertise on Philippine law fails to persuade. If the intent of the
parties is to exclude foreign arbitrators due to the substantive law of the
contract, they could have specified the same considering that the ICC
Rules provide for appointment of a sole arbitrator whose nationality is
other than those of the parties.
B. The dispute is not an intra-
corporate controversy, hence,
included in the scope of disputes the negative. The pertinent portion of the Final Award is reproduced as
submitted to arbitration. follows:
x x x Indeed, during the cross-examination of Mr.
Under Article V (1) (c) of the New York Convention, the court
Chay, he admitted that there was no transfer of shares
may refuse enforcement of a foreign arbitral award when the award deals
from IDHI to the Claimant [p. 130 of Transcript of
with a difference not contemplated by or not falling within the terms of the
Proceedings]:
submission to arbitration. Mabuhay argues that the dispute is an intra-
corporate controversy which is expressly excluded from the scope of xxx xxx xxx
disputes submitted to arbitration under the Agreement. In essence,
During the re-examination of Mr. Chay by the
Mabuhay attacks the jurisdiction of the arbitral tribunal to hear the
Respondent's counsel, he again admitted that the
dispute as it did not fall within the terms of submission to arbitration.
transfer of the shares from IDHI to the Claimant has not
The CA correctly applied the Kompetenz-Kompetenz principle taken effect [p. 155 of Transcript of Proceedings]:
expressly recognized under Rule 2.2 of the Special ADR Rules, viz.:
xxx xxx xxx
The Special ADR Rules recognize the principle
It is clear that the Claimant's claim is neither
of competence-competence, which means that the
premised on allegations of mismanagement of WJNA
arbitral tribunal may initially rule on its own jurisdiction,
and WJSC, nor on who manages or controls or who has
including any objections with respect to the existence or
the right to manage or control WJNA and WJSC, nor is it
validity of the arbitration agreement or any condition
a claim to effect the transfer of the share, nor an action
precedent to the filing of a request for arbitration.
for registration of the shares transfer [sic] already
The Special ADR Rules expounded on the implementation of the transferred from IDHI to the Claimant in the books of
said principle: WJNA and WJSC. The nature of the Claimant's claim is
not intrinsically connected with the regulation of the
Rule 2.4. Policy implementing competence-
corporation. The Claimant's claim in this arbitration is
competence principle. — The arbitral tribunal shall be
straightforward: that the Respondent agreed, under a
accorded the first opportunity or competence to rule on
contract, to make payment of certain amount of money
the issue of whether or not it has the competence or
to the Claimant upon the occurrence of a specified
jurisdiction to decide a dispute submitted to it for
event; that the said event occurred but the Respondent
decision, including any objection with respect to the
refused to pay such amount of money to the Claimant;
existence or validity of the arbitration agreement. When
that the Claimant filed the Request in order to enforce
a court is asked to rule upon issue/s affecting the
the payment. Accordingly, the Sole Arbitrator is of the
competence or jurisdiction of an arbitral tribunal in a
opinion that the dispute in this arbitration is not an
dispute brought before it, either before or after the
intra-corporate controversy, and, hence, it is not
arbitral tribunal is constituted, the court must exercise
excluded from arbitration under Article 19.2 of the
judicial restraint and defer to the competence or
Shareholders' Agreement. 49 (Emphasis ours)
jurisdiction of the arbitral tribunal by allowing the
arbitral tribunal the first opportunity to rule upon Again, the Special ADR Rules specifically provides that in
such issues. (Emphasis ours) resolving the petition for recognition and enforcement of a foreign arbitral
award, the court shall not disturb the arbitral tribunal's determination of
To recall, the Agreement provides that "(a)ny dispute,
facts and/or interpretation of law. 50
controversy or claim arising out of or relating to this Agreement, or
breach thereof, other than intra-corporate controversies, shall be finally Yet, the RTC, in its decision dismissing the petition of Sembcorp,
settled by arbitration. . ." declared that "it is undisputed that the shares of stocks of IDHI in WJNA
and WJSC were actually owned by [Sembcorp] before the filing of the
Among the issues settled in the Final Award is whether the
request for arbitration" 51 without providing any factual basis for such
dispute is an intra-corporate controversy. Dr. Chantara-Opakorn ruled in
conclusion which directly contradicts the arbitral tribunal's findings.
 Even granting that the court may rule on the issue of whether the
dispute is an intra-corporate controversy, Mabuhay's argument is
premised on the factual issue of whether Sembcorp indeed acquired the
shares of IDHI. Mabuhay failed to establish such fact before the arbitral
tribunal. The RTC, on the other hand, concluded that Sembcorp acquired
the subject shares but failed to explain the basis for such conclusion. In
the absence of sufficient evidence that Sembcorp acquired the shares of
IDHI, the Court finds no cogent reason to disturb the arbitral tribunal's
ruling in favor of the latter's jurisdiction over the dispute.
C.  Enforcement of the award
would not be contrary to public
policy of the Philippines.
Under Article V (2) (b) of the New York Convention, a court may
refuse to enforce an award if doing so would be contrary to the public
policy of the State in which enforcement is sought. Neither the New York
Convention nor the mirroring provisions on public policy in the Model Law
and Our arbitration laws provide a definition of "public policy" or a
standard for determining what is contrary to public policy. Due to
divergent approaches in defining public policy in the realm of
international arbitration, public policy has become one of the most
controversial bases for refusing enforcement of foreign arbitral
awards. 52
Most arbitral jurisdictions adopt a narrow and restrictive
approach in defining public policy pursuant to the pro-enforcement policy
of the New York Convention. The public policy exception, thus, is "a
safety valve to be used in those exceptional circumstances when it would
be impossible for a legal system to recognize an award and enforce it
without abandoning the very fundaments on which it is based." 53 An
example of a narrow approach adopted by several jurisdictions 54 is that
the public policy defense may only be invoked "where enforcement [of
the award] would violate the forum state's most basic notions of morality
and justice." 55 Thus, in Hong Kong, an award obtained by fraud was
denied enforcement by the court on the ground that fraud is contrary to
Hong Kong's "fundamental notions of morality and justice." 56 In
Singapore, also a Model Law country, the public policy ground is
entertained by courts only in instances where upholding the award is
"clearly injurious to the public good or . . . wholly offensive to the ordinary
reasonable and fully informed member of the public." 57
In Our jurisdiction, the Court has yet to define public policy and
what is deemed contrary to public policy in an arbitration case. However,
in an old case, the Court, through Justice Laurel, elucidated on the term
"public policy" for purposes of declaring a contract void:
x x x At any rate, courts should not rashly extend
the rule which holds that a contract is void as against
public policy. The term "public policy" is vague and
uncertain in meaning, floating and changeable in
connotation. It may be said, however, that, in general, a
contract which is neither prohibited by law nor
condemned by judicial decision, nor contrary to public
morals, contravenes no public policy. In the absence of
express legislation or constitutional prohibition, a court,
in order to declare a contract void as against public
policy, must find that the contract as to the consideration
or thing to be done, has a tendency to injure the
public, is against the public good, or contravenes
some established interests of society, or is
inconsistent with sound policy and good morals, or
tends clearly to undermine the security of individual
rights, whether of personal liability or of private
property. 58 (Emphasis ours)
An older case, Ferrazzini v. Gsell, 59 defined public policy for
purposes of determining whether that part of the contract under
consideration is against public policy:
By "public policy," as defined by the courts in the
United States and England, is intended that principle of
the law which holds that no subject or citizen can
lawfully do that which has a tendency to be injurious
to the public or against the public good, which may
be termed the "policy of the law," or "public policy in
relation to the administration of the law." Public policy is
the principle under which freedom of contract or private
dealing is restricted by law for the good of the public. In
determining whether a contract is contrary to public
policy the nature of the subject matter determines the
source from which such question is to be solved.
(Emphasis ours and citation omitted)
In light of the foregoing and pursuant to the State's policy in favor
of arbitration and enforcement of arbitral awards, the Court adopts the
majority and narrow approach in determining whether enforcement of an
award is contrary to Our public policy. Mere errors in the interpretation of
the law or factual findings would not suffice to warrant refusal of
enforcement under the public policy ground. The illegality or immorality of
the award must reach a certain threshold such that, enforcement of the
same would be against Our State's fundamental tenets of justice and
morality, or would blatantly be injurious to the public, or the interests of
the society.
 We now discuss the pertinent claims of Mabuhay in relation to
public policy.
i. Violation of partnership law
Mabuhay contends that it entered into a joint venture, which is
akin to a particular partnership, with Sembcorp. Applying the laws on
partnership, the payment of the Guaranteed Return to Sembcorp is a
violation of Article 1799 60 of the Civil Code, as it shields the latter from
sharing in the losses of the partnership. Ergo, enforcement of the Final
Award would be contrary to public policy as it upholds a void stipulation.
The restrictive approach to public policy necessarily implies that
not all violations of the law may be deemed contrary to public policy. It is
not uncommon for the courts in Contracting States of the New York
Convention to enforce awards which does not conform to their domestic
laws. 61
At any rate, Mabuhay's contention is bereft of merit. The joint
venture between Mabuhay, IDHI, and Sembcorp was pursued under the
Joint Venture Corporations, WJSC and WJNA. By choosing to adopt a
corporate entity as the medium to pursue the joint venture enterprise, the
parties to the joint venture are bound by corporate law principles under
which the entity must operate. 62 Among these principles is the limited
liability doctrine. The use of a joint venture corporation allows the co-
venturers to take full advantage of the limited liability feature of the
corporate vehicle which is not present in a formal partnership
arrangement. 63 In fine, Mabuhay's application of Article 1799 is
erroneous.
ii. Imposition of interest
Mabuhay argues that the twelve percent (12%) annual interest
from the date of the Final Award is also contrary to the Philippine law and
jurisprudence. To reiterate, the only ground for refusing enforcement of a
foreign arbitral award is when enforcement of the same would be
contrary to public policy.
Mere incompatibility of a foreign arbitral award with domestic
mandatory rules on interest rates does not amount to a breach of public
policy. However, some jurisdictions refused to recognize and enforce
awards, or the part of the award which was considered to be contrary to
public policy, where they considered that the awarded interest was
unreasonably high. 64 In this case, the twelve percent (12%) interest rate
imposed under the Final Award is not unreasonably high or
unconscionable such that it violates our fundamental notions of justice.
IV. Attorney's Fees
Mabuhay avers that the dispositive portion of the CA Decision
failed to include its finding that Mabuhay is not liable for attorney's fees
and exemplary damages. The pertinent portion of the CA Decision is
reproduced as follows:
Turning now to Sembcorp's prayer for the award
of attorney's fees and exemplary damages, We find the
same bereft of legal and factual bases. Article 2208 of
the Civil Code allows attorney's fees to be awarded if the
claimant is compelled to litigate with third persons or to
incur expenses to protect his interest by reason of an
unjustified act or omission of the party from whom it is
sought, there must be a showing that the losing party
acted willfully or in bad faith and practically compelled
the claimant to litigate and incur litigation expenses.
Meanwhile, in order to obtain exemplary damages under
Article 2232 of the Civil Code, the claimant must prove
that the assailed actions of the defendant are not just
wrongful, but also wanton, fraudulent, reckless,
oppressive or malevolent.
Indeed, Sembcorp was compelled to file the
instant appeal. However, such fact alone is insufficient to
justify an award of attorney's fees and exemplary
damages when there is no sufficient showing of MHC's
[Mabuhay] bad faith in refusing to abide by the
provisions of the Final Award. To Us, MHC's [Mabuhay]
persistent acts in rejecting Sembcorp's claim proceed
from an erroneous conviction in the righteousness of its
cause. 65
We affirm the aforecited findings of the CA. However, We find no
conflict between the fallo and the ratio decidendi of the CA Decision.
The fallo of the CA Decision includes "[n]o pronouncement as to cost."
The CA also reversed and set aside the RTC Decision in its entirety. As
such, even the pronouncement of the RTC as to costs is set aside.
Accordingly, We find no merit in Mabuhay's prayer for a statement in the
dispositive portion expressly stating that it is not liable for attorney's fees
and exemplary damages.
On a final note, We implore the lower courts to apply the ADR
Act and the Special ADR Rules accordingly. Arbitration, as a mode of
alternative dispute resolution, is undeniably one of the viable solutions to
the longstanding problem of clogged court dockets. International
arbitration, as the preferred mode of dispute resolution for foreign
companies, would also attract foreign investors to do business in the
country that would ultimately boost Our economy. In this light, We uphold
the policies of the State favoring arbitration and enforcement of arbitral
awards, and have due regard to the said policies in the interpretation of
Our arbitration laws.
 WHEREFORE, the Petition is hereby DENIED. The November
19, 2013 Decision and the June 3, 2014 Resolution of the Court of
Appeals in CA-G.R. CV No. 92296 are AFFIRMED.
SO ORDERED.
 SECOND DIVISION
[G.R. No. 216600. November 21, 2016.]
FEDERAL EXPRESS CORPORATION and RHICKE S.
JENNINGS,  petitioners,  vs. AIRFREIGHT 2100, INC. and
ALBERTO D. LINA,  respondents.
DECISION
MENDOZA, J  p:
Before the Court is a Petition for Review on Certiorari 1 under
Rule 45 of the Rules of Court filed by Federal Express
Corporation (FedEx) and Rhicke S. Jennings (Jennings), assailing the
January 20, 2015 Decision 2 of the Court of Appeals (CA) in CA-G.R. SP
No. 135835, which affirmed the May 7, 2014 Order 3 of the Regional
Trial Court, Branch 70, Pasig City (RTC), dismissing its petition for the
issuance of a confidentiality/protective order.
FedEx is a foreign corporation doing business in the Philippines
primarily engaged in international air carriage, logistics and freight
forwarding, while Jennings serves as its Managing Director for the
Philippines and Indonesia. Respondent Airfreight 2100 (Air21) is a
domestic corporation likewise involved in the freight forwarding business,
while Alberto Lina (Lina) is the Chairman of its Board of Directors.
The Antecedents
FedEx, having lost its International Freight
Forwarder's (IFF) license to engage in international freight forwarding in
the Philippines, executed various Global Service
Program (GSP) contracts with Air21, an independent contractor, to
primarily undertake its delivery and pick-up services within the country. 4
Under the GSP arrangement, the packages sent by FedEx
customers from abroad would be picked up at a Philippine airport and
delivered by Air21 to its respective consignees. Conversely, packages
from Philippine clients would be delivered by Air21 to the airport and
turned over to FedEx for shipment to consignees abroad. As stipulated in
the GSP contracts, Air21 guaranteed that all shipments would be cleared
through customs in accordance with Philippine law. In the
implementation of these contracts, however, several issues relating to
money remittance, value-added taxes, dynamic fuel charge, trucking
costs, interests, and penalties ensued between the parties.
On May 11, 2011, in an effort to settle their commercial dispute,
FedEx and Air21 agreed to submit themselves to arbitration before the
Philippine Dispute Resolution Center (PDRC). Thus, on June 24, 2011,
FedEx filed its Notice of Arbitration. On October 3, 2011, the Arbitral
Tribunal was constituted.
As part of the arbitration proceedings, Jennings, John Lumley
Holmes (Holmes), the Managing Director of SPAC Legal of FedEx; and
David John Ross (Ross), Senior Vice President of Operations, Middle
East, India and Africa, executed their respective statements 5 as
witnesses for FedEx. Ross and Holmes deposed that Federal Express
Pacific, Inc., a subsidiary of FedEx, used to have an IFF license to
engage in the business of freight forwarding in the Philippines. This
license, however, was suspended pending a case in court filed by Merit
International, Inc. (Merit) and Ace Logistics, Inc. (Ace), both freight
forwarding companies, which questioned the issuance of the IFF to
FedEx. Absent the said license, FedEx executed the GSP contracts with
Air21 to be able to conduct its business in the Philippines. Ross and
Holmes, in their individual statements, averred that Merit and Ace were
either owned or controlled by Air21 employees or persons connected
with the Lina Group of Companies, which included Air21.
Jennings, in his cross-examination, was identified as the source
of the information that Merit and Ace were Air21's proxies and was asked
if he had any written proof of such proxy relationship. 6 He answered in
the negative. In his re-direct examination, he was made to expound on
the supposed proxy relationship between Merit, Ace and Air21. 7 He
responded that Merit and Ace were just very small companies with
meager resources, yet they were able to finance and file a case to
oppose the grant of IFF license to FedEx. Jennings also disclosed that
one of the directors of Ace was a friend of Lina and that Lorna Orbe, the
President of Merit, was the former "boss" of Lito Alvarez, who was also
associated with Air21.
Feeling aggrieved by those statements, Lina for himself and on
behalf of Air21, filed a complaint for grave slander against Jennings
before the Office of the City Prosecutor in Taguig City. 8 Lina claimed
that the defamatory imputation of Jennings that Merit and Ace were
Air21's proxies brought dishonor, discredit and contempt to his name and
that of Air21. Lina quoted certain portions of the written statements of
Holmes and Ross and the Transcript of Stenographic Notes (TSN) of the
April 25, 2013 arbitration hearing reflecting Jennings' testimony to
support his complaint. HSAcaE
 Consequently, FedEx and Jennings (petitioners) filed their A.
Petition for Issuance of a Confidentiality/Protective Order with Application THE COURT OF APPEALS FAILED TO APPLY, OR
for Temporary Order of Protection and/or Preliminary Injunction before OTHERWISE MISAPPLIED, SECTIONS 3(H) AND 23
the RTC alleging that all information and documents obtained in, or OF THE ADR ACT.
related to, the arbitration proceedings were confidential. 9 FedEx B.
asserted that the testimony of Jennings, a witness in the arbitration THE COURT OF APPEALS FAILED TO APPLY RULE
proceedings, should not be divulged and used to bolster the complaint- 10.5 OF THE SPECIAL ADR RULES.
affidavit for grave slander as this was inadmissible in evidence. C.
THE TEST APPLIED BY THE COURT OF APPEALS
On January 16, 2014, the RTC granted petitioners' application
FOR DETERMINING CONFIDENTIALITY OF
for the Temporary Order of Protection.
INFORMATION IS NOT SANCTIONED BY AND IS
Meanwhile, on February 3, 2014, the arbitral tribunal rendered INCONSISTENT WITH THE ADR ACT AND THE
an award in favor of FedEx. SPECIAL ADR RULES.
D.
Subsequently, in the assailed Order, dated May 7, 2014, the THE ASSAILED DECISION RESULTS TO
RTC denied FedEx's petition for lack of merit, stating that the statements SUBSTANTIAL PREJUDICE TO PETITIONERS.
and arbitration documents were not confidential information. It went on to E.
state that "[t]he statement and 'Arbitration Documents' which purportedly THE ASSAILED DECISION DEFEATS PUBLIC
consists the crime of Grave Slander under Articles 353 and 358 of the POLICY ON CONFIDENTIALITY OF THE RECORDS
Revised Penal Code are not in any way related to the subject under OF AND COMMUNICATIONS MADE IN THE COURSE
Arbitration." The RTC further wrote that "a crime cannot be protected by OF ARBITRATION. 13
the confidentiality rules under ADR. The said rules should not be used as
a shield in the commission of any crime." Thus, it disposed: FedEx argues that the Jennings' statements were part of the (a)
records and evidence of Arbitration (Section 23); (b) witness statements
WHEREFORE, in view of the foregoing, the made therein (Section 3 [h] [3]); and (c) communication made in a
Petition for Issuance of a Confidentiality/Protective Order dispute resolution proceedings (Section 3 [h] [1]). 14 They, thus, averred
is hereby DENIED for lack of merit. that Jennings' oral statements made during the April 25, 2013 arbitration
The case is hereby DISMISSED. hearing and the TSN of the hearings, conducted on April 22 and 25,
2013, form part of the records of arbitration and must, therefore, be
SO ORDERED. 10 considered confidential information.
Dissatisfied, petitioners challenged the RTC order before the For said reason, petitioners assert that Rule 10.5 of the Special
CA via a petition for review. Alternative Dispute Resolution (ADR) Rules, allowing for the issuance of
On January 20, 2015, the CA denied the petition. In its assailed a confidentiality/protective order, was completely disregarded by the CA
decision, the CA explained that the declarations by Jennings were not when it denied the petition filed by FedEx as a result of Lina divulging
confidential as they were not at all related to the subject of mediation as what were supposed to be confidential information from ADR
the arbitration proceedings revolved around the parties' claims for sum of proceedings.
money. 11 Thus, the CA ruled that "statements made without any Petitioners also claim that in ruling that Jennings' statements
bearing on the subject proceedings are not confidential in nature." It must were not confidential information, by applying the test of relevance that
be emphasized that other declarations given therein, if relative to the "statements made without any bearing on the subject proceedings are
subject of mediation or arbitration, are certainly confidential." 12 not confidential in nature," the CA used a "test" that had no basis in law
Hence, this present petition before the Court. and whose application in its petition amounted to judicial legislation. 15
Respondent Air21 and Lina (respondents), in their
Comment, 16 essentially countered that:
GROUNDS IN SUPPORT OF THE PETITION
While the Alternative Dispute Resolution Act of
2004 (the "ADR Law") confers communications made
 during arbitration the privilege against disclosure,
otherwise known as the confidentiality principle, to assist
the parties in having a speedy, efficient and impartial
resolution of their disputes, said privilege cannot be
invoked to shield any party from criminal responsibility.
The privilege is not absolute. The ADR Law does not
exist in a vacuum without regard to other existing
jurisprudence and laws, particularly the Revised Penal
Code. Otherwise, we will permit a dangerous situation
where arbitration proceedings will be used by an
unscrupulous disputant as a venue for the commission of
crime, which cannot be punished by the simple
invocation of the privilege. Such an absurd interpretation
of our laws cannot be deemed to be the underlying will of
our Congress in framing and enacting our law on
arbitration. To be sure, a crime cannot be protected or
extinguished through a bare invocation of the
confidentiality rule. 17
The Court's Ruling
The crucial issue in this case is whether the testimony of
Jennings given during the arbitration proceedings falls within the ambit of
confidential information and, therefore, covered by the mantle of a
confidentiality/protection order.
The Court finds the petition meritorious.
Section 3 (h) of Republic Act (R.A.) No. 9285 or the Alternative
Dispute Resolution of 2004 (ADR Act) defines confidential information as
follows:
"Confidential information" means any
information, relative to the subject of mediation or
arbitration, expressly intended by the source not to be
disclosed, or obtained under circumstances that would
create a reasonable expectation on behalf of the source
that the information shall not be disclosed. It shall
include (1) communication, oral or written, made in a
dispute resolution proceedings, including any
memoranda, notes or work product of the neutral party
or non-party participant, as defined in this Act; (2) an oral
or written statement made or which occurs during
mediation or for purposes of considering, conducting,
participating, initiating, continuing of reconvening
mediation or retaining a mediator; and (3) pleadings,
motions manifestations, witness statements,
reports filed or submitted in an arbitration or for
expert evaluation. [Emphases Supplied]
The said list is not exclusive and may include other information
as long as they satisfy the requirements of express confidentiality or
implied confidentiality. 18
Plainly, Rule 10.1 of A.M. No. 07-11-08-SC or the Special Rules
of Court on Alternative Dispute Resolution (Special ADR Rules) allows
"[a] party, counsel or witness who disclosed or who was compelled to
disclose information relative to the subject of ADR under circumstances
that would create a reasonable expectation, on behalf of the source, that
the information shall be kept confidential xxx the right to prevent such
information from being further disclosed without the express written
consent of the source or the party who made the disclosure." Thus, the
rules on confidentiality and protective orders apply when:
1. An ADR proceeding is pending;
2. A party, counsel or witness disclosed information or was
otherwise compelled to disclose information;
3. The disclosure was made under circumstances that would
create a reasonable expectation, on behalf of the source,
that the information shall be kept confidential; HESIcT
4. The source of the information or the party who made the
disclosure has the right to prevent such information from
being disclosed;
5. The source of the information or the party who made the
disclosure has not given his express consent to any
disclosure; and
6. The applicant would be materially prejudiced by an
unauthorized disclosure of the information obtained, or to
be obtained, during the ADR proceeding.
Gauged by the said parameters, the written statements of
witnesses Ross, Holmes and Jennings, as well as the latter's oral
testimony in the April 25, 2013 arbitration hearing, both fall under Section
3 (h) [1] and [3] of the ADR Act which states that "communication, oral or
written, made in a dispute resolution proceedings, including any
memoranda, notes or work product of the neutral party or non-party
participant, as defined in this Act; and (3) pleadings, motions,
manifestations, witness statements, reports filed or submitted in an
arbitration or for expert valuation," constitutes confidential information.
Notably, both the parties and the Arbitral Tribunal had agreed to
the Terms of Reference (TOR) that "the arbitration proceedings should
be kept strictly confidential as provided in Section 23 of the ADR Act and
Article 25-A 19 of the PDRCI Arbitration Rules (Arbitration Rules) and
that they should all be bound by such confidentiality requirements."
 The provisions of the ADR Act and the Arbitration Rules
repeatedly employ the word "shall" which, in statutory construction, is
one of mandatory character in common parlance and in ordinary
signification. 20 Thus, the general rule is that information disclosed by a
party or witness in an ADR proceeding is considered privileged and
confidential.
In evaluating the merits of the petition, Rule 10.8 of the Special
ADR Rules mandates that courts should be guided by the principle that
confidential information shall not be subject to discovery and shall be
inadmissible in any adversarial proceeding, to wit:
Rule 10.8. Court action. — If the court finds the petition
or motion meritorious, it shall issue an order enjoining a
person or persons from divulging confidential
information.
In resolving the petition or motion, the courts shall be
guided by the following principles applicable to all ADR
proceedings: Confidential information shall not be
subject to discovery and shall be inadmissible in any
adversarial proceeding, whether judicial or quasi judicial.
However, evidence or information that is otherwise
admissible or subject to discovery does not become
inadmissible or protected from discovery solely by
reason of its use therein.
Article 5.42 of the Implementing Rules and
Regulations (IRR) 21 of the ADR Act likewise echoes that arbitration
proceedings, records, evidence and the arbitral award and other
confidential information are privileged and confidential and shall not be
published except [i] with the consent of the parties; or [ii] for the limited
purpose of disclosing to the court relevant documents where resort to the
court is allowed. Given that the witness statements of Ross, Holmes and
Jennings, and the latter's arbitration testimony, fall within the ambit of
confidential information, they must, as a general rule, remain confidential.
Although there is no unbridled shroud of confidentiality on information
obtained or disclosed in an arbitration proceeding, the presence of the
above criteria must be apparent; otherwise, the general rule should be
applied. Here in this case, only a perceived imputation of a wrongdoing
was alleged by the respondents. caITAC
In denying the said application for confidentiality/protection order,
the RTC and the CA did not consider the declarations contained in the
said witness statements and arbitration testimony to be related to the
subject of arbitration and, accordingly, ruled that they could not be
covered by a confidentiality order.
The Court does not agree. Suffice it to say that the phrase
"relative to the subject of mediation or arbitration" need not be strictly
confined to the discussion of the core issues in the arbitral dispute. By
definition, "relative" simply means "connected to," which means that
parties in arbitration proceedings are encouraged to discuss openly their
grievances and explore the circumstances which might have any
connection in identifying the source of the conflict in the hope of finding a
better alternative to resolve the parties' dispute. An ADR proceeding is
aimed at resolving the parties' conflict without court intervention. It was
not designed to be strictly technical or legally confined at all times. By
mutual agreement or consent of the parties to a controversy or dispute,
they acquiesce to submit their differences to arbitrators for an informal
hearing and extra-judicial determination and resolution. Usually, an ADR
hearing is held in private and the decision of the persons selected to
comprise the tribunal will take the place of a court judgment. This avoids
the formalities, delays and expenses of an ordinary litigation. Arbitration,
as envisioned by the ADR Act, must be taken in this perspective.
Verily, it is imperative that legislative intent or spirit be the
controlling factor, the leading star and guiding light in the application and
interpretation of a statute. 22 If a statute needs construction, the
influence most dominant in that process is the intent or spirit of the
act. 23 A thing which is within the intent of the lawmaker is as much
within the statute as if within the letter; and a thing which is within the
letter of the statute is not within the statute unless within the intent of the
lawmakers. 24 In other words, a statute must be read according to its
spirit or intent and legislative intent is part and parcel of the statute. It is
the controlling factor in interpreting a statute. Any interpretation that
contradicts the legislative intent is unacceptable.
In the case at bench, the supposed questionable statements
surfaced when FedEx's suspended IFF license was discussed during the
arbitration hearing. In fact, when Jennings was asked by Arbitrator
Panga to expound on how the opposition of Ace and Merit could be
related to the ongoing arbitration, Jennings replied that, to his mind, it
was indicative of the leverage that Air21 had over FedEx as it was able
to withhold large sums of money and siphon their joint plans from being
properly established. Whether the information disclosed in the arbitration
proceeding would be given weight by the tribunal in the resolution of their
dispute is a separate matter. Likewise, the relevance or materiality of the
said statements should be best left to the arbitrators' sound appreciation
and judgment. Even granting that the weight of the said statements was
not fundamental to the issues in the arbitration process, nevertheless,
they were still connected to, and propounded by, a witness who relied
upon the confidentiality of the proceedings and expect that his responses
be reflected.
Arbitration, being an ADR proceeding, was primarily designed to
be a prompt, economical and amicable forum for the resolution of
disputes. It guarantees confidentiality in its processes to encourage
parties to ventilate their claims or disputes in a less formal, but Thus, the claimed slanderous statements by Jennings during the
spontaneous manner. It should be emphasized that the law favors arbitration hearing are deemed confidential information and the veil of
settlement of controversies out of court. Thus, a person who participates confidentiality over them must remain.
in an arbitration proceeding is entitled to speak his or her piece without
WHEREFORE, the petition is GRANTED. The January 20, 2015
fear of being prejudiced should the process become unsuccessful.
Decision of the Court of Appeals (CA), in CA-G.R. SP No. 135835,
Hence, any communication made towards that end should be regarded
is REVERSED and SET ASIDE.
as confidential and privileged.
The Petition for the Issuance of a Confidentiality/Protective Order
To restate, the confidential nature of the arbitration proceeding is
filed by Federal Express Corporation and Rhicke S. Jennings is
well-entrenched in Section 23 of the ADR Act:
hereby GRANTED. ICHDca
SEC. 23. Confidentiality of Arbitration
SO ORDERED.
Proceedings. — The arbitration proceedings, including
the records, evidence and the arbitral award, shall be
considered confidential and shall not be published
except (1) with the consent of the parties, or (2) for the
limited purpose of disclosing to the court of relevant
documents in cases where resort to the court is allowed
herein. Provided, however, that the court in which the
action or the appeal is pending may issue a protective
order to prevent or prohibit disclosure of documents or
information containing secret processes, developments,
research and other information where it is shown that the
applicant shall be materially prejudiced by an authorized
disclosure thereof.
If Lina had legal grounds to suspect that Jennings committed
slanderous remarks even before the arbitration proceeding commenced,
then he must present evidence independent and apart from some quoted
portions of the arbitration documents.
It must be stressed that the very soul of an arbitration proceeding
would be rendered useless if it would be simply used as an avenue for
evidence gathering or an entrapment mechanism to lure the other
unsuspecting party into conveying information that could be potentially
used against him in another forum or in court.
Ultimately, the RTC and the CA failed to consider the fact that an
arbitration proceeding is essentially a unique proceeding that is non-
litigious in character where the parties are bound by a different set of
rules as clearly encapsulated under the Special ADR Rules. Inevitably,
when Lina cited portions of the said arbitration documents, he violated
their covenant in the TOR to resolve their dispute through the arbitration
process and to honor the confidentiality of the said proceeding. To
disregard this commitment would impair the very essence of the ADR
proceeding. By itself, this would have served as a valid justification for
the grant of the confidentiality/protection order in favor of FedEx and
Jennings.
 THIRD DIVISION
[G.R. No. 211504. March 8, 2017.]
FEDERAL BUILDERS, INC., petitioner, vs. POWER
FACTORS, INC., respondent.
DECISION
BERSAMIN, J  p:
An agreement to submit to voluntary arbitration for purposes of
vesting jurisdiction over a construction dispute in the Construction
Industry Arbitration Commission (CIAC) need not be contained in the
construction contract, or be signed by the parties. It is enough that the
agreement be in writing.
The Case
Federal Builders Inc. (Federal) appeals to reverse the decision
promulgated on August 12, 2013, 1 whereby the Court of Appeals (CA)
affirmed the adverse decision rendered on May 12, 2010 by the
Construction Industry Arbitration Commission (CIAC) with modification of
the total amount awarded. 2
Antecedents
Federal was the general contractor of the Bullion Mall under a
construction agreement with Bullion Investment and Development
Corporation (BIDC). In 2004, Federal engaged respondent Power
Factors, Inc. (Power) as its subcontractor for the electric works at the
Bullion Mall and the Precinct Building for P18,000,000.00. 3
On February 19, 2008, Power sent a demand letter to Federal
claiming the unpaid amount of P11,444,658.97 for work done by Power
for the Bullion Mall and the Precinct Building. Federal replied that its
outstanding balance under the original contract only amounted to
P1,641,513.94, and that the demand for payment for work done by
Power after June 21, 2005 should be addressed directly to
BIDC. 4 Nonetheless, Power made several demands on Federal to no
avail.
On October 29, 2009, Power filed a request for arbitration in the
CIAC invoking the arbitration clause of the Contract of Service reading as
follows:
15. ARBITRATION COMMITTEE — All disputes,
controversies or differences, which may arise between
the parties herein, out of or in relation to or in connection
with this Agreement, or for breach thereof shall be
settled by the Construction Industry Arbitration
Commission (CIAC) which shall have original and
exclusive jurisdiction over the aforementioned
disputes. 5
On November 20, 2009, Atty. Vivencio Albano, the counsel of
Federal, submitted a letter to the CIAC manifesting that Federal agreed
to arbitration and sought an extension of 15 days to file its answer, which
request the CIAC granted.
On December 16, 2009, Atty. Albano filed his withdrawal of
appearance stating that Federal had meanwhile engaged another
counsel. 6
Federal, represented by new counsel (Domingo, Dizon,
Leonardo and Rodillas Law Office), moved to dismiss the case on the
ground that CIAC had no jurisdiction over the case inasmuch as the
Contract of Service between Federal and Power had been a mere draft
that was never finalized or signed by the parties. Federal contended that
in the absence of the agreement for arbitration, the CIAC had no
jurisdiction to hear and decide the case. 7
On February 8, 2010, the CIAC issued an order setting the case
for hearing, and directing that Federal's motion to dismiss be resolved
after the reception of evidence of the parties. 8
Federal did not thereafter participate in the proceedings until the
CIAC rendered the Final Award dated May 12, 2010, 9 disposing:
In summary: Respondent Federal Builders, Inc.
is hereby ordered to pay claimant Power Factors, Inc.
the following sums:
1.    Unpaid balance on the original contract P4,276,614.75;
2.    Unpaid balance on change order nos. 1, 2, 3,
4, 5, 6, 7, 8, & 9 3,006,970.32;
3.    Interest to May 13, 2010 1,686,149.94;
4.    Attorney's Fees 250,000.00;
5.    Cost of Arbitration 149,503.86;
  P9,369,238.87
The foregoing amount shall earn legal interest at
the rate of 6% per annum from the date of this Final
Award until this award becomes final and executory,
Claimant shall then be entitled to 12% per annum until
the entire amount is fully satisfied by Respondent.
Federal appealed the award to the CA insisting that the CIAC
had no jurisdiction to hear and decide the case; and that the amounts
thereby awarded to Power lacked legal and factual bases.
On August 12, 2013, the CA affirmed the CIAC's decision with
modification as to the amounts due to Power, 10 viz.:
WHEREFORE, the CIAC Final Award dated 12
May 2010 in CIAC Case No. 31-2009 is
hereby AFFIRMED with MODIFICATION. As modified,
FEDERAL BUILDERS, INC. is ordered to pay POWER
FACTORS, INC. the following:
1.   Unpaid balance on the original contract P4,276,614.75;
2.   Unpaid balance on change orders 2,864,113.32;
3.   Attorney's Fees 250,000.00;
4.   Cost of Arbitration 149,503.86;
The interest to be imposed on the net award
(unpaid balance on the original contract and change
order) amounting to P7,140,728.07 awarded to POWER
FACTORS, INC. shall be six (6%) per annum, reckoned
from 4 July 2006 until this Decision becomes final and
executory. Further, the total award due to POWER
FACTORS, INC. shall be subjected to an interest of
twelve percent (12%) per annum computed from the time
this judgment becomes final and executory, until full
satisfaction.
SO ORDERED. 11
Anent jurisdiction, the CA explained that the CIAC Revised
Rules of Procedure stated that the agreement to arbitrate need not be
signed by the parties; that the consent to submit to voluntary arbitration
was not necessary in view of the arbitration clause contained in the
Contract of Service; and that Federal's contention that its former
counsel's act of manifesting its consent to the arbitration stipulated in the
draft Contract of Service did not bind it was inconsequential on the issue
of jurisdiction. 12
Concerning the amounts awarded, the CA opined that the CIAC
should not have allowed the increase based on labor-cost escalation
because of the absence of the agreement between the parties on such
escalation and because there was no authorization in writing allowing the
adjustment or increase in the cost of materials and labor. 13
After the CA denied Federal's motion for reconsideration on
February 19, 2004, 14 Federal has come to the Court on appeal.
Issue
The issues to be resolved are: (a) whether the CA erred in
upholding CIAC's jurisdiction over the present case; and (b) whether the
CA erred in holding that Federal was liable to pay Power the amount of
P7,140,728.07.
Ruling of the Court
The appeal is bereft of merit.
1.
The parties had an effective agreement
to submit to voluntary arbitration;
hence, the CIAC had jurisdiction
The need to establish a proper arbitral machinery to settle
disputes expeditiously was recognized by the Government in order to
promote and maintain the development of the country's construction
industry. With such recognition came the creation of the CIAC through
Executive Order No. 1008 (E.O. No. 1008), also known as The
Construction Industry Arbitration Law. Section 4 of E.O. No. 1008
provides:
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. x x x
 Under the CIAC Revised Rules of Procedure Governing
Construction Arbitration (CIAC Revised Rules), all that is required for the
CIAC to acquire jurisdiction is for the parties of any construction contract
to agree to submit their dispute to arbitration. 15 Also, Section 2.3 of
the CIAC Revised Rules states that the agreement may be reflected in
an arbitration clause in their contract or by subsequently agreeing to
submit their dispute to voluntary arbitration. The CIAC Revised
Rules clarifies, however, that the agreement of the parties to submit their
dispute to arbitration need not be signed or be formally agreed upon in
the contract because it can also be in the form of other modes of
communication in writing, viz.:
RULE 4 — EFFECT OF AGREEMENT TO
ARBITRATE
SECTION 4.1. 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.
4.1.1 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.
4.1.2 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,
electronic mail or any other mode of communication.
The liberal application of procedural rules as to the form by
which the agreement is embodied is the objective of the CIAC Revised
Rules. Such liberality conforms to the letter and spirit of E.O. No. 1008
itself which emphasizes that the modes of voluntary dispute resolution
like arbitration are always preferred because they settle disputes in a
speedy and amicable manner. They likewise help in alleviating or
unclogging the judicial dockets. Verily, E.O. No. 1008 recognizes that the
expeditious resolution of construction disputes will promote a healthy
partnership between the Government and the private sector as well as
aid in the continuous growth of the country considering that the
construction industry provides employment to a large segment of the
national labor force aside from its being a leading contributor to the gross
national product. 16
Worthy to note is that the jurisdiction of the CIAC is over the
dispute, not over the contract between the parties. 17 Section 2.1, Rule 2
of the CIAC Revised Rules particularly specifies that the CIAC has
original and exclusive jurisdiction over construction disputes, whether
such disputes arise from or are merely connected with the construction
contracts entered into by parties, and whether such disputes
arise before or after the completion of the contracts. Accordingly, the
execution of the contracts and the effect of the agreement to submit to
arbitration are different matters, and the signing or non-signing of one
does not necessarily affect the other. In other words, the formalities of
the contract have nothing to do with the jurisdiction of the CIAC.
Federal contends that there was no mutual consent and no
meeting of the minds between it and Power as to the operation and
binding effect of the arbitration clause because they had rejected the
draft service contract.
The contention of Federal deserves no consideration.
Under Article 1318 of the Civil Code, a valid contract should
have the following essential elements, namely: (a) consent of the
contracting parties; (b) object certain that is the subject matter of the
contract; and (c) cause or consideration. Moreover, a contract does not
need to be in writing in order to be obligatory and effective unless the law
specifically requires so. Pursuant to Article 1356 18 and Article
1357 19 of the Civil Code, contracts shall be obligatory in whatever form
they may have been entered into, provided that all the essential
requisites for their validity are present. Indeed, there was a contract
between Federal and Power even if the Contract of Service was
unsigned. Such contract was obligatory and binding between them by
virtue of all the essential elements for a valid contract being present.
It clearly appears that the works promised to be done by Power
were already executed albeit still incomplete; that Federal paid Power
P1,000,000.00 representing the originally proposed downpayment, and
the latter accepted the payment; and that the subject of their dispute
concerned only the amounts still due to Power. The records further show
that Federal admitted having drafted the Contract of Services containing
the following clause on submission to arbitration, to wit:
15. ARBITRATION COMMITTEE — All disputes,
controversies or differences, which may arise between
the Parties herein, out of or in relation to or in connection
with this Agreement, or for breach thereof shall be
settled by the Construction Industry Arbitration
Commission (CIAC) which shall have original and
 exclusive jurisdiction over the aforementioned favor of arbitration. 26 In this connection, the CA correctly observed that
disputes. 20 the act of Atty. Albano in manifesting that Federal had agreed to the form
of arbitration was unnecessary and inconsequential considering the
With the parties having no issues on the provisions or parts of
recognition of the value of the Contract of Service despite its being an
the Contract of Service other than that pertaining to the downpayment
unsigned draft.
that Federal was supposed to pay, Federal could not validly insist on the
lack of a contract in order to defeat the jurisdiction of the CIAC. As earlier 2.Amounts as modified by the CA are correct
pointed out, the CIAC Revised Rules specifically allows any written mode
of communication to show the parties' intent or agreement to submit to We find no reversible error regarding the amounts as modified by
arbitration their present or future disputes arising from or connected with the CA. Power did not sufficiently establish that the change or increase of
their contract. the cost of materials and labor was to be separately determined and
approved by both parties as provided under Article 1724 of the Civil
The CIAC and the CA both found that the parties had disagreed Code. As such, Federal should not be held liable for the labor cost
on the amount of the downpayment. On its part, Power indicated after escalation.
receiving and reviewing the draft of the Contract of Service that it wanted
30% as the downpayment. Even so, Power did not modify anything else WHEREFORE, the Court AFFIRMS the decision promulgated on
in the draft, and returned the draft to Federal after signing it. It was August 12, 2013; and ORDERS the petitioner to pay the costs of suit.
Federal that did not sign the draft because it was not amenable to the SO ORDERED.
amount as modified by Power. It is notable that the arbitration clause
written in the draft of Federal was unchallenged by the parties until their
dispute arose.
Moreover, Federal asserted the original contract to support its
claim against Power. If Federal would insist that the remaining amount
due to Power was only P1,641,513.94 based on the original
contract, 21 it was really inconsistent for Federal to rely on the draft when
it is beneficial to its side, and to reject its efficacy and existence just to to
relieve itself from the CIAC's unfavorable decision.
The agreement contemplated in the CIAC Revised Rules to vest
jurisdiction of the CIAC over the parties' dispute is not necessarily an
arbitration clause to be contained only in a signed and finalized
construction contract. The agreement could also be in a separate
agreement, or any other form of written communication, as long as their
intent to submit their dispute to arbitration is clear. The fact that a
contract was signed by both parties has nothing to do with the jurisdiction
of the CIAC, and this is the explanation why the CIAC Revised
Rules itself expressly provides that the written communication or
agreement need not be signed by the parties.
Although the agreement to submit to arbitration has been
expressly required to be in writing and signed by the parties therein by
Section 4 22 of Republic Act No. 876 (Arbitration Law), 23 the
requirement is conspicuously absent from the CIAC Revised Rules,
which even expressly allows such agreement not to be signed by the
parties therein. 24 Brushing aside the obvious contractual agreement in
this case warranting the submission to arbitration is surely a step
backward. 25 Consistent with the policy of encouraging alternative
dispute resolution methods, therefore, any doubt should be resolved in
 THIRD DIVISION
[G.R. No. 198849. August 7, 2019.]
CAMP JOHN HAY DEVELOPMENT
CORPORATION, petitioner, vs. CHARTER CHEMICAL
AND COATING CORPORATION, respondent.
DECISION
LEONEN, J  p:
Rescission under Article 1191 of the Civil Code is the proper
remedy when a party breaches a reciprocal obligation. Because each
case has its own distinct circumstances, this Court's power to fix a period
of an obligation under Article 1197 is discretionary and should be
exercised only if there is just cause.
This resolves a Petition for Review on Certiorari  1 assailing the
May 13, 2011 Decision 2 and September 30, 2011 Resolution 3 of the
Court of Appeals in CA-G.R. SP No. 108335. The Court of Appeals
affirmed the March 30, 2009 Final Award 4 in CIAC Case No. 19-2008
issued by the Construction Industry Arbitration Commission, which found
that Charter Chemical and Coating Corporation (Charter Chemical) is
entitled to the payment of the monetary equivalent of two (2) units in
Camp John Hay Suites in the total amount of P5,900,000.00 and
attorney's fees in the amount of P590,000.00. 5
Camp John Hay Development Corporation (Camp John Hay
Development) is the investment arm of a consortium engaged in the
construction of the Camp John Hay Manor in Baguio City. 6
In January 2001, Camp John Hay Development entered into a
Contractor's Agreement 7 with Charter Chemical, the company awarded
to complete the interior and exterior painting works of unit 2E of the
Camp John Hay Manor for the contract price of P15,500,000.00. This
was inclusive of the price of two (2)-studio type units at Camp John Hay
Suites, the total amount of which would be based on the units chosen by
Charter Chemical. 8
Although the Contractor's Agreement contained no date of the
units' turnover, it allowed Charter Chemical to choose the units for
offsetting under an offsetting scheme:
1. Compensation:
xxx xxx xxx
b. Off-setting against Two (2) Units —
Studio Type at Suite 2A. Total amount
shall be based on the final unit[s]
chosen by the Contractor. 9
Charter Chemical chose Units 102 and 104 studio type in the
second phase of Camp John Hay Suites. 10 aScITE
At the time the Contractor's Agreement was signed in 2001, the
actual construction of the Camp John Hay Suites had not yet
commenced. 11
Later on, the contract price was reduced to P13,239,734.16, for
which Camp John Hay Development paid P7,339,734.16. The balance of
P5,900,000.00 was ought to be settled by offsetting the price of the two
(2) studio units. 12
In 2003, Charter Chemical completed the painting works, after
which Camp John Hay Development issued a Final Inspection and
Acceptance Certificate belatedly on May 30, 2005. Charter Chemical
demanded the execution of the deed of sale and delivery of the titles of
the two (2) units in September 2004, with a follow-up in April 2005. 13 In
June 2005, Camp John Hay Development and Charter Chemical
executed contracts to sell. The uniform contracts state in part:
[P]ossession of the Unit shall be delivered by Seller to
Buyer within a reasonable period of time from the date of
completion of the Unit either by (a) serving written Notice
of Completion to the Buyer or (b) by delivering to the
Buyer the Limited Warranty Deed covering the Unit. The
delivery of the Notice of Completion or the Limited
Warranty Deed shall constitute constructive delivery of
the Unit and immediately thereafter the risk of loss to the
Unit and all obligations and assessments provided in this
Contract, the Project Plan and Declaration of
Restrictions, the Articles of Incorporation and By-Laws of
the Association, and the House Rules, shall pertain to
Buyer. 14
In August 2005, Camp John Hay Development issued
certifications to Charter Chemical that the two (2) units were fully paid
under their offsetting scheme. However, the units were not delivered
because the construction of Camp John Hay Suites was not yet
complete. 15
Camp John Hay Development had initially estimated that the
construction would be completed by 2006. In a Lease
Agreement 16 executed on October 19, 1996, Camp John Hay
Development and Bases Conversion and Development Authority
provided for a period of three and a half (3.5) years from the execution of
the Lease Agreement to complete the various physical components in
Camp John Hay. When this timetable was not followed due to alleged
mutual delays and force majeure, they entered into at least four (4) more
amendments to the Lease Agreement. Two (2) of these, the July 18,
2003 and July 1, 2008 Memoranda of Agreement, covered the revision of
the Project Implementation Plan providing the targeted completion dates
of the various facilities in Camp John Hay. 17
Under the July 18, 2003 revision, Camp John Hay Development
and Bases Conversion and Development Authority estimated that the
second phase of the Camp John Hay Suites would be completed by the
end of the second quarter of 2006. 18 Admitting various unforeseen
events, Camp John Hay Development again failed to complete its
construction. Under the July 1, 2008 revision, the Camp John Hay Suites
was estimated to be completed by 2012. 19
Due to the subsisting construction delay, Charter Chemical,
through counsel, wrote Camp John Hay Development, demanding that it
transfer the units or pay the value of these units in the sum of
P6,996,517.48. 20
When it felt that further demands would be futile, Charter
Chemical, on June 12, 2008, filed before the Construction Industry
Arbitration Commission a Request for Arbitration 21 under the arbitration
clause in the Contractor's Agreement.
In its March 30, 2009 Final Award, 22 the Construction Industry
Arbitration Commission ordered Camp John Hay Development to pay the
amounts of P5,900,000.00, the monetary value of the two (2) units in
Camp John Hay Suites, and P590,000.00 as attorney's fees. 23
The arbitral tribunal ruled that Charter Chemical was entitled to
its claim for the value of the two (2) units because Camp John Hay
Development failed to deliver the units within the targeted completion
date. 24
The Final Award read:
On the basis of the evidence the Arbitration
Tribunal finds and so holds that:
1. Claimant is entitled to its claim for the
monetary equivalent of the two (2) units CJH Suites in
the total sum of Php5,900,000.00.
2. Claimant is not entitled to its claim for
exemplary damages.
3. Claimant is entitled to its claim for attorney's
fees for the sum of Php590,000.00 which is 10% of the
total monetary value for the two (2) units CJH Suites of
Php5,900,000.00 which had not been delivered by
respondent. HEITAD
4. The Court should not fix the period for the
delivery of the subject units as provided for in Article
1197 of the Civil Code because the reciprocal nature of
the contract itself provides for the period of their delivery.
Moreover, CIAC can fix the period if necessary. 25
Camp John Hay Development filed before the Court of Appeals a
Petition for Review 26 under Rule 43 of the Rules of Court. It argued that
the arbitral tribunal did not have jurisdiction over the dispute because the
arbitration clause had been superseded by a subsequent dispute
resolution clause contained in the contracts to sell. 27 It further asserted
that it had neither agreed on the completion date of the two (2) units nor
admitted that the units were to be completed within three (3) years from
2003 or 2005. 28 Instead, it asked for a fixing of the term or period when
the units would be completed. 29
In its May 13, 2011 Decision, 30 the Court of Appeals affirmed
the arbitral tribunal's award. It held that the arbitration clause in the
Contractor's Agreement was neither modified nor superseded by the
contracts to sell, which were merely devices by which to transfer
possession and title over the units to Charter Chemical. The Contractor's
Agreement, it noted, remained the principal covenant. 31
The Court of Appeals also ruled that Camp John Hay
Development was already in delay when Charter Chemical demanded
the transfer of units on August 3, 2007. When Charter Chemical finished
the work in 2003, a timetable based on the 2003 Memorandum of
Agreement between Camp John Hay Development and Bases
Conversion and Development Authority stated that the units would be
completed by 2006. This showed that there was a definite time for the
completion of the units. Although Charter Chemical was an outsider to
this agreement, it was "equivalent to an announcement to all concerned
that the units would be completed at such and such a date." 32
On June 3, 2011, Camp John Hay Development filed a Motion
for Reconsideration, but it was denied by the Court of Appeals in its
September 30, 2011 Resolution. 33
 Camp John Hay Development received the September 30, 2011
Resolution on October 7, 2011. 34 Before the lapse of the original 15-day
period, it filed on October 21, 2011 a Motion for Extension of Time to File
Petition for Review under Rule 45, asking for a period of 30 days from
October 22, 2011, or until November 21, 2011, within which to file the
Petition. 35 This Motion for Extension was granted by this Court. 36
On November 23, 2011, Camp John Hay Development filed a
Petition for Review on Certiorari. 37 Charter Chemical filed its
Comment 38 on February 6, 2012 and, in turn, Camp John Hay
Development filed its Reply 39 on May 16, 2012.
Petitioner contends that there is no specific date determined for
the completion or delivery of the two (2) units in any of its contracts with
respondent. It argues that the action filed should have been for the fixing
of a period under Articles 1191 40 and 1197 41 of the Civil Code, and not
an action for the rescission of the contract. 42
According to petitioner, both the arbitral tribunal and the Court of
Appeals erred in ruling that the Contractor's Agreement between
petitioner and respondent had a definite timetable based on the
Memorandum of Agreement between petitioner and the Bases
Conversion and Development Authority. Moreover, petitioner argues that
the determination of whether there is an agreed completion date must be
based on the agreement between petitioner and respondent in their
contract. Thus, when the Court of Appeals resorted to a separate
agreement different from the Contractor's Agreement, it recognized that
the parties had never actually agreed on a specific completion date. 43
Petitioner relies on Article 1311 44 of the Civil Code, which
states that "contracts take effect only between the parties who execute
them." 45 It also points out that respondent did not rely on the Master
Development Plan in the Memorandum of Agreement, maintaining that
its representative admitted having never seen the Master Development
Plan when he signed the agreement. 46 Petitioner also notes that at the
time of the execution of the Contractor's Agreement, respondent had not
yet selected the two (2) units as part of its compensation for its painting
works. Petitioner argues that the date of delivery was not specified in the
contracts to sell, which merely indicated that the delivery would be "within
a reasonable time from the date of completion of the subject
units." 47 ATICcS
Additionally, petitioner claims that the arbitral tribunal had no
jurisdiction over the Complaint. It asserts that the contracts to sell
executed following the Contractor's Agreement contain a different mode
of dispute resolution. 48 The contracts to sell provide the following
clause:
ARTICLE XIV
MISCELLANEOUS PROVISION
xxx xxx xxx
4. Venue — All actions involving this Contract
shall be instituted only in the proper courts of Pasig City,
Metro Manila to the exclusion of all other courts. 49
From the dispute resolution clause, petitioner points out that
disputes must be adjudicated by the proper courts of Pasig City, to the
exclusion of all other courts. The contracts to sell also effectively
removed the parties' dispute outside the ambit of a construction dispute
since they are not the construction contracts contemplated by Executive
Order No. 1008, or the Construction Industry Arbitration Law. 50
Petitioner further contests the award of attorney's fees to
respondent, maintaining that neither the Court of Appeals nor the arbitral
tribunal has specified the factual basis for it. It argues that the award of
attorney's fees is not justified when both tribunals denied respondent's
claim for exemplary damages and when petitioner has not been found to
have acted in bad faith. Respondent, it points out, also failed to present
any official receipt to support its claim for attorney's fees. 51
On the other hand, respondent argues that the Court of Appeals'
and the arbitral tribunal's decisions, entitling respondent to the monetary
equivalent of the units for offsetting, should be respected and accorded
great weight and finality. Respondent points out that it only agreed to bid
for the painting works because Interpro, Inc., petitioner's project
manager, assured that under the Master Development Plan, the units
would be available for occupancy two (2) to three (3) years from
negotiations, or sometime in 2003. 52
Respondent further argues that since petitioner was already
delayed in delivering the units in 2007, the arbitral tribunal and the Court
of Appeals correctly applied Article 1191 of the Civil Code, awarding
indemnity for damages to respondent. 53
Moreover, respondent claims that the arbitral tribunal correctly
acquired jurisdiction over the dispute because the relationship of the
parties was born out of the Contractor's Agreement. 54 The Contractor's
Agreement provided the arbitration clause in case of any dispute. The
contracts to sell "cannot be considered to have superseded the
Contractor's Agreement" 55 because they are merely preparatory
contracts required for the processing of the titles of the units. 56
Lastly, respondent claims that the award of attorney's fees was
justified, as petitioner's unwarranted delay and unjustified refusal to settle
the matter brought about its filing of the Complaint before the arbitral
tribunal. 57
For this Court's resolution are the following issues:
 First, whether or not the Court of Appeals erred in ruling that the
Construction Industry Arbitration Commission has jurisdiction over the
dispute despite the existence of a dispute resolution clause;
Second, whether or not the Court of Appeals correctly rescinded
the obligation under Article 1191 of the Civil Code and whether or not a
period should be fixed under Article 1197 of the Civil Code; and
Finally, whether or not the Court of Appeals erred in affirming the
award of attorney's fees to respondent Charter Chemical and Coating
Corporation.
The Petition is denied.
I
The Construction Industry Arbitration Commission was created
under Executive Order No. 1008 to establish an arbitral machinery that
will "settle expeditiously problems arising from, or connected with,
contracts in the construction industry." 58 It has jurisdiction over
"construction disputes between or among parties to an arbitration
agreement, or those who are otherwise bound by the latter, directly or by
reference." 59 Its purpose is to encourage the early and expeditious
settlement of disputes in the construction industry, recognizing that it is
necessary to avert delays in the resolution of construction industry
disputes, which is important to attain the national development
goals. 60 TIADCc
Section 4 of the Construction Industry Arbitration Law lays down
the jurisdiction of the Construction Industry Arbitration Commission:
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 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.
For the Construction Industry Arbitration Commission to acquire
jurisdiction, the law merely requires that the parties agree to submit to
voluntary arbitration any dispute arising from construction contracts.
In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila
Tollways Corporation: 61
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. . . ." . . .
. . . 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.
xxx xxx xxx
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. 62 (Citations omitted)
Arbitration of construction disputes through the Construction
Industry Arbitration Commission was incorporated into the general
statutory framework on alternative dispute resolution through Republic
Act No. 9285, or the Alternative Dispute Resolution Act of
2004. 63 Chapter 6, Section 34 of this law explicitly referenced the
Construction Industry Arbitration Law, while Section 35 affirmed the
Construction Industry Arbitration Commission's jurisdiction:
CHAPTER 6
Arbitration of Construction Disputes
SECTION 34. Arbitration of Construction
Disputes: Governing Law. — The arbitration of
construction disputes shall be governed by Executive
Order No. 1008, otherwise known as the Construction
Industry Arbitration Law.
SECTION 35. Coverage of the Law. —
Construction disputes which fall within the original and
exclusive jurisdiction of the Construction Industry
Arbitration Commission (the "Commission") shall include
those between or among parties to, or who are otherwise
bound by, an arbitration agreement, directly or by
reference whether such parties are project owner,
contractor, subcontractor, fabricator, project manager,
design professional, consultant, quantity surveyor,
bondsman or issuer of an insurance policy in a
construction project. AIDSTE
The Commission shall continue to exercise
original and exclusive jurisdiction over construction
disputes although the arbitration is "commercial"
pursuant to Section 21 of this Act.
Arbitration, "[b]eing an inexpensive, speedy[,] and amicable
method of settling disputes . . . is encouraged by the Supreme
Court." 64 If any doubt will arise, it "should be resolved in favor of
arbitration." 65
In LM Power Engineering Corp. v. Capitol Industrial Construction
Groups, Inc., 66 this Court explained the rationale behind this policy:
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. 67 (Citations omitted)
Here, petitioner and respondent agreed to submit to arbitration
any dispute arising from the construction contract, as clearly stipulated in
their Contractor's Agreement. The arbitration clause should, thus, be
given primacy in accordance with the State's policy to favor arbitration. It
follows that if there is any doubt as to what provision should be given
effect, this Court will rule in favor of the arbitration clause.
Moreover, the contracts to sell, containing a contrary dispute
resolution clause, did not supersede the arbitration clause. The case
records show that the contracts to sell are not inconsistent with the
Contractor's Agreement. They are merely devices to facilitate the transfer
of ownership of the two (2) units to respondent — an offshoot of the
offsetting scheme provision in the Contractor's Agreement.
While the contracts to sell and the Contractor's Agreement both
refer to the transfer of the two (2) units to respondent, the contracts to
sell are pro-forma  contracts provided by petitioner in selling the Camp
John Hay Suites units. There is no intent to supersede the Contractor's
Agreement, which remains the principal contract between petitioner and
respondent.
Petitioner erred in claiming that because the contracts to sell are
not construction contracts, they effectively removed the parties' dispute
outside the ambit of a construction dispute. On the contrary, the subject
of the contracts to sell still falls within the jurisdiction of the Construction
Industry Arbitration Commission. Section 4 of the Construction Industry
Arbitration Law states that its jurisdiction includes "payment [and] default
of employer or contractor[.]" Here, the main dispute concerning the
contracts to sell all boils down to the issue of payment of the two (2) units
for the services rendered by respondent. Hence, the units' transfer as
payment to respondent still falls under the jurisdiction of the arbitral
tribunal.
This dispute is better left to the expertise of the Construction
Industry Arbitration Commission, a quasi-judicial body with the technical
expertise to resolve disputes outside the expertise of regular
courts. 68 Aptly, it should adjudicate and determine the claims and rights
of petitioner and respondent with respect to the construction contract and
all its incidents.
It is worth noting that this dispute has been ongoing for over a
decade now. Despite numerous meetings and negotiations prior to
respondent's filing of a Complaint before the arbitral tribunal, no amicable
settlement had been reached. Disregarding the proceedings that took
place before the lower tribunals and requiring the parties to submit the
dispute before the trial court would be merely dilatory at this point. It
would only entail additional expenses and unnecessary delays for both
parties.
II
Rescission on account of breach of reciprocal obligations is
provided under Article 1191 of the Civil Code:
ARTICLE 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. AaCTcI
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.
This provision refers to rescission applicable to reciprocal
obligations. It is invoked when there is noncompliance by one (1) of the
contracting parties in case of reciprocal obligations. "Reciprocal
obligations are those which arise from the same cause, and in which
each party is a debtor and a creditor of the other, such that the obligation
of one is dependent upon the obligation of the other. They are to be
performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other." 69
Rescission under Article 1191 will be ordered when a party to a
contract fails to comply with his or her obligation. Rescission "is a
principal action that is immediately available to the party at the time that
the reciprocal [obligation] was breached." 70 In Spouses Velarde v.
Court of Appeals: 71
The right of rescission of a party to an obligation
under Article 1191 of the Civil Code is predicated on a
breach of faith by the other party who violates the
reciprocity between them. The breach contemplated in
the said provision is the obligor's failure to comply with
an existing obligation. When the obligor cannot comply
with what is incumbent upon [him or her], the obligee
may seek rescission and, in the absence of any just
cause for the court to determine the period of
compliance, the court shall decree the
rescission. 72 (Citations omitted)
"Resolution grants the injured party the option to pursue, as
principal actions, either a rescission or specific performance of the
obligation, with payment of damages in either case." 73
Rescission of the contract is sanctioned here. Under the
contract, petitioner and respondent have reciprocal obligations.
Respondent, for its part, was bound to render painting services for
petitioner's property. This was completed by respondent in 2003, after
which it was belatedly issued a clearance in 2005. Meanwhile, in
accordance with the Contractor's Agreement, petitioner paid part of the
contract price with the remaining balance to be paid through offsetting of
two (2) Camp John Hay Suites units. However, despite incessant
demands from respondent, petitioner failed to deliver these units
because their construction had yet to be completed. The law, then, gives
respondent the right to seek rescission because petitioner could not
comply with what is incumbent upon it. Petitioner, however, claims that
the fixing of the period under Article 1197 is the proper remedy, not
rescission under Article 1191.
This Court disagrees. We cannot cure the deficiency here by
fixing the period of the obligation. There is no just cause for this Court to
fix the period for the benefit of petitioner.
Article 1197 applies "when the obligation does not fix a period
but from its nature and circumstances it can be inferred that a period was
intended[.]" 74 This provision allows the courts to fix the duration
"because the fulfillment of the obligation itself cannot be demanded until
after the court has fixed the period for compliance therewith and such
period has arrived." 75
In Deudor v. J.M. Tuason & Company, Inc.: 76
Article 1197 is part and parcel of all obligations
contemplated therein. Hence, whenever a period is fixed
pursuant to said Article, the court merely enforces or
carries out an implied stipulation in the contract in
question. In fact, insofar as contracts not fixing a period
are concerned, said legal provision applies only if, from
the nature and circumstances surrounding the contract
involved, "it can be inferred that a period was intended"
by the parties thereto. For this reason, the last paragraph
of Article 1197, ordains that "in every case, the courts
shall determine such period as may under the
circumstances have been probably contemplated by the
 parties." In other words, in fixing said period, the Court
merely ascertains the will of the parties and gives effect
thereto. 77 EcTCAD
As stipulated in Article 1197, this Court must determine that the
obligation does not fix a period or that the period is made to depend upon
the will of the debtor, but it can be inferred from its nature and the
circumstances that a period was intended. Then, it must be determined
what period was probably contemplated by the parties. 78
The power of this Court to fix a period is discretionary. The
surrounding facts of each case must be taken into consideration in
deciding whether the fixing of a period is sanctioned. The discretion to fix
an obligation's period is addressed to this Court's judgment and is
tempered by equitable considerations.
In Central Philippine University v. Court of Appeals, 79 this Court
refused to fix a period because of the years that had already been
allowed for the party to comply with the condition of the obligation. Doing
so, it held, would be a mere technicality and formality, and would only
cause further delay. This Court ruled:
This general rule however cannot be applied
considering the different set of circumstances existing in
the instant case. More than a reasonable period of fifty
(50) years has already been allowed petitioner to avail of
the opportunity to comply with the condition even if it be
burdensome, to make the donation in its favor forever
valid. But, unfortunately, it failed to do so. Hence, there
is no more need to fix the duration of a term of the
obligation when such procedure would be a mere
technicality and formality and would serve no purpose
that to delay or lead to an unnecessary and expensive
multiplication of suits. Moreover, under Art. 1191 of the
Civil Code, when one of the obligors cannot comply with
what is incumbent upon him, the obligee may seek
rescission and the court shall decree the same unless
there is just cause authorizing the fixing of a period. In
the absence of any just cause for the court to determine
the period of the compliance, there is no more obstacle
for the court to decree the rescission
claimed. 80 (Citation omitted)
In Gregorio Araneta, Inc. v. Philippine Sugar Estates
Development Company, Ltd.,  81 this Court held that if a reasonable
period was agreed upon in a contract, all that the court should have done
was determine if that reasonable time had already elapsed:
If the contract so provided, then there was a period fixed,
a "reasonable time"; and all that the court should have
done was to determine if that reasonable time had
already elapsed when suit was filed. If it had passed,
then the court should declare that petitioner had
breached the contract, as averred in the complaint, and
fix the resulting damages. On the other hand, if the
reasonable time had not yet elapsed, the court perforce
was bound to dismiss the action for being premature. But
in no case can it be logically held that under the plea
above quoted, the intervention of the court to fix the
period for performance was warranted, for Article 1197 is
precisely predicated on the absence of any period fixed
by the parties. 82
There is no just cause for this Court to determine the period of
compliance. As can be gleaned from the records of this case, the
obligation of petitioner to build the Camp John Hay Suites had been
dragging for years even before it entered into the Contractor's Agreement
with respondent.
The Memorandum of Agreement that petitioner executed with
the Bases Conversion and Development Authority shows that the
construction of the Camp John Hay Suites began in 1996. When
respondent demanded the units' transfer in 2007, more than 10 years
had lapsed; yet, within those years, petitioner was still not able to
complete the construction of the Camp John Hay Suites.
To tolerate petitioner's excuses would only cause more delay
and burden to respondent. Petitioner failed to forward any just cause to
convince this Court to set a period. It merely reasoned force majeure and
mutual delays with Bases Conversion and Development Authority without
offering any explanation for its alleged difficulty in building the units.
To belatedly fix the period for petitioner's compliance would
mean refusing immediate payment to respondent. Petitioner's
noncompliance with its obligation to deliver the two (2) units as payment
to respondent can no longer be excused.
The law and jurisprudence are clear. When the obligor cannot
comply with its obligation, the obligee may exercise its right to rescind
the obligation, and this Court will order the rescission in the absence of
any just cause to fix the period. 83 Here, lacking any reasonable
explanation and just cause for the fixing of the period for petitioner's
noncompliance, the rescission of the obligation is justified. HSAcaE
III
Rescission of the obligation under Article 1191 is a declaration
that a contract is void at its inception. Its effect is to restore the parties to
their original position, insofar as practicable. Fong v. Dueñas 84 is Again, since Article 1385 of the Civil Code
illustrative: expressly and clearly states that "rescission creates the
obligation to return the things which were the object of
Rescission has the effect of "unmaking a contract, or its
the contract, together with their fruits, and the price with
undoing from the beginning, and not merely its
its interest," the Court finds no justification to sustain
termination." Hence, rescission creates the obligation to
petitioners' position that said Article 1385 does not apply
return the object of the contract. It can be carried out
to rescission under Article 1191. 90
only when the one who demands rescission can return
whatever he may be obliged to restore. To rescind is to Article 1385 of the Civil Code provides:
declare a contract void at its inception and to put an end
ARTICLE 1385. Rescission creates the
to it as though it never was. It is not merely to terminate
obligation to return the things which were the object of
it and release the parties from further obligations to each
the contract, together with their fruits, and the price with
other, but to abrogate it from the beginning and restore
its interest; consequently, it can be carried out only when
the parties to their relative positions as if no contract has
he who demands rescission can return whatever he may
been made. 85
be obliged to restore.
Mutual restitution is required in cases involving rescission under
Neither shall rescission take place when the
Article 1191. "Where a contract is rescinded, it is the duty of the court to
things which are the object of the contract are legally in
require both parties to surrender that which they have respectively
the possession of third persons who did not act in bad
received and to place each other as far as practicable in his original
faith.
situation[;] the rescission has the effect of abrogating the contract in all
parts." 86 In this case, indemnity for damages may be
demanded from the person causing the loss. (Emphasis
In Spouses Serrano v. Court of Appeals: 87
supplied)
Generally, the rule is that to rescind a contract is
Although rescission repeals the contract from its inception, it
not merely to terminate it, but to abrogate and undo it
does not disregard all the consequences that the contract has created.
from the beginning; that is, not merely to release the
What mutual rescission entails is "the return of the benefits that each
parties from further obligations to each other in respect
party may have received as a result of the contract." 91
to the subject of the contract, but to annul the contract
and restore the parties to the relative positions which Here, it is clear that only petitioner benefited from the contract.
they would have occupied if no such contract had ever Respondent has already performed the painting works in 2003, and it
been made. Rescission necessarily involves a was accepted by petitioner as satisfactory. Since this service cannot be
repudiation of the contract and a refusal of the moving undone and petitioner has already enjoyed the value of the painting
party to be further bound by it. 88 (Citation omitted) services over the years, respondent is entitled to the payment of the
painting services with interest in accordance with Articles 1191 and 2210
This Court has explained that restitution under Article 1385 of the
of the Civil Code. 92 The interest shall be computed from the date of
Civil Code equally applies for rescission under Article 1191. In Laperal v.
extrajudicial demand by respondent on August 3, 2007 in accordance
Solid Homes, Inc.: 89
with Article 1169 93 of the Civil Code and this Court's ruling in Nacar v.
Despite the fact that Article 1124 of the old Civil Gallery Frames. 94
Code from whence Article 1191 was taken, used the
IV
term "resolution," the amendment thereto (presently,
Article 1191) explicitly and clearly used the term Generally, the parties may stipulate the recovery of attorney's
"rescission." Unless Article 1191 is subsequently fees, but in the absence of such, Article 2208 of the Civil Code
amended to revert back to the term "resolution," this enumerates instances when these fees may still be
Court has no alternative but to apply the law, as it is recovered: 95 HESIcT
written.
 ARTICLE 2208. In the absence of stipulation,
attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1) When exemplary damages are
awarded;
(2) When the defendant's act or
omission has compelled the plaintiff to
litigate with third persons or to incur
expenses to protect his interest;
(3) In criminal cases of malicious
prosecution against the plaintiff;
(4) In case of a clearly unfounded civil
action or proceeding against the plaintiff;
(5) Where the defendant acted in gross
and evident bad faith in refusing to
satisfy the plaintiff's plainly valid, just
and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages
of household helpers, laborers and
skilled workers;
(8) In actions for indemnity under
workmen's compensation and
employer's liability laws;
(9) In a separate civil action to recover
civil liability arising from a crime;
(10) When at least double judicial costs
are awarded;
(11) In any other case where the court
deems it just and equitable that
attorney's fees and expenses of
litigation should be recovered.
In all cases, the attorney's fees and expenses of
litigation must be reasonable. (Emphasis supplied)
Generally, attorney's fees cannot be recovered as part of
damages, as no premium should be placed on the right to litigate.
In ABS-CBN Broadcasting Corporation v. Court of Appeals: 96
[Attorney's fees] are not to be awarded every time a
party wins a suit. The power of the court to award
attorney's fees under Article 2208 demands factual,
legal, and equitable justification. Even when a claimant is
compelled to litigate with third persons or to incur
expenses to protect his rights, still attorney's fees may
not be awarded where no sufficient showing of bad faith
could be reflected in a party's persistence in a case other
than an erroneous conviction of the righteousness of his
cause. 97 (Citations omitted)
The grant of attorney's fees depends on the evaluation of each
case and is within this Court's discretion. Attorney's fees may be
awarded if a party was forced to litigate and incur expenses to protect its
right and interest due to another party's unjustified act or omission. 98
Here, we agree with the findings of the Construction Industry
Arbitration Commission and the Court of Appeals. Respondent is entitled
to the award of attorney's fees.
In awarding attorney's fees, the arbitral tribunal explained that
respondent was compelled to engage the services of a lawyer to recover
the two (2) Camp John Hay Suites units or their monetary value; thus, it
incurred expenses to protect its interest after petitioner had breached
their contract. 99 In affirming this Final Award, the Court of Appeals
found that respondent undeniably needed adequate legal representation
to recover on a clearly demandable claim, making the additional expense
inevitable. 100
Unmistakably, there was breach of faith. Petitioner violated the
reciprocity of its contract with respondent. This case dragged on for
years because petitioner unjustifiably refused to pay respondent's valid
claim. In the proceedings before the arbitral tribunal, petitioner even
rejected respondent's offer to settle the dispute by paying the balance of
the contract price. While petitioner enjoyed the benefit of the painting
services, respondent is forced to await payment, foregoing the use and
value of money that have compounded over the years. caITAC
Clearly, petitioner's refusal to pay compelled respondent to file
the Complaint and incur expenses in the process. Considering the years
that had lapsed, during which respondent incessantly demanded
payment, it is only equitable to award attorney's fees.
WHEREFORE, the Petition for Review on Certiorari is DENIED.
The Court of Appeals May 13, 2011 Decision and September 30, 2011
Resolution in CA-G.R. SP No. 108335 are AFFIRMED WITH
MODIFICATION.
Petitioner Camp John Hay Development Corporation is ordered
to pay respondent Charter Chemical and Coating Corporation: (1) the
balance of the contract price in the amount of Five Million Nine Hundred
Thousand Pesos (P5,900,000.00) with interest at the rate of twelve
percent (12%) per annum from August 3, 2007 until June 30, 2013, and
six percent (6%) per annum from July 1, 2013 until its full satisfaction;
and (2) attorney's fees in the amount of Five Hundred Ninety Thousand
Pesos (P590,000.00).
SO ORDERED.