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G.R. No.

185582               February 29, 2012 the "sponsors"/"licensees")7 entered into a Memorandum of


Agreement (MOA),8 pertinent provisions of which read:
TUNA PROCESSING, INC., Petitioner,
vs. 1. Background and objectives. The Licensor, co-owner of
PHILIPPINE KINGFORD, INC., Respondent. U.S.Patent No. 5,484,619, Philippine Patent No. 31138, and
Indonesian Patent No. ID0003911 xxx wishes to form an
DECISION alliance with Sponsors for purposes of enforcing his three
aforementioned patents, granting licenses under those
PEREZ, J.: patents, and collecting royalties.

Can a foreign corporation not licensed to do business in the The Sponsors wish to be licensed under the aforementioned
Philippines, but which collects royalties from entities in the patents in order to practice the processes claimed in those
Philippines, sue here to enforce a foreign arbitral award? patents in the United States, the Philippines, and Indonesia,
enforce those patents and collect royalties in conjunction
In this Petition for Review on Certiorari under Rule 45,1 petitioner with Licensor.
Tuna Processing, Inc. (TPI), a foreign corporation not licensed to do
business in the Philippines, prays that the Resolution 2 dated 21 xxx
November 2008 of the Regional Trial Court (RTC) of Makati City be
declared void and the case be remanded to the RTC for further 4. Establishment of Tuna Processors, Inc. The parties
proceedings. In the assailed Resolution, the RTC dismissed hereto agree to the establishment of Tuna Processors, Inc.
petitioner’s Petition for Confirmation, Recognition, and Enforcement ("TPI"), a corporation established in the State of California,
of Foreign Arbitral Award3 against respondent Philippine Kingford, in order to implement the objectives of this Agreement.
Inc. (Kingford), a corporation duly organized and existing under the
laws of the Philippines,4 on the ground that petitioner lacked legal 5. Bank account. TPI shall open and maintain bank
capacity to sue.5 accounts in the United States, which will be used exclusively
to deposit funds that it will collect and to disburse cash it
The Antecedents will be obligated to spend in connection with the
implementation of this Agreement.
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as
the "licensor"), co-patentee of U.S. Patent No. 5,484,619, Philippine 6. Ownership of TPI. TPI shall be owned by the Sponsors
Letters Patent No. 31138, and Indonesian Patent No. ID0003911 and Licensor. Licensor shall be assigned one share of TPI for
(collectively referred to as the "Yamaoka Patent"), 6 and five (5) the purpose of being elected as member of the board of
Philippine tuna processors, namely, Angel Seafood Corporation, East directors. The remaining shares of TPI shall be held by the
Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Sponsors according to their respective equity shares. 9
Seafoods, Inc., and respondent Kingford (collectively referred to as
xxx
The parties likewise executed a Supplemental Memorandum of RESPONDENT KINGFORD shall pay CLAIMANT the
Agreement10 dated 15 January 2003 and an Agreement to Amend total sum of ONE MILLION TWO HUNDRED FIFTY
Memorandum of Agreement11 dated 14 July 2003. THOUSAND DOLLARS AND NO CENTS
($1,250,000.00). xxx
Due to a series of events not mentioned in the petition, the licensees,
including respondent Kingford, withdrew from petitioner TPI and xxx15
correspondingly reneged on their obligations. 12 Petitioner submitted
the dispute for arbitration before the International Centre for Dispute To enforce the award, petitioner TPI filed on 10 October 2007
Resolution in the State of California, United States and won the case a Petition for Confirmation, Recognition, and Enforcement of
against respondent.13 Pertinent portions of the award read: Foreign Arbitral Award before the RTC of Makati City. The petition
was raffled to Branch 150 presided by Judge Elmo M. Alameda.
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 At Branch 150, respondent Kingford filed a Motion to
sum to be paid by RESPONDENT KINGFORD to CLAIMANT Dismiss.16 After the court denied the motion for lack of
TPI, is the sum of ONE MILLION SEVEN HUNDRED FIFTY merit,17 respondent sought for the inhibition of Judge Alameda and
THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND moved for the reconsideration of the order denying the
TEN CENTS ($1,750,846.10). motion.18 Judge Alameda inhibited himself notwithstanding "[t]he
unfounded allegations and unsubstantiated assertions in the
(A) For breach of the MOA by not paying past due motion."19 Judge Cedrick O. Ruiz of Branch 61, to which the case
assessments, RESPONDENT KINGFORD shall was re-raffled, in turn, granted respondent’s Motion for
pay CLAIMANT the total sum of TWO HUNDRED Reconsideration and dismissed the petition on the ground that the
TWENTY NINE THOUSAND THREE HUNDRED petitioner lacked legal capacity to sue in the Philippines. 20
AND FIFTY FIVE DOLLARS AND NINETY CENTS
($229,355.90) which is 20% of MOA assessments since Petitioner TPI now seeks to nullify, in this instant Petition for
September 1, 2005[;] Review on Certiorari under Rule 45, the order of the trial court
dismissing its Petition for Confirmation, Recognition, and
(B) For breach of the MOA in failing to cooperate Enforcement of Foreign Arbitral Award.
with CLAIMANT TPI in fulfilling the objectives of
the MOA, RESPONDENT KINGFORD shall Issue
pay CLAIMANT the total sum of TWO HUNDRED
SEVENTY ONE THOUSAND FOUR HUNDRED The core issue in this case is whether or not the court a quo was
NINETY DOLLARS AND TWENTY CENTS correct in so dismissing the petition on the ground of petitioner’s
($271,490.20)[;]14 and lack of legal capacity to sue.

(C) For violation of THE LANHAM ACT and Our Ruling


infringement of the YAMAOKA 619 PATENT,
The petition is impressed with merit. The petitioner counters, however, that it is entitled to seek for the
recognition and enforcement of the subject foreign arbitral award in
The Corporation Code of the Philippines expressly provides: accordance with Republic Act No. 9285 (Alternative Dispute
Resolution Act of 2004),22 the Convention on the Recognition and
Sec. 133. Doing business without a license. - No foreign corporation Enforcement of Foreign Arbitral Awards drafted during the United
transacting business in the Philippines without a license, or its Nations Conference on International Commercial Arbitration in 1958
successors or assigns, shall be permitted to maintain or intervene in (New York Convention), and the UNCITRAL Model Law on
any action, suit or proceeding in any court or administrative agency International Commercial Arbitration (Model Law),23 as none of
of the Philippines; but such corporation may be sued or proceeded these specifically requires that the party seeking for the enforcement
against before Philippine courts or administrative tribunals on any should have legal capacity to sue. It anchors its argument on the
valid cause of action recognized under Philippine laws. following:

It is pursuant to the aforequoted provision that the court a In the present case, enforcement has been effectively refused on a
quo dismissed the petition. Thus: ground not found in the [Alternative Dispute Resolution Act
of 2004], New York Convention, or Model Law. It is for this reason
Herein plaintiff TPI’s "Petition, etc." acknowledges that it "is a that TPI has brought this matter before this most Honorable Court, as
foreign corporation established in the State of California" and "was it [i]s imperative to clarify whether the Philippines’ international
given the exclusive right to license or sublicense the Yamaoka obligations and State policy to strengthen arbitration as a means of
Patent" and "was assigned the exclusive right to enforce the said dispute resolution may be defeated by misplaced technical
patent and collect corresponding royalties" in the Philippines. TPI considerations not found in the relevant laws.24
likewise admits that it does not have a license to do business in the
Philippines. Simply put, how do we reconcile the provisions of the Corporation
Code of the Philippines on one hand, and the Alternative Dispute
There is no doubt, therefore, in the mind of this Court that TPI has Resolution Act of 2004, the New York Convention and the Model
been doing business in the Philippines, but sans a license to do so Law on the other?
issued by the concerned government agency of the Republic of the
Philippines, when it collected royalties from "five (5) Philippine tuna In several cases, this Court had the occasion to discuss the nature and
processors[,] namely[,] Angel Seafood Corporation, East Asia Fish applicability of the Corporation Code of the Philippines, a general
Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc. law, viz-a-viz other special laws. Thus, in Koruga v. Arcenas,
and respondent Philippine Kingford, Inc." This being the real Jr.,25 this Court rejected the application of the Corporation Code and
situation, TPI cannot be permitted to maintain or intervene in any applied the New Central Bank Act. It ratiocinated:
action, suit or proceedings in any court or administrative agency of
the Philippines." A priori, the "Petition, etc." extant of the plaintiff Koruga’s invocation of the provisions of the Corporation Code is
TPI should be dismissed for it does not have the legal personality to misplaced. In an earlier case with similar antecedents, we ruled that:
sue in the Philippines.21
"The Corporation Code, however, is a general law applying to all SEC. 42. Application of the New York Convention. - The New York
types of corporations, while the New Central Bank Act regulates Convention shall govern the recognition and enforcement of arbitral
specifically banks and other financial institutions, including the awards covered by the said Convention.
dissolution and liquidation thereof. As between a general and special
law, the latter shall prevail – generalia specialibus non derogant." xxx
(Emphasis supplied)26
SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a
Further, in the recent case of Hacienda Luisita, Incorporated v. foreign arbitration proceeding may oppose an application for
Presidential Agrarian Reform Council,27 this Court held: recognition and enforcement of the arbitral award in accordance with
the procedural rules to be promulgated by the Supreme Court only on
Without doubt, the Corporation Code is the general law providing for those grounds enumerated under Article V of the New York
the formation, organization and regulation of private corporations. Convention. Any other ground raised shall be disregarded by the
On the other hand, RA 6657 is the special law on agrarian reform. As regional trial court.
between a general and special law, the latter shall prevail—generalia
specialibus non derogant.28 It also expressly adopted the Model Law, to wit:

Following the same principle, the Alternative Dispute Resolution Act Sec. 19. Adoption of the Model Law on International Commercial
of 2004 shall apply in this case as the Act, as its title - An Act to Arbitration. International commercial arbitration shall be governed
Institutionalize the Use of an Alternative Dispute Resolution System by the Model Law on International Commercial Arbitration (the
in the Philippines and to Establish the Office for Alternative Dispute "Model Law") adopted by the United Nations Commission on
Resolution, and for Other Purposes - would suggest, is a law International Trade Law on June 21, 1985 xxx."
especially enacted "to actively promote party autonomy in the
resolution of disputes or the freedom of the party to make their own Now, does a foreign corporation not licensed to do business in the
arrangements to resolve their disputes."29 It specifically provides Philippines have legal capacity to sue under the provisions of
exclusive grounds available to the party opposing an application for the Alternative Dispute Resolution Act of 2004? We answer in the
recognition and enforcement of the arbitral award. 30 affirmative.

Inasmuch as the Alternative Dispute Resolution Act of 2004, a Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides
municipal law, applies in the instant petition, we do not see the need that the opposing party in an application for recognition and
to discuss compliance with international obligations under the New enforcement of the arbitral award may raise only those grounds that
York Convention and the Model Law. After all, both already form were enumerated under Article V of the New York Convention, to
part of the law. wit:

In particular, the Alternative Dispute Resolution Act of Article V


2004 incorporated the New York Convention in the Act by
specifically providing:
1. Recognition and enforcement of the award may be competent authority of the country in which, or
refused, at the request of the party against whom it is under the law of which, that award was made.
invoked, only if that party furnishes to the competent
authority where the recognition and enforcement is sought, 2. Recognition and enforcement of an arbitral award may
proof that: also be refused if the competent authority in the country
where recognition and enforcement is sought finds that:
(a) The parties to the agreement referred to in article
II were, under the law applicable to them, under (a) The subject matter of the difference is not
some incapacity, or the said agreement is not valid capable of settlement by arbitration under the law of
under the law to which the parties have subjected it that country; or
or, failing any indication thereon, under the law of
the country where the award was made; or (b) The recognition or enforcement of the award
would be contrary to the public policy of that
(b) The party against whom the award is invoked country.
was not given proper notice of the appointment of
the arbitrator or of the arbitration proceedings or was Clearly, not one of these exclusive grounds touched on the capacity
otherwise unable to present his case; or to sue of the party seeking the recognition and enforcement of the
award.
(c) The award deals with a difference not
contemplated by or not falling within the terms of Pertinent provisions of the Special Rules of Court on Alternative
the submission to arbitration, or it contains decisions Dispute Resolution,31 which was promulgated by the Supreme Court,
on matters beyond the scope of the submission to likewise support this position.
arbitration, provided that, if the decisions on matters
submitted to arbitration can be separated from those Rule 13.1 of the Special Rules provides that "[a]ny party to a foreign
not so submitted, that part of the award which arbitration may petition the court to recognize and enforce a foreign
contains decisions on matters submitted to arbitral award." The contents of such petition are enumerated in Rule
arbitration may be recognized and enforced; or 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
(d) The composition of the arbitral authority or the arbitration is in the Philippines," 33 it is specifically required that a
arbitral procedure was not in accordance with the petition "to determine any question concerning the existence, validity
agreement of the parties, or, failing such agreement, and enforceability of such arbitration agreement" 34 available to the
was not in accordance with the law of the country parties before the commencement of arbitration and/or a petition for
where the arbitration took place; or "judicial relief from the ruling of the arbitral tribunal on a
preliminary question upholding or declining its jurisdiction" 35 after
(e) The award has not yet become binding on the arbitration has already commenced should state "[t]he facts showing
parties, or has been set aside or suspended by a
that the persons named as petitioner or respondent have legal court, since the Model Law prescribes substantially identical
capacity to sue or be sued."36 exclusive grounds for refusing recognition or enforcement. 40

Indeed, it is in the best interest of justice that in the enforecement of Premises considered, petitioner TPI, although not licensed to do
a foreign arbitral award, we deny availment by the losing party of the business in the Philippines, may seek recognition and enforcement of
rule that bars foreign corporations not licensed to do business in the the foreign arbitral award in accordance with the provisions of
Philippines from maintaining a suit in our courts. When a party the Alternative Dispute Resolution Act of 2004.
enters into a contract containing a foreign arbitration clause and, as
in this case, in fact submits itself to arbitration, it becomes bound by II
the contract, by the arbitration and by the result of arbitration,
conceding thereby the capacity of the other party to enter into the The remaining arguments of respondent Kingford are likewise
contract, participate in the arbitration and cause the implementation unmeritorious.
of the result. Although not on all fours with the instant case, also
worthy to consider is the First. There is no need to consider respondent’s contention that
petitioner TPI improperly raised a question of fact when it posited
wisdom of then Associate Justice Flerida Ruth P. Romero in her that its act of entering into a MOA should not be considered "doing
Dissenting Opinion in Asset Privatization Trust v. Court of business" in the Philippines for the purpose of determining capacity
Appeals,37 to wit: to sue. We reiterate that the foreign corporation’s capacity to sue in
the Philippines is not material insofar as the recognition and
xxx Arbitration, as an alternative mode of settlement, is gaining enforcement of a foreign arbitral award is concerned.
adherents in legal and judicial circles here and abroad. If its tested
mechanism can simply be ignored by an aggrieved party, one who, it Second. Respondent cannot fault petitioner for not filing a motion
must be stressed, voluntarily and actively participated in the for reconsideration of the assailed Resolution dated 21 November
arbitration proceedings from the very beginning, it will destroy the 2008 dismissing the case. We have, time and again, ruled that the
very essence of mutuality inherent in consensual contracts. 38 prior filing of a motion for reconsideration is not required
in certiorari under Rule 45.41
Clearly, on the matter of capacity to sue, a foreign arbitral award
should be respected not because it is favored over domestic laws and Third. While we agree that petitioner failed to observe the principle
procedures, but because Republic Act No. 9285 has certainly erased of hierarchy of courts, which, under ordinary circumstances,
any conflict of law question. warrants the outright dismissal of the case, 42 we opt to relax the rules
following the pronouncement in Chua v. Ang,43 to wit:
Finally, even assuming, only for the sake of argument, that the
court a quo correctly observed that the Model Law, not the New [I]t must be remembered that [the principle of hierarchy of courts]
York Convention, governs the subject arbitral award, 39 petitioner may generally applies to cases involving conflicting factual allegations.
still seek recognition and enforcement of the award in Philippine 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 27. xxx Upon confirmation with the Regional Trial Court, Makati
rule is not present in a case, as in the present case, where the issues City, Branch 61, a copy of petitioner TPI’s motion was received by
are not factual but purely legal.1âwphi1 In these types of questions, the Metropolitan Trial Court, Makati City, Branch 67. On 8 January
this Court has the ultimate say so that we merely abbreviate the 2009, the motion was forwarded to the Regional Trial Court, Makati
review process if we, because of the unique circumstances of a case, City, Branch 61.48
choose to hear and decide the legal issues outright. 45
All considered, petitioner TPI, although a foreign corporation not
Moreover, the novelty and the paramount importance of the issue licensed to do business in the Philippines, is not, for that reason
herein raised should be seriously considered. 46 Surely, there is a need alone, precluded from filing the Petition for Confirmation,
to take cognizance of the case not only to guide the bench and the Recognition, and Enforcement of Foreign Arbitral Award before a
bar, but if only to strengthen arbitration as a means of dispute Philippine court.
resolution, and uphold the policy of the State embodied in
the Alternative Dispute Resolution Act of 2004, to wit: WHEREFORE, the Resolution dated 21 November 2008 of the
Regional Trial Court, Branch 61, Makati City in Special Proceedings
Sec. 2. Declaration of Policy. - It is hereby declared the policy of the No. M-6533 is hereby REVERSED and SET ASIDE. The case
State to actively promote party autonomy in the resolution of is REMANDED to Branch 61 for further proceedings.
disputes or the freedom of the party to make their own arrangements
to resolve their disputes. Towards this end, the State shall encourage SO ORDERED.
and actively promote the use of Alternative Dispute Resolution
(ADR) as an important means to achieve speedy and impartial justice
and declog court dockets. xxx

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.
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 Reconsideration2 that the Court erred in holding that
the DENR Panel of Arbitrators was bereft of jurisdiction, reiterating
G.R. No. 161957             January 22, 2007
its argument that the case involves a mining dispute that properly
falls within the ambit of the Panel’s authority. Gonzales adds that the
JORGE GONZALES and PANEL OF Court failed to rule on other issues he raised relating to the
ARBITRATORS, Petitioners, sufficiency of his complaint before the DENR Panel of Arbitrators
vs. and the timeliness of its filing.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING
CORP., and AUSTRALASIAN PHILIPPINES MINING
Respondents Climax Mining Ltd., et al., (respondents) filed their
INC., Respondents.
Motion for Partial Reconsideration and/or Clarification 3 seeking
reconsideration of that part of the Decision holding that the case
x--------------------------------------------------------------------------------- should not be brought for arbitration under Republic Act (R.A.) No.
x 876, also known as the Arbitration Law.4 Respondents, citing
American jurisprudence5 and the UNCITRAL Model Law,6 argue
G.R. No. 167994            January 22, 2007 that the arbitration clause in the Addendum Contract should be
treated as an agreement independent of the other terms of the
JORGE GONZALES, Petitioner, contract, and that a claimed rescission of the main contract does not
vs. avoid the duty to arbitrate. Respondents add that Gonzales’s
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING argument relating to the alleged invalidity of the Addendum Contract
JUDGE of BR. 148 of the REGIONAL TRIAL COURT of still has to be proven and adjudicated on in a proper proceeding; that
MAKATI CITY, and CLIMAX-ARIMCO MINING is, an action separate from the motion to compel arbitration. Pending
CORPORATION, Respondents. judgment in such separate action, the Addendum Contract remains
valid and binding and so does the arbitration clause therein.
RESOLUTION Respondents add that the holding in the Decision that "the case
should not be brought under the ambit of the Arbitration Law"
TINGA, J.: 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 Br. 132 of the RTC of Makati City, with Judge Herminio I. Benito as
contract or mere allegation of its invalidity is all it takes to avoid Presiding Judge. Respondent Climax-Arimco filed on 5 April 2000 a
arbitration. Hence, respondents submit that the court’s holding that motion to set the application to compel arbitration for hearing.
"the case should not be brought under the ambit of the Arbitration
Law" be understood or clarified as operative only where the On 14 April 2000, Gonzales filed a motion to dismiss which he
challenge to the arbitration agreement has been sustained by final however failed to set for hearing. On 15 May 2000, he filed an
judgment. Answer with Counterclaim,12 questioning the validity of the
Addendum Contract containing the arbitration clause. Gonzales
Both parties were required to file their respective comments to the alleged that the Addendum Contract containing the arbitration clause
other party’s motion for reconsideration/clarification. 7 Respondents is void in view of Climax-Arimco’s acts of fraud, oppression and
filed their Comment on 17 August 2005, 8 while Gonzales filed his violation of the Constitution. Thus, the arbitration clause, Clause
only on 25 July 2006.9 19.1, contained in the Addendum Contract is also null and void ab
initio and legally inexistent.1awphi1.net
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. On 18 May 2000, the RTC issued an order declaring Gonzales’s
16195710 were pending, wherein Gonzales challenged the orders of motion to dismiss moot and academic in view of the filing of his
the Regional Trial Court (RTC) requiring him to proceed with the Answer with Counterclaim.13
arbitration proceedings as sought by Climax-Arimco Mining
Corporation (Climax-Arimco). 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
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were petition for arbitration is a special proceeding that is summary in
consolidated upon the recommendation of the Assistant Division nature.15 However, on 7 July 2000, the RTC granted Gonzales’s
Clerk of Court since the cases are rooted in the same Addendum motion for reconsideration of the 16 June 2000 Order and set the
Contract. 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
We first tackle the more recent case which is G.R. No. 167994. It arbitration agreement.16
stemmed from the petition to compel arbitration filed by respondent
Climax-Arimco before the RTC of Makati City on 31 March 2000 Climax-Arimco then filed a motion to resolve its pending motion to
while the complaint for the nullification of the Addendum Contract compel arbitration. The RTC denied the same in its 24 July 2000
was pending before the DENR Panel of Arbitrators. On 23 March order.
2000, Climax-Arimco had sent Gonzales a Demand for Arbitration
pursuant to Clause 19.111 of the Addendum Contract and also in On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge
accordance with Sec. 5 of R.A. No. 876. The petition for arbitration Herminio I. Benito for "not possessing the cold neutrality of an
was subsequently filed and Climax-Arimco sought an order to impartial judge."17 On 5 August 2000, Judge Benito issued an Order
compel the parties to arbitrate pursuant to the said arbitration clause. granting the Motion to Inhibit and ordered the re-raffling of the
The case, docketed as Civil Case No. 00-444, was initially raffled to
petition for arbitration.18 The case was raffled to the sala of public agreement. Five days notice in writing of the hearing of such
respondent Judge Oscar B. Pimentel of Branch 148. application shall be served either personally or by registered mail
upon the party in default. The court shall hear the parties, and upon
On 23 August 2000, Climax-Arimco filed a motion for being satisfied that the making of the agreement or such failure to
reconsideration of the 24 July 2000 Order. 19 Climax-Arimco argued comply therewith is not in issue, shall make an order directing the
that R.A. No. 876 does not authorize a pre-trial or trial for a motion parties to proceed to arbitration in accordance with the terms of the
to compel arbitration but directs the court to hear the motion agreement. If the making of the agreement or default be in issue the
summarily and resolve it within ten days from hearing. Judge court shall proceed to summarily hear such issue. If the finding be
Pimentel granted the motion and directed the parties to arbitration. that no agreement in writing providing for arbitration was made, or
On 13 February 2001, Judge Pimentel issued the first assailed order that there is no default in the proceeding thereunder, the proceeding
requiring Gonzales to proceed with arbitration proceedings and shall be dismissed. If the finding be that a written provision for
appointing retired CA Justice Jorge Coquia as sole arbitrator. 20 arbitration was made and there is a default in proceeding thereunder,
an order shall be made summarily directing the parties to proceed
Gonzales moved for reconsideration on 20 March 2001 but this was with the arbitration in accordance with the terms thereof.
denied in the Order dated 7 March 2005.21
The court shall decide all motions, petitions or applications filed
Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 under the provisions of this Act, within ten (10) days after such
February 2001 and 7 March 2005 of Judge Pimentel. Gonzales motions, petitions, or applications have been heard by it.
contends that public respondent Judge Pimentel acted with grave
abuse of discretion in immediately ordering the parties to proceed Gonzales also cites Sec. 24 of R.A. No. 9285 or the "Alternative
with arbitration despite the proper, valid, and timely raised argument Dispute Resolution Act of 2004:"
in his Answer with Counterclaim that the Addendum Contract,
containing the arbitration clause, is null and void. Gonzales has also Sec. 24. Referral to Arbitration.—A court before which an action is
sought a temporary restraining order to prevent the enforcement of brought in a matter which is the subject matter of an arbitration
the assailed orders directing the parties to arbitrate, and to direct agreement shall, if at least one party so requests not later than the
Judge Pimentel to hold a pre-trial conference and the necessary pre-trial conference, or upon the request of both parties thereafter,
hearings on the determination of the nullity of the Addendum refer the parties to arbitration unless it finds that the arbitration
Contract. agreement is null and void, inoperative or incapable of being
performed.
In support of his argument, Gonzales invokes Sec. 6 of R.A. No.
876: According to Gonzales, the above-quoted provisions of law outline
the procedure to be followed in petitions to compel arbitration, which
Sec. 6. Hearing by court.—A party aggrieved by the failure, neglect the RTC did not follow. Thus, referral of the parties to arbitration by
or refusal of another to perform under an agreement in writing Judge Pimentel despite the timely and properly raised issue of nullity
providing for arbitration may petition the court for an order directing of the Addendum Contract was misplaced and without legal basis.
that such arbitration proceed in the manner provided for in such 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 Climax-Arimco adds that an application to compel arbitration under
arbitration clause/agreement raised by one of the parties to the Sec. 6 of R.A. No. 876 confers on the trial court only a limited and
alleged arbitration agreement must be determined by the court prior special jurisdiction, i.e., a jurisdiction solely to determine (a) whether
to referring them to arbitration. They require that the trial court first or not the parties have a written contract to arbitrate, and (b) if the
determine or resolve the issue of nullity, and there is no other venue defendant has failed to comply with that contract. Respondent
for this determination other than a pre-trial and hearing on the issue cites La Naval Drug Corporation v. Court of Appeals,22 which holds
by the trial court which has jurisdiction over the case. Gonzales adds that in a proceeding to compel arbitration, "[t]he arbitration law
that the assailed 13 February 2001 Order also violated his right to explicitly confines the court’s authority only to pass upon the issue
procedural due process when the trial court erroneously ruled on the of whether there is or there is no agreement in writing providing for
existence of the arbitration agreement despite the absence of a arbitration," and "[i]n the affirmative, the statute ordains that the
hearing for the presentation of evidence on the nullity of the court shall issue an order ‘summarily directing the parties to proceed
Addendum Contract. 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
Respondent Climax-Arimco, on the other hand, assails the mode of to be dealt with in such a proceeding, and that the court presented
review availed of by Gonzales. Climax-Arimco cites Sec. 29 of R.A. with an application to compel arbitration may order arbitration or
No. 876: dismiss the same, depending solely on its finding as to those two
limited issues. If either of these matters is disputed, the court is
Sec. 29. Appeals.—An appeal may be taken from an order made in a required to conduct a summary hearing on it. Gonzales’s proposition
proceeding under this Act, or from a judgment entered upon an contradicts both the trial court’s limited jurisdiction and the summary
award through certiorari proceedings, but such appeals shall be nature of the proceeding itself.
limited to questions of law. The proceedings upon such an appeal,
including the judgment thereon shall be governed by the Rules of Climax-Arimco further notes that Gonzales’s attack on or
Court in so far as they are applicable. repudiation of the Addendum Contract also is not a ground to deny
effect to the arbitration clause in the Contract. The arbitration
Climax-Arimco mentions that the special civil action for certiorari agreement is separate and severable from the contract evidencing the
employed by Gonzales is available only where there is no appeal or parties’ commercial or economic transaction, it stresses. Hence, the
any plain, speedy, and adequate remedy in the ordinary course of law alleged defect or failure of the main contract is not a ground to deny
against the challenged orders or acts. Climax-Arimco then points out enforcement of the parties’ arbitration agreement. Even the party
that R.A. No. 876 provides for an appeal from such orders, which, who has repudiated the main contract is not prevented from
under the Rules of Court, must be filed within 15 days from notice of enforcing its arbitration provision. R.A. No. 876 itself treats the
the final order or resolution appealed from or of the denial of the arbitration clause or agreement as a contract separate from the
motion for reconsideration filed in due time. Gonzales has not denied commercial, economic or other transaction to be arbitrated. The
that the relevant 15-day period for an appeal had elapsed long before statute, in particular paragraph 1 of Sec. 2 thereof, considers the
he filed this petition for certiorari. He cannot use the special civil arbitration stipulation an independent contract in its own right whose
action of certiorari as a remedy for a lost appeal. 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 arbitration agreement refers the parties to arbitration, the arbitral
persons or parties may submit to the arbitration of one or more proceedings may proceed even while the action is pending.
arbitrators any controversy existing, between them at the time of the
submission and which may be the subject of an action, or the parties Thus, the main issue raised in the Petition for Certiorari is whether it
to any contract may in such contract agree to settle by arbitration a was proper for the RTC, in the proceeding to compel arbitration
controversy thereafter arising between them. Such submission or under R.A. No. 876, to order the parties to arbitrate even though the
contract shall be valid, enforceable and irrevocable, save upon such defendant therein has raised the twin issues of validity and nullity of
grounds as exist at law for the revocation of any contract. the Addendum Contract and, consequently, of the arbitration clause
therein as well. The resolution of both Climax-Arimco’s Motion for
xxxx Partial Reconsideration and/or Clarification in G.R. No. 161957 and
Gonzales’s Petition for Certiorari in G.R. No. 167994 essentially
The grounds Gonzales invokes for the revocation of the Addendum turns on whether the question of validity of the Addendum Contract
Contract—fraud and oppression in the execution thereof—are also bears upon the applicability or enforceability of the arbitration clause
not grounds for the revocation of the arbitration clause in the contained therein. The two pending matters shall thus be jointly
Contract, Climax-Arimco notes. Such grounds may only be raised by resolved.
way of defense in the arbitration itself and cannot be used to frustrate
or delay the conduct of arbitration proceedings. Instead, these should We address the Rule 65 petition in G.R. No. 167994 first from the
be raised in a separate action for rescission, it continues. remedial law perspective. It deserves to be dismissed on procedural
grounds, as it was filed in lieu of appeal which is the prescribed
Climax-Arimco emphasizes that the summary proceeding to compel remedy and at that far beyond the reglementary period. It is
arbitration under Sec. 6 of R.A. No. 876 should not be confused with elementary in remedial law that the use of an erroneous mode of
the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 appeal is cause for dismissal of the petition for certiorari and it has
refers to an application to compel arbitration where the court’s been repeatedly stressed that a petition for certiorari is not a
authority is limited to resolving the issue of whether there is or there substitute for a lost appeal. As its nature, a petition for certiorari lies
is no agreement in writing providing for arbitration, while Sec. 24 of only where there is "no appeal," and "no plain, speedy and adequate
R.A. No. 9285 refers to an ordinary action which covers a matter that remedy in the ordinary course of law." 25 The Arbitration Law
appears to be arbitrable or subject to arbitration under the arbitration specifically provides for an appeal by certiorari, i.e., a petition for
agreement. In the latter case, the statute is clear that the court, instead review under certiorari under Rule 45 of the Rules of Court that
of trying the case, may, on request of either or both parties, refer the raises pure questions of law. 26 There is no merit to Gonzales’s
parties to arbitration, unless it finds that the arbitration agreement is argument that the use of the permissive term "may" in Sec. 29, R.A.
null and void, inoperative or incapable of being performed. No. 876 in the filing of appeals does not prohibit nor discount the
Arbitration may even be ordered in the same suit brought upon a filing of a petition for certiorari under Rule 65. 27 Proper
matter covered by an arbitration agreement even without waiting for interpretation of the aforesaid provision of law shows that the term
the outcome of the issue of the validity of the arbitration agreement. "may" refers only to the filing of an appeal, not to the mode of
Art. 8 of the UNCITRAL Model Law 24 states that where a court review to be employed. Indeed, the use of "may" merely reiterates
before which an action is brought in a matter which is subject of an 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 jurisdiction over the controversy. The question of jurisdiction in turn
and in accordance with law. 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
Neither can BF Corporation v. Court of Appeals28 cited by Gonzales arbitration clause is a question of fact that is not proper in a petition
support his theory. Gonzales argues that said case recognized and for certiorari, yet since the determination of the question obliged the
allowed a petition for certiorari under Rule 65 "appealing the order Court of Appeals as it did to interpret the contract documents in
of the Regional Trial Court disregarding the arbitration agreement as accordance with R.A. No. 876 and existing jurisprudence, the
an acceptable remedy."29 The BF Corporation case had its origins in question is likewise a question of law which may be properly taken
a complaint for collection of sum of money filed by therein petitioner cognizance of in a petition for certiorari under Rule 65, so the Court
BF Corporation against Shangri-la Properties, Inc. (SPI). SPI moved held.31
to suspend the proceedings alleging that the construction agreement
or the Articles of Agreement between the parties contained a clause The situation in B.F. Corporation is not availing in the present
requiring prior resort to arbitration before judicial intervention. The petition. The disquisition in B.F. Corporation led to the conclusion
trial court found that an arbitration clause was incorporated in the that in order that the question of jurisdiction may be resolved, the
Conditions of Contract appended to and deemed an integral part of appellate court had to deal first with a question of law which could
the Articles of Agreement. Still, the trial court denied the motion to be addressed in a certiorari proceeding. In the present case,
suspend proceedings upon a finding that the Conditions of Contract Gonzales’s petition raises a question of law, but not a question of
were not duly executed and signed by the parties. The trial court also jurisdiction. Judge Pimentel acted in accordance with the procedure
found that SPI had failed to file any written notice of demand for prescribed in R.A. No. 876 when he ordered Gonzales to proceed
arbitration within the period specified in the arbitration clause. The with arbitration and appointed a sole arbitrator after making the
trial court denied SPI's motion for reconsideration and ordered it to determination that there was indeed an arbitration agreement. It has
file its responsive pleading. Instead of filing an answer, SPI filed a been held that as long as a court acts within its jurisdiction and does
petition for certiorari under Rule 65, which the Court of Appeals, not gravely abuse its discretion in the exercise thereof, any supposed
favorably acted upon. In a petition for review before this Court, BF error committed by it will amount to nothing more than an error of
Corporation alleged, among others, that the Court of Appeals should judgment reviewable by a timely appeal and not assailable by a
have dismissed the petition for certiorari since the order of the trial special civil action of certiorari. 32 Even if we overlook the
court denying the motion to suspend proceedings "is a resolution of employment of the wrong remedy in the broader interests of justice,
an incident on the merits" and upon the continuation of the the petition would nevertheless be dismissed for failure of Gonzalez
proceedings, the trial court would eventually render a decision on the to show grave abuse of discretion.
merits, which decision could then be elevated to a higher court "in an
ordinary appeal."30 Arbitration, as an alternative mode of settling disputes, has long been
recognized and accepted in our jurisdiction. The Civil Code is
The Court did not uphold BF Corporation’s argument. The issue explicit on the matter.33 R.A. No. 876 also expressly authorizes
raised before the Court was whether SPI had taken the proper mode arbitration of domestic disputes. Foreign arbitration, as a system of
of appeal before the Court of Appeals. The question before the Court settling commercial disputes of an international character, was
of Appeals was whether the trial court had prematurely assumed likewise recognized when the Philippines adhered to the United
Nations "Convention on the Recognition and the Enforcement of contract providing that all matters in dispute between the parties
Foreign Arbitral Awards of 1958," under the 10 May 1965 shall be referred to arbitration is a contract, 36 and in Del Monte
Resolution No. 71 of the Philippine Senate, giving reciprocal Corporation-USA v. Court of Appeals37 that "[t]he provision to
recognition and allowing enforcement of international arbitration submit to arbitration any dispute arising therefrom and the
agreements between parties of different nationalities within a relationship of the parties is part of that contract and is itself a
contracting state.34 The enactment of R.A. No. 9285 on 2 April 2004 contract. As a rule, contracts are respected as the law between the
further institutionalized the use of alternative dispute resolution contracting parties and produce effect as between them, their assigns
systems, including arbitration, in the settlement of disputes. and heirs."38

Disputes do not go to arbitration unless and until the parties have The special proceeding under Sec. 6 of R.A. No. 876 recognizes the
agreed to abide by the arbitrator’s decision. Necessarily, a contract is contractual nature of arbitration clauses or agreements. It provides:
required for arbitration to take place and to be binding. R.A. No. 876
recognizes the contractual nature of the arbitration agreement, thus: Sec. 6. Hearing by court.—A party aggrieved by the failure, neglect
or refusal of another to perform under an agreement in writing
Sec. 2. Persons and matters subject to arbitration.—Two or more providing for arbitration may petition the court for an order directing
persons or parties may submit to the arbitration of one or more that such arbitration proceed in the manner provided for in such
arbitrators any controversy existing, between them at the time of the agreement. Five days notice in writing of the hearing of such
submission and which may be the subject of an action, or the parties application shall be served either personally or by registered mail
to any contract may in such contract agree to settle by arbitration a upon the party in default. The court shall hear the parties, and upon
controversy thereafter arising between them. Such submission or being satisfied that the making of the agreement or such failure to
contract shall be valid, enforceable and irrevocable, save upon such comply therewith is not in issue, shall make an order directing the
grounds as exist at law for the revocation of any contract. 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
Such submission or contract may include question arising out of court shall proceed to summarily hear such issue. If the finding be
valuations, appraisals or other controversies which may be collateral, that no agreement in writing providing for arbitration was made, or
incidental, precedent or subsequent to any issue between the parties. that there is no default in the proceeding thereunder, the proceeding
shall be dismissed. If the finding be that a written provision for
A controversy cannot be arbitrated where one of the parties to the arbitration was made and there is a default in proceeding thereunder,
controversy is an infant, or a person judicially declared to be an order shall be made summarily directing the parties to proceed
incompetent, unless the appropriate court having jurisdiction approve with the arbitration in accordance with the terms thereof.
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 court shall decide all motions, petitions or applications filed
the incompetent. [Emphasis added.] under the provisions of this Act, within ten days after such motions,
petitions, or applications have been heard by it. [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
This special proceeding is the procedural mechanism for the agreement and the arbitration agreement does not automatically
enforcement of the contract to arbitrate. The jurisdiction of the courts terminate when the contract of which it is part comes to an end. 46
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 The separability of the arbitration agreement is especially significant
Corporation v. Court of Appeals.39 There it was held that R.A. No. to the determination of whether the invalidity of the main contract
876 explicitly confines the court's authority only to the determination also nullifies the arbitration clause. Indeed, the doctrine denotes that
of whether or not there is an agreement in writing providing for the invalidity of the main contract, also referred to as the "container"
arbitration. In the affirmative, the statute ordains that the court shall contract, does not affect the validity of the arbitration agreement.
issue an order "summarily directing the parties to proceed with the Irrespective of the fact that the main contract is invalid, the
arbitration in accordance with the terms thereof." If the court, upon arbitration clause/agreement still remains valid and enforceable. 47
the other hand, finds that no such agreement exists, "the proceeding
shall be dismissed."40 The cited case also stressed that the The separability of the arbitration clause is confirmed in Art. 16(1)
proceedings are summary in nature. 41 The same thrust was made in of the UNCITRAL Model Law and Art. 21(2) of the UNCITRAL
the earlier case of Mindanao Portland Cement Corp. v. McDonough Arbitration Rules.48
Construction Co. of Florida42 which held, thus:
The separability doctrine was dwelt upon at length in the U.S. case
Since there obtains herein a written provision for arbitration as well of Prima Paint Corp. v. Flood & Conklin Manufacturing Co.49 In that
as failure on respondent's part to comply therewith, the court a quo case, Prima Paint and Flood and Conklin (F & C) entered into a
rightly ordered the parties to proceed to arbitration in accordance consulting agreement whereby F & C undertook to act as consultant
with the terms of their agreement (Sec. 6, Republic Act 876). to Prima Paint for six years, sold to Prima Paint a list of its customers
Respondent's arguments touching upon the merits of the dispute are and promised not to sell paint to these customers during the same
improperly raised herein. They should be addressed to the arbitrators. period. The consulting agreement contained an arbitration clause.
This proceeding is merely a summary remedy to enforce the Prima Paint did not make payments as provided in the consulting
agreement to arbitrate. The duty of the court in this case is not to agreement, contending that F & C had fraudulently misrepresented
resolve the merits of the parties' claims but only to determine if they that it was solvent and able for perform its contract when in fact it
should proceed to arbitration or not. x x x x43 was not and had even intended to file for bankruptcy after executing
the consultancy agreement. Thus, F & C served Prima Paint with a
Implicit in the summary nature of the judicial proceedings is the notice of intention to arbitrate. Prima Paint sued in court for
separable or independent character of the arbitration clause or rescission of the consulting agreement on the ground of fraudulent
agreement. This was highlighted in the cases of Manila Electric Co. misrepresentation and asked for the issuance of an order enjoining F
v. Pasay Trans. Co.44 and Del Monte Corporation-USA v. Court of & C from proceeding with arbitration. F & C moved to stay the suit
Appeals.45 pending arbitration. The trial court granted F & C’s motion, and the
U.S. Supreme Court affirmed.
The doctrine of separability, or severability as other writers call it,
enunciates that an arbitration agreement is independent of the main The U.S. Supreme Court did not address Prima Paint’s argument that
contract. The arbitration agreement is to be treated as a separate it had been fraudulently induced by F & C to sign the consulting
agreement and held that no court should address this argument. This brings us back to G.R. No. 161957. The adjudication of the
Relying on Sec. 4 of the Federal Arbitration Act—which provides petition in G.R. No. 167994 effectively modifies part of the Decision
that "if a party [claims to be] aggrieved by the alleged failure x x x of dated 28 February 2005 in G.R. No. 161957. Hence, we now hold
another to arbitrate x x x, [t]he court shall hear the parties, and upon that the validity of the contract containing the agreement to submit to
being satisfied that the making of the agreement for arbitration or the arbitration does not affect the applicability of the arbitration clause
failure to comply therewith is not in issue, the court shall make an itself. A contrary ruling would suggest that a party’s mere
order directing the parties to proceed to arbitration x x x. If the repudiation of the main contract is sufficient to avoid arbitration.
making of the arbitration agreement or the failure, neglect, or refusal That is exactly the situation that the separability doctrine, as well as
to perform the same be in issue, the court shall proceed summarily to jurisprudence applying it, seeks to avoid. We add that when it was
the trial thereof"—the U.S. High Court held that the court should not declared in G.R. No. 161957 that the case should not be brought for
order the parties to arbitrate if the making of the arbitration arbitration, it should be clarified that the case referred to is the case
agreement is in issue. The parties should be ordered to arbitration if, actually filed by Gonzales before the DENR Panel of Arbitrators,
and only if, they have contracted to submit to arbitration. Prima Paint which was for the nullification of the main contract on the ground of
was not entitled to trial on the question of whether an arbitration fraud, as it had already been determined that the case should have
agreement was made because its allegations of fraudulent been brought before the regular courts involving as it did judicial
inducement were not directed to the arbitration clause itself, but only issues.
to the consulting agreement which contained the arbitration
agreement.50 Prima Paint held that "arbitration clauses are ‘separable’ The Motion for Reconsideration of Gonzales in G.R. No. 161957
from the contracts in which they are embedded, and that where no should also be denied. In the motion, Gonzales raises the same
claim is made that fraud was directed to the arbitration clause itself, a question of jurisdiction, more particularly that the complaint for
broad arbitration clause will be held to encompass arbitration of the nullification of the Addendum Contract pertained to the DENR Panel
claim that the contract itself was induced by fraud." 51 of Arbitrators, not the regular courts. He insists that the subject of his
complaint is a mining dispute since it involves a dispute concerning
There is reason, therefore, to rule against Gonzales when he alleges rights to mining areas, the Financial and Technical Assistance
that Judge Pimentel acted with grave abuse of discretion in ordering Agreement (FTAA) between the parties, and it also involves
the parties to proceed with arbitration. Gonzales’s argument that the claimowners. He adds that the Court failed to rule on other issues he
Addendum Contract is null and void and, therefore the arbitration raised, such as whether he had ceded his claims over the mineral
clause therein is void as well, is not tenable. First, the proceeding in deposits located within the Addendum Area of Influence; whether
a petition for arbitration under R.A. No. 876 is limited only to the the complaint filed before the DENR Panel of Arbitrators alleged
resolution of the question of whether the arbitration agreement ultimate facts of fraud; and whether the action to declare the nullity
exists. Second, the separability of the arbitration clause from the of the Addendum Contract on the ground of fraud has prescribed.
Addendum Contract means that validity or invalidity of the
Addendum Contract will not affect the enforceability of the These are the same issues that Gonzales raised in his Rule 45 petition
agreement to arbitrate. Thus, Gonzales’s petition for certiorari should in G.R. No. 161957 which were resolved against him in the Decision
be dismissed. 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 Arimco’s financial or technical capability were misrepresented, or
judicial issues which should properly be resolved by the regular how the misrepresentation was done. Incorporated in the body of the
courts. He alleged fraud or misrepresentation in the execution of the complaint are verbatim reproductions of the contracts,
Addendum Contract which is a ground for the annulment of a correspondence and government issuances that reportedly explain the
voidable contract. Clearly, such allegations entail legal questions allegations of fraud and misrepresentation, but these are, at best,
which are within the jurisdiction of the courts. evidentiary matters that should not be included in the pleading.

The question of whether Gonzales had ceded his claims over the As to the issue of prescription, Gonzales’s claims of fraud and
mineral deposits in the Addendum Area of Influence is a factual misrepresentation attending the execution of the Addendum Contract
question which is not proper for determination before this Court. At are grounds for the annulment of a voidable contract under the Civil
all events, moreover, the question is irrelevant to the issue of Code.55 Under Art. 1391 of the Code, an action for annulment shall
jurisdiction of the DENR Panel of Arbitrators. It should be pointed be brought within four years, in the case of fraud, beginning from the
out that the DENR Panel of Arbitrators made a factual finding in its time of the discovery of the same. However, the time of the
Order dated 18 October 2001, which it reiterated in its Order dated discovery of the alleged fraud is not clear from the allegations of
25 June 2002, that Gonzales had, "through the various agreements, Gonzales’s complaint. That being the situation coupled with the fact
assigned his interest over the mineral claims all in favor of [Climax- that this Court is not a trier of facts, any ruling on the issue of
Arimco]" as well as that without the complainant [Gonzales] prescription would be uncalled for or even unnecessary.
assigning his interest over the mineral claims in favor of [Climax-
Arimco], there would be no FTAA to speak of." 52 This finding was WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is
affirmed by the Court of Appeals in its Decision dated 30 July 2003 DISMISSED. Such dismissal effectively renders superfluous formal
resolving the petition for certiorari filed by Climax-Arimco in regard action on the Motion for Partial Reconsideration and/or Clarification
to the 18 October 2001 Order of the DENR Panel.53 filed by Climax Mining Ltd., et al. in G.R. No. 161957.

The Court of Appeals likewise found that Gonzales’s complaint The Motion for Reconsideration filed by Jorge Gonzales in G.R. No.
alleged fraud but did not provide any particulars to substantiate it. 161957 is DENIED WITH FINALITY.
The complaint repeatedly mentioned fraud, oppression, violation of
the Constitution and similar conclusions but nowhere did it give any SO ORDERED.
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-
This is a Petition for Review on Certiorari under Rule 45 assailing
the February 20, 2006 Decision 1 and the March 30, 2006
Resolution2 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.

Respondent Metro Rock Industries, Inc. (MRII) is a domestic


corporation with principal office address at the 2nd Level of the
Waterfront Cebu Hotel and Casino, Lahug, Cebu City.6ςrνll

On May 19, 1997, MCWD entered into a Water Supply


Contract7 (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.8ςrνll

G.R. NO. 172438 - July 4, 2012] On March 15, 2004, MRII filed a Complaint9 against MCWD with
the Construction Industry Arbitration Commission (CIAC), citing the
METROPOLITAN CEBU WATER arbitration clause (Clause 18)10 of the Contract. The case was
DISTRICT, Petitioner, v. MACTAN ROCK INDUSTRIES, docketed as CIAC Case No. 12-2004. In the said complaint, MRII
INC., Respondent. sought the reformation of Clause 17 of the Contract, or the Price
Escalation/De-Escalation Clause, in order to include Capital Cost
DECISION Recovery in the price escalation formula, and to have such revised
formula applied from 1996 when the bidding was conducted, instead
MENDOZA, J.: of from the first day when MRII started selling water to MCWD. It
also sought the payment of the unpaid price escalation/adjustment, 1. Ordering the reformation of Clause 17 of the Water Supply
and the payment of unpaid variation/extra work order and Contract to read:
interest/cost of money up to December 31, 2003.
17[.] Price Escalation and/or De-Escalation shall be based on the
On May 7, 2002, MCWD filed its Answer12 dated April 27, 2004, parametric formula:
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 17.1 Power Rate Price Adjustment/Power Cost Adjustment
one for construction or infrastructure.

The CIAC thereafter issued an order 13 denying MCWD s motion to


Current Power Rate - Base Power
dismiss, and calling the parties to a preliminary conference for the
Rate x 30% of base selling price of
review and signing of the Terms of Reference.
water
Base Power Rate
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). 17.2 Consumer Price Index (CPI) Adjustment/Operating Cost
Adjustment:
Meanwhile, the CIAC proceeded with the preliminary conference
scheduled on June 10 and July 22, 2004 which MWCD opted not to
attend. MRII and the CIAC both signed the Terms of Reference. Current CPI Base CPI
Pursuant to the Terms of Reference and the CIAC Order dated July x 40% of base selling price of water
22, 2004, MRII submitted its documentary evidence and affidavits of Base CPI
its witnesses.16
17.3 Capital Cost Recovery Adjustment:
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
Current Peso to Base Peso to US$
formal offer of evidence, or a memorandum of legal arguments.
Decision of the CIAC
US$ Exchange Rate Exchange
18 Rate x 30% of base selling price of
The CIAC promulgated its Decision  on April 14, 2005, the
water
dispositive portion of which reads:
Base Peso to US $ Exchange Rate
WHEREFORE[,] premises considered, judgment is hereby
rendered as follows:
Price escalation shall be reckoned from January 1999 when the water damages, interest, attorney s fees, and expenses of litigation, when
was first delivered by Mactan Rock Industries, Inc. to the MCWD appropriate.23ςrνll
facilities in Mactan. The base CPI, base US$ Exchange Rate and the
Base Power Rate shall be the prevailing rate in January 1999, while Second, the CA held that the claims in question fall under the
the Base Selling Price of water shall mean the 1996 rate per cubic jurisdiction of the CIAC. Thus
meter of water as provided for in the Water Supply Contract.
Xxx Section 4 of Executive Order No. 1008, otherwise known as the
2. Ordering Respondent Metropolitan Cebu Water District to pay Construction Industry Arbitration Law delineates CIAC s jurisdiction
Claimant, Mactan Rock Industries, Inc[.] under the reformed Clause as "original and exclusive jurisdiction over disputes arising from, or
17 of the Water Supply Contract, the net amount connected with, contracts entered into by parties involved in
of Php12,126,296.70 plus legal interest of six percent (6%) per construction in the Philippines, whether the disputes arise before or
annum from the (sic) March 15, 2004, the date of filling (sic) of the after the completion of the contract, or after abandonment thereof."
case with the Construction Industry Arbitration Commission, the rate Moreover, Section 5 (k) of Republic Act No. 9184 otherwise known
increased to twelve percent (12%) per annum from the date the as [the] Government Procurement Reform Act expressly defines
herein Decision have (sic) become final and executory until the "infrastructure project" as including "water supply[,]" construction,
foregoing amounts shall have been fully paid[.] rehabilitation[,] demolition, repair, restoration and maintenance.

3. Claimant Mactan Rock Industries, Inc. and Metropolitan Cebu Consistent with the above-mentioned policy of encouraging
Water District shall share equally the cost of arbitration. 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
SO ORDERED. 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
Decision of the CA in CA-G.R. SP No. 85579 - Petition of the Water Supply Contract[,] specifically the price
for certiorari under Rule 65 with the Court of Appeals questioning escalation/adjustment. The instant case involves technical
the jurisdiction of the CIAC discrepancies that are better left to an arbitral body that has expertise
in those areas. Nevertheless, in any event, the inclusion of an
Meanwhile, on October 28, 2005, the CA in its decision 20 in the First arbitration clause in a contract does not ipso facto divest the courts of
Petition upheld the jurisdiction of the CIAC over the case. The CA jurisdiction to pass upon the findings of arbitral bodies, because the
held that when parties agree to settle their disputes arising from or awards are still judicially reviewable under certain
connected with construction contracts, the CIAC acquires primary conditions.24 (Citations omitted.)
jurisdiction.21 Citing Philrock Inc. v. Construction Industry
Arbitration Commission,22 the CA stated that the CIAC may resolve MCWD s motion for reconsideration of the decision in the First
not only the merits of such controversies, but may also award Petition was still pending when it filed the Petition for
Review 25 under Rule 43 (Second Petition) appealing the decision of
the CIAC. The motion for reconsideration was eventually denied in a Base Selling Price of water as a consequence of the reformation of
Resolution26 dated May 3, 2006. MCWD did not appeal from the Clause 17.
denial of the motion. It, thus, became final and executory. 27ςrνll
Finally, the CA stressed that "factual findings of administrative
Decision of the CA in CA-G.R. CEB SP. No. 00623 Petition for agencies which are deemed to have acquired expertise in matters
review under Rule 43 appealing the decision of the CIAC within their respective jurisdictions are generally accorded not only
respect but even finality when supported by substantial evidence." 29Ï
Aggrieved by the CIAC Decision, MCWD filed a Petition for
Review under Rule 43 with the CA which was docketed as CA-G.R. MCWD filed a motion for reconsideration but it was denied in the
CEB SP. No. 00623. CA Resolution dated March 30, 2006.

The CA, however, dismissed the petition in its Decision dated Thus, this petition.
February 20, 2006. The Court therein stated that the issue of
jurisdiction had already been resolved by the 18th Division in the ISSUES
First Petition, where the CA upheld the jurisdiction of the CIAC over
Arbitration Case No. 12-2004. MCWD raises the following issues in its Petition for Review

Citing jurisprudence, the CA also ruled that there being an arbitration MAY THE CONSTRUCTION INDUSTRY [ARBITRATION]
clause in the Contract, the action for reformation of contract COMMISSION EXERCISE JURISDICTION OVER
instituted by MRII in this case fell squarely within the jurisdiction of DISPUTES ARISING FROM A WATER SUPPLY
the CIAC, not the courts. In relation to this, the CA noted that the CONTRACT?
present rule is that courts will look with favor upon amicable
agreements to settle disputes through arbitration, and will only MAY A PARTY, WHO IS A SIGNATORY TO THE WATER
interfere with great reluctance to anticipate or nullify the action of SUPPLY CONTRACT[,] IN EFFECT SUBMITTING ITSELF TO
the arbitrator. MCWD being a signatory and a party to the Water THE JURISDICTION OF THE CONSTRUCTION INDUSTRY
Supply Contract, it cannot escape its obligation under the arbitration ARBITRATION COMMISSION, QUESTION THE
clause.28 JURISDICTION OF [THE] CIAC?

The CA also held that the CIAC did not err in finding that the Water DOES THE CONSTRUCTION INDUSTRY ARBITRATION
Supply Contract is clear on the matter of the reckoning period for the COMMISSION HAVE THE (SIC) JURISDICTION OVER A
computation of the escalation cost from January 9, 1999, or the first COMPLAINT PRAYING FOR A REFORMATION OF A WATER
day of delivery of water. Moreover, the CA found that the CIAC did SUPPLY CONTRACT?
not err in ruling that the contract be reformed to include Capital Cost
Recovery in the parametric formula for price escalation. Neither did MAY THE COURT OF APPEALS REFUSE TO RENDER A [SIC]
it err in holding that the Capital Cost Recovery shall be 30% of the JUDGMENT ON AN ISSUE BECAUSE THIS HAS BEEN
ALREADY SETTLED IN A DECISION RENDERED BY
ANOTHER DIVISION OF THE COURT OF APPEALS IN A of the terms of agreement; interpretation and/or application of
PETITION FOR CERTIORARI, EVEN IF THE SAID DECISION contractual provisions; amount of damages and penalties;
HAS NOT YET BEEN (SIC) FINAL DUE TO A TIMELY FILING commencement time and delays; maintenance and defects; payment
OF A MOTION FOR RECONSIDERATION? 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
RULING OF THE COURT by the Labor Code of the Philippines. (Underscoring supplied)

Creation of the CIAC The jurisdiction of the CIAC as a quasi-judicial body is confined to
construction disputes,32 that is, those arising from, or connected to,
The Construction Industry Arbitration Commission (CIAC) was contracts involving "all on-site works on buildings or altering
created in 1985 under Executive Order (E.O.) No. 1008 (Creating an structures from land clearance through completion including
Arbitration Machinery for the Philippine Construction Industry), in excavation, erection and assembly and installation of components
recognition of the need to establish an arbitral machinery that would and equipment."33 The CIAC has jurisdiction over all such disputes
expeditiously settle construction industry disputes. The prompt whether the dispute arises before or after the completion of the
resolution of problems arising from, or connected to, the construction contract.34ςrνll
industry was considered necessary and vital for the fulfillment of
national development goals, as the construction industry provided Whether the CIAC has jurisdiction over the dispute
employment to a large segment of the national labor force, and was a
leading contributor to the gross national product.31ςrνll As earlier stated, following the denial of its motion to dismiss by
CIAC, MCWD filed the First Petition with the CA, which decided in
Under Section 4 of E.O. No. 1008, the CIAC s jurisdiction was favor of MRII and upheld the jurisdiction of the CIAC.
specifically delineated as follows
Not being in conformity, MCWD filed a motion for reconsideration.
SECTION 4. Jurisdiction - The CIAC shall have original and
exclusive jurisdiction over disputes arising from, or connected with, While the said motion was pending with the CA, MCWD filed the
contracts entered into by parties involved in construction in the Second Petition with the same court. Eventually, the motion was
Philippines, whether the disputes arise before or after the completion denied, and MCWD never appealed the case. Thus, the decision of
of the contract, or after the abandonment or breach thereof. These the CA in the First Petition became final and executory.
disputes may involve government or private contracts. For the Board
to acquire jurisdiction, the parties to a dispute must agree to submit The question now is whether such final and executory decision is
the same to voluntary arbitration. binding such that courts are generally precluded from passing
judgment on the issue of jurisdiction in the present petition.
The jurisdiction of the CIAC may include but is not limited to
violation of specifications for materials and workmanship; violation The Court finds in the affirmative.
This Court has held time and again that a final and executory Had the parties been of the mutual understanding that the Contract
judgment, no matter how erroneous, cannot be changed, even by this was not of construction, they could have instead referred the matter
Court. Nothing is more settled in law than that once a judgment to arbitration citing Republic Act (R.A.) No. 876, or The Arbitration
attains finality, it thereby becomes immutable and unalterable. It may Law. Having been passed into law in 1953, the said statute was
no longer be modified in any respect, even if such modification is already in existence at the time the contract was entered into, and
meant to correct what is perceived to be an erroneous conclusion of could have been applied to arbitration proceedings other than those
fact or law, and regardless of whether the modification is attempted specifically within the arbitral jurisdiction of the CIAC.
to be made by the court rendering it or by the highest court of the
land.35Ï Whether the CA erred in refusing to render judgment on the issue
of  jurisdiction ___________
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 On a related matter, MWCD also raises the issue of whether the 19th
jurisdiction. Such decision having become final, it is beyond the Division of the CA, Cebu City, erred in refusing to render judgment
jurisdiction of this Court, or any court or body, for that matter, to on the issue of jurisdiction raised in the Second Petition on the
review or modify, even supposing for the sake of argument, that it is ground that it had already been settled by the 18th Division in its
indeed erroneous. 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
Also, the parties apparently characterized the Contract as one reconsideration.
involving construction, as its arbitration clause specifically refers
disputes, controversies or claims arising out of or relating to the The Court rules in the negative.
Contract or the breach, termination or validity thereof, if the same
cannot be settled amicably, to an arbitration tribunal, in accordance The 19th Division was correct in refusing to render judgment on the
with E.O. No. 1008, or the Construction Industry Arbitration Law issue of jurisdiction as, at that time, the issue was still pending before
another division of the CA.
V. DISPUTES AND JURISDICTION:
Litis pendentia is predicated on the principle that a party should not
18. Any dispute, controversy or claim arising out of or relating to be allowed to vex another more than once regarding the same subject
this contract or the breach, termination or invalidity thereof, if the matter and for the same cause of action. It is founded on the public
same cannot be settled amicably, may be submitted for arbitration to policy that the same subject matter should not be the subject of
an Arbitration Tribunal in accordance with Executive Order No. controversy in courts more than once, in order that possible
1008 dated 4 February 1985, otherwise known as the Construction conflicting judgments may be avoided for the sake of the stability of
Industry Arbitration Law and the place of arbitration shall be the the rights and status of persons, and also to avoid the costs and
City of Cebu, Philippines, otherwise said dispute or controversy expenses incident to numerous suits.37ςrνll
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 With the two petitions then pending before the CA, all the elements
located.36Ï‚rνll 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 2. After consideration, petitioner also prays that the Order dated May
reliefs sought by the parties, and identity between the two actions 28, 2004, denying petitioner s motion to dismiss be declared without
such that any judgment that may be rendered in one case, regardless force and effect;
of which party is successful, would amount to res judicata in the
other.38ςrνll 3. Petitioner also prays that the Construction Industry Arbitration
Commission be barred from hearing the case filed by Mactan Rock
In both cases, MCWD was the petitioner and MRII, the respondent. Industries, Inc., private respondent herein.
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. Other measures of relief, which are just and equitable under the
foregoing premise are also prayed for.
To determine whether there is identity of the rights asserted and
reliefs prayed for, grounded on the same facts and bases, the The Second Petition, on the other hand, raised the following issues:
following tests may be utilized: (1) whether the same evidence
would support and sustain both the first and the second causes of A. Whether or not the Arbitral Tribunal of CIAC gravely erred in
action, also known as the "same evidence" test; or (2) whether the taking and exercising jurisdiction over the complaint filed by the
defenses in one case may be used to substantiate the complaint in the respondent;
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 b. Whether or not the Arbitral Tribunal of CIAC gravely erred in
the first case.40ςrνll reforming Clause 17 of the Contract;
In the First Petition, MCWD argued that the CIAC s issuance of its c. Whether or not the same tribunal gravely committed an error in
Order41 dated May 28, 2004 was tainted with grave abuse of considering Capital Cost Recovery Adjustment in awarding in favor
discretion amounting to excess or lack of jurisdiction. Thus, MCWD of the complainant, when the same is extraneous to the provisions of
stated in its prayer: the contract;
WHEREFORE, in light of the premises laid down, petitioner most
respectfully prays:
Thus, it prayed
1. Upon the filing of this Petition, a Writ of Preliminary Injunction or
restraining order be issued forthwith, enjoining the respondent from
WHEREFORE, PREMISES CONSIDERED, it is most respectfully
proceeding with the hearing of the case until further orders from the
prayed of the Honorable Court that a Judgment be issued reversing
Honorable Court of Appeals;
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 its position, cited Section 1 of LOI No. 1186 and Section 5(k) of
granting the monetary award. R.A. No. 9184. MRII further proposed that, as shown by MCWD s
pro-forma Water Supply Contract, Specifications, Invitation to
It is further prayed that the decision rendered by the Arbitral Submit Proposal, Pre-Bid Conference minutes, Addendum No. 1,
Tribunal be declared invalid for want of jurisdiction to arbitrate and and MRII s Technical and Financial Proposals, the undertaking
to order the reformation of the water supply contract; contemplated by the parties is one of infrastructure and of works,
rather than one of supply or mere services.
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 In the Second Petition, in support of the issue of jurisdiction, MCWD
jurisdiction by the Arbitral Tribunal, which rendered the Decision. again relied on Section 4 of E.O. No. 1008 and Section 1, Article III
of the Rules of Procedure Governing Construction Arbitration. It
It is also prayed that a Temporary Restraining Order and a Writ of also brought to fore the alleged faulty conclusion of MRII that a
Preliminary Injunction be issued at the outset, ordering the stay of water supply contract is subsumed under the definition of an
execution pending the resolution of the issues raised in the Petition. infrastructure project under LOI 1186.

Other measures of relief, which are just and equitable, are also In its Comment, MRII reiterated and adopted its arguments before
prayed for. the CIAC, and insisted that the undertaking contemplated by the
parties was one of infrastructure and of works, as distinguished from
In both cases, the parties also necessarily relied on the same laws and "mere supply from off-the-shelf or from mere services." 48 Section 1
arguments in support of their respective positions on the matter of of LOI No. 1186, to define "infrastructure" and Section 5(k) of R.A.
jurisdiction. No. 9184 to include "water supply," were again cited. In support of
its arguments, MRII cited anew MCWD s pro-forma Water Supply
In the First Petition, in support of its argument, that the CIAC had no Contract, Specifications (in its Invitation to Submit Proposal),
jurisdiction to arbitrate the causes of action raised by MRII, MCWD pronouncements at the Pre-Bid Conference, Addendum No. 1, and
cited the portions of the Contract on the obligations of the water MRII s Technical and Financial Proposals. MRII further extensively
supplier, E.O. No. 1008 (specifically Section 4 on jurisdiction), the reproduced the content of the joint affidavit of Messrs. Antonio P.
Rules of Procedure Governing Construction Arbitration (Section 1, Tompar and Lito R. Maderazo, MRII s President/CEO and Financial
Article III). It also alleged that in issuing the order denying its Manager, respectively.
motion to dismiss, the CIAC misread the provisions of LOI No. 1186
and R.A. No. 9184 on the definition of an infrastructure project. Given that the same arguments were raised on the matter of CIAC
jurisdiction, the parties thus relied on substantially the same evidence
MRII, however, opined that the CIAC had jurisdiction over the in both petitions. MCWD annexed to both petitions copies of the
complaint and, therefore, correctly denied petitioner s motion to Water Supply Contract, the complaint filed by MRII with the CIAC,
dismiss. MRII argued that certiorari was not a proper remedy in case and its Answer to the said complaint. On the other hand, MRII
of denial of a motion to dismiss and that the claims fell squarely presented Addendum No. 1 to the Water Supply Contract and its
under CIAC s original and exclusive jurisdiction. MRII, in support of Technical and Financial Proposals.
Moreover, the first cause of action in the Second Petition, that is, the CIAC s jurisdiction, it is clear that with regard to contracts over
CIAC s having assumed jurisdiction, allegedly unlawfully, over the which it has jurisdiction, the only matters that have been excluded by
dispute arising from the Water Supply Contract, obviously existed at law are disputes arising from employer-employee relationships,
the time the First Petition was filed, as the latter case dealt with the which continue to be governed by the Labor Code of the Philippines.
jurisdiction of the CIAC over the complaint filed. Moreover, this is consistent with the policy against split jurisdiction.

Finally, any judgment that may be rendered in the First Petition on In fact, in National Irrigation Administration v. Court of Appeals,53 it
the matter of whether the CIAC has jurisdiction over the arbitration was held that the CIAC had jurisdiction over the dispute, and not the
proceedings, regardless of which party was successful, would contract. Therefore, even if the contract preceded the existence of the
amount to res judicata in the Second Petition, insofar as the issue of CIAC, since the dispute arose when the CIAC had already been
jurisdiction is concerned. In fact, what MCWD should have done constituted, the arbitral board was exercising current, and not
was to appeal to the Court after the denial of its motion for retroactive, jurisdiction. In the same case, it was held that as long as
reconsideration in the First Petition. For not having done so, the the parties agree to submit to voluntary arbitration, regardless of
decision therein became final and, therefore, immutable. what forum they may choose, their agreement will fall within the
jurisdiction of the CIAC, such that, even if they specifically choose
Thus, following the above discussion, the 19th Division was correct another forum, the parties will not be precluded from electing to
in refusing to render judgment on the issue of jurisdiction in the submit their dispute to the CIAC because this right has been vested
Second Petition. upon each party by law.

Whether the CIAC had jurisdiction to order the reformation of the This is consistent with the principle that when an administrative
Water Supply Contract agency or body is conferred quasi-judicial functions, all
controversies relating to the subject matter pertaining to its
The jurisdiction of courts and quasi-judicial bodies is determined by specialization are deemed to be included within its jurisdiction since
the Constitution and the law. 50 It cannot be fixed by the will of the the law does not sanction a split of jurisdiction, as stated in Peña v.
parties to the dispute, nor can it be expanded or diminished by Government Service Insurance System.54
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, In Peña, the Court held that although the complaint for specific
construction contracts, whether these involve mere contractual performance, annulment of mortgage, and damages filed by the
money claims or execution of the works. This jurisdiction cannot be petitioner against the respondent included title to, possession of, or
altered by stipulations restricting the nature of construction disputes, interest in, real estate, it was well within the jurisdiction of the
appointing another arbitral body, or making that body s decision final Housing and Land Use Regulatory Board (HLURB), a quasi-judicial
and binding. body, as it involved a claim against the subdivision developer, Queen
s Row Subdivision, Inc., as well as the Government Service
Thus, unless specifically excluded, all incidents and matters relating Insurance System (GSIS).
to construction contracts are deemed to be within the jurisdiction of
the CIAC. Based on the previously cited provision outlining the
This case was later cited in Badillo v. Court of Appeals,55 where the In National Housing Authority v. First United Constructors
Court concluded that the HLURB had jurisdiction over complaints Corporation,58 the Court held that there was no basis for the
for annulment of title. The Court also held that courts will not exclusion of claims for business losses from the jurisdiction of the
determine a controversy where the issues for resolution demand the CIAC because E.O. No. 1008 "excludes from the coverage of the law
exercise of sound administrative discretion, such as that of the only those disputes arising from employer-employee relationships
HLURB, the sole regulatory body for housing and land development. which are covered by the Labor Code, conveying an intention to
It was further pointed out that the extent to which an administrative encompass a broad range of arbitrable issues within the jurisdiction
agency may exercise its powers depends on the provisions of the of CIAC."59 Section 4 provides that "(t)he jurisdiction of the CIAC
statute creating such agency. may include but is not limited to x x x," underscoring the expansive
character of the CIAC s jurisdiction. Very clearly, the CIAC has
The ponencia further quoted from C.T. Torres Enterprises, Inc. v. jurisdiction over a broad range of issues and claims arising from
Hibionada: construction disputes, including but not limited to claims for
unrealized profits and opportunity or business losses. What E.O. No.
The argument that only courts of justice can adjudicate claims 1008 emphatically excludes is only disputes arising from employer-
resoluble under the provisions of the Civil Code is out of step with employee relationships.
the fast-changing times. There are hundreds of administrative bodies
now performing this function by virtue of a valid authorization from Where the law does not delineate, neither should we. Neither the
the legislature. This quasi-judicial function, as it is called, is provisions of the Civil Code on reformation of contracts nor the law
exercised by them as an incident of the principal power entrusted to creating the CIAC exclude the reformation of contracts from its
them of regulating certain activities falling under their particular jurisdiction. Jurisprudence further dictates that the grant of
expertise. jurisdiction over related and incidental matters is implied by law.
Therefore, because the CIAC has been held to have jurisdiction over
In the Solid Homes case for example the Court affirmed the the Contract, it follows that it has jurisdiction to order the
competence of the Housing and Land Use Regulatory Board to reformation of the Contract as well.
award damages although this is an essentially judicial power
exercisable ordinarily only by the courts of justice. This departure Whether MCWD can validly refuse to participate in the
from the traditional allocation of governmental powers is justified by arbitration proceedings
expediency, or the need of the government to respond swiftly and
competently to the pressing problems of the modern world. 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
In Bagunu v. Spouses Aggabao,57 the Court ruled that the RTC must CIAC could proceed with the case even if the MCWD refused to
defer the exercise of its jurisdiction on related issues involving the participate in the arbitration proceedings.
same subject matter properly within its jurisdiction, such as the
distinct cause of action for reformation of contracts involving the The Court rules in the affirmative. Though one party can refuse to
same property, since the DENR assumed jurisdiction over the lot in participate in the arbitration proceedings, this cannot prevent the
question, pursuant to its mandate.
CIAC from proceeding with the case and issuing an award in favor This Court has held that the CIAC has jurisdiction over a dispute
of one of the parties. arising from a construction contract even though only one of the
parties requested for arbitration. 62 In fact, in Philrock, Inc. v.
Section 4.2 of the Revised Rules of Procedure Governing Construction Industry Arbitration Commission,63 the Court held that
Construction Arbitration (CIAC Rules) specifically provides that the CIAC retained jurisdiction even if both parties had withdrawn
where the jurisdiction of the CIAC is properly invoked by the filing their consent to arbitrate.
of a Request for Arbitration in accordance with CIAC Rules, the
failure of a respondent to appear, which amounts to refusal to In this case, there being a valid arbitration clause mutually stipulated
arbitrate, will not stay the proceedings, notwithstanding the absence by the parties, they are both contractually bound to settle their
of the respondent or the lack of participation of such party. In such dispute
cases, the CIAC is mandated to appoint the arbitrator/s in accordance
with the Rules, and the arbitration proceedings shall continue. The through arbitration before the CIAC. MCWD refused to participate,
award shall then be made after receiving the evidence of the but this should not affect the authority of the CIAC to conduct the
claimant. proceedings, and, thereafter, issue an arbitral award.

In such a case, all is not lost for the party who did not participate. Now, with the CIAC decision being questioned by MCWD, the
Even after failing to appear, a respondent is still given the Court takes a cursory reading of the said decision. It reveals that the
opportunity, under the CIAC Rules, to have the proceedings conclusions arrived at by CIAC are supported by facts and the law.
reopened and be allowed to present evidence, although with the Article 1359 of the Civil Code states that when there has been a
qualification that this is done before an award is issued: meeting of the minds of the parties to a contract, but their true
intention is not expressed in the instrument purporting to embody the
4.2.1 In the event that, before award, the Respondent who had not agreement by reason of mistake, fraud, inequitable conduct or
earlier questioned the jurisdiction of the Tribunal, appears and offers accident, one of the parties may ask for the reformation of the
to present his evidence, the Arbitral Tribunal may, for reasons that instrument to the end that such true intention may be expressed. The
justifies (sic) the failure to appear, reopen the proceedings, require CIAC, in this case, found that the parametric formula for price
him to file his answer with or without counterclaims, pay the fees, escalation reflected in the Water Supply Contract involved two
where required under these Rules, and allow him to present his items: Power Rate Price Adjustment (30% of the base selling price of
evidence, with limited right to cross examine witnesses already in the water) and Consumer Price Index Adjustment (40% of the base
discretion of the Tribunal. Evidence already admitted shall remain. selling price of water). The remaining 30% of the selling price of
The Tribunal shall decide the effect of such controverting evidence water, which should have been for Capital Cost Recovery, was
presented by the Respondent on evidence already admitted prior to inadvertently left out in this parametric formula. Thus, the Contract
such belated appearance. should be reformed accordingly to reflect the intention of the parties
to include in the price escalation formula the Capital Cost Recovery
Thus, under the CIAC Rules, even without the participation of one of Adjustment. These conclusions were affirmed by the CA in the
the parties in the proceedings, the CIAC is still required to proceed assailed decision of February 20, 2006.
with the hearing of the construction dispute
As noted by MCWD in its reply, however, the dispositive portion of Forex
the CIAC decision reforming the price escalation formula is Water
inconsistent with what was stated in the body of the decision. The Base Forex
formula contained in the body of the decision is as follows:
xxx
PRICE ADJUSTMENT COMPUTATION
4. Capital Cost Adjustment Local
Based on Reformed Clause 17 of the Water Supply ContractÏ
xxx
1. Power Cost Adjustment:
Current CPI Base CPI
xxx x 30% of 30% of Base Selling Price of Water
Base CPI
Current Power Rate Base Power
Rate x 30% of Base Selling Price of xxx
water
Base Power Rate 5. Capital Cost Adjustment Foreign

xxx xxx

2. Operating Cost Adjustment - Local Current Forex Base


Forex x 70% of 30% of Base Selling Price of
xxx Water
Base Forex
Current CPI Base CPI
x 30% of 40% of Base Selling Price of Water xxx64Ï‚rνll
Base CPI

xxx
The dispositive portion of the decision, however, reads:
3. Operating Cost Adjustment Foreign
WHEREFORE[,] premises considered, judgment is hereby
xxx rendered as follows:

Current Forex Base x 70% of 40% of Base Selling Price of


1. Ordering the reformation of Clause 17 of the Water Supply the decision that there was a mistake in the dispositive portion, the
Contract to read: body of the decision will prevail.

17[.] Price Escalation and/or De-Escalation shall be based on the Following the reasoning of the CIAC in this case, there are three
parametric formula: components to price adjustment: (1) Power Cost Adjustment (30% of
the base selling price of water); (2) Operating Cost Adjustment (40%
17.1 Power Rate Price Adjustment/Power Cost Adjustment of the base selling price of water); and (3) Capital Cost Adjustment
(30% of the base selling price of water).
Current Power Rate Base Power
Rate x 30% of Base Selling Price of In turn, the second component Operating Cost Adjustment is
water computed based on Local Operating Cost Adjustment (30%), and
Base Power Rate Foreign Operating Cost Adjustment (70%).

17.2 Consumer Price Index (CPI) Adjustment/Operatiing (sic) Cost Capital Cost Adjustment, on the other hand, is composed of Local
Adjustment: Capital Cost Adjustment (30%), and Foreign Capital Cost
Adjustment (70%).
Current CPI Base CPI
x 40% of Base Selling Price of Water This is consistent with the formula set forth in the body of the CIAC
Base CPI decision. If the formula in the dispositive portion were to be
followed, Operating Cost Adjustment would be computed with the
Local Operating Cost Adjustment representing the entire 40% of the
17.3 Capital Cost Recovery Adjustment: base selling price of water instead of just 30% of the Operating Cost
Adjustment. Moreover, if the Capital Cost Recovery Adjustment
Current Peso to Base Peso to US$ were to be computed based solely on Foreign Capital Cost Recovery
Adjustment, it would represent the entire 30% of the base selling
US$ Exchange Rate Exchange price of water, and not just 70% of the Capital Cost Recovery
Rate x 30% of base selling price of Adjustment. The omission of the marked portions of the formula as
water stated in the body of the CIAC decision represents substantial
Base Peso to US $ Exchange Rate changes to the formula for price escalation. It is thus clear that the
formula as stated in the body of the decision should govern.
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 WHEREFORE, the petition is DENIED. The Decision and
prevails on the theory that the fallo is the final order and becomes the Resolution of the Court of Appeals in C.A.-G.R. CEB SP. No. 00623
subject of execution, while the body of the decision merely contains are AFFIRMED with the modification that the formula for the
the reasons or conclusions of the court ordering nothing. However, computation of the Capital Cost Recovery Adjustment in the fallo of
where one can clearly and unquestionably conclude from the body of the CIAC decision should be amended to read as follows:
WHEREFORE, premises considered, judgment is hereby rendered Base Power Rate shall be the prevailing rate in January 1999, while
as follows: the Base Selling Price of water shall mean the 1996 rate per cubic
meter of water as provided for in the Water Supply Contract.
1. Ordering the reformation of Clause 17 of the Water Supply
Contract to read: 2. Ordering Respondent Metropolitan Cebu Water District to pay
Claimant, Mactan Rock Industries, Inc. under the reformed Clause
17. Price Escalation and/or De-Escalation shall be based on the 17 of the Water Supply Contract, the net amount
parametric formula: of Php12,126,296.70 plus legal interest of six percent (6%) per
annum from March 15, 2004, the date of filing of the case with the
17.1. Power Rate Price Adjustment/Power Cost Adjustment Construction Industry Arbitration Commission, and twelve percent
(12%) per annum from the date this Decision becomes final and
Current Power Rate - Base Power Rate executory, until the foregoing amounts shall have been fully paid.

Base Power Rate x 30% of base selling price of water 3. Claimant Mactan Rock Industries, Inc. and Metropolitan Cebu
Water District shall share the cost of arbitration equally.
17.2 Consumer Price Index (CPI) Adjustment/Operating Cost
Adjustment:
SO ORDERED.
Current CPI Base CPI
x 30% of 40% of base selling price of water
Base CPI

17.3 Capital Cost Recovery Adjustment:

Current Peso to Base Peso to US$

US$ Exchange Rate Exchange


Rate
x 70% of 30% of base selling price
of water
Base Peso to US $ Exchange
Rate

Price escalation shall be reckoned from January 1999 when the water
was first delivered by Mactan Rock Industries, Inc. to the MCWD
facilities in Mactan. The base CPI, base US$ Exchange Rate and the
G.R. No. 199238

BANCO DE ORO UNIBANK, INC., Petitioner,


vs.
COURT OF APPEALS and RCBC CAPITAL
CORPORATION, Respondents.

DECISION

VILLARAMA, JR., J.:

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 Order2 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
G.R. No. 196171               December 10, 2012 (TRO)/preliminary injunction against the implementation of the Writ
of Execution4 dated August 22, 2011 issued by the Makati City RTC,
RCBC CAPITAL CORPORATION, Petitioners, Branch 148 in SP Proc. Case No. M-6046.
vs.
BANCO DE ORO UNIBANK, INC., Respondent. Factual Antecedents

X- - - - - - - - - - - - - - - - - - - - - - - - - -X
On May 24, 2000, RCBC entered into a Share Purchase award of attorney’s fees to the prevailing party) shall be paid as the
Agreement5 (SPA) with Equitable-PCI Bank, Inc. (EPCIB), George arbitrators shall determine.8
L. Go and the individual shareholders 6 of Bankard, Inc. (Bankard) for
the sale to RCBC of 226,460,000 shares (Subject Shares) of In its Request for Arbitration9 dated May 12, 2004, Claimant RCBC
Bankard, constituting 67% of the latter’s capital stock. After charged Bankard with deviating from and contravening generally
completing payment of the contract price (₱1,786,769,400), the accepted accounting principles and practices, due to which the
corresponding deeds of sale over the subject shares were executed in financial statements of Bankard prior to the stock purchase were far
January 2001. from fair and accurate, and resulted in the overpayment of ₱556
million. For this violation of sellers’representations and warranties
The dispute between the parties arose sometime in May 2003 when under the SPA, RCBC sought its rescission, as well as payment of
RCBC informed EPCIB and the other selling shareholdersof an actual damages in the amount of ₱573,132,110, legal interest on the
overpayment of the subject shares, claiming there was an purchase price until actual restitution, moral damages and litigation
overstatement of valuation of accounts amounting to ₱478 million and attorney’s fees, with alternative prayer for award of damages in
and that the sellers violated their warrantyunder Section 5(g)of the the amount of at least ₱809,796,082 plus legal interest.
SPA.7
In their Answer,10 EPCIB, Go and the other selling individual
As no settlement was reached, RCBC commenced arbitration shareholders (Respondents) denied RCBC’s allegations contending
proceedings with the ICC-ICA in accordance with Section 10 of the that RCBC’s claim is one for overpayment or price reduction under
SPA which states: Section 5(h) of the SPA which is already time-barred, the remedy of
rescission is unavailable, and even assuming that rescission is
Section 10.Arbitration permitted by the SPA, RCBC failed to file its claim within a
reasonable time. They further asserted that RCBC is not entitled to
Should there be any dispute arising between the parties relating to its alternative prayer for damages, being guilty of laches and failing
this Agreement including the interpretation or performance hereof to set out the details of the breach as required under Section 7 of the
which cannot be resolved by agreement of the parties within fifteen SPA. A counterclaim for litigation expenses and costs of arbitration
(15) days after written notice by a party to another, such matter shall in the amount of US$300,000, as well as moral and exemplary
then be finally settled by arbitration under the Rules of Conciliation damages, was likewise raised by the Respondents.
and Arbitration of the International Chamber of Commerce in force
as of the time of arbitration, by three arbitrators appointed in RCBC submitted a Reply11 to the aforesaid Answer.
accordance with such rules. The venue of arbitration shall be in
Makati City, Philippines and the arbitration proceedings shall be Subsequently, the Arbitration Tribunal was constituted. Mr. Neil
conducted in the English language. Substantive aspects of the dispute Kaplan was nominated by RCBC; Justice Santiago M. Kapunan (a
shall be settled by applying the laws of the Philippines. The decision retired Member of this Court) was nominated by the Respondents;
of the arbitrators shall be final and binding upon the parties hereto and Sir Ian Barker was appointed by the ICC-ICA as Chairman.
and the expenses of arbitration (including without limitation the
On August 13, 2004, the ICC-ICA informed the parties that they are In a fax-letter dated January 4, 2005, the ICC-ICA invited RCBC to
required to pay US$350,000 as advance on costs pursuant to Article pay the said amount in substitution of Respondents.It also granted an
30 (3) of the ICC Rules of Arbitration (ICC Rules). RCBC paid its extension until January 17, 2005 within which to pay the balance of
share of US$107,000, the balance remaining after deducting the advance cost (US$175,000). RCBC replied that it was not willing
payments of US$2,500 and US$65,000 it made earlier. Respondents’ to shoulder the share of Respondents in the advance on costs but
share of the advance on costs was thus fixed at US$175,000. nevertheless requested for a clarification as to the effect of such
refusal to substitute for Respondents’share. 16
Respondents filed an Application for Separate Advances on
Costs12 dated September 17, 2004 under Article 30(2) of the ICC On March 10, 2005, the ICC-ICA instructed the Arbitration Tribunal
Rules, praying that the ICC fix separate advances on the cost of the to suspend its work and granted the parties a final time-limit of 15
parties’ respective claims and counterclaims, instead of directing days to pay the balance of the advanceon costs, failing which the
them to share equally on the advance cost of Claimant’s (RCBC) claims shall be considered withdrawn, without prejudice to their
claim. Respondents deemed this advance cost allocation to be proper, reintroduction at a later date in another proceeding. The parties were
pointing out that the total amount of RCBC’s claim is substantially advised that if any of them objects to the measure, it should make a
higher – more than 40 times –the total amount of their counterclaims, request in writing within such period. 17 For the same reason of non-
and that it would be unfair to require them to share in the costs of receipt of the balance of the advance cost, the ICC-ICA issued
arbitrating what is essentially a price issue that is now time-barred Procedural Order No. 3 for the adjournment of the substantive
under the SPA. hearings and granting the Respondents a two-month extension within
which to submit their brief of evidence and witnesses.
On September 20, 2004, the ICC-ICA informed Respondents that
their application for separate advances on costs was premature RCBC objected to the cancellation of hearings, pointing out that
pending the execution of the Terms of Reference (TOR). 13 The TOR Respondents have been given ample time and opportunity to submit
was settled by the parties and signed by the Chairman and Members their brief of evidence and prepare for the hearings and that their
of the Arbitral Tribunal by October 11, 2004. On December 3, request for postponement serves no other purpose but to delay the
2004,14 the ICC-ICA denied the application for separate advances on proceedings. It alleged that Respondents’ unjustified refusal to pay
costs and invited anew the Respondents to pay its share in the their share in the advance on costs warrants a ruling that they have
advance on costs. However, despite reminders from the ICC-ICA, lost standing to participate in the proceedings. It thus prayed that
Respondents refused to pay their share in the advance cost fixed by Respondents be declared as in default, the substantive hearings be
the ICC-ICA. On December 16, 2004, the ICC-ICA informed the conducted as originally scheduled, and RCBC be allowed to submit
parties that if Respondents still failed to pay its share in the advance rebuttal evidence and additional witness statements. 18
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, On December 15, 2005, the ICC-ICA notified the parties of its
and if such requested deposit remains unpaid at the expiry thereof, decision to increase the advances on costs from US$350,000 to
the counterclaims would be considered withdrawn.15 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 3. The only sanction under the ICC Rules is contained within
compelling the Respondents to fund such prosecution is inequitable. Article 30 (4). Where a request for an advance on costs has
Respondents reiterated that it was willing to pay the advance on costs not been complied with, after consultation with the Tribunal,
for their counterclaim.19 the Secretary-General may direct the Tribunal to suspend its
work. After expiry of a time limit, all claims and
On December 27, 2005, the ICC-ICA advised that it was not possible counterclaims are then considered as withdrawn. This
to fix separate advances on costs as explained in its December 3, provision cannot assist a Claimant who is anxious to litigate
2004 letter, and again invited Respondents to pay their share in the its claim. Such a Claimant has to pay the sums requested
advance on costs. Respondents’ response contained in the letter (including the Respondents’ share) if it wishes the arbitration
dated January 6, 2006 was still the same: it was willing to pay only to proceed.
the separate advance on costs of their counterclaim. 20 In view of
Respondents’ continuing refusal to pay its equal share in the advance 4. It may be possible for a Claimant in the course of the
on costs and increment, RCBC wrote the ICC-ICA stating that the arbitral hearing (or whenever costs are being considered
latter should compel the Respondents to pay as otherwise RCBC will by the Tribunal) to make submissions based on the
be prejudiced and the inaction of the ICC-ICA and the Arbitration failure of the Respondents to pay their share of the costs
Tribunal will detract from the effectiveness of arbitration as a means advance.What relief, if any, would have to be then
of settling disputes. In accordance with Article 30(4) of the ICC determined by the Tribunal after having heard
Rules, RCBC reiterated its request to declare the Respondents as in submissions from the Respondents.
default without any personality to participate in the proceedings not
only with respect to their counterclaims but also to the claim of 5. I should be pleased if the Claimant will advise the
RCBC.21 Tribunal of its intention in relation to the costs advance. If
the costs are not paid, the arbitration cannot
Chairman Ian Barker, in a letter dated January 25, 2006, stated in proceed.22 (Italics in the original; emphasis supplied)
part:
RCBC paid the additional US$100,000 under the second assessment
xxxx to avert suspension of the Arbitration Tribunal’s proceedings.

2. The Tribunal has no power under the ICC Rules to Upon the commencement of the hearings, the Arbitration Tribunal
order the Respondents to pay the advance on costs decided that hearings will be initially confined to issues of liability
sought by the ICC or to give the Claimant any relief (liability phase) while the substantial issues will be heard on a later
against the Respondents’ refusal to pay. The ICC Rules date (quantum phase).
differ from, for example, the Rules of the LCIA (Article
24.3) which enables a party paying the share of costs which Meanwhile, EPCIB’s corporate name was officially changed to
the other party has refused to pay, to recover "that amount Banco De Oro (BDO)-EPCIB after its merger with BDO was duly
as a debt immediately due from the defaulting party." approved by the Securities and Exchange Commission. As such,
BDO assumed all the obligations and liabilities of EPCIB under the misinformed about Bankard’s accounting
SPA. policies on revenue and receivables.

On September 27, 2007, the Arbitration Tribunal rendered a Partial (d) Subject to proof of loss the Claimant is entitled
Award23 (First Partial Award) in ICC-ICA Case No. to damages for the foregoing breaches.
13290/MS/JB/JEM,as follows:
(e) The Claimant is not entitled to rescission of the
15 AWARD AND DIRECTIONS SPA.

15.1 The Tribunal makes the following declarations by way (f) All other issues, including any issue relating to
of Partial Award: costs, will be dealt with in a further or final
award.
(a) The Claimant’s claim is not time-barred under
the provisions of this SPA. 15.2 A further Procedural Order will be necessary
subsequent to the delivery of this Partial Award to deal with
(b) The Claimant is not estopped by its conduct or the determination of quantum and in particular, whether
the equitable doctrine of laches from pursuing its there should be an Expert appointed by the Tribunal under
claim. Article 20(4) of the ICC Rules to assist the Tribunal in this
regard.
(c) As detailed in the Partial Award, the Claimant
has established the following breaches by the 15.3 This Award is delivered by a majority of the Tribunal
Respondents of clause 5(g) of the SPA: (Sir Ian Barker and Mr. Kaplan). Justice Kapunan is unable
to agree with the majority’s conclusion on the claim of
i) the assets, revenue and net worth of estoppel brought by the Respondents.24 (Emphasis supplied)
Bankard were overstated by reason of its
policy on and recognition of Late Payment On October 26, 2007, RCBC filed with the Makati City RTC,
Fees; Branch 148 (SP Proc. Case No. M-6046)amotion to confirm the First
Partial Award, while Respondents filed a motion to vacate the same.
ii) reported receivables were higher than
their realisable values by reason of the ICC-ICA by letter25 dated October 12, 2007 increased the advance on
‘bucketing’ method, thus overstating costs from US$450,000 to US$580,000. Under this third assessment,
Bankard’s assets; and 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
iii) the relevant Bankard statements were its filing in the RTC of a motion to vacate the First Partial
inadequate and misleading in that their Award.26 The ICC-ICA then invited RCBC to substitute for
disclosures caused readers to be Respondents in paying the balance of US$130,000 by December 21,
2007.27 RCBC complied with the request, making its total payments Meanwhile, on January 8, 2008, the Makati City RTC, Branch 148
in the amount of US$580,000.28 issued an order in SP Proc. Case No. M-6046 confirming the First
Partial Award and denying Respondents’ separate motions to vacate
While RCBC paid Respondents’ share in the increment and to suspend and inhibit Barker and Kaplan. Respondents’ motion
(US$130,000), it reiterated its plea that Respondents be declared as for reconsideration was likewise denied. Respondents directly filed
in default and the counterclaimsdeemed as withdrawn. 29 with this Court a petition for review on certiorari under Rule 45,
docketed as G.R. No. 182248 and entitled Equitable PCI Banking
Chairman Barker’s letter dated December 18, 2007 states in part: Corporation v. RCBC Capital Corporation.32 In our Decision dated
December 18, 2008, we denied the petition and affirmed the RTC’s
xxxx ruling confirming the First Partial Award.

8. Contrary to the Complainant’s view, the Tribunal has no On January 18, 2008, the Arbitration Tribunal set a timetable for the
jurisdiction to declare that the Respondents have no right to filing of submission by the parties on whether it should issue a
participate in the proceedings concerning the claim. Article Second Partial Award in respect of the Respondents’ refusal to pay
30(4) of the ICC Rules applies only to any counterclaim of an advance on costs to the ICC-ICA.
the Respondents.
In compliance, RCBC filed on February 7, 2008an Application for
9. The Tribunal interprets the Claimant’s latest letter as Reimbursement of Advance on Costs Paid, praying for the issuance
an application by the Claimant to the Tribunal for the of a partial award directing the Respondents to reimburse its
issue of a partial award against the Respondents in payment in the amount of US$290,000 representing Respondents’
respect of their failure to pay their share of the ICC’s share in the Advance on Costs and to consider Respondents’
requests for advance on costs. counterclaim for actual damages in the amount of US$300,000, and
moral and exemplary damages as withdrawn for their failure to pay
10. I should be grateful if the Claimant would confirm that their equal share in the advance on costs. RCBC invoked the plain
this is the situation. If so, the Claimant should propose a terms of Article 30 (2) and (3) to stress the liability of Respondents
timetable for which written submissions should be made by to share equally in paying the advance on costs where the Arbitration
both parties. This is an application which can be considered Tribunal has fixed the same.33
by the Tribunal on written submissions. 30 (Emphasis
supplied) Respondents, on the other hand, filed their Opposition 34 to the said
application alleging that the Arbitration Tribunal has lost its
RCBC, in a letter dated December 26, 2007, confirmed the objectivity in an unnecessary litigation over the payment of
Arbitration Tribunal’s interpretation that it was applying for a partial Respondents’ share in the advance costs. They pointed out that
award against Respondents’ failure to pay their share in the advance RCBC’s letter merely asked that Respondents be declared as in
on costs.31 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 2. The Tribunal notes that neither party has referred to
that it had no intention of litigating for the advance costs. Chairman an article by Mat[t]hew Secomb on this very subject
Barker, after ruling earlier that it cannot grant RCBC’s request to which appears in the ICC Bulletin Vol. 14 No.1 (Spring
declare the Respondents as having no right to participate in the 2003). To assist both sides and to ensure that the Tribunal
proceedings concerning the claim, interpreted RCBC’s letter as an does not consider material on which the parties have not
application for the Arbitration Tribunal to issue a partial award in been given an opportunity to address, I attach a copy of this
respect of such refusal of Respondents to pay their share in the article, which also contains reference to other scholarly
advance on costs, and subsequently directed the parties to make works on the subject.
submissions on the matter.Aside from violating their right to due
process and to be heard by an impartial tribunal, Respondents also 3. The Tribunal will give each party seven days within which
argued that in issuing the award for advance cost, the to submit further written comments as a consequence of
ArbitrationTribunal decided an issue beyond the terms of the TOR. being alerted to the above authorities. 35 (Additional emphasis
supplied)
Respondents also emphasized that the parties agreed on a two-part
arbitration: the first part of the Tribunal’s proceedings would The parties complied by submitting their respective comments.
determine Respondents’ liability, if any, for alleged violation of
Section 5(g) and (h) of the SPA; and the second part of the RCBC refuted Respondents’ allegation of partiality on the part of
proceedings would determine the amounts owed by one party to Chairman Barker and reiterated the prayer in its application for
another as a consequence of a finding of liability or lack thereof. An reimbursement of advance on costs paid to the ICC-ICA. RCBC
award for "reimbursement of advances for costs" clearly falls outside contended that based on Mr. Secomb’s article, whether the
the scope of either proceedings. Neither can the Tribunal justify such "contractual" or "provisional measures" approach is applied, the
proceedings under Article 23 of the ICC Rules (Conservatory and Arbitration Tribunal is vested with jurisdiction and authority to
Interim Measures) because that provision does not contemplate an render an award with respect to said reimbursement of advance cost
award for the reimbursement of advance on costs in arbitration cases. paid by the non-defaulting party.36
Respondents further asserted that since the advances on costs have
been paid by the Claimant (RCBC), the main claim and counterclaim Respondents, on the other hand, maintained that RCBC’s application
may both be heard by the Arbitration Tribunal. for reimbursement of advance cost has no basis under the ICC Rules.
They contended that no manifest injustice can be inferred from an act
In his letter dated March 13, 2008, Chairman Barker advised the of a party paying for the share of the defaulting party as this scenario
parties, as follows: is allowed by the ICC Rules. Neither can a partial award for advance
cost be justified under the "contractual approach" since the matter of
1. The Tribunal acknowledges the Respondents’ response to costs for arbitration is between the ICC and the parties, not the
the Claimant’s application for a Partial Award, based on the Arbitration Tribunal and the parties. An arbitration tribunal can issue
Respondents’ failure to pay their share of the costs, as decisions on costs only for those costs not fixed by the ICC. 37
requested by the ICC.
Respondents reiterated their position that Article 30(3) envisions a award was procured by undue means or issued with evident partiality
situation whereby a party would refuse to pay its share on the or attended by misbehavior on the part of the Tribunal which resulted
advance on costs and provides a remedy therefor – the other party in a material prejudice to the rights of the Respondents. EPCIB
"shall be free to pay the whole of the advance on costs." Such party’s argued that there is no express agreement either in the SPA or the
reimbursement for payments of the defaulting party’s share depends ICC Rules for such right of reimbursement. There is likewise no
on the final arbitral award where the party liable for costs would be implied agreement because from the ICC Rules, the only inference is
determined. This is the only remedy provided by the ICC Rules. 38 that the parties agreed to await the dispositions on costs liability in
the Final Award, not before.
On May 28, 2008, the Arbitration Tribunal rendered the Second
Partial Award,39 as follows: On the ruling of the Arbitration Tribunal that Respondents’
application for costs are not counterclaims, EPCIB asserted that this
7 AWARD is contrary to Philippine law as it is basic in our jurisdiction that
counterclaims for litigation expenses, moral and exemplary damages
7.1 Having read and considered the submissions of both parties, the are proper counterclaims, which rule should be recognized in view of
Tribunal AWARDS, DECLARES AND ORDERS as follows: Section 10 of the SPA which provides that "substantive aspects of
the dispute shall be settled by applying the laws of the Philippines."
(a) The Respondents are forthwith to pay to the Claimant the Finally, EPCIB takes issue with Chairman Barker’s interpretation of
sum of US$290,000. RCBC’s December 11, 2007 letter as an application for a partial
award for reimbursement of the substituted payments. Such conduct
(b) The Respondents’ counterclaim is to be considered as of Chairman Barker is prejudicial and proves his evident partiality in
withdrawn. favor of RCBC.

(c) All other questions, including interest and costs, will be RCBC filed its Opposition,43 asserting that the Arbitration Tribunal
dealt with in a subsequent award.40 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
The above partial award was received by RCBC and Respondents on
relates only to attorney’s fees which are simply cost of litigation
June 12, 2008.
properly brought at the conclusion of the arbitration. It also pointed
out that the Arbitration Tribunal was empowered by the parties’
On July 11, 2008, EPCIB filed a Motion to Vacate Second Partial arbitral clause to determine the manner of payment of expenses of
Award41 in the Makati City RTC, Branch 148 (SP Proc. Case No. M- arbitration, and that the Second Partial Award was based on
6046). On July 10, 2008, RCBC filed in the same court a Motion to authorities and treatiseson the mandatory and contractual nature of
Confirm Second Partial Award.42 the obligation to pay advances on costs.

EPCIB raised the following grounds for vacating the Second Partial In its Reply,44 EPCIB contended that RCBC had the option to agree
Award: (a) the award is void ab initio having been rendered by the to its proposal for separate advances on costs but decided against it;
arbitrators who exceeded their power or acted without it; and (b) the
RCBC’s act of paying the balance of the advance cost in substitution assailed his conduct and had likewise sought his inhibition. Both
of EPCIB was for the purpose of having EPCIB defaulted and the motions were denied in the Joint Order46 dated March 23, 2010.
latter’s counterclaim withdrawn. Having agreed to finance the
arbitration until its completion, RCBC is not entitled to immediate On April 14, 2010, EPCIB filed in the CA a petition for review 47 with
reimbursement of the amount it paid in substitution of EPCIB under application for TRO and/or writ of preliminary injunction (CA-G.R.
an interim award, as its right to a partial or total reimbursement will SP No. 113525) in accordance with Rule 19, Section 4 of the Special
have to be determined under the final award. EPCIB asserted that the Rules of Court on Alternative Dispute Resolution48 (Special ADR
matter of reimbursement of advance cost paid cannot be said to have Rules). EPCIB assailed the Makati City RTC, Branch 148 in denying
properly arisen during arbitration. EPCIB reiterated that Chairman its motion to vacate the Second Partial Award despite (a) said award
Barker’s interpretation of RCBC’s December 11, 2007 letter as an having been rendered in excess of jurisdiction or power, and contrary
application for interim award for reimbursement is tantamount to a to public policy; (b) the fact that it was issued with evident partiality
promise that the award will be issued in due course. and serious misconduct; (c) the award deals with a dispute not
contemplated within the terms of submission to arbitration or beyond
After a further exchange of pleadings, and other motions seeking the scope of such submission, which therefore ought to be vacated
relief from the court in connection with the arbitration proceedings pursuant to Article 34 of the UNCITRAL Model Law; and (d) the
(quantum phase), the Makati City RTC, Branch 148 issued the Presiding Judge having exhibited bias and prejudice against BDO
Order45 dated June 24, 2009 confirming the Second Partial Award and its counsel as confirmed by his pronouncements in the Joint
and denying EPCIB’s motion to vacate the same. Said court held that Order dated March 23, 2010 in which, instead of recusing himself,
since the parties agreed to submit any dispute under the SPA to he imputed malice and unethical conduct in the entry of appearance
arbitration and to be bound by the ICC Rules, they are also bound to of Belo Gozon Elma Asuncion and Lucila Law Offices in SP Proc.
pay in equal shares the advance on costs as provided in Article 30 (2) Case No. M-6046, which warrants his voluntary inhibition.
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 Meanwhile, on June 16, 2010, the Arbitration Tribunal issued the
proceedings, while EPCIB’s non-payment seems more like a scheme Final Award,49 as follows:
to delay such proceedings. On the Arbitration Tribunal’s ruling on
EPCIB’s counterclaim, no error was committed in considering it 15 AWARD
withdrawn for failure of EPCIB to quantify and substantiate it with
supporting evidence. As to EPCIB’s claim for attorney’s fees, the 15.1 The Tribunal by a majority (Sir Ian Barker & Mr. Kaplan)
RTC agreed that these should be brought only at the close of awards, declares and adjudges as follows:
arbitration.
(a) the Respondents are to pay damages to the Claimant for
EPCIB moved to reconsider the June 24, 2009 Order and for the breach of the sale and purchase agreement for Bankard
voluntary inhibition of the Presiding Judge (Judge Oscar B. shares in the sum of ₱348,736,920.29.
Pimentel) on the ground that EPCIB’s new counsel represented
another client in another case before him in which said counsel
(b) The Respondents are to pay to the Claimant the sum of On July 28, 2010, RCBC filed with the Makati City RTC, Branch
US$880,000 in respect of the costs of the arbitration as fixed 148 (SP Proc. Case No. M-6046) a Motion to Confirm Final
by the ICC Court. Award.52 BDO filed its Opposition With Motion to Dismiss 53 on
grounds that a Petition to Vacate Final Award Ad Cautelamhad
(c) The Respondents are to pay to the Claimant the sum of already been filed in SP Proc. Case No. M-6995. BDO also pointed
US$582,936.56 for the fees and expenses of Mr. Best. 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
(d) The Respondents are to pay to the Claimant their proper branch of the RTC of Makati City and the payment of the
expenses of the arbitration as follows: required docket/filing fees. Even assuming that Branch 148 has
jurisdiction over RCBC’s motion to confirm final award, BDO
(i) Experts’ fees ₱7,082,788.55 asserted that RCBC had filed before the Arbitration Tribunal an
Application for Correction and Interpretation of Award under Article
(ii) Costs of without prejudice meeting ₱22,571.45 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.
(iii) Costs of arbitration hearings ₱553,420.66
On August 18, 2010, RCBC filed an Omnibus Motion in SP Proc.
(iv) Costs of transcription service ₱483,597.26
Case No. M-6995 (Branch 65) praying for the dismissal of BDO’s
Total ₱8,144,377.62
Petition to Vacate Final Award or the transfer of the same to Branch
148 for consolidation with SP Proc. Case No. M-6046. RCBC
(e) The Respondents are to pay to the Claimant the sum of contended that BDO’s filing of its petition with another court is a
₱7,000,000 for party-and-party legal costs. blatant violation of the Special ADR Rules and is merely a
subterfuge to commit forum-shopping. BDO filed its Opposition to
(f) The Counterclaims of the Respondents are all dismissed. the Omnibus Motion.54

(g) All claims of the Claimant are dismissed, other than On October 28, 2010, Branch 65 issued a Resolution 55 denying
those referred to above. 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
15.2 Justice Kapunan does not agree with the majority of the for reconsideration was likewise denied in the said court’s Order
members of the Tribunal and has issued a dissenting opinion. He has dated December 15, 2010. RCBC then filed its Opposition to the
refused to sign this Award.50 Petition to Vacate Final Award Ad Cautelam.

On July 1, 2010 BDO filed in the Makati City RTC a Petition to Meanwhile, on November 10, 2010, Branch 148 (SP Proc. Case No.
Vacate Final Award Ad Cautelam,51 docketed as SP Proc. Case No. M-6046) issued an Order56 confirming the Final Award "subject to
M-6995, which was raffled to Branch 65. the correction/interpretation thereof by the Arbitral Tribunal pursuant
to the ICC Rules and the UNCITRAL Model Law," and denying SO ORDERED.59
BDO’s Opposition with Motion to Dismiss.
RCBC filed a motion for reconsideration but the CA denied the same
On December 30, 2010, George L. Go, in his personal capacity and in its Resolution60 dated March 16, 2011. On April 6, 2011, it filed a
as attorney-in-fact of the other listed shareholders of Bankard, Inc. in petition for review on certiorari in this Court (G.R. No. 196171).
the SPA (Individual Shareholders), filed a petition in the CA, CA-
G.R. SP No. 117451, seeking to set aside the above-cited November On February 25, 2011, Branch 65 rendered a Decision 61 in SP Proc.
10, 2010 Order and to enjoin Branch 148 from further proceeding in Case No. M-6995, as follows:
SP Proc. Case No. M-6046. By Decision 57 dated June 15, 2011, the
CA dismissed the said petition. Their motion for reconsideration of WHEREFORE, premises considered, the Final Award dated June 16,
the said decision was likewise denied by the CA in its 2010 in ICC Ref. No. 13290/MS/JB/JEM is hereby VACATED with
Resolution58 dated December 14, 2011. cost against the respondent.

On December 23, 2010, the CA rendered its Decision in CA-G.R. SP SO ORDERED.62


No. 113525, the dispositive portion of which states:
In SP Proc. Case No. M-6046, Branch 148 issued an Order 63 dated
WHEREFORE, premises considered, the following are August 8, 2011 resolving the following motions: (1) Motion for
hereby REVERSED and SET ASIDE: Reconsideration filed by BDO, Go and Individual Shareholders of
the November 10, 2010 Order confirming the Final Award; (2)
1. the Order dated June 24, 2009 issued in SP Proc. Case No. RCBC’s Omnibus Motion to expunge the motion for reconsideration
M-6046 by the Regional Trial Court of Makati City, Branch filed by Go and Individual Shareholders, and for execution of the
148, insofar as it denied the Motion to Vacate Second Partial Final Award; (3) Motion for Execution filed by RCBC against BDO;
Award dated July 8, 2008 and granted the Motion to (4) BDO’s Motion for Leave to File Supplement to the Motion for
Confirm Second Partial Award dated July 10, 2008; Reconsideration; and (5) Motion for Inhibition filed by Go and
Individual Shareholders. Said Order decreed:
2. the Joint Order dated March 23, 2010 issued in SP Proc.
Case No. M-6046 by the Regional Trial Court of Makati WHEREFORE, premises considered, it is hereby ORDERED, to
City, Branch 148, insofar as it denied the Motion For wit:
Reconsideration dated July 28, 2009 relative to the motions
concerning the Second Partial Award immediately 1. Banco De Oro’s Motion for Reconsideration, Motion for
mentioned above; and Leave to File Supplement to Motion for Reconsideration,
and Motion to Inhibit are DENIED for lack of merit.
3. the Second Partial Award dated May 28, 2008 issued in
International Chamber of Commerce Court of Arbitration 2. RCBC Capital’s Motion to Expunge, Motion to Execute
Reference No. 13290/MS/JB/JEM. against Mr. George L. Go and the Bankard Shareholders,
and the Motion to Execute against Banco De Oro are confirming the November 10, 2010 Order that judicially confirmed
hereby GRANTED. the June 16, 2010 Final Award x x x."66

3. The damages awarded to RCBC Capital Corporation in BDO then filed in the CA, a "Petition for Review (With Application
the amount of Ph₱348,736,920.29 is subject to an interest of for a Stay Order or Temporary Restraining Order and/or Writ of
6% per annum reckoned from the date of RCBC Capital’s Preliminary Injunction," docketed as CA-G.R. SP No. 120888. BDO
extra-judicial demand or from May 5, 2003 until the sought to reverse and set aside the Orders dated November 10, 2010
confirmation of the Final Award. Likewise, this compounded and August 8, 2011, and any writ of execution issued pursuant
amount is subject to 12% interest per annum from the date of thereto, as well as the Final Award dated June 16, 2010 issued by the
the confirmation of the Final Award until its satisfaction. Arbitration Tribunal.
The costs of the arbitration amounting to US$880,000.00,
the fees and expenses of Mr. Best amounting to In its Urgent Omnibus Motion67 to resolve the application for a stay
US$582,936.56, the Claimant’s expenses of the arbitration order and/or TRO/writ of preliminary injunction, and to quash the
amounting to Ph₱8,144,377.62, and the party-and-party legal Writ of Execution dated August 22, 2011 and lift the Notices of
costs amounting to Ph₱7,000,000.00 all ruled in favor of Garnishment dated August 22, 2011, BDO argued that the assailed
RCBC Capital Corporation in the Final Award of the orders of execution (Writ of Execution and Notice of Garnishment)
Arbitral Tribunal dated June 16, 2010 are subject to 12% were issued with indecent haste and despite the non-compliance with
legal interest per annum, also reckoned from the date of the the procedures in Special ADR Rules of the November 10, 2010
confirmation of the Final Award until its satisfaction. Order confirming the Final Award. BDO was not given sufficient
time to respond to the demand for payment or to elect the method of
4. Pursuant to Section 40 of R.A. No. 9285, otherwise satisfaction of the judgment debt or the property to be levied upon. In
known as the Alternative Dispute Resolution Act of 2004 in any case, with the posting of a bond by BDO, Branch 148 has no
relation to Rule 39 of the Rules of Court, since the Final jurisdiction to implement the appealed orders as it would pre-empt
Award have been confirmed, the same shall be enforced in the CA from exercising its review under Rule 19 of the Special ADR
the same manner as final and executory decisions of the Rules after BDO had perfected its appeal. BDO stressed that the
Regional Trial Court, let a writ of execution be issued bond posted by RCBC was for a measly sum of ₱3,000,000.00 to
commanding the Sheriff to enforce this instant Order cause execution pending appeal of a monetary award that may reach
confirming this Court’s Order dated November 10, 2010 that ₱631,429,345.29. RCBC also failed to adduce evidence of "good
judicially confirmed the June 16, 2010 Final Award. cause" or "good reason" to justify discretionary execution under
Section 2(a), Rule 39 of the Rules of Court.
SO ORDERED.64
BDO further contended that the writ of execution should be quashed
Immediately thereafter, RCBC filed an Urgent Motion for Issuance for having been issued with grave abuse of discretion amounting to
of a Writ of Execution.65 On August 22, 2011, after approving the lack or excess of jurisdiction as Branch 148 modified the Final
execution bond, Branch 148 issued a Writ of Execution for the Award at the time of execution by imposing the payment of interests
implementation of the said court’s "Order dated August 8, 2011
though none was provided therein nor in the Order confirming the over RCBC’s motion to confirm the Final Award despite the earlier
same. filing by BDO in another branch of the RTC (Branch 65) of a
petition to vacate the said award.
During the pendency of CA-G.R. SP No. 120888, Branch 148
continued with execution proceedings and on motion by RCBC On September 13, 2011, BDO, to avert the sale of the BPBI shares
designated/deputized additional sheriffs to replace Sheriff Flora who scheduled on September 15, 2011 and prevent further disruption in
was supposedly physically indisposed.68 These court personnel went the operations of BDO and BPBI, paid under protest by tendering a
to the offices/branches of BDO attempting to serve notices of Manager’s Check in the amount of ₱637,941,185.55, which was
garnishment and to levy the furniture, fixtures and equipment. accepted by RCBC as full and complete satisfaction of the writ of
execution. BDO manifested before Branch 148 that such payment
On September 12, 2011, BDO filed a Very Urgent Motion to Lift was made without prejudice to its appeal before the CA. 70
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) On even date, the CA denied BDO’s application for a stay order
shares and the cancellation of the execution sale thereof scheduled and/or TRO/preliminary injunction for non-compliance with Rule
on September 15, 2011, which was set for hearing on September 14, 19.25 of the Special ADR Rules. The CA ruled that BDO failed to
2011. BDO claimed that the levy was invalid because it was served show the existence of a clear right to be protected and that the acts
by the RTC Sheriffs not to the authorized representatives of BPBI, as sought to be enjoined violated any right. Neither was BDO able to
provided under Section 9(b), Rule 39 in relation to Section 7, Rule demonstrate that the injury to be suffered by it is irreparable or not
57 of the Rules of Court stating that a notice of levy on shares of susceptible to mathematical computation.
stock must be served to the president or managing agent of the
company which issued the shares. However, BDO was advised by BDO did not file a motion for reconsideration and directly filed with
court staff that Judge Sarabia was on leave and the case could not be this Court a petition for certiorari with urgent application for writ of
set for hearing. preliminary mandatory injunction (G.R. No. 199238).

In its Opposition to BDO’s application for injunctive relief, RCBC The Petitions
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 In G.R. No. 196171, RCBC set forth the following grounds for the
that of the Arbitration Tribunal, in patent violation of applicable reversal of the CA Decision dated December 23, 2010:
rules of procedure governing domestic arbitration and beyond the
appellate court’s jurisdiction. RCBC asserted that BDO’s application I.
has become moot and academic as the writ of execution was already
implemented and/or enforced. It also contended that BDO has no THE COURT OF APPEALS ACTED CONTRARY TO
clear and unmistakable right to warrant injunctive relief because the LAW AND PRIOR RULINGS OF THIS HONORABLE
issue of jurisdiction was already ruled upon in CA-G.R. SP No. COURT AND COMMITTED REVERSIBLE ERROR IN
117451 which dismissed the petition filed by Go and the Individual VACATING THE SECOND PARTIAL AWARD ON THE
Shareholders of Bankard questioning the authority of Branch 148 BASIS OF CHAIRMAN BARKER’S ALLEGED
PARTIALITY, WHICH IT CLAIMS IS INDICATIVE OF PRAYED FOR, WHICH, HOWEVER, WERE
BIAS CONSIDERING THAT THE ALLEGATIONS DISREGARDED BY PUBLIC RESPONDENT WHEN IT
CONTAINED IN BDO/EPCIB’S PETITION FALL SHORT DENIED PETITIONER BDO’S PRAYER FOR ISSUANCE
OF THE JURISPRUDENTIAL REQUIREMENT THAT OF A STAY ORDER AND/OR TRO
THE SAME BE SUPPORTED BY CLEAR AND
CONVINCING EVIDENCE. B. PETITIONER BDO’S RIGHT TO DUE PROCESS AND
EQUAL PROTECTION OF THE LAW WAS GROSSLY
II. VIOLATED BY THE RTC-MAKATI CITY BRANCH 148,
THE DEPUTIZED SHERIFFS AND RESPONDENT
THE COURT OF APPEALS ACTED CONTRARY TO RCBC CAPITAL, WHICH VIOLATION WAS AIDED BY
LAW AND PRIOR RULINGS OF THIS HONORABLE PUBLIC RESPONDENT’S INACTION ON AND
COURT AND COMMITTED REVERSIBLE ERROR EVENTUAL DENIAL OF THE PRAYER FOR STAY
WHEN IT REVERSED THE ARBITRAL TRIBUNAL’S ORDER AND/OR TRO
FINDINGS OF FACT AND LAW IN THE SECOND
PARTIAL AWARD IN PATENT CONTRAVENTION OF C. DUE TO THE ACTS AND ORDERS OF RTC
THE SPECIAL ADR RULES WHICH EXPRESSLY BRANCH 148, PETITIONER BDO SUFFERED
PROHIBITS THE COURTS, IN AN APPLICATION TO IRREPARABLE DAMAGE AND INJURY, AND THERE
VACATE AN ARBITRAL AWARD, FROM WAS DIRE AND URGENT NECESSITY FOR THE
DISTURBING THE FINDINGS OF FACT AND/OR ISSUANCE OF THE INJUNCTIVE RELIEF PRAYED
INTERPRE[TA]TION OF LAW OF THE ARBITRAL FOR WHICH PUBLIC RESPONDENT DENIED IN
TRIBUNAL.71 GRAVE ABUSE OF DISCRETION72

BDO raises the following arguments in G.R. No. 199238: Essentially, the issues to be resolved are: (1) whether there is legal
ground to vacate the Second Partial Award; and (2) whether BDO is
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF entitled to injunctive relief in connection with the execution
DISCRETION AMOUNTING TO LACK OR EXCESS OF proceedings in SP Proc. Case No. M-6046.
JURISDICTION IN PERFUNCTORILY DENYING PETITIONER
BDO’S APPLICATION FOR STAY ORDER, AND/OR In their TOR, the parties agreed on the governing law and rules as
TEMPORARY RESTRAINING ORDER AND PRELIMINARY follows:
INJUNCTION DESPITE THE EXISTENCE AND
CONCURRENCE OF ALL THE ELEMENTS FOR THE Laws to be Applied
ISSUANCE OF SAID PROVISIONAL RELIEFS
13 The Tribunal shall determine the issues to be resolved in
A. PETITIONER BDO HAS CLEAR AND accordance with the laws of the Republic of the Philippines.
UNMISTAKABLE RIGHTS TO BE PROTECTED BY
THE ISSUANCE OF THE INJUNCTIVE RELIEF Procedure to be Applied
14 The proceedings before the Tribunal shall be governed by the ICC Rule 11.4. Grounds.—(A) To vacate an arbitral award. – The
Rules of Arbitration (1 January 1998) and the law currently arbitral award may be vacated on the following grounds:
applicable to arbitration in the Republic of the Philippines.73
a. The arbitral award was procured through corruption, fraud
As stated in the Partial Award dated September 27, 2007, although or other undue means;
the parties provided in Section 10 of the SPA that the arbitration
shall be conducted under the ICC Rules, it was nevertheless b. There was evident partiality or corruption in the
arbitration under Philippine law since the parties are both residents arbitral tribunal or any of its members;
of this country. The provisions of Republic Act No. 876 74 (RA
876),as amended by Republic Act No. 9285 75 (RA 9285)principally c. The arbitral tribunal was guilty of misconduct or any form
applied in the arbitration between the herein parties. 76 of misbehavior that has materially prejudiced the rights of
any party such as refusing to postpone a hearing upon
The pertinent provisions of R.A. 9285 provide: sufficient cause shown or to hear evidence pertinent and
material to the controversy;
SEC. 40. Confirmation of Award. – The confirmation of a domestic
arbitral award shall be governed by Section 23 of R.A. 876. d. One or more of the arbitrators was disqualified to act as
such under the law and willfully refrained from disclosing
A domestic arbitral award when confirmed shall be enforced in the such disqualification; or
same manner as final and executory decisions of the Regional Trial
Court. e. The arbitral tribunal exceeded its powers, or so
imperfectly executed them, such that a complete, final and
The confirmation of a domestic award shall be made by the regional definite award upon the subject matter submitted to them
trial court in accordance with the Rules of Procedure to be was not made.
promulgated by the Supreme Court.
The award may also be vacated on any or all of the following
xxxx grounds:

SEC. 41. Vacation Award. – A party to a domestic arbitration may a. The arbitration agreement did not exist, or is invalid for
question the arbitral award with the appropriate regional trial court in any ground for the revocation of a contract or is otherwise
accordance with the rules of procedure to be promulgated by the unenforceable; or
Supreme Court only on those grounds enumerated in Section 25 of
Republic Act No. 876. Any other ground raised against a domestic b. A party to arbitration is a minor or a person judicially
arbitral award shall be disregarded by the regional trial court. declared to be incompetent.

Rule 11.4 of the Special ADR Rules sets forth the grounds for xxxx
vacating an arbitral award:
In deciding the petition to vacate the arbitral award, the court shall The mere fact that the petitioner disagrees with the Court of Appeals’
disregard any other ground than those enumerated above. (Emphasis determination of questions of fact, of law or both questions of fact
supplied) and law, shall not warrant the exercise of the Supreme Court’s
discretionary power. The error imputed to the Court of Appeals
Judicial Review must be grounded upon any of the above prescribed grounds for
review or be closely analogous thereto.
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 A mere general allegation that the Court of Appeals has committed
said Rules specified the conditions for the exercise of this Court’s serious and substantial error or that it has acted with grave abuse of
discretionary review of the CA’s decision. discretion resulting in substantial prejudice to the petitioner without
indicating with specificity the nature of such error or abuse of
Rule 19.36.Review discretionary.—A review by the Supreme Court discretion and the serious prejudice suffered by the petitioner on
is not a matter of right, but of sound judicial discretion, which will be account thereof, shall constitute sufficient ground for the Supreme
granted only for serious and compelling reasons resulting in grave Court to dismiss outright the petition. (Emphasis supplied)
prejudice to the aggrieved party. The following, while neither
controlling nor fully measuring the court’s discretion, indicate the The applicable standard for judicial review of arbitral awards in this
serious and compelling, and necessarily, restrictive nature of the jurisdiction is set forth in Rule 19.10 which states:
grounds that will warrant the exercise of the Supreme Court’s
discretionary powers, when the Court of Appeals: Rule 19.10. Rule on judicial review on arbitration in the
Philippines.--As a general rule, the court can only vacate or set aside
a. Failed to apply the applicable standard or test for the decision of an arbitral tribunal upon a clear showing that the
judicial review prescribed in these Special ADR Rules in award suffers from any of the infirmities or grounds for vacating
arriving at its decision resulting in substantial prejudice to an arbitral award under Section 24 of Republic Act No. 876 or
the aggrieved party; under Rule 34 of the Model Law in a domestic arbitration, or for
setting aside an award in an international arbitration under Article 34
b. Erred in upholding a final order or decision despite the of the Model Law, or for such other grounds provided under these
lack of jurisdiction of the court that rendered such final order Special Rules.
or decision;
xxxx
c. Failed to apply any provision, principle, policy or rule
contained in these Special ADR Rules resulting in The court shall not set aside or vacate the award of the arbitral
substantial prejudice to the aggrieved party; and tribunal merelyon the ground that the arbitral tribunal committed
errors of fact, or of law, or of fact and law, as the court cannot
d. Committed an error so egregious and harmful to a party as substitute its judgment for that of the arbitral tribunal. (Emphasis
to amount to an undeniable excess of jurisdiction. supplied)
The above rule embodied the stricter standard in deciding appeals "the inclination to favor one side."Webster’s Third New Int'l
from arbitral awards established by jurisprudence. In the case Dictionary 1646 (unabridged ed 2002); see also id. (defining
of Asset Privatization Trust v. Court of Appeals,77 this Court held: "partial" as "inclined to favor one party in a cause or one side of a
question more than the other: biased, predisposed" (formatting in
As a rule, the award of an arbitrator cannot be set aside for mere original)). "Inclination," in turn, means "a particular disposition of
errors of judgment either as to the law or as to the facts.Courts are mind or character : propensity, bent" or "a tendency to a particular
without power to amend or overrule merely because of disagreement aspect, state, character, or action."Id. at 1143 (formatting in
with matters of law or facts determined by the arbitrators.They will original); see also id. (defining "inclined" as "having inclination,
not review the findings of law and fact contained in an award, and disposition, or tendency").
will not undertake to substitute their judgment for that of the
arbitrators, since any other rule would make an award the The common meaning of "evident" is "capable of being perceived
commencement, not the end, of litigation.Errors of law and fact, or esp[ecially] by sight : distinctly visible : being in evidence :
an erroneous decision of matters submitted to the judgment of the discernable[;] * * * clear to the understanding : obvious, manifest,
arbitrators, are insufficient to invalidate an award fairly and honestly apparent."Id. at 789 (formatting in original); see also id. (stating that
made. Judicial review of an arbitration is, thus, more limited than synonyms of "evident" include "apparent, patent, manifest, plain,
judicial review of a trial.78 clear, distinct, obvious, [and] palpable" and that, "[s]ince evident
rather naturally suggests evidence, it may imply the existence of
Accordingly, we examine the merits of the petition before us solely signs and indications that must lead to an identification or
on the statutory ground raised for vacating the Second Partial Award: inference" (formatting in original)). (Emphasis supplied)
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 in its common definition thus implies "the
existence of signs and indications that must lead to an identification
Evident Partiality or inference" of partiality.81 Despite the increasing adoption of
arbitration in many jurisdictions, there seems to be no established
Evident partiality is not defined in our arbitration laws. As one of the standard for determining the existence of evident partiality. In the
grounds for vacating an arbitral award under the Federal Arbitration US, evident partiality "continues to be the subject of somewhat
Act (FAA) in the United States (US), the term "encompasses both an conflicting and inconsistent judicial interpretation when an
arbitrator’s explicit bias toward one party and an arbitrator’s inferred arbitrator’s failure to disclose prior dealings is at issue." 82
bias when an arbitrator fails to disclose relevant information to the
parties."79 The first case to delineate the standard of evident partiality in
arbitration proceedings was Commonwealth Coatings Corp. v.
From a recent decision80 of the Court of Appeals of Oregon, we quote Continental Casualty Co., et al.83 decided by the US Supreme Court
a brief discussion of the common meaning of evident partiality: in 1968. The Court therein addressed the issue of whether the
requirement of impartiality applies to an arbitration proceeding. The
To determine the meaning of "evident partiality," we begin with the plurality opinion written by Justice Black laid down the rule that the
terms themselves. The common meaning of "partiality" is arbitrators must disclose to the parties "any dealings that might
create an impression of possible bias," 84 and that underlying such awards in situations that are clearly repugnant to our sense of
standard is "the premise that any tribunal permitted by law to try fairness, yet do not yield "proof" of anything.
cases and controversies not only must be unbiased but also must
avoid even the appearance of bias." 85 In a separate concurring If the standard of "appearance of bias" is too low for the
opinion, Justice White joined by Justice Marshall, remarked that invocation of Section 10, and "proof of actual bias" too high, with
"[t]he Court does not decide today that arbitrators are to be held to what are we left? Profoundly aware of the competing forces that
the standards of judicial decorum of Article III judges, or indeed of have already been discussed, we hold that "evident partiality"
any judges."86 He opined that arbitrators should not automatically be within the meaning of 9 U.S.C. § 10 will be found where a
disqualified from an arbitration proceeding because of a business reasonable person would have to conclude that an arbitrator was
relationship where both parties are aware of the relationship in partial to one party to the arbitration.x x x88 (Emphasis supplied)
advance, or where the parties are unaware of the circumstances but
the relationship is trivial. However, in the event that the arbitrator In Apperson v. Fleet Carrier Corporation,89 the Sixth Circuit agreed
has a "substantial interest" in the transaction at hand, such with the Morelite court’s analysis, and accordingly held that to
information must be disclosed. invalidate an arbitration award on the grounds of bias, the
challenging party must show that "a reasonable person would have to
Subsequent cases decided by the US Court of Appeals Circuit Courts conclude that an arbitrator was partial" to the other party to the
adopted different approaches, given the imprecise standard of arbitration.
evident partiality in Commonwealth Coatings.
This "myriad of judicial interpretations and approaches to evident
In Morelite Construction Corp. v. New York District Council partiality" resulted in a lack of a uniform standard, leaving the courts
Carpenters Benefit Funds,87 the Second Circuit reversed the "to examine evident partiality on a case-by-case basis." 90 The case at
judgment of the district court and remanded with instructions to bar does not present a non-disclosure issue but conduct allegedly
vacate the arbitrator’s award, holding that the existence of a father- showing an arbitrator’s partiality to one of the parties.
son relationship between the arbitrator and the president of appellee
union provided strong evidence of partiality and was unfair to EPCIB/BDO, in moving to vacate the Second Partial Award claimed
appellant construction contractor. After examining prior decisions in that the Arbitration Tribunal exceeded its powers in deciding the
the Circuit, the court concluded that – issue of advance cost not contemplated in the TOR, and that
Chairman Barker acted with evident partiality in making such award.
x x x we cannot countenance the promulgation of a standard for The RTC held that BDO failed to substantiate these allegations. On
partiality as insurmountable as "proof of actual bias" -- as the literal appeal, the CA likewise found that the Arbitration Tribunal did not
words of Section 10 might suggest. Bias is always difficult, and go beyond the submission of the parties because the phrasing of the
indeed often impossible, to "prove." Unless an arbitrator publicly scope of the agreed issues in the TOR ("[t]he issues to be determined
announces his partiality, or is overheard in a moment of private by the Tribunal are those issues arising from the said Request for
admission, it is difficult to imagine how "proof" would be obtained. Arbitration, Answer and Reply and such other issues as may properly
Such a standard, we fear, occasionally would require that we enforce 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 decided] without bias and favoritism. Nor is it sufficient that…
Arbitration Tribunal authority to decide how the costs should be prepossessions [be rid of]. [A]ctuations should moreover inspire that
apportioned between them. belief." These put into the equation, the furnishing of the Secomb
article further marred the trust reposed in Chairman Barker. The
However, the CA found factual support in BDO’s charge of suspicion of his partiality on the subject matter deepened.
partiality, thus: Specifically, his act established that he had pre-formed opinions.

On the issue on evident partiality, the rationale in the American case Chairman Barker’s providing of copies of the said text is easily
of Commonwealth Coatings Corp. v. Continental Cas. Co. appears interpretable that he had prejudged the matter before him. In any
to be very prudent. In Commonwealth, the United States Supreme case, the Secomb article tackled bases upon which the Second Partial
Court reasoned that courts "should…be even more scrupulous to Award was founded. The subject article reflected in advance the
safeguard the impartiality of arbitrators than judges, since the former disposition of the ICC arbitral tribunal. The award can definitely
have completely free rein to decide the law as well as the facts, and be viewed as an affirmation that the bases in the Secomb article were
are not subject to appellate review" in general. This taken into adopted earlier on. To the Court, actuations of arbitrators, like the
account, the Court applies the standard demanded of the conduct language of judges, "must be guarded and measured lest the best of
of magistrates by analogy. After all, the ICC Rules require that an intentions be misconstrued."
arbitral tribunal should act fairly and impartially. Hence, an
arbitrator’s conduct should be beyond reproach and suspicion. x x x x91 (Emphasis supplied)
His acts should be free from the appearances of impropriety.
We affirm the foregoing findings and conclusion of the appellate
An examination of the circumstances claimed to be illustrative of court save for its reference to the obiter in Commonwealth
Chairman Barker’s partiality is indicative of bias. Although RCBC Coatings that arbitrators are held to the same standard of conduct
had repeatedly asked for reimbursement and the withdrawal of imposed on judges. Instead, the Court adopts the reasonable
BDO’s counterclaims prior to Chairman Barker’s December 18, impression of partiality standard, which requires a showing that a
2007 letter, it is baffling why it is only in the said letter that reasonable person would have to conclude that an arbitrator was
RCBC’s prayer was given a complexion of being an application partial to the other party to the arbitration. Such interest or bias,
for a partial award. To the Court, the said letter signaled a moreover, "must be direct, definite and capable of demonstration
preconceived course of action that the relief prayed for by RCBC rather than remote, uncertain, or speculative." 92 When a claim of
will be granted. arbitrator’s evident partiality is made, "the court must ascertain from
such record as is available whether the arbitrators’ conduct was so
That there was an action to be taken beforehand is confirmed by biased and prejudiced as to destroy fundamental fairness." 93
Chairman Barker’s furnishing the parties with a copy of the Secomb
article. This article ultimately favored RCBC by advancing its Applying the foregoing standard, we agree with the CA in finding
cause. Chairman Barker makes it appear that he intended good that Chairman Barker’s act of furnishing the parties with copies of
to be done in doing so but due process dictates the cold neutrality Matthew Secomb’s article, considering the attendant
of impartiality. This means that "it is not enough…[that] cases [be circumstances,is indicative of partiality such that a reasonable man
would have to conclude that he was favoring the Claimant, RCBC. pay its share of the advance on costs.1âwphi1 Such applications are
Even before the issuance of the Second Partial Award for the the subject of this article.96
reimbursement of advance costs paid by RCBC, Chairman Barker
exhibited strong inclination to grant such relief to RCBC, By furnishing the parties with a copy of this article, Chairman Barker
notwithstanding his categorical ruling that the Arbitration Tribunal practically armed RCBC with supporting legal arguments under the
"has no power under the ICC Rules to order the Respondents to pay "contractual approach" discussed by Secomb. True enough, RCBC in
the advance on costs sought by the ICC or to give the Claimantany its Application for Reimbursement of Advance Costs Paid utilized
relief against the Respondents’ refusal to pay." 94 That Chairman said approach as it singularly focused on Article 30(3) 97 of the ICC
Barker was predisposed to grant relief to RCBC was shown by his Rules and fiercely argued that BDO was contractually bound to share
act of interpreting RCBC’s letter, which merely reiterated its plea to in the advance costs fixed by the ICC. 98 But whether under the
declare the Respondents in default and consider all counterclaims "contractual approach" or "provisional approach" (an application
withdrawn – as what the ICC Rules provide – as an application to the must be treated as an interim measure of protection under Article 23
Arbitration Tribunal to issue a partial award in respect of BDO’s [1] rather than enforcement of a contractual obligation), both treated
failure to share in the advance costs. It must be noted that RCBC in in the Secomb article, RCBC succeeded in availing of a remedy
said letter did not contemplate the issuance of a partial order, despite which was not expressly allowed by the Rules but in practice has
Chairman Barker’s previous letter which mentioned the possibility of been resorted to by parties in international commercial arbitration
granting relief upon the parties making submissions to the proceedings. It may also be mentioned that the author, Matthew
Arbitration Tribunal. Expectedly, in compliance with Chairman Secomb, is a member of the ICC Secretariat and the "Counsel in
Barker’s December 18, 2007 letter, RCBC formally applied for the charge of the file", as in fact he signed some early communications
issuance of a partial award ordering BDO to pay its share in the on behalf of the ICC Secretariat pertaining to the advance costs fixed
advance costs. by the ICC.99 This bolstered the impression that Chairman Barker
was predisposed to grant relief to RCBC by issuing a partial award.
Mr. Secomb’s article, "Awards and Orders Dealing With the
Advance on Costs in ICC Arbitration: Theoretical Questions and Indeed, fairness dictates that Chairman Barker refrainfrom
Practical Problems"95 specifically dealt with the situation when one suggesting to or directing RCBC towards a course of action to
of the parties to international commercial arbitration refuses to pay advance the latter’s cause, by providing it with legal arguments
its share on the advance on costs. After a brief discussion of the contained in an article written by a lawyer who serves at the ICC
provisions of ICC Rules dealing with advance on costs, which did Secretariat and was involved or had participation -- insofar as the
not provide for issuance of a partial award to compel payment by the actions or recommendations of the ICC – in the case. Though done
defaulting party, the author stated: purportedly to assist both parties, Chairman Barker’s act clearly
violated Article 15 of the ICC Rules declaring that "[i]n all cases, the
4. As we can see, the Rules have certain mechanisms to deal with Arbitral Tribunal shall act fairly and impartially and ensure that each
defaulting parties. Occasionally, however, parties have sought to use party has a reasonable opportunity to present its case." Having pre-
other methods to tackle the problem of a party refusing to pay its part judged the matter in dispute, Chairman Barker had lost his
of the advance on costs. These have included seeking an order or objectivity in the issuance of the Second Partial Award.
award from the arbitral tribunal condemning the defaulting party to
In fine, we hold that the CA did not err in concluding that the article and not the Arbitration Tribunal’s application of the ICC Rules
ultimately favored RCBC as it reflected in advance the disposition of adopting the "contractual approach" tackled in Secomb’s article.
the Arbitral Tribunal, as well as "signalled a preconceived course of
action that the relief prayed for by RCBC will be granted." This Alternative dispute resolution methods or ADRs – like arbitration,
conclusion is further confirmed by the Arbitral Tribunal’s mediation, negotiation and conciliation – are encouraged by this
pronouncements in its Second Partial Award which not only adopted Court. By enabling parties to resolve their disputes amicably, they
the "contractual approach" but even cited Secomb’s article along provide solutions that are less time-consuming, less tedious, less
with other references, thus: confrontational, and more productive of goodwill and lasting
relationship.102 Institutionalization of ADR was envisioned as "an
6.1 It appears to the Tribunal that the issue posed by this application important means to achieve speedy and impartial justice and declog
is essentially a contractual one. x x x court dockets."103 The most important feature of arbitration, and
indeed, the key to its success, is the public’s confidence and trust in
xxxx the integrity of the process.104 For this reason, the law authorizes
vacating an arbitral award when there is evident partiality in the
6.5 Matthew Secomb, considered these points in the article in 14 ICC arbitrators.
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 Injunction Against Execution Of Arbitral Award
follows:
Before an injunctive writ can be issued, it is essential that the
"The Arbitral Tribunal concludes that the partiesin arbitrations following requisites are present: (1) there must be a right inesse or
conducted under the ICC Rules have a mutually binding obligation the existence of a right to be protected; and (2) the act against which
to pay the advance on costs as determined by the ICC Court, based injunction to be directed is a violation of such right. The onus
on Article 30-3 ICC Rules which – by reference – forms part of the probandi is on movant to show that there exists a right to be
parties’ agreement to arbitration under such Rules."100 protected, which is directly threatened by the act sought to be
enjoined. Further, there must be a showing that the invasion of the
The Court, however, must clarify that the merits of the parties’ right is material and substantial and that there is an urgent and
arguments as to the propriety of the issuance of the Second Partial paramount necessity for the writ to prevent a serious damage. 105
Award are not in issue here. Courts are generally without power to
amend or overrule merely because of disagreement with matters of Rule 19.22 of the Special ADR Rules states:
law or facts determined by the arbitrators. They will not review the
findings of law and fact contained in an award, and will not Rule 19.22. Effect of appeal.—The appeal shall not stay the award,
undertake to substitute their judgment for that of the arbitrators. A judgment, final order or resolution sought to be reviewed unless the
contrary rule would make an arbitration award the commencement, Court of Appeals directs otherwise upon such terms as it may deem
not the end, of litigation.101 It is the finding of evident partiality just.
which constitutes legal ground for vacating the Second Partial Award
We find no reversible error or grave abuse of discretion in the CA’s SO ORDERED.
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 BOO had already paid ₱637,941,185.55 m 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 Gov. Looyuko107 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 G.R. No. 198075               September 4, 2013
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 KOPPEL, INC. (formerly known as KPL AIRCON,
reason that nothing more can be done in reference thereto. A writ of INC.), Petitioner,
injunction becomes moot and academic after the act sought to be vs.
enjoined has already been consummated. MAKATI ROTARY CLUB FOUNDATION, INC., Respondent.

WHEREFORE, premises considered, the petition m G.R. No. DECISION


199238 is DENIED. The Resolution dated September 13,2011 ofthe
Court of Appeals in CA-G.R. SP No. 120888 is AFFIRMED. PEREZ, J.:

The petition in G.R. No. 196171 is DENIED. The Decision dated This case is an appeal 1 from the Decision2 dated 19 August 2011 of
December 23, 2010 of the Court of Appeals in CA-G.R. SP No. the Court of Appeals in C.A.-G.R. SP No. 116865.
113525 is hereby AFFIRMED.
The facts:
The Donation the amount of rent shall be determined in accordance with item 2(g)
of the Deed of Donation, viz:
Fedders Koppel, Incorporated (FKI), a manufacturer of air-
conditioning products, was the registered owner of a parcel of land g. The rental for the second 25 years shall be the subject of mutual
located at Km. 16, South Superhighway, Parañaque City (subject agreement and in case of disagreement the matter shall be referred to
land).3 Within the subject land are buildings and other improvements a Board of three Arbitrators appointed and with powers in
dedicated to the business of FKI.4 accordance with the Arbitration Law of the Philippines, Republic
Act 878, whose function shall be to decide the current fair market
In 1975, FKI5 bequeathed the subject land (exclusive of the value of the land excluding the improvements, provided, that, any
improvements thereon) in favor of herein respondent Makati Rotary increase in the fair market value of the land shall not exceed twenty
Club Foundation, Incorporated by way of a conditional five percent (25%) of the original value of the land donated as stated
donation.6 The respondent accepted the donation with all of its in paragraph 2(c) of this Deed. The rental for the second 25 years
conditions.7 On 26 May1975, FKI and the respondent executed a shall not exceed three percent (3%) of the fair market value of the
Deed of Donation8 evidencing their consensus. land excluding the improvements as determined by the Board of
Arbitrators.13
The Lease and the Amended Deed of Donation
In October 1976, FKI and the respondent executed an Amended
One of the conditions of the donation required the respondent to Deed of Donation14 that reiterated the provisions of the Deed of
lease the subject land back to FKI under terms specified in their Donation , including those relating to the lease of the subject land.
Deed of Donation.9 With the respondent’s acceptance of the
donation, a lease agreement between FKI and the respondent was, Verily, by virtue of the lease agreement contained in the Deed of
therefore, effectively incorporated in the Deed of Donation. Donation and Amended Deed of Donation , FKI was able to continue
in its possession and use of the subject land.
Pertinent terms of such lease agreement, as provided in the Deed of
Donation , were as follows: 2000 Lease Contract

1. The period of the lease is for twenty-five (25) years, 10 or Two (2) days before the lease incorporated in the Deed of Donation
until the 25th of May 2000; and Amended Deed of Donation was set to expire, or on 23 May
2000, FKI and respondent executed another contract of lease ( 2000
2. The amount of rent to be paid by FKI for the first twenty- Lease Contract )15 covering the subject land. In this 2000 Lease
five (25) years is ₱40,126.00 per annum .11 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
The Deed of Donation also stipulated that the lease over the subject ₱4,000,000 for the first year up to ₱4,900,000 for the fifth
property is renewable for another period of twenty-five (25) years " year.16 The 2000 Lease Contract also contained an arbitration clause
upon mutual agreement" of FKI and the respondent. 12 In which case, enforceable in the event the parties come to disagreement about the"
interpretation, application and execution" of the lease, viz :
19. Governing Law – The provisions of this 2000 Lease Contract all its rights and properties relative to its business in favor of herein
shall be governed, interpreted and construed in all aspects in petitioner Koppel, Incorporated.24 On 29 August 2008, FKI and
accordance with the laws of the Republic of the Philippines. petitioner executed an Assignment and Assumption of Lease and
Donation25 —wherein FKI, with the conformity of the respondent,
Any disagreement as to the interpretation, application or execution of formally assigned all of its interests and obligations under the
this 2000 Lease Contract shall be submitted to a board of three (3) Amended Deed of Donation and the 2005 Lease Contract in favor of
arbitrators constituted in accordance with the arbitration law of the petitioner.
Philippines. The decision of the majority of the arbitrators shall be
binding upon FKI and respondent.17 (Emphasis supplied) The following year, petitioner discontinued the payment of the rent
and " donation " under the 2005 Lease Contract.
2005 Lease Contract
Petitioner’s refusal to pay such rent and "donation " emanated from
After the 2000 Lease Contract expired, FKI and respondent agreed to its belief that the rental stipulations of the 2005 Lease Contract, and
renew their lease for another five (5) years. This new lease (2005 even of the 2000 Lease Contract, cannot be given effect because they
Lease Contract )18 required FKI to pay a fixed annual rent of violated one of the" material conditions " of the donation of the
₱4,200,000.19 In addition to paying the fixed rent, however, the 2005 subject land, as stated in the Deed of Donation and Amended Deed
Lease Contract also obligated FKI to make a yearly " donation " of of Donation.26
money to the respondent.20 Such donations ranged from ₱3,000,000
for the first year up to ₱3,900,000for the fifth year. 21 Notably, the According to petitioner, the Deed of Donation and Amended Deed of
2005 Lease Contract contained an arbitration clause similar to that in Donation actually established not only one but two (2) lease
the 2000 Lease Contract, to wit: 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
19. Governing Law – The provisions of this 2005 Lease Contract next twenty-five (25)years thereafter or from 2000 to 2025. 27 Both
shall be governed, interpreted and construed in all aspects in leases are material conditions of the donation of the subject land.
accordance with the laws of the Republic of the Philippines.
Petitioner points out that while a definite amount of rent for the
Any disagreement as to the interpretation, application or execution of second twenty-five (25) year lease was not fixed in the Deed of
this 2005 Lease Contract shall be submitted to a board of three (3) Donation and Amended Deed of Donation , both deeds nevertheless
arbitrators constituted in accordance with the arbitration law of the prescribed rules and limitations by which the same may be
Philippines. The decision of the majority of the arbitrators shall be determined. Such rules and limitations ought to be observed in any
binding upon FKI and respondent.22 (Emphasis supplied) succeeding lease agreements between petitioner and respondent for
they are, in themselves, material conditions of the donation of the
The Assignment and Petitioner’s Refusal to Pay subject land.28

From 2005 to 2008, FKI faithfully paid the rentals and " donations In this connection, petitioner cites item 2(g) of the Deed of Donation
"due it per the 2005 Lease Contract. 23 But in June of 2008, FKI sold and Amended Deed of Donation that supposedly limits the amount
of rent for the lease over the second twenty-five (25) years to only " payment of the obligations already due under the 2005 Lease
three percent (3%) of the fair market value of the subject land Contract. The Second Demand Letter also contained a demand for
excluding the improvements.29 petitioner to " immediately vacate the leased premises " should it fail
to pay such obligations within seven (7) days from its receipt of the
For petitioner then, the rental stipulations of both the 2000 Lease letter.39 The respondent warned of taking " legal steps " in the event
Contract and 2005 Lease Contract cannot be enforced as they are that petitioner failed to comply with any of the said
clearly, in view of their exorbitant exactions, in violation of the demands.40 Petitioner received the Second Demand Letter on
aforementioned threshold in item 2(g) of the Deed of Donation and 26September 2009.41
Amended Deed of Donation . Consequently, petitioner insists that
the amount of rent it has to pay thereon is and must still be governed Petitioner refused to comply with the demands of the respondent.
by the limitations prescribed in the Deed of Donation and Amended Instead, on 30 September 2009, petitioner filed with the Regional
Deed of Donation.30 Trial Court (RTC) of Parañaque City a complaint42 for the rescission
or cancellation of the Deed of Donation and Amended Deed of
The Demand Letters Donation against the respondent. This case is currently pending
before Branch 257 of the RTC, docketed as Civil Case No. CV 09-
On 1 June 2009, respondent sent a letter (First Demand Letter) 31 to 0346.
petitioner notifying the latter of its default " per Section 12 of the
2005 Lease Contract " and demanding for the settlement of the rent The Ejectment Suit
and " donation " due for the year 2009. Respondent, in the same
letter, further intimated of canceling the 2005 Lease Contract should On 5 October 2009, respondent filed an unlawful detainer
petitioner fail to settle the said obligations. 32 Petitioner received the case43 against the petitioner before the Metropolitan Trial Court
First Demand Letter on2 June 2009.33 (MeTC) of Parañaque City. The ejectment case was raffled to Branch
77 and was docketed as Civil Case No. 2009-307.
On 22 September 2009, petitioner sent a reply34 to respondent
expressing its disagreement over the rental stipulations of the 2005 On 4 November 2009, petitioner filed an Answer with Compulsory
Lease Contract — calling them " severely disproportionate," Counterclaim.44 In it, petitioner reiterated its objection over the rental
"unconscionable" and "in clear violation to the nominal rentals stipulations of the 2005 Lease Contract for being violative of the
mandated by the Amended Deed of Donation." In lieu of the amount material conditions of the Deed of Donation and Amended Deed of
demanded by the respondent, which purportedly totaled to Donation.45 In addition to the foregoing, however, petitioner also
₱8,394,000.00, exclusive of interests, petitioner offered to pay only interposed the following defenses:
₱80,502.79,35 in accordance with the rental provisions of the Deed of
Donation and Amended Deed of Donation.36 Respondent refused this 1. The MeTC was not able to validly acquire jurisdiction
offer.37 over the instant unlawful detainer case in view of the
insufficiency of respondent’s demand.46 The First Demand
On 25 September 2009, respondent sent another letter (Second Letter did not contain an actual demand to vacate the
Demand Letter)38 to petitioner, reiterating its demand for the
premises and, therefore, the refusal to comply there with The respondent appealed to the Regional Trial Court (RTC). This
does not give rise to an action for unlawful detainer. 47 appeal was assigned to Branch 274 of the RTC of Parañaque City
and was docketed as Civil Case No. 10-0255.
2. Assuming that the MeTC was able to acquire jurisdiction,
it may not exercise the same until the disagreement between On 29 October 2010, the RTC reversed56 the MeTC and ordered the
the parties is first referred to arbitration pursuant to the eviction of the petitioner from the subject land:
arbitration clause of the 2005 Lease Contract. 48
WHEREFORE, all the foregoing duly considered, the appealed
3. Assuming further that the MeTC has jurisdiction that it Decision of the Metropolitan Trial Court, Branch 77, Parañaque
can exercise, ejectment still would not lie as the 2005 Lease City, is hereby reversed, judgment is thus rendered in favor of the
Contract is void abinitio.49 The stipulation in the 2005 Lease plaintiff-appellant and against the defendant-appellee, and ordering
Contract requiring petitioner to give yearly " donations " to the latter –
respondent is a simulation, for they are, in fact, parts of the
rent. 50 Such grants were only denominated as " donations " (1) to vacate the lease[d] premises made subject of the case
in the contract so that the respondent—anon-stock and non- and to restore the possession thereof to the plaintiff-
profit corporation—could evade payment of the taxes appellant;
otherwise due thereon.51
(2) to pay to the plaintiff-appellant the amount of Nine
In due course, petitioner and respondent both submitted their Million Three Hundred Sixty Two Thousand Four Hundred
position papers, together with their other documentary Thirty Six Pesos (₱9,362,436.00), penalties and net of 5%
evidence.52 Remarkably, however, respondent failed to submit the withholding tax, for the lease period from May 25, 2009 to
Second Demand Letter as part of its documentary evidence. May 25, 2010 and such monthly rental as will accrue during
the pendency of this case;
Rulings of the MeTC, RTC and Court of Appeals
(3) to pay attorney’s fees in the sum of ₱100,000.00 plus
On 27 April 2010, the MeTC rendered judgment 53 in favor of the appearance fee of ₱3,000.00;
petitioner. While the MeTC refused to dismiss the action on the
ground that the dispute is subject to arbitration, it nonetheless sided (4) and costs of suit.
with the petitioner with respect to the issues regarding the
insufficiency of the respondent’s demand and the nullity of the 2005 As to the existing improvements belonging to the defendant-
Lease Contract.54 The MeTC thus disposed: appellee, as these were built in good faith, the provisions of Art.
1678of the Civil Code shall apply.
WHEREFORE, judgment is hereby rendered dismissing the case x x
x, without pronouncement as to costs. SO ORDERED.57

SO ORDERED.55 The ruling of the RTC is premised on the following ratiocinations:


1. The respondent had adequately complied with the xxxx
requirement of demand as a jurisdictional precursor to an
unlawful detainer action.58 The First Demand Letter, in SO ORDERED.67
substance, contains a demand for petitioner to vacate when it
mentioned that it was a notice " per Section12 of the 2005 Hence, this appeal.
Lease Contract."59 Moreover, the issue of sufficiency of the
respondent’s demand ought to have been laid to rest by the On 5 September 2011, this Court granted petitioner’s prayer for the
Second Demand Letter which, though not submitted in issuance of a Temporary Restraining Order 68 staying the immediate
evidence, was nonetheless admitted by petitioner as implementation of the decisions adverse to it.
containing a" demand to eject " in its Answer with
Compulsory Counterclaim.60 OUR RULING
2. The petitioner cannot validly invoke the arbitration clause Independently of the merits of the case, the MeTC, RTC and Court
of the 2005 Lease Contract while, at the same time, impugn of Appeals all erred in overlooking the significance of the arbitration
such contract’s validity.61 Even assuming that it can, clause incorporated in the 2005 Lease Contract . As the Court sees it,
petitioner still did not file a formal application before the that is a fatal mistake.
MeTC so as to render such arbitration clause
operational.62 At any rate, the MeTC would not be precluded
For this reason, We grant the petition.
from exercising its jurisdiction over an action for unlawful
detainer, over which, it has exclusive original jurisdiction. 63
Present Dispute is Arbitrable Under the
Arbitration Clause of the 2005 Lease
3. The 2005 Lease Contract must be sustained as a valid
Agreement Contract
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 Going back to the records of this case, it is discernable that the
evasion.65 dispute between the petitioner and respondent emanates from the
rental stipulations of the 2005 Lease Contract. The respondent insists
upon the enforce ability and validity of such stipulations, whereas,
Aggrieved, the petitioner appealed to the Court of Appeals.
petitioner, in substance, repudiates them. It is from petitioner’s
apparent breach of the 2005 Lease Contract that respondent filed the
On 19 August 2011, the Court of Appeals affirmed66 the decision of instant unlawful detainer action.
the RTC:
One cannot escape the conclusion that, under the foregoing premises,
WHEREFORE , the petition is DENIED . The assailed Decision of the dispute between the petitioner and respondent arose from the
the Regional Trial Court of Parañaque City, Branch 274, in Civil application or execution of the 2005 Lease Contract . Undoubtedly,
Case No. 10-0255 is AFFIRMED. 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 1. The disagreement between the petitioner and respondent is
shall be governed, interpreted and construed in all aspects in non-arbitrable as it will inevitably touch upon the issue of
accordance with the laws of the Republic of the Philippines. the validity of the 2005 Lease Contract. 71 It was submitted
that one of the reasons offered by the petitioner in justifying
Any disagreement as to the interpretation, application or execution of its failure to pay under the 2005 Lease Contract was the
this 2005 Lease Contract shall be submitted to a board of three (3) nullity of such contract for being contrary to law and public
arbitrators constituted in accordance with the arbitration law of the policy.72 The Supreme Court, in Gonzales v. Climax Mining,
Philippines. The decision of the majority of the arbitrators shall be Ltd.,73 held that " the validity of contract cannot be subject of
binding upon FKI and respondent.69 (Emphasis supplied) arbitration proceedings " as such questions are " legal in
nature and require the application and interpretation of laws
The arbitration clause of the 2005 Lease Contract stipulates that "any and jurisprudence which is necessarily a judicial
disagreement" as to the " interpretation, application or execution " of function ." 74
the 2005 Lease Contract ought to be submitted to arbitration. 70 To the
mind of this Court, such stipulation is clear and is comprehensive 2. The petitioner cannot validly invoke the arbitration clause
enough so as to include virtually any kind of conflict or dispute that of the 2005 Lease Contract while, at the same time, impugn
may arise from the 2005 Lease Contract including the one that such contract’s validity.75
presently besets petitioner and respondent.
3. Even assuming that it can invoke the arbitration clause
The application of the arbitration clause of the 2005 Lease Contract whilst denying the validity of the 2005 Lease Contract ,
in this case carries with it certain legal effects. However, before petitioner still did not file a formal application before the
discussing what these legal effects are, We shall first deal with the MeTC so as to render such arbitration clause
challenges posed against the application of such arbitration clause. operational.76 Section 24 of Republic Act No. 9285 requires
the party seeking arbitration to first file a " request " or an
Challenges Against the Application of the application therefor with the court not later than the
Arbitration Clause of the 2005 Lease preliminary conference.77
Contract
4. Petitioner and respondent already underwent Judicial
Curiously, despite the lucidity of the arbitration clause of the 2005 Dispute Resolution (JDR) proceedings before the
Lease Contract, the petitioner, as well as the MeTC, RTC and the RTC.78 Hence, a further referral of the dispute to arbitration
Court of Appeals, vouched for the non-application of the same in the would only be circuitous.79 Moreover, an ejectment case, in
instant case. A plethora of arguments was hurled in favor of view of its summary nature, already fulfills the prime
bypassing arbitration. We now address them. purpose of arbitration, i.e. , to provide parties in conflict with
an expedient method for the resolution of their
At different points in the proceedings of this case, the following dispute.80 Arbitration then would no longer be necessary in
arguments were offered against the application of the arbitration this case.81
clause of the 2005 Lease Contract:
None of the arguments have any merit. Gonzales did not raise mining disputes as contemplated under R.A.
No. 7942 but only issues relating to the validity of certain mining
First. As highlighted in the previous discussion, the disagreement related agreements, this Court held that such complaint could not be
between the petitioner and respondent falls within the all- arbitrated before the PA-MGB.85 It is in this context that we made
encompassing terms of the arbitration clause of the 2005 Lease the pronouncement now in discussion:
Contract. While it may be conceded that in the arbitration of such
disagreement, the validity of the 2005 Lease Contract, or at least, of Arbitration before the Panel of Arbitrators is proper only when there
such contract’s rental stipulations would have to be determined, the is a disagreement between the parties as to some provisions of the
same would not render such disagreement non-arbitrable. The contract between them, which needs the interpretation and the
quotation from Gonzales that was used to justify the contrary application of that particular knowledge and expertise possessed by
position was taken out of context. A rereading of Gonzales would fix members of that Panel. It is not proper when one of the parties
its relevance to this case. 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
In Gonzales, a complaint for arbitration was filed before the Panel of contract cannot be subject of arbitration proceedings. Allegations of
Arbitrators of the Mines and Geosciences Bureau (PA-MGB) fraud and duress in the execution of a contract are matters within the
seeking the nullification of a Financial Technical Assistance jurisdiction of the ordinary courts of law. These questions are legal
Agreement and other mining related agreements entered into by in nature and require the application and interpretation of laws and
private parties.82 jurisprudence which is necessarily a judicial function. 86 (Emphasis
supplied)
Grounds invoked for the nullification of such agreements include
fraud and unconstitutionality.83 The pivotal issue that confronted the The Court in Gonzales did not simply base its rejection of the
Court then was whether the PA-MGB has jurisdiction over that complaint for arbitration on the ground that the issue raised therein,
particular arbitration complaint. Stated otherwise, the question was i.e. , the validity of contracts, is per se non-arbitrable. The real
whether the complaint for arbitration raises arbitrable issues that the consideration behind the ruling was the limitation that was placed by
PA-MGB can take cognizance of. R.A. No. 7942 upon the jurisdiction of the PA-MGB as an arbitral
body . Gonzales rejected the complaint for arbitration because the
Gonzales decided the issue in the negative. In holding that the PA- issue raised therein is not a mining dispute per R.A. No. 7942 and it
MGB was devoid of any jurisdiction to take cognizance of the is for this reason, and only for this reason, that such issue is rendered
complaint for arbitration, this Court pointed out to the provisions of non-arbitrable before the PA-MGB. As stated beforehand, R.A. No.
R.A. No. 7942, or the Mining Act of 1995, which granted the PA- 7942 clearly limited the jurisdiction of the PA-MGB only to mining
MGB with exclusive original jurisdiction only over mining disputes, disputes.87
i.e., disputes involving " rights to mining areas," "mineral
agreements or permits," and " surface owners, occupants, claim Much more instructive for our purposes, on the other hand, is the
holders or concessionaires" requiring the technical knowledge and recent case of Cargill Philippines, Inc. v. San Fernando Regal
experience of mining authorities in order to be Trading, Inc.88 In Cargill , this Court answered the question of
resolved.84 Accordingly, since the complaint for arbitration in whether issues involving the rescission of a contract are arbitrable.
The respondent in Cargill argued against arbitrability, also citing Third . The operation of the arbitration clause in this case is not at all
therein Gonzales . After dissecting Gonzales , this Court ruled in defeated by the failure of the petitioner to file a formal "request" or
favor of arbitrability.89 Thus, We held: 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
Respondent contends that assuming that the existence of the contract means by which an arbitration clause may be validly invoked in a
and the arbitration clause is conceded, the CA's decision declining pending suit.
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 Section 24 of R.A. No. 9285 reads:
facts alleged, it is entitled to rescind the contract with damages; and
that issue constitutes a judicial question or one that requires the SEC. 24. Referral to Arbitration . - A court before which an action is
exercise of judicial function and cannot be the subject of an brought in a matter which is the subject matter of an arbitration
arbitration proceeding. Respondent cites our ruling in Gonzales, agreement shall, if at least one party so requests not later that the pre-
wherein we held that a panel of arbitrator is bereft of jurisdiction trial conference, or upon the request of both parties thereafter, refer
over the complaint for declaration of nullity/or termination of the the parties to arbitration unless it finds that the arbitration agreement
subject contracts on the grounds of fraud and oppression attendant to is null and void, inoperative or incapable of being performed.
the execution of the addendum contract and the other contracts [Emphasis ours; italics original]
emanating from it, and that the complaint should have been filed
with the regular courts as it involved issues which are judicial in The " request " referred to in the above provision is, in turn,
nature. 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
Such argument is misplaced and respondent cannot rely on the ADR Rules):
Gonzales case to support its argument.90 (Emphasis ours)
RULE 4: REFERRAL TO ADR
Second. Petitioner may still invoke the arbitration clause of the 2005
Lease Contract notwithstanding the fact that it assails the validity of Rule 4.1. Who makes the request. - A party to a pending action filed
such contract. This is due to the doctrine of separability. 91 in violation of the arbitration agreement, whether contained in an
arbitration clause or in a submission agreement, may request the
Under the doctrine of separability, an arbitration agreement is court to refer the parties to arbitration in accordance with such
considered as independent of the main contract. 92 Being a separate agreement.
contract in itself, the arbitration agreement may thus be invoked
regardless of the possible nullity or invalidity of the main contract. 93 Rule 4.2. When to make request. - (A) Where the arbitration
agreement exists before the action is filed . - The request for referral
Once again instructive is Cargill, wherein this Court held that, as a shall be made not later than the pre-trial conference. After the pre-
further consequence of the doctrine of separability, even the very trial conference, the court will only act upon the request for referral
party who repudiates the main contract may invoke its arbitration if it is made with the agreement of all parties to the case.
clause.94
(B) Submission agreement . - If there is no existing arbitration arbitration clause in the 2005 Lease Contract 96 and, more
agreement at the time the case is filed but the parties subsequently significantly, of its desire to have the same enforced in this
enter into an arbitration agreement, they may request the court to case.97 This act of petitioner is enough valid invocation of his right to
refer their dispute to arbitration at any time during the proceedings. arbitrate. Fourth . The fact that the petitioner and respondent already
under went through JDR proceedings before the RTC, will not make
Rule 4.3. Contents of request. - The request for referral shall be in the subsequent conduct of arbitration between the parties
the form of a motion, which shall state that the dispute is covered by unnecessary or circuitous. The JDR system is substantially different
an arbitration agreement. from arbitration proceedings.

A part from other submissions, the movant shall attach to his motion The JDR framework is based on the processes of mediation,
an authentic copy of the arbitration agreement. conciliation or early neutral evaluation which entails the submission
of a dispute before a " JDR judge " who shall merely " facilitate
The request shall contain a notice of hearing addressed to all parties settlement " between the parties in conflict or make a " non-binding
specifying the date and time when it would be heard. The party evaluation or assessment of the chances of each party’s case." 98 Thus
making the request shall serve it upon the respondent to give him the in JDR, the JDR judge lacks the authority to render a resolution of
opportunity to file a comment or opposition as provided in the the dispute that is binding upon the parties in conflict. In arbitration,
immediately succeeding Rule before the hearing. [Emphasis ours; on the other hand, the dispute is submitted to an arbitrator/s —a
italics original] neutral third person or a group of thereof— who shall have the
authority to render a resolution binding upon the parties. 99
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 Clearly, the mere submission of a dispute to JDR proceedings would
arbitration agreement x x x may request the court to refer the parties not necessarily render the subsequent conduct of arbitration a mere
to arbitration in accordance with such agreement." surplusage. The failure of the parties in conflict to reach an amicable
settlement before the JDR may, in fact, be supplemented by their
In using the word " may " to qualify the act of filing a " request " resort to arbitration where a binding resolution to the dispute could
under Section 24 of R.A. No. 9285, the Special ADR Rules clearly finally be achieved. This situation precisely finds application to the
did not intend to limit the invocation of an arbitration agreement in a case at bench.
pending suit solely via such "request." After all, non-compliance
with an arbitration agreement is a valid defense to any offending suit Neither would the summary nature of ejectment cases be a valid
and, as such, may even be raised in an answer as provided in our reason to disregard the enforcement of the arbitration clause of the
ordinary rules of procedure.95 2005 Lease Contract . Notwithstanding the summary nature of
ejectment cases, arbitration still remains relevant as it aims not only
In this case, it is conceded that petitioner was not able to file a to afford the parties an expeditious method of resolving their dispute.
separate " request " of arbitration before the MeTC. However, it is
equally conceded that the petitioner, as early as in its Answer with A pivotal feature of arbitration as an alternative mode of dispute
Counterclaim ,had already apprised the MeTC of the existence of the resolution is that it is, first and foremost, a product of party
autonomy or the freedom of the parties to " make their own Section 24. Referral to Arbitration. - A court before which an action
arrangements to resolve their own disputes." 100 Arbitration is brought in a matter which is the subject matter of an arbitration
agreements manifest not only the desire of the parties in conflict for agreement shall, if at least one party so requests not later that the pre-
an expeditious resolution of their dispute. They also represent, if not trial conference, or upon the request of both parties thereafter, refer
more so, the parties’ mutual aspiration to achieve such resolution the parties to arbitration unless it finds that the arbitration agreement
outside of judicial auspices, in a more informal and less antagonistic is null and void, in operative or incapable of being performed.
environment under the terms of their choosing. Needless to state, this [Emphasis supplied]
critical feature can never be satisfied in an ejectment case no matter
how summary it may be. It is clear that under the law, the instant unlawful detainer action
should have been stayed;101 the petitioner and the respondent should
Having hurdled all the challenges against the application of the have been referred to arbitration pursuant to the arbitration clause of
arbitration clause of the 2005 Lease Agreement in this case, We shall the 2005 Lease Contract . The MeTC, however, did not do so in
now proceed with the discussion of its legal effects. violation of the law—which violation was, in turn, affirmed by the
RTC and Court of Appeals on appeal.
Legal Effect of the Application of the
Arbitration Clause The violation by the MeTC of the clear directives under R.A.
Nos.876 and 9285 renders invalid all proceedings it undertook in the
Since there really are no legal impediments to the application of the ejectment case after the filing by petitioner of its Answer with
arbitration clause of the 2005 Contract of Lease in this case, We find Counterclaim —the point when the petitioner and the respondent
that the instant unlawful detainer action was instituted in violation of should have been referred to arbitration. This case must, therefore, be
such clause. The Law, therefore, should have governed the fate of remanded to the MeTC and be suspended at said point. Inevitably,
the parties and this suit: the decisions of the MeTC, RTC and the Court of Appeals must all
be vacated and set aside.
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 The petitioner and the respondent must then be referred to arbitration
providing for the arbitration thereof, the court in which such suit or pursuant to the arbitration clause of the 2005 Lease Contract.
proceeding is pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration, shall stay the This Court is not unaware of the apparent harshness of the Decision
action or proceeding until an arbitration has been had in accordance that it is about to make. Nonetheless, this Court must make the same
with the terms of the agreement: Provided, That the applicant for the if only to stress the point that, in our jurisdiction, bona fide
stay is not in default in proceeding with such arbitration.[Emphasis arbitration agreements are recognized as valid; 102 and that
supplied] laws,103 rules and regulations104 do exist protecting and ensuring their
enforcement as a matter of state policy. Gone should be the days
R.A. No. 9285 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 a. Decision dated 19 August 2011 of the Court of
the case of arbitration agreements, to afford them judicial Appeals in C.A.-G.R. SP No. 116865,
restraint.106 Today, this Court only performs its part in upholding a
once disregarded state policy. b. Decision dated 29 October 2010 of the Regional
Trial Court, Branch 274, of Parañaque City in Civil
Civil Case No. CV 09-0346 Case No. 10-0255,

This Court notes that, on 30 September 2009, petitioner filed with c. Decision dated 27 April 2010 of the Metropolitan
the RTC of Parañaque City, a complaint107 for the rescission or Trial Court, Branch 77, of Parañaque City in Civil
cancellation of the Deed of Donation and Amended Deed of Case No. 2009-307; and
Donation against the respondent. The case is currently pending
before Branch 257 of the RTC, docketed as Civil Case No. CV 09- 4. REFERRING the petitioner and the respondent to
0346. arbitration pursuant to the arbitration clause of the 2005
Lease Contract, repeatedly included in the 2000 Lease
This Court recognizes the great possibility that issues raised in Civil Contract and in the 1976 Amended Deed of Donation.
Case No. CV 09-0346 may involve matters that are rightfully
arbitrable per the arbitration clause of the 2005 Lease Contract. Let a copy of this Decision be served to Branch 257 of the RTC of
However, since the records of Civil Case No. CV 09-0346 are not Parañaque for its consideration and, possible, application to Civil
before this Court, We can never know with true certainty and only Case No. CV 09-0346.
speculate. In this light, let a copy of this Decision be also served to
Branch 257of the RTC of Parañaque for its consideration and, No costs.
possible, application to Civil Case No. CV 09-0346.
SO ORDERED.
WHEREFORE, premises considered, the petition is hereby
GRANTED . Accordingly, We hereby render a Decision:

1. SETTING ASIDE all the proceedings undertaken by the G.R. No. 220546, December 07, 2016
Metropolitan Trial Court, Branch 77, of Parañaque City in
relation to Civil Case No. 2009-307 after the filing by LUZON IRON DEVELOPMENT GROUP CORPORATION
petitioner of its Answer with Counterclaim ; AND CONSOLIDATED IRON SANDS,
LTD., Petitioners, v. BRIDESTONE MINING AND
2. REMANDING the instant case to the MeTC, DEVELOPMENT CORPORATION AND ANACONDA
SUSPENDED at the point after the filing by petitioner of its MINING AND DEVELOPMENT
Answer with Counterclaim; CORPORATION, Respondents.

3. SETTING ASIDE the following:


DECISION On December 19, 2012, the RTC ordered the consolidation of the
two cases.7 Subsequently, Luzon Iron and Consolidated Iron filed
MENDOZA, J.: their Special Appearance and Supplement to Motions to
Dismiss,8 dated January 31, 2013, seeking the dismissal of the
This petition for review on certiorari with prayer for the issuance of consolidated cases. The petitioners alleged that Bridestone and
a writ of preliminary injunction and/or temporary restraining order Anaconda were guilty of forum shopping because they filed similar
(TRO) seeks to reverse and set aside the September 8, 2015 complaints before the Department of Environment and Natural
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 133296, Resources (DENR), Mines and Geosciences Bureau, Regional Panel
which affirmed the March 18, 20132 and September 18, 20133 Orders of Arbitrators against Luzon Iron.
of the Regional Trial Court, Branch 59, Makati City (RTC), in the
consolidated case for rescission of contract and damages. The RTC Orders

The Antecedents. In its March 18, 2013 Order, the RTC denied the motions to dismiss,
as well as the supplemental motion to dismiss, finding that
On October 25, 2012, respondents Bridestone Mining and Consolidated Iron was doing business in the Philippines, with Luzon
Development Corporation (Bridestone) and Anaconda Mining and Iron as its resident agent. The RTC ruled that it had jurisdiction over
Development Corporation (Anaconda) filed separate complaints the subject matter because under clause 14.8 of the TPAA, the
before the RTC for rescission of contract and damages against parties could go directly to courts when a direct and/or blatant
petitioners Luzon Iron Development Group Corporation (Luzon Iron) violation of the provisions of the TPAA had been committed. The
and Consolidated Iron Sands, Ltd. (Consolidated Iron), docketed as RTC also opined that the complaint filed before the DENR did not
Civil Case No. 12-1053 and Civil Case No. 12-1054, respectively. constitute forum shopping because there was neither identity of
Both complaints sought the rescission of the Tenement Partnership parties nor identity of reliefs sought.
and Acquisition Agreement (TPAA)4 entered into by Luzon Iron and
Consolidated Iron, on one hand, and Bridestone and Anaconda, on Luzon Iron and Consolidated Iron moved for reconsideration, but the
the other, for the assignment of the Exploration Permit Application RTC denied their motion in its September 18, 2013 Order.
of the former in favor of the latter. The complaints also sought the
return of the Exploration Permits to Bridestone and Anaconda. 5 Undaunted, they filed their petition for review with prayer for the
issuance of a writ of preliminary injunction and/or TRO before the
Thereafter, Luzon Iron and Consolidated Iron filed their Special CA.
Appearance with Motion to Dismiss6 separately against Bridestone's
complaint and Anaconda's complaint. Both motions to dismiss The CA Ruling
presented similar grounds for dismissal. They contended that the
RTC could not acquire jurisdiction over Consolidated Iron because it In its September 8, 2015 Decision, the CA affirmed the March 18,
was a foreign corporation that had never transacted business in the 2013 and September 18, 2013 RTC Orders in denying the motions to
Philippines. Likewise, they argued that the RTC had no jurisdiction dismiss and the supplemental motions to dismiss. It agreed that the
over the subject matter because of an arbitration clause in the TPAA. court acquired jurisdiction over the person of Consolidated Iron
because the summons may be validly served through its agent Luzon Petitioners Luzon Iron and Consolidated Iron insist that the RTC has
Iron, considering that the latter was merely the business conduit of no jurisdiction over the latter because it is a foreign corporation
the former. The CA also sustained the jurisdiction of the RTC over which is neither doing business nor has transacted business in the
the subject matter opining that the arbitration clause in the TPAA Philippines. They argue that there could be no means by which the
provided for an exception where parties could directly go to court. trial court could acquire jurisdiction over the person of Consolidated
Iron under any mode of service of summons. The petitioners claim
Further, the CA also disregarded the averment of forum shopping, that the service of summons to Consolidated Iron was defective
explaining that in the complaint before the RTC, both Consolidated because the mere fact that Luzon Iron was a wholly-owned
Iron and Luzon Iron were impleaded but in the complaint before the subsidiary of Consolidated Iron did not establish that Luzon Iron was
DENR only the latter was impleaded. It stated that there was no the agent of Consolidated Iron. They emphasize that Consolidated
identity of relief and no identity of cause of action. Iron and Luzon Iron are two distinct and separate entities.

Hence, this appeal raising the following: The petitioners further assert that the trial court had no jurisdiction
over the consolidated cases because of the arbitration clause set forth
ISSUES in the TPAA. They reiterate that Luzon Iron and Consolidated Iron
were guilty of forum shopping because their DENR complaint
I contained similar causes of action and reliefs sought. They stress that
the very evil sought to be prevented by the prohibition on forum
WHETHER THE COURT OF APPEALS ERRED IN RULING shopping had occurred when the DENR and the RTC issued
THAT THE TRIAL COURT ACQUIRED JURISDICTION conflicting orders in dismissing or upholding the complaints filed
OVER THE PERSON OF CONSOLIDATED IRON; before them.

II Position of Respondents

WHETHER THE COURT OF APPEALS ERRED IN RULING In their Comment/Opposition,10 dated January 7, 2016, respondents
THAT THE TRIAL COURT HAS JURISDICTION OVER THE Bridestone and Anaconda countered that the RTC validly acquired
SUBJECT MATTER OF THE CONSOLIDATED CASES; AND 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
III
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
WHETHER THE COURT OF APPEALS ERRED IN RULING reliefs prayed for in the complaints before the RTC and the DENR
THAT BRIDESTONE/ANACONDA WERE NOT GUILTY OF differed.
FORUM SHOPPING.9
Further, the respondents asserted that the trial court had jurisdiction
over the complaints because the TPAA itself allowed a direct resort
before the courts in exceptional circumstances. They cited paragraph Filing of complaints
14.8 thereof as basis explaining that when a direct and/or blatant before the RTC and the
violation of the TPAA had been committed, a party could go directly DENR is forum shopping
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 Forum shopping is committed when multiple suits involving the
dismiss. They added that actions that are subject to arbitration same parties and the same causes of action are filed, either
agreement were merely suspended, and not dismissed. simultaneously or successively, for the purpose of obtaining a
favorable judgment through means other than appeal or
Reply of Petitioners certiorari.12 The prohibition on forum shopping seeks to prevent the
possibility that conflicting decisions will be rendered by two
In their Reply,11 dated April 29, 2016, the petitioners stated that tribunals.13
Consolidated Iron was not necessarily doing business in the
Philippines by merely establishing a wholly-owned subsidiary in the In Spouses Arevalo v. Planters Development Bank,14 the Court
form of Luzon Iron. Also, they asserted that Consolidated Iron had elaborated that forum shopping vexed the court and warranted the
not been validly served the summons because Luzon Iron is neither dismissal of the complaints. Thus:
its resident agent nor its representative in the Philippines. The
petitioners explained that Luzon Iron, as a wholly-owned subsidiary, Forum shopping is the act of litigants who repetitively avail
had a separate and distinct personality from Consolidated Iron. themselves of multiple judicial remedies in different fora,
simultaneously or successively, all substantially founded on the same
The petitioners explained that Paragraph 14.8 of the TPAA should transactions and the same essential facts and circumstances; and
not be construed as an authority to directly resort to court action in raising substantially similar issues either pending in or already
case of a direct and/or blatant violation of the TPAA because such resolved adversely by some other court; or for the purpose of
interpretation would render the arbitration clause nugatory. They increasing their chances of obtaining a favorable decision, if not in
contended that, even for the sake of argument, the judicial action one court, then in another. The rationale against forum-shopping
under the said provisions was limited to issues or matters which were is that a party should not be allowed to pursue simultaneous
inexistent in the present case. They added that a party was not remedies in two different courts, for to do so would constitute
required to file a formal request for arbitration before an arbitration abuse of court processes which tends to degrade the
clause became operational. Lastly, they insisted that the respondents administration of justice, wreaks havoc upon orderly judicial
were guilty of forum shopping in simultaneously filing complaints procedure, and adds to the congestion of the heavily burdened
before the trial court and the DENR. dockets of the courts.

The Court's Ruling xxxx

The petition is impressed with merit. 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 Second, there is identity of causes of action. A reading of the
similar reliefs, in the process creating the possibility of complaints filed before the RTC and the DENR reveals that they had
conflicting decisions being rendered upon the same issues. almost identical causes of action and they prayed for similar reliefs
as they ultimately sought the return of their respective Exploration
xxxx 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
We emphasize that the grave evil sought to be avoided by the rule identity of causes of action did not mean absolute identity.
against forum-shopping is the rendition by two competent tribunals
of two separate and contradictory decisions. To avoid any Hornbook is the rule that identity of causes of action does not mean
confusion, this Court adheres strictly to the rules against forum absolute identity; otherwise, a party could easily escape the operation
shopping, and any violation of these rules results in the dismissal of res judicata by changing the form of the action or the relief
of a case. The acts committed and described herein can possibly sought. The test to determine whether the causes of action are
constitute direct contempt.15 [Emphases supplied] identical is to ascertain whether the same evidence will sustain
both actions, or whether there is an identity in the facts essential
There is forum shopping when the following elements are present: to the maintenance of the two actions. If the same facts or
(a) identity of parties, or at least such parties representing the same evidence would sustain both, the two actions are considered the
interests in both actions; (b) identity of rights asserted and reliefs same, and a judgment in the first case is a bar to the subsequent
prayed for, the relief being founded on the same facts; and (c) the action. Hence, a party cannot, by varying the form of action or
identity of the two preceding particulars, such that any judgment adopting a different method of presenting his case, escape the
rendered in the other action will, regardless of which party is operation of the principle that one and the same cause of action shall
successful, amounts to res judicata in the action under not be twice litigated between the same parties or their privies.
consideration.16 All the above-stated elements are present in the case xxx20 [Emphases supplied]
at bench.
In the case at bench, both complaints filed before
First, there is identity of parties. In both the complaints before the different fora involved similar facts and issues, the resolution of
RTC and the DENR, Luzon Iron was impleaded as defendant while which depends on analogous evidence. Thus, the filing of two
Consolidated Iron was only impleaded in the complaint before the separate complaints by the petitioners with the RTC and the DENR
RTC. Even if Consolidated Iron was not impleaded in the DENR clearly constitutes forum shopping.
complaint, the element still exists. The requirement is only
substantial, and not absolute, identity of parties; and there is It is worth noting that the very evil which the prohibition against
substantial identity of parties when there is community of interest forum shopping sought to prevent had happened—the RTC and the
between a party in the first case and a party in the second case, even DENR had rendered conflicting decisions. The trial court ruled that it
if the latter was not impleaded in the other case.17 Consolidated Iron had jurisdiction notwithstanding the arbitration clause in the TPAA.
and Luzon Iron had a common interest under the TPAA as the latter On the other hand, the DENR found that it was devoid of jurisdiction
was a wholly-owned subsidiary of the former. because the matter was subject to arbitration.
Summons were not a) By personal service coursed through the appropriate court in the
validly served foreign country with the assistance of the Department of Foreign
Affairs;
Section 12 of Rule 14 of the Revised Rules of Court provides that
"[w]hen the defendant is a foreign private juridical entity which b) By publication once in a newspaper of general circulation in the
has transacted business in the Philippines, service may be made on country where the defendant may be found and by serving a copy of
its resident agent designated in accordance with law for that purpose, the summons and the court order by registered mail at the last known
or, if there be no such agent, on the government official designated address of the defendant;
by law to that effect, or on any of its officers or agents within the
Philippines." c) By facsimile or any recognized electronic means that could
generate proof of service; or
The Rule on Summons, as it now reads, thus, makes the question
whether Consolidated Iron was "doing business in the Philippines" d) By such other means as the court may in its discretion direct."
irrelevant as Section 12, Rule 14 of the Rules of Court was broad
enough to cover corporations which have "transacted business in the The petitioners are mistaken in arguing that it cannot be served
Philippines." summons because under Section 15, Rule 14 of the Rules of Court,
extrajudicial service of summons may be resorted to only when the
In fact, under the present legal milieu, the rules on service of action is in rem or quasi in rem and not when the action is
summons on foreign private juridical entities had been expanded as it in personam. The premise of the petitioners is erroneous as the rule
recognizes additional modes by which summons may be served. A.M on extraterritorial service of summons provided in Section 15, Rule
No. 11-3-6-SC21 thus provides: 14 of the Rules of Court is a specific provision dealing precisely with
the service of summons on a defendant which does not reside and is
Section 12. Rule 14 of the Rules of Court is hereby amended to read not found in the Philippines. On the other hand, Section 12, Rule 14
as follows: thereof, specifically applies to a defendant foreign private juridical
entity which had transacted business in the Philippines. Both rules
"SEC. 12. Service upon foreign private juridical entity. — When the may provide for similar modes of service of summons, nevertheless,
defendant is a foreign private juridical entity which has transacted they should only be applied in particular cases, with one applicable
business in the Philippines, service may be made on its resident to defendants which do not reside and are not found in the
agent designated in accordance with law for that purpose, or, if there Philippines and the other to foreign private juridical entities which
be no such agent, on the government official designated by law to had transacted business in the Philippines.
that effect, or on any of its officers or agents within the Philippines.
In the case at bench, it is crystal clear that Consolidated Iron
If the foreign private juridical entity is not registered in the transacted business in the Philippines as it was a signatory in the
Philippines or has no resident agent, service may, with leave of TPAA that was executed in Makati. Hence, as the respondents
court, be effected out of the Philippines through any of the following argued, it may be served with the summons in accordance with the
means: modes provided under Section 12, Rule 14 of the Rules of Court.
In Atiko Trans, Inc. v. Prudential Guarantee and Assurance, It is undisputed that Luzon Iron was never registered before the
Inc.,23 the Court elucidated on the means by which summons could Securities and Exchange Commission (SEC) as Consolidated Iron's
be served on a foreign juridical entity, to wit: resident agent. Thus, the service of summons to Consolidated Iron
through Luzon Iron cannot be deemed a service to a resident
On this score, we find for the petitioners. Before it was amended by agent25cralawred under the first mode of service.
A.M. No. 11-3-6-SC, Section 12 of Rule 14 of the Rules of Court
reads: Likewise, the respondents err in insisting that Luzon Iron could be
served summons as an agent of Consolidated Iron, it being a wholly-
SEC. 12. Service upon foreign private juridical entity. — When the owned subsidiary of the latter. The allegations in the complaint must
defendant is a foreign private juridical entity which has transacted clearly show a connection between the principal foreign corporation
business in the Philippines, service may be made on its resident and its alleged agent corporation with respect to the transaction in
agent designated in accordance with law for that purpose, or, if there question as a general allegation of agency will not suffice. 26 In other
be no such agent, on the government official designated by law to words, the allegations of the complaint taken as whole should be able
that effect, or on any of its officers or agents within the Philippines. to convey that the subsidiary is but a business conduit of the
principal or that by reason of fraud, their separate and distinct
Elucidating on the above provision of the Rules of Court, this Court personality should be disregarded.27 A wholly-owned subsidiary is a
declared in Pioneer International, Ltd. v. Guadiz, Jr. that when the distinct and separate entity from its mother corporation and the fact
defendant is a foreign juridical entity, service of summons maybe that the latter exercises control over the former does not justify
made upon: disregarding their separate personality. It is true that under the
TPAA, Consolidated Iron wielded great control over the actions of
1. Its resident agent designated in accordance with Luzon Iron under the said agreement. This, nonetheless, does not
law for that purpose; warrant the conclusion that Luzon Iron was a mere conduit of
Consolidated Iron. In Pacific Rehouse Corporation v. CA,28 the Court
2. The government official designated by law to ruled:
receive summons if the corporation does not have a
resident agent; or, Albeit the RTC bore emphasis on the alleged control exercised by
Export Bank upon its subsidiary E-Securities, "[c]ontrol, by itself,
3. Any of the corporation's officers or agents within does not mean that the controlled corporation is a mere
the Philippines.24 [Emphasis supplied] instrumentality or a business conduit of the mother company. Even
control over the financial and operational concerns of a
The Court, however, finds that Consolidated Iron was not properly subsidiary company does not by itself call for disregarding its
served with summons through any of the permissible modes under corporate fiction. There must be a perpetuation of fraud behind the
the Rules of Court. Indeed, Consolidated Iron was served with control or at least a fraudulent or illegal purpose behind the control
summons through Luzon Iron. Such service of summons, however, in order to justify piercing the veil of corporate fiction. Such
was defective. fraudulent intent is lacking in this case.29 [Emphasis supplied]
In the case at bench, the complaint merely contained a general rules are deemed to be incorporated by reference in this clause
statement that Luzon Iron was the resident agent of Consolidated 15.1.30
Iron, and that it was a wholly-owned subsidiary of the latter. There
was no allegation showing that Luzon Iron was merely a business The RTC, as the CA agreed, countered that Paragraph 14.8 of the
conduit of Consolidated Iron, or that the latter exercised control over TPAA allowed the parties to directly resort to courts in case of a
the former to the extent that their separate and distinct personalities direct and/or blatant violation of the provisions of the TPAA.
should be set aside. Thus, Luzon Iron cannot be deemed as an agent Paragraph 14.8 stated:
of Consolidated Iron in connection with the third mode of service of
summons. Each Party agrees not to commence or procure the commencement
of any challenge or claim, action, judicial or legislative enquiry,
To reiterate, the Court did not acquire jurisdiction over Consolidated review or other investigation into the sufficiency, validity, legality or
Iron because the service of summons, coursed through Luzon Iron, constitutionality of (i) the assignments of the Exploration Permit
was defective. Luzon Iron was neither the resident agent nor the Applications(s) (sic) to LIDGC, (ii) any other assignments
conduit or agent of Consolidated Iron. contemplated by this TPAA, and/or (iii) or (sic) any agreement to
which the Exploration Permit Application(s) may be converted,
On the abovementioned procedural issues alone, the dismissal of the unless a direct and/or blatant violation of the provisions of the TPAA
complaints before the RTC was warranted. Even granting that the has been committed.31
complaints were not procedurally defective, there still existed
enough reason for the trial court to refrain from proceeding with the In Bases Conversion Development Authority v. DMCI Project
case. Developers, Inc.,32 the Court emphasized that the State favored
arbitration, to wit:
Controversy must be
referred for arbitration The state adopts a policy in favor of arbitration. Republic Act No.
9285 expresses this policy:
The petitioners insisted that the RTC had no jurisdiction over the
subject matter because under Paragraph 15.1 of the TPAA, any SEC. 2. Declaration of Policy. — It is hereby declared the policy of
dispute out of or in connection with the TPAA must be resolved by the State to actively promote party autonomy in the resolution of
arbitration. The said provision provides: disputes or the freedom of the parties to make their own
arrangements to resolve their disputes. Towards this end, the State
If, for any reasonable reason, the Parties cannot resolve a material shall encourage and actively promote the use of Alternative
fact, material event or any dispute arising out of or in connection Dispute Resolution (ADR) as an important means to achieve
with this TPAA, including any question regarding its existence, speedy and impartial justice and declog court dockets. As such,
validity or termination, within 90 days from its notice, shall be the State shall provide means for the use of ADR as an efficient
referred to and finally resolved by arbitration in Singapore in tool and an alternative procedure for the resolution of
accordance with the Arbitration Rules of the Singapore International appropriate cases. Likewise, the State shall enlist active private
Arbitration Centre ("SIAC Rules") for the time being in force, which sector participation in the settlement of disputes through ADR. This
Act shall be without prejudice to the adoption by the Supreme Court The Court disagrees with the respondents that Paragraph 14.8 of the
of any ADR system, such as mediation, conciliation, arbitration, or TPAA should be construed as an exception to the arbitration clause
any combination thereof as a means of achieving speedy and where direct court action may be resorted to in case of direct and/or
efficient means of resolving cases pending before all courts in the blatant violation of the TPAA occurs. If such interpretation is to be
Philippines which shall be governed by such rules as the Supreme espoused, the arbitration clause would be rendered inutile as
Court may approve from time to time. practically all matters may be directly brought before the courts.
Such construction is anathema to the policy favoring arbitration.
Our policy in favor of party autonomy in resolving disputes has
been reflected in our laws as early as 1949 when our Civil Code A closer perusal of the TPAA will also reveal that paragraph 14 and
was approved. Republic Act No. 876 later explicitly recognized the all its sub-paragraphs are general provisions, whereas paragraphs 15
validity and enforceability of parties' decision to submit disputes and and all its sub-clauses specifically refer to arbitration. When general
related issues to arbitration. and specific provisions are inconsistent, the specific provision shall
be paramount and govern the general provision.34
Arbitration agreements are liberally construed in favor of
proceeding to arbitration. We adopt the interpretation that The petitioners' failure to refer the case for arbitration, however, does
would render effective an arbitration clause if the terms of the not render the arbitration clause in the TPAA inoperative. In Koppel,
agreement allow for such interpretation.33 [Emphases supplied] Inc. v. Makati Rotary Club Foundation, Inc. (Koppel),35 the Court
explained that an arbitration clause becomes operative,
Thus, consistent with the state policy of favoring arbitration, the notwithstanding the lack of a formal request, when a party has
present TPAA must be construed in such a manner that would give appraised the trial court of the existence of an arbitration clause, viz:
life to the arbitration clause rather than defeat it, if such
interpretation is permissible. With this in mind, the Court views the xxx The operation of the arbitration clause in this case is not at
interpretation forwarded by the petitioners as more in line with the all defeated by the failure of the petitioner to file a formal
state policy favoring arbitration. "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
Paragraphs 14.8 and 15.1 of the TPAA should be harmonized in such the sole means by which an arbitration clause may be validly
a way that the arbitration clause is given life, especially since such invoked in a pending suit.
construction is possible in the case at bench. A synchronized reading
of the abovementioned TPAA provisions will show that a claim or Section 24 of R.A. No. 9285 reads:
action raising the sufficiency, validity, legality or constitutionality
of: (a) the assignments of the EP to Luzon Iron; (b) any other SEC. 24. Referral to Arbitration. — A court before which an action
assignments contemplated by the TPAA; or (c) any agreement to is brought in a matter which is the subject matter of an arbitration
which the EPs may be converted, may be instituted only when there agreement shall, if at least one party so requests not later that the pre-
is a direct and/or blatant violation of the TPAA. In turn, the said trial conference, or upon the request of both parties thereafter, refer
action or claim is commenced by proceeding with arbitration, as the parties to arbitration unless it finds that the arbitration agreement
espoused in the TPAA. is null and void, inoperative or incapable of being performed.
The "request" referred to in the above provision is, in turn, It is undisputed that the petitioners Luzon Iron and Consolidated Iron
implemented by Rules 4.1 to 4.3 of A.M. No. 07-11-08-SC or never made any formal request for arbitration. As expounded
the Special Rules of Court on Alternative Dispute in Koppel, however, a formal request is not the sole means of
Resolution (Special ADR Rules): 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
RULE 4: REFERRAL TO ADR 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
Rule 4.1. Who makes the request. — A party to a pending action activate the arbitration clause and, thus, should have alerted the RTC
filed in violation of the arbitration agreement, whether contained in in proceeding with the case.
an arbitration clause or in a submission agreement, may request the
court to refer the parties to arbitration in accordance with such Moreover, judicial restraint should be exercised pursuant to the
agreement. competence-competence principle embodied in Rule 2.4 of the
Special Rules of Court on Alternative Dispute Resolution. 37 The said
xxxx provision reads:

Attention must be paid, however, to the salient wordings of Rule 4.1. RULE 2.4. Policy Implementing Competence-Competence Principle.
It reads: "[a] party to a pending action filed in violation of the — The arbitral tribunal shall be accorded the first opportunity or
arbitration agreement xxx may request the court to refer the parties competence to rule on the issue of whether or not it has the
to arbitration in accordance with such agreement." competence or jurisdiction to decide a dispute submitted to it for
decision, including any objection with respect to the existence or
In using the word "may" to qualify the act of filing a "request" validity of the arbitration agreement. When a court is asked to rule
under Section 24 of R.A. No. 9285, the Special ADR Rules clearly upon issue/s affecting the competence or jurisdiction of an
did not intend to limit the invocation of an arbitration agreement arbitral tribunal in a dispute brought before it, either before or
in a pending suit solely via such "request." After all, non- after the arbitral tribunal is constituted, the court must exercise
compliance with an arbitration agreement is a valid defense to any judicial restraint and defer to the competence or jurisdiction of
offending suit and, as such, may even be raised in an answer as the arbitral tribunal by allowing the arbitral tribunal the first
provided in our ordinary rules of procedure. opportunity to rule upon such issues.

In this case, it is conceded that petitioner was not able to file a Where the court is asked to make a determination of whether the
separate "request" of arbitration before the MeTC. However, it is arbitration agreement is null and void, inoperative or incapable of
equally conceded that the petitioner, as early as in its Answer being performed, under this policy of judicial restraint, the court
with Counterclaim, had already apprised the MeTC of the must make no more than a prima facie determination of that issue.
existence of the arbitration clause in the 2005 Lease Contract and,
more significantly, of its desire to have the same enforced in this Unless the court, pursuant to such prima facie determination,
case. This act of petitioner is enough valid invocation of his right concludes that the arbitration agreement is null and void, inoperative
to arbitrate. xxx36 [Emphases supplied; italics in the original] 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.

G.R. No. 212081               February 23, 2015

DEPARTMENT OF ENVIRONMENT AND NATURAL


RESOURCES (DENR), Petitioner,
vs.
UNITED PLANNERS CONSULTANTS , INC.
(UPCI), Respondent.
DECISION Quezon City, Branch 222 (RTC), docketed as Case No. Q-07-
60321.12
PERLAS-BERNABE, J.:
Upon motion of respondent, the case was subsequently referred to
Assailed in this petition for review on certiorari 1 is the arbitration pursuant to the arbitration clause of the Consultancy
Decision2 dated March 26, 2014 of the Court of Appeals (CA) in Agreement,13 which petitioner did not oppose.14 As a result, Atty.
CA-G.R. SP No. 126458 which dismissed the petition for certiorari Alfredo F. Tadiar, Architect Armando N. Alli, and Construction
filed by petitioner the Department of Environment and Natural Industry Arbitration Commission (CIAC) Accredited Arbitrator
Resources (petitioner). Engr. Ricardo B. San Juan were appointed as members of the
Arbitral Tribunal. The court-referred arbitration was then docketed
The Facts as Arbitration Case No. A-001.15

On July 26, 1993, petitioner, through the Land Management Bureau During the preliminary conference, the parties agreed to adopt the
(LMB), entered into an Agreement for Consultancy CIAC Revised Rules Governing Construction Arbitration 16 (CIAC
Services3 (Consultancy Agreement) with respondent United Planners Rules) to govern the arbitration proceedings. 17 They further agreed to
Consultants, Inc. (respondent) in connection with the LMB' s Land submit their respective draft decisions in lieu of memoranda of
Resource Management Master Plan Project (LRMMP). 4 Under the arguments on or before April 21, 2010, among others.18
Consultancy Agreement, petitioner committed to pay a total contract
price of ₱4,337,141.00, based on a predetermined percentage On the due date for submission of the draft decisions, however, only
corresponding to the particular stage of work accomplished. 5 respondent complied with the given deadline, 19 while petitioner
moved for the deferment of the deadline which it followed with
In December 1994, respondent completed the work required, which another motion for extension of time, asking that it be given until
petitioner formally accepted on December 27, 1994. 6 However, May 11, 2010 to submit its draft decision.20
petitioner was able to pay only 47% of the total contract price in the
amount of ₱2,038,456.30.7 In an Order21 dated April 30, 2010, the Arbitral Tribunal denied
petitioner’s motions and deemed its non-submission as a waiver, but
On October 25, 1994, the Commission on Audit (COA) released the declared that it would still consider petitioner’s draft decision if
Technical Services Office Report8 (TSO) finding the contract price submitted before May 7, 2010, or the expected date of the final
of the Agreement to be 84.14% excessive. 9 This notwithstanding, award’s promulgation.22 Petitioner filed its draft decision 23 only on
petitioner, in a letter dated December 10, 1998, acknowledged its May 7, 2010.
liability to respondent in the amount of ₱2,239,479.60 and assured
payment at the soonest possible time.10 The Arbitral Tribunal rendered its Award24 dated May 7, 2010
(Arbitral Award) in favor of respondent, directing petitioner to pay
For failure to pay its obligation under the Consultancy Agreement the latter the amount of (a) ₱2,285,089.89 representing the unpaid
despite repeated demands, respondent instituted a progress billings, with interest at the rate of 12% per annum from the
Complaint11 against petitioner before the Regional Trial Court of date of finality of the Arbitral Award upon confirmation by the RTC
until fully paid; (b) ₱2,033,034.59 as accrued interest thereon; (c) petitioner despite the RTC’s directive therefor. In an Order 37 dated
₱500,000.00 as exemplary damages; and (d) ₱150,000.00 as September 12, 2011, the RTC granted respondent’s motion.38
attorney’s fees.25 It also ordered petitioner to reimburse respondent
its proportionate share in the arbitration costs as agreed upon in the Petitioner moved to quash39 the writ of execution, positing that
amount of ₱182,119.44.26 respondent was not entitled to its monetary claims. It also claimed
that the issuance of said writ was premature since the RTC should
Unconvinced, petitioner filed a motion for reconsideration, 27 which have first resolved its May 19, 2010 Motion for Reconsideration and
the Arbitral Tribunal merely noted without any action, claiming that June 1, 2010 Manifestation and Motion, and not merely noted them,
it had already lost jurisdiction over the case after it had submitted to thereby violating its right to due process.40
the RTC its Report together with a copy of the Arbitral Award. 28
The RTC Ruling
Consequently, petitioner filed before the RTC a Motion for
Reconsideration29 dated May 19, 2010 (May 19, 2010 Motion for In an Order41 dated July 9, 2012, the RTC denied petitioner’s motion
Reconsideration)and a Manifestation and Motion30 dated June 1, to quash.
2010 (June 1, 2010 Manifestation and Motion), asserting that it was
denied the opportunity to be heard when the Arbitral Tribunal failed It found no merit in petitioner’s contention that it was denied due
to consider its draft decision and merely noted its motion for process, ruling that its May 19, 2010 Motion for Reconsideration
reconsideration.31 It also denied receiving a copy of the Arbitral was a prohibited pleading under Section 17.2, 42 Rule 17 of the CIAC
Award by either electronic or registered mail. 32 For its part, Rules. It explained that the available remedy to assail an arbitral
respondent filed an opposition thereto and moved for the award was to file a motion for correction of final award pursuant to
confirmation33 of the Arbitral Award in accordance with the Special Section 17.143 of the CIAC Rules, and not a motion for
Rules of Court on Alternative Dispute Resolution (Special ADR reconsideration of the said award itself. 44 On the other hand, the RTC
Rules).34 found petitioner’s June 1, 2010 Manifestation and Motion seeking
the resolution of its May 19, 2010 Motion for Reconsideration to be
In an Order35 dated March 30, 2011, the RTC merely noted defective for petitioner’s failure to observe the three day notice
petitioner’s aforesaid motions, finding that copies of the Arbitral rule.45 Having then failed to avail of the remedies attendant to an
Award appear to have been sent to the parties by the Arbitral order of confirmation, the Arbitral Award had become final and
Tribunal, including the OSG, contrary to petitioner’s claim. Onthe executory.46
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 On July 12, 2012, petitioner received the RTC’s Order dated July 9,
respondent the costs of confirming the award, as prayed for, in the 2012 denying its motion to quash.47
total amount of ₱50,000.00. From this order, petitioner did not file a
motion for reconsideration. Dissatisfied, it filed on September 10, 2012a petition for
certiorari48 before the CA, docketed as CA-G.R. SP No. 126458,
Thus, on June 15, 2011, respondent moved for the issuance of a writ averring in the main that the RTC acted with grave abuse of
of execution, to which no comment/opposition was filed by
discretion in confirming and ordering the execution of the Arbitral Accordingly, A.M. No. 07-11-08-SC was created setting forth the
Award. Special Rules of Court on Alternative Dispute Resolution (referred
herein as Special ADR Rules) that shall govern the procedure to be
The CA Ruling followed by the courts whenever judicial intervention is sought in
ADR proceedings in the specific cases where it is allowed. 57
In a Decision49 dated March 26, 2014, the CA dismissed the
certiorari petition on two (2) grounds, namely: (a) the petition Rule 1.1 of the Special ADR Rules lists down the instances when the
essentially assailed the merits of the Arbitral Award which is said rules shall apply, namely: "(a) Relief on the issue of Existence,
prohibited under Rule 19.750 of the Special ADR Rules;51 and (b) the Validity, or Enforceability of the Arbitration Agreement; (b) Referral
petition was filed out of time, having been filed way beyond 15 days to Alternative Dispute Resolution ("ADR"); (c) Interim Measures of
from notice of the RTC’s July 9, 2012 Order, in violation of Rule Protection; (d) Appointment of Arbitrator; (e) Challenge to
19.2852 in relation to Rule 19.853 of said Rules which provide that a Appointment of Arbitrator; (f) Termination of Mandate of Arbitrator;
special civil action for certiorari must be filed before the CA within (g) Assistance in Taking Evidence; (h) Confirmation, Correction or
15 days from notice of the judgment, order, or resolution sought to Vacation of Award in Domestic Arbitration; (i) Recognition and
be annulled or set aside (or until July 27, 2012). Aggrieved, Enforcement or Setting Aside of an Award in International
petitioner filed the instant petition. Commercial Arbitration; (j) Recognition and Enforcement of a
Foreign Arbitral Award; (k) Confidentiality/Protective Orders; and
The Issue Before the Court (l) Deposit and Enforcement of Mediated Settlement Agreements." 58

The core issue for the Court’s resolution is whether or not the CA Notably, the Special ADR Rules do not automatically govern the
erred in applying the provisions of the Special ADR Rules, resulting arbitration proceedings itself. A pivotal feature of arbitration as an
in the dismissal of petitioner’s special civil action for certiorari. alternative mode of dispute resolution is that it is a product of party
autonomy or the freedom of the parties to make their own
The Court’s Ruling arrangements to resolve their own disputes. 59 Thus, Rule 2.3 of the
Special ADR Rules explicitly provides that "parties are free to agree
The petition lacks merit. 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
I.
In the case at bar, the Consultancy Agreement contained an
Republic Act No. (RA) 9285,54 otherwise known as the Alternative
arbitration clause.61 Hence, respondent, after it filed its complaint,
Dispute Resolution Act of 2004," institutionalized the use of an
moved for its referral to arbitration62 which was not objected to by
Alternative Dispute Resolution System (ADR System) 55 in the
petitioner.63 By its referral to arbitration, the case fell within the
Philippines. The Act, however, was without prejudice to the adoption
coverage of the Special ADR Rules. However, with respect to the
by the Supreme Court of any ADR system as a means of achieving
arbitration proceedings itself, the parties had agreed to adopt the
speedy and efficient means of resolving cases pending before all
courts in the Philippines.56
CIAC Rules before the Arbitral Tribunal in accordance with Rule 2.3 Accordingly, the case was remanded to the RTC for confirmation
of the Special ADR Rules. proceedings pursuant to Rule 11 of the Special ADR Rules which
requires confirmation by the court of the final arbitral award. This is
On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award consistent with Section 40, Chapter 7 (A) of RA 9285 which
in favor of respondent. Under Section 17.2, Rule 17 of the CIAC similarly requires a judicial confirmation of a domestic award to
Rules, no motion for reconsideration or new trial may be sought, but make the same enforceable:
any of the parties may file a motion for correction 64 of the final
award, which shall interrupt the running of the period for SEC. 40. Confirmation of Award.– The confirmation of a domestic
appeal,65 based on any of the following grounds, to wit: a. an evident arbitral award shall be governed by Section 2369 of R.A. 876.70
miscalculation of figures, a typographical or arithmetical error;
A domestic arbitral award when confirmed shall be enforced in the
b. an evident mistake in the description of any party, person, same manner as final and executory decisions of the regional trial
date, amount, thing or property referred to in the award; court.

c. where the arbitrators have awarded upon a matter not The confirmation of a domestic award shall be made by the regional
submitted to them, not affecting the merits of the decision trial court in accordance with the Rules of Procedure to be
upon the matter submitted; promulgated by the Supreme Court.

d. where the arbitrators have failed or omitted to resolve A CIAC arbitral award need not be confirmed by the regional trial
certain issue/s formulated by the parties in the Terms of court to be executory as provided under E.O. No. 1008. (Emphases
Reference (TOR) and submitted to them for resolution, and supplied)

e. where the award is imperfect in a matter of form not During the confirmation proceedings, petitioners did not oppose the
affecting the merits of the controversy. 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
The motion shall be acted upon by the Arbitral Tribunal or the reconsideration of the confirmation order in accordance with Rule
surviving/remaining members.66 19.1 (h) thereof. Instead, petitioner filed only on September 10, 2012
a special civil action for certiorari before the CA questioning the
Moreover, the parties may appeal the final award to the CA through propriety of (a) the RTC Order dated September 12, 2011 granting
a petition for review under Rule43 of the Rules of Court. 67 respondent’s motion for issuance of a writ of execution, and (b)
Order dated July 9,2012 denying its motion to quash. Under Rule
Records do not show that any of the foregoing remedies were availed 19.26 of the Special ADR Rules, "[w]hen the Regional Trial Court,
of by petitioner. Instead, it filed the May 19, 2010 Motion for in making a ruling under the Special ADR Rules, has acted without
Reconsideration of the Arbitral Award, which was a prohibited or in excess of its jurisdiction, or with grave abuse of discretion
pleading under the Section 17.2, 68 Rule 17 of the CIAC Rules, thus amounting to lack or excess of jurisdiction, and there is no appeal or
rendering the same final and executory. 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 i. Adjourning or deferring a ruling on whether to set aside,
set aside a ruling of the Regional Trial Court." Thus, for failing to recognize and or enforce an international commercial arbitral
avail of the foregoing remedies before resorting to certiorari, the CA award;
correctly dismissed its petition.
j. Allowing a party to enforce a foreign arbitral award
II. pending appeal; and

Note that the special civil action for certiorari described in Rule k. Denying a petition for assistance in taking evidence.
19.26 above may be filed to annul or set aside the following orders (Emphasis supplied)
of the Regional Trial Court.
Further, Rule 19.772 of the Special ADR Rules precludes a party to
a. Holding that the arbitration agreement is in existent, an arbitration from filing a petition for certiorari questioning the
invalid or unenforceable; merits of an arbitral award.

b. Reversing the arbitral tribunal’s preliminary determination If so falling under the above-stated enumeration, Rule 19.28 of the
upholding its jurisdiction; Special ADR Rules provide that said certiorari petition should be
filed "with the [CA] within fifteen (15) days from notice of the
c. Denying the request to refer the dispute to arbitration; judgment, order or resolution sought to be annulled or set aside. No
extension of time to file the petition shall be allowed."
d. Granting or refusing an interim relief;
In this case, petitioner asserts that its petition is not covered by the
e. Denying a petition for the appointment of an arbitrator; Special ADR Rules (particularly, Rule 19.28 on the 15-day
reglementary period to file a petition for certiorari) but by Rule 65 of
f. Confirming, vacating or correcting a domestic arbitral the Rules of Court (particularly, Section 4 thereof on the 60-day
award; reglementary period to file a petition for certiorari), which it claimed
to have suppletory application in arbitration proceedings since the
g. Suspending the proceedings to set aside an international Special ADR Rules do not explicitly provide for a procedure on
commercial arbitral award and referring the case back to the execution. The position is untenable.
arbitral tribunal;
Execution is fittingly called the fruit and end of suit and the life of
h. Allowing a party to enforce an international commercial the law. A judgment, if left unexecuted, would be nothing but an
arbitral award pending appeal; 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 All the more is such interpretation warranted under the principle of
confirmed award’s execution in light of the doctrine of necessary ratio legis est anima which provides that a statute must be read
implication which states that every statutory grant of power, right or according to its spirit or intent,76 for what is within the spirit is within
privilege is deemed to include all incidental power, right or privilege. the statute although it is not within its letter, and that which is within
In Atienza v. Villarosa,74 the doctrine was explained, thus: the letter but not within the spirit is not within the
statute.77 Accordingly, since the Special ADR Rules are intended to
No statute can be enacted that can provide all the details involved in achieve speedy and efficient resolution of disputes and curb a
its application.1âwphi1 There is always an omission that may not litigious culture,78 every interpretation thereof should be made
meet a particular situation. What is thought, at the time of enactment, consistent with these objectives.
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 Thus, with these principles in mind, the Court so concludes that the
develop as the law is enforced. One of the rules of statutory Special ADR Rules, as far as practicable, should be made to apply
construction used to fill in the gap is the doctrine of necessary not only to the proceedings on confirmation but also to the confirmed
implication. The doctrine states that what is implied in a statute is as award’s execution.
much a part thereof as that which is expressed. Every statute is
understood, by implication, to contain all such provisions as may be Further, let it be clarified that – contrary to petitioner’s stance –
necessary to effectuate its object and purpose, or to make effective resort to the Rules of Court even in a suppletory capacity is not
rights, powers, privileges or jurisdiction which it grants, including all allowed. Rule 22.1 of the Special ADR Rules explicitly provides that
such collateral and subsidiary consequences as may be fairly and "[t]he provisions of the Rules of Court that are applicable to the
logically inferred from its terms. Ex necessitate legis. And every proceedings enumerated in Rule 1.1 of these Special ADR Rules
statutory grant of power, right or privilege is deemed to include all have either been included and incorporated in these Special ADR
incidental power, right or privilege. This is so because the greater Rules or specifically referred to herein." 79 Besides, Rule 1.13 thereof
includes the lesser, expressed in the maxim, in eo plus sit, simper provides that "[i]n situations where no specific rule is provided under
inest et minus.75 (Emphases supplied) the Special ADR Rules, the court shall resolve such matter
summarily and be guided by the spirit and intent of the Special ADR
As the Court sees it, execution is but a necessary incident to the Rules and the ADR Laws."
Court’s confirmation of an arbitral award. To construe it otherwise
would result in an absurd situation whereby the confirming court As above-mentioned, the petition for certiorari permitted under the
previously applying the Special ADR Rules in its confirmation of the Special ADR Rules must be filed within a period of fifteen (15) days
arbitral award would later shift to the regular Rules of Procedure from notice of the judgment, order or resolution sought to be
come execution. Irrefragably, a court’s power to confirm a judgment annulled or set aside.80 Hence, since petitioner’s filing of its certiorari
award under the Special ADR Rules should be deemed to include the petition in CA-G.R. SP No. 126458 was made nearly two months
power to order its execution for such is but a collateral and after its receipt of the RTC’s Order dated July 9, 2012,or on
subsidiary consequence that may be fairly and logically inferred September 10, 2012,81 said petition was clearly dismissible.82
from the statutory grant to regional trial courts of the power to
confirm domestic arbitral awards. III.
Discounting the above-discussed procedural considerations, the the books, records, and papers relating to those accounts; and the
Court still finds that the certiorari petition had no merit. audit and settlement of the accounts of all persons respecting funds
or property received or held by them in an accountable capacity, as
Indeed, petitioner cannot be said to have been denied due process as well as the examination, audit, and settlement of all debts and claims
the records undeniably show that it was accorded ample opportunity of any sort due from or owing to the Government or any of its
to ventilate its position. There was clearly nothing out of line when subdivisions, agencies and instrumentalities. The said jurisdiction
the Arbitral Tribunal denied petitioner’s motions for extension to file extends to all government-owned or controlled corporations,
its submissions having failed to show a valid reason to justify the including their subsidiaries, and other self-governing boards,
same or in rendering the Arbitral Award sans petitioner’s draft commissions, or agencies of the Government, and as herein
decision which was filed only on the day of the scheduled prescribed, including non-governmental entities subsidized by the
promulgation of final award on May 7, 2010. 83 The touchstone of government, those funded by donation through the government,
due process is basically the opportunity to be heard. Having been those required to pay levies or government share, and those for
given such opportunity, petitioner should only blame itself for its which the government has put up a counterpart fund or those partly
own procedural blunder. funded by the government. (Emphases supplied)

On this score, the petition for certiorari in CA-G.R. SP No. 126458 From the foregoing, the settlement of respondent’s money claim is
was likewise properly dismissed. still subject to the primary jurisdiction of the COA despite finality of
the confirmed arbitral award by the RTC pursuant to the Special
IV. ADR Rules.85 Hence, the respondent has to first seek the approval of
the COA of their monetary claim. This appears to have been
Nevertheless, while the Court sanctions the dismissal by the CA of complied with by the latter when it filed a "Petition for Enforcement
the petition for certiorari due to procedural infirmities, there is a need and Payment of Final and Executory Arbitral Award" 86 before the
to explicate the matter of execution of the confirmed Arbitral Award COA. Accordingly, it is now the COA which has the authority to
against the petitioner, a government agency, in the light of rule on this latter petition. WHEREFORE, the petition is DENIED.
Presidential Decree No. (PD) 1445 84 otherwise known as the The Decision dated March 26, 2014 of the Court of Appeals in CA-
"Government Auditing Code of the Philippines." Section 26 of PD G.R. SP No. 126458 which dismissed the petition for certiorari filed
1445 expressly provides that execution of money judgment against by petitioner the Department of Environment and Natural Resources
the Government or any of its subdivisions, agencies and is hereby AFFIRMED.
instrumentalities is within the primary jurisdiction of the COA, to
wit: SO ORDERED.

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
to consult with people in the industry, and in due course came to
meet Peter W. Foster, formerly of Cathay Pacific Airlines. 5 Foster,
G.R. No. 160071, June 06, 2016 along with Michael R. Scantlebury, negotiated with the respondent
on the details of a proposed technical services agreement. 6 Foster and
ANDREW D. FYFE, RICHARD T. NUTTALL, AND Scantlebury subsequently organized Regent Star Services Ltd.
RICHARD J. WALD, Petitioners, v. PHILIPPINE AIRLINES, (Regent Star) under the laws of the British Virgin Islands. 7 On
INC., Respondent. January 4, 1999, the respondent and Regent Star entered into
a Technical Services Agreement (TSA) for the delivery of technical
DECISION and advisory or management services to the respondent, 8 effective
for five years, or from January 4, 1999 until December 31, 2003. 9 On
BERSAMIN, J.: the same date, the respondent, pursuant to Clause 6 of the
TSA,10 submitted a Side Letter," the relevant portions of which
stated:
This case concerns the order issued by the Regional Trial Court
granting the respondent's application to vacate the adverse arbitral For and in consideration of the services to be faithfully performed by
award of the panel of arbitrators, and the propriety of the recourse Regent Star in accordance with the terms and conditions of the
from such order. Agreement, the Company agrees to pay Regent Star as follows:
The Case
1.1 Upon execution of the Agreement, Four Million Seven Hundred
Thousand US Dollars (US$4,700,000.00), representing advisory fees
Under review are the resolutions promulgated in C.A.-G.R. No.
for two (2) years from the date of signature of the Agreement, with
71224 entitled Andrew D. Fyfe, Richard T. Nuttall and Richard J.
an additional amount of not exceeding One Million Three Hundred
Wald v. Philippine Airlines, Inc. on May 30, 20031 and September
Thousand US Dollars (US$1,300,000.00) being due and demandable
19, 2003,2 whereby the Court of Appeals (CA) respectively granted
upon Regent Star's notice to the Company of its engagement of an
the respondent's Motion to Dismiss Appeal (without Prejudice to the
individual to assume the position of CCA under the Agreement;
Filing of Appellee's Brief), and denied the petitioners' Motion for
Reconsideration.
x x x x
Antecedents
In addition to the foregoing, the Company agrees as follows:
In 1998, the respondent underwent rehabilitation proceedings in the
Securities and Exchange Commission (SEC),3 which issued an order x x x x
dated July 1, 1998 decreeing, among others, the suspension of all
claims for payment against the respondent. 4 To convince its creditors In the event of a full or partial termination of the Agreement for
to approve the rehabilitation plan, the respondent decided to hire whatever reason by either the Company or a Senior Technical
technical advisers with recognized experience in the airline industry. Adviser/Regent Star prior to the end of the term of the Agreement,
This led the respondent through its then Director Luis Juan K. Virata the following penalties are payable by the terminating party:
terminating the TSA on the ground of lack of confidence effective
A. During the first 2 years July 31, 1999.16 In its notice, the respondent demanded the offsetting
of the penalties due to the petitioners with the two-year advance
1. Senior Company Adviser (CCA) - US$800,000.00 advisory fees it had paid to Regent Star, thus:

2. Senior Commercial Adviser (SCA) - 800,000.00 The side letter stipulates that "[i]n the event of a full or partial
termination of the Agreement for whatever reason by either the
3. Senior Financial Adviser (FSA) - 700,000.00
Company or a Senior Technical Adviser/Regent Star prior to the end
4. Senior Ground Services and Training Adviser 500,000.00 of the term of the Agreement, the following penalties are payable by
(SAG) - the terminating party:"
5. Senior Engineering and Maintenance Adviser 500,000.00
(SAM) - During the first 2 years:  
Senior Company Adviser - US$800,000.00
x x x x
Senior Commercial Adviser - 800,000.00
For the avoidance of doubt, it is understood and agreed that in the Senior Financial Adviser - 700,000.00
event that the terminating party is an individual Senior Technical
Adviser the liability to pay such Termination Amount to the Senior Ground Services and Training - 500.000.00
Company shall rest with that individual party, not with RSS. Adviser
Similarly, if the terminating party is the Company, the liability to the Senior Engineering and Maintenance - 500,000.00
aggrieved party shall be the individual Senior Technical Adviser, not Adviser
to RSS.12
TOTAL   US$3,300,000.00
Regent Star, through Foster, conformed to the terms stated in the
Side Letter.13 The SEC approved the TSA on January 19, 1999. 14
There is, therefore, due to RSS from PAL the amount of
In addition to Foster and Scantlebury, Regent Star engaged the US$3,300,000.00 by way of stipulated penalties.
petitioners in respective capacities, specifically: Andrew D. Fyfe as
Senior Ground Services and Training Adviser; Richard J. Wald as However, RSS has been paid by PAL advance "advisory fee for two
Senior Maintenance and Engineering Adviser; and Richard T. Nuttall (2) years from date of signature of the Agreement" the amount of
as Senior Commercial Adviser. The petitioners commenced to render US$5,700,000. Since RSS has rendered advisory services from 4
their services to the respondent, immediately after the TSA was January to 31 July 1999, or a period of seven months, it is entitled to
executed.15 retain only the advisory fees for seven months. This is computed as
follows:
On July 26, 1999, the respondent dispatched a notice to Regent Star
US$5,700.000 - US$237,500/month x7 = US$1,662,500
  24 months When the PAL, terminated the Technical Services Agreement on
July 26, 1999 which also resulted in the termination of the services
The remaining balance of the advance advisory fee, which of the senior technical advisers including those of the Complainants
corresponds to the unserved period of 17 months, or US$4,037,500, it admitted that the termination penalties in the amount of
should be refunded by RSS to PAL. US$3,300,000.00 as provided in the Letter dated January 4, 1999 are
payable to the Senior Technical Advisers by PAL. Xxx. PAL's
Off-setting the amount of US$3,300,000 due from PAL to RSS admission of its liability to pay the termination penalties to the
against the amount of US$4,037,500 due from RSS to PAL, there complainants was made also in its Answer. PAIAs counsel even
remains a net balance of US$737,500 due and payable to PAL. stipulated during the hearing that the airline company admits that it is
Please settle this amount at your early convenience, but not later than liable to pay Complainants the termination penalties.xxx.
August 15, 1999.17ChanRoblesVirtualawlibrary
However, PAL argued that although it is liable to pay termination
penalties the Complainants are not entitled to their respective claims
On June 8, 1999, the petitioners, along with Scantlebury and Wald, because considering that PAL had paid RSS advance "advisory fees
wrote to the respondent, through its President and Chief Operating for two (2) years" in the total amount of US$5,700,000.00 and RSS
Officer, Avelino Zapanta, to seek clarification on the status of the had rendered advisory services for only seven (7) months from
TSA in view of the appointment of Foster, Scantleburry and Nuttall January 4, 1999 to July 31, 1999 that would entitle RSS to an (sic)
as members of the Permanent Rehabilitation Receiver (PRR) for the advisory fees of only US$1,662,500.00 and therefore the unserved
respondent.18 A month later, Regent Star sent to the respondent period of 17 months equivalent to US$4,037,500.00 should be
another letter expressing disappointment over the respondent's refunded. And setting off the termination penalties of
ignoring the previous letter, and denying the respondent's claim for US$3,300,000.00 due RSS from PAL against the amount of
refund and set-off. Regent Star then proposed therein that the issue US$4,037,500.00 still due PAL from RSS there would remain a net
be submitted to arbitration in accordance with Clause 14 19 of the balance of US$737,500.00 still due PAL from RSS and/or the Senior
TSA.20 Technical Advisers which the latter should pay pro-rata as follows:
Peter W. Forster, the sum of US$178,475.00; Richard T. Nuttall, the
Thereafter, the petitioners initiated arbitration proceedings in the sum of US$178,475.00; Michael R. Scantlebury; the sum of
Philippine Dispute Resolution Center, Inc. (PDRCI) pursuant to the US$156,350.00, Andrew D. Fyfe, the sum of US$111,362.50; and
TSA. Richard J. Wald the sum of US$111,362.50. RSS is a special
company which the Senior Technical Advisers had utilized for the
Ruling of the PDRCI specific purpose of providing PAL with technical advisory services
they as a group had contracted under the Agreement. Hence when
After due proceedings, the PDRCI rendered its decision ordering the PAL signed the Agreement with RSS, it was for all intents and
respondent to pay termination penalties,21viz.: purposes an Agreement signed individually with the Senior
Technical Advisers including the Complainants. The RSS and the
On issue No. 1 we rule that the Complainants are entitled to their five (5) Senior Technical Advisers should be treated as one and the
claim for termination penalties.
same, awareness of its consequences. (Opulencia vs. Cowl of Appeals, 293
SCRA 385 (1998)23
The Arbitration Tribunals is not convinced.
Decision of the RTC
x x x x
Dissatisfied with the outcome, the respondent filed its Application to
PAL cannot refuse to pay Complainants their termination penalties Vacate Arbitral Award in the Regional Trial Court, in Makati City
by setting off against the unserved period of seventeen (17) months (RTC), docketed as SP Proc. M-5147 and assigned to Branch
of their advance advisory fees as the Agreement and the Side Letter 57,24 arguing that the arbitration decision should be vacated in view
clearly do not allow refund. This Arbitration Tribunal cannot read of the July 1, 1998 order of the SEC placing the respondent under a
into the contract, which is the law between the parties, what the state of suspension of payment pursuant to Section 6(c) of
contract docs not provide or what the parties did not intend. It is Presidential Decree No. 902-A, as amended by P.D. No.
basic in contract interpretation that contracts that are not ambiguous 1799.25cralawred
are to be interpreted according to their literal meaning and should
not be interpreted beyond their obvious intendment. x x x. The The petitioners countered with their Motion to Dismiss, 26 citing the
penalties work as security for the Complainants against the following grounds, namely: (a) lack of jurisdiction over the persons
uncertainties of their work at PAL whose closure was a stark reality of the petitioners due to the improper service of summons; (b) the
they were facing. (TSN Hearing on April 27, 2000, pp. 48-49) This application did not state a cause of action; and (c) the application
would not result in unjust enrichment for the Complainants because was an improper remedy because the respondent should have filed an
the termination of the services was initiated by PAL itself without appeal in the CA pursuant to Rule 43 of the Rules of
cause. In feet, PAL admitted that at the time their services were Court.27cralawred
terminated the Complainants were performing well in their
respective assigned works,22 x x x. On March 7, 2001, the RTC granted the respondent's Application to
Vacate Arbitral Award,28 disposing:
PAL also presented hypothetical situations and certain computations
that it claims would result to an "injustice" to PAL which would then WHEREFORE, the subject arbitral award dated September 29, 2000
"lose a very substantial amount of money" if the claimed refund is is hereby vacated and set aside, without prejudice to the
not allowed. PAL had chosen to prc-terminate the services of the complainants' filing with the SEC rehabilitation receiver of PAL
complainants and must therefore pay the termination penalties their subject claim for appropriate adjudication. The panel of
provided in the Side Letter. If it finds itself losing "substantial" sums arbitrators composed of lawyers Beda Fajardo, Arturo de Castro and
of money because of its contractual commitments, there is nothing Bienvenido Magnaye is hereby ordered discharged on the ground of
this Arbitration Tribunal can do to remedy the situation. manifest partiality.
Jurisprudence teaches us that neither the law nor the courts will
extricate a party from an unwise or undesirable contract that he or No pronouncement as to cost and attorney's fees.
she entered into with all the required formalities and with full
SO ORDERED.29ChanRoblesVirtualawlibrary
Anent jurisdiction over the persons of the petitioners, the RTC There is no dispute that PAL is under receivership (Exhibits "1" and
opined: "2"). In its Order dated 1 July 1998, the SEC declared that "all claims
for payment against PAL are deemed suspended."' This Order
On the objection that the Court has not acquired jurisdiction over the effectively deprived all other tribunals of jurisdiction to hear and
person of the complainants because summonses were not issued and decide all actions for claims against PAL for the duration of the
served on them, the Court rules that complainants have voluntarily receivership.
submitted themselves to the jurisdiction of the Court by praying the
Court to grant them affirmative relief, i.e., that the Court confirm and x x x x
declare final and executory the subject arbitral award. Moreover,
under Sections 22 and 26 of the Arbitration Law (R.A. 876), an Unless and until the SEC lifts the Order dated 1 July 1998, the Panel
application or petition to vacate arbitral award is deemed a motion of Arbitrators cannot take cognizance of complainant' claims against
and service of such motion on the adverse party or his counsel is PAL without violating the exclusive jurisdiction of the SEC. The law
enough to confer jurisdiction upon the Court over the adverse party. has granted SEC the exclusive jurisdiction to pursue the
rehabilitation of a private corporation through the appointment of a
It is not disputed that complainants were duly served by personal rehabilitation receiver (Sec 6 (d), PD No. 902-A, as amended by PD
delivery with copies of the application to vacate. In feet, they have 1799). "exclusive jurisdiction precludes the idea of co-existence and
appeared through counsel and have filed pleadings. In line with this refers to jurisdiction possessed to the exclusion of others, x x x.
ruling, the objection that the application to vacate does not state a Thus, "(I)nstead of vexing the courts with suits against the distressed
cause of action against complainants must necessarily fall inasmuch firm, they are directed to file their claims with the receiver who is the
as this present case is a special proceeding (Sec. 22, Arbitration duly appointed officer of the SEC.
Law), and Section 3(a), Rule 1 of the 1997 Rules of Civil Procedure
is inapplicable here.30 x x x.31ChanRoblesVirtualawlibrary

On whether or not the application to vacate was an appropriate After their motion for reconsideration 32 was denied,33 the petitioners
remedy under Sections 24 and 26 of the Arbitration Law, and appealed to the CA by notice of appeal.
whether or not the July 1, 1998 order of the SEC deprived the Panel
of Arbitrators of the authority to hear the petitioners' claim, the RTC Resolution of the CA
held:
The respondent moved to dismiss the appeal, 34 arguing against the
The rationale for the suspension is to enable the rehabilitation propriety of the petitioners' remedy, and positing that Section 29 of
receiver to exercise his powers without any judicial or extra-judicial the Arbitration Law limited appeals from an order issued in a
interference that might unduly hinder the rescue of the distressed proceeding under the Arbitration Law to a review on certiorari upon
corporation, x x x. PD No. 902-A does not provide for the duration questions of law.35
of the suspension; therefore, it is deemed to be effective during the
entire period that the corporate debtor is under SEC receivership. On May 30, 2003, the CA promulgated the now assailed resolution
granting the respondent's Motion to Dismiss Appeal. 36 It declared I
that the appropriate remedy against the order of the RTC vacating the
award was a petition for review on certiorari under Rule 45, viz.: SECTION 29 OF THE ARBITRATION LAW, WHICH LIMITS
THE MODE OF APPEAL FROM THE ORDER OF A REGIONAL
The term "certiorari" in the aforequoted provision refers to an TRIAL COURT IN A PROCEEDING MADE UNDER THE
ordinary appeal under Rule 45, not the special action of certiorari ARBITRATION LAW TO A PETITION FOR REVIEW
under Rule 65. As Section 29 proclaims, it is an "appeal." This being ON CERTIORARI UNDER RULE 45 OF THE RULES, IS
the case, the proper forum for this action is, under the old and the UNCONSTITUTIONAL FOR UNDULY EXPANDING THE
new rules of procedure, the Supreme Court. Thus, Section 2(c) of JURISDICTION OF THIS HONORABLE COURT WITHOUT
Rule 41 of the 1997 Rules of Civil Procedure states that, THIS HONORABLE COURT'S CONCURRENCE;
"In all cases where only questions of law are raised or involved, the
appeal shall be to the Supreme Court by petition for review on II
certiorari in accordance with Rule 45. "
Furthermore, Section 29 limits the appeal to "questions of law," THE COURT OF APPEALS HAD JURISDICTION OVER THE
another indication that it is referring to an appeal by certiorari under CA APPEAL BECAUSE:
Rule 45 which, indeed, is the customary manner of reviewing such
A.
issues.
THIS HONORABLE COURT HAS PREVIOUSLY UPHELD THE
Based on the foregoing, it is clear that complainants-in-
EXERCISE BY THE COURT OF APPEALS OF JURISDICTION
arbitration/appellants filed the wrong action with the wrong forum.
OVER AN APPEAL INVOLVING QUESTIONS OF FACT OR OF
MIXED QUESTIONS OF FACT AND LAW FROM A REGIONAL
WHEREFORE, premises considered, the Motion to Dismiss Appeal
TRIAL COURT'S ORDER VACATING AN ARBITRAL AWARD
(Without Prejudice to the Filing of Appellee's Brief)
is GRANTED and the instant appeal is hereby
B.
ordered DISMISSED.
WHERE, AS IN THIS CASE, TFIE ISSUES ON APPEAL
SO ORDERED.37ChanRoblesVirtualawlibrary
CONCERNED THE ABSENCE OF EVIDENCE AND LACK OF
LEGAL BASIS TO SUPPORT THE REGIONAL TRIAL COURT'S
The petitioners moved for reconsideration, 38 but the CA denied their ORDER VACATING THE ARBITRAL AWARD, GRAVE
motion.39 MISCHIEF WOULD RESULT IF THE REGIONAL TRIAL
COURT'S BASELESS FINDINGS OF FACT OR MIXED
Hence, this appeal by the petitioners. FINDINGS OF FACT ARE PLACED BEYOND APPELLATE
REVIEW; AND
Issues
C.
The petitioners anchor this appeal on the following grounds, namely:
arbitration proceedings cannot be by petition for review
THE COURT OF APPEALS' DISMISSAL OF THE CA APPEAL on certiorari under Rule 45 of the Rules of Court because the appeal
V/OULD IN EFFECT RESULT IN THE AFFIRMATION OF THE inevitably involves mixed questions of law and fact; that their appeal
REGIONAL TRIAL COURT'S EXERCISE OF JURISDICTION, in the CA involved factual issues in view of the RTC's finding that
OVER PERSONS UPON WHOM IT FAILED TO VALIDLY the panel of arbitrators had been guilty of evident partiality even
ACQUIRE SUCH JURISDICTION AND OF APPELLATE without having required the respondent to submit independent proof
JURISDICTION OVER THE PDRCI ARBITRAL AWARD EVEN thereon; that the appropriate remedy was either a petition
IF SUCH APPELLATE POWER IS EXCLUSIVELY LODGED for certiorari under Rule 65 of the Rules of Court, or an ordinary
WITH THE COURT OF APPEALS UNDER RULE 43 OF THE appeal under Rule 41 of the Rules of Court, conformably with the
RULES rulings in Asset Privatization Trust v. Court of
Appeals41 and Adamson v. Court of Appeals,42 respectively; and that
III the CA erroneously upheld the RTC's denial of their Motion To
Dismiss Appeal on the basis of their counsel's voluntary appearance
INSTEAD OF DISMISSING THE CA APPEAL OUTRIGHT, THE to seek affirmative relief because under Section 20, Rule 14 of
COURT OF APPEALS SHOULD HAVE SHORTENED THE the Rules of Court their objection to the personal jurisdiction of the
PROCEEDINGS AND EXPEDITED JUSTICE BY EXERCISING court was not a voluntary appearance even if coupled with other
ORIGINAL JURISDICTION OVER THE APPLICATION TO grounds for a motion to dismiss.
VACATE PURSUANT TO RULE 43 OF THE RULES,
ESPECIALLY CONSIDERING THAT THE PARTIES HAD IN In riposte, the respondent avers that the petition for review
FACT ALREADY FILED THEIR RESPECTIVE BRIEFS AND on certiorari should be denied due course because of the defective
THE COMPLETE RECORDS OF BOTH THE RTC verification/certification signed by the petitioners' counsel; and that
APPLICATION TO VACATE AND THE PDRCI ARBITRATION the special powers of attorney (SPAs) executed by the petitioners in
WERE ALREADY IN ITS POSSESSION; AND favor of their counsel did not sufficiently vest the latter with the
authority to execute the verification/certification in their behalf.
IV
On the merits, the respondent maintains that: (a) the
IN THE EVENT THAT AN APPEAL FROM AN ORDER term certiorari used in Section 29 of the Arbitration Law refers to a
VACATING AN ARBITRAL AWARD MAY BE MADE ONLY petition for review under Rule 45 of the Rules of Court; (b) the
IN CERTIORARI PROCEEDINGS AND ONLY TO THE constitutional challenge against Section 29 of the Arbitration Law
SUPREME COURT, THE COURT OF APPEALS SHOULD NOT was belatedly made; (c) the petitioners' claim of lack of jurisdiction
HAVE DISMISSED THE CA APPEAL, BUT IN THE HIGHER on the part of the RTC should fail because an application to vacate
INTEREST OF JUSTICE, SHOULD HAVE INSTEAD an arbitral award under Sections 22 and 26 of the Arbitration Law is
ENDORSED THE SAME TO THIS HONORABLE COURT, AS only required to be in the form of a motion; and (d) the complete
WAS DONE IN SANTIAGO V. GONZALES.40 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.
The petitioners contend that an appeal from the order arising from
2. Petitioners caused the preparation of the foregoing Petition for
To be resolved are: (a) whether or not the petition for review should Review on Certiorari, and have read and understood all the
be dismissed for containing a defective verification/certification; and allegations contained therein. Further, said allegations are true and
(b) whether or not the CA erred in dismissing the appeal of the correct based on their own knowledge and authentic records in their
petitioners for being an inappropriate remedy. and the Finn's possession.44

Ruling of the Court


The tenor of the verification/certification indicated that the
petitioners, not Atty. Chao-Kho, were certifying that the allegations
We deny the petition for review on certiorari.
were true and correct based on their knowledge and authentic
records. At any rate, a finding that the verification was defective
I
would not render the petition for review invalid. It is settled that the
There was sufficient compliance with the rule on
verification was merely a formal requirement whose defect did not
verification and certification against forum shopping
ne gate the validity or efficacy of the verified pleading, or affect the
jurisdiction of the court.45
The respondent insists that the verification/certification attached to
the petition was defective because it was executed by the petitioners'
We also uphold the efficacy of the certification on non-forum
counsel whose authority under the SPAs was only to execute the
shopping executed by Atty. Chao-Kho on the basis of the
certification of non-forum shopping; and that the signing by the
authorization bestowed under the SPAs by the petitioners. The
counsel of the certification could not also be allowed because
lawyer of the party, in order to validly execute the certification, must
the Rules of Court and the pertinent circulars and rulings of the Court
be "specifically authorized" by the client for that purpose. 46 With the
require that the petitioners must themselves execute the same.
petitioners being non-residents of the Philippines, the sworn
certification on non-forum shopping by Atty. Chao-Kho sufficiently
The insistence of the respondent is unwarranted. The SPAs
complied with the objective of ensuring that no similar action had
individually signed by the petitioners vested in their counsel the
been brought by them or the respondent against each other, to wit:
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,
5. Significantly, Petitioners are foreign residents who reside and are
including any appeals or further legal proceedings." The authority
presently abroad. Further, the Firm is Petitioners' sole legal counsel
was sufficiently broad to expressly and specially authorize their
in the Philippines, and hence, is in a position to know that Petitioners
counsel, Atty. Ida Maureen V. Chao-Kho, to sign the
have no other cases before any court o[r] tribunal in the
verification/certification on their behalf.
Philippines;47
The purpose of the verification is to ensure that the allegations
contained in the verified pleading are true and correct, an d are not In this regard, we ought not to exact a literal compliance with
the product of the imagination or a matter of speculation; and that the Section 4, Rule 45, in relation to Section 2, Rule 42 of the Rules of
pleading is filed in good faith. 43 This purpose was met by the Court, that only the party himself should execute the certification.
verification/certification made by Atty. Chao-Kho in behalf of the After all, we have not been shown by the respondent any intention on
petitioners, which pertinently stated that: the part of the petitioners and their counsel to circumvent the
requirement for the verification and certification on non-forum rules of procedure governing arbitration. Among others, the Special
shopping.48 Rules of Court on Alternative Dispute Resolution requires an appeal
by petition for review to the CA of the final order of the
II RTC confirming, vacating, correcting or modifying a domestic
Appealing the RTC order arbitral award, to wit:
vacating an arbitral award
Rule 19.12 Appeal to the Court of Appeals. - An appeal to the Court
The petitioners contend that the CA gravely erred in dismissing their of Appeals through a petition for review under this Special Rule shall
appeal for being an inappropriate remedy, and in holding that a only be allowed from the following orders of the Regional Trial
petition for review on certiorari under Rule 45 was the sole remedy Court:
under Section 29 of the Arbitration Law. They argue that the
decision of the RTC involving arbitration could be assailed either by a. Granting or denying an interim measure of
petition for certiorari under Rule 65, as held in Asset Privatization protection;
Trust, or by an ordinary appeal under Rule 41, as opined
in Adamson. b. Denying a petition for appointment of an arbitrator;

The petitioners are mistaken. c. Denying a petition for assistance in taking evidence;

Firstly, the assailed resolution of the CA did not expressly declare d. Enjoining or refusing to enjoin a person from
that the petition for review on certiorari under Rule 45 was the sole divulging confidential information;
remedy from the RTC's order vacating the arbitral award. The CA
rather emphasized that the petitioners should have filed the petition e. Confirming, vacating or correcting/modifying a
for review on certiorari under Rule 45 considering that Section 29 of domestic arbitral award;
the Arbitration Law has limited the ground of review to "questions of
law." Accordingly, the CA correctly dismissed the appeal of the f. Setting aside an international commercial arbitration
petitioners because pursuant to Section 2, 49 Rule 41 of the Rules of award;
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. g. Dismissing the petition to set aside an international
commercial arbitration award even if the court does
It is noted, however, that since the promulgation of the assailed not decide to recognize or enforce such award;
decision by the CA on May 30, 2003, the law on the matter
underwent changes. On February 4, 2004. Republic Act No. 9285 h. Recognizing and/or enforcing an international
(Alternative Dispute Resolution Act of 2004) was passed by commercial arbitration award;
Congress, and was approved by the President on April 2, 2004.
Pursuant to Republic Act No. 9285, the Court promulgated on i. Dismissing a petition to enforce an international
September 1, 2009 in A.M. No. 07-11-08-SC the Special Rules of commercial arbitration award;
Court on Alternative Dispute Resolution, which are now the present
j. Recognizing and/or enforcing a foreign arbitral erroneous remedy was misplaced.
award;
We remind that the petitioners cannot insist on their chosen remedy
k. Refusing recognition and/or enforcement of a despite its not being sanctioned by the Arbitration Law. Appeal as a
foreign arbitral award; 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
l. Granting or dismissing a petition to enforce a provisions of the law.53
deposited mediated settlement agreement; and
III
m. Reversing the ruling of the arbitral tribunal Panel of Arbitrators had no jurisdiction
upholding its jurisdiction. to hear and decide the petitioners' claim

Although the Special Rules of Court on Alternative Dispute The petitioners' appeal is dismissible also because the arbitration
Resolution provides that the appropriate remedy from an order of the panel had no jurisdiction to hear their claim. The RTC correctly
RTC vacating a domestic arbitral award is an appeal by petition for opined that the SEC's suspension order effective July 1, 1998
review in the CA, not an ordinary appeal under Rule 41 of the Rules deprived the arbitration panel of the jurisdiction to hear any claims
of Court, the Court cannot set aside and reverse the assailed decision against the respondent. The Court has clarified in Castillo v.
on that basis because the decision was in full accord with the law or Uniwide Warehouse Club, Inc.54 why the claim for payment brought
rule in force at the time of its promulgation. against a distressed corporation like the respondent should not
prosper following the issuance of the suspension order by the SEC,
The ruling in Asset Privatization Trust v. Court of Appeals50 cannot regardless of when the action was filed, to wit:
be the governing rule with respect to the order of the RTC vacating
an arbitral award. Asset Privatization Trust justified the resort to the Jurisprudence is settled that the suspension of proceedings referred to
petition for certiorari under Rule 65 only upon finding that the RTC in the law uniformly applies to all actions for claims filed against a
had acted without jurisdiction or with grave abuse of discretion in corporation, partnership or association under management or
confirming the arbitral award. Nonetheless, it is worth reminding that receivership, without distinction, except only those expenses
the petition for certiorari cannot be a substitute for a lost appeal. 51 incurred in the ordinary course of business. In the oft-cited case
of Rubberworld (Phils.) Inc. v. NLRC, the Court noted that aside
Also, the petitioners have erroneously assumed that the appeal filed from the given exception, the law is clear and makes no distinction
by the aggrieved party in Adamson v. Court of Appeals52 was an as to the claims that are suspended once a management committee is
ordinary one. Adamson concerned the correctness of the ruling of the created or a rehabilitation receiver is appointed. Since the law makes
CA in reversing the decision of the trial court, not the propriety of no distinction or exemptions, neither should this Court. Ubi lex non
the remedy availed of by the aggrieved party. Nor dislinguit nee nos distinguere debemos. Philippine Airlines, Inc. v.
did Adamson expressly declare that an ordinary appeal could be Zamora declares that the automatic suspension of an action for
availed of to assail the RTC's ruling involving arbitration. As such, claims against a corporation under a rehabilitation receiver or
the petitioners' reliance on Adamson to buttress their resort to the management committee embraces all phases of the suit, that is, the
entire proceedings of an action or suit and not just the payment of special proceeding, by virtue of which any application should be
claims. made in the manner provided for the making and hearing of motions,
except as otherwise expressly provided in the Arbitration Law.
The reason behind the imperative nature of a suspension or stay
order in relation to the creditors claims cannot be downplayed, The RTC observed that the respondent's Application to Vacate
for indeed the indiscriminate suspension of actions for claims Arbitral Award was duly served personally on the petitioners, who
intends to expedite the rehabilitation of the distressed then appeared by counsel and filed pleadings. The petitioners
corporation by enabling the management committee or the countered with their Motion to Dismiss vis-a-vis the respondent's
rehabilitation receiver to effectively exercise its/his powers free application, specifying therein the various grounds earlier mentioned,
from any judicial or extrajudicial interference that might unduly including the lack of jurisdiction over their persons due to the
hinder or prevent the rescue of the debtor company. To allow improper service of summons. Under the circumstances, the
such other actions to continue would only add to the burden of requirement of notice was fully complied with, for Section 26 57 of
the management committee or rehabilitation receiver, whose the Arbitration Law required the application to be served upon the
time, effort and resources would be wasted in defending claims adverse party or his counsel within 30 days after the award was filed
against the corporation, instead of being directed toward its or delivered "as prescribed by law for the service upon an attorney in
restructuring and rehabilitation. an action."

At this juncture, it must be conceded that the date when the claim V
arose, or when the action was filed, has no bearing at all in Issue of the constitutionality of the
deciding whether the given action or claim is covered by the stay Arbitration Law is devoid of merit
or suspension order. What matters is that as long as the
corporation is under a management committee or a
rehabilitation receiver, all actions for claims against it, whether The constitutionality of Section 29 of the Arbitration Law is being
for money or otherwise, must yield to the greater imperative of challenged on the basis that Congress has thereby increased the
corporate revival, excepting only, as already mentioned, claims appellate jurisdiction of the Supreme Court without its advice and
for payment of obligations incurred by the corporation in the concurrence, as required by Section 30, Article VI of the 1987
ordinary course of business.55 (Bold emphasis supplied) Constitution, to wit:

Section 30. No law shall be passed increasing the appellate


IV
jurisdiction of the Supreme Court as provided in this Constitution
The requirement of due process was observed
without its advice and concurrence.
The petitioners' challenge against the jurisdiction of the RTC on the
ground of the absence of the service of the summons on them also
fails. The challenge is unworthy of consideration. Based on the tenor and
text of Section 30, Article VI of the 1987 Constitution, the
Under Section 2256 of the Arbitration Law, arbitration is deemed a prohibition against increasing the appellate jurisdiction of the
Supreme Court without its advice and concurrence applies between BF Corporation and Shangri-La Properties, Inc. (Shangri-
prospectively, not retrospectively. Considering that the Arbitration La).
Law had been approved on June 19, 1953, and took effect under its
terms on December 19, 1953, while the Constitution was ratified In 1993, BF Corporation filed a collection complaint with the
only on February 2, 1987, Section 29 of the Arbitration Law could Regional Trial Court against Shangri-Laand the members of its board
not be declared unconstitutional. of directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes,
Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C.
WHEREFORE, the Court DENIES the petition for review on Ramos.1
certiorari for lack of merit; AFFIRMS the resolution promulgated on
May 30, 2003 by the Court of Appeals in CA-G.R. CV No. 71224; BF Corporation alleged in its complaint that on December 11, 1989
and ORDERS the petitioners to pay the costs of suit. and May 30, 1991, it entered into agreements with Shangri-La
wherein it undertook to construct for Shangri-La a mall and a
SO ORDERED. multilevel parking structure along EDSA. 2

G.R. No. 174938               October 1, 2014 Shangri-La had been consistent in paying BF Corporation in
accordance with its progress billing statements. 3 However, by
GERARDO LANUZA, JR. AND ANTONIO O. October 1991, Shangri-La started defaulting in payment. 4
OLBES, Petitioners,
vs. BF Corporation alleged that Shangri-La induced BF Corporation to
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., continue with the construction of the buildings using its own funds
ALFREDO C. RAMOS, RUFO B. COLAYCO, MAXIMO G. and credit despite Shangri-La’s default. 5 According to BF
LICAUCO III, AND BENJAMIN C. RAMOS, Respondents. Corporation, ShangriLa misrepresented that it had funds to pay for
its obligations with BF Corporation, and the delay in payment was
DECISION simply a matter of delayed processing of BF Corporation’s progress
billing statements.6
LEONEN, J.:
BF Corporation eventually completed the construction of the
Corporate representatives may be compelled to submit to arbitration buildings.7 Shangri-La allegedly took possession of the buildings
proceedings pursuant to a contract entered into by the corporation while still owing BF Corporation an outstanding balance.8
they represent if there are allegations of bad faith or malice in their
acts representing the corporation. BF Corporation alleged that despite repeated demands, Shangri-La
refused to pay the balance owed to it. 9 It also alleged that the
This is a Rule 45 petition, assailing the Court of Appeals' May 11, Shangri-La’s directors were in bad faith in directing Shangri-La’s
2006 decision and October 5, 2006 resolution. The Court of Appeals affairs. Therefore, they should be held jointly and severally liable
affirmed the trial court's decision holding that petitioners, as director, with Shangri-La for its obligations as well as for the damages that
should submit themselves as parties tothe arbitration proceedings BF Corporation incurred as a result of Shangri-La’s default. 10
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. In the November 18, 1993 order, the Regional Trial Court denied the
Colayco, Maximo G. Licauco III, and Benjamin C. Ramos filed a motion to suspend proceedings.14
motion to suspend the proceedings in view of BF Corporation’s
failure to submit its dispute to arbitration, in accordance with the On December 8, 1993, petitioners filed an answer to BF
arbitration clauseprovided in its contract, quoted in the motion as Corporation’s complaint, with compulsory counter claim against BF
follows:11 Corporation and crossclaim against Shangri-La. 15 They alleged that
they had resigned as members of Shangri-La’s board of directors as
35. Arbitration of July 15, 1991.16

(1) Provided always that in case any dispute or difference shall arise After the Regional Trial Court denied on February 11, 1994 the
between the Owner or the Project Manager on his behalf and the motion for reconsideration of its November 18, 1993 order, Shangri-
Contractor, either during the progress or after the completion or La, Alfredo C. Ramos, Rufo B. Colayco,Maximo G. Licauco III, and
abandonment of the Works as to the construction of this Contract or Benjamin Ramos filed a petition for certiorari with the Court of
as to any matter or thing of whatsoever nature arising there under or Appeals.17
inconnection therewith (including any matter or thing left by this
Contract to the discretion of the Project Manager or the withholding On April 28, 1995, the Court of Appeals granted the petition for
by the Project Manager of any certificate to which the Contractor certiorari and ordered the submission of the dispute to arbitration. 18
may claim to be entitled or the measurement and valuation
mentioned in clause 30(5)(a) of these Conditions or the rights and Aggrieved by the Court of Appeals’ decision, BF Corporation filed a
liabilities of the parties under clauses 25, 26, 32 or 33 of these petition for review on certiorari with this court. 19 On March 27, 1998,
Conditions), the owner and the Contractor hereby agree to exert all this court affirmed the Court of Appeals’ decision, directing that the
efforts to settle their differences or dispute amicably. Failing these dispute be submitted for arbitration.20
efforts then such dispute or difference shall be referred to arbitration
in accordance with the rules and procedures of the Philippine Another issue arose after BF Corporation had initiated arbitration
Arbitration Law. proceedings. BF Corporation and Shangri-La failed to agree as to the
law that should govern the arbitration proceedings. 21 On October 27,
x x x           x x x          x x x 1998, the trial court issued the order directing the parties to conduct
the proceedings in accordance with Republic Act No. 876. 22
(6) The award of such Arbitrators shall be final and binding on the
parties. The decision of the Arbitrators shall be a condition precedent Shangri-La filed an omnibus motion and BF Corporation an urgent
to any right of legal action that either party may have against the motion for clarification, both seeking to clarify the term, "parties,"
other. . . .12 (Underscoring in the original) and whether Shangri-La’s directors should be included in the
arbitration proceedings and served with separate demands for
On August 19, 1993, BF Corporation opposed the motion to suspend arbitration.23
proceedings.13
Petitioners filed their comment on Shangri-La’s and BF petitioners will be bound bysuch arbitral award, and this will prevent
Corporation’s motions, praying that they be excluded from the complete determination of the issues and resolution of the
arbitration proceedings for being non-parties to Shangri-La’s and BF controversy.31
Corporation’s agreement.24
The Court of Appeals further ruled that "excluding petitioners in the
On July 28, 2003, the trial court issued the order directing service of arbitration proceedings . . . would be contrary to the policy against
demands for arbitration upon all defendants in BF Corporation’s multiplicity of suits."32
complaint.25 According to the trial court, Shangri-La’s directors were
interested parties who "must also be served with a demand for The dispositive portion of the Court of Appeals’ decision reads:
arbitration to give them the opportunity to ventilate their side of the
controversy, safeguard their interest and fend off their respective WHEREFORE, the petition is DISMISSED. The assailed orders
positions."26 Petitioners’ motion for reconsideration ofthis order was dated July 28, 2003 and January 19, 2005 of public respondent RTC,
denied by the trial court on January 19, 2005.27 Branch 157, Pasig City, in Civil Case No. 63400, are AFFIRMED. 33

Petitioners filed a petition for certiorari with the Court of Appeals, The Court of Appeals denied petitioners’ motion for reconsideration
alleging grave abuse of discretion in the issuance of orders in the October 5, 2006 resolution.34
compelling them to submit to arbitration proceedings despite being
third parties to the contract between Shangri-La and BF On November 24, 2006, petitioners filed a petition for review of the
Corporation.28 May 11, 2006 Court of Appeals decision and the October 5, 2006
Court of Appeals resolution.35
In its May 11, 2006 decision,29 the Court of Appeals dismissed
petitioners’ petition for certiorari. The Court of Appeals ruled that The issue in this case is whether petitioners should be made parties
ShangriLa’s directors were necessary parties in the arbitration to the arbitration proceedings, pursuant to the arbitration clause
proceedings.30 According to the Court of Appeals: provided in the contract between BF Corporation and Shangri-La.

[They were] deemed not third-parties tothe contract as they [were] Petitioners argue that they cannot be held personally liable for
sued for their acts in representation of the party to the contract corporate acts or obligations. 36 The corporation is a separate being,
pursuant to Art. 31 of the Corporation Code, and that as directors of and nothing justifies BF Corporation’s allegation that they are
the defendant corporation, [they], in accordance with Art. 1217 of solidarily liable with Shangri-La. 37 Neither did they bind themselves
the Civil Code, stand to be benefited or injured by the result of the personally nor did they undertake to shoulder Shangri-La’s
arbitration proceedings, hence, being necessary parties, they must be obligations should it fail in its obligations. 38 BF Corporation also
joined in order to have complete adjudication of the controversy. failed to establish fraud or bad faith on their part. 39
Consequently, if [they were] excluded as parties in the arbitration
proceedings and an arbitral award is rendered, holding [Shangri-La] Petitioners also argue that they are third parties to the contract
and its board of directors jointly and solidarily liable to private between BF Corporation and Shangri-La.40 Provisions including
respondent BF Corporation, a problem will arise, i.e., whether arbitration stipulations should bind only the parties. 41 Based on our
arbitration laws, parties who are strangers to an agreement cannot be In the manifestation dated September 6, 2007, petitioners informed
compelled to arbitrate.42 the court that the Arbitral Tribunal had already promulgated its
decision on July 31, 2007.55 The Arbitral Tribunal denied BF
Petitioners point out thatour arbitration laws were enacted to promote Corporation’s claims against them.56 Petitioners stated that "[they]
the autonomy of parties in resolving their disputes. 43 Compelling were included by the Arbitral Tribunal in the proceedings
them to submit to arbitration is against this purpose and may be conducted . . . notwithstanding [their] continuing objection
tantamount to stipulating for the parties.44 thereto. . . ."57 They also stated that "[their] unwilling participation in
the arbitration case was done ex abundante ad cautela, as manifested
Separate comments on the petition werefiled by BF Corporation, and therein on several occasions." 58 Petitioners informed the court that
Maximo G. Licauco III, Alfredo C.Ramos and Benjamin C. Ramos. 45 they already manifested with the trial court that "any action taken on
[the Arbitral Tribunal’s decision] should be without prejudice to the
Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos resolution of [this] case."59
agreed with petitioners that Shangri-La’sdirectors, being non-parties
to the contract, should not be made personally liable for Shangri-La’s Upon the court’s order, petitioners and Shangri-La filed their
acts.46 Since the contract was executed only by BF Corporation and respective memoranda. Petitioners and Maximo G. Licauco III,
Shangri-La, only they should be affected by the contract’s Alfredo C. Ramos, and Benjamin C. Ramos reiterated their
stipulation.47 BF Corporation also failed to specifically allege the arguments that they should not be held liable for Shangri-La’s
unlawful acts of the directors that should make them solidarily liable default and made parties to the arbitration proceedings because only
with Shangri-La for its obligations.48 BF Corporation and Shangri-La were parties to the contract.

Meanwhile, in its comment, BF Corporation argued that the courts’ In its memorandum, Shangri-La argued that petitioners were
ruling that the parties should undergo arbitration "clearly impleaded for their solidary liability under Section 31 of the
contemplated the inclusion of the directors of the Corporation Code. Shangri-La added that their exclusion from the
corporation[.]"49 BF Corporation also argued that while petitioners arbitration proceedings will result in multiplicity of suits, which "is
were not parties to the agreement, they were still impleaded under not favored in this jurisdiction." 60 It pointed out that the case had
Section 31 of the Corporation Code. 50 Section 31 makes directors already been mooted by the termination of the arbitration
solidarily liable for fraud, gross negligence, and bad proceedings, which petitioners actively participated in. 61 Moreover,
faith.51 Petitioners are not really third parties to the agreement BF Corporation assailed only the correctness of the Arbitral
because they are being sued as Shangri-La’s representatives, under Tribunal’s award and not the part absolving Shangri-La’s directors
Section 31 of the Corporation Code.52 from liability.62

BF Corporation further argued that because petitioners were BF Corporation filed a counter-manifestation with motion to
impleaded for their solidary liability, they are necessary parties to the dismiss63 in lieu of the required memorandum.
arbitration proceedings.53 The full resolution of all disputes in the
arbitration proceedings should also be done in the interest of In its counter-manifestation, BF Corporation pointed out that since
justice.54 "petitioners’ counterclaims were already dismissed with finality, and
the claims against them were likewise dismissed with finality, they between Shangri-La’s personality and their personalities should be
no longer have any interest orpersonality in the arbitration case. disregarded.
Thus, there is no longer any need to resolve the present Petition,
which mainly questions the inclusion of petitioners in the arbitration This jurisdiction adopts a policy in favor of arbitration. Arbitration
proceedings."64 The court’s decision in this case will no longer have allows the parties to avoid litigation and settle disputes amicably and
any effect on the issue of petitioners’ inclusion in the arbitration more expeditiously by themselves and through their choice of
proceedings.65 arbitrators.

The petition must fail. The policy in favor of arbitration has been affirmed in our Civil
Code,69 which was approved as early as 1949. It was later
The Arbitral Tribunal’s decision, absolving petitioners from liability, institutionalized by the approval of Republic Act No. 876, 70 which
and its binding effect on BF Corporation, have rendered this case expressly authorized, made valid, enforceable, and irrevocable
moot and academic. parties’ decision to submit their controversies, including incidental
issues, to arbitration. This court recognized this policy in Eastboard
The mootness of the case, however, had not precluded us from Navigation, Ltd. v. Ysmael and Company, Inc.:71
resolving issues so that principles may be established for the
guidance of the bench, bar, and the public. In De la Camara v. Hon. As a corollary to the question regarding the existence of an
Enage,66 this court disregarded the fact that petitioner in that case arbitration agreement, defendant raises the issue that, even if it be
already escaped from prison and ruled on the issue of excessive granted that it agreed to submit its dispute with plaintiff to
bails: arbitration, said agreement is void and without effect for it amounts
to removing said dispute from the jurisdiction of the courts in which
While under the circumstances a ruling on the merits of the petition the parties are domiciled or where the dispute occurred. It is true that
for certiorari is notwarranted, still, as set forth at the opening of this there are authorities which hold that "a clause in a contract providing
opinion, the fact that this case is moot and academic should not that all matters in dispute between the parties shall be referred to
preclude this Tribunal from setting forth in language clear and arbitrators and to them alone, is contrary to public policy and cannot
unmistakable, the obligation of fidelity on the part of lower court oust the courts of jurisdiction" (Manila Electric Co. vs. Pasay
judges to the unequivocal command of the Constitution that Transportation Co., 57 Phil., 600, 603), however, there are
excessive bail shall not be required.67 authorities which favor "the more intelligent view that arbitration, as
an inexpensive, speedy and amicable method of settling disputes, and
This principle was repeated in subsequent cases when this court as a means of avoiding litigation, should receive every
deemed it proper to clarify important matters for guidance. 68 encouragement from the courts which may be extended without
contravening sound public policy or settled law" (3 Am. Jur., p. 835).
Thus, we rule that petitioners may be compelled to submit to the Congress has officially adopted the modern view when it reproduced
arbitration proceedings in accordance with Shangri-Laand BF in the new Civil Code the provisions of the old Code on Arbitration.
Corporation’s agreement, in order to determine if the distinction 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 the Supreme Court of any ADR system, such as mediation,
disputes, arbitration clauses are liberally construed to favor conciliation, arbitration, or any combination thereof as a means of
arbitration. Thus, in LM Power Engineering Corporation v. Capitol achieving speedy and efficient means of resolving cases pending
Industrial Construction Groups, Inc.,73 this court said: before all courts in the Philippines which shall be governed by such
rules as the Supreme Court may approve from time to time.
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 SEC. 25. Interpretation of the Act.- In interpreting the Act, the court
disputes, especially of the commercial kind. It is thus regarded as the shall have due regard to the policy of the law in favor of
"wave of the future" in international civil and commercial disputes. arbitration.Where action is commenced by or against multiple
Brushing aside a contractual agreement calling for arbitration parties, one or more of whomare parties who are bound by the
between the parties would be a step backward. arbitration agreement although the civil action may continue as to
those who are not bound by such arbitration agreement. (Emphasis
Consistent with the above-mentioned policy of encouraging supplied)
alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is susceptible of an Thus, if there is an interpretation that would render effective an
interpretation that covers the asserted dispute, an order to arbitrate arbitration clause for purposes ofavoiding litigation and expediting
should be granted. Any doubt should be resolved in favor of resolution of the dispute, that interpretation shall be adopted.
arbitration.74 (Emphasis supplied) Petitioners’ main argument arises from the separate personality given
to juridical persons vis-à-vis their directors, officers, stockholders,
A more clear-cut statement of the state policy to encourage and agents. Since they did not sign the arbitration agreement in any
arbitration and to favor interpretations that would render effective an capacity, they cannot be forced to submit to the jurisdiction of the
arbitration clause was later expressed in Republic Act No. 9285: 75 Arbitration Tribunal in accordance with the arbitration agreement.
Moreover, they had already resigned as directors of Shangri-Laat the
SEC. 2. Declaration of Policy.- It is hereby declared the policy of the time of the alleged default.
State to actively promote party autonomy in the resolution of
disputes or the freedom of the party to make their own arrangements Indeed, as petitioners point out, their personalities as directors of
to resolve their disputes. Towards this end, the State shall encourage Shangri-La are separate and distinct from Shangri-La.
and actively promote the use of Alternative Dispute Resolution
(ADR) as an important means to achieve speedy and impartial justice A corporation is an artificial entity created by fiction of law. 76 This
and declog court dockets. As such, the State shall provide means for means that while it is not a person, naturally, the law gives it a
the use of ADR as an efficient tool and an alternative procedure for distinct personality and treats it as such. A corporation, in the legal
the resolution of appropriate cases. Likewise, the State shall enlist sense, is an individual with a personality that is distinct and separate
active private sector participation in the settlement of disputes from other persons including its stockholders, officers, directors,
through ADR. This Act shall be without prejudice to the adoption by representatives,77 and other juridical entities. The law vests in
corporations rights,powers, and attributes as if they were natural 8. To enter into merger or consolidation with other
persons with physical existence and capabilities to act on their corporations as provided in this Code;
own.78 For instance, they have the power to sue and enter into
transactions or contracts. Section 36 of the Corporation Code 9. To make reasonable donations, including those for the
enumerates some of a corporation’s powers, thus: public welfare or for hospital, charitable, cultural, scientific,
civic, or similar purposes: Provided, That no corporation,
Section 36. Corporate powers and capacity.– Every corporation domestic or foreign, shall give donations in aid of any
incorporated under this Code has the power and capacity: political party or candidate or for purposes of partisan
political activity;
1. To sue and be sued in its corporate name;
10. To establish pension, retirement, and other plans for the
2. Of succession by its corporate name for the period of time benefit of its directors, trustees, officers and employees; and
stated in the articles of incorporation and the certificate
ofincorporation; 11. To exercise such other powers asmay be essential or
necessary to carry out its purpose or purposes as stated in its
3. To adopt and use a corporate seal; articles of incorporation. (13a)

4. To amend its articles of incorporation in accordance with Because a corporation’s existence is only by fiction of law, it can
the provisions of this Code; only exercise its rights and powers through itsdirectors, officers, or
agents, who are all natural persons. A corporation cannot sue or enter
5. To adopt by-laws, not contrary to law, morals, or public into contracts without them.
policy, and to amend or repeal the same in accordance with
this Code; A consequence of a corporation’s separate personality is that consent
by a corporation through its representatives is not consent of the
6. In case of stock corporations, to issue or sell stocks to representative, personally. Its obligations, incurred through official
subscribers and to sell treasury stocks in accordance with the acts of its representatives, are its own. A stockholder, director, or
provisions of this Code; and to admit members to the representative does not become a party to a contract just because a
corporation if it be a non-stock corporation; corporation executed a contract through that stockholder, director or
representative.
7. To purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and otherwise deal with such real Hence, a corporation’s representatives are generally not bound by the
and personal property, including securities and bonds of terms of the contract executed by the corporation. They are not
other corporations, as the transaction of the lawful business personally liable for obligations and liabilities incurred on or in
of the corporation may reasonably and necessarily require, behalf of the corporation.
subject to the limitations prescribed by law and the
Constitution;
Petitioners are also correct that arbitration promotes the parties’ Piercing the corporate veil is warranted when "[the separate
autonomy in resolving their disputes. This court recognized in Heirs personality of a corporation] is used as a means to perpetrate fraud or
of Augusto Salas, Jr. v. Laperal Realty Corporation 79 that an an illegal act, or as a vehicle for the evasion of an existing obligation,
arbitration clause shall not apply to persons who were neither parties the circumvention of statutes, or to confuse legitimate issues." 85 It is
to the contract nor assignees of previous parties, thus: 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
A submission to arbitration is a contract. As such, the Agreement, where the corporation is so organized and controlled and its affairs
containing the stipulation on arbitration, binds the parties thereto, as are so conducted as to make it merely an instrumentality, agency,
well as their assigns and heirs. But only they.80 (Citations omitted) conduit or adjunct of another corporation."86

Similarly, in Del Monte Corporation-USA v. Court of Appeals, 81 this When corporate veil is pierced, the corporation and persons who are
court ruled: normally treated as distinct from the corporation are treated as one
person, such that when the corporation is adjudged liable, these
The provision to submit to arbitration any dispute arising therefrom persons, too, become liable as if they were the corporation.
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 Among the persons who may be treatedas the corporation itself
contracting parties and produce effect as between them, their assigns under certain circumstances are its directors and officers. Section 31
and heirs. Clearly, only parties to the Agreement . . . are bound by of the Corporation Code provides the instances when directors,
the Agreement and its arbitration clause as they are the only trustees, or officers may become liable for corporate acts:
signatories thereto.82 (Citation omitted)
Sec. 31. Liability of directors, trustees or officers. - Directors or
This court incorporated these rulings in Agan, Jr. v. Philippine trustees who willfully and knowingly vote for or assent to patently
International Air Terminals Co., Inc. 83 and Stanfilco Employees v. unlawful acts of the corporation or who are guilty of gross
DOLE Philippines, Inc., et al.84 negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty
As a general rule, therefore, a corporation’s representative who did as such directors or trustees shall be liable jointly and severally for
not personally bind himself or herself to an arbitration agreement all damages resulting therefrom suffered by the corporation, its
cannot be forced to participate in arbitration proceedings made stockholders or members and other persons.
pursuant to an agreement entered into by the corporation. He or she
is generally not considered a party to that agreement. When a director, trustee or officer attempts to acquire or acquires, in
violation of his duty, any interest adverse to the corporation in
However, there are instances when the distinction between respect of any matter which has been reposed inhim in confidence, as
personalities of directors, officers,and representatives, and of the to which equity imposes a disability upon him to deal in his own
corporation, are disregarded. We call this piercing the veil of behalf, he shall be liable as a trustee for the corporation and must
corporate fiction. 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 courts or tribunals must first determine whether circumstances exist
corporation may be made solidarily liable with it for all damages towarrant the courts or tribunals to disregard the distinction between
suffered by the corporation, its stockholders or members, and other the corporation and the persons representing it. The determination of
persons in any of the following cases: these circumstances must be made by one tribunal or court in a
proceeding participated in by all parties involved, including current
a) The director or trustee willfully and knowingly voted for representatives of the corporation, and those persons whose
or assented to a patently unlawful corporate act; personalities are impliedly the sameas the corporation. This is
because when the court or tribunal finds that circumstances exist
b) The director or trustee was guilty of gross negligence or warranting the piercing of the corporate veil, the corporate
bad faith in directing corporate affairs; and representatives are treated as the corporation itself and should be
held liable for corporate acts. The corporation’s distinct personality
c) The director or trustee acquired personal or pecuniary is disregarded, and the corporation is seen as a mere aggregation of
interest in conflict with his or her duties as director or persons undertaking a business under the collective name of the
trustee. corporation.

Solidary liability with the corporation will also attach in the Hence, when the directors, as in this case, are impleaded in a case
following instances: against a corporation, alleging malice orbad faith on their part in
directing the affairs of the corporation, complainants are effectively
a) "When a director or officer has consented to the issuance alleging that the directors and the corporation are not acting as
of watered stocks or who, having knowledge thereof, did not separate entities. They are alleging that the acts or omissions by the
forthwith file with the corporate secretary his written corporation that violated their rights are also the directors’ acts or
objection thereto";87 omissions.90 They are alleging that contracts executed by the
corporation are contracts executed by the directors. Complainants
effectively pray that the corporate veilbe pierced because the cause
b) "When a director, trustee or officer has contractually
of action between the corporation and the directors is the same.
agreed or stipulated to hold himself personally and solidarily
liable with the corporation";88 and
In that case, complainants have no choice but to institute only one
proceeding against the parties.1âwphi1 Under the Rules of Court,
c) "When a director, trustee or officer is made, by specific
filing of multiple suits for a single cause of action is prohibited.
provision of law, personally liable for his corporate action." 89
Institution of more than one suit for the same cause of action
constitutes splitting the cause of action, which is a ground for the
When there are allegations of bad faith or malice against corporate dismissal ofthe others. Thus, in Rule 2:
directors or representatives, it becomes the duty of courts or tribunals
to determine if these persons and the corporation should be treated as
Section 3. One suit for a single cause of action. — A party may not
one. Without a trial, courts and tribunals have no basis for
institute more than one suit for a single cause of action. (3a)
determining whether the veil of corporate fiction should be pierced.
Courts or tribunals do not have such prior knowledge. Thus, the
Section 4. Splitting a single cause of action;effect of. — If two or proceeding. Such finding would determine if the corporation is
more suits are instituted on the basis of the same cause of action, the merely an aggregation of persons whose liabilities must be treated as
filing of one or a judgment upon the merits in any one is available as one with the corporation.
a ground for the dismissal of the others. (4a)
However, when the courts disregard the corporation’s distinct and
It is because the personalities of petitioners and the corporation may separate personality from its directors or officers, the courts do not
later be found to be indistinct that we rule that petitioners may be say that the corporation, in all instances and for all purposes, is the
compelled to submit to arbitration. same as its directors, stockholders, officers, and agents. It does not
result in an absolute confusion of personalities of the corporation and
However, in ruling that petitioners may be compelled to submit to the persons composing or representing it. Courts merely discount the
the arbitration proceedings, we are not overturning Heirs of Augusto distinction and treat them as one, in relation to a specific act, in order
Salas wherein this court affirmed the basic arbitration principle that to extend the terms of the contract and the liabilities for all damages
only parties to an arbitration agreement may be compelled to submit to erring corporate officials who participated in the corporation’s
to arbitration. In that case, this court recognizedthat persons other illegal acts. This is done so that the legal fiction cannot be used to
than the main party may be compelled to submit to arbitration, e.g., perpetrate illegalities and injustices.
assignees and heirs. Assignees and heirs may be considered parties to
an arbitration agreement entered into by their assignor because the Thus, in cases alleging solidary liability with the corporation or
assignor’s rights and obligations are transferred to them upon praying for the piercing of the corporate veil, parties who are
assignment. In other words, the assignor’s rights and obligations normally treated as distinct individuals should be made to participate
become their own rights and obligations. In the same way, the in the arbitration proceedings in order to determine ifsuch distinction
corporation’s obligations are treated as the representative’s should indeed be disregarded and, if so, to determine the extent of
obligations when the corporate veil is pierced. Moreover, in Heirs of their liabilities.
Augusto Salas, this court affirmed its policy against multiplicity of
suits and unnecessary delay. This court said that "to split the In this case, the Arbitral Tribunal rendered a decision, finding that
proceeding into arbitration for some parties and trial for other parties BF Corporation failed to prove the existence of circumstances that
would "result in multiplicity of suits, duplicitous procedure and render petitioners and the other directors solidarily liable. It ruled
unnecessary delay."91 This court also intimated that the interest of that petitioners and Shangri-La’s other directors were not liable for
justice would be best observed if it adjudicated rights in a single the contractual obligations of Shangri-La to BF Corporation. The
proceeding.92 While the facts of that case prompted this court to Arbitral Tribunal’s decision was made with the participation of
direct the trial court to proceed to determine the issues of thatcase, it petitioners, albeit with their continuing objection. In view of our
did not prohibit courts from allowing the case to proceed to discussion above, we rule that petitioners are bound by such
arbitration, when circumstances warrant. decision.

Hence, the issue of whether the corporation’s acts in violation of WHEREFORE, the petition is DENIED. The Court of Appeals'
complainant’s rights, and the incidental issue of whether piercing of decision of May 11, 2006 and resolution of October 5, 2006 are
the corporate veil is warranted, should be determined in a single AFFIRMED.
SO ORDERED. VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks the


reversal of the January 8, 2008 2 and March 17, 20083 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, 20074 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.

The Facts

On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB) and
[G.R. NO. 182248 : December 18, 2008] the individual shareholders of Bankard, Inc., as sellers, and
respondent RCBC Capital Corporation (RCBC), as buyer, executed
EQUITABLE PCI BANKING CORPORATION,1 GEORGE L. a Share Purchase Agreement5 (SPA) for the purchase of petitioners'
GO, PATRICK D. GO, GENEVIEVE W.J. GO, FERDINAND interests in Bankard, representing 226,460,000 shares, for the price
MARTIN G. ROMUALDEZ, OSCAR P. LOPEZ-DEE, RENE J. of PhP 1,786,769,400. To expedite the purchase, RCBC agreed to
BUENAVENTURA, GLORIA L. TAN-CLIMACO, ROGELIO dispense with the conduct of a due diligence audit on the financial
S. CHUA, FEDERICO C. PASCUAL, LEOPOLDO S. VEROY, status of Bankard.
WILFRIDO V. VERGARA, EDILBERTO V. JAVIER,
ANTHONY F. CONWAY, ROMULAD U. DY TANG, Under the SPA, RCBC undertakes, on the date of contract execution,
WALTER C. WESSMER, and ANTONIO N. to deposit, as downpayment, 20% of the purchase price, or PhP
COTOCO, Petitioners, v. RCBC CAPITAL 357,353,880, in an escrow account. The escrowed amount, the SPA
CORPORATION, Respondent. stated, should be released to petitioners on an agreed-upon release
date and the balance of the purchase price shall be delivered to the
DECISION 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: and shall have no liabilities, omissions or mistakes in its records
which will have material adverse effect on the net worth or financial
Section 5. Sellers' Representations and Warranties condition of Bankard to the extent of more than One Hundred
Million Pesos (P100,000,000.00) in the aggregate. In the event such
The SELLERS jointly and severally represent and warrant to the material adverse effect on the net worth or financial condition of
BUYER that: Bankard exceeds One Hundred Million Pesos (P100,000,000.00), the
Purchase Price shall be reduced in accordance with the following
xxx formula:

The Financial Condition of Bankard Reduction in Purchase Price = X multiplied by 226,460,000

g. The audited financial statements of Bankard for the three (3) fiscal where
years ended December 31, 1997, 1998 and 1999, and the unaudited
financial statements for the first quarter ended 31 March 2000, are Amount by which negative adjustment
fair and accurate, and complete in all material respects, and have exceeds P100 Million
been prepared in accordance with generally accepted accounting X= - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (1.925)
principles consistently followed throughout the period indicated and: - - - - - - - - - - - - - - -
338,000,000
i) the balance sheet of Bankard as of 31 December 1999, as prepared
and certified by SGV & Co. ("SGV"), and the unaudited balance xxx
sheet for the first quarter ended 31 March 2000, present a fair and
accurate statement as of those dates, of Bankard's financial condition Section 7. Remedies for Breach of Warranties
and of all its assets and liabilities, and is complete in all material
respects; andcralawlibrary A. If any of the representations and warranties of any or all of the
SELLERS or the BUYER (the "Defaulting Party") contained in
ii) the statements of Bankard's profit and loss accounts for the fiscal Sections 5 and 6 shall be found to be untrue when made and/or as of
years 1996 to 1999, as prepared and certified by SGV, and the the Closing Date, the other party, i.e., the BUYER if the Defaulting
unaudited profit and loss accounts for the first quarter ended 31 Party is any or all of the SELLERS and the SELLERS if the
March 2000, fairly and accurately present the results of the Defaulting Party is the BUYER (hereinafter referred to as the "Non-
operations of Bankard for the periods indicated, and are complete in Defaulting Party") shall have the right to require the Defaulting
all material respects. Party, at the latter's expense, to cure such breach, and/or seek
damages, by providing notice or presenting a claim to the Defaulting
h. Except as disclosed in the Disclosures, and except to the extent set Party, reasonably specifying therein the particulars of the breach.
forth or reserved in the audited financial statements of Bankard as of The foregoing remedies shall be available to the Non-Defaulting
31 December 1999 and its unaudited financial statements as of 31 Party only if the demand therefor is presented in writing to the
March 2000, Bankard, as of such dates and up to 31 May 2000, had Defaulting Party within three (3) years from the Closing Date except
that the remedy for a breach of the SELLERS' representation and On December 28, 2000, RCBC paid the balance of the contract price.
warrant in Section 5 (h) shall be available only if the demand The corresponding deeds of sale for the shares in question were
therefor is presented to the Defaulting Party in writing together with executed in January 2001.
schedules and to substantiate such demand, within six (6) months
from the Closing Date.6 Thereafter, in a letter of May 5, 2003, RCBC informed petitioners of
its having overpaid the purchase price of the subject shares, claiming
On June 2, 2000, RCBC deposited the stipulated downpayment that there was an overstatement of valuation of accounts amounting
amount in an escrow account after which it was given full to PhP 478 million, resulting in the overpayment of over PhP 616
management and operational control of Bankard. June 2, 2000 is million. Thus, RCBC claimed that petitioners violated their warranty,
also considered by the parties as the Closing Date referred to in the as sellers, embodied in Sec. 5(g) of the SPA (Sec. 5[g] hereinafter).
SPA.
Following unsuccessful attempts at settlement, RCBC, in accordance
Thereafter, the parties executed an Amendment to Share Purchase with Sec. 10 of the SPA, filed a Request for Arbitration dated May
Agreement (ASPA) dated September 19, 2000.7 Its paragraph 2(e) 12, 20048 with the ICC-ICA. In the request, RCBC charged Bankard
provided that: with deviating from, contravening and not following generally
accepted accounting principles and practices in maintaining their
2. Notwithstanding any provisions to the contrary in the Share books. Due to these improper accounting practices, RCBC alleged
Purchase Agreement and/or any agreement, instrument or document that both the audited and unaudited financial statements of Bankard
entered into or executed by the Parties in relation thereto (the prior to the stock purchase were far from fair and accurate and,
"Related Agreements"), the Parties hereby agree that: hence, violated the representations and warranties of petitioners in
the SPA. Per RCBC, its overpayment amounted to PhP 556 million.
xxx It thus prayed for the rescission of the SPA, restitution of the
purchase price, payment of actual damages in the amount of PhP
e) Notwithstanding the provisions of Sec. 7 of the Share Purchase 573,132,110, legal interest on the purchase price until actual
Agreement to the contrary, the remedy for a breach of the restitution, moral damages, and litigation and attorney's fees. As
SELLERS' representation and warranty in Section 5(h) of the alternative to rescission and restitution, RCBC prayed for damages in
Share Purchase Agreement shall be available if the demand the amount of at least PhP 809,796,092 plus legal interest.
therefor is presented to the SELLERS in writing together with
schedules and data to substantiate such demand, on or before 31 To the Request for Arbitration, petitioners filed an Answer dated
December 2000. (Emphasis added.) July 28, 2004,9 denying RCBC's inculpatory averments and setting
up the following affirmative allegations: the period for filing of the
Sometime in September 2000, RCBC had Bankard's accounts asserted claim had already lapsed by force of Sec. 7 of the SPA;
audited, creating for the purpose an audit team led by a certain RCBC is not entitled to rescission having had ample opportunity and
Rubio, the Vice-President for Finance of RCBC at the time. Rubio's reasonable time to file a claim against petitioners; RCBC is not
conclusion was that the warranty, as contained in Section 5(h) of the entitled to its alternative prayer of damages, being guilty of laches
SPA (simply Sec. 5[h] hereinafter), was correct.
and failing to set out the details of the breach as required under Sec. iii) the relevant Bankard statements were inadequate and misleading
7. in that their disclosures caused readers to be misinformed about
Bankard's accounting policies on revenue and receivables.
Arbitration in the ICC-ICA proceeded after the formation of the
arbitration tribunal consisting of retired Justice Santiago M. (d) Subject to proof of loss the Claimant is entitled to damages for
Kapunan, nominated by petitioners; Neil Kaplan, RCBC's nominee; the foregoing breaches.
and Sir Ian Barker, appointed by the ICC-ICA.
(e) The Claimant is not entitled to rescission of the SPA.
After drawn out proceedings with each party alleging deviation and
non-compliance by the other with arbitration rules, the tribunal, with (f) All other issues, including any issue relating to costs, will be dealt
Justice Kapunan dissenting, rendered a Partial Award dated with in a further or final award.
September 27, 2007,10 the dispositive portion of which states:
15.2 A further Procedural Order will be necessary subsequent to the
15 AWARD AND DIRECTIONS delivery of this Partial Award to deal with the determination of
quantum and in particular, whether there should be an Expert
15.1 The Tribunal makes the following declarations by way of appointed by the Tribunal under Article 20(4) of the ICC Rules to
Partial Award: assist the Tribunal in this regard.

(a) The Claimant's claim is not time-barred under the provisions of 15.3 This Award is delivered by a majority of the Tribunal (Sir Ian
this SPA. Barker and Mr. Kaplan). Justice Kapunan is unable to agree with the
majority's conclusion on the claim of estoppel brought by the
(b) The Claimant is not estopped by its conduct or the equitable respondents.
doctrine of laches from pursuing its claim.
On the matter of prescription, the tribunal held that RCBC's claim is
(c) As detailed in the Partial Award, the Claimant has established the not time-barred, the claim properly falling under the contemplation
following breaches by the Respondents of clause 5(g) of the SPA: 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.
i) the assets, revenue and net worth of Bankard were overstated by 5(g) and that the six (6)-month period under Sec. 5(h) did not apply.
reason of its policy on and recognition of Late Payment Fees;
The tribunal also exonerated RCBC from laches, the latter having
ii) reported receivables were higher than their realizable values by sought relief within the three (3)-year period prescribed in the SPA.
reason of the 'bucketing' method, thus overstating Bankard's assets; On the matter of estoppel suggested in petitioners' answer, the
andcralawlibrary 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 Ultimately, the Claim is one for recovery of overpayment in the
as proved any admission/representation that the Claimant was purchase price of the shares. x x x
abandoning a 5(g) claim, any reliance by the Respondents on an
admission, and any detriment to the Respondents such as would As to the issue of estoppel, Justice Kapunan stated:
entitle them to have the Claimant deprived of the benefit of clause
5(g). These aspects of the claim for estoppels are rejected. 11 Moreover, Mr. Rubio's findings merely corroborated the disclosures
made in the Information Memorandum that Claimant received from
Notably, the tribunal considered the rescission of the SPA and ASPA the Respondents prior to the execution of the SPA. In this
as impracticable and "totally out of the question." 12 connection, I note that Bankard's policy on provisioning and setting
of allowances using the Bucketed Method and income recognition
In his Dissenting Opinion13 which he submitted to and which was from AR/Principal, AR/Interest and AR/LPFs were disclosed in the
received on September 24, 2007 by the ICC-ICA, Justice Kapunan Information Memorandum. Thus, these alleged improper accounting
stated the observation that RCBC's claim is time-barred, falling as practices were known to the Claimant even prior to the execution of
such claim did under Sec. 5(h), which prescribes a comparatively the SPA.
shorter prescriptive period, not 5(g) as held by the majority of the
tribunal, to wit: Thus, when Claimant paid the balance of the purchase price, it did so
with full knowledge of these accounting practices of Bankard that it
Claimant admits that the Claim is for recovery of P431 million on now assails. By paying the balance of the purchase price without
account of alleged "overvaluation of the net worth of Bankard," taking exception or objecting to the accounting practices disclosed
allegedly for "improper accounting practices" resulting in "its book through Mr. Rubio' s review and the Information Memorandum,
value per share as of 31 December 1999 [being] overstated." Claimant is deemed to have accepted such practices as correctly
Claimant's witness, Dean Echanis asserts that "the inadequate reporting the 1999 net worth. x x x
provisioning for Bankard's doubtful accounts result[ed] in an
overstatement of its December 31, 1999 total assets and net worth of xxx
by [sic] least P418.2 million."
As last point, I note that my colleagues invoke a principle that for
In addition, Claimant's demand letter addressed to the Respondents estoppels to apply there must be positive indication that the right to
alleged that "we overpaid for the Shares to the extent of the impact sue was waived. I am of the view that there is no such principle
of the said overstatement on the Book Value per share". under Philippine law. What is applicable is the holding in Knecht
and in Coca - Cola that prior knowledge of an unfavorable fact is
These circumstances establish beyond dispute that the Claim is based binding on the party who has such knowledge; "when the purchaser
on the alleged overstatement of the 1999 net worth of Bankard, proceeds to make investigations by himself, and the vendor does
which the parties relied on in setting the purchase price of the shares. nothing to prevent such investigation from being as complete as the
Moreover, it is clear that there was an overstatement because of former might wish, the purchaser cannot later allege that the vendor
"improper accounting practices" which led Claimant to overpay for made false representations to him" (Cf. Songco v. Sellner, 37 Phil
the shares. 254 citations omitted).
Applied to this case, the Claimant cannot seek relief on the basis that notwithstanding that the arbitrators had plainly and admittedly failed
when it paid the purchase price in December 2000, it was unaware to accord petitioners' due process by denying them a hearing on the
that the accounting practices that went into the reporting of the 1999 basic factual matter upon which their liability is predicated.
net worth as amounting to P1,387,275,847 were not in conformity
with GAAP [generally accepted accounting principles]. (Emphasis (c) The trial court committed grave error in confirming the
added.) arbitrators' award, which held petitioners-sellers liable for an alleged
improper recording of accounts, allegedly affecting the value of the
On October 26, 2007, RCBC filed with the RTC a Motion to shares they sold, notwithstanding that the respondent-buyer knew
Confirm Partial Award. On the same day, petitioners countered with before contracting that the accounts were kept in the manner
a Motion to Vacate the Partial Award. On November 9, 2007, complained of, and in fact ratified and adopted the questioned
petitioners again filed a Motion to Suspend and Inhibit Barker and accounting practice and policies.14
Kaplan.
The Court's Ruling
On January 8, 2008, the RTC issued the first assailed order
confirming the Partial Award and denying the adverted separate The petition must be denied.
motions to vacate and to suspend and inhibit. From this order,
petitioners sought reconsideration, but their motion was denied by On Procedural Misstep of Direct Appeal to This Court
the RTC in the equally assailed second order of March 17, 2008.
As earlier recited, the ICC-ICA's Partial Award dated September 27,
From the assailed orders, petitioners came directly to this Court 2007 was confirmed by the RTC in its first assailed order of January
through this Petition for Review . 8, 2008. Thereafter, the RTC, by order of March 17, 2008, denied
petitioners' motion for reconsideration. Therefrom, petitioners came
The Issues directly to this Court on a Petition for Review under Rule 45 of the
Rules of Court.
This petition seeks the review, reversal and setting aside of the
orders Annexes A and B and, in lieu of them, it seeks judgment This is a procedural miscue for petitioners who erroneously bypassed
vacating the arbitrators' liability award, Annex C, on these grounds: the Court of Appeals (CA) in pursuit of its appeal. While this
procedural gaffe has not been raised by RCBC, still we would be
(a) The trial court acted contrary to law and judicial authority in remiss in not pointing out the proper mode of appeal from a decision
refusing to vacate the arbitral award, notwithstanding it was rendered of the RTC confirming, vacating, setting aside, modifying, or
in plain disregard of the parties' contract and applicable Philippine correcting an arbitral award.
law, under which the claim in arbitration was indubitably time-
barred. Rule 45 is not the remedy available to petitioners as the proper mode
of appeal assailing the decision of the RTC confirming as arbitral
(b) The trial court acted contrary to law and judicial authority in award is an appeal before the CA pursuant to Sec. 46 of Republic
refusing to vacate and in confirming the arbitral award, Act No. (RA) 9285, otherwise known as the Alternative Dispute
Resolution Act of 2004, or completely, An Act to Institutionalize the 2008. Thus, petitioners clearly took the wrong mode of appeal and
Use of an Alternative Dispute Resolution System in the Philippines the instant petition can be outright rejected and dismissed.
and to Establish the Office for Alternative Dispute Resolution, and
for other Purposes, promulgated on April 2, 2004 and became Even if we entertain the petition, the outcome will be the same.
effective on April 28, 2004 after its publication on April 13, 2004.
The Court Will Not Overturn an Arbitral Award
In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, Unless It Was Made in Manifest Disregard of the Law
that the RTC decision of an assailed arbitral award is appealable to
the CA and may further be appealed to this Court, thus: 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
Sec. 46 of RA 9285 provides for an appeal before the CA as the case, the arbitration committee issued an arbitral award which the
remedy of an aggrieved party in cases where the RTC sets aside, trial court, upon due proceedings, confirmed despite the opposition
rejects, vacates, modifies, or corrects an arbitral award, thus: of the losing party. Motions for reconsideration by the losing party
were denied. An appeal interposed by the losing party to the CA was
SEC. 46. Appeal from Court Decision or Arbitral Awards.' A denied due course. On appeal to this Court, we established the
decision of the Regional Trial Court confirming, vacating, setting parameters by which an arbitral award may be set aside, to wit:
aside, modifying or correcting an arbitral award may be appealed to
the Court of Appeals in accordance with the rules and procedure to As a rule, the award of an arbitrator cannot be set aside for mere
be promulgated by the Supreme Court. errors of judgment either as to the law or as to the facts. Courts
are without power to amend or overrule merely because of
The losing party who appeals from the judgment of the court disagreement with matters of law or facts determined by the
confirming an arbitral award shall be required by the appellate court arbitrators. They will not review the findings of law and fact
to post a counterbond executed in favor of the prevailing party equal contained in an award, and will not undertake to substitute their
to the amount of the award in accordance with the rules to be judgment for that of the arbitrators, since any other rule would
promulgated by the Supreme Court. make an award the commencement, not the end, of litigation.
Errors of law and fact, or an erroneous decision of matters
Thereafter, the CA decision may further be appealed or reviewed submitted to the judgment of the arbitrators, are insufficient to
before this Court through a Petition for Review under Rule 45 of the invalidate an award fairly and honestly made. Judicial review of
Rules of Court.15 an arbitration is, thus, more limited than judicial review of a
trial.
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 Nonetheless, the arbitrators' awards is not absolute and without
proceedings were commenced by RCBC through a request for exceptions. The arbitrators cannot resolve issues beyond the scope of
arbitration filed before the ICC-ICA on May 12, 2004. Besides, the the submission agreement. The parties to such an agreement are
assailed confirmation order of the RTC was issued on March 17, 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 legal principle is clearly defined and not subject to reasonable
provide grounds for vacating, rescinding or modifying an arbitration debate; and (2) the arbitrators refused to heed that legal principle.
award. Where the conditions described in Articles 2038, 2039 and
2040 of the Civil Code applicable to compromises and arbitration are Thus, to justify the vacation of an arbitral award on account of
attendant, the arbitration award may also be annulled. "manifest disregard of the law," the arbiter's findings must clearly
and unequivocally violate an established legal precedent. Anything
xxx less would not suffice.

Finally, it should be stressed that while a court is precluded from In the present case, petitioners, in a bid to establish that the arbitral
overturning an award for errors in determination of factual issues, award was issued in manifest disregard of the law, allege that the
nevertheless, if an examination of the record reveals no support Partial Award violated the principles of prescription, due process,
whatever for the arbitrators' determinations, their award must be and estoppel. A review of petitioners' arguments would, however,
vacated. In the same manner, an award must be vacated if it was show that their arguments are bereft of merit. Thus, the Partial
made in "manifest disregard of the law."17 (Emphasis supplied.) Award dated September 27, 2007 cannot be vacated.

Following Asset Privatization Trust, errors in law and fact would not RCBC's Claim Is Not Time-Barred
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 Petitioners argue that RCBC's claim under Sec. 5(g) is based on
for vacating, rescinding, or modifying an award are present or that overvaluation of Bankard's revenues, assets, and net worth, hence,
the arbitral award was made in manifest disregard of the law. for price reduction falling under Sec. 5(h), in which case it was
Otherwise, the Court is duty-bound to uphold an arbitral award. 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
The instant petition dwells on the alleged manifest disregard of the December 31, 2000. As a counterpoint, RCBC asserts that its claim
law by the ICC-ICA. 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,
The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. 2003, within which to make its claim. RCBC contends having acted
Jaros18 expounded on the phrase "manifest disregard of the law" in within the required period, having presented its claim-demand on
the following wise: May 5, 2003.

This court has emphasized that manifest disregard of the law is a To make clear the issue at hand, we highlight the pertinent portions
very narrow standard of review. Anaconda Co. v. District Lodge No. of Secs. 5(g), 5(h), and 7 bearing on what petitioners warranted
27, 693 F.2d 35 (6th Cir.1982). A mere error in interpretation or relative to the financial condition of Bankard and the remedies
application of the law is insufficient. Anaconda, 693 F.2d at 37-38. available to RCBC in case of breach of warranty:
Rather, the decision must fly in the face of clearly established legal
precedent. When faced with questions of law, an arbitration panel g. The audited financial statements of Bankard for the three (3)
does not act in manifest disregard of the law unless (1) the applicable fiscal years ended December 31, 1997, 1998 and 1999, and the
unaudited financial statements for the first quarter ended 31 If any of the representations and warranties of any or all of the
March 2000, are fair and accurate, and complete in all material SELLERS or the BUYER (the "Defaulting Party") contained in
respects, and have been prepared in accordance with generally Sections 5 and 6 shall be found to be untrue when made and/or as of
accepted accounting principles consistently followed throughout the Closing Date, the other party, i.e., the BUYER if the Defaulting
the period indicated and: is any of the SELLERS and the SELLERS if the Defaulting Party is
the BUYER (hereinafter referred to as the "Non-Defaulting
i) the balance sheet of Bankard as of 31 December 1999, as Party") shall have the right to require the Defaulting Party, at the
prepared and certified by SGV & Co. ("SGV"), and the unaudited latter's expense, to cure such breach, and/or seek damages, by
balance sheet for the first quarter ended 31 March 2000, present a providing notice or presenting a claim to the Defaulting Party,
fair and accurate statement as of those dates, of Bankard's reasonably specifying therein the particulars of the breach. The
financial condition and of all its assets and liabilities, and is foregoing remedies shall be available to the Non-Defaulting Party
complete in all material respects; andcralawlibrary only if the demand therefor is presented in writing to the
Defaulting Party within three (3) years from the Closing Date,
ii) the statements of Bankard's profit and loss accounts for the except that the remedy for a breach of the SELLERS'
fiscal years 1996 to 1999, as prepared and certified by SGV, and representation and warranty in Section 5 (h) shall be available
the unaudited profit and loss accounts for the first quarter ended only if the demand therefor is presented to the Defaulting Party in
31 March 2000, fairly and accurately present the results of the writing together with schedules and data to substantiate such
operations of Bankard for the periods indicated, and are complete demand, within six (6) months from the Closing Date. (Emphasis
in all material respects. supplied.)

h. Except as disclosed in the Disclosures, and except to the extent set Before we address the issue put forward by petitioners, there is a
forth or reserved in the audited financial statements of Bankard as of necessity to determine the nature and application of the reliefs
31 December 1999 and its unaudited financial statements for the first provided under Sec. 5(g) and Sec. 5(h) in conjunction with Sec. 7,
quarter ended 31 March 2000, Bankard, as of such dates and up to thus:
31 May 2000, had and shall have no liabilities, omissions or
mistakes in its records which will have a material adverse effect (1) The relief under Sec. 5(h) is specifically for price reduction as
on the net worth or financial condition of Bankard to the extent said section explicitly states that the "Purchase Price shall be reduced
of more than One Hundred Million Pesos (P 100,000,000.00) in in accordance with the following formula x x x." In addition, Sec. 7
the aggregate. In the event such material adverse effect on the net gives the aggrieved party the right to ask damages based on the
worth or financial condition of Bankard exceeds One Hundred stipulation that the non-defaulting party "shall have the right to
Million Pesos (P 100,000,000.00), the Purchase Price shall be require the Defaulting Party, at the latter's expense, to cure such
reduced in accordance with the following formula: breach and/or seek damages."

xxx On the other hand, the remedy under Sec. 5(g) in conjunction with
Sec. 7 can include specific performance, damages, and other
Section 7. Remedies for Breach of Warranties reliefs excluding price reduction.
(2) Sec. 5(g) warranty covers the audited financial statements (AFS) omissions and mistakes on the financial statements as of 31
for the three (3) years ending December 31, 1997 to 1999 and the December 1999 and the UFS as of 31 May 2000, provided that the
unaudited financial statements (UFS) for the first quarter ending material adverse effect on the net worth exceeds PhP 100M and the
March 31, 2000. On the other hand, the Sec. 5(h) warranty refers written demand is presented within six (6) months from closing date
only to the AFS for the year ending December 31, 1999 and the UFS (extended to 31 December 2000); andcralawlibrary
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 2. An action to cure the breach like specific performance and/or
unaudited financial statements upon which the price must have been damages under Sec. 5(g) based on Bankard's breach of warranty
based."19 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
(3) Under Sec. 5(h), the responsibility of petitioners for its warranty March 2000 provided that the written demand shall be presented
shall exclude the disclosures and reservations made in AFS of within three (3) years from closing date.
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 Has RCBC the option to choose between Sec. 5(g) or Sec. 5(h)?cra
warranty of petitioners in the AFS and UFS of Bankard. lawlibrary

(4) Sec. 5(h) gives relief only if there is material adverse effect in the The answer is yes. Sec. 5 and Sec. 7 are clear that it is discretionary
net worth in excess of PhP 100 million and it provides a formula for on the aggrieved parties to avail themselves of any remedy
price reduction.20 On the other hand, Sec. 5(g) can be the basis for mentioned above. They may choose one and dispense with the other.
remedies like specific performance, damages, and other reliefs, Of course, the relief for price reduction under Sec. 5(h) will have to
except price reduction, even if the overvaluation is less or above PhP conform to the prerequisites and time frame of six (6) months;
100 million and there is no formula for computation of damages. otherwise, it is waived.

(5) Under Sec. 7, the aggrieved party shall present its written demand Preliminarily, petitioners' basic posture that RCBC's claim is for the
to the defaulting party within three (3) years from closing date. recovery of overpayment is specious. The records show that in
Under Sec. 5(h), the written demand shall be presented within six (6) its Request for Arbitration dated May 12, 2004, RCBC prayed for the
months from closing date. In accordance with par. 2(c) of the ASPA, rescission of the SPA, restitution of the whole purchase price, and
the deadline to file the demand under Sec. 5(h) was extended to damages not for reduction of price or for the return of any
December 31, 2000. overpayment. Even in its May 5, 2000 letter, 21 RCBC did not ask for
the recovery of any overpayment or reduction of price, merely
From the above determination, it becomes clear that the aggrieved stating in it that the accounts of Bankard, as reflected in its AFS for
party is entitled to two (2) separate alternative remedies under Secs. 1999, were overstated which, necessarily, resulted in an overpayment
5 and 7 of the SPA, thus: situation. RCBC was emphatic and unequivocal that petitioners
violated their warranty covered by Sec. 5(g) of the SPA.
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,
It is thus evident that RCBC did not avail itself of the option under (1) An overvaluation of Bankard's actual financial condition as of
Sec. 5(h), i.e., for price reduction or the return of any overpayment closing date taints the veracity and accuracy of the AFS for 1997,
arising from the overvaluation of Bankard's financial condition. 1998, and 1999 and the UFS for the first quarter of 2000 and is an
Clearly, RCBC invoked Sec. 5(g) to claim damages from petitioners actionable breach of petitioners' warranties under Sec. 5(g).
which is one of the alternative reliefs granted under Sec. 7 in
addition to rescission and restitution of purchase price. (2) An overvaluation of Bankard's financial condition as of May 31,
2000, encompassing the warranted financial condition as of
Petitioners do not deny that RCBC formally filed its claim under December 31, 1999 through the AFS for 1999 and as of March 31,
Sec. 5(g) which is anchored on the material overstatement or 2000 through the UFS for the first quarter of 2000, is a breach of
overvaluation of Bankard's revenues, assets, and net worth and, petitioners' representations and warranties under Sec. 5(h).
hence, the overstatement of the purchase price. They, however, assert
that such claim for overpayment is actually a claim under Sec. 5(h) Thus, RCBC has two distinct alternative remedies in case of an
of the SPA for price reduction which it forfeited after December 31, overvaluation of Bankard's financial condition. It may invoke Sec.
2000. 5(h) when the conditions of the threshold aggregate overvaluation
and the claim made within the six-month time-bar are present. In the
We cannot sustain petitioners' position. 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
It cannot be disputed that an overstatement or overvaluation of interests provided it is filed within three (3) years from closing date.
Bankard's financial condition as of closing date translates into a Since it has two remedies, RCBC may opt to exercise either one. Of
misrepresentation not only of the accuracy and truthfulness of the course, the exercise of either one will preclude the other.
financial statements under Sec. 5(g), but also as to Bankard's actual
net worth mentioned in Sec. 5(h). Overvaluation presupposes Moreover, the language employed in Sec. 5(g) and Sec. 5(h) is clear
mistakes in the entries in the financial statements and amounts to a and bereft of any ambiguity. The SPA's stipulations reveal that the
breach of petitioners' representations and warranties under Sec. 5. non-use or waiver of Sec. 5(h) does not preclude RCBC from
Consequently, such error in the financial statements would impact on availing itself of the second relief under Sec. 5(g). Article 1370 of
the figure representing the net worth of Bankard as of closing date. the Civil Code is explicit that "if terms of a contract are clear and
An overvaluation means that the financial condition of Bankard as of leave no doubt upon the intention of the contracting parties the literal
closing date, i.e., June 2, 2000, is overstated, a situation that will meaning of its stipulations shall control." Since the terms of a
definitely result in a breach of EPCIB's representations and contract have the force of law between the parties, 22 then the parties
warranties. 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
A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of the SPA writing, it is deemed to contain all the terms agreed upon and no
would indicate the following remedies available to RCBC should it evidence of such terms can be admitted other than the contents of the
be discovered, as of closing date, that there is overvaluation which agreement itself.23 Since the SPA is unambiguous, and petitioners
will constitute breach of the warranty clause under either Sec. 5(g) or failed to adduce evidence to the contrary, then they are legally bound
(h), to wit: to comply with it.
Petitioners agreed ultimately to the stipulation that: xxx

Each of the representations and warranties of the SELLERS is True, without Section 5(h), the Claim for price recovery would fall
deemed to be a separate representation and warranty, and the under Section 5(g). The recovery of the pecuniary loss of the
BUYER has placed complete reliance thereon in agreeing to the Claimant in the form of the excess price paid would be in the nature
Purchase Price and in entering into this Agreement. The of a claim for actual damages by way of compensation. In that
representations and warranties of the SELLERS shall be correct as of situation, all the accounts in the 1999 financial statements would be
the date of this Agreement and as of the Closing Date with the same the subject of the warranty in Section 5(g).
force and effect as though such representations and warranties had
been made as of the Closing Date.24 (Emphasis supplied.) However, since the parties explicitly included Section 5(h) in their
SPA, which assures the Claimant that there were no "omissions or
The Court sustains the finding in the Partial Award that Sec. 5(g) of mistakes in the records" that would misstate the 1999 net worth
the SPA is a free standing warranty and not constricted by Sec. 5(h) account, I am left with no other conclusion but that the accuracy
of the said agreement. 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
Upon the foregoing premises and in the light of the undisputed facts not bear on, or affect Bankard's net worth, were guaranteed by
on record, RCBC's claim for rescission of the SPA and damages due Section 5(g).
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, xxx
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 This manner of reconciling the two provisions is consistent with the
prescriptive period provided under Sec. 7 for the exercise of the right principle in Rule 130, Section 12 of the Rules of Court that "when a
provided under Sec. 5(g). general and a particular provision are inconsistent, the latter is
paramount to the former' [so] a particular intent will control a general
Petitioners bemoan the fact that "the arbitrators' liability award (a) one that is inconsistent with it." This is also consistent with existing
disregarded the 6-month contractual limitation for RCBC's doctrines on statutory construction, the application of which is
'overprice' claim, and [b] substituted in its place the 3-year limitation illustrated in the case of Commissioner of Customs v. Court of Tax
under the contract for other claims," 25 adopting in that regard the Appeals, GR No. L-41861, dated March 23, 1987 x x x.
interpretation of the SPA made by arbitral tribunal member, retired
Justice Kapunan, in his Dissenting Opinion, in which he asserted: xxx

Ultimately, the Claim is one for recovery of overpayment in the The Claim is for recovery of the excess price by way of actual
purchase price of the shares. And it is in this context, that I damages.27 x x x (Emphasis supplied.)
respectfully submit that Section 5(h) and not Section 5(g), applies to
the present controversy.26 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 There is nothing in the wording used to indicate that the parties
situation contemplated in it from the general terms of Sec. 5(g). 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)
Such view is incorrect. somehow cuts down the scope of 5(g), the Tribunal can find no
justification for such conclusion on the wording used.
While it is true that Sec. 5(h), as couched, is a warranty on the Furthermore, the Tribunal is of the view that very clear words would
accuracy of the Bankard's net worth while Sec. 5(g), as also couched, be needed to cut down the scope of the 5(g) warranty. 28
is a warranty on the veracity, accuracy, and completeness of the AFS
in all material respects as prepared in accordance with generally The Court upholds the conclusion of the tribunal and rules that the
accepted accounting principles consistently followed throughout the claim of RCBC under Sec. 5(g) is not time-barred.
period audited, yet both warranties boil down to the same thing and
stem from the same accounts as summarized in the AFS. Since Petitioners Were Not Denied Due Process
the net worth is the balance of Bankard's assets less its liabilities,
it necessarily includes all the accounts under the AFS. In Petitioners impute on RCBC the act of creating summaries of the
short, there are no accounts in the AFS that do not bear on the accounts of Bankard which "in turn were used by its experts to
net worth of Bankard. Moreover, as earlier elucidated, any conclude that Bankard improperly recorded its receivables and
overvaluation of Bankard's net worth is necessarily a committed material deviations from GAAP requirements." 29 Later,
misrepresentation of the veracity, accuracy, and completeness of the petitioners would assert that "the arbitrators' partial award admitted
AFS and also a breach of the warranty under Sec. 5(g). Thus, the and used the Summaries as evidence, and held on the basis of the
subject of the warranty in Sec. 5(h) is also covered by the warranty 'information' contained in them that petitioners were in breach of
in Sec. 5(g), and Sec. 5(h) cannot exclude such breach from the their warranty in GAAP compliance."
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 To petitioners, the ICC-ICA's use of such summaries but without
remedies are of equal footing and one need not categorize one presenting the source documents violates their right to due process.
section as a general provision and the other a particular provision. Pressing the point, petitioners had moved, but to no avail, for the
exclusion of the said summaries. Petitioners allege that they had
More importantly, a scrutiny of the four corners of the SPA does not reserved the right to cross-examine the witnesses of RCBC who
explicitly reveal any stipulation nor even impliedly that the parties testified on the summaries, pending the resolution of their motion to
intended to limit the scope of the warranty in Sec. 5(g) or gave exclude. But, according to them, they were effectively denied the
priority to Sec. 5(h) over Sec. 5(g). right to cross-examine RCBC's witnesses when the ICC-ICA
admitted the summaries of RCBC as evidence.
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: Petitioners' position is bereft of merit.

9.10 In the opinion of the Tribunal, there is nothing in the wording Anent the use but non-presentation of the source documents as the
used in the SPA to give priority to one warranty over the other. jumping board for a claim of denial of due process, petitioners
cite Compania Maritima v. Allied Free Worker's Union.30 It may be RCBC filed its Reply33 dated August 31, 2004 to petitioners' Answer
stated, however, that such case is not on all fours with the instant to the Request for Arbitration.
case and, therefore, cannot be applied here considering that it does
not involve an administrative body exercising quasi-judicial function On October 4, 2004, the parties entered into the Terms of
but rather the regular court. Reference.34 At the same time, the chairperson of the arbitral tribunal
issued a provisional timetable35 for the arbitration.
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 On October 25, 2004, as previously agreed upon in the meeting on
absence of previous notice but the absolute absence thereof and the October 4, 2004, petitioners filed a Motion to Dismiss 36 while RCBC
lack of opportunity to be heard."31 filed a "Claimant's Position Paper (Re: [Petitioners'] Assertion that
RCBC CAPITAL CORPORATION's Present Claim Is Time
We also explained in Lastimoso v. Asayo that "[d]ue process in an Barred)."37
administrative context does not require trial type proceedings similar
to those in courts of justice. Where an opportunity to be heard either Then, the tribunal issued Procedural Order No. 1 dated January 12,
through oral arguments or through pleadings is accorded, there is no 2005,38 denying the motion to dismiss and setting the initial hearing
denial of procedural due process."32 of the case on April 11, 2005.

Were petitioners afforded the opportunity to refute the summaries In a letter dated February 9, 2005, 39 petitioners requested that the
and pieces of evidence submitted by RCBC which became the bases tribunal direct RCBC to produce certain documents. At the same
of the experts' opinion?cra lawlibrary time, petitioners sought the postponement of the hearing on April 11,
2005 to March 21, 2005, in light of their own request.
The answer is in the affirmative.
On February 11, 2005, petitioners received RCBC's brief of evidence
We recall the events that culminated in the issuance of the and supporting documentation in accordance with the provisional
challenged Partial Award, thus: timetable.40 In the brief of evidence, RCBC provided summaries of
the accounts of Bankard, which petitioners now question.
On May 17, 2004, the ICC-ICA received the Request for
Arbitration dated May 12, 2004 from RCBC seeking rescission of Later, in a letter dated February 14, 2005, 41 petitioners complained to
the SPA and restitution of all the amounts paid by RCBC to the tribunal with regard to their lack of access to RCBC's external
petitioners, with actual and moral damages, interest, and costs of auditor. Petitioners sought an audit by an accounting firm of the
suit. records of Bankard with respect to the claims of RCBC. By virtue of
such requests, petitioners also sought a rescheduling of the
On August 8, 2004, petitioners filed an Answer to the Request for provisional timetable, despite their earlier assurance to the tribunal
Arbitration dated July 28, 2004, setting up a counterclaim for USD that if they received the documents that they requested on February
300,000 for actual and exemplary damages. 9, 2005 on or before February 21, 2005, they would abide by the
provisional timetable.
Thereafter, the tribunal issued Procedural Order No. 2 dated randomly sifted through the boxes which they had earlier requested
February 18, 2005,42 in which it allowed the discovery and inspection to be inspected.
of the documents requested by petitioners that were also scheduled
on February 18, 2005. The request for an audit of Bankard's accounts In addition, petitioners were furnished with an electronic copy of the
was denied without prejudice to the conduct of such audit during the details of all cardholders, including relevant data for aging of
course of the hearings. Consequently, the tribunal amended the receivables for the years 2000 to 2003, as well as data containing
provisional timetable, extending the deadline for petitioners to file details of written-off accounts from 1999 to March 2000 contained in
their brief of evidence and documents to March 21, 2005. The date compact discs.45
of the initial hearing, however, remained on April 11, 2005.
On March 4, 2005, petitioners sent a letter46 to the tribunal requesting
On February 18, 2005, petitioners were furnished the documents that for a postponement of the April 11, 2005 hearing of the case.
they requested RCBC.43 The parties also agreed to meet again on Petitioners claim that they could not confirm the summaries prepared
February 23, 2005 to provide petitioners with a "walk-through" of by RCBC, considering that RCBC allegedly did not cooperate in
Bankard's Statistical Analysis System and to provide petitioners with providing data that would facilitate their verification. Petitioners
a soft copy of all of Bankard's cardholders. 44 specifically mentioned the following data: (1) list of names of
cardholders whose accounts are sources of data gathered or
During the February 23, 2005 meeting, EPCIB's calculated in the summaries; (2) references to the basic cardholder
counsels/representatives were accompanied to the Bankard's Credit- documents from which such data were collected; and (3) access to
MIS Group. There, Bankard's representative, Amor Lazaro, the underlying cardholder documents at a time and under conditions
described and explained to petitioners' representatives the steps mutually convenient to the parties. As regards the compact discs of
involved in procuring and translating raw data on customer information provided to petitioners, it is claimed that such
transactions. Lazaro explained that Bankard captures cardholder information could not be accessed as the software necessary for the
information and transactions through encoding or electronic data handling of the data could not be made immediately available to
capture. Thereafter, such data are transmitted to its main credit card them.
administration system. Such raw data are then sent to Bankard's
Information Technology Group. Using a proprietary software called In Procedural Order No. 3 dated March 11 2005, 47 the initial hearing
SAS, the raw data is then converted into SAS files which may be was moved to June 13 to 16, 2005, considering that petitioners failed
viewed, handled, and converted into Excel files for reporting to pay the advance on costs of the tribunal.
purposes. During the walk-through, petitioners' representatives asked
questions which were answered in detail by Lazaro. On March 23, 2005, RCBC paid the balance of the advance on
costs.48
At the same time, another Bankard representative, Felix L.
Sincoñegue, accompanied two auditors/representatives of On April 22, 2005, petitioners sent the tribunal a letter, 49 requesting
petitioners to examine the journal vouchers and supporting for the postponement of the hearing scheduled on June 13 to 16,
documents of Bankard consisting of several boxes. The auditors 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 Thereafter, in a letter dated January 18, 2006, 57 petitioners wrote the
that they be allowed to examine the journal vouchers earlier made tribunal requesting that RCBC be directed to: (1) provide petitioners
available to them during the February 23, 2005 meeting. This with information identifying the journal vouchers and other
demand was answered by RCBC in a letter dated April 26, supporting documents that RCBC used to arrive at the figures set out
2005,51 stating that such demand was being denied by virtue of in the summaries and other relevant information necessary to enable
Procedural Order No. 2, in which it was ruled that further requests them to reconstruct and/or otherwise understand the figures or
for discovery would not be made except with leave of the amounts in each summary; and (2) submit to petitioners the
chairperson of the tribunal. requested pieces of information as soon as these are or have become
available, or in any case not later than five days.
In Procedural Order No. 4, 52 the tribunal granted petitioners' request
for the postponement of the hearing on June 13, 2005 and In response to such letter, RCBC addressed a letter dated January 31,
rescheduled it to November 21, 2005 in light of the pending motions 200658 to the tribunal claiming that the pieces of information that
filed by EPCIB with the RTC in Makati City. petitioners requested are already known to petitioners considering
that RCBC merely maintained the systems that they inherited when it
On July 29, 2005, the parties held a meeting wherein it was agreed bought Bankard from petitioners. RCBC added that the documents
that petitioners would be provided with hard and soft copies of the that EPCIB originally transmitted to it when RCBC bought Bankard
inventory of the journal vouchers earlier presented to its were all being made available to petitioners; thus, any missing
representatives, while making the journal vouchers available to supporting documents from these files were never transmitted to
petitioners for two weeks for examination and photocopying. 53 them in the first place.

On September 2, 2005, petitioners applied for the postponement of Later, petitioners sent to the tribunal a letter dated February 10,
the November 21, 2005 hearing due to the following: (1) petitioners 2006,59 asking that it direct RCBC to provide petitioners with the
had earlier filed a motion dated August 11, 2005 with the RTC, in supporting documents that RCBC mentioned in its letter dated
which the issue of whether the non-Filipino members of the tribunal January 31, 2006. Petitioners wrote that should RCBC fail to present
were illegally practicing law in the Philippines by hearing their case, such documents, RCBC's summaries should be excluded from the
which was still pending; and (2) the gathering and processing of the records.
data and documents made available by RCBC would require 26
weeks.54 Such application was denied by the tribunal in Procedural In a letter dated March 10, 2006, 60 petitioners requested that they be
Order No. 5 dated September 16, 2005.55 given an additional period of at least 47 days within which to submit
their evidence-in-chief with the corresponding request for the
On October 21, 2005, the tribunal issued Procedural Order No. cancellation of the hearing on April 24, 2006. Petitioners submit that
6,56 postponing the November 21, 2005 hearing by virtue of an order should such request be denied, RCBC's summaries should be
issued by the RTC in Makati City directing the tribunal to reset the excluded from the records.
hearing for April 21 and 24, 2006.
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- appeal the Partial Award to the RTC, which they in fact did. Later,
chief.61 petitioners even moved for the reconsideration of the denial of their
appeal. Having been able to appeal and move for a reconsideration of
On April 18, 2006, petitioners requested the tribunal that they be the assailed rulings, petitioners cannot claim a denial of due
allowed to file rejoinder briefs, or otherwise exclude RCBC's reply process.65
brief and witness statements.62 In this request, petitioners also
requested that the hearing set for April 24, 2006 be moved. These Petitioners' right to due process was not breached.
requests were denied.
As regards petitioners' claim that its right to due process was violated
Consequently, on April 24 to 27, 2006, the arbitral tribunal when they were allegedly denied the right to cross-examine RCBC's
conducted hearings on the case.63 witnesses, their claim is also bereft of merit.

On December 4, 2006, petitioners submitted rejoinder affidavits, Sec. 15 of RA 876 or the Arbitration Law provides that:
raising new issues for the first time, to which RCBC submitted
Volume III of its evidence-in-chief by way of a reply. Section 15. Hearing by arbitrators. - Arbitrators may, at the
commencement of the hearing, ask both parties for brief statements
On January 16, 2007, both parties simultaneously submitted their of the issues in controversy and/or an agreed statement of facts.
memoranda. On January 26, 2007, both parties simultaneously filed Thereafter the parties may offer such evidence as they desire, and
their reply to the other's memorandum.64 shall produce such additional evidence as the arbitrators shall require
or deem necessary to an understanding and determination of the
Thus, on September 27, 2007, the Partial Award was rendered by the dispute. The arbitrators shall be the sole judge of the relevancy
Tribunal. and materiality of the evidence offered or produced, and shall
not be bound to conform to the Rules of Court pertaining to
Later, petitioners moved to vacate the said award before the RTC. evidence. Arbitrators shall receive as exhibits in evidence any
Such motion was denied by the trial court in the first assailed order document which the parties may wish to submit and the exhibits
dated January 8, 2008. Petitioners then moved for a reconsideration shall be properly identified at the time of submission. All exhibits
of such order, but their motion was also denied in the second assailed shall remain in the custody of the Clerk of Court during the course of
order dated March 17, 2008. the arbitration and shall be returned to the parties at the time the
award is made. The arbitrators may make an ocular inspection of any
The foregoing events unequivocally demonstrate ample opportunity matter or premises which are in dispute, but such inspection shall be
for petitioners to verify and examine RCBC's summaries, accounting made only in the presence of all parties to the arbitration, unless any
records, and reports. The pleadings reveal that RCBC granted party who shall have received notice thereof fails to appear, in which
petitioners' requests for production of documents and accounting event such inspection shall be made in the absence of such party.
records. More so, they had more than three (3) years to prepare for (Emphasis supplied.)
their defense after RCBC's submission of its brief of evidence.
Finally, it must be emphasized that petitioners had the opportunity to
The well-settled rule is that administrative agencies exercising quasi- Citing Vertudes v. Buenaflor, petitioners also cry denial of due
judicial powers shall not be fettered by the rigid technicalities of process when they were allegedly denied the right to cross-examine
procedure, albeit they are, at all times required, to adhere to the basic the witnesses presented by RCBC. It is true that in Vertudes, we
concepts of fair play. The Court wrote in CMP Federal Security stated: "The right of a party to confront and cross-examine opposing
Agency, Inc. v. NLRC: witnesses in a judicial litigation, be it criminal or civil in nature, or in
proceedings before administrative tribunals with quasi-judicial
While administrative tribunals exercising quasi-judicial powers, like powers, is a fundamental right which is part of due process." 68
the NLRC and Labor Arbiters, are free from the rigidity of certain
procedural requirements, they are nonetheless bound by law and It is, however, equally true that:
practice to observe the fundamental and essential requirements of
due process. The standard of due process that must be met in [T]he right is a personal one which may be waived expressly or
administrative tribunals allows a certain degree of latitude as long as impliedly by conduct amounting to a renunciation of the right of
fairness is not ignored. Hence, it is not legally objectionable, for cross-examination. Thus, where a party has had the opportunity
being violative of due process, for the Labor Arbiter to resolve a case to cross-examine a witness but failed to avail himself of it, he
based solely on the position papers, affidavits or documentary necessarily forfeits the right to cross-examine and the testimony
evidence submitted by the parties. The affidavits of witnesses in such given on direct examination of the witness will be received or
case may take the place of their direct testimony. 66 allowed to remain in the record.69 (Emphasis supplied.)

Of the same tenor is our holding in Quiambao v. Court of Appeals: We also held in one case:

In resolving administrative cases, conduct of full-blown trial is not However, the right has always been understood as requiring not
indispensable to dispense justice to the parties. The requirement of necessarily an actual cross-examination but merely an
notice and hearing does not connote full adversarial proceedings. opportunity to exercise the right to cross-examine if desired.
Submission of position papers may be sufficient for as long as the What is proscribed by statutory norm and jurisprudential
parties thereto are given the opportunity to be heard. In precept is the absence of the opportunity to cross-examine. The
administrative proceedings, the essence of due process is simply right is a personal one and may be waived expressly or impliedly.
an opportunity to be heard, or an opportunity to explain one's There is an implied waiver when the party was given the opportunity
side or opportunity to seek a reconsideration of the action or to confront and cross-examine an opposing witness but failed to take
ruling complained of. This constitutional mandate is deemed advantage of it for reasons attributable to himself alone. If by his
satisfied if a person is granted an opportunity to seek actuations, the accused lost his opportunity to cross-examine wholly
reconsideration of an action or a ruling. It does not require trial- or in part the witnesses against him, his right to cross-examine is
type proceedings similar to those in the courts of justice. Where impliedly waived.70 (Emphasis supplied.)
opportunity to be heard either through oral arguments or through
pleadings is accorded, there is no denial of procedural due And later in Velez v. De Vera, the Court En Banc expounded on the
process.67 (Emphasis supplied.) above rulings, adding that in administrative proceedings, cross-
examination is not indispensable, thus:
Due process of law in administrative cases is not identical with accounts in September 2000. Thus, RCBC is now precluded from
"judicial process" for a trial in court is not always essential to due denying the fairness and accuracy of said accounts since it did not
process. While a day in court is a matter of right in judicial seek price reduction under Sec. 5(h). Lastly, they asseverate that
proceedings, it is otherwise in administrative proceedings since they RCBC continued with Bankard's accounting policies and practices
rest upon different principles. The due process clause guarantees no and found them to conform to the generally accepted accounting
particular form of procedure and its requirements are not technical. principles, contrary to RCBC's allegations.
Thus, in certain proceedings of administrative character, the right to
a notice or hearing [is] not essential to due process of law. The It also bears stating that in his dissent, retired Justice Kapunan, an
constitutional requirement of due process is met by a fair hearing arbitral tribunal member, argued that Bankard's accounting practices
before a regularly established administrative agency or tribunal. It is were disclosed in the information memorandum provided to RCBC;
not essential that hearings be had before the making of a hence, RCBC was supposed to know such accounting practices and
determination if thereafter, there is available trial and tribunal before to have accepted their propriety even before the execution of the
which all objections and defenses to the making of such SPA. He then argued that when it paid the purchase price on
determination may be raised and considered. One adequate hearing is December 29, 2000, RCBC could no longer claim that the
all that due process requires. What is required for "hearing" may accounting practices that went into the reporting of the 1999 AFS of
differ as the functions of the administrative bodies differ. Bankard were not in accord with generally accepted accounting
principles. He pointed out that RCBC was bound by the audit
The right to cross-examine is not an indispensable aspect of due conducted by a certain Rubio prior to the full payment of the
process.71 x x x (Emphasis supplied.) purchase price of Bankard. Anchored on these statements by Justice
Kapunan, petitioners conclude that RCBC is estopped from claiming
Clearly, the right to cross-examine a witness, although a fundamental that the former violated their warranties under the SPA.
right of a party, may be waived. Petitioners themselves admit having
had the opportunity to cross-examine RCBC's witnesses during the Petitioners' contention is not meritorious.
hearings before the tribunal, but declined to do so by reserving such
right at a later time. Having had the opportunity to cross-examine Art. 1431 of the Civil Code, on the subject of estoppel, provides:
RCBC's witnesses, petitioners were not denied their right to due "Through estoppel an admission or representation is rendered
process. conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon."
RCBC Is Not Estopped from Questioning
the Financial Condition of Bankard 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
On estoppel, petitioners contend that RCBC already knew the to speak against one's own acts, representations, or commitments to
recording of the Bankard accounts before it paid the balance of the the injury of one to whom they were directed and who reasonably
purchase price and could no longer challenge the financial statements relied on them.72
of Bankard. RCBC, they claim, had full control of the operations of
Bankard since June 2, 2000 and RCBC's audit team reviewed the
We explained the principle of estoppel in Philippine Savings Bank v. (1) conduct which amounts to a false representation or concealment
Chowking Food Corporation: of material facts, or, at least, which calculated to convey the
impression that the facts are otherwise than, and inconsistent with,
x x x The equitable doctrine of estoppel was explained by this Court those which the party subsequently attempts to assert; (2) intention,
in Caltex (Philippines), Inc. v. Court of Appeals: or at least expectation, that such conduct shall be acted upon by the
other party; and (3) knowledge, actual or constructive, of the actual
Under the doctrine of estoppel, an admission or representation is facts.74
rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon. A party may not In the case at bar, the first element of estoppel in relation to the party
go back on his own acts and representations to the prejudice of the sought to be estopped is not present. Petitioners claim that RCBC
other party who relied upon them. In the law of evidence, whenever misrepresented itself when RCBC made it appear that they
a party has, by his own declaration, act, or omission, intentionally considered petitioners to have sufficiently complied with its
and deliberately led another to believe a particular thing true, to act warranties under Sec. 5(g) and 5(h), in relation to Sec. 7 of the SPA.
upon such belief, he cannot, in any litigation arising out of such Petitioners' position is that "RCBC was aware of the manner in
declaration, act, or omission, be permitted to falsify it. which the Bankard accounts were recorded, well before it
consummated the SPA by taking delivery of the shares and paying
The principle received further elaboration in Maneclang v. Baun: the outstanding 80% balance of the contract price." 75

In estoppel by pais, as related to the party sought to be estopped, it is Petitioners, therefore, theorize that in this case, the first element of
necessary that there be a concurrence of the following requisites: (a) estoppel in relation to the party sought to be estopped is that RCBC
conduct amounting to false representation or concealment of material made a false representation that it considered Bankard's accounts to
facts or at least calculated to convey the impression that the facts are be in order and, thus, RCBC abandoned any claim under Sec. 5(g)
otherwise than, and inconsistent with, those which the party and 5(h) by its inaction.
subsequently attempts to assert; (b) intent, or at least expectation that
this conduct shall be acted upon, or at least influenced by the other Such contention is incorrect.
party; and (c) knowledge, actual or constructive of the actual facts.
It must be emphasized that it was only after a second audit that
Estoppel may vary somewhat in definition, but all authorities agree RCBC presented its claim to petitioners for violation of Sec. 5(g),
that a party invoking the doctrine must have been misled to one's within the three (3)-year period prescribed. In other words, RCBC,
prejudice. That is the final and, in reality, most important of the prior to such second audit, did not have full and thorough knowledge
elements of equitable estoppel. It is this element that is lacking of the correctness of Bankard's accounts, in relation to Sec. 5(g).
here.73 (Emphasis supplied.) RCBC, therefore, could not have misrepresented itself considering
that it was still in the process of verifying the warranties covered
The elements of estoppel pertaining to the party estopped are: 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 therefore, had no sufficient knowledge of the correctness of
of estoppel are likewise absent in the case at bar. Bankard's accounts.

As to the second element, in order to establish estoppel, RCBC must On another issue, RCBC could not have immediately changed the
have intended that petitioners would act upon its actions. This Bankard accounting practices until it had conducted a more extensive
element is also missing. RCBC by its actions did not mislead and thorough audit of Bankard's voluminous records and transactions
petitioners into believing that it waived any claim for violation of a to uncover any irregularities. That would be the only logical
warranty. The periods under Sec. 5(g) and 5(h) were still available to explanation why Bankard's alleged irregular practices were
RCBC. maintained for more than two (2) years from closing date. The fact
that RCBC continued with the audit of Bankard's AFS and records
The element that petitioners relied on the acts and conduct of RCBC after the termination of the Rubio audit can only send the clear
is absent. The Court finds that there was no reliance on the part of message to petitioners that RCBC is still entertaining the possibility
petitioners on the acts of RCBC that would lead them to believe that of filing a claim under Sec. 5(g). It cannot then be said that
the RCBC will forego the filing of a claim under Sec. 5(g). The petitioners' reliance on RCBC's acts after full payment of the price
allegation that RCBC knew that the Bankard accounts did not could have misled them into believing that no more claim will be
comply with generally accepted accounting principles before presented by RCBC.
payment and, hence, it cannot question the financial statements of
Bankard is meritless. Precisely, the SPA explicitly provides that The Arbitral Tribunal explained in detail why estoppel is not present
claims for violation of the warranties under Sec. 5(g) can still be in the case at bar, thus:
filed within three (3) years from the closing date. Petitioners'
contention that RCBC had full control of Bankard operations after 10.18 The audit exercise conducted by Mr. Legaspi and Mr. Rubio
payment of the price and that an audit undertaken by the Rubio team was clearly not one comprehensive enough to have discovered the
did not find anything wrong with the accounts could not have problems later unearthed by Dr. Laya and Dean Ledesma. x x x
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 10.19 Although the powers of the TC [Transition Committee] may
claim under Sec. 5(g) is three (3) years under Sec. 7, much longer have been widely expressed in the view of Mr. Rogelio Chua, then in
than the six (6)-month period under Sec. 5(h). Petitioners are fully charge of Bankard x x x the TC conducted meetings only to get
aware that the warranties under Sec. 5(g) (1997 up to March 2000) updated on the status and progress of Bankard's operations.
are of a wider scope than that of Sec. 5(h) (AFS of 1999 and UFS up Commercially, one would expect that an unpaid vendor expecting to
to May 31, 2000), necessitating a longer audit period than the six (6)- receive 80% of a large purchase price would not be receptive to a
month period under Sec. 5(h). purchaser making vast policy changes in the operation of the
business until the purchaser has paid up its money. It is more likely
The third element of estoppel in relation to the party sought to be that, until the settlement date, there was a practice of maintaining
estopped is also absent considering that, as stated, RCBC was still in the status quo at Bankard.
the process of verifying the correctness of Bankard's accounts prior
to presenting its claim of overvaluation to petitioners. RCBC,
10.20 But neither the Claimant nor the TC did anything, in the 10.23 The three-year limitation period obviously contemplated that it
Tribunal's view, which would have given the Respondents the could take some time to ascertain whether there had been a breach of
impression that they were being relieved over the next three years of the GAAP standards, etc. Such was the case. A six-month limitation
susceptibility to a claim under clause 5(g). Maybe the TC could have period under Clause 5(h), in contrast, presaged a somewhat less
been more proactive in commissioning further or more in-depth stringent enquiry of the kind carried out by Mr. Rubio and Mr.
audits but it was not. It did not have to be. It is commercially Legaspi.
unlikely that it have been done so, with the necessary degree of
attention to detail, within the relatively short time between the 10.24 Clause 2(3) of the Amendment to the SPA strengthens the
appointment of the TC and the ultimate settlement date of the conclusion that the parties were concerned only with a 5(h) claim
purchase - a period of some three months. An interim arrangement during the TC's reign. The focus of the 'audit' - however intense it
was obviously sensible to enable the Claimant and its staff to become was - conducted by Mr. Rubio and Mr. Legaspi, was on establishing
familiar with the practices and procedures of Bankard. possible liability under that section and thus as a possible reduction
in the price to be paid on settlement.
10.21 The core consideration weighing with the Tribunal in
assessing these claims for estoppel is that the SPA allowed two types 10.25 The fact that the purchase price was paid over in full without
of claim; one within six months under 5(h) and one within three any deduction in terms of clause 5(h) is not a bar to the Claimant
years under 5(g). The Tribunal has already held the present claim is bringing a claim under 5(g) within the three-year period. The fact
not barred by clause 5(h). It must therefore have been within the that payment was made can be, as the Tribunal has held, a barrier to
reasonable contemplation of the parties that a 5(g) claim could a claim for rescission and restitution ad inegrum. A claim for
surface within the three-year period and that it could be somewhat estoppel needs a finding of representation by words of conduct or a
differently assessed than the claim under 5(h). The Tribunal cannot shared presumption that a right would not be relied upon. The party
find estoppel by conduct either from the formation of the TC or from relying on estoppel has to show reliance to its detriment or that,
the limited auditing exercise done by Mr. Rubio and Mr. Legaspi. otherwise, it would be unconscionable to resile from the provision.
The onus proving estoppel is on the Respondents and it has not been
discharged. 10.26 Article 1431 of the Civil Code states:

10.22 If the parties had wished the avenues of relief for "Through estoppel an admission or representation is rendered
misrepresentation afforded to the Claimant to have been restricted to conclusive upon the person making it, and cannot be denied or
a claim under Clause 5(h), then they could have said so. The 'special disproved as against the person relying thereon."
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). 10.27 Clearly, there has to both an admission or representation by (in
Clause 5(g) imposed a positive obligation on the Respondents from this case) the Claimant, plus reliance upon it by (in this case) the
which they cannot be excused, simply by reason of either the Respondents. The Tribunal cannot find as proved any
formation and conduct of the TC or of the limited audit. 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 representations by RCBC that it would not pursue a claim under Sec.
claim of estoppel are rejected. 5(g) and that petitioners relied on such representation to their
detriment. We agree with the findings of the tribunal that estoppel is
xxx not present in the situation at bar.

10.42 The Tribunal is not the appropriate forum for deciding whether Additionally, petitioners claim that in Knecht v. Court of
there have been any regulatory or ethical infractions by Bankard Appeals76 and Coca-Cola Bottlers Philippines, Inc. v. Court of
and/or the Claimant in setting the 'buy-back' price. It has no bearing Appeals (Coca-Cola),77 this Court ruled that the absence of the
on whether the Claimant must be considered as having waived its element of reliance by a party on the representation of another does
right to claim against the Respondents. not negate the principle of estoppel. Those cases are, however, not
on all fours with and cannot be applied to this case.
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 In Knecht, the buyer had the opportunity of knowing the conditions
failure to put a tag on the accounts nor to have said something to the of the land he was buying early on in the transaction, but proceeded
shareholders in the buy-back exercise operates as a "technical knock- with the sale anyway. According to the Court, the buyer was
out" of Claimant's claim. 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.
10.44 The Tribunal notes that the conciliation process mandated by RCBC did not conduct a due diligence audit in relation to Sec.5(g)
the SPA took most of 2003 and this may explain a part of the delay prior to the sale due to petitioners' express representations and
in commencing arbitral proceedings. warranties. The examination conducted by RCBC, through Rubio,
after the execution of the SPA on June 2, 2000, was confined to
10.45 Whatever the status of Mr. Rubio's and Mr. Legaspi's enquiries finding any breach under Sec. 5(h) for a possible reduction of the
in late 2000, the Claimant was quite entitled to commission purchase price prior to the payment of its balance on December 31,
subsequent reports from Dr. Laya and Dr. Echanis and, on the basis 2000. Further, the parties clearly agreed under Sec. 7 of the SPA to a
of those reports, make a timeous claim under clause 5(g) of the SPA. three (3)-year period from closing date within which to present a
claim for damages for violation of the warranties under the SPA.
10.46 In the Tribunal's view, therefore, there is no merit in Hence, Knecht is not a precedent to the case at bar.
Respondents' various submissions that the Claimant is debarred from
prosecuting its claims on the grounds of estoppel. There is just no So is Coca-Cola. As lessee, Coca-Cola Bottlers was well aware of
proof of the necessary representation to the Respondent, nor any the nature and situation of the land relative to its intended use prior
detriment to the Respondent proved. The grounds of delay and laches to the signing of the contract. Its subsequent assertion that the land
are not substantiated. was not suited for the purpose it was leased was, therefore, cast aside
for being unmeritorious. Such circumstance does not obtain in the
In summary, the tribunal properly ruled that petitioners failed to instant case. There was no prior due diligence audit conducted by
prove that the formation of the Transition Committee and the RCBC, it having relied, as earlier stated, on the warranties of
conduct of the audit by Rubio and Legaspi were admissions or 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 G.R. No. 204689, January 21, 2015
parties, therefore, are very much safeguarded in the arbitration
proceedings. Any suggestion, therefore, on the partiality of the
STRONGHOLD INSURANCE COMPANY,
arbitration tribunal has to be dismissed.
INC., Petitioner, v. SPOUSES RUNE AND LEA
STROEM, Respondents.
WHEREFORE, the instant petition is hereby DENIED. The
assailed January 8, 2008 and March 17, 2008 Orders of the RTC,
DECISION
Branch 148 in Makati City are hereby AFFIRMED.
LEONEN, J.:
SO ORDERED.
For resolution is a Petition for Review1 under Rule 45 of the Rules of
Court assailing the Decision2 dated November 20, 2012 of the Court
of Appeals in CA-G.R. CV No. 96017.  The Court of Appeals
affirmed the Decision3 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 out of the country.15
Owners-Contractor Agreement4 with Asis-Leif & Company, Inc.
(Asis-Leif) for the construction of a two-storey house on the lot On July 13, 2010, the Regional Trial Court rendered a judgment in
owned by Spouses Stroem.  The lot was located at Lot 4A, Block 24, favor of the Spouses Stroem.  The trial court ordered Stronghold to
Don Celso Tuason Street, Valley Golf Subdivision, Barangay pay the Spouses Stroem ?4,500,000.00 with 6% legal interest from
Mayamot, Antipolo, Rizal.5 the time of first demand.16  The dispositive portion of the trial court
Decision reads
On November 15, 1999, pursuant to the agreement, Asis-Leif
secured Performance Bond No. LP/G(13)83056 in the amount of WHEREFORE, finding plaintiffs’ cause of action to be sufficiently
P4,500,000.00 from Stronghold Insurance Company, Inc. established being supported by evidence on records, judgement is
(Stronghold).6  Stronghold and Asis-Leif, through Ms. Ma. Cynthia hereby rendered in favor of the plaintiff spouses Rune and Lea
Asis-Leif, bound themselves jointly and severally to pay the Spouses Stroem and against the defendant Stronghold Insurance Company
Stroem the agreed amount in the event that the construction project is Incorporated ordering the latter to pay the plaintiff the sums of
not completed.7
1)  Php4,500,000.00 with six (6%) percent legal interest from the
Asis-Leif failed to finish the project on time despite repeated time of first demand and interest due shall earn legal interest from
demands of the Spouses Stroem. 8 the time of judicial demand until fully paid.

Spouses Stroem subsequently rescinded the agreement. 9  They then 2)  Php35,000.00 by way of attorney’s fees and other litigation
hired an independent appraiser to evaluate the progress of the expenses.
construction project.10
Defendant is further ordered to pay the costs of this suit.
Appraiser Asian Appraisal Company, Inc.’s evaluation resulted in
the following percentage of completion: 47.53% of the residential SO ORDERED.17
building, 65.62% of the garage, and 13.32% of the swimming pool,
fence, gate, and land development.11 Both Stronghold and the Spouses Stroem appealed to the Court of
Appeals.18
On April 5, 2001, Stronghold sent a letter to Asis-Leif requesting
that the company settle its obligations with the Spouses Stroem.  No The Court of Appeals affirmed with modification the trial court’s
response was received from Asis-Leif. 12 Decision.  It increased the amount of attorney’s fees to ?50,000.00. 19
On September 12, 2002, the Spouses Stroem filed a Complaint (with The dispositive portion of the Court of Appeals Decision reads
Prayer for Preliminary Attachment) 13 for breach of contract and for
sum of money with a claim for damages against Asis-Leif, Ms. WHEREFORE, the appeal of Stronghold Company, Inc[.]
Cynthia Asis-Leif, and Stronghold. 14  Only Stronghold was served is DISMISSED, while the appeal of spouses Rune and Lea Stroem
summons.  Ms. Cynthia Asis-Leif allegedly absconded and moved 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 On the other hand, the Spouses Stroem argue that Stronghold
fees is increased to P50,000.00 committed forum shopping warranting dismissal of the case. 31 
According to the Spouses Stroem, Stronghold deliberately
SO ORDERED.20 committed forum shopping when it filed the present petition despite
the pendency of the Spouses Stroem’s Motion for Partial
On March 20, 2013, this court required the Spouses Stroem to submit Reconsideration of the Court of Appeals Decision dated November
their Comment on the Petition. 21 20, 2012.32

We noted the Spouses Stroem’s Comment on July 31, 2013. 22  We More importantly, the Owners-Contractor Agreement is “separate
also required Stronghold to file its Reply to the Comment, 23 which and distinct from the Bond.  The parties to the Agreement are
was noted on December 9, 2013. 24 ALB/Ms. Asis-Leif and Spouses Stroem, while the parties to the
Bond are Spouses Stroem and Stronghold.  The considerations for
Stronghold argues that the trial court did not acquire jurisdiction over the two contracts are likewise distinct.  Thus, the arbitration clause in
the case and, therefore, the Court of Appeals committed reversible the Agreement is binding only on the parties thereto, specifically
error when it upheld the Decision of the Regional Trial Court. 25  The ALB/Ms. Asis-Leif and Spouses Stroem[.]” 33
lower courts should have dismissed the case in view of the
arbitration clause in the agreement and considering that “[Republic Contrary to Stronghold’s argument, Spouses Stroem argues that
Act No. 876] explicitly confines the court’s authority only to pass stronghold is liable for the full amount of the performance bond. 
upon the issue of whether there is [an] agreement . . . providing for The terms of the bond clearly show that Stronghold is liable as
arbitration.  In the affirmative, the statute ordains that the court shall surety.34  Verily, notice to Stronghold is not required for its liability
issue an order ‘summarily directing the parties to proceed with the to attach.35
arbitration in accordance with the terms thereof.’” 26
The issues for consideration are
Moreover, “the stipulations in said Agreement are part and parcel of
(1) Whether the dispute involves a construction contract;
the conditions in the bond.  Were it not for such stipulations in said
(2) Whether the CIAC has exclusive jurisdiction over the
agreement, [Stronghold] would not have agreed to issue a bond in
controversy between the parties;
favor of the Spouses Stroem.  The parties to the bond are ALB/Ms.
(3) Whether the Regional Trial Court should have dismissed the
Asis-[L]eif, Spouses Stroem and [Stronghold] such that ALB/Ms.
petition outright as required by law and jurisprudence and
Asis-[L]eif never ceased to be a party to the surety agreement.” 27
referred the matter to the CIAC; and
(4) Whether petitioner Stronghold Insurance Company, Inc. is
In any case, Stronghold’s liability under the performance bond is
liable under Performance Bond No. LP/G(13)83056.
limited only to additional costs for the completion of the project. 28  In
(a) Whether petitioner Stronghold Insurance Company, Inc. is
addition, the Court of Appeals erred in holding that Stronghold
only liable as to the extent of any additional cost for the
changed its theory with regard to the notice requirement 29 and in
completion of the project due to any increase in prices for
modifying the trial court’s award of attorney’s fees. 30
labor and materials.
(b) Whether the case involves ordinary suretyship or corporate Shopping is the status of “any other action.”  This other action
suretyship. involves the same issues and parties but is an entirely different case.

After considering the parties’ arguments and the records of this case, Indeed, petitioner is guilty of forum shopping.
this court resolves to deny the Petition.
There is forum shopping when
On forum-shopping
as a result of an adverse opinion in one forum, a party seeks a
Respondents argue that petitioner committed forum shopping; hence, favorable opinion (other than by appeal or certiorari) in another.  The
the case should have been dismissed outright. principle applies not only with respect to suits filed in the courts but
also in connection with litigations commenced in the courts while an
Records show that petitioner received a copy of the Decision of the administrative proceeding is pending[.]43  (Citation omitted)
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 has enumerated the elements of forum-shopping: “(a)
this court a Motion for Extension of Time To File Petition for identity of parties, or at least such parties as represent the same
Review requesting an additional period of 30 days from December interests in both actions; (b) identity of rights asserted and reliefs
20, 2012 or until January 19, 2013 to file the Petition. 37 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
Respondents filed their Motion for Partial Reconsideration of the is such that any judgment rendered in the pending cases, regardless
Court of Appeals Decision on December 11, 2012. 38  They sought of which party is successful, amount to res judicata in the other
the modification of the Decision as to the amounts of moral case.”44
damages, exemplary damages, attorney’s fees, and costs of the suit. 39
Rule 42, Section 245 in relation to Rule 45, Section 4 of the Rules of
Respondents alleged in their Comment that as early as January 9, Court mandates petitioner to submit a Certification Against Forum
2013, petitioner received a copy of the Court of Appeals’ Resolution Shopping and promptly inform this court about the pendency of any
requiring Comment on the Motion for Partial Reconsideration. 40  similar action or proceeding before other courts or tribunals.  The
Still, petitioner did not disclose in its Verification and Certification rule’s purpose is to deter the unethical practice of pursuing
Against Forum Shopping the pendency of respondents’ Motion for simultaneous remedies in different forums, which “wreaks havoc
Partial Reconsideration.41 upon orderly judicial procedure.”46  Failure to comply with the rule is
a sufficient ground for the dismissal of the petition. 47
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 Records show that petitioner’s duly authorized officer certified the
was the Decision dated November 20, 2012 of the Court of Appeals.  following on January 21, 2013
“Petitioner merely exercised its available remedy with respect to the
Decision of the Court of Appeals by filing [the] Petition.” 42  What 4. I further certify that: (a) I have not commenced any other action or
the rules mandate to be stated in the Certification Against Forum proceeding involving the same issues in the Supreme Court, Court of
Appeals, or any other tribunal or agency; (b) to the best of my upon by the courts.  However, it is also well-settled that jurisdiction
knowledge, no such action or proceeding is pending in the Supreme can never be waived or acquired by estoppel. 51  Jurisdiction is
Court, the Court of Appeals or different Divisions thereof, or any conferred by the Constitution or by law. 52  “Lack of jurisdiction of
tribunal or agency; (c) if I should thereafter learn that a similar action the court over an action or the subject matter of an action cannot be
or proceeding has been filed or is pending before the Supreme Court, cured by the silence, by acquiescence, or even by express consent of
the Court of Appeals, or different Divisions thereof, or any other the parties.”53
tribunal or agency, I undertake to promptly inform the aforesaid
courts and such tribunal or agency of the fact within five (5) days Section 4 of Executive Order No. 100854 is clear in defining the
therefrom.48 exclusive jurisdiction of the CIAC

SECTION 4. Jurisdiction – The CIAC shall have original and


Petitioner failed to carry out its duty of promptly informing this court
exclusive jurisdiction over disputes arising from, or connected with,
of any pending action or proceeding before this court, the Court of
contracts entered into by parties involved in construction in the
Appeals, or any other tribunal or agency.  This court cannot
Philippines, whether the dispute arises before or after the completion
countenance petitioner’s disregard of the rules.
of the contract, or after the abandonment or breach thereof.  These
disputes may involve government or private contracts.  For the Board
This court has held before that
to acquire jurisdiction, the parties to a dispute must agree to submit
[u]ltimately, what is truly important to consider in determining the same to voluntary arbitration.
whether forum-shopping exists or not is the vexation caused the
courts and parties-litigant by a party who asks different courts The jurisdiction of the CIAC may include but is not limited to
and/or administrative agencies to rule on the same or related causes violation of specifications for materials and workmanship; violation
and/or to grant the same or substantially the same reliefs, in the of the terms of agreement; interpretation and/or application of
process creating the possibility of conflicting decisions being contractual time and delays; maintenance and defects; payment,
rendered by the different fora upon the same issue. 49  (Emphasis default of employer or contractor and changes in contract cost.
supplied)
Excluded from the coverage of this law are disputes arising from
employer-employee relationships which shall continue to be covered
On this basis, this case should be dismissed. by the Labor Code of the Philippines.  (Emphasis supplied)

On arbitration and the CIAC’s jurisdiction


Similarly, Section 35 of Republic Act No. 9285 or the Alternative
Petitioner changed the theory of its case since its participation in the Dispute Resolution Act of 2004 states
trial court proceedings.  It raised the issue of lack of jurisdiction in
SEC. 35. Coverage of the Law. - Construction disputes which fall
view of an arbitration agreement for the first time.
within the original and exclusive jurisdiction of the Construction
Industry Arbitration Commission (the “Commission”) shall include
Generally, parties may not raise issues for the first time on appeal. 50 
those between or among parties to, or who are otherwise bound by,
Such practice is violative of the rules and due process and is frowned
an arbitration agreement, directly or by reference whether such and necessary supervision to complete the project[,]” 59 is
parties are project owner, contractor, subcontractor, quantity significantly and substantially connected to the construction contract
surveyor, bondsman or issuer of an insurance policy in a and, therefore, falls under the jurisdiction of the CIAC. 60
construction project.
Prudential Guarantee and Assurance Inc. v. Anscor Land,
The Commission shall continue to exercise original and exclusive Inc.61 involved circumstances similar to the present case. 
jurisdiction over construction disputes although the arbitration is In Prudential, property owner Anscor Land, Inc. (ALI) entered into
“commercial” pursuant to Section 21 of this Act.  (Emphasis a contract for the construction of an eight-unit townhouse located in
supplied) Capitol Hills, Quezon City with contractor Kraft Realty and
Development Corporation (KRDC).62  KRDC secured the completion
In Heunghwa Industry Co., Ltd., v. DJ Builders Corporation,55 this of the construction project through a surety and performance bond
court held that “there are two acts which may vest the CIAC with issued by Prudential Guarantee and Assurance Inc. (PGAI). 63
jurisdiction over a construction dispute.  One is the presence of an
arbitration clause in a construction contract, and the other is the The delay in the construction project resulted in ALI’s termination of
agreement by the parties to submit the dispute to the CIAC.” 56 the contract and claim against the performance bond. 64  “ALI
[subsequently] commenced arbitration proceedings against KRDC
This court has ruled that when a dispute arises from a construction and PGAI in the CIAC.”65  PGAI, however, argued that it was not a
contract, the CIAC has exclusive and original jurisdiction. 57  party to the construction contract. 66
Construction has been defined as referring to “all on-site works on
buildings or altering structures, from land clearance through The CIAC ruled that PGAI was not liable under the performance
completion including excavation, erection and assembly and bond.67  Upon review, the Court of Appeals held that PGAI was
installation of components and equipment.” 58 jointly and severally liable with KRDC under the performance
bond.68
In this case, there is no dispute as to whether the Owners-Contractor
Agreement between Asis-Leif and respondents is a construction PGAI appealed the Court of Appeals Decision and claimed that
contract.  Petitioner and respondents recognize that CIAC has CIAC did not have jurisdiction over the performance bond. 69  This
jurisdiction over disputes arising from the agreement. court ruled

A guarantee or a surety contract under Article 2047 of the Civil Code


What is at issue in this case is the parties’ agreement, or lack thereof,
of the Philippines is an accessory contract because it is dependent for
to submit the case to arbitration.  Respondents argue that petitioner is
its existence upon the principal obligation guaranteed by it.
not a party to the arbitration agreement.  Petitioner did not consent to
arbitration.  It is only respondent and Asis-Leif that may invoke the
In fact, the primary and only reason behind the acquisition of the
arbitration clause in the contract.
performance bond by KRDC was to guarantee to ALI that the
construction project would proceed in accordance with the contract
This court has previously held that a performance bond, which is
terms and conditions.  In effect, the performance bond becomes
meant “to guarantee the supply of labor, materials, tools, equipment,
liable for the completion of the construction project in the event
KRDC fails in its contractual undertaking. 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
Because of the performance bond, the construction contract between
ALI and KRDC is guaranteed to be performed even if KRDC fails in Verily, “[i]n enforcing a surety contract, the ‘complementary-
its obligation.  In practice, a performance bond is usually a condition contracts-construed-together’ doctrine finds application.  According
or a necessary component of construction contracts.  In the case at to this principle, an accessory contract must be read in its entirety
bar, the performance bond was so connected with the construction and together with the principal agreement.” 75  Article 1374 of the
contract that the former was agreed by the parties to be a condition Civil Code provides
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. ART. 1374. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result
Although not the construction contract itself, the performance bond from all of them taken jointly.
is deemed as an associate of the main construction contract that it
cannot be separated or severed from its principal.  The Performance Applying the “complementary-contracts-construed-together”
Bond is significantly and substantially connected to the construction doctrine, this court in Prudential held that the surety willingly
contract that there can be no doubt it is the CIAC, under Section 4 of acceded to the terms of the construction contract despite the silence
EO No. 1008, which has jurisdiction over any dispute arising from of the performance bond as to arbitration
or connected with it.70  (Emphasis supplied, citations omitted)
In the case at bar, the performance bond was silent with regard to
At first look, the Owners-Contractor Agreement and the performance arbitration.  On the other hand, the construction contract was clear as
bond reference each other; the performance bond was issued to arbitration in the event of disputes.  Applying the said doctrine, we
pursuant to the construction agreement. rule that the silence of the accessory contract in this case could only
be construed as acquiescence to the main contract.  The construction
A performance bond is a kind of suretyship agreement.  A suretyship contract breathes life into the performance bond.  We are not ready
agreement is an agreement “whereby a party, called the surety, to assume that the performance bond contains reservations with
guarantees the performance by another party, called the principal or regard to some of the terms and conditions in the construction
obligor, of an obligation or undertaking in favor of another party, contract where in fact it is silent.  On the other hand, it is more
called the obligee.”71  In the same vein, a performance bond is reasonable to assume that the party who issued the performance
“designed to afford the project owner security that the . . . contractor, bond carefully and meticulously studied the construction contract
will faithfully comply with the requirements of the contract . . . and that it guaranteed, and if it had reservations, it would have and
make good [on the] damages sustained by the project owner in case should have mentioned them in the surety contract. 76  (Emphasis
of the contractor’s failure to so perform.” 72 supplied)

It is settled that the surety’s solidary obligation for the performance This court, however, cannot apply the ruling in Prudential to the
of the principal debtor’s obligation is indirect and merely present case.  Several factors militate against petitioner’s claim.
secondary.73  Nevertheless, the surety’s liability to the “creditor or
The contractual stipulations in this case and in Prudential are Philippines, as amended by the Executive Order 1008 dated
different.  The relevant provisions of the Owners-Contractor February 4, 1985.77 (Emphasis in the original)
Agreement in this case state
In contrast, the provisions of the construction contract in Prudential
ARTICLE 5.  THE CONTRACT DOCUMENTS
provide
The following documents prepared by the CONTRACTOR shall Article 1
constitute an integral part of this contract as fully as if hereto CONTRACT DOCUMENTS
attached or herein stated, except as otherwise modified by mutual
agreement of parties, and attached to this agreement. 1.1 The following shall form part of this Contract and together with
this Contract, are known as the “Contract Documents”
Attachment 5.1 Working Drawings
Attachment 5.2 Outline Specifications a.   Bid Proposal
Attachment 5.3 Bill of Quantities
Attachment 5.4 CONTRACTOR Business License . . . .
. . . .cralawred d.   Notice to proceed

ARTICLE 7. PERFORMANCE (SURETY) BOND . . . .

7.1 Within 30 days of the signing of this j.  Appendices A & B (respectively, Surety Bond for Performance
agreement, CONTRACTOR shall provide to OWNERS a and, Supply of Materials by the Developer)78 (Emphasis supplied)
performance bond, issued by a duly licensed authority acceptable to
the OWNERS, and equal to the amount of PHP 4,500,000.00 (Four This court in Prudential held that the construction contract expressly
Million and Five Hundred Thousand Philippine Pesos), with incorporated the performance bond into the contract. 79  In the present
the OWNERS as beneficiary. case, Article 7 of the Owners-Contractor Agreement merely stated
that a performance bond shall be issued in favor of respondents, in
7.2 The performance bond will guarantee the satisfactory and faithful which case petitioner and Asis-Leif Builders and/or Ms. Ma. Cynthia
performance by the CONTRACTOR of all provisions stated within Asis-Leif shall pay P4,500,000.00 in the event that Asis-Leif fails to
this contract. perform its duty under the Owners-Contractor Agreement. 80 
Consequently, the performance bond merely referenced the contract
ARTICLE 8. ARBITRATION
entered into by respondents and Asis-Leif, which pertained to Asis-
Leif’s duty to construct a two-storey residence building with attic,
8.1 Any dispute between the parties hereto which cannot be pool, and landscaping over respondents’ property. 81
amicably settled shall be finally settled by arbitration in
accordance with the provision of Republic Act 876, of The To be clear, it is in the Owners-Contractor Agreement that the
arbitration clause is found.  The construction agreement was signed a repetition or similar violation of the rule on Certification Against
only by respondents and the contractor, Asis-Leif, as represented by Forum Shopping will be dealt with more severely.
Ms. Ma. Cynthia Asis-Leif.  It is basic that “[c]ontracts take effect
only between the parties, their assigns and heirs[.]” 82  Not being a SO ORDERED.
party to the construction agreement, petitioner cannot invoke the
arbitration clause. Petitioner, thus, cannot invoke the jurisdiction of
the CIAC.

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:

The CIAC was created through Executive Order No. 1008 (E.O. G.R. No. 173137, January 11, 2016
1008), in recognition of the need to establish an arbitral machinery
that would expeditiously settle construction industry disputes.  The BASES CONVERSION DEVELOPMENT
prompt resolution of problems arising from or connected with the AUTHORITY, Petitioner, v. DMCI PROJECT DEVELOPERS,
construction industry was considered of necessary and vital for the INC., Respondent.
fulfillment of national development goals, as the construction
industry provides employment to a large segment of the national G.R. NO. 173170
labor force and is a leading contributor to the gross national
product.85  (Citation omitted) NORTH LUZON RAILWAYS
CORPORATION, Petitioner, v. DMCI PROJECT
DEVELOPERS, INC. Respondent.
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 DECISION
construction agreement, we cannot allow petitioner to invoke
arbitration at this late stage of the proceedings since to do so would LEONEN, J.:
go against the law’s goal of prompt resolution of cases in the
construction industry. An arbitration clause in a document of contract may extend to
subsequent documents of contract executed for the same purpose.
WHEREFORE, the petition is DENIED.  The case Nominees of a party to and beneficiaries of a contract containing an
is DISMISSED.  Petitioner’s counsel is STERNLY WARNED that arbitration clause may become parties to a proceeding initiated based
on that arbitration clause. 22, 1995.7

On June 10, 1995, Bases Conversion Development Authority BCDA invited investors to participate in the railroad project's
(BCDA) entered into a Joint Venture Agreement 1 with Philippine financing and implementation. Among those invited were D.M.
National Railways (PNR) and other foreign corporations. 2 Consunji, Inc. and Metro Pacific Corporation. 8

Under the Joint Venture Agreement, the parties agreed to construct On February 8, 1996, the Joint Venture Agreement was amended
a railroad system from Manila to Clark with possible extensions to to include D.M. Consunji, Inc. and/or its nominee as
Subic Bay and La Union and later, possibly to Ilocos Norte and party.9 Under the amended Joint Venture Agreement, D.M.
Nueva Ecija.3 BCDA shall establish North Luzon Railways Consunji, Inc. shall be an additional investor of Northrail. 10 It shall
Corporation (Northrail) for purposes of constructing, operating, and subscribe to 20% of the increase in Northrail's authorized capital
managing the railroad system.4 The Joint Venture Agreement stock.11
contained the following provision:
On February 8, 1996, BCDA and the other parties to the Joint
ARTICLE XVI Venture Agreement, including D.M. Consunji, Inc. and/or its
ARBITRATION nominee, entered into a Memorandum of Agreement.12 Under this
agreement, the parties agreed that the initial seed capital of P600
million shall be infused to Northrail. 13 Of that amount, P200 million
16. If any dispute arise hereunder which cannot be shall be D.M. Consunji, Inc.'s share, which shall be converted to
settled by mutual accord between the parties to such equity upon NorthraiPs privatization. 14 Later, D.M. Consunji, Inc.'s
dispute, then that dispute shall be referred to share was increased to P300 million. 15
arbitration. The arbitration shall be held in
whichever place the parties to the dispute decide and Upon BCDA and Northrail's request, 16 DMCI Project Developers,
failing mutual agreement as to a location within Inc. (DMCI-PDI) deposited P300 million into NorthraiPs account
twenty-one (21) days after the occurrence of the with Land Bank of the Philippines.17 The deposit was made on
dispute, shall be held in Metro Manila and shall be August 7, 199618 for its "future subscription of the Northrail shares
conducted in accordance with the Philippine of stocks."19 In NorthraiPs 1998 financial statements submitted to the
Arbitration Law (Republic Act No. 876) Securities and Exchange Commission, this amount was reflected as
supplemented by the Rules of Conciliation and "Deposits For Future Subscription."20 At that time, NorthraiPs
Arbitration of the International Chamber of application to increase its authorized capital stock was still pending
Commerce. All award of such arbitration shall be with the Securities and Exchange Commission. 21
final and binding upon the parties to the dispute.5
In letters22dated April 4, 1997, D.M. Consunji, Inc. informed
PNR and the other parties that DMCI-PDI shall be its
BCDA organized and incorporated Northrail. 6 Northrail was designated nominee for all the agreements it entered and would
registered with the Securities and Exchange Commission on August
enter with them in connection with the railroad project. Pertinent Northrail and was regularly informed of the corporation's financial
portions of the letters provide: condition.30

[I]n order to formalize the inclusion of [DMCI Project Developers,


Upon BCDA's request, the Office of the Government Corporate
Inc.] as a party to the JVA and MOA, DMCI would like to notify all
Counsel (OGCC) issued Opinion No. 116, Series of 2001 31 on June
the parties that it is designating PDI as its nominee in both
27, 2001. The OGCC stated that "since no increase in capital stock
agreements and such other agreements that may be signed by the
was implemented, it is but proper to return the investments of both
parties in furtherance of or in connection with the PROJECT. By
FBDC and DMCI[.]"32
this nomination, all the rights, obligations, warranties and
commitments of DMCI under the JVA and MOA shall henceforth be
In a January 19, 2005 letter,33 DMCI-PDI reiterated the request for
assumed performed and delivered by PDI.23 (Emphasis supplied)
the refund of its P300 million deposit for future Northrail
subscription. On March 18, 2005, BCDA denied 34 DMCI-PDI's
Later, Northrail withdrew from the Securities and Exchange request:
Commission its application for increased authorized capital
stock.24 Moreover, according to DMCI-PDI, BCDA applied for We regret to say that we are of the position that the P300 [million]
Official Development Assistance from Obuchi Fund of Japan. 25 This contribution should not be returned to DMCI for the following
required Northrail to be a 100% government-owned and controlled reasons:
corporation.26
a. the P300 million was in the nature of a contribution,
On September 27, 2000, DMCI-PDI started demanding from BCDA not deposits for future subscription; and
and Northrail the return of its P300 million deposit. 27 DMCI-PDI
cited Northrail's failure to increase its authorized capital stock as b. DMCI, as a joint venture partner, must share in
reason for the demand.28 BCDA and Northrail refused to return the profits and losses.35
deposit29 for the following reasons:

a) At the outset, DMCI PDI/FBDC's participation in Northrail was as On August 17, 2005,36 DMCI-PDI served a demand for arbitration to
a joint venture partner and co-investor in the Manila Clark Rapid BCDA and Northrail, citing the arbitration clause in the June 10,
Railway Project, and as such, was granted corresponding 1995 Joint Venture Agreement. 37 BCDA and Northrail failed to
representation in the Northrail Board. respond.38

b) DMCI PDI/FBDC was privy to all the deliberations of the DMCI-PDI filed before the Regional Trial Court of Makati 39 a
Northrail Board and participated in the decisions made and policies Petition to Compel Arbitration40 against BCDA and Northrail,
adopted to pursue the project. pursuant to the alleged arbitration clause in the Joint Venture
Agreement.41 DMCI-PDI prayed for "an order directing the parties to
c) DMCI PDI/FBDC had full access to the financial statements of proceed to arbitration in accordance with the terms and conditions of
the agreement."42
February 9, 2006 trial court Order granting DMCI-PDI's Petition to
BCDA filed a Motion to Dismiss 43 on the ground that there was no Compel Arbitration and the June 9, 2006 Order denying BCDA and
arbitration clause that DMCI-PDI could enforce since DMCI-PDI Northrail's Motion for Reconsideration. 52
was not a party to the Joint Venture Agreement containing the
arbitration clause.44 Northrail filed a separate Motion to Dismiss 45 on The issue in this case is whether DMCI-PDI may compel BCDA and
the ground that the court did not have jurisdiction over it and that Northrail to submit to arbitration.
DMCI-PDI had no cause for arbitration against it. 46
BCDA argued that only the parties to an arbitration agreement can be
In the Decision47 dated February 9, 2006, the trial court denied bound by that agreement.53 The arbitration clause that DMCI-PDI
BCDA's and Northrail's Motions to Dismiss and granted DMCI- sought to enforce was in the Joint Venture Agreement, to which
PDI's Petition to Compel Arbitration. The dispositive portion of the DMCI-PDI was not a party.54 There was also no evidence that the
decision reads: right to compel arbitration under the Joint Venture Agreement was
assigned to DMCI-PDI.55 Assuming that there was such an
WHEREFORE, the petition is granted. The parties are ordered to assignment, BCDA did not consent to or recognize it. 56 Therefore,
present their dispute to arbitration in accordance with Article XVI of the trial court's conclusion that DMCI-PDI was D.M. Consunji, Inc.'s
the Joint Agreement. assignee had no basis.57 In BCDA's view, DMCI-PDI had no right to
compel BCDA to submit to arbitration. 58
SO ORDERED.48
BCDA also argued that the trial court decided the Motion to Dismiss
The trial court ruled that the arbitration clause in the Joint Venture in violation of the parties' right to due process. The trial court should
Agreement should cover all subsequent documents including the have conducted a hearing so that the parties could have presented
amended Joint Venture Agreement and the Memorandum of their respective positions on the issue of assignment. The trial court
Agreement. The three (3) documents constituted one contract for the merely accepted DMCI-PDI's allegations, without basis. 59
formation and funding of Northrail. 49
In a separate Petition for Review, 60 Northrail argued that it cannot be
The trial court also ruled that even though DMCI-PDI was not a compelled to submit itself to arbitration because it was not a party to
signatory to the Joint Venture Agreement and the Memorandum of the arbitration agreement.61
Agreement, it was an assignee of D.M. Consunji, Inc.'s rights.
Therefore, it could invoke the arbitration clause in the Joint Venture Northrail also argued that DMCI-PDI cannot initiate an action to
Agreement.50 compel BCDA and Northrail to arbitration because DMCI-PDI itself
was not a party to the arbitration agreement. DMCI-PDI was not
In an Order51 dated June 9, 2006, the trial court denied BCDA and D.M. Consunji, Inc.'s assignee because BCDA did not consent to that
Northrail's Motion for Reconsideration of the February 9, 2006 trial assignment.62
court Decision.
In its Comment63 on BCDA's Petition, DMCI-PDI argued that Rule
BCDA filed a Rule 45 Petition before this court, assailing the 45 was a wrong mode of appeal. 64 The issues raised by BCDA did
not involve questions of law.65 [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
DMCI-PDI pointed out that BCDA breached their agreement when it appellate court can determine the issue raised without reviewing or
failed to apply the P300 million deposit to Northrail subscriptions. It evaluating the evidence." Meanwhile, there is a question of fact
turned out that such application was rendered impossible by the when there is "doubt ... as to the truth or falsehood of facts." The
alleged loan requirement that Northrail be wholly owned by the question must involve the examination of probative value of the
government and by Northrail's withdrawal from the Securities and evidence presented.74
Exchange Commission of its application for an increase in
authorized capital stock.66 BCDA and Northrail primarily ask us to construe the arbitration
clause in the Joint Venture Agreement. They assert that the clause
DMCI-PDI also argued that it is an assignee and nominee of D.M. does not bind DMCI-PDI and Northrail. This issue is a question of
Consunji, Inc., which is a party to the contracts. Therefore, it is also law. It does not require us to examine the probative value of the
a party to the arbitration clause. 67 evidence presented. The prayer is essentially for this court to
determine the scope of an arbitration clause.
DMCI-PDI contended that the arbitration agreement extended to all
documents relating to the project. 68 Even though the agreement was Arbitration is a mode of settling disputes between parties. 75 Like
expressed only in the Joint Venture Agreement, its effect extends to many alternative dispute resolution processes, it is a product of the
the amendment to the Joint Venture Agreement and Memorandum of meeting of minds of parties submitting a pre-defined set of disputes.
Agreement.69 They agree among themselves to a process of dispute resolution that
avoids extended litigation.
DMCI-PDI emphasized that BCDA had always recognized it as
D.M. Consunji's assignee in its correspondences with the OGCC and The state adopts a policy in favor of arbitration. Republic Act No.
with the President of DMCI, Mr. Isidro Consunji. 70 In those letters, 928576 expresses this policy:
BCDA described DMCI-PDI's participation as being the "joint
venture partner . . . and co-investor in the Manila Clark Rapid SEC. 2. Declaration of Policy. - It is hereby declared the policy of
Railway Project[.]"71 Hence, it is now estopped from denying its the State to actively promote party autonomy in the resolution of
personality in this case.72 disputes or the freedom of the parties to make their own
arrangements to resolve their disputes. Towards this end, the State
We rule for DMCI-PDI. shall encourage and actively promote the use of Alternative Dispute
Resolution (ADR) as an important means to achieve speedy and
I impartial justice and declog court dockets. As such, the State shall
The state has a policy in favor of arbitration provide means for the use of ADR as an efficient tool and an
alternative procedure for the resolution of appropriate cases.
At the outset, we must state that BCDA and Northrail invoked the Likewise, the State shall enlist active private sector participation in
correct remedy. Rule 45 is applicable when the issues raised before the settlement of disputes through ADR. This Act shall be without
this court involved purely questions of law. In Villamor v. prejudice to the adoption by the Supreme Court of any ADR system,
Balmores:73
such as mediation, conciliation, arbitration, or any combination
thereof as a means of achieving speedy and efficient means of Hence, we resolve the issue of whether DMCI-PDI may compel
resolving cases pending before all courts in the Philippines which BCDA and Northrail to submit to arbitration proceedings in light of
shall be governed by such rules as the Supreme Court may approve the policy in favor of arbitration.
from time to time. (Emphasis supplied)
BCDA and Northrail assail DMCI-PDI's right to compel them to
Our policy in favor of party autonomy in resolving disputes has been submit to arbitration based on the assumption that DMCI-PDI was
reflected in our laws as early as 1949 when our Civil Code was not a party to the agreement containing the arbitration clause.
approved.77 Republic Act No. 87678 later explicitly recognized the
validity and enforceability of parties' decision to submit disputes and Three documents — (a) Joint Venture Agreement, (b) amended Joint
related issues to arbitration.79 Venture Agreement, and (c) Memorandum of Agreement —
represent the agreement between BCDA, Northrail, and D.M.
Arbitration agreements are liberally construed in favor of proceeding Consunji, Inc. Among the three documents, only the Joint Venture
to arbitration.80 We adopt the interpretation that would render Agreement contains the arbitration clause. DMCI-PDI was allegedly
effective an arbitration clause if the terms of the agreement allow for not a party to the Joint Venture Agreement.
such interpretation.81 In LM Power Engineering Corporation v.
Capitol Industrial Construction Groups, Inc.,82 this court said: To determine the coverage of the arbitration clause, the relation
among the three documents and DMCI-PDI's involvement in the
Consistent with the above-mentioned policy of encouraging execution of these documents must first be understood.
alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is susceptible of an The Joint Venture Agreement was executed by BCDA, PNR, and
interpretation that covers the asserted dispute, an order to arbitrate some foreign corporations.84 The purpose of the Joint Venture
should be granted. Any doubt should be resolved in favor of Agreement was for the construction of a railroad system from Manila
arbitration.83 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
This manner of interpreting arbitration clauses is made explicit in incorporate Northrail, which shall have an authorized capital stock of
Section 25 of Republic Act No. 9285: F5.5 billion.86 The parties agreed that BCDA/PNR shall have a 30%
equity with Northrail.87 Other Filipino partners shall have a total of
SEC. 25. Interpretation of the Act.-In interpreting the Act, the court 50% equity, while foreign partners shall have at most 20%
shall have due regard to the policy of the law in favor of arbitration. equity.88 Pertinent provisions of the Joint Venture Agreement are as
Where action is commenced by or against multiple parties, one or follows:
more of whom are parties to an arbitration agreement, the court shall
refer to arbitration those parties who are bound by the arbitration JOINT VENTURE AGREEMENT
agreement although the civil action may continue as to those who are
not bound by such arbitration agreement. KNOW ALL MEN BY THESE PRESENTS:
This Joint Venture Agreement (JVA) made and executed at development of the Northern Luzon Grid and to accelerate the
Makati, Metro Manila, this__ day of June 1995 by and between: development of Central Luzon and finally to decongest Metro
Manila of its vehicular traffic;
The BASES CONVERSION DEVELOPMENT AUTHORITY
WHEREAS, in order to implement and provide such a mass transit
. . . hereinafter referred to as BASECON; and access system, the parties hereto agreed to construct a double-
trac[k] railway system from Manila to Clark with a possible
The PHILIPPINE NATIONAL RAILWAYS ...; 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,
The following corporations collectively referred to as the Foreign Nueva Ecija, as the third phase of the project, hereinafter referred to
Group: as the PROJECT;

a) CONSTRUCCIONES Y AUXILIAR DE ARTICLE I


FERROCARRILES, S.A... .; DEFINITION OF TERMS

b) ENTRECANALES Y TAVORA, SA . . .; . . . .

c) CUBIERTAS MZOV, S.A. . . .; 1.5 "PROJECT" means the construction, operation and


management of a double-track railway system from Manila to Clark
d) COBRA, S.A....; and with an extension to Subic Bay, and a possible extension to San
Fernando, La Union, as the second phase, and finally to Laoag,
e) Others who may later participate in the JVA. Ilocos Norte and to San Jose, Nueva Ecija, as the third phase of the
PROJECT.
-and-
1.6 "North Luzon Railways Corporation (NORTHRAIL)
EUROMA DEVELOPMENT CORPORATION . . . ["] means the joint venture corporation to be established in
accordance with Article II hereof.
WITNESSETH: ....

ARTICLE II
. . . . THE NORTH LUZON RAILROAD CORPORATION

WHEREAS, a project identified pursuant to the aforesaid policy is


the establishment of a Premier International Airport Complex located 2.1 BASECON shall establish and incorporate in accordance with
at the former Clark Air Base as expressed in Executive Order 174 s. the laws of the Republic of the Philippines a corporation to be known
1994 in order to accommodate the expected heavy flow of passenger as NORTH LUZON RAILWAYS CORPORATION
and cargo traffic to and from the Philippines, to start the (NORTHRAIL) with an initial capitalization of one hundred million
pesos (PI 00,000,000.00). BASECON, PNR, EUROMA Development Corporation and
hereinafter to be owned by Filipino corporations shall not be less
2.2 NORTHRAIL shall eventually have an authorized capital stock than sixty percent (60%) at any given time.
of FIVE BILLION FIVE HUNDRED MILLION PESOS (P 5.5 ....
Billion) divided into 55,000,000 shares with par value of P 100 per
share. ARTICLE XVI
....
ARBITRATION
ARTICLE III
16. If any dispute arise hereunder which cannot be settled by mutual
PURPOSE OF NORTHRAIL accord between the parties to such dispute, then that dispute shall be
referred to arbitration. The arbitration shall be held in whichever
A. PRIMARY PURPOSE place the parties to the dispute decide and failing mutual agreement
as to a location within twenty-one (21) days after the occurrence of
3.1 To construct, operate and manage a railroad system to serve the dispute, shall be held in Metro Manila and shall be conducted in
Northern and Central Luzon; and to develop, construct, manage, accordance with the Philippine Arbitration Law (Republic Act No.
own, lease, sublease and operate establishments and facilities of all 876) as supplemented by the Rules of Conciliation and Arbitration of
kinds related to the railroad system; the International Chamber of Commerce. All award of such
.... arbitration shall be final and binding upon the parties to the dispute.

ARTICLE IV ARTICLE XVII


ASSIGNMENT
PARTICIPATION/TRANSFER/ENCUMBRANCE OF
SHARES
17.1 No party to this Agreement may assign, transfer or convey this
4.1 NORTHRAIL shall increase its authorized capital stock upon the Agreement, create or incur any encumbrance of its rights or any part
subscription thereon by the parties to this JVA in accordance with of its rights and obligations hereunder or any shares of stocks of
the following equity proportion/participation: NORTHRAIL to any person, firm or corporation without the prior
written consent of the other parties or except as provided in the
Foreign Group                          up to 20% Articles of Incorporation and By-Laws of NORTHRAIL and this
Euroma/Filipino partners                  50% Agreement.
BASECON/PNR                               30%
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
4.4 The shares owned by Filipino stockholders including
Other local investors to be represented by EUROMA
The Joint Venture Agreement was amended on February 8, 1996 90 to DEVELOPMENT CORPORATION . . .
include D.M. Consunji, Inc. and/or its nominee as party. 91 The
participations of the parties in Northrail were also modified. and
Pertinent provisions of the amended Joint Venture Agreement are
reproduced as follows: P.M. CONSUNJI. INC. and/or its nominee . . .

This Amendment to the Joint Venture Agreement dated 10 th of June WITNESSETH THAT
1995 (the Agreement) made and executed at_____________ , Metro
Manila, on this 8th day of February 1996 by and among: WHEREAS, a Joint Venture Agreement (JVA) was executed on the
10th of June 1995 between BASECON, PNR, FOREIGN GROUP,
BASES CONVERSION DEVELOPMENT AUTHORITY . . . and EUROMA;
hereinafter referred to as BASECON; . . . .

with NOW, THEREFORE, for and in consideration of the foregoing


premises and of the mutual covenant contained therein, THE
PHILIPPINE NATIONAL RAILWAYS ... PARTIES HEREBY AGREE that the JVA should be amended as
follows:
and
1. In Article 1.3, D.M. CONSUNJI, INC. shall
The following corporations collectively referred to as the FOREIGN be included as strategic partner, being one of
GROUP: the Philippine registered companies selected
by BASECON, PNR and the Lead Group on
CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, the basis of its qualifications for the
S.A.. . .; implementation of the Project.

ENTRECANALES Y TAVORA, S.A....; CUBIERTAS Y MZOV, 2. Article 4.1 should read as follows:


S.A. . . .;
"NORTHRAIL shall increase its authorized
COBRA INSTALACIONES Y SERVICIOS, S.A.. . .; and capital stock upon the subscription thereon
by the Parties to this JVA in accordance
Other investors who may later participate in the Joint Venture; with the following equity
proportion/participation:
and
SRG.............................................. up
to 10%
DMCI................................................ WHEREAS, NORTHRAIL is wholly owned and controlled by
..... 20% BASECON;
BASECON/PNR.............................
up to 30% WHEREAS, the privatization of NORTHRAIL is necessary in order
Others................................................ to accelerate the implementation of the Project by tapping the
..... 40% financial resources and expertise of the private sector;
. . . .

WHEREAS, the Parties of the Joint Venture Agreement (JVA) of 10


3. In Article 4.4, the Filipino corporations June 1995, namely BASECON, PNR, SPANISH RAILWAY
whose total shares in NORTHRAIL's capital GROUP and EUROMA, agreed to invite other private investors to
stock, which should not be less than sixty help in the financing and implementation of the Project, and to raise
percent (60%) at any given time, shall the required equity in order to accelerate the privatization of
include D.M. CONSUNJI, NORTHRAIL;
INC.93 (Underscoring supplied)
WHEREAS, DMCI and other private investors. . . have manifested
their desire to be strategic partners in implementing the Project;
On February 8, 1996, the same date of the execution of the amended
Joint Venture Agreement, the same parties executed a Memorandum WHEREAS, DMCI and other private investors have the financial
of Agreement94 "to set up the mechanics for raising the seed capability to implement the Project;
capitalization needed by NORTHRAIL[.]" 95 Pertinent provisions of
the Memorandum of Agreement are reproduced as follows: WHEREAS, Phase I of the Project covers the Manila - Clark section
of the North Luzon railway network as defined by the JVA of 10
WITNESSETH THAT June 1995 . . .[;]
....
WHEREAS, the Manila - Clark Rapid Railway System Project,
hereinafter referred to as the Project, was identified as one of the ARTICLE I
major infrastructure projects to accelerate the development of PURPOSE
Central Luzon, particularly the former U.S. bases at Clark and Subic;
. . . . 1.1 Purpose. This Agreement is entered into by the Parties in order
to set up the mechanics for raising the seed capitalization needed by
WHEREAS, the North Luzon Railways Corporation NORTHRAIL to accelerate the implementation of the Project.
(NORTHRAIL) was organized and incorporated to implement the ....
development, construction, operation and maintenance of the railway
system in Northern Luzon; ARTICLE II
TERMS OF AGREEMENT
effective.
. . . .
When a contract is supplemented, new provisions that are not
2.1 The Parties agree to put up the necessary seed capitalization inconsistent with the old provisions are added. The nature, scope,
needed by NORTHRAIL to fast-track the implementation of the and terms and conditions are expanded. In that case, the old and the
Rapid Rail Transit System Project according to the following new provisions form part of the contract.
schedule:
A reading of all the documents of agreement shows that they were
BCDA/PNR...................... PHP 300 Million executed by the same parties. Initially, the Joint Venture Agreement
DMCI..................................................... PHP 200 Million was executed only by BCD A, PNR, and the foreign corporations.
SRG...................................................... PHP 100 Million When the Joint Venture Agreement was amended to include D.M.
TOTAL................................................... PHP 600 Million Consunji, Inc. and/or its nominee, D.M. Consunji, Inc. and/or its
. . . . nominee were deemed to have been also a party to the original Joint
Venture Agreement executed by BCDA, PNR, and the foreign
2.3 The amounts contributed by BCDA/PNR, DMCI, SRG, and corporations. D.M. Consunji, Inc. and/or its nominee became bound
others are committed to be converted to equity when NORTHRAIL to the terms of both the Joint Venture Agreement and its amendment.
is privatized.96
Moreover, each document was executed to achieve the single
purpose of implementing the railroad project, such that documents of
There is no rule that a contract should be contained in a single agreement succeeding the original Joint Venture Agreement merely
document.97 A whole contract may be contained in several amended or supplemented the provisions of the original Joint
documents that are consistent with one other. 98 Venture Agreement.

Moreover, at any time during the lifetime of an agreement, The first agreement — the Joint Venture Agreement — defined the
circumstances may arise that may cause the parties to change or add project, its purposes, the parties, the parties' equity participation, and
to the terms they previously agreed upon. Thus, amendments or their responsibilities. The second agreement — the amended Joint
supplements to the agreement may be executed by contracting parties Venture Agreement —- only changed the equity participation of the
to address the circumstances or issues that arise while a contract parties and included D.M. Consunji, Inc. and/or its nominee as party
subsists. to the railroad project. The third agreement — the Memorandum of
Agreement — raised the seed capitalization of Northrail from P100
When an agreement is amended, some provisions are changed. million as indicated in the first agreement to P600 million, in order to
Certain parts or provisions may be added, removed, or corrected. accelerate the implementation of the same project defined in the first
These changes may cause effects that are inconsistent with the agreement.
wordings of the contract before the changes were applied. In that
case, the old provisions shall be deemed to have lost their force and The Memorandum of Agreement is an implementation of the Joint
effect, while the changes shall be deemed to have taken effect. Venture Agreement and the amended Joint Venture Agreement. It
Provisions that are not affected by the changes usually remain
could not exist without referring to the provisions of the original and
amended Joint Venture Agreements. It assumes a prior knowledge of However, Section 17.2 of the Joint Venture Agreement provides that
its terms. Thus, it referred to "North Luzon railway network as the agreement shall be binding on nominees:
defined by the JVA of 10 June 1995[.]" 99
17.2 This Agreement shall inure to the benefit of and be binding
In other words, each document of agreement represents a step toward upon the parties . . . and their respective successors and permitted
the implementation of the project, such that the three agreements assignees and designees or nominees whenever
must be read together for a complete understanding of the parties' applicable.102 (Emphasis supplied)
whole agreement. The Joint Venture Agreement, the amended Joint
Venture Agreement, and the Memorandum of Agreement should be The principal parties to the agreement after its amendment include
treated as one contract because they all form part of a whole D.M. Consunji, Inc. and/or its nominee:
agreement.
AMENDMENT TO THE JOINT VENTURE AGREEMENT
Hence, the arbitration clause in the Joint Venture Agreement should
not be interpreted as applicable only to the Joint Venture This Amendment to the Joint Venture Agreement dated 10 th of June
Agreement's original parties. The succeeding agreements are deemed 1995 (the Agreement) made and executed at _____________ , Metro
part of or a continuation of the Joint Venture Agreement. The Manila, on this 8th day of February 1996 by and among:
arbitration clause should extend to all the agreements and its parties
since it is still consistent with all the terms and conditions of the BASES CONVERSION DEVELOPMENT AUTHORITY . . .
amendments and supplements.
with
II
PHILIPPINE NATIONAL RAILWAYS . . .
BCDA and Northrail argued that they did not consent to D.M.
Consunji, Inc.'s assignment of rights to DMCI-PDI. Therefore, and
DMCI-PDI did not validly become a party to any of the agreement.
Section 17.1 of the Joint Venture Agreement provides that rights . . . .
under the agreement may not be assigned, transferred, or conveyed
without the consent of the other party.100 Thus: D.M. CONSUNJI, INC. and/or its nominee, a domestic corporation
duly organized and created pursuant to the laws of the Republic of
17.1 No party to this Agreement may assign, transfer or convey this the Philippines . . .103 (Emphasis supplied)
Agreement, create or incur any encumbrance of its rights or any part
of its rights and obligations hereunder or any shares of stocks of MEMORANDUM OF AGREEMENT
NORTHRAIL to any person, firm or corporation without the prior
written consent of the other parties or except as provided in the This Agreement made and executed at Pasig, Metro Manila,
Articles of Incorporation and By-Laws of NORTHRAIL and the Philippines on this 8[th] day of February 1996 by and among:
Agreement.101
17.2 This Agreement shall inure to the benefit of and be binding
BASES CONVERSION DEVELOPMENT AUTHORITY . . . upon the parties . . . and their respective successors and
permitted assignees and designees or nominees whenever
with applicable.106 (Emphasis supplied)

Assignment involves the transfer of rights after the perfection of a


PHILIPPINE NATIONAL RAILWAYS ...
contract. Nomination pertains to the act of naming the party with
whom it has a relationship of trust or agency.
and
In Philippine Coconut Producers Federation, Inc. (COCOFED) v.
Republic,107 this court defined "nominee" as follows:
D.M. CONSUNJI, INC. and/or its nominee, a domestic corporation
duly organized and created pursuant to the laws of the Republic of
In its most common signification, the term "nominee'' refers to one
the Philippines . . .104 (Emphasis supplied)
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
Based on DMCI-PDFs letter to BCDA and Northrail dated April 4, who is not the actual owner thereof is considered a
1997, D.M. Consunji, Inc. designated DMCI-PDI as its nominee for nominee." Corpus Juris Secundum describes a nominee as one:
the agreements it entered into in relation to the project:
". . . designated to act for another as his representative in a rather
[I]n order to formalize the inclusion of [DMCI Project Developers, limited sense. It has no connotation, however, other than that of
Inc.] as a party to the JVA and MOA, DMCI would like to notify all acting for another, in representation of another or as the grantee of
the parties that it is designating PDI as its nominee in both another. In its commonly accepted meaning the term connoted the
agreements and such other agreements that may be signed by the delegation of authority to the nominee in a representative or nominal
parties in furtherance of or in connection with the PROJECT. By capacity only, and does not connote the transfer or assignment to the
this nomination, all the rights, obligations, warranties and nominee of any property in, or ownership of, the rights of the person
commitments of DMCI under the JVA and MOA shall henceforth be nominating him."108 (Citations omitted)
assumed performed and delivered by PDI.105 (Emphasis supplied)
Contrary to BCDA and Northrail's position, therefore, the
Thus, lack of consent to the assignment is irrelevant because there agreement's prohibition against transfers, conveyance, and
was no assignment or transfer of rights to DMCI-PDI. DMCI-PDI assignment of rights without the consent of the other party does not
was D.M. Consunji, Inc.'s nominee. apply to nomination.

Section 17.2 of the Joint Venture Agreement clearly shows an intent DMCI-PDI is a party to all the agreements, including the arbitration
to treat assignment and nomination differently. agreement. It may, thus, invoke the arbitration clause against all the
parties.
III purpose, rights, and obligations are tied to the agreements. When
Northrail demanded for the amount of D.M. Consunji, Inc.'s
Northrail, although not a signatory to the contracts, is also bound by subscription based on the agreements and later accepted the latter's
the arbitration agreement. 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
In Lanuza v. BF Corporation,109 we recognized that there are its privatization. It cannot choose to demand the enforcement of
instances when non-signatories to a contract may be compelled to some of its provisions if it is in its favor, and then later by whim,
submit to arbitration.110 Among those instances is when a non- deny being bound by its terms.
signatory is allowed to invoke rights or obligations based on the
contract.111 Hence, when BCDA and Northrail decided not to proceed with
Northrail's privatization and the transfer of subscriptions to D.M.
The subject of BCDA and D.M. Consunji, Inc.'s agreement was the Consunji, Inc., any obligation to return its supposed subscription
construction and operation of a railroad system. Northrail was attached not only to BCDA as party to the agreement but primarily to
established pursuant to this agreement and its terms, and for the same Northrail as beneficiary that impliedly accepted the terms of the
purpose, thus: agreement and received D.M. Consunji, Inc.'s funds.

ARTICLE III There is, therefore, merit to DMCI-PDI's argument that if the Civil
Code113 gives third party beneficiaries to a contract the right to
PURPOSE OF NORTHRAIL 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
A. PRIMARY PURPOSE abide by the terms of an agreement, including the arbitration clause.
In this case, Northrail is deemed to have communicated its
3.1. To construct, operate and manage a railroad system to serve acceptance of the terms of the agreements when it accepted D.M.
Northern and Central Luzon; and to develop, construct, manage, Consunji, Inc.'s funds.
own, lease, sublease and operate establishments and facilities of all
kinds related to the railroad system[.]112 Finally, judicial efficiency and economy require a policy to avoid
multiplicity of suits. As we said in Lanuza:
Northrail's capitalization and the composition of its subscribers are
also subject to the provisions of the original and amended Joint Moreover, in Heirs ofAugusto Salas, this court affirmed its policy
Venture Agreements, and the subsequent Memorandum of against multiplicity of suits and unnecessary delay. This court said
Agreement. It was pursuant to the terms of these agreements that that "to split the proceeding into arbitration for some parties and trial
Northrail demanded from D.M. Consunji, Inc. the infusion of its for other parties would "result in multiplicity of suits, duplicitous
share in subscription. procedure and unnecessary delay." This court also intimated that the
interest of justice would be best observed if it adjudicated rights in a
Therefore, Northrail cannot deny understanding that its existence, 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.

G.R. No. 204197, November 23, 2016


FRUEHAUF ELECTRONICS PHILIPPINES Management Pacific Corp. (TEAM).
CORPORATION, Petitioner, v. TECHNOLOGY
ELECTRONICS ASSEMBLY AND MANAGEMENT PACIFIC In March 1987, Fruehauf filed an unlawful detainer case against
CORPORATION, Respondent. TEAM. In an effort to amicably settle the dispute, both parties
executed a Memorandum of Agreement (MOA) on June 9,
DECISION 1988.3 Under the MOA, TEAM undertook to pay Fruehauf 14.7
million pesos as unpaid rent (for the period of December 1986 to
BRION, J.: June 1988).

The fundamental importance of this case lies in its delineation of the They also entered a 15-year lease contract 4 (expiring on June 9,
extent of permissible judicial review over arbitral awards. We make 2003) that was renewable for another 25 years upon mutual
this determination from the prism of our existing laws on the subject agreement. The contract included an arbitration agreement: 5
and the prevailing state policy to uphold the autonomy of arbitration 17. ARBITRATION
proceedings.
In the event of any dispute or disagreement between the parties
This is a petition for review on certiorari of the Court of Appeals' hereto involving the interpretation or implementation of any
(CA) decision in CA-G.R. SP. No. 112384 that reversed an arbitral provision of this Contract of Lease, the dispute or disagreement shall
award and dismissed the arbitral complaint for lack of merit. 1 The be referred to arbitration by a three (3) member arbitration
CA breached the bounds of its jurisdiction when it reviewed the committee, one member to be appointed by the LESSOR, another
substance of the arbitral award outside of the permitted grounds member to be appointed by the LESSEE, and the third member to be
under the Arbitration Law.2 appointed by these two members. The arbitration shall be conducted
in accordance with the Arbitration Law (R.A. No.
Brief Factual Antecedents 876).ChanRoblesVirtualawlibrary
The contract also authorized TEAM to sublease the property. TEAM
In 1978, Fruehauf Electronics Philippines Corp. (Fruehauf) leased subleased the property to Capitol Publishing House (Capitol) on
several parcels of land in Pasig City to Signetics Filipinas December 2, 1996 after notifying Fruehauf.
Corporation (Signetics) for a period of 25 years (until May 28,
2003). Signetics constructed a semiconductor assembly factory on On May 2003, TEAM informed Fruehauf that it would not be
the land on its own account. renewing the lease.6

In 1983, Signetics ceased its operations after the Board of On May 31, 2003, the sublease between TEAM and Capitol expired.
Investments (BOI) withdrew the investment incentives granted to However, Capitol only vacated the premises on March 5, 2005. In
electronic industries based in Metro Manila. the meantime, the master lease between TEAM and Fruehauf expired
on June 9, 2003.
In 1986, Team Holdings Limited (THL) bought Signetics. THL later
changed its name to Technology Electronics Assembly and On March 9, 2004, Fruehauf instituted SP Proc. No. 11449 before
the Regional Trial Court (RTC) for "Submission of an Existing 3. Is TEAM liable for payment of real estate taxes,
Controversy for Arbitration."7 It alleged: (1) that when the lease insurance, and other expenses on the leased premises
expired, the property suffered from damage that required extensive after June 9, 2003?
renovation; (2) that when the lease expired, TEAM failed to turn
over the premises and pay rent; and (3) that TEAM did not restore 4. Who is liable for payment of damages and how
the property to its original condition as required in the contract. much?
Accordingly, the parties are obliged to submit the dispute to
arbitration pursuant to the stipulation in the lease contract. 5. Who is liable for payment of attorney's fees and how
much?
The RTC granted the petition and directed the parties to comply with
the arbitration clause of the contract. 8 Subsequently, the following issues were also submitted for resolution
after TEAM proposed11 their inclusion:
Pursuant to the arbitration agreement, the dispute was referred to a
three-member arbitration tribunal. TEAM and Fruehauf appointed 1. Who is liable for the expenses of arbitration, including
one member each while the Chairman was appointed by the first two arbitration fees?
members. The tribunal was formally constituted on September 27,
2004 with retired CA Justice Hector L. Hofileña, as chairman, retired 2. Whether or not TEAM has the obligation to return the
CA Justice Mariano M. Umali and Atty. Maria Clara B. Tankeh premises to Fruehauf as a "complete, rentable, and fully
Asuncion as members.9 facilitized electronic plant."

The parties initially submitted the following issues to the tribunal for The Arbitral Award12
resolution:10
On December 3, 2008, the arbitral tribunal awarded Fruehauf: (1) 8.2
1. Whether or not TEAM had complied with its million pesos as (the balance of) unpaid rent from June 9, 2003 until
obligation to return the leased premises to Fruehauf March 5, 2005; and (2) 46.8 million pesos as damages. 13
after the expiration of the lease on June 9, 2003.
The tribunal found that Fruehauf made several demands for the
    1.1. What properties should be returned and in return of the leased premises before and after the expiration of the
what condition? lease14 and that there was no express or implied renewal of the lease
after June 9, 2003. It recognized that the sub-lessor, Capitol,
2. Is TEAM liable for payment of rentals after June 9, remained in possession of the lease. However, relying on the
2003? commentaries of Arturo Tolentino on the subject, the tribunal held
that it was not enough for lessor to simply vacate the leased
    2.1. If so, how much and for what period? 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 The tribunal found TEAM negligent in the maintenance of the
for the payment of rents. However, if it can prove that Fruehauf premises, machineries, and equipment it was obliged to deliver to
received rentals from Capitol, TEAM can deduct these from its Fruehauf.23 For this failure to conduct the necessary repairs or to
liability.16 Nevertheless, the award of rent and damages was without notify Fruehauf of their necessity, the tribunal held TEAM
prejudice to TEAM's right to seek redress from its sub-lessee, accountable for damages representing the value of the repairs
Capitol.17 necessary to restore the premises to a condition "suitable for the use
to which it has been devoted" less their depreciation expense. 24
With respect to the improvements on the land, the tribunal viewed
the situation from two perspectives: On the other issues, the tribunal held that TEAM had no obligation to
pay real estate taxes, insurance, and other expenses on the leased
First, while the Contract admitted that Fruehauf was only leasing the premises considering these obligations can only arise from a renewal
land and not the buildings and improvements thereon, it nevertheless of the contract.25cralawred Further, the tribunal refused to award
obliged TEAM to deliver the buildings, installations and other attorney's fees, finding no evidence that either party acted in bad
improvements existing at the inception of the lease upon its faith.26 For the same reason, it held both parties equally liable for the
expiration.18 expenses of litigation, including the arbitrators' fees. 27

The other view, is that the MOA and the Contract recognized that TEAM moved for reconsideration28 which the tribunal
TEAM owned the existing improvements on the property and denied.29 Thus, TEAM petitioned the RTC to partially vacate or
considered them as separate from the land for the initial 15-year term modify the arbitral award.30 It argued that the tribunal failed to
of the lease.19 However, Fruehauf had a vested right to become the properly appreciate the facts and the terms of the lease contract.
owner of these improvements at the end of the 15-year term.
Consequently, the contract specifically obligated TEAM not to The RTC Ruling
remove, transfer, destroy, or in any way alienate or encumber these
improvements without prior written consent from Fruehauf. 20 On April 29, 2009, the RTC31 found insufficient legal grounds under
Sections 24 and 25 of the Arbitration Law to modify or vacate the
Either way, TEAM had the obligation to deliver the existing award.32 It denied the petition and CONFIRMED, the arbitral
improvements on the land upon the expiration of the lease. However, award.33 TEAM filed a Notice of Appeal.
there was no obligation under the lease to return the premises as a
"complete, rentable, and fully facilitized electronis plant."21 Thus, On July 3, 2009,34 the RTC refused to give due course to the Notice
TEAM's obligation was to vacate the leased property and deliver to of Appeal because according to Section 29 35 of the Arbitration Law,
Fruehauf the buildings, improvements, and installations (including an ordinary appeal under Rule 41 is not the proper mode of appeal
the machineries and equipment existing thereon) in the same against an order confirming an arbitral award. 36
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 TEAM moved for reconsideration but the RTC denied the motion on
inevitable cause.22 November 15, 2009.37 Thus, TEAM led a petition
38
for certiorari  before the CA arguing that the RTC gravely abused
its discretion in: (1) denying due course to its notice of appeal; and including the judgment thereon shall be governed by the Rules of
(2) denying the motion to partially vacate and/or modify the arbitral Court in so far as they are applicable.ChanRoblesVirtualawlibrary
award.39 It concluded that the appeal contemplated under the law is an appeal
by certiorari limited only to questions flaw.47
TEAM argued that an ordinary appeal under Rule 41 was the proper
remedy against the RTC's order confirming, modifying, correcting, The CA continued that TEAM failed to substantiate its claim as to
or vacating an arbitral award. 40 It argued that Rule 42 was not the "evident miscalculation of figures." It further held that
available because the order denying its motion to vacate was not disagreement with the arbitrators' factual determinations and legal
rendered in the exercise of the RTC's appellate jurisdiction. Further, conclusions does not empower courts to amend or overrule arbitral
Rule 43 only applies to decisions of quasi-judicial bodies. Finally, an judgments.48
appeal under Rule 45 to the Supreme Court would preclude it from
raising questions of fact or mixed questions of fact and law. 41 However, the CA amended its decision on October 25, 2012 upon a
motion for reconsideration.49
TEAM maintained that it was appealing the RTC's order denying its
petition to partially vacate/modify the award, not the arbitral The CA held that Section 29 of the Arbitration Law does not
award itself.42 Citing Rule 41, Section 13 of the Rules of Court, the preclude the aggrieved party from resorting to other judicial
RTC's authority to dismiss the appeal is limited to instances when it remedies.50 Citing Asset Privatization Trust v. Court of Appeals,51 the
was filed out of time or when the appellant fails to pay the docket CA held that the aggrieved party may resort to a petition
fees within the reglementary period. 43 for certiorari when the RTC to which the award was submitted for
confirmation has acted without jurisdiction, or with grave abuse of
TEAM further maintained that the RTC gravely abused its discretion discretion and there is no appeal, nor any plain, speedy remedy in the
by confirming the Arbitral Tribunal's award when it evidently had course of law.52
legal and factual errors, miscalculations, and ambiguities. 44
The CA further held that the mere filing of a notice of appeal is
The petition was docketed as CA-G.R. SP. No. 112384. sufficient as the issues raised in the appeal were not purely questions
of law.53 It further cited Section 46 of the Alternative Dispute
The CA decision45 Resolution (ADR) Law:54
SEC. 46. Appeal from Court Decisions on Arbitral Awards. - A
The CA initially dismissed the petition. 46 As the RTC did, it cited decision of the regional trial court confirming, vacating, setting
Section 29 of the Arbitration Law: aside, modifying or correcting an arbitral award may be appealed to
the Court of Appeals in accordance with the rules of procedure to be
Section 29. Appeals. - An appeal may be taken from an order made promulgated by the Supreme Court.
in a proceeding under this Act, or from a judgment entered upon an
award through certiorari proceedings, but such appeals shall be The losing party who appeals from the judgment of the court
limited to questions of law. The proceedings upon such appeal, 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 appeal is not the proper remedy against an RTC's order confirming,
promulgated by the Supreme Court.55ChanRoblesVirtualawlibrary vacating, correcting or modifying an arbitral ward but a petition for
However, the CA made no further reference to A.M. No. 07-11-08- review on certiorari under Rule 45.62
SC, the Special Rules of Court on Alternative Dispute Resolution
(Special ADR Rules) which govern the appeal procedure. Furthermore, TEAM's petition before the CA went beyond the
permissible scope of certiorari the existence of grave abuse of
The CA further revisited the merits of the arbitral award and found discretion or errors jurisdiction - by including questions of fact and
several errors in law and in fact. It held: (1) that TEAM was not law that challenged the merits of the arbitral award. 63
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 However, Fruehauf inconsistently argues that the remedies against an
(2) that Fruehauf was not entitled to compensation for the repairs on arbitral award are (1) a petition to vacate the award, (2) a petition for
the buildings because it did not become the owner of the building review under Rule 43 raising questions of fact, of law, or mixed
until after the expiration of the lease.57 questions of fact and law, or (3) a petition for certiorari under Rule
65.64 Fruehauf cites an article from the Philippine Dispute Resolution
Also citing Tolentino, the CA opined: (1) that a statement by the Center65 and Insular Savings Bank v. Far East Bank and Trust, Co. 66
lessee that he has abandoned the premises should, as a general rule,
constitute sufficient compliance with his duty to return the leased TEAM counters that the CA correctly resolved the substantive issues
premises; and (2) that any new arrangement made by the lessor with of the case and that the arbitral tribunal's errors were sufficient
another person, such as the sub-lessor, operates as a resumption of grounds to vacate or modify the award.67 It insists that the RTC's
his possession.58 misappreciation of the facts from a patently erroneous award
warranted an appeal under Rule 41.68
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 TEAM reiterates that it "disagreed with the arbitral award mainly
because they were owned by TEAM itself (through its predecessor, on questions of fact and not only on questions of law,"
Signetics) when the lease commenced. 59 specifically, "on factual matters relating to specific provisions in
the contract on ownership of structures and improvements
The CA REVERSED AND SET ASIDE the arbitral award thereon, and the improper award of rentals and
and DISMISSED the arbitral complaint for lack of merit. 60 penalties."69 Even assuming that it availed of the wrong mode of
appeal, TEAM posits that its appeal should still have been given due
This CA action prompted Fruehauf to file the present petition for course in the interest of substantial justice. 70
review.
TEAM assails the inconsistencies of Fruehauf's position as to the
The Arguments available legal remedies against an arbitral award. 71 However, it
maintains that Section 29 of the Arbitration Law does not foreclose
Fruehauf argues that courts do not have the power to substitute their other legal remedies (aside from an appeal by certiorari) against the
judgment for that of the arbitrators. 61 It also insists that an ordinary RTC's order confirming or vacating an arbitral award pursuant
to Insular Savings Bank and ABS-CBN Broadcasting Corporation v. contract that must be complied with in good faith. By entering into
World Interactive Network Systems (WINS) Japan Co., Ltd. 72 an arbitration agreement, the parties agree to submit their dispute to
an arbitrator (or tribunal) of their own choosing and be bound by the
The Issues latter's resolution.

This case raises the following questions: However, this contractual and consensual character means that the
parties cannot implead a third-party the proceedings even if the
1. What are the remedies or the modes of appeal against an latter's participation is necessary for a complete settlement of the
unfavorable arbitral award? dispute. The tribunal does not have the power to compel a person to
participate in the arbitration proceedings without that person's
2. What are the available remedies from an RTC decision consent. It also has no authority to decide on issues that the parties
confirming, vacating, modifying, or correcting an arbitral did not submit (or agree to submit) for its resolution.
award?
As a purely private mode of dispute resolution, arbitration
3. Did the arbitral tribunal err in awarding Fruehauf damages proceedings, including the records, the evidence, and the arbitral
for the repairs of the building and rental fees from the award, are confidential74 unlike court proceedings which are
expiration of the lease? generally public. This allows the parties to avoid negative publicity
and protect their privacy. Our law highly regards the confidentiality
Our Ruling of arbitration proceedings that it devised a judicial remedy to prevent
or prohibit the unauthorized disclosure of confidential information
The petition is meritorious. obtained therefrom.75

Arbitration is an alternative mode of dispute resolution outside of The contractual nature of arbitral proceedings affords the parties
the regular court system. Although adversarial in character, substantial autonomy over the proceedings. The parties are free to
arbitration is technically not litigation. It is a voluntary process in agree on the procedure to be observed during the proceedings.76 This
which one or more arbitrators - appointed according to the parties' lends considerable flexibility to arbitration proceedings as compared
agreement or according to the applicable rules of the Alternative to court litigation governed by the Rules of Court.
Dispute Resolution (ADR) Law - resolve a dispute by rendering an
award.73 While arbitration carries many advantages over court The parties likewise appoint the arbitrators based on agreement.
litigation, in many ways these advantages also translate into its There are no other legal requirements as to the competence or
disadvantages. technical qualifications of an arbitrator. Their only legal
qualifications are: (1) being of legal age; (2) full-enjoyment of their
Resort to arbitration is voluntary. It requires consent from both civil rights; and (3) the ability to read and write. 77 The parties can
parties in the form of an arbitration clause that pre-existed the tailor-fit the tribunal's composition to the nature of their dispute.
dispute or a subsequent submission agreement. This written Thus, a specialized dispute can be resolved by experts on the subject.
arbitration agreement is an independent and legally enforceable
However, because arbitrators do not necessarily have a background The arbitral tribunal acquires jurisdiction over the parties and the
in law, they cannot be expected to have the legal mastery of a subject matter through stipulation. Upon the rendition of the final
magistrate. There is a greater risk that an arbitrator might misapply award, the tribunal becomes functus officio and - save for a few
the law or misappreciate the facts en route to an erroneous decision. exceptions84 - ceases to have any further jurisdiction over the
dispute.85 The tribunal's powers (or in the case of ad hoc tribunals,
This risk of error is compounded by the absence of an effective their very existence) stem from the obligatory force of the arbitration
appeal mechanism. The errors of an arbitral tribunal are not subject agreement and its ancillary stipulations. 86 Simply put, an arbitral
to correction by the judiciary. As a private alternative to court tribunal is a creature of contract.
proceedings, arbitration is meant to be an end, not the beginning,
of litigation.78 Thus, the arbitral award is final and binding on the Deconstructing the view that arbitral tribunals are quasi-judicial
parties by reason of their contract the arbitration agreement. 79 agencies

An Arbitral Tribunal does not exercise quasi-judicial powers We are aware of the contrary view expressed by the late Chief
Justice Renato Corona in ABS-CBN Broadcasting Corporation v.
Quasi-judicial or administrative adjudicatory power is the power: (1) World Interactive Network Systems (WINS) Japan Co., Ltd..87
to hear and determine questions of fact to which legislative policy is
to apply, and (2) to decide in accordance with the standards laid The ABS-CBN Case opined that a voluntary arbitrator is a "quasi-
down by the law itself in enforcing and administering the same judicial instrumentality" of the government88 pursuant to Luzon
law.80 Quasi-judicial power is only exercised by administrative Development Bank v. Association of Luzon Development Bank
agencies - legal organs of the government. Employees,89Sevilla Trading Company v. Semana,90Manila Midtown
Hotel v. Borromeo,91 and Nippon Paint Employees Union-Olalia v.
Quasi-judicial bodies can only exercise such powers and jurisdiction Court of Appeals.92 Hence, voluntary arbitrators are included in the
as are expressly or by necessary implication conferred upon them by Rule 43 jurisdiction of the Court of Appeals:
their enabling statutes.81 Like courts, a quasi-judicial body's
jurisdiction over a subject matter is conferred by law and exists SECTION 1. Scope. - This Rule shall apply to appeals from
independently from the will of the parties. As government organs judgments or final orders of the Court of Tax Appeals and from
necessary for an effective legal system, a quasi-judicial tribunal's awards, judgments, final orders or resolutions of or authorized by
legal existence. continues beyond the resolution of a specific dispute. any quasi-judicial agency in the exercise of its quasi-judicial
In other words, quasi-judicial bodies are creatures of law. functions. Among these agencies are the Civil Service Commission,
Central Board of Assessment Appeals, Securities and Exchange
As a contractual and consensual body, the arbitral tribunal does not Commission, Office of the President, Land Registration Authority,
have any inherent powers over the parties. It has no power to issue Social Security Commission, Civil Aeronautics Board, Bureau of
coercive writs or compulsory processes. Thus, there is a need to Patents, Trademarks and Technology Transfer, National
resort to the regular courts for interim measures of protection 82 and Electrification Administration, Energy Regulatory Board, National
for the recognition or enforcement of the arbitral award. 83 Telecommunications Commission, Department of Agrarian Reform
under Republic Act No. 6657, Government Service Insurance
System, Employees Compensation Commission, Agricultural not by mere agreement of the parties.
Inventions Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Industry In both cases, the pronouncements as to the remedies against an
Arbitration Commission, and voluntary arbitrators authorized by arbitral award were unnecessary for their resolution. Therefore, these
law.93 (emphasis supplied)ChanRoblesVirtualawlibrary are obiter dicta - judicial comments made in passing which are not
Citing Insular Savings Bank v. Far East Bank and Trust essential to the resolution of the case and cannot therefore serve as
Co.,94 the ABS-CBN Case pronounced that the losing party in an precedents.99
arbitration proceeding may avail of three alternative remedies: (1) a
petition to vacate the arbitral award before the RTC; (2) a petition for Second, even if we disregard the obiter dicta character of both
review with the CA under Rule 43 of the Rules of Court raising pronouncements, a more careful scrutiny deconstructs their legal
questions, of fact, of law, or of both; and (3) a petition authority.
for certiorari under Rule 65 should the arbitrator act beyond its
jurisdiction or with grave abuse of discretion. 95 The ABS-CBN Case committed the classic fallacy of equivocation.
It equated the term "voluntary arbitrator" used in Rule 43, Section 1
At first glance, the logic of this position appears to be sound. and in the cases of Luzon Development Bank v. Association of Luzon
However, a critical examination of the supporting authorities would Development Bank Employees, Sevilla Trading Company v. Semana,
show that the conclusion is wrong. Manila Midtown Hotel v. Borromeo, and Nippon Paint Employees
Union-Olalia v. Court of Appeals with the term
First, the pronouncements mad in the ABS-CBN Case and in "arbitrator/arbitration tribunal."
the Insular Savings Bank Case (which served as the authority for the
ABS-CBN Case) were both obiter dicta. The first rule of legal construction, verba legis, requires that,
wherever possible, the words used in the Constitution or in the
In the ABS-CBN Case, we sustained the CA's dismissal of the statute must be given their ordinary meaning except where technical
petition because it was filed as an "alternative petition for review terms are employed.100 Notably, all of the cases cited in the ABS-
under Rule 43 or petition for certiorari under Rule 65."96 We held CBN Case involved labor disputes.
that it was an inappropriate mode of appeal because, a petition for
review and a petition for certiorari are mutually exclusive and not The term "Voluntary Arbitrator" does not refer to an ordinary
alternative or successive. "arbitrator" who voluntarily agreed to resolve a dispute. It is a
technical term with a specific definition under the Labor Code:
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 Art. 212 Definitions. xxx
to the arbitration agreement agreed that the rules of the arbitration
provider97 - which stipulated that the RTC shall have jurisdiction to 14. "Voluntary Arbitrator" means any person accredited by the Board
review arbitral awards - will govern the proceedings. 98 The Court as such or any person named or designated in the Collective
ultimately held that the RTC does not have jurisdiction to review the Bargaining Agreement by the parties to act as their Voluntary
merits of the award because legal jurisdiction is conferred by law, Arbitrator, or one chosen with or without the assistance of the
National Conciliation and Mediation Board, pursuant to a selection "commercial" arbitrators under the Arbitration Law and the ADR
procedure agreed upon in the Collective Bargaining Agreement, or Law, and "voluntary arbitrators" under the Labor Code. The two
any official that may be authorized by the Secretary of Labor and terms are not synonymous with each other. Interchanging them with
Employment to act as Voluntary Arbitrator upon the written request one another results in the logical fallacy of equivocation - using the
and agreement of the parties to a labor dispute. 101 same word with different meanings.
Voluntary Arbitrators resolve labor disputes and grievances arising
from the interpretation of Collective Bargaining Further, Rule 43, Section 1 enumerates quasi-judicial tribunals
Agreements.102 These disputes were specifically excluded from the whose decisions are appealable to the CA instead of the RTC. But
coverage of both the Arbitration Law 103 and the ADR Law.104 where legislation provides for an appeal from decisions of
certain administrative bodies to the CA, it means that such bodies
Unlike purely commercial relationships, the relationship between are co-equal with the RTC in terms of rank and stature, logically
capital and labor are heavily impressed with public placing them beyond the control of the latter.110
interest.105 Because of this, Voluntary Arbitrators authorized to
resolve labor disputes have been clothed with quasi-judicial However, arbitral tribunals and the RTC are not co-equal bodies
authority. because the RTC is authorized to confirm or to vacate (but not
reverse) arbitral awards. 111 If we were to deem arbitrators as included
On the other hand, commercial relationships covered by our in the scope of Rule 43, we would effectively place it on equal
commercial arbitration laws are purely private and contractual in footing with the RTC and remove arbitral awards from the scope of
nature. Unlike labor relationships, they do not possess the same RTC review.
compelling state interest that would justify state interference into the
autonomy of contracts. Hence, commercial arbitration is a purely All things considered, there is no legal authority supporting the
private system of adjudication facilitated by private citizens instead position that commercial arbitrators are quasi-judicial bodies.
of government instrumentalities wielding quasi-judicial powers.
What are remedies from a final domestic arbitral award?
Moreover, judicial or quasi-judicial jurisdiction cannot be conferred
upon a tribunal by the parties alone. The Labor Code itself confers The right to an appeal is neither a natural right nor an indispensable
subject-matter jurisdiction to Voluntary Arbitrators. 106 component of due process; it is a mere statutory privilege that cannot
be invoked in the absence of an enabling statute. Neither the
Notably, the other arbitration, body listed in Rule 43 the Arbitration Law nor the ADR Law allows a losing party to appeal
Construction Industry Arbitration Commission (CIAC) - is also a from the arbitral award. The statutory absence of an appeal
government agency107 attached to the Department of Trade and mechanism reflects the State's policy of upholding the autonomy of
Industry.108 Its jurisdiction is likewise conferred by statute. 109 By arbitration proceedings and their corresponding arbitral awards.
contrast, the subject-matter jurisdiction of commercial arbitrators is
stipulated by the parties. This Court recognized this when we enacted the Special Rules of
Court on Alternative Dispute Resolution in 2009:112
These account for the legal differences between "ordinary" or
Rule 2.1. General policies. - It is the policy of the State to actively Law and Article 34 of the 1985 United Nations Commission on
promote the use of various modes of ADR and to respect party International Trade Law (UNCITRAL) Model Law - recognizes the
autonomy or the freedom of the parties to make their own very limited exceptions to the autonomy of arbitral awards:
arrangements in the resolution of disputes with the greatest
cooperation of and the least intervention from the courts. xxx 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 Court shall exercise the power of judicial review as provided by the decision of an arbitral tribunal upon a clear showing that the
these Special ADR Rules. Courts shall intervene only in the cases award suffers from any of the infirmities or grounds for vacating an
allowed by law or these Special ADR Rules.113 arbitral award under Section 24 of Republic Act No. 876 or
under Rule 34 of the Model Law in a domestic arbitration, or for
xxxx setting aside an award in an international arbitration under Article 34
of the Model Law, or for such other grounds provided under these
Rule 19.7. No appeal or certiorari on the merits of an arbitral Special Rules.
award. - An agreement to refer a dispute to arbitration shall mean
that the arbitral award shall be final and binding. Consequently, a If the Regional Trial Court is asked to set aside an arbitral award in a
party to an arbitration is precluded from filing an appeal or a domestic or international arbitration on any ground other than
petition for certiorari questioning the merits of an arbitral those provided in the Special ADR Rules, the court shall entertain
award.114(emphasis supplied) such ground for the setting aside or non-recognition of the arbitral
More than a decade earlier in Asset Privatization Trust v. Court of award only if the same amounts to a violation of public policy.
Appeals, we likewise defended the autonomy of arbitral awards
through our policy of non-intervention on their substantive merits: The court shall not set aside or vacate the award of the arbitral
tribunal merely on the ground that the arbitral tribunal
As a rule, the award of an arbitrator cannot be set aside for mere committed errors of fact, or of law, or of fact and law, as the
errors of judgment either as to the law or as to the facts. Courts court cannot substitute its judgment for that of the arbitral
are without power to amend or overrule merely because of tribunal.116
disagreement with matters of law or facts determined by the The grounds for vacating a domestic arbitral award under Section 24
arbitrators. They will not review the findings of law and fact of the Arbitration Law contemplate the following scenarios:
contained in an award, and will not undertake to substitute their
judgment for that of the arbitrators, since any other rule would (a) when the award is procured by corruption, fraud, or other
make an award the commencement, not the end, of litigation. Errors undue means; or
of law and fact, or an erroneous decision of matters submitted to the
judgment of the arbitrators, are insufficient to invalidate an award (b) there was evident partiality or corruption in the arbitrators or
fairly and honestly made. Judicial review of an arbitration is, thus, any of them; or
more limited than judicial review of a trial. 115
(c) the arbitrators were guilty of misconduct that materially
Nonetheless, an arbitral award is not absolute. Rule 19.10 of the prejudiced the rights of any party; or
Special ADR Rules - by referring to Section 24 of the Arbitration
(d) the arbitrators exceeded their powers, or so imperfectly (dd) the composition of the arbitral tribunal or the arbitral
executed them, that a mutual, final and definite award upon procedure was not in accordance with the agreement
the subject matter submitted to them was not made. 117 of the parties, unless such agreement was in conflict
with a provision of ADR Act from which the parties
The award may also be vacated if an arbitrator who was disqualified cannot derogate, or, failing such agreement, was not in
to act willfully refrained from disclosing his disqualification to the accordance with ADR Act; or
parties.118 Notably, none of these grounds pertain to the correctness (ii) The Court finds that:
of the award but relate to the misconduct of arbitrators.
(aa) the subject-matter of the dispute is not capable of
The RTC may also set aside the arbitral award based on Article 34 of settlement by arbitration under the law of the
the UNCITRAL Model Law. These grounds are reproduced in Philippines; or
Chapter 4 of the Implementing Rules and Regulations (IRR) of the
(bb) the award is in conflict with the public policy of the
2004 ADR Act:
Philippines.119
Chapter 4 of the IRR of the, ADR Act applies particularly to
(i) the party making the application furnishes proof that: International Commercial Arbitration. However, the abovementioned
(aa) a party to the arbitration agreement was under some grounds taken from the UNCITRAL. Model Law are specifically
incapacity; or the said agreement is not valid under the made applicable to domestic arbitration by the Special ADR Rules. 120
law to which the parties have subjected it or, failing
any indication thereon, under the law of the Notably, these grounds are not concerned with the correctness of the
Philippines; or award; they go into the validity of the arbitration agreement or the
regularity of the arbitration proceedings.
(bb) the party making the application was not given proper
notice of the appointment of an arbitrator or of the These grounds for vacating an arbitral award are exclusive. Under
arbitral proceedings or was otherwise unable to the ADR Law, courts are obliged to disregard any other grounds
present his case; or invoked to set aside an award:
(cc) the award deals with a dispute not contemplated by or
not falling within the terms of the submission to SEC. 41. Vacation Award. - A party to a domestic arbitration may
arbitration, or contains decisions on matters beyond question the arbitral award with the appropriate regional trial court in
the scope of the submission to arbitration, provided accordance with the rules of procedure to be promulgated by the
that, if the decisions on matters submitted to Supreme Court only on those grounds enumerated in Section 25 of
arbitration can be separated from those not so Republic Act No. 876. Any other ground raised against a
submitted, only the part of the award which contains domestic arbitral award shall be disregarded by the regional
decisions on matters not submitted to arbitration may trial court.121
be set aside; or Consequently, the winning party can generally expect the
enforcement of the award. This is a stricter rule that makes Article
2044122 of the Civil Code regarding the finality of an arbitral award removed from the ambit of Rule 65.
redundant.
Not even the Court's expanded certiorari jurisdiction under the
As established earlier, an arbitral award is not appealable via Rule 43 Constitution126 can justify judicial intrusion into the merits of arbitral
because: (1) there is no statutory basis for an appeal from the final awards. While the Constitution expanded the scope
award of arbitrators; (2) arbitrators are not quasi-judicial bodies; and of certiorari proceedings, this power remains limited to a review of
(3) the Special ADR Rules specifically prohibit the filing of an the acts of "any branch or instrumentality of the Government." As a
appeal to question the merits of an arbitral award. purely private creature of contract, an arbitral tribunal remains
outside the scope of certiorari.
The Special ADR Rules allow the RTC to correct or modify an
arbitral award pursuant to Section 25 of the Arbitration Law. Lastly, the Special ADR Rules are a self-contained body of rules.
However, this authority cannot be interpreted as jurisdiction to The parties cannot invoke remedies and other provisions from the
review the merits of the award. The RTC can modify or correct the Rules of Court unless they were incorporated in the Special ADR
award only in the following cases: Rules:

a. Where there was an evident miscalculation of figures or an Rule 22.1. Applicability of Rules of Court. - The provisions of the
evident mistake in the description of any person, thing or Rules of Court that are applicable to the proceedings enumerated in
property referred to in the award;chanrobleslaw Rule 1.1 of these Special ADR Rules have either been included
and incorporated in these Special ADR Rules or specifically
b. Where the arbitrators have awarded upon a matter not referred to herein.
submitted to them, not affecting the merits of the decision
upon the matter submitted;chanrobleslaw In Connection with the above proceedings, the Rules of Evidence
shall be liberally construed to achieve the objectives of the Special
c. Where the arbitrators have omitted to resolve an issue ADR Rules.127
submitted to them for resolution; or
Contrary to TEAM's position, the Special ADR Rules actually
forecloses against other remedies outside of itself. Thus, a losing
d. Where the award is imperfect in a matter of form not
party cannot assail an arbitral award through, a petition for review
affecting the merits of the controversy, and if it had been a
under Rule 43 or a petition for certiorari under Rule 65 because
commissioner's report, the defect could have been amended
these remedies are not specifically permitted in the Special ADR
or disregarded by the Court.123
Rules.
A losing party is likewiselrecluded from resorting to certiorari under In sum, the only remedy against a final domestic arbitral award is to
Rule 65 of the Rules of Court. 124Certiorari is a prerogative writ file petition to vacate or to modify/correct the award not later than
designed to correct errors of jurisdiction committed by a judicial or thirty (30) days from the receipt of the award. 128 Unless a ground to
quasi-judicial body.125 Because an arbitral tribunal is not a vacate has been established, the RTC must confirm the arbitral award
government organ exercising judicial or quasi-judicial powers, it is as a matter of course.
on November 15, 2009. In the interim, the Special ADR Rules
The remedies against an order confirming, vacating, correcting, or became effective. Notably, the Special ADR Rules apply
modifying an arbitral award retroactively in light of its procedural character. 133 TEAM filed its
petition for certiorari soon after.
Once the RTC orders the confirmation, vacation, or
correction/modification of a domestic arbitral award, the aggrieved Nevertheless, whether we apply, Section 29 of the Arbitration Law,
party may move for reconsideration within a non-extendible period Section 46 of the ADR Law, or Rule 19.12 of the Special ADR
of fifteen (15) days from receipt of the order. 129 The losing party may Rules, there is no legal basis that an ordinary appeal (via notice of
also opt to appeal from the RTC's ruling instead. appeal) is the correct remedy from an order confirming, vacating, or
correcting an arbitral award. Thus, there is no merit in the CA's
Under the Arbitration Law, the mode of appeal was via petition for ruling that the RTC gravely abused its discretion when it refused to
review on certiorari: give due course to the notice of appeal.

Section 29. Appeals. - An appeal may be taken from an order made The correctness or incorrectness of the arbitral award
in a proceeding under this Act, or from judgment entered upon an
award through certiorari proceedings, but such appeals shall be We have deliberately refrained from passing upon the merits of the
limited to questions of law. The proceedings upon such appeal, arbitral award - not because the award was erroneous but because it
including the judgment thereon shall be governed by the Rules of would be improper. None of the grounds to vacate an arbitral award
Court in so far as they are applicable.130 are present in this case and as already established, the merits of the
award cannot be reviewed by the courts.
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
Our refusal to review the award is not a simple matter of putting
Court. As the appeal was limited to questions of law and was
procedural technicalities over the substantive merits of a case; it goes
described as "certiorari proceedings," the mode of appeal can be
into the very legal substance of the issues. There is no law granting
interpreted as an Appeal By Certiorari to this Court under Rule 45.
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
When the ADR Law was enacted in 2004, it specified that the
to the CA's doing so), it would be tantamount to expanding our
appeal shall be made to the CA in accordance with the rules of
jurisdiction without the benefit of legislation. This translates to
procedure to be promulgated by this Court. 131 The Special ADR
judicial legislation - a breach of the fundamental principle of
Rules provided that the mode of appeal from the RTC's order
separation of powers.
confirming, vacating, or correcting/modifying a domestic arbitral
award was through a petition for review with the CA. 132 However,
The CA reversed the arbitral award - an action that it has no power
the Special ADR Rules only took effect on October 30, 2009.
to do - because it disagreed with the tribunal's factual findings and
application of the law. However, the alleged incorrectness of the
In the present case, the RTC disallowed TEAM's notice of appeal
award is insufficient cause to vacate the award, given the State's
from the former's decision confirming the arbitral award on July 3,
policy of upholding the autonomy of arbitral awards.
2009. TEAM moved for reconsideration which was likewise denied
case, a simple error of law remains a simple error of law. Courts are
The CA passed upon questions such as: (1) whether or not TEAM precluded from revising the award in a particular way, revisiting the
effectively returned the property upon the expiration of the lease; (2) tribunal's findings of fact or conclusions of law, or otherwise
whether or not TEAM was liable to pay rentals after the expiration of encroaching upon the independence of an arbitral tribunal. 138 At the
the lease; and (3) whether or not TEAM was liable to pay Fruehauf risk of redundancy, we emphasize Rule 19.10 of the Special ADR
damages corresponding to the cost of repairs. These were the same Rules promulgated by this Court en banc:
questions that were specifically submitted to the arbitral tribunal for
its resolution.134 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
The CA disagreed with the tribunal's factual determinations and legal decision of an arbitral tribunal upon a clear showing that the
interpretation of TEAM's obligations under the contract - award suffers from any of the infirmities or grounds for vacating
particularly, that TEAM's obligation to turn over the improvements an arbitral award under Section 24 of Republic Act No. 876 or
on the land at the end of the lease in the same condition as when the under Rule 34 of the Model Law in a domestic arbitration, or for
lease commenced translated to an obligation to make ordinary repairs setting aside an award in an international arbitration under Article 34
necessary for its preservation. 135 of the Model Law, or for such other grounds provided under these
Special Rules.
Assuming arguendo that the tribunal's interpretation of the contract
was incorrect, the errors would have been simple errors of law. It If the Regional Trial Court is asked to set aside an arbitral award in a
was the tribunal - not the RTC or the CA - that had jurisdiction and domestic or international arbitration on any ground other than those
authority over the issue by virtue of the parties' submissions; the provided in the Special ADR Rules, the court shall entertain such
CA's substitution of its own judgment for the arbitral award cannot ground for the setting aside or non-recognition of the arbitral
be more compelling than the overriding public policy to uphold the award only if the same amounts to a violation of public policy.
autonomy of arbitral awards. Courts are precluded from disturbing
an arbitral tribunal's factual findings and interpretations of The court shall not set aside or vacate the award of the arbitral
law.136 The CA's ruling is an unjustified judicial intrusion in excess tribunal merely on the ground that the arbitral tribunal
of its jurisdiction - a judicial overreach. 137 committed errors of fact, or of law, or of fact and law, as the
court cannot substitute its judgment for that of the arbitral
Upholding the CA's ruling would weaken our alternative dispute tribunal.
resolution mechanisms by allowing the courts to "throw their weight
In other words, simple errors of fact, of law, or of fact and law
around" whenever they disagree with the results. It erodes the
committed by the arbitral tribunal are not justiciable errors in this
obligatory force of arbitration agreements by allowing the losing
jurisdiction.139
parties to "forum shop" for a more favorable ruling from the
judiciary.
TEAM agreed to submit their disputes to an arbitral tribunal. It
understood all the risks - including the absence of an appeal
Whether or not the arbitral tribunal correctly passed upon the issues
mechanism and found that its benefits (both legal and economic)
is irrelevant. Regardless of the amount, of the sum involved in a
outweighed the disadvantages. Without a showing that any of the
grounds to vacate the award exists or that the same amounts to a
violation of an overriding public policy, the award is subject to
confirmation as a matter of course. 140

WHEREFORE, we GRANT the petition. The CA's decision in


CAG.R. SP. No. 112384 is SET ASIDE and the RTC's
order CONFIRMING the arbitral award in SP. Proc. No.
11449 is REINSTATED.

SO ORDERED.

MABUHAY HOLDINGS CORPORATION, PETITIONER, VS.


SEMBCORP LOGISTICS LIMITED, RESPONDENT.

DECISION
TIJAM, J.:
This is an appeal from the Decision[1] dated November 19, 2013 and
the Resolution[2] dated June 3, 2014 of the Court of Appeals (CA) in
CA-G.R. CV No. 92296, reversing and setting aside the Decision of
the Regional Trial Court (RTC)[3] of Makati City, Branch 149, in SP
Proc. No. M-6064.
Facts of the Case Pursuant to Article 13 of the Agreement, Mabuhay and IDHI
voluntarily agreed to jointly guarantee that Sembcorp would receive
Petitioner Mabuhay Holdings Corporation (Mabuhay) and a minimum accounting return of US$929,875.50 (Guaranteed
Infrastructure Development & Holdings, Inc. (IDHI) are corporations Return) at the end of the 24th month following the full disbursement
duly organized and existing under the Philippine Laws. [4] of the Sembcorp's equity investment in WJNA and WJSC. They
further agreed that the Guaranteed Return shall be paid three (3)
Respondent Sembcorp Logistics Limited (Sembcorp), formerly months from the completion of the special audits of WJSC and
known as Sembawang Maritime Limited, is a company incorporated WJNA as per Article 13.3 of the Agreement. [10]
in the Republic of Singapore.[5]
The Agreement included an arbitration clause, viz:
On January 23, 1996, Mabuhay and IDHI incorporated Water Jet Article XIX. APPLICABLE LAW; ARBITRATION
Shipping Corporation (WJSC) in the Philippines to engage in the
venture of carrying passengers on a common carriage by inter-island 19.1 This Agreement and the validity and performance thereof shall
fast ferry. On February 5, 1996, they also incorporated Water Jet be governed by the laws of the Republic of the Philippines.
Netherlands Antilles, N.Y. (WJNA) in Curasao, Netherlands. [6] Their
respective shareholding percentage are as follows: [7] 19.2 Any dispute, controversy or claim arising out of or relating to
  WJSC WJNA   this Agreement, or a breach thereof, other than intra-corporate
controversies, shall be finally settled by arbitration in accordance
Mabuhay 70% 70%   with the rules of conciliation and arbitration of the International
Chamber of Commerce by one arbitrator with expertise in the matter
IDHI 30% 30%   at issue appointed in accordance with said rules. The arbitration
On September 16, 1996, Mabuhay, IDHI, and Sembcorp entered into proceeding including the rendering of the award shall take place in
a Shareholders' Agreement [8] (Agreement) setting out the terms and Singapore and shall be conducted in the English Language. This
conditions governing their relationship in connection with a planned arbitration shall survive termination of this Agreement. Judgment
business expansion of WJSC and WJNA. Sembcorp decided to upon the award rendered may be entered in any court having
invest in the said corporations. As a result of Sembcorp's acquisition jurisdiction or application may be made to such court for a judicial
of shares, Mabuhay and IDHI's shareholding percentage in the said acceptance of the award and an order of enforcement, as the case
corporations were reduced, as follows:[9] may be.[11]
On December 6, 1996, Sembcorp effected full payment of its equity
  WJSC WJNA   investment. Special audits of WJNA and WJSC were then carried out
and completed on January 8, 1999. Said audits revealed that WJSC
Mabuhay 45.5% 45.5%  
and WJNA both incurred losses. [12]
IDHI 19.5% 19.5%  
On November 26, 1999, Sembcorp requested for the payment of its
Sembcorp 35.0% 35.0%   Guaranteed Return from Mabuhay and IDID. 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] [Mabuhay] to [Sembcorp]; and

On February 24, 2000, Sembcorp sent a Final Demand to Mabuhay 3. A reimbursement of half of the costs of arbitration fixed by the
to pay the Guaranteed Return. Mabuhay requested for three (3) ICC Court at US$57,000 or the aggregate half of which amount to
months to raise the necessary funds but still failed to pay any amount US$28,500 together with an interest at the rate of 12% per annum
after the lapse of the said period.[14] calculated from the date of this Final Award until the said amount is
actually and completely paid by [Mabuhay] to [Sembcorp]. [17]
On December 4, 2000, Sembcorp filed a Request for Arbitration Consequently, on April 14, 2005, Sembcorp filed a Petition for
before the International Court of Arbitration of the International Recognition and Enforcement of a Foreign Arbitral Award [18] before
Chamber of Commerce (ICC) in accordance with the Agreement and the RTC ofMakati City, Branch 149. [19]
sought the following reliefs:
(1) payment of the sum of US$929,875.50; Mabuhay filed an Opposition citing the following grounds for non--
enforcement under Article V of the 1958 Convention on the
(2) alternatively, damages; Recognition and Enforcement of Foreign Arbitral Awards (New
York Convention): (1) the award deals with a conflict not falling
(3) interest on the above sum at such rate as the Arbitral Tribunal within the terms of the submission to arbitration; (2) the composition
deems fit and just; of the arbitral authority was not in accordance with the agreement of
the parties; and (3) recognition or enforcement of the award would
(4) cost of the arbitration; and be contrary to the public policy of the Philippines. [20]

(5) Such further and/or other relief as the Arbitral Tribunal deems fit Mabuhay argued that the dispute is an intra-corporate controversy,
and just.[15] hence, excluded from the scope of the arbitration clause in the
On April 20, 2004, a Final Award [16] was rendered by Dr. Anan Agreement. It alleged that on March 13, 1997, Sembcorp became the
Chantara-Opakom (Dr. Chantara-Opakorn), the Sole Arbitrator controlling stockholder of IDHI by acquiring substantial shares of
appointed by the ICC. The dispositive portion of the award reads: stocks through its nominee, Mr. Pablo N. Sare (Sare). Mabuhay thus
The Sole Arbitrator hereby decides that the Sole Arbitrator has claimed that it has already been released from the joint obligation
jurisdiction over the parties' dispute and directs [Mabuhay] to make with IDHI as Sembcorp assumed the risk of loss when it acquired
the following payments to [Sembcorp]: absolute ownership over the aforesaid shares. Moreover, Mabuhay
argued that the appointment of Dr. Chantara-Opakorn was not in
1. Half of the Guaranteed Return or an amount of US$464,937.75 accordance with the arbitral clause as he did not have the expertise in
(Four Hundred Sixty Four Thousand Nine Hundred Thirty Seven and the matter at issue, which involved application of Philippine law.
Point Seventy Five US Dollars); Finally, Mabuhay argued that the imposition of twelve percent (12%)
interest from the date of the Final Award was contrary to the
2. Interest at the rate of 12% per annum on the said amount of Philippine law and jurisprudence.[21]
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 Ruling of the RTC
Thus, RTC's contrary findings constituted an attack on the merits of
In a Decision[22] dated May 23, 2008, the RTC dismissed the petition the Final Award. In sum, the CA held that the court shall not disturb
and ruled that the Final Award could not be enforced. the arbitral tribunal's determination of facts and/or interpretation of
the law. It recognized the Final Award and remanded the case to the
The RTC ruled that the "simple contractual payment obligation" of RTC for proper execution.[27]
Mabuhay and IDHI to Sembcorp had been rescinded and modified
by the merger or confusion of the person of IDHI into the person of Undaunted, Mabuhay moved for the reconsideration of the CA
Sembcorp. As a result, said obligation was converted into an intra- Decision but the same was denied in a Resolution [28] dated June 3,
corporate matter.[23] 2014.

The RTC also ruled on the issue of the lack of expertise of the Sole Hence, this petition.
Arbitrator. Thus, the dispositive portion of its Decision reads:
WHEREFORE, premises considered, this court finds in favor of the Issue
defendant Mabuhay Holdings Corporation, hence it hereby
DISMISSED the petition for the recognition and enforcement of the The core issue for resolution is whether the RTC correctly refused to
subject Arbitral Award for the simple reason that it was issued in enforce the Final Award. Stated differently, was Mabuhay able to
violation of the agreement. Moreover, this court cannot recognize the establish a ground for refusing the enforcement of the Final Award
Arbitral Award because it was not the work of an expert as required under our applicable laws and jurisprudence on arbitration?
under the agreement. Finally, the payment obligation in interest of
12% per annum on the US Dollar Amounts ($464,937.75 and Our Ruling
$28,500) as ordered by the Sole Arbitrator is contrary to law and
existing jurisprudence, hence void. Thus, it cannot be enforced by We deny the petition.
this Court.
I. Governing Laws
Cost de oficio.
An assiduous analysis of the present case requires a prefatory
SO ORDERED.[24] determination of the rules and other legal authorities that would
Aggrieved, Sembcorp appealed to the CA via a Notice of Appeal govern the subject arbitration proceedings and award.
under Rule 41 of the Rules of Court.[25]
The arbitration proceedings between the parties herein were
Ruling of the CA conducted in Singapore and the resulting Final Award was also
rendered therein. As such, the Final Award is a "foreign arbitral
On November 19, 2013, the CA promulgated its award" or an award made in a country other than the Philippines. [29]
Decision[26] reversing and setting aside the RTC Decision.
The Philippines is among the first signatories of the 1958
The CA noted that the Final Award already settled the factual issue Convention on the Recognition and Enforcement of Foreign Arbitral
on whether Sembcorp acquired the adverted shares of stock in IDHI. Awards (New York Convention) and acceded to the same as early as
1967.[30] Singapore, on the other hand, became a Contracting State in applying for its enforcement shall file with the court the original or
1986.[31] The New York Convention aims to provide common authenticated copy of the award and the arbitration agreement. If the
legislative standards for the recognition of arbitration agreements award or agreement is not made in any of the official languages, the
and court recognition and enforcement of foreign and non-domestic party shall supply a duly certified translation thereof into any of such
arbitral awards. Thus, the New York Convention primarily governs languages.
the recognition and enforcement of foreign arbitral awards by our
courts.[32] The applicant shall establish that the country in which foreign
arbitration award was made is a party to the New York Convention.
In addition, as a member of the United Nations Commission in
International Trade Law (UNCITRAL), the Philippines also adopted x x x x (Emphasis ours)
the UNCITRAL Model Law[33] (Model Law) as the governing law on Five years after the enactment of the ADR Act, the Department of
international commercial arbitrations. Hence, when the Congress Justice issued the ADR Act's Implementing Rules and Regulations
enacted Republic Act No. 9285 or the Alternative Dispute (IRR)[35], and the Supreme Court issued the Special Rules of Court
Resolution Act of 2004[34] (ADR Act), it incorporated the Model Law on Alternative Dispute Resolution[36] (Special ADR Rules). These
in its entirety. two rules, in addition to the ADR Act incorporating the New York
Convention and the Model Law, are our arbitration laws.
Sections 19 and 42 of the ADR Act expressly provided for the
applicability of the New York Convention and the Model Law in our In addition to our arbitration laws, our courts, in recognizing or
jurisdiction, viz: enforcing a foreign arbitral award, shall also take into consideration
SEC. 19. Adoption of the Model Law on International Commercial the laws applied by the arbitral tribunal. These may comprise the
Arbitration. - International commercial arbitration shall be governed substantive law of the contract and the procedural rules or the rules
by the Model Law on International Commercial Arbitration (the governing the conduct of arbitration proceedings.
"Model Law") adopted by the United Nations Commission on
International Trade Law on June 21, 1985 (United Nations As agreed upon by the parties herein under the arbitral clause in their
Document A/40/17) and recommended approved on December 11, Agreement, the substantive law of the contract is the Philippine law
1985, copy of which is hereto attached as Appendix "N'. 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
x x x x Arbitration 1998[37] Considering that the essence of arbitration is
party autonomy, the Court shall refer to the said Rules for purposes
SEC. 42. Application of the New York Convention. - The New York of examining the procedural infirmities raised by the parties to the
Convention shall govern the recognition and enforcement of arbitral arbitration.
awards covered by the said Convention.
The recognition and enforcement of such arbitral awards shall be II. Jurisdiction
filled (sic) with regional trial court in accordance with the rules of
procedure to be promulgated by the Supreme Court. Said Mabuhay argues that the CA seriously erred in not dismissing
procedural rules shall provide that the party relying on the award or 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 limited to specific grounds provided under the Special ADR Rules.
ADR Rules, as follows: Thus:
Rule 19.12. Appeal to the Court of Appeals. - An appeal to the Court Rule 19.36. Review discretionary. - A review by the Supreme Court
of Appeals through a petition for review under this Special Rule is not a matter of right, but of sound judicial discretion, which will be
shall only be allowed from the following final orders of the Regional granted only for serious and compelling reasons resulting in
Trial Court: grave prejudice to the aggrieved party. The following, while
neither controlling nor fully measuring the court's discretion, indicate
x x x x the serious and compelling, and necessarily, restrictive nature of the
grounds that will warrant the exercise of the Supreme Court's
k. Refusing recognition and/or enforcement of a foreign arbitral discretionary powers, when the Court of Appeals:
award; (Emphasis supplied) a. Failed to apply the applicable standard or test for judicial
review prescribed in these Special ADR Rules in arriving at its
xxxx decision resulting in substantial prejudice to the aggrieved party;
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 b. Erred in upholding a final order or decision despite the lack of
enforce the Final Award. jurisdiction of the court that rendered such final order or decision;

The Court notes, however, that the Special ADR Rules took effect in c. Failed to apply any provision, principle, policy or rule contained in
2009. Sembcorp's notice of appeal was filed only in 2008. The ADR these Special ADR Rules resulting in substantial prejudice to the
Act, which was already in effect at that time, did not specify the aggrieved party; and
proper remedy of appeal from the RTC to the CA. It merely provides
that "a decision of the regional trial court confirming, vacating, d. Committed an error so egregious and harmful to a party as to
setting aside, modifying or correcting an arbitral award may be amount to an undeniable excess of jurisdiction.
appealed to the CA in accordance with the rules of procedure to be The mere fact that the petitioner disagrees with the Court of Appeals'
promulgated by the Supreme Court."[38] determination of questions of fact, of law or both questions of fact
and law, shall not warrant the exercise of the Supreme Court's
The Special ADR Rules shall retroactively apply to all pending cases discretionary power. The error imputed to the Court of Appeals must
provided that no vested rights are impaired or prejudiced. [39] In this be grounded upon any of the above prescribed grounds for review or
case, Sembcorp filed a notice of appeal in accordance with Section 2 be closely analogous thereto.
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 A mere general allegation that the Court of Appeals has committed
rule. Consequently, the CA had jurisdiction to act on Sembcorp's serious and substantial error or that it has acted with grave abuse of
appeal. discretion resulting in substantial prejudice to the petitioner without
indicating with specificity the nature of such error or abuse of
We now discuss the Court's jurisdiction to entertain the instant discretion and the serious prejudice suffered by the petitioner on
petition. The Court's review of a CA Decision is discretionary and
account thereof, shall constitute sufficient ground for the Supreme
Court to dismiss outright the petition. (Emphasis ours) III. Grounds for Refusing Enforcement or Recognition
In relation to the applicable standard or test for judicial review by the
CA in arriving at its decision, the Special ADR Rules further We now delve into the core of the issue - whether there is a ground
provide: for the RTC to refuse recognition and enforcement of the Final
Rule 19.20. Due course. - If upon the filing of a comment or such Award in favor of Sembcorp.
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 Our jurisdiction adopts a policy in favor of arbitration. [41] The ADR
thereof, and on the basis of the petition or the records, the Court of Act and the Special ADR Rules both declare as a policy that the
Appeals finds prima facie that the Regional Trial Court has State shall encourage and actively promote the use of alternative
committed an error that would warrant reversal or dispute resolution, such as arbitration, as an important means to
modification of the judgment, final order, or resolution sought to be achieve speedy and impartial justice and declog court dockets.
[42]
reviewed, it may give due course to the petition; otherwise, it shall  This pro-arbitration policy is further evidenced by the rule on
dismiss the same. presumption in favor of enforcement of a foreign arbitral award
under the Special ADR Rules, viz:
x x x x Rule 13.11. Court action. - It is presumed that a foreign arbitral
award was made and released in due course of arbitration and is
Rule 19.24. Subject of appeal restricted in certain instance. - If the subject to enforcement by the court.
decision of the Regional Trial Court refusing to recognize and/or
enforce, vacating and/or setting aside an arbitral award is premised The court shall recognize and enforce a foreign arbitral award unless
on a finding of fact, the Court of Appeals may inquire only into a ground to refuse recognition or enforcement of the foreign arbitral
such fact to determine the existence or non-existence of the award under this rule is fully established.
specific ground under the arbitration laws of the Philippines
relied upon by the Regional Trial Court to refuse to recognize The decision of the court recognizing and enforcing a foreign arbitral
and/or enforce, vacate and/or set aside an award. Any such inquiry award is immediately executory.
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 In resolving the petition for recognition and enforcement of a foreign
regards the latter's ruling on the merits of the controversy. (Emphasis arbitral award in accordance with these Special ADR Rules, the court
ours) shall either [a] recognize and/or enforce or [b] refuse to recognize
Here, Mabuhay did not specifically raise any of the grounds under and enforce the arbitral award. The court shall not disturb the
Rule 19.36 above in its petition before this Court. Nonetheless, arbitral tribunal's determination of facts and/or interpretation of
considering the dearth of jurisprudence on enforcement of foreign law. (Emphasis ours)
arbitral awards and the fact that the CA reversed the RTC decision, Under Article V of the New York Convention, the grounds for
the Court exercises its discretion to review the CA decision solely for refusing enforcement and recognition of a foreign arbitral award are:
purposes of determining whether the CA applied the aforecited 1. Recognition and enforcement of the award may be refused, at the
standard of judicial review. request of the party against whom it is invoked, only if that party
furnishes to the competent authority where the recognition and The aforecited grounds are essentially the same grounds enumerated
enforcement is sought, proof that: under Section 36[43] of the Model Law. The list is exclusive. Thus,
(a) The parties to the agreement referred to in article II were, under Section 45 of the ADR Act provides:
the law applicable to them, under some incapacity, or the said SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a
agreement is not valid under the law to which the parties have foreign arbitration proceeding may oppose an application for
subjected it or, failing any indication thereon, under the law of the recognition and enforcement of the arbitral award in accordance with
country where the award was made; or the procedural rules to be promulgated by the Supreme Court only
on those grounds enumerated under Article V of the New York
(b) The party against whom the award is invoked was not given Convention. Any other ground raised shall be disregarded by the
proper notice of the appointment of the arbitrator or of the arbitration regional trial court. (Emphasis ours)
proceedings or was otherwise unable to present his case; or In Our jurisdiction, We have incorporated the grounds enumerated
under the New York Convention in our arbitration laws. Article 4.36,
(c) The award deals with a difference not contemplated by or not Rule 6[44] of the IRR and Rule 13.4 [45] of the Special ADR Rules
falling within the terms of the submission to arbitration, or it reiterated the exact same exclusive list of grounds.
contains decisions on matters beyond the scope of the submission to
arbitration, provided that, if the decisions on matters submitted to After a careful review of the case, We find that Mabuhay failed to
arbitration can be separated from those not so submitted, that part of establish any of the grounds for refusing enforcement and
the award which contains decisions on matters submitted to recognition of a foreign arbitral award. We discuss the grounds
arbitration may be recognized and enforced; or raised by Mabuhay in seriatim:

(d) The composition of the arbitral authority or the arbitral A. The arbitral authority, composed of Dr. Chatara-Opakorn as the
procedure was not in accordance with the agreement of the sole arbitrator, was constituted in accordance with the arbitration
parties, or, failing such agreement, was not in accordance with the agreement.
law of the country where the arbitration took place; or
The first ground raised by Mabuhay is Article V(l)(d) of the New
(e) The award has not yet become binding on the parties, or has been York Convention, i.e., that the composition of the arbitral authority
set aside or suspended by a competent authority of the country in was not in accordance with the agreement of the parties. Mabuhay
which, or under the law of which, that award was made. and Sembcorp stipulated in their Agreement that the sole arbitrator
2. Recognition and enforcement of an arbitral award may also be must have "expertise in the matter at issue". Since they also agreed
refused if the competent authority in the country where recognition that the validity and the performance of the Agreement shall be
and enforcement is sought finds that: governed by the Philippine law, Mabuhay argues that the phrase
(a) The subject matter of the difference is not capable of settlement "expertise in the matter at issue" necessarily means expertise in the
by arbitration under the law of that country; or Philippine law. Dr. Chatara-Opakom, a Thai national, does not
possess any educational degree or training in Philippine law.
(b) The recognition or enforcement of the award would be
contrary to the public policy of that country. (Emphasis ours) The Agreement provides, however, that the arbitrator with expertise
in the matter at issue shall be appointed in accordance with the ICC It bears stressing that the pro-arbitration policy of the State includes
Rules. The ICC, thus, is the appointing authority agreed upon by the its policy to respect party autonomy. Thus, Rule 2.3 of the Special
parties. The "appointing authority" is the person or institution named ADR Rules provides that "the parties are free to agree on the
in the arbitration agreement as the appointing authority; or the procedure to be followed in the conduct of arbitral proceedings." The
regular arbitration institution under whose rule the arbitration is procedure to be followed on the appointment of arbitrator are among
agreed to be conducted.[46] Where the parties have agreed to submit the procedural rules that may be agreed upon by the parties.
their dispute to institutional arbitration rules, and unless they have
agreed to a different procedure, they shall be deemed to have agreed Moreover, under Rule 7.2 of the Special ADR Rules, a challenge to
to procedure under such arbitration rules for the selection and the appointment of an arbitrator may be raised in court only when the
appointment of arbitrators.[47] appointing authority fails or refuses to act on the challenge within
such period as may be allowed under the applicable rule or in the
The pertinent rules in the ICC Arbitration Rules of 1998 provide: absence thereof, within thirty (30) days from receipt of the request,
Article 9 - Appointment and Confirmation of the Arbitrators 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
x x x x appointment of Dr. Chantara-Opakom in accordance with Article 11
of the ICC Rules, but the ICC Court rejected the same. [48] As such,
3. Where the Court is to appoint a sole arbitrator or the chairman of the Court shall not entertain any challenge to the appointment of
an Arbitral Tribunal, it shall make the appointment upon a proposal arbitrator disguised as a ground for refusing enforcement of an
of a National Committee of the ICC that it considers to be award.
appropriate. If the Court does not accept the proposal made, or if the
National Committee fails to make the proposal requested within the At any rate, Mabuhay's contention that the sole arbitrator must have
time limit fixed by the Court, the Court may repeat its request or may the expertise on Philippine law fails to persuade. If the intent of the
request a proposal from another National Committee that it considers parties is to exclude foreign arbitrators due to the substantive law of
to be appropriate. the contract, they could have specified the same considering that the
ICC Rules provide for appointment of a sole arbitrator whose
x x x x nationality is other than those of the parties.

5. The sole arbitrator or the chairman of the Arbitral Tribunal shall B. The dispute is not an intra corporate controversy, hence, included
be of a nationality other than those of the parties. However, in in the scope of disputes submitted to arbitration.
suitable circumstances and provided that neither of the parties
objects within the time limit fixed by the Court, the sole arbitrator or Under Article V(l)(c) of the New York Convention, the court may
the chairman of the Arbitral Tribunal may be chosen from a country refuse enforcement of a foreign arbitral award when the award deals
of which any of the parties is a national. (Emphasis ours) with a difference not contemplated by or not falling within the terms
In accordance with the aforecited rules, Dr. Chantara-Opakom was of the submission to arbitration. Mabuhay argues that the dispute is
appointed upon the proposal of the Thai National Committee. an intracorporate controversy which is expressly excluded from the
scope of disputes submitted to arbitration under the Agreement. In
essence, Mabuhay attacks the jurisdiction of the arbitral tribunal to 130 of Transcript of Proceedings]:
hear the dispute as it did not fall within the terms of submission to
arbitration. x x x x

The CA correctly applied the Kompetenz-Kompetenz principle During the re-examination of Mr. Chay by the Respondent's counsel,
expressly recognized under Rule 2.2 of the Special ADR Rules, viz: he again admitted that the transfer of the shares from IDHI to the
The Special ADR Rules recognize the principle of competence Claimant has not taken effect [p. 155 of Transcript of Proceedings]:
competence, which means that the arbitral tribunal may initially rule
on its own jurisdiction, including any objections with respect to the x x x x
existence or validity of the arbitration agreement or any condition
precedent to the filing of a request for arbitration. It is clear that the Claimant's claim is neither premised on allegations
The Special ADR Rules expounded on the implementation of the of mismanagement of WJNA and WJSC, nor on who manages or
said principle: controls or who has the right to manage or control WJNA and WJSC,
Rule 2.4. Policy implementing competence-competence principle. nor is it a claim to effect the transfer of the share, nor an action for
The arbitral tribunal shall be accorded the first opportunity or registration of the shares transfer [sic] already transferred from IDHI
competence to rule on the issue of whether or not it has the to the Claimant in the books of WJNA and WJSC. The nature of the
competence or jurisdiction to decide a dispute submitted to it for Claimant's claim is not intrinsically connected with the regulation of
decision, including any objection with respect to the existence or the corporation. The Claimant's claim in this arbitration is
validity of the arbitration agreement. When a court is asked to rule straightforward: that the Respondent agreed, under a contract, to
upon issue/s affecting the competence or jurisdiction of an arbitral make payment of certain amount of money to the Claimant upon the
tribunal in a dispute brought before it, either before or after the occurrence of a specified event; that the said event occurred but the
arbitral tribunal is constituted, the court must exercise judicial Respondent refused to pay such amount of money to the Claimant;
restraint and defer to the competence or jurisdiction of the that the Claimant filed the Request in order to enforce the payment.
arbitral tribunal by allowing the arbitral tribunal the first Accordingly, the Sole Arbitrator is of the opinion that the dispute in
opportunity to rule upon such issues. (Emphasis ours) this arbitration is not an intra-corporate controversy, and,
To recall, the Agreement provides that "(a)ny dispute, controversy or hence, it is not excluded from arbitration under Article 19.2 of the
claim arising out of or relating to this Agreement, or breach Shareholders' Agreement.[49] (Emphasis ours)
thereof, other than intra-corporate controversies, shall be finally Again, the Special ADR Rules specifically provides that in resolving
settled by arbitration..." the petition for recognition and enforcement of a foreign arbitral
award, the court shall not disturb the arbitral tribunal's determination
Among the issues settled in the Final Award is whether the dispute is of facts and/or interpretation of law. [50]
an intra-corporate controversy. Dr. Chantara-Opakom ruled in the
negative. The pertinent portion of the Final Award is reproduced as Yet, the RTC, in its decision dismissing the petition of Sembcorp,
follows: declared that "it is undisputed that the shares of stocks of IDHI in
x x x Indeed, during the cross-examination of Mr. Chay, he admitted WJNA and WJSC were actually owned by [Sembcorp] before the
that there was no transfer of shares from IDHI to the Claimant [p. filing of the request for arbitration" [51] without providing any factual
basis for such conclusion which directly contradicts the arbitral "where enforcement [of the award] would violate the forum state's
tribunal's findings. most basic notions of morality and justice." [55] Thus, in Hong Kong,
an award obtained by fraud was denied enforcement by the court on
Even granting that the court may rule on the issue of whether the the ground that fraud is contrary to Hong Kong's "fundamental
dispute is an intra-corporate controversy, Mabuhay's argument is notions of morality and justice." [56] In Singapore, also a Model Law
premised on the factual issue of whether Sembcorp indeed acquired country, the public policy ground is entertained by courts only in
the shares of IDHI. Mabuhay failed to establish such fact before the instances where upholding the award is "clearly injurious to the
arbitral tribunal. The RTC, on the other hand, concluded that public good or... wholly offensive to the ordinary reasonable and
Sembcorp acquired the subject shares but failed to explain the basis fully informed member of the public." [57]
for such conclusion. In the absence of sufficient evidence that
Sembcorp acquired the shares of IDHI, the Court finds no cogent In Our jurisdiction, the Court has yet to define public policy and
reason to disturb the arbitral tribunal's ruling in favor of the latter's what is deemed contrary to public policy in an arbitration case.
jurisdiction over the dispute. However, in an old case, the Court, through Justice Laurel,
elucidated on the term "public policy" for purposes of declaring a
C. Enforcement of the award would not be contrary to public policy contract void:
of the Philippines. 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
Under Article V(2)(b) of the New York Convention, a court may "public policy" is vague and uncertain in meaning, floating and
refuse to enforce an award if doing so would be contrary to the changeable in connotation. It may be said, however, that, in
public policy of the State in which enforcement is sought. Neither general, a contract which is neither prohibited by law nor condemned
the New York Convention nor the mirroring provisions on public by judicial decision, nor contrary to public morals, contravenes no
policy in the Model Law and Our arbitration laws provide a public policy. In the absence of express legislation or constitutional
definition of "public policy" or a standard for determining what is prohibition, a court, in order to declare a contract void as against
contrary to public policy. Due to divergent approaches in defining public policy, must find that the contract as to the consideration or
public policy in the realm of international arbitration, public policy thing to be done, has a tendency to injure the public, is against the
has become one of the most controversial bases for refusing public good, or contravenes some established interests of society,
enforcement of foreign arbitral awards. [52] or is inconsistent with sound policy and good morals, or tends
clearly to undermine the security of individual rights, whether of
Most arbitral jurisdictions adopt a narrow and restrictive approach in personal liability or of private property.[58] (Emphasis ours)
defining public policy pursuant to the pro-enforcement policy of the An older case, Ferrazzini v. Gsell[59], defined public policy for
New York Convention. The public policy exception, thus, is "a purposes of determining whether that part of the contract under
safety valve to be used in those exceptional circumstances when it consideration is against public policy:
would be impossible for a legal system to recognize an award and By "public policy," as defined by the courts in the United States and
enforce it without abandoning the very fundaments on which it is England, is intended that principle of the law which holds that no
based."[53] An example of a narrow approach adopted by several subject or citizen can lawfully do that which has a tendency to be
jurisdictions[54] is that the public policy defense may only be invoked 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 At any rate, Mabuhay's contention is bereft of merit. The joint
freedom of contract or private dealing is restricted by law for the venture between Mabuhay, IDHI, and Sembcorp was pursued under
good of the public. In determining whether a contract is contrary to the Joint Venture Corporations, WJSC and WJNA. By choosing to
public policy the nature of the subject matter determines the source adopt a corporate entity as the medium to pursue the joint venture
from which such question is to be solved. (Emphasis ours and enterprise, the parties to the joint venture are bound by corporate law
citation omitted) principles under which the entity must operate. [62] Among these
In light of the foregoing and pursuant to the State's policy in favor of principles is the limited liability doctrine. The use of a joint venture
arbitration and enforcement of arbitral awards, the Court adopts the corporation allows the co-venturers to take full advantage of the
majority and narrow approach in determining whether enforcement limited liability feature of the corporate vehicle which is not present
of an award is contrary to Our public policy. Mere errors in the in a formal partnership arrangement. [63] In fine, Mabuhay's
interpretation of the law or factual findings would not suffice to application of Article 1799 is erroneous.
warrant refusal of enforcement under the public policy ground. The
illegality or immorality of the award must reach a certain threshold ii. Imposition of interest
such that, enforcement of the same would be against Our State's
fundamental tenets of justice and morality, or would blatantly be Mabuhay argues that the twelve percent (12%) annual interest from
injurious to the public, or the interests of the society. the date of the Final Award is also contrary to the Philippine law and
jurisprudence. To reiterate, the only ground for refusing enforcement
We now discuss the pertinent claims of Mabuhay in relation to of a foreign arbitral award is when enforcement of the same would
public policy. be contrary to public policy.

i. Violation of partnership law Mere incompatibility of a foreign arbitral award with domestic
mandatory rules on interest rates does not amount to a breach of
Mabuhay contends that it entered into a joint venture, which is akin public policy. However, some jurisdictions refused to recognize and
to a particular partnership, with Sembcorp. Applying the laws on enforce awards, or the part of the award which was considered to be
partnership, the payment of the Guaranteed Return to Sembcorp is a contrary to public policy, where they considered that the awarded
violation of Article 1799[60] of the Civil Code, as it shields the latter interest was unreasonably high. [64] In this case, the twelve percent
from sharing in the losses of the partnership. Ergo, enforcement of (12%) interest rate imposed under the Final Award is not
the Final Award would be contrary to public policy as it upholds a unreasonably high or unconscionable such that it violates our
void stipulation. fundamental notions of justice.

The restrictive approach to public policy necessarily implies that not IV. Attorney's Fees
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 Mabuhay avers that the dispositive portion of the CA Decision failed
York Convention to enforce awards which does not conform to their to include its finding that Mabuhay is not liable for attorney's fees
domestic laws.[61]
and exemplary damages. The pertinent portion of the CA Decision is for foreign companies, would also attract foreign investors to do
reproduced as follows: business in the country that would ultimately boost Our economy. In
Turning now to Sembcorp's prayer for the award of attorney's fees this light, We uphold the policies of the State favoring arbitration
and exemplary damages, We find the same bereft of legal and factual and enforcement of arbitral awards, and have due regard to the said
bases. Article 2208 of the Civil Code allows attorney's fees to be policies in the interpretation of Our arbitration laws.
awarded if the claimant is compelled to litigate with third persons or
to incur expenses to protect his interest by reason of an unjustified WHEREFORE, the Petition is hereby DENIED. The November 19,
act or omission of the party from whom it is sought, there must be a 2013 Decision and the June 3, 2014 Resolution of the Court of
showing that the losing party acted willfully or in bad faith and Appeals in CA-G.R. CV No. 92296 are AFFIRMED.
practically compelled the claimant to litigate and incur litigation
expenses. Meanwhile, in order to obtain exemplary damages under SO ORDERED.
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 .R. No. 216600, November 21, 2016
and the Special ADR Rules accordingly. Arbitration, as a mode of
alternative dispute resolution, is undeniably one of the viable FEDERAL EXPRESS CORPORATION AND RHICKE S.
solutions to the longstanding problem of clogged court dockets. JENNINGS, Petitioners, v. AIRFREIGHT 2100, INC. AND
International arbitration, as the preferred mode of dispute resolution ALBERTO D. LINA, Respondents.
DECISION issues relating to money remittance, value-added taxes, dynamic fuel
charge, trucking costs, interests, and penalties ensued between the
MENDOZA, J.: parties.

Before the Court is a Petition for Review on Certiorari1 under Rule On May 11, 2011, in an effort to settle their commercial dispute,
45 of the Rules of Court filed by Federal Express Corporation FedEx and Air21 agreed to submit themselves to arbitration before
(FedEx) and Rhicke S. Jennings (Jennings), assailing the January 20, the Philippine Dispute Resolution Center (PDRC). Thus, on June 24,
2015 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 2011, FedEx filed its Notice of Arbitration. On October 3, 2011, the
135835, which affirmed the May 7, 2014 Order3 of the Regional Arbitral Tribunal was constituted.
Trial Court, Branch 70, Pasig City (RTC), dismissing its petition for
the issuance of a confidentiality/protective order. As part of the arbitration proceedings, Jennings, John Lumley
Holmes (Holmes), the Managing Director of SPAC Legal of FedEx;
FedEx is a foreign corporation doing business in the Philippines and David John Ross (Ross), Senior Vice President of Operations,
primarily engaged in international air carriage, logistics and freight Middle East, India and Africa, executed their respective
forwarding, while Jennings serves as its Managing Director for the statements5 as witnesses for FedEx. Ross and Holmes deposed that
Philippines and Indonesia. Respondent Airfreight 2100 (Air21) is a Federal Express Pacific, Inc., a subsidiary of FedEx, used to have an
domestic corporation likewise involved in the freight forwarding IFF license to engage in the business of freight forwarding in the
business, while Alberto Lina (Lina) is the Chairman of its Board of Philippines. This license, however, was suspended pending a case in
Directors. court filed by Merit International, Inc. (Merit) and Ace Logistics,
Inc. (Ace), both freight forwarding companies, which questioned the
The Antecedents issuance of the IFF to FedEx. Absent the said license, FedEx
executed the GSP contracts with Air21 to be able to conduct its
FedEx, having lost its International Freight Forwarder's (IFF) license business in the Philippines. Ross and Holmes, in their individual
to engage in international freight forwarding in the Philippines, statements, averred that Merit and Ace were either owned or
executed various Global Service Program (GSP) contracts with controlled by Air21 employees or persons connected with the Lina
Air21, an independent contractor, to primarily undertake its delivery Group of Companies, which included Air21.
and pick-up services within the country. 4
Jennings, in his cross-examination, was identified as the source of
Under the GSP arrangement, the packages sent by FedEx customers the information that Merit and Ace were Air21's proxies and was
from abroad would be picked up at a Philippine airport and delivered asked if he had any written proof of such proxy relationship. 6 He
by Air21 to its respective consignees. Conversely, packages from answered in the negative. In his re-direct examination, he was made
Philippine clients would be delivered by Air21 to the airport and to expound on the supposed proxy relationship between Merit, Ace
turned over to FedEx for shipment to consignees abroad. As and Air21.7 He responded that Merit and Ace were just very small
stipulated in the GSP contracts, Air21 guaranteed that all shipments companies with meager resources, yet they were able to finance and
would be cleared through customs in accordance with Philippine file a case to oppose the grant of IFF license to FedEx. Jennings also
law. In the implementation of these contracts, however, several 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 cannot be protected by the confidentiality rules under ADR. The said
Lito Alvarez, who was also associated with Air21. rules should not be used as a shield in the commission of any crime."
Thus, it disposed:
Feeling aggrieved by those statements, Lina for himself and on chanRoblesvirtualLawlibrary
behalf of Air21, filed a complaint for grave slander against Jennings
before the Office of the City Prosecutor in Taguig City. 8 Lina WHEREFORE, in view of the foregoing, the Petition for Issuance
claimed that the defamatory imputation of Jennings that Merit and of a Confidentiality/Protective Order is hereby DENIED for lack of
Ace were Air21's proxies brought dishonor, discredit and contempt merit.
to his name and that of Air21. Lina quoted certain portions of the
written statements of Holmes and Ross and the Transcript of The case is hereby DISMISSED.
Stenographic Notes (TSN) of the April 25, 2013 arbitration hearing
reflecting Jennings' testimony to support his complaint. SO ORDERED.10ChanRoblesVirtualawlibrary
Dissatisfied, petitioners challenged the RTC order before the
Consequently, FedEx and Jennings (petitioners) filed their Petition
CA via a petition for review.
for Issuance of a Confidentiality/Protective Order with Application
for Temporary Order of Protection and/or Preliminary Injunction
On January 20, 2015, the CA denied the petition. In its assailed
before the RTC alleging that all information and documents obtained
decision, the CA explained that the declarations by Jennings were
in, or related to, the arbitration proceedings were
not confidential as they were not at all related to the subject of
confidential.9 FedEx asserted that the testimony of Jennings, a
mediation as the arbitration proceedings revolved around the parties'
witness in the arbitration proceedings, should not be divulged and
claims for sum of money.11 Thus, the CA ruled that "statements made
used to bolster the complaint-affidavit for grave slander as this was
without any bearing on the subject proceedings are not confidential
inadmissible in evidence.
in nature." It must be emphasized that other declarations given
therein, if relative to the subject of mediation or arbitration, are
On January 16, 2014, the RTC granted petitioners' application for the
certainly confidential.12
Temporary Order of Protection.
Hence, this present petition before the Court.
Meanwhile, on February 3, 2014, the arbitral tribunal rendered an
GROUNDS IN SUPPORT OF THE PETITION
award in favor of FedEx.
A.
Subsequently, in the assailed Order, dated May 7, 2014, the RTC
denied FedEx's petition for lack of merit, stating that the statements
THE COURT OF APPEALS FAILED TO APPLY, OR
and arbitration documents were not confidential information. It went
OTHERWISE MISAPPLIED, SECTIONS 3(H) AND 23 OF
on to state that "[t]he statement and 'Arbitration Documents' which
THE ADR ACT.
purportedly consists the crime of Grave Slander under Articles 353
and 358 of the Revised Penal Code are not in any way related to the
B.
subject under Arbitration." The RTC further wrote that "a crime
information from ADR proceedings.
THE COURT OF APPEALS FAILED TO APPLY RULE 10.5
OF THE SPECIAL ADR RULES. Petitioners also claim that in ruling that Jennings' statements were
not confidential information, by applying the test of relevance that
C. "statements made without any bearing on the subject proceedings are
not confidential in nature," the CAused a "test" that had no basis in
THE TEST APPLIED BY THE COURT OF APPEALS FOR law and whose application in its petition amounted to
DETERMINING CONFIDENTIALITY OF INFORMATION IS judiciallegislation.15
NOT SANCTIONED BY AND IS INCONSISTENT WITH THE
ADR ACT AND THE SPECIAL ADR RULES. Respondent Air21 and Lina (respondents), in their
Comment,16 essentially countered that:
D. chanRoblesvirtualLawlibrary
While the Alternative Dispute Resolution Act of 2004 (the "ADR
THE ASSAILED DECISION RESULTS TO SUBSTANTIAL Law") confers communications made during arbitration the privilege
PREJUDICE TO PETITIONERS. against disclosure, otherwise known as the confidentiality principle,
to assist the parties in having a speedy, efficient and impartial
E. resolution of their disputes, said privilege cannot be invoked to
shield any party from criminal responsibility. The privilege is not
THE ASSAILED DECISION DEFEATS PUBLIC POLICY ON absolute. The ADR Law does not exist in a viacuum without regard
CONFIDENTIALITY OF THE RECORDS OF AND to other existing jurisprudence and laws, particularly the Revised
COMMUNICATIONS MADE IN THE COURSE OF Penal Code. Otherwise, we will permit a dangerous situation where
ARBITRATION.13 arbitration proceedings will be used by an unscrupulous disputant as
FedEx argues that the Jennings' statements were part of the (a) a venue for the commission of crime, which cannot be punished by
records and evidence of Arbitration (Section 23); (b) witness the simple invocation of the privilege. Such an absurd interpretation
statements made therein (Section 3[h][3]); and (c) communication of our laws cannot be deemed to be the underlying will of our
made in a dispute resolution proceedings (Section 3 [h][1]). 14 They, Congress in framing and enacting our law on arbitration. To be sure,
thus, averred that Jennings' oral statements made during the April 25, a crime cannot be protected or extinguished through a bare
2013 arbitration hearing and the TSN of the hearings, conducted on invocation of the confidentiality rule.17ChanRoblesVirtualawlibrary
April 22 and 25, 2013, form part of the records of arbitration and The Court's Ruling
must, therefore, be considered confidential information.
The crucial issue in this case is whether the testimony of Jennings
For said reason, petitioners assert that Rule 10.5 of the Special given during the arbitration proceedings falls within the ambit of
Alternative Dispute Resolution (ADR) Rules, allowing for the confidential information and, therefore, covered by the mantle of a
issuance of a confidentiality/protective order, was completely confidentiality/protection order.
disregarded by the CA when it denied the petition filed by FedEx as
a result of Lina divulging what were supposed to be confidential The Court finds the petition meritorious.
2. A party, counsel or witness disclosed information or
Section 3(h) of Republic Act (R.A.) No. 9285 or the Alternative was otherwise compelled to disclose
Dispute Resolution of 2004 (ADR Act) defines confidential information;chanrobleslaw
information as follows:
chanRoblesvirtualLawlibrary 3. The disclosure was made under circumstances that
"Confidential information" means any information, relative to the would create a reasonable expectation, on behalf of
subject of mediation or arbitration, expressly intended by the the source, that the information shall be kept
source not to be disclosed, or obtained under circumstances that confidential;chanrobleslaw
would create a reasonable expectation on behalf of the source that
the information shall not be disclosed. It shall include (1) 4. The source of the information or the party who made
communication, oral or written, made in a dispute resolution the disclosure has the right to prevent such
proceedings, including any memoranda, notes or work product of information from being disclosed;chanrobleslaw
the neutral party or non-party participant, as defined in this Act; (2)
an oral or written statement made or which occurs during mediation 5. The source of the information or the party who made
or for purposes of considering, conducting, participating, initiating, the disclosure has not given his express consent to
continuing of reconvening mediation or retaining a mediator; and (3) any disclosure; and
pleadings, motions manifestations, witness statements, reports filed
or submitted in an arbitration or for expert evaluation. [Emphases 6. The applicant would be materially prejudiced by an
Supplied]ChanRoblesVirtualawlibrary unauthorized disclosure of the information obtained,
or to be obtained, during the ADR proceeding.
The said list is not exclusive and may include other information as
long as they satisfy the requirements of express confidentiality or
Gauged by the said parameters, the written statements of witnesses
implied confidentiality.18
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)
Plainly, Rule 10.1 of A.M. No. 07-11-08-SC or the Special Rules of
[1] and [3] of the ADR Act which states that "communication, oral
Court on Alternative Dispute Resolution (Special ADR Rules) allows
or written, made in a dispute resolution proceedings, including any
"[a] party, counsel or witness who disclosed or who was compelled
memoranda, notes or work product of the neutral party or non-party
to disclose information relative to the subject of ADR under
participant, as defined in this Act; and (3) pleadings, motions,
circumstances that would create a reasonable expectation, on behalf
manifestations, witness statements, reports filed or submitted in an
of the source, that the information shall be kept confidential x x x the
arbitration or for expert valuation," constitutes confidential
right to prevent such information from being further disclosed
information.
without the express written consent of the source or the party who
made the disclosure." Thus, the rules on confidentiality and
Notably, both the parties and the Arbitral Tribunal had agreed to the
protective orders apply when:
Terms of Reference (TOR) that "the arbitration proceedings should
chanRoblesvirtualLawlibrary
be kept strictly confidential as provided in Section 23 of the ADR
Act and Article 25-A19 of the PDRCI Arbitration Rules (Arbitration
1. An ADR proceeding is pending;chanrobleslaw Rules) and that they should all be bound by such confidentiality
requirements." on information obtained or disclosed in an arbitration proceeding, the
presence of the above criteria must be apparent; otherwise, the
The provisions of the ADR Act and the Arbitration Rules repeatedly general rule should be applied. Here in this case, only a perceived
employ the word "shall" which, in statutory construction, is one of imputation of a wrongdoing was alleged by the respondents.
mandatory character in common parlance and in ordinary
signification.20 Thus, the general rule is that information disclosed by In denying the said application for confidentiality/protection order,
a party or witness in an ADR proceeding is considered privileged the RTC and the CA did not consider the declarations contained in
and confidential. the said witness statements and arbitration testimony to be related to
the subject of arbitration and, accordingly, ruled that they could not
In evaluating the merits of the petition, Rule 10.8 of the Special be covered by a confidentiality order.
ADR Rules mandates that courts should be guided by the principle
that confidential information shall not be subject to discovery and The Court does not agree. Suffice it to say that the phrase "relative to
shall be inadmissible in any adversarial proceeding, to wit: the subject of mediation or arbitration" need not be strictly confined
chanRoblesvirtualLawlibrary to the discussion of the core issues in the arbitral dispute. By
Rule 10.8. Court action. - If the court finds the petition or motion definition, "relative" simply means "connected to," which means that
meritorious, it shall issue an order enjoining a person or persons parties in arbitration proceedings are encouraged to discuss openly
from divulging confidential information. their grievances and explore the circumstances which might have any
connection in identifying the source of the conflict in the hope of
In resolving the petition or motion, the courts shall be guided by the finding a better alternative to resolve the parties' dispute. An ADR
following principles applicable to all ADR proceedings: Confidential proceeding is aimed at resolving the parties' conflict without court
information shall not be subject to discovery and shall be intervention. It was not designed to be strictly technical or legally
inadmissible in any adversarial proceeding, whether judicial or quasi confined at all times. By mutual agreement or consent of the parties
judicial. However, evidence or information that is otherwise to a controversy or dispute, they acquiesce to submit their differences
admissible or subject to discovery does not become inadmissible or to arbitrators for an informal hearing and extra-judicial determination
protected from discovery solely by reason of its use and resolution. Usually, an ADR hearing is held in private and the
therein.ChanRoblesVirtualawlibrary decision of the persons selected to comprise the tribunal will take the
Article 5.42 of the Implementing Rules and Regulations (IRR)21 of place of a court judgment. This avoids the formalities, delays and
the ADR Act likewise echoes that arbitration proceedings, records, expenses of an ordinary litigation. Arbitration, as envisioned by the
evidence and the arbitral award and other confidential information ADR Act, must be taken in this perspective.
are privileged and confidential and shall not be published except [i]
with the consent of the parties; or [ii] for the limited purpose of Verily, it is imperative that legislative intent or sp1nt be the
disclosing to the court relevant documents where resort to the court controlling factor, the leading star and guiding light in the
is allowed. Given that the witness statements of Ross, Holmes and application and interpretation of a statute. 22 If a statute needs
Jennings, and the latter's arbitration testimony, fall within the ambit construction, the influence most dominant in that process is the intent
of confidential information, they must, as a general rule, remain or spirit of the act.23 A thing which is within the intent of the
confidential. Although there is no unbridled shroud of confidentiality 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 well-entrenched in Section 23 of the ADR Act:
unless within the intent of the lawmakers. 24 In other words, a statute chanRoblesvirtualLawlibrary
must be read according to its spirit or intent and legislative intent is SEC. 23. Confidentiality of Arbitration Proceedings. - The
part and parcel of the statute. It is the controlling factor in arbitration proceedings, including the records, evidence and the
interpreting a statute. Any interpretation that contradicts the arbitral award, shall be considered confidential and shall not be
legislative intent is unacceptable. published except (1) with the consent of the parties, or (2) for the
limited purpose of disclosing to the court of relevant documents in
In the case at bench, the supposed questionable statements surfaced cases where resort to the court is allowed herein. Provided, however,
when FedEx's suspended IFF license was discussed during the that the court in which the action or the appeal is pending may issue
arbitration hearing. In fact, when Jennings was asked by Arbitrator a protective order to prevent or prohibit disclosure of documents or
Panga to expound on how the opposition of Ace and Merit could be information containing secret processes, developments, research and
related to the ongoing arbitration, Jennings replied that, to his mind, other information where it is shown that the applicant shall be
it was indicative of the leverage that Air21 had over FedEx as it was materially prejudiced by an authorized disclosure
able to withhold large sums of money and siphon their joint plans thereof.ChanRoblesVirtualawlibrary
from being properly established. Whether the information disclosed If Lina had legal grounds to suspect that Jennings committed
in the arbitration proceeding would be given weight by the tribunal slanderous remarks even before the arbitration proceeding
in the resolution of their dispute is a separate matter. Likewise, the commenced, then he must present evidence independent and apart
relevance or materiality of the said statements should be best left to from some quoted portions of the arbitration documents.
the arbitrators' sound appreciation and judgment. Even granting that
the weight of the said statements was not fundamental to the issues It must be stressed that the very soul of an arbitration proceeding
in the arbitration process, nevertheless, they were still connected to, would be rendered useless if it would be simply used as an avenue
and propounded by, a witness who relied upon the confidentiality of for evidence gathering or an entrapment mechanism to lure the other
the proceedings and expect that his responses be reflected. unsuspecting party into conveying information that could be
potentially used against him in another forum or in court.
Arbitration, being an ADR proceeding, was primarily designed to be
a prompt, economical and amicable forum for the resolution of Ultimately, the RTC and the CA failed to consider the fact that an
disputes. It guarantees confidentiality in its processes to encourage arbitration proceeding is essentially a unique proceeding that is non-
parties to ventilate their claims or disputes in a less formal, but litigious in character where the parties are bound by a different set of
spontaneous manner. It should be emphasized that the law favors rules as clearly encapsulated under the Special ADR Rules.
settlement of controversies out of court. Thus, a person who Inevitably, when Lina cited portions of the said arbitration
participates in an arbitration proceeding is entitled to speak his or her documents, he violated their covenant in the TOR to resolve their
piece without fear of being prejudiced should the process become dispute through the arbitration process and to honor the
unsuccessful. Hence, any communication made towards that end confidentiality of the said proceeding. To disregard this commitment
should be regarded as confidential and privileged. would impair the very essence of the ADR proceeding. By itself, this
would have served as a valid justification for the grant of the
To restate, the confidential nature of the arbitration proceeding is confidentiality/protection order in favor of FedEx and Jennings.
Thus, the claimed slanderous statements by Jennings during the
arbitration hearing are deemed confidential information and the veil
of confidentiality over them must remain.

WHEREFORE, the petition is GRANTED. The January 20, 2015


Decision of the Court of Appeals (CA), in CA-G.R. SP No. 135835,
is REVERSED and SET ASIDE.

The Petition for the Issuance of a Confidentiality/Protective Order


filed by Federal Express Corporation and Rhicke S. Jennings is
hereby GRANTED.

SO ORDERED.
G.R. No. 211504 amounted to ₱1,641,513.94, and that the demand for payment for
work done by Power after June 21, 2005 should be addressed
FEDERAL BUILDERS, INC., Petitioner directly to BIDC.4 Nonetheless, Power made several demands on
vs Federal to no avail.
POWER FACTORS, INC., Respondent
On October 29, 2009, Power filed a request for arbitration in the
DECISION CIAC invoking the arbitration clause of the Contract of Service
reading as follows:
BERSAMIN, J.:
15. ARBITRATION COMMITTEE - All disputes, controversies or
An agreement to submit to voluntary arbitration for purposes of differences, which may arise between the parties herein, out of or in
vesting jurisdiction over a construction dispute in the Construction relation to or in connection with this Agreement, or for breach
Industry Arbitration Commission (CIAC) need not be contained in thereof shall be settled by the Construction Industry Arbitration
the construction contract, or be signed by the parties. It is enough Commission (CIAC) which shall have original and exclusive
that the agreement be in writing. jurisdiction over the aforementioned disputes.5

The Case On November 20, 2009, Atty. Vivencio Albano, the counsel of
Federal, submitted a letter to the CIAC manifesting that Federal
Federal Builders Inc. (Federal) appeals to reverse the decision agreed to arbitration and sought an extension of 15 days to file its
promulgated on August 12, 2013,1 whereby the Court of Appeals answer, which request the CIAC granted.
(CA) affirmed the adverse decision rendered on May 12, 2010 by the
Construction Industry Arbitration Commission (CIAC) with On December 16, 2009, Atty. Albano filed his withdrawal of
modification of the total amount awarded.2 appearance stating that Federal had meanwhile engaged another
counsel.6
Antecedents
Federal, represented by new counsel (Domingo, Dizon, Leonardo
Federal was the general contractor of the Bullion Mall under a and Rodillas Law Office), moved to dismiss the case on the ground
construction agreement with Bullion Investment and Development that CIAC had no jurisdiction over the case inasmuch as the Contract
Corporation (BIDC). In 2004, Federal engaged respondent Power of Service between Federal and Power had been a mere draft that
Factors Inc. (Power) as its subcontractor for the electric works at the was never finalized or signed by the parties. Federal contended that
Bullion Mall and the Precinct Building for ₱l8,000,000.00.3 in the absence of the agreement for arbitration, the CIAC had no
jurisdiction to hear and decide the case.7
On February 19, 2008, Power sent a demand letter to Federal
claiming the unpaid amount of ₱ll,444,658.97 for work done by On February 8, 2010, the CIAC issued an order setting the case for
Power for the Bullion Mall and the Precinct Building. Federal replied hearing, and directing that Federal's motion to dismiss be resolved
that its outstanding balance under the original contract only after the reception of evidence of the parties. 8
Federal did not thereafter participate in the proceedings until the 1. Unpaid balance on the
CIAC rendered the Final Award dated May 12, 2010,9 disposing: ₱4,276,614.75;
original contract

In summary: Respondent Federal Builders, Inc. is hereby ordered to 2. Unpaid balance on change
2,864,113.32;
pay claimant Power Factors, Inc. the following sums: orders
3. Attorney's Fees 250,000.00;
1. Unpaid balance on the original contract ₱4,276,614.75;
4. Cost of Arbitration 149,503.86;
2. Unpaid balance on change order nos. 1, 2, 3,
4, 5, 6, 7, 8, & 9 3,006,970.32; The interest to be imposed on the net award (unpaid balance on the
3. Interest to May 13, 2010 1,686,149.94; original contract and change order) amounting to P.7, 140,728.07
awarded to POWER FACTORS INC. shall be six (6%) per annum,
4. Attorney's Fees 250,000.00; reckoned from 4 July 2006 until this Decision becomes final and
5. Cost of Arbitration 149,503.86; executory. Further, the total award due to POWER FACTORS INC.
shall be subjected to an interest of twelve percent (12%) per
  ₱9 ,369 , annum computed from the time this judgment becomes final and
238.87 executory, until full satisfaction.
 
SO ORDERED.11
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 Anent jurisdiction, the CA explained that the CIAC Revised Rules of
final and executory, Claimant shall then be entitled to 12% per Procedure stated that the agreement to arbitrate need not be signed
annum until the entire amount is fully satisfied by Respondent. by the parties; that the consent to submit to voluntary arbitration was
not necessary in view of the arbitration clause contained in the
Federal appealed the award to the CA insisting that the CIAC had no Contract of Service; and that Federal's contention that its former
jurisdiction to hear and decide the case; and that the amounts thereby counsel's act of manifesting its consent to the arbitration stipulated in
awarded to Power lacked legal and factual bases. the draft Contract of Service did not bind it was inconsequential on
the issue of jurisdiction.12
On August 12, 2013, the CA affirmed the CIAC's decision with
modification as to the amounts due to Power,10 viz.: Concerning the amounts awarded, the CA opined that the CIAC
should not have allowed the increase based on labor-cost escalation
WHEREFORE, the CIAC Final Award dated 12 May 20l0 in CIAC because of the absence of the agreement between the parties on such
Case No. 31-2009 is hereby AFFIRMED with MODIFICATION. As escalation and because there was no authorization in writing
modified, FEDERAL BUILDERS, INC. is ordered to pay POWER allowing the adjustment or increase in the cost of materials and
FACTORS, INC. the following: labor.13
After the CA denied Federal's motion for reconsideration on Under the CIAC Revised Rules of Procedure Governing
February 19, 2004,14 Federal has come to the Court on appeal. Construction Arbitration (CIAC Revised Rules), all that is required
for the CIAC to acquire jurisdiction is for the parties of any
Issue construction contract to agree to submit their dispute to
arbitration.15 Also, Section 2.3 of the CIAC Revised
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 Rules states that the agreement may be reflected in an arbitration
erred in holding that Federal was liable to pay Power the amount of clause in their contract or by subsequently agreeing to submit their
₱7,140,728.07. dispute to voluntary arbitration. The CIAC Revised Rules clarifies,
however, that the agreement of the parties to submit their dispute to
Ruling of the Court 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
The appeal is bereft of merit. communication in writing, viz.:

1. RULE 4 - EFFECT OF AGREEMENT TO ARBITRATE

The parties had an effective agreement to submit to voluntary SECTION 4.1. Submission to CIAC jurisdiction - An arbitration
arbitration; hence, the CIAC had jurisdiction clause in a construction contract or a submission to arbitration of a
construction dispute shall be deemed an agreement to submit an
The need to establish a proper arbitral machinery to settle disputes existing or future controversy to CIAC jurisdiction, notwithstanding
expeditiously was recognized by the Government in order to promote the reference to a different arbitration institution or arbitral body in
and maintain the development of the country's construction industry. such contract or submission.
With such recognition came the creation of the CIAC through
Executive Order No. 1008 (E.O. No. 1008), also known as The 4.1.1 When a contract contains a clause for the submission of a
Construction Industry Arbitration Law. Section 4 of E.O. No. 1008 future controversy to arbitration, it is not necessary for the parties to
provides: enter into a submission agreement before the Claimant may invoke
the jurisdiction of CIAC.
Sec. 4. Jurisdiction. - The CIAC shall have original and exclusive
jurisdiction over disputes arising from, or connected with, contracts 4.1.2 An arbitration agreement or a submission to arbitration shall be
entered into by parties involved in construction in the Philippines, in writing, but it need not be signed by the parties, as long as the
whether the dispute arises before or after the completion of the intent is clear that the parties agree to submit a present or future
contract, or after the abandonment or breach thereof. These disputes controversy arising from a construction contract to arbitration. It may
may involve government or private contracts. For the Board to be in the form of exchange of letters sent by post or by telefax,
acquire jurisdiction, the parties to a dispute must agree to submit the telexes, telegrams, electronic mail or any other mode of
same to voluntary arbitration. x x x communication.
The liberal application of procedural rules as to the form by which Under Article 1318 of the Civil Code, a valid contract should have
the agreement is embodied is the objective of the CIAC Revised the following essential elements, namely: (a) consent of the
Rules. Such liberality conforms to the letter and spirit of E.O. No. contracting parties;
1008 itself which emphasizes that the modes of voluntary dispute
resolution like arbitration are always preferred because they settle (b) object certain that is the subject matter of the contract; and (c)
disputes in a speedy and amicable manner. They likewise help in cause or consideration. Moreover, a contract does not need to be in
alleviating or unclogging the judicial dockets. Verily, E.O. No. 1008 writing in order to be obligatory and effective unless the law
recognizes that the expeditious resolution of construction disputes specifically requires so.
will promote a healthy partnership between the Government and the
private sector as well as aid in the continuous growth of the country Pursuant to Article 135618 and Article 135719 of the Civil
considering that the construction industry provides employment to a Code, contracts shall be obligatory in whatever form they may have
large segment of the national labor force aside from its being a been entered into, provided that all the essential requisites for their
leading contributor to the gross national product.16 validity are present. Indeed, there was a contract between Federal
and Power even if the Contract of Service was unsigned. Such
Worthy to note is that the jurisdiction of the CIAC is over the contract was obligatory and binding between them by virtue of all
dispute, not over the contract between the parties. 17 Section 2.1, Rule the essential elements for a valid contract being present.
2 of the CIAC Revised Rules particularly specifies that the CIAC has
original and exclusive jurisdiction over construction It clearly appears that the works promised to be done by Power were
disputes, whether such disputes arise from or are merely connected already executed albeit still incomplete; that Federal paid Power ₱l ,
with the construction contracts entered into by parties, and whether 000,000.00 representing the originally proposed downpayment, and
such disputes arise before or after the completion of the contracts. the latter accepted the payment; and that the subject of their dispute
Accordingly, the execution of the contracts and the effect of the concerned only the amounts still due to Power. The records further
agreement to submit to arbitration are different matters, and the show that Federal admitted having drafted the Contract of Services
signing or non-signing of one does not necessarily affect the other. In containing the following clause on submission to arbitration, to wit:
other words, the formalities of the contract have nothing to do with
the jurisdiction of the CIAC. 15. ARBITRATION COMMITTEE -All disputes, controversies or
differences, which may arise between the Parties herein, out of or in
Federal contends that there was no mutual consent and no meeting of relation to or in connection with this Agreement, or for breach
the minds between it and Power as to the operation and binding thereof shall be settled by the Construction Industry Arbitration
effect of the arbitration clause because they had rejected the draft Commission (CIAC) which shall have original and exclusive
service contract. jurisdiction over the aforementioned disputes.20

The contention of Federal deserves no consideration. With the parties having no issues on the provisions or parts of the
Contract of Service other than that pertaining to the downpayment
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 pointed out, the CIAC Revised Rules specifically allows conspicuously absent from the CIAC Revised Rules, which even
any written mode of communication to show the parties' intent or expressly allows such agreement not to be signed by the parties
agreement to submit to arbitration their present or future disputes therein.24 Brushing aside the obvious contractual agreement in this
arising from or connected with their contract. case warranting the submission to arbitration is surely a step
backward.25 Consistent with the policy of encouraging alternative
The CIAC and the CA both found that the parties had disagreed on dispute resolution methods, therefore, any doubt should be resolved
the amount of the downpayment.1âwphi1 On its part, Power in favor of arbitration.26 In this connection, the CA correctly
indicated after receiving and reviewing the draft of the Contract of observed that the act of Atty. Albano in manifesting that Federal had
Service that it wanted 30% as the downpayment. Even so, Power did agreed to the form of arbitration was unnecessary and
not modify anything else in the draft, and returned the draft to inconsequential considering the recognition of the value of the
Federal after signing it. It was Federal that did not sign the draft Contract of Service despite its being an unsigned draft.
because it was not amenable to the amount as modified by Power. It
is notable that the arbitration clause written in the draft of Federal 2.
was unchallenged by the parties until their dispute arose.
Amounts as modified by the CA are correct
Moreover, Federal asserted the original contract to support its claim
against Power. If Federal would insist that the remaining amount due We find no reversible error regarding the amounts as modified by the
to Power was only ₱l,641,513.94 based on the original contract, 21 it CA. Power did not sufficiently establish that the change or increase
was really inconsistent for Federal to rely on the draft when it is of the cost of materials and labor was to be separately determined
beneficial to its side, and to reject its efficacy and existence just to and approved by both parties as provided under Article 1724 of
relieve itself from the CIAC's unfavorable decision. the Civil Code. As such, Federal should not be held liable for the
labor cost escalation.
The agreement contemplated in the CIAC Revised Rules to vest
jurisdiction of the CIAC over the parties' dispute is not necessarily WHEREFORE, the Court AFFIRMS the decision promulgated on
an arbitration clause to be contained only in a signed and finalized August 12, 2013; and ORDERS the petitioner to pay the costs of
construction contract. The agreement could also be in a separate suit.
agreement, or any other form of written communication, as long as
their intent to submit their dispute to arbitration is clear. The fact that SO ORDERED.
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
422 of Republic Act No. 876 (Arbitration Law),23 the requirement is
Contractor's Agreement7 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
G.R. No. 198849, August 07, 2019 type units at Camp John Hay Suites, the total amount of which would
be based on the units chosen by Charter Chemical. 8
CAMP JOHN HAY DEVELOPMENT CORPORATION,
PETITIONER, v. CHARTER CHEMICAL AND COATING Although the Contractor's Agreement contained no date of the units'
CORPORATION, RESPONDENT. turnover, it allowed Charter Chemical to choose the units for
offsetting under an offsetting scheme:
DECISION
1. Compensation:
LEONEN, J.:
. . . .
Rescission under Article 1191 of the Civil Code is the proper remedy
when a party breaches a reciprocal obligation. Because each case has b. Off-setting against Two (2) Units - Studio Type at Suite 2A. Total
its own distinct circumstances, this Court's power to fix a period of amount shall be based on the final unit[s] chosen by the Contractor. 9
an obligation under Article 1197 is discretionary and should be
exercised only if there is just cause. Charter Chemical chose Units 102 and 104 studio type in the second
phase of Camp John Hay Suites. 10
This resolves a Petition for Review on Certiorari 1 assailing the May
13, 2011 Decision2 and September 30, 2011 Resolution3 of the Court At the time the Contractor's Agreement was signed in 2001, the
of Appeals in CA-G.R. SP No. 108335. The Court of Appeals actual construction of the Camp John Hay Suites had not yet
affirmed the March 30, 2009 Final Award 4 in CIAC Case No. 19- commenced.11
2008 issued by the Construction Industry Arbitration Commission,
which found that Charter Chemical and Coating Corporation Later on, the contract price was reduced to P13,239,734.16, for
(Charter Chemical) is entitled to the payment of the monetary which Camp John Hay Development paid P7,339,734.16. The
equivalent of two (2) units in Camp John Hay Suites in the total balance of P5,900,000.00 was ought to be settled by offsetting the
amount of P5,900,000.00 and attorney's fees in the amount of price of the two (2) studio units. 12
P590,000.00.5
In 2003, Charter Chemical completed the painting works, after which
Camp John Hay Development Corporation (Camp John Hay Camp John Hay Development issued a Final Inspection and
Development) is the investment arm of a consortium engaged in the Acceptance Certificate belatedly on May 30, 2005. Charter Chemical
construction of the Camp John Hay Manor in Baguio City. 6 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
In January 2001, Camp John Hay Development entered into a 2005.13 In June 2005, Camp John Hay Development and Charter
Chemical executed contracts to sell. The uniform contracts state in unforeseen events, Camp John Hay Development again failed to
part: complete its construction. Under the July 1, 2008 revision, the Camp
[P]ossession of the Unit shall be delivered by Seller to Buyer within John Hay Suites was estimated to be completed by 2012. 19
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 Due to the subsisting construction delay, Charter Chemical, through
(b) by delivering to the Buyer the Limited Warranty Deed covering counsel, wrote Camp John Hay Development, demanding that it
the Unit. The delivery of the Notice of Completion or the Limited transfer the units or pay the value of these units in the sum of
Warranty Deed shall constitute constructive delivery of the Unit and P6,996,517.48.20
immediately thereafter the risk of loss to the Unit and all obligations
and assessments provided in this Contract, the Project Plan and When it felt that further demands would be futile, Charter Chemical,
Declaration of Restrictions, the Articles of Incorporation and By- on June 12, 2008, filed before the Construction Industry Arbitration
Laws of the Association, and the House Rules, shall pertain to Commission a Request for Arbitration 21 under the arbitration clause
Buyer.14 in the Contractor's Agreement.
In August 2005, Camp John Hay Development issued certifications In its March 30, 2009 Final Award, 22 the Construction Industry
to Charter Chemical that the two (2) units were fully paid under their Arbitration Commission ordered Camp John Hay Development to
offsetting scheme. However, the units were not delivered because the pay the amounts of P5,900,000.00, the monetary value of the two (2)
construction of Camp John Hay Suites was not yet complete. 15 units in Camp John Hay Suites, and P590,000.00 as attorney's fees. 23
Camp John Hay Development had initially estimated that the The arbitral tribunal ruled that Charter Chemical was entitled to its
construction would be completed by 2006. In a Lease claim for the value of the two (2) units because Camp John Hay
Agreement16 executed on October 19, 1996, Camp John Hay Development failed to deliver the units within the targeted
Development and Bases Conversion and Development Authority completion date.24
provided for a period of three and a half (3.5) years from the
execution of the Lease Agreement to complete the various physical The Final Award read:
components in Camp John Hay. When this timetable was not On the basis of the evidence the Arbitration Tribunal finds and so
followed due to alleged mutual delays and force majeure, they holds that:
entered into at least four (4) more amendments to the Lease
Agreement. Two (2) of these, the July 18, 2003 and July 1, 2008 1. Claimant is entitled to its claim for the monetary equivalent of the
Memoranda of Agreement, covered the revision of the Project two (2) units CJH Suites in the total sum of Php5,900,000.00.
Implementation Plan providing the targeted completion dates of the
various facilities in Camp John Hay. 17 2. Claimant is not entitled to its claim for exemplary damages.
Under the July 18, 2003 revision, Camp John Hay Development and 3. Claimant is entitled to its claim for attorney's fees for the sum of
Bases Conversion and Development Authority estimated that the Php590,000.00 which is 10% of the total monetary value for the two
second phase of the Camp John Hay Suites would be completed by (2) units CJH Suites of Php5,900,000.00 which had not been
the end of the second quarter of 2006. 18 Admitting various
delivered by respondent. Reconsideration, but it was denied by the Court of Appeals in its
September 30, 2011 Resolution. 33
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 Camp John Hay Development received the September 30, 2011
reciprocal nature of the contract itself provides for the period of their Resolution on October 7, 2011.34 Before the lapse of the original 15-
delivery. Moreover, CIAC can fix the period if necessary. 25 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
Camp John Hay Development filed before the Court of Appeals a of 30 days from October 22, 2011, or until November 21, 2011,
Petition for Review26 under Rule 43 of the Rules of Court. It argued within which to file the Petition.35 This Motion for Extension was
that the arbitral tribunal did not have jurisdiction over the dispute granted by this Court.36
because the arbitration clause had been superseded by a subsequent
dispute resolution clause contained in the contracts to sell. 27 It further On November 23, 2011, Camp John Hay Development filed a
asserted that it had neither agreed on the completion date of the two Petition for Review on Certiorari. 37 Charter Chemical filed its
(2) units nor admitted that the units were to be completed within Comment38 on February 6, 2012 and, in turn, Camp John Hay
three (3) years from 2003 or 2005.28 Instead, it asked for a fixing of Development filed its Reply39 on May 16, 2012.
the term or period when the units would be completed. 29
Petitioner contends that there is no specific date determined for the
In its May 13, 2011 Decision,30 the Court of Appeals affirmed the completion or delivery of the two (2) units in any of its contracts
arbitral tribunal's award. It held that the arbitration clause in the with respondent. It argues that the action filed should have been for
Contractor's Agreement was neither modified nor superseded by the the fixing of a period under Articles 1191 40 and 119741 of the Civil
contracts to sell, which were merely devices by which to transfer Code, and not an action for the rescission of the contract. 42
possession and title over the units to Charter Chemical. The
Contractor's Agreement, it noted, remained the principal covenant. 31 According to petitioner, both the arbitral tribunal and the Court of
Appeals erred in ruling that the Contractor's Agreement between
The Court of Appeals also ruled that Camp John Hay Development petitioner and respondent had a definite timetable based on the
was already in delay when Charter Chemical demanded the transfer Memorandum of Agreement between petitioner and the Bases
of units on August 3, 2007. When Charter Chemical finished the Conversion and Development Authority. Moreover, petitioner argues
work in 2003, a timetable based on the 2003 Memorandum of that the determination of whether there is an agreed completion date
Agreement between Camp John Hay Development and Bases must be based on the agreement between petitioner and respondent
Conversion and Development Authority stated that the units would in their contract. Thus, when the Court of Appeals resorted to a
be completed by 2006. This showed that there was a definite time for separate agreement different from the Contractor's Agreement, it
the completion of the units. Although Charter Chemical was an recognized that the parties had never actually agreed on a specific
outsider to this agreement, it was "equivalent to an announcement to completion date.43
all concerned that the units would be completed at such and such a
date."32 Petitioner relies on Article 131144 of the Civil Code, which states that
"contracts take effect only between the parties who execute
On June 3, 2011, Camp John Hay Development filed a Motion for
them."45 It also points out that respondent did not rely on the Master respondent's claim for exemplary damages and when petitioner has
Development Plan in the Memorandum of Agreement, maintaining not been found to have acted in bad faith. Respondent, it points out,
that its representative admitted having never seen the Master also failed to present any official receipt to support its claim for
Development Plan when he signed the agreement. 46 Petitioner also attorney's fees.51
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 On the other hand, respondent argues that the Court of Appeals' and
compensation for its painting works. Petitioner argues that the date the arbitral tribunal's decisions, entitling respondent to the monetary
of delivery was not specified in the contracts to sell, which merely equivalent of the units for offsetting, should be respected and
indicated that the delivery would be "within a reasonable time from accorded great weight and finality. Respondent points out that it only
the date of completion of the subject units." 47 agreed to bid for the painting works because Interpro, Inc.,
petitioner's project manager, assured that under the Master
Additionally, petitioner claims that the arbitral tribunal had no Development Plan, the units would be available for occupancy two
jurisdiction over the Complaint. It asserts that the contracts to sell (2) to three (3) years from negotiations, or sometime in 2003. 52
executed following the Contractor's Agreement contain a different
mode of dispute resolution.48 The contracts to sell provide the Respondent further argues that since petitioner was already delayed
following clause: in delivering the units in 2007, the arbitral tribunal and the Court of
ARTICLE XIV Appeals correctly applied Article 1191 of the Civil Code, awarding
MISCELLANEOUS PROVISION indemnity for damages to respondent. 53

. . . . Moreover, respondent claims that the arbitral tribunal correctly


acquired jurisdiction over the dispute because the relationship of the
4. Venue - All actions involving this Contract shall be instituted only parties was born out of the Contractor's Agreement. 54 The
in the proper courts of Pasig City, Metro Manila to the exclusion of Contractor's Agreement provided the arbitration clause in case of any
all other courts.49 dispute. The contracts to sell "cannot be considered to have
superseded the Contractor's Agreement" 55 because they are merely
From the dispute resolution clause, petitioner points out that disputes preparatory contracts required for the processing of the titles of the
must be adjudicated by the proper courts of Pasig City, to the units.56
exclusion of all other courts. The contracts to sell also effectively
removed the parties' dispute outside the ambit of a construction Lastly, respondent claims that the award of attorney's fees was
dispute since they are not the construction contracts contemplated by justified, as petitioner's unwarranted delay and unjustified refusal to
Executive Order No. 1008, or the Construction Industry Arbitration settle the matter brought about its filing of the Complaint before the
Law.50 arbitral tribunal.57
Petitioner further contests the award of attorney's fees to respondent, For this Court's resolution are the following issues:
maintaining that neither the Court of Appeals nor the arbitral tribunal
has specified the factual basis for it. It argues that the award of First, whether or not the Court of Appeals erred in ruling that the
attorney's fees is not justified when both tribunals denied
Construction Industry Arbitration Commission has jurisdiction over the same to voluntary arbitration.
the dispute despite the existence of a dispute resolution clause;
The jurisdiction of the CIAC may include but is not limited to
Second, whether or not the Court of Appeals correctly rescinded the violation of specifications for materials and workmanship; violation
obligation under Article 1191 of the Civil Code and whether or not a of the terms of agreement; interpretation and/or application of
period should be fixed under Article 1197 of the Civil Code; and contractual time and delays; maintenance and defects; payment,
default of employer or contractor and changes in contract cost.
Finally, whether or not the Court of Appeals erred in affirming the
award of attorney's fees to respondent Charter Chemical and Coating Excluded from the coverage of this law are disputes arising from
Corporation. employer-employee relationships which shall continue to be covered
by the Labor Code of the Philippines.
The Petition is denied.
For the Construction Industry Arbitration Commission to acquire
I jurisdiction, the law merely requires that the parties agree to submit
to voluntary arbitration any dispute arising from construction
The Construction Industry Arbitration Commission was created contracts.
under Executive Order No. 1008 to establish an arbitral machinery
that will "settle expeditiously problems arising from, or connected In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila
with, contracts in the construction industry."58 It has jurisdiction over Tollways Corporation:61
"construction disputes between or among parties to an arbitration Under Section I, Article III of the CIAC Rules, an arbitration clause
agreement, or those who are otherwise bound by the latter, directly in a construction contract shall be deemed as an agreement to submit
or by reference."59 Its purpose is to encourage the early and an existing or future controversy to CIAC jurisdiction,
expeditious settlement of disputes in the construction industry, "notwithstanding the reference to a different arbitration institution or
recognizing that it is necessary to avert delays in the resolution of arbitral body in such contract. . . ." . . .
construction industry disputes, which is important to attain the
national development goals.60 . . . The arbitration clause in the construction contract ipso facto
vested the CIAC with jurisdiction. This rule applies, regardless of
Section 4 of the Construction Industry Arbitration Law lays down whether the parties specifically choose another forum or make
the jurisdiction of the Construction Industry Arbitration reference to another arbitral body. Since the jurisdiction of CIAC is
Commission: conferred by law, it cannot be subjected to any condition; nor can it
SECTION 4. Jurisdiction. - The CIAC shall have original and be waived or diminished by the stipulation, act or omission of the
exclusive jurisdiction over disputes arising from, or connected with, parties, as long as the parties agreed to submit their construction
contracts entered into by parties involved in construction in the contract dispute to arbitration, or if there is an arbitration clause in
Philippines, whether the dispute arises before or after the completion the construction contract. The parties will not be precluded from
of the contract, or after the abandonment or breach thereof. These electing to submit their dispute to CIAC, because this right has been
disputes may involve government or private contracts. For the Board vested in each party by law.
to acquire jurisdiction, the parties to a dispute must agree to submit
. . . . The Commission shall continue to exercise original and exclusive
jurisdiction over construction disputes although the arbitration is
It bears to emphasize that the mere existence of an arbitration clause "commercial" pursuant to Section 21 of this Act.
in the construction contract is considered by law as an agreement by
the parties to submit existing or future controversies between them to Arbitration, "[b]eing an inexpensive, speedy[,] and amicable method
CIAC jurisdiction, without any qualification or condition precedent. of settling disputes . . . is encouraged by the Supreme Court." 64 If any
To affirm a condition precedent in the construction contract, which doubt will arise, it "should be resolved in favor of arbitration." 65
would effectively suspend the jurisdiction of the CIAC until
compliance therewith, would be in conflict with the recognized In LM Power Engineering Corp. v. Capitol Industrial Construction
intention of the law and rules to automatically vest CIAC with Groups, Inc.,66 this Court explained the rationale behind this policy:
jurisdiction over a dispute should the construction contract contain Aside from unclogging judicial dockets, arbitration also hastens the
an arbitration clause.62 (Citations omitted) resolution of disputes, especially of the commercial kind. It is thus
regarded as the "wave of the future" in international civil and
Arbitration of construction disputes through the Construction commercial disputes. Brushing aside a contractual agreement calling
Industry Arbitration Commission was incorporated into the general for arbitration between the parties would be a step backward.
statutory framework on alternative dispute resolution through
Republic Act No. 9285, or the Alternative Dispute Resolution Act of Consistent with the above-mentioned policy of encouraging
2004.63 Chapter 6, Section 34 of this law explicitly referenced the alternative dispute resolution methods, courts should liberally
Construction Industry Arbitration Law, while Section 35 affirmed construe arbitration clauses. Provided such clause is susceptible of an
the Construction Industry Arbitration Commission's jurisdiction: interpretation that covers the asserted dispute, an order to arbitrate
CHAPTER 6 should be granted. Any doubt should be resolved in favor of
Arbitration of Construction Disputes arbitration.67(Citations omitted)

SECTION 34. Arbitration of Construction Disputes: Governing Law. Here, petitioner and respondent agreed to submit to arbitration any
- The arbitration of construction disputes shall be governed by dispute arising from the construction contract, as clearly stipulated in
Executive Order No. 1008, otherwise known as the Construction their Contractor's Agreement. The arbitration clause should, thus, be
Industry Arbitration Law. given primacy in accordance with the State's policy to favor
arbitration. It follows that if there is any doubt as to what provision
SECTION 35. Coverage of the Law. Construction disputes which should be given effect, this Court will rule in favor of the arbitration
fall within the original and exclusive jurisdiction of the Construction clause.
Industry Arbitration Commission (the "Commission") shall include
those between or among parties to, or who are otherwise bound by, Moreover, the contracts to sell, containing a contrary dispute
an arbitration agreement, directly or by reference whether such resolution clause, did not supersede the arbitration clause. The case
parties are project owner, contractor, subcontractor, fabricator, records show that the contracts to sell are not inconsistent with the
project manager, design professional, consultant, quantity surveyor, Contractor's Agreement. They are merely devices to facilitate the
bondsman or issuer of an insurance policy in a construction project. 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 Rescission on account of breach of reciprocal obligations is provided
to the transfer of the two (2) units to respondent, the contracts to sell under Article 1191 of the Civil Code:
are pro-forma contracts provided by petitioner in selling the Camp ARTICLE 1191. The power to rescind obligations is implied in
John Hay Suites units. There is no intent to supersede the reciprocal ones, in case one of the obligors should not comply with
Contractor's Agreement, which remains the principal contract what is incumbent upon him.
between petitioner and respondent.
The injured party may choose between the fulfillment and the
Petitioner erred in claiming that because the contracts to sell are not rescission of the obligation, with the payment of damages in either
construction contracts, they effectively removed the parties' dispute case. He may also seek rescission, even after he has chosen
outside the ambit of a construction dispute. On the contrary, the fulfillment, if the latter should become impossible.
subject of the contracts to sell still falls within the jurisdiction of the
Construction Industry Arbitration Commission. Section 4 of the The court shall decree the rescission claimed, unless there be just
Construction Industry Arbitration Law states that its jurisdiction cause authorizing the fixing of a period.
includes "payment [and] default of employer or contractor[.]" Here,
the main dispute concerning the contracts to sell all boils down to the This is understood to be without prejudice to the rights of third
issue of payment of the two (2) units for the services rendered by persons who have acquired the thing, in accordance with articles
respondent. Hence, the units' transfer as payment to respondent still 1385 and 1388 and the Mortgage Law.
falls under the jurisdiction of the arbitral tribunal.
This provision refers to rescission applicable to reciprocal
This dispute is better left to the expertise of the Construction obligations. It is invoked when there is noncompliance by one (1) of
Industry Arbitration Commission, a quasi-judicial body with the the contracting parties in case of reciprocal obligations. "Reciprocal
technical expertise to resolve disputes outside the expertise of regular obligations are those which arise from the same cause, and in which
courts.68 Aptly, it should adjudicate and determine the claims and each party is a debtor and a creditor of the other, such that the
rights of petitioner and respondent with respect to the construction obligation of one is dependent upon the obligation of the other. They
contract and all its incidents. are to be performed simultaneously such that the performance of one
is conditioned upon the simultaneous fulfillment of the other." 69
It is worth noting that this dispute has been ongoing for over a
decade now. Despite numerous meetings and negotiations prior to Rescission under Article 1191 will be ordered when a party to a
respondent's filing of a Complaint before the arbitral tribunal, no contract fails to comply with his or her obligation. Rescission "is a
amicable settlement had been reached. Disregarding the proceedings principal action that is immediately available to the party at the time
that took place before the lower tribunals and requiring the parties to that the reciprocal [obligation] was breached." 70 In Spouses Velarde
submit the dispute before the trial court would be merely dilatory at v. Court of Appeals:71
this point. It would only entail additional expenses and unnecessary The right of rescission of a party to an obligation under Article 1191
delays for both parties. of the Civil Code is predicated on a breach of faith by the other party
who violates the reciprocity between them. The breach contemplated
II in the said provision is the obligor's failure to comply with an
existing obligation. When the obligor cannot comply with what is Article 1197 is part and parcel of all obligations contemplated
incumbent upon [him or her], the obligee may seek rescission and, in therein. Hence, whenever a period is fixed pursuant to said Article,
the absence of any just cause for the court to determine the period of the court merely enforces or carries out an implied stipulation in the
compliance, the court shall decree the rescission. 72 (Citations contract in question. In fact, insofar as contracts not fixing a period
omitted) are concerned, said legal provision applies only if, from the nature
and circumstances surrounding the contract involved, "it can be
"Resolution grants the injured party the option to pursue, as principal inferred that a period was intended" by the parties thereto. For this
actions, either a rescission or specific performance of the obligation, reason, the last paragraph of Article 1197, ordains that "in every
with payment of damages in either case." 73 case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties." In
Rescission of the contract is sanctioned here. Under the contract, other words, in fixing said period, the Court merely ascertains the
petitioner and respondent have reciprocal obligations. Respondent, will of the parties and gives effect thereto. 77
for its part, was bound to render painting services for petitioner's
property. This was completed by respondent in 2003, after which it As stipulated in Article 1197, this Court must determine that the
was belatedly issued a clearance in 2005. Meanwhile, in accordance obligation does not fix a period or that the period is made to depend
with the Contractor's Agreement, petitioner paid part of the contract upon the will of the debtor, but it can be inferred from its nature and
price with the remaining balance to be paid through offsetting of two the circumstances that a period was intended. Then, it must be
(2) Camp John Hay Suites units. However, despite incessant determined what period was probably contemplated by the parties. 78
demands from respondent, petitioner failed to deliver these units
because their construction had yet to be completed. The law, then, The power of this Court to fix a period is discretionary. The
gives respondent the right to seek rescission because petitioner could surrounding facts of each case must be taken into consideration in
not comply with what is incumbent upon it. Petitioner, however, deciding whether the fixing of a period is sanctioned. The discretion
claims that the fixing of the period under Article 1197 is the proper to fix an obligation's period is addressed to this Court's judgment and
remedy, not rescission under Article 1191. is tempered by equitable considerations.

This Court disagrees. We cannot cure the deficiency here by fixing In Central Philippine University v. Court of Appeals,79 this Court
the period of the obligation. There is no just cause for this Court to refused to fix a period because of the years that had already been
fix the period for the benefit of petitioner. allowed for the party to comply with the condition of the obligation.
Doing so, it held, would be a mere technicality and formality, and
Article 1197 applies "when the obligation does not fix a period but would only cause further delay. This Court ruled:
from its nature and circumstances it can be inferred that a period was This general rule however cannot be applied considering the
intended[.]"74 This provision allows the courts to fix the duration different set of circumstances existing in the instant case. More than
"because the fulfillment of the obligation itself cannot be demanded a reasonable period of fifty (50) years has already been allowed
until after the court has fixed the period for compliance therewith petitioner to avail of the opportunity to comply with the condition
and such period has arrived."75 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
In Deudor v. J.M. Tuason & Company, Inc.:76 need to fix the duration of a term of the obligation when such
procedure would be a mere technicality and formality and would complete the construction of the Camp John Hay Suites.
serve no purpose that to delay or lead to an unnecessary and
expensive multiplication of suits. Moreover, under Art. 1191 of the To tolerate petitioner's excuses would only cause more delay and
Civil Code, when one of the obligors cannot comply with what is burden to respondent. Petitioner failed to forward any just cause to
incumbent upon him, the obligee may seek rescission and the court convince this Court to set a period. It merely reasoned force
shall decree the same unless there is just cause authorizing the fixing majeure and mutual delays with Bases Conversion and Development
of a period. In the absence of any just cause for the court to Authority without offering any explanation for its alleged difficulty
determine the period of the compliance, there is no more obstacle for in building the units.
the court to decree the rescission claimed. 80 (Citation omitted)
To belatedly fix the period for petitioner's compliance would mean
In Gregorio Araneta, Inc. v. Philippine Sugar Estates Development refusing immediate payment to respondent. Petitioner's
Company, Ltd.,81 this Court held that if a reasonable period was noncompliance with its obligation to deliver the two (2) units as
agreed upon in a contract, all that the court should have done was payment to respondent can no longer be excused.
determine if that reasonable time had already elapsed:
If the contract so provided, then there was a period fixed, a The law and jurisprudence are clear. When the obligor cannot
"reasonable time"; and all that the court should have done was to comply with its obligation, the obligee may exercise its right to
determine if that reasonable time had already elapsed when suit was rescind the obligation, and this Court will order the rescission in the
filed. If it had passed, then the court should declare that petitioner absence of any just cause to fix the period. 83 Here, lacking any
had breached the contract, as averred in the complaint, and fix the reasonable explanation and just cause for the fixing of the period for
resulting damages. On the other hand, if the reasonable time had not petitioner's noncompliance, the rescission of the obligation is
yet elapsed, the court perforce was bound to dismiss the action for justified.
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 III
for performance was warranted, for Article 1197 is precisely
predicated on the absence of any period fixed by the parties. 82 Rescission of the obligation under Article 1191 is a declaration that a
There is no just cause for this Court to determine the period of contract is void at its inception. Its effect is to restore the parties to
compliance. As can be gleaned from the records of this case, the their original position, insofar as practicable. Fang v. Dueñas84 is
obligation of petitioner to build the Camp John Hay Suites had been illustrative:
dragging for years even before it entered into the Contractor's Rescission has the effect of "unmaking a contract, or its undoing
Agreement with respondent. from the beginning, and not merely its termination." Hence,
rescission creates the obligation to return the object of the contract It
The Memorandum of Agreement that petitioner executed with the can be carried out only when the one who demands rescission can
Bases Conversion and Development Authority shows that the return whatever he may be obliged to restore. To rescind is to declare
construction of the Camp John Hay Suites began in 1996. When a contract void at its inception and to put an end to it as though it
respondent demanded the units' transfer in 2007, more than 10 years never was. It is not merely to terminate it and release the parties from
had lapsed; yet, within those years, petitioner was still not able to further obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative positions as if no Article 1385 of the Civil Code provides:
contract has been made.85 ARTICLE 1385. Rescission creates the obligation to return the
things which were the object of the contract, together with their
Mutual restitution is required in cases involving rescission under fruits, and the price with its interest; consequently, it can be carried
Article 1191. "Where a contract is rescinded, it is the duty of the out only when he who demands rescission can return whatever he
court to require both parties to surrender that which they have may be obliged to restore.
respectively received and to place each other as far as practicable in
his original situation[;] the rescission has the effect of abrogating the Neither shall rescission take place when the things which are the
contract in all parts."86 object of the contract are legally in the possession of third persons
who did not act in bad faith.
In Spouses Serrano v. Court of Appeals:87
Generally, the rule is that to rescind a contract is not merely to In this case, indemnity for damages may be demanded from the
terminate it, but to abrogate and undo it from the beginning; that is, person causing the loss. (Emphasis supplied)
not merely to release the parties from further obligations to each
other in respect to the subject of the contract, but to annul the Although rescission repeals the contract from its inception, it does
contract and restore the parties to the relative positions which they not disregard all the consequences that the contract has created. What
would have occupied if no such contract had ever been made. mutual rescission entails is "the return of the benefits that each party
Rescission necessarily involves a repudiation of the contract and a may have received as a result of the contract." 91
refusal of the moving party to be further bound by it. 88 (Citation
omitted) Here, it is clear that only petitioner benefited from the contract.
Respondent has already performed the painting works in 2003, and it
This Court has explained that restitution under Article 1385 of the was accepted by petitioner as satisfactory. Since this service cannot
Civil Code equally applies for rescission under Article 1191. be undone and petitioner has already enjoyed the value of the
In Laperal v. Solid Homes, Inc.:89 painting services over the years, respondent is entitled to the
Despite the fact that Article 1124 of the old Civil Code from whence payment of the painting services with interest in accordance with
Article 1191 was taken, used the term "resolution", the amendment Articles 1191 and 2210 of the Civil Code.92 The interest shall be
thereto (presently, Article 1191) explicitly and clearly used the term computed from the date of extrajudicial demand by respondent on
"rescission". Unless Article 1191 is subsequently amended to revert August 3, 2007 in accordance with Article 1169 93 of the Civil Code
back to the term "resolution", this Court has no alternative but to and this Court's ruling in Nacar v. Gallery Frames.94
apply the law, as it is written. Generally, the parties may stipulate the recovery of attorney's fees,
but in the absence of such, Article 2208 of the Civil Code
Again, since Article 1385 of the Civil Code expressly and clearly enumerates instances when these fees may still be recovered: 95
states that "rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and ARTICLE 2208. In the absence of stipulation, attorney's fees and
the price with its interest," the Court finds no justification to sustain expenses of litigation, other than judicial costs, cannot be recovered,
petitioners' position that said Article 1385 does not apply to except:
rescission under Article 1191.90
(1) When exemplary damages are awarded; [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
(2) When the defendant's act or omission has compelled the plaintiff demands factual, legal, and equitable justification. Even when a
to litigate with third persons or to incur expenses to protect his claimant is compelled to litigate with third persons or to incur
interest; expenses to protect his rights, still attorney's fees may not be
awarded where no sufficient showing of bad faith could be reflected
(3) In criminal cases of malicious prosecution against the plaintiff; in a party's persistence in a case other than an erroneous conviction
(4) In case of a clearly unfounded civil action or proceeding against of the righteousness of his cause.97 (Citations omitted)
the plaintiff;
The grant of attorney's fees depends on the evaluation of each case
(5) Where the defendant acted in gross and evident bad faith in and is within this Court's discretion. Attorney's fees may be awarded
refusing to satisfy the plaintiff's plainly valid, just and demandable if a party was forced to litigate and incur expenses to protect its right
claim; and interest due to another party's unjustified act or omission. 98

(6) In actions for legal support; Here, we agree with the findings of the Construction Industry
Arbitration Commission and the Court of Appeals. Respondent is
(7) In actions for the recovery of wages of household helpers, entitled to the award of attorney's fees.
laborers and skilled workers;
In awarding attorney's fees, the arbitral tribunal explained that
(8) In actions for indemnity under workmen's compensation and respondent was compelled to engage the services of a lawyer to
employer's liability laws;
recover the two (2) Camp John Hay Suites units or their monetary
(9) In a separate civil action to recover civil liability arising from a value; thus, it incurred expenses to protect its interest after petitioner
crime; had breached their contract.99 In affirming this Final Award, the
Court of Appeals found that respondent undeniably needed adequate
(10) When at least double judicial costs are awarded; legal representation to recover on a clearly demandable claim,
making the additional expense inevitable. 100
(11) In any other case where the court deems it just and equitable
that attorney's fees and expenses of litigation should be recovered. Unmistakably, there was breach of faith. Petitioner violated the
reciprocity of its contract with respondent. This case dragged on for
In all cases, the attorney's fees and expenses of litigation must be years because petitioner unjustifiably refused to pay respondent's
reasonable. (Emphasis supplied) valid claim. In the proceedings before the arbitral tribunal, petitioner
Generally, attorney's fees cannot be recovered as part of damages, as even rejected respondent's offer to settle the dispute by paying the
no premium should be placed on the right to litigate. In ABS-CBN balance of the contract price. While petitioner enjoyed the benefit of
Broadcasting Corporation v. Court of Appeals:96 the painting services, respondent is forced to await payment,
foregoing the use and value of money that have compounded over
the years.
DECISION
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
DE LEON, JR., J.:
payment, it is only equitable to award attorney's fees.

WHEREFORE, the Petition for Review on Certiorari is DENIED. Before us is a petition for review on certiorari of the Order 1 of
The Court of Appeals May 13, 2011 Decision and September 30, Branch 85 of the Regional Trial Court of Lipa City 2 dismissing
2011 Resolution in CA-G.R. SP No. 108335 are AFFIRMED petitioners’ complaint 3 for rescission of several sale transactions
WITH MODIFICATION. involving land owned by Augusto L. Salas, Jr., their predecessor-in-
interest, on the ground that they failed to first resort to
Petitioner Camp John Hay Development Corporation is ordered to arbitration.cralawnad
pay respondent Charter Chemical and Coating Corporation: (1) the
balance of the contract price in the amount of Five Million Nine Salas, Jr. was the registered owner of a vast tract of land in Lipa
Hundred Thousand Pesos (P5,900,000.00) with interest at the rate of City, Batangas spanning 1,484,354 square meters.
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 On May 15, 1987, he entered into an Owner-Contractor Agreement 4
(hereinafter referred to as the Agreement) with respondent Laperal
satisfaction; and (2) attorney's fees in the amount of Five Hundred
Realty Corporation (hereinafter referred to as Laperal Realty) to
Ninety Thousand Pesos (P590,000.00). render and provide complete (horizontal) construction services on his
[G.R. No. 135362. December 13, 1999.] land.

HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D. On September 23, 1988, Salas, Jr. executed a Special Power of
SALAS for herself and as legal guardian of the minor FABRICE Attorney in favor of respondent Laperal Realty to exercise general
CYRILL D. SALAS, MA. CRISTINA S. LESACA, and control, supervision and management of the sale of his land, for cash
KARINA TERESA D. SALAS, Petitioners, v. LAPERAL or on installment basis.
REALTY CORPORATION, ROCKWAY REAL ESTATE
CORPORATION, SOUTH RIDGE VILLAGE, INC., On June 10, 1989, Salas, Jr. left his home in the morning for a
MAHARAMI DEVELOPMENT CORPORATION, Spouses business trip to Nueva Ecija. He never returned.
THELMA D. ABRAJANO and GREGORIO ABRAJANO,
On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial
OSCAR DACILLO, Spouses VIRGINIA D. LAVA and RODEL
Court of Makati City a verified petition for the declaration of
LAVA, EDUARDO A. VACUNA, FLORANTE DE LA CRUZ,
presumptive death of her husband, Salas, Jr., who had then been
JESUS VICENTE B. CAPELLAN, and the REGISTER OF missing for more than seven (7) years. It was granted on December
DEEDS FOR LIPA CITY, Respondents. 12, 1996. 5
same reason.
Meantime, respondent Laperal Realty subdivided the land of Salas,
Jr. and sold subdivided portions thereof to respondents Rockway On August 9, 1998, the trial court issued the herein assailed Order
Real Estate Corporation and South Ridge Village, Inc. on February dismissing petitioners’ Complaint for non-compliance with the
22, 1990; to respondent spouses Abrajano and Lava and Oscar foregoing arbitration clause.
Dacillo on June 27, 1991; and to respondents Eduardo Vacuna,
Florante de la Cruz and Jesus Vicente Capalan on June 4, 1996 (all Hence this petition.
of whom are hereinafter referred to as respondent lot buyers).
Petitioners argue, thus:jgc:
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the
Regional Trial Court of Lipa City a Complaint 6 for declaration of "The petitioners’ causes of action did not emanate from the Owner-
nullity of sale, reconveyance, cancellation of contract, accounting Contractor Agreement."cralaw virtua1aw library
and damages against herein respondents which was docketed as Civil
Case No. 98-0047.chanrobles law library : red "The petitioners’ causes of action for cancellation of contract and
accounting are covered by the exception under the Arbitration
On April 24, 1998, respondent Laperal Realty filed a Motion to Law."cralaw virtua1aw library
Dismiss 7 on the ground that petitioners failed to submit their
grievance to arbitration as required under Article VI of the "Failure to arbitrate is not a ground for dismissal." 10
Agreement which provides:jgc:
In a catena of cases 11 inspired by Justice Malcolm’s provocative
"ARTICLE VI. ARBITRATION. dissent in Vega v. San Carlos Milling Co. 12 , this Court has
recognized arbitration agreements as valid, binding, enforceable and
All cases of dispute between CONTRACTOR and OWNER’S not contrary to public policy so much so that when there obtains a
representative shall be referred to the committee represented written provision for arbitration which is not complied with, the trial
by:chanrob1es virtual 1aw library court should suspend the proceedings and order the parties to
proceed to arbitration in accordance with the terms of their
a. One representative of the OWNER; agreement. 13 Arbitration is the "wave of the future" in dispute
resolution. 14 To brush aside a contractual agreement calling for
b. One representative of the CONTRACTOR; arbitration in case of disagreement between parties would be a step
backward. 15
c. One representative acceptable to both OWNER and
CONTRACTOR." 8 Nonetheless, we grant the petition.cralawnad

On May 5, 1998, respondent spouses Abrajano and Lava and A submission to arbitration is a contract. 16 As such, the Agreement,
respondent Dacillo filed a Joint Answer with Counterclaim and containing the stipulation on arbitration, binds the parties thereto, as
Crossclaim 9 praying for dismissal of petitioners’ Complaint for the well as their assigns and heirs. 17 But only they. Petitioners, as heirs
of Salas, Jr., and respondent Laperal Realty are certainly bound by to arbitrate as provided in Article VI of the Agreement was never
the Agreement. If respondent Laperal Realty had assigned its rights vested in respondent lot buyers.
under the Agreement to a third party, making the former, the
assignor, and the latter, the assignee, such assignee would also be Respondent Laperal Realty, as a contracting party to the Agreement,
bound by the arbitration provision since assignment involves such has the right to compel petitioners to first arbitrate before seeking
transfer of rights as to vest in the assignee the power to enforce them judicial relief. However, to split the proceedings into arbitration for
to the same extent as the assignor could have enforced them against respondent Laperal Realty and trial for the respondent lot buyers, or
the debtor 18 or in this case, against the heirs of the original party to to hold trial in abeyance pending arbitration between petitioners and
the Agreement. However, respondents Rockway Real Estate respondent Laperal Realty, would in effect result in multiplicity of
Corporation, South Ridge Village, Inc., Maharami Development suits, duplicitous procedure and unnecessary delay. On the other
Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo, hand, it would be in the interest of justice if the trial court hears the
Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan are complaint against all herein respondents and adjudicates petitioners’
not assignees of the rights of respondent Laperal Realty under the rights as against theirs in a single and complete proceeding.
Agreement to develop Salas, Jr.’s land and sell the same. They are,
rather, buyers of the land that respondent Laperal Realty was given WHEREFORE, the instant petition is hereby GRANTED. The Order
the authority to develop and sell under the Agreement. As such, they dated August 19, 1998 of Branch 85 of the Regional Trial Court of
are not "assigns" contemplated in Art. 1311 of the New Civil Code Lipa City is hereby NULLIFIED and SET ASIDE. Said court is
which provides that "contracts take effect only between the parties, hereby ordered to proceed with the hearing of Civil Case No. 98-
their assigns and heirs" . 0047.

Petitioners claim that they suffered lesion of more than one-fourth Costs against private respondents.:
(1/4) of the value of Salas, Jr.’s land when respondent Laperal Realty
subdivided it and sold portions thereof to respondent lot buyers. SO ORDERED.
Thus, they instituted action 19 against both respondent Laperal
Realty and respondent lot buyers for rescission of the sale
transactions and reconveyance to them of the subdivided lots. They
argue that rescission, being their cause of action, falls under the
exception clause in Sec. 2 of Republic Act No. 876 which provides
that "such submission [to] or contract [of arbitration] shall be valid,
enforceable and irrevocable, save, upon such grounds as exist at law
for the revocation of any contract" .

The petitioners’ contention is without merit. For while rescission, as


a general rule, is an arbitrable issue, 20 they impleaded in the suit for
rescission the respondent lot buyers who are neither parties to the
Agreement nor the latter’s assigns or heirs. Consequently, the right
BELLOSILLO, J.:

This Petition for Review on certiorari assails the 17 July


1998 Decision1 of the Court of Appeals affirming the 11 November
1997 Order2 of the Regional Trial Court which denied
petitioners' Motion to Suspend Proceedings in Civil Case No. 2637-
MN. It also questions the appellate court's Resolution3 of 30 October
1998 which denied petitioners' Motion for Reconsideration.

On 1 July 1994, in a Distributorship Agreement, petitioner Del


Monte Corporation-USA (DMC-USA) appointed private respondent
Montebueno Marketing, Inc. (MMI) as the sole and exclusive
distributor of its Del Monte products in the Philippines for a period
of five (5) years, renewable for two (2) consecutive five (5) year
periods with the consent of the parties. The agreement provided,
among others, for an arbitration clause which states –

12. GOVERNING LAW AND ARBITRATION4

This Agreement shall be governed by the laws of the State of


California and/or, if applicable, the United States of
America. All disputes arising out of or relating to this
Agreement or the parties' relationship, including the
termination thereof, shall be resolved by arbitration in the
City of San Francisco, State of California, under the Rules
of the American Arbitration Association. The arbitration
G.R. No. 136154        February 7, 2001 panel shall consist of three members, one of whom shall be
selected by DMC-USA, one of whom shall be selected by
DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., MMI, and third of whom shall be selected by the other two
DANIEL COLLINS and LUIS HIDALGO, petitioners, members and shall have relevant experience in the industry
vs. xxxx
COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in
his capacity as Presiding Judge, RTC-Br. 74, Malabon, Metro In October 1994 the appointment of private respondent MMI as the
Manila, MONTEBUENO MARKETING, INC., LIONG LIONG sole and exclusive distributor of Del Monte products in the
C. SY and SABROSA FOODS, INC., respondents. Philippines was published in several newspapers in the country.
Immediately after its appointment, private respondent MMI
appointed Sabrosa Foods, Inc. (SFI), with the approval of petitioner in the extra handling thereof, the actual expenses and cost of money
DMC-USA, as MMI's marketing arm to concentrate on its marketing for the unused Letters of Credit (LCs) and the substantial opportunity
and selling function as well as to manage its critical relationship with losses due to created out-of-stock situations and unauthorized
the trade. shipments of Del Monte-USA products to the Philippine Duty Free
Area and Economic zone; that the bad faith, fraudulent acts and
On 3 October 1996 private respondents MMI, SFI and MMI's willful negligence of petitioners, motivated by their determination to
Managing Director Liong Liong C. Sy (LILY SY) filed a squeeze private respondents out of the outstanding and ongoing
Complaint5 against petitioners DMC-USA, Paul E. Derby, Distributorship Agreement in favor of another party, had placed
Jr.,6 Daniel Collins7 and Luis Hidalgo,8 and Dewey Ltd.9 before the private respondent LILY SY on tenterhooks since then; and, that the
Regional Trial Court of Malabon, Metro Manila. Private respondents shrewd and subtle manner with which petitioners concocted
predicated their complaint on the alleged violations by petitioners of imaginary violations by private respondent MMI of the
Arts. 20,10 2111 and 2312 of the Civil Code. According to private Distributorship Agreement in order to justify the untimely
respondents, DMC-USA products continued to be brought into the termination thereof was a subterfuge. For the foregoing, private
country by parallel importers despite the appointment of private respondents claimed, among other reliefs, the payment of actual
respondent MMI as the sole and exclusive distributor of Del Monte damages, exemplary damages, attorney's fees and litigation
products thereby causing them great embarrassment and substantial expenses.
damage. They alleged that the products brought into the country by
these importers were aged, damaged, fake or counterfeit, so that in On 21 October 1996 petitioners filed a Motion to Suspend
March 1995 they had to cause, after prior consultation with Antonio Proceedings13 invoking the arbitration clause in their Agreement
Ongpin, Market Director for Special Markets of Del Monte with private respondents.
Philippines, Inc., the publication of a "warning to the trade" paid
advertisement in leading newspapers. Petitioners DMC-USA and In a Resolution14 dated 23 December 1996 the trial court deferred
Paul E. Derby, Jr., apparently upset with the publication, instructed consideration of petitioners' Motion to Suspend Proceedings as the
private respondent MMI to stop coordinating with Antonio Ongpin grounds alleged therein did not constitute the suspension of the
and to communicate directly instead with petitioner DMC-USA proceedings considering that the action was for damages with prayer
through Paul E. Derby, Jr. for the issuance of Writ of Preliminary Attachment and not on the
Distributorship Agreement.
Private respondents further averred that petitioners knowingly and
surreptitiously continued to deal with the former in bad faith by On 15 January 1997 petitioners filed a Motion for Reconsideration to
involving disinterested third parties and by proposing solutions which respondents filed their Comment/Opposition. On 31 January
which were entirely out of their control. Private respondents claimed 1997 petitioners filed their Reply. Subsequently, private respondents
that they had exhausted all possible avenues for an amicable filed an Urgent Motion for Leave to Admit Supplemental
resolution and settlement of their grievances; that as a result of the Pleading dated 2 April 1997. This Motion was admitted, over
fraud, bad faith, malice and wanton attitude of petitioners, they petitioners' opposition, in an Order of the trial court dated 27 June
should be held responsible for all the actual expenses incurred by 1997.
private respondents in the delayed shipment of orders which resulted
As a result of the admission of the Supplemental for arbitration thereof, the court in which such suit or
Complaint, petitioners filed on 22 July 1997 proceeding is pending, upon being satisfied that the issue
a Manifestation adopting their Motion to Suspend Proceedings of 17 involved in such suit or proceeding is referable to
October 1996 and Motion for Reconsideration of 14 January 1997. arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the
On 11 November 1997 the Motion to Suspend Proceedings was agreement. Provided, That the applicant for the stay is not
denied by the trial court on the ground that it "will not serve the ends in default in proceeding with such arbitration.
of justice and to allow said suspension will only delay the
determination of the issues, frustrate the quest of the parties for a Private respondents claim, on the other hand, that their causes of
judicious determination of their respective claims, and/or deprive action are rooted in Arts. 20, 21 and 23 of the Civil Code, 19 the
and delay their rights to seek redress."15 determination of which demands a full blown trial, as correctly held
by the Court of Appeals. Moreover, they claim that the issues before
On appeal, the Court of appeals affirmed the decision of the trial the trial court were not joined so that the Honorable Judge was not
court. It held that the alleged damaging acts recited in the Complaint, given the opportunity to satisfy himself that the issue involved in the
constituting petitioners' causes of action, required the interpretation case was referable to arbitration. They submit that, apparently,
of Art. 21 of the Civil Code16 and that in determining whether petitioners filed a motion to suspend proceedings instead of sending
petitioners had violated it "would require a full blown trial" making a written demand to private respondents to arbitrate because
arbitration "out of the question." 17 Petitioners' Motion for petitioners were not sure whether the case could be a subject of
Reconsideration of the affirmation was denied. Hence, this Petition arbitration. They maintain that had petitioners done so and private
for Review. respondents failed to answer the demand, petitioners could have filed
with the trial court their demand for arbitration that would warrant a
The crux of the controversy boils down to whether the dispute determination by the judge whether to refer the case to arbitration.
between the parties warrants an order compelling them to submit to Accordingly, private respondents assert that arbitration is out of the
arbitration. question.

Petitioners contend that the subject matter of private respondents' Private respondents further contend that the arbitration clause centers
causes of action arises out of or relates to the Agreement between more on venue rather than on arbitration. They finally allege that
petitioners and private respondents. Thus, considering that the petitioners filed their motion for extension of time to file this petition
arbitration clause of the Agreement provides that all disputes arising on the same date20 petitioner DMC-USA filed a petition to compel
out of or relating to the Agreement or the parties' relationship, private respondent MMI to arbitrate before the United States District
including the termination thereof, shall be resolved by arbitration, Court in Northern California, docketed as Case No. C-98-4446. They
they insist on the suspension of the proceedings in Civil Case No. insist that the filing of the petition to compel arbitration in the United
2637-MN as mandated by Sec. 7 of RA 87618 – States made the petition filed before this Court an alternative remedy
and, in a way, an abandonment of the cause they are fighting for her
Sec. 7. Stay of Civil Action. If any suit or proceeding be in the Philippines, thus warranting the dismissal of the present
brought upon an issue arising out of an agreement providing petition before this Court.
There is no doubt that arbitration is valid and constitutional in our to arbitration in the State of California pursuant to the arbitration
jurisdiction.21 Even before the enactment of RA 876, this Court has clause and the suspension of the proceedings in Civil Case No. 2637-
countenanced the settlement of disputes through arbitration. Unless MN pending the return of the arbitral award could be called for 25 but
the agreement is such as absolutely to close the doors of the courts only as to petitioners DMC-USA and Paul E. Derby, Jr., and private
against the parties, which agreement would be void, the courts will respondents MMI and LILY SY, and not as to the other parties in
look with favor upon such amicable arrangement and will only this case. This is consistent with the recent case of Heirs of Augusto
interfere with great reluctance to anticipate or nullify the action of L. Salas, Jr. v. Laperal Realty Corporation,26 which superseded that
the arbitrator.22 Moreover, as RA 876 expressly authorizes arbitration of Toyota Motor Philippines Corp. v. Court of Appeals.27
of domestic disputes, foreign arbitration as a system of settling
commercial disputes was likewise recognized when the Philippines In Toyota, the Court ruled that "[t]he contention that the arbitration
adhered to the United Nations "Convention on the Recognition and clause has become dysfunctional because of the presence of third
the Enforcement of Foreign Arbitral Awards of 1958" under the 10 parties is untenable" ratiocinating that "[c]ontracts are respected as
May 1965 Resolution No. 71 of the Philippine Senate, giving the law between the contracting parties" 28 and that "[a]s such, the
reciprocal recognition and allowing enforcement of international parties are thereby expected to abide with good faith in their
arbitration agreements between parties of different nationalities contractual commitments."29 However, in Salas, Jr., only parties to
within a contracting state.23 the Agreement, their assigns or heirs have the right to arbitrate or
could be compelled to arbitrate. The Court went further by declaring
A careful examination of the instant case shows that the arbitration that in recognizing the right of the contracting parties to arbitrate or
clause in the Distributorship Agreement between petitioner DMC- to compel arbitration, the splitting of the proceedings to arbitration as
USA and private respondent MMI is valid and the dispute between to some of the parties on one hand and trial for the others on the
the parties is arbitrable. However, this Court must deny the petition. other hand, or the suspension of trial pending arbitration between
some of the parties, should not be allowed as it would, in effect,
The Agreement between petitioner DMC-USA and private result in multiplicity of suits, duplicitous procedure and unnecessary
respondent MMI is a contract. The provision to submit to arbitration delay.30
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 The object of arbitration is to allow the expeditious determination of
respected as the law between the contracting parties and produce a dispute.31 Clearly, the issue before us could not be speedily and
effect as between them, their assigns and heirs. 24 Clearly, only parties efficiently resolved in its entirety if we allow simultaneous
to the Agreement, i.e., petitioners DMC-USA and its Managing arbitration proceedings and trial, or suspension of trial pending
Director for Export Sales Paul E. Derby, Jr., and private respondents arbitration. Accordingly, the interest of justice would only be served
MMI and its Managing Director LILY SY are bound by the if the trial court hears and adjudicates the case in a single and
Agreement and its arbitration clause as they are the only signatories complete proceeding.32
thereto. Petitioners Daniel Collins and Luis Hidalgo, and private
respondent SFI, not parties to the Agreement and cannot even be WHEREFORE, the petition is DENIED. The Decision of the Court
considered assigns or heirs of the parties, are not bound by the of Appeals affirming the Order of the Regional Trial Court of
Agreement and the arbitration clause therein. Consequently, referral Malabon, Metro Manila, in Civil Case No. 2637-MN, which denied
petitioners' Motion to Suspend Proceedings, is AFFIRMED. The BRANCH 2, ILIGAN CITY and E. WILLKOM
Regional Trial Court concerned is directed to proceed with the ENTERPRISES, INC., respondents.
hearing of Civil Case No. 2637-MN with dispatch. No costs.
 
SO ORDERED.
PURISIMA, J.:

Before the Court is a Petition for Certiorari with Prayer for


Preliminary Injunction & Temporary Restraining Order under Rule
65 of the Revised Rules of Court assailing the decision of the
Regional Trial Court of Lanao del Norte, Branch 2, Iligan City, on
the following consolidated cases:

(a) Special Proceeding Case No. 2206 entitled National Steel


Corporation vs. E. Willkom Enterprise Inc. to Vacate Arbitrators
Award; and;

(b) Civil Case No. 2198 entitled to E. Willkom Enterprises


Inc. vs. National Steel Corporation for Sum of Money with
application for Confirmation of Arbitrators Award.

The facts as found below are, as follows:

. . . On Nov. 18, 1992, petitioner-defendant Edward


Willkom Enterprises Inc. (EWEI for brevity)
together with one Ramiro Construction and
respondent-petitioner National Steel Corporation
(NSC for short) executed a contract whereby the
former jointly undertook the Contract for Site
Development (Exhs. "3" & "D")for the latter's
Integrated Iron and Steel Mills Complex to be
G.R. No. 127004 March 11, 1999 established at Iligan City.

NATIONAL STEEL CORPORATION, petitioner, Sometime in the year 1983, the services of Ramiro
vs. Construction was terminated and on March 7, 1983,
THE REGIONAL TRIAL COURT OF LANAO DEL NORTE, petitioner-defendant EWEI took over Ramiro's
contractual obligation. Due to this and to other earlier nominated by EWEI and NSC with
causes deemed sufficient by EWEI, extensions of an Oath of Office (Exh. "E");
time for the termination of the project, initially
agreed to be finished on July 17, 1983, were granted (b) Engr. Eutaquio O. Lagapa, Jr., member,
by NSC. who was nominated by EWEI with an oath
office (Exh. "F");
Differences later arose, Plaintiff-defendant EWEI
filed Civil Case No. 1615 before the Regional Trial (c) Engr. Gil A. Aberilla, a member who
Court of Lanao del Norte, Branch 06, (Exhs. "A" was nominated by NSC, with an Oath of
and "1") praying essentially for the payments of Office (Exh. "G").
P458,381.001 with interest from the time of delay;
the price adjustment as provided by PD 1594; and After series of hearings, the Arbitrators rendered the
exemplary damages in the amount of P50,000.00 decision (Exh. "H" & "4") which is the subject
and attorney's fees. matter of these present causes of action, both
initiated separately by the herein contending parties,
Defendant-petitioner NSC filed an answer with substantial portion of which directs NSC to pay
counterclaim to plaintiffs complaints on May 18, EWEI, as follows:
1990.
(a) P458,381.00 representing EWEI's last
On August 21, 1990, the Honorable Court through billing No. 16 with interest thereon at the
Presiding Judge Valario M. Salazar upon joint rate of 1-1/4% per month from January 1,
motion of both parties had issued an order (Exhs. 1985 to actual date of payment;
"C" and "3") dismissing the said complaint and
counterclaim . . . in view of the desire of both parties (b) P1,335,514.20 representing price
to implement Sec. 19 of the contract, providing for a escalation adjustment under PD No. 1594,
resolution of any conflict by arbitration . . . with interest thereon at the rate of 1-1/4%
(emphasis supplied). per month from January 1, 1985 to actual
date of payment;
In accordance with the aforesaid order, and pursuant
to Sec. 19 of the Contract for Site Development (id) (c) P50,000 as and for exemplary damages;
the herein parties constituted an Arbitration Board
composed of the following: (d) P350,000 as and for attorney's fees; and

(a) Engr. Pafnucio M. Mejia as Chairman, (e) P35,000.00 as and for cost of
who was nominated by the two arbitrators arbitration. 1
The Regional Trial Court of Lanao del Norte Branch 2, Iligan After deliberating on the petition as well as the comment and reply
through Judge Maximo B. Ratunil, rendered judgment as follows: thereon, the court gave due course to the petition and considered the
case ripe for decision.
(1) In Civil Case
No. II-2198, The pivot of inquiry here is whether or not the lower court acted with
declaring the award grave abuse of discretion in not vacating the arbitrator's award.
of the Board of
Arbitrators, dated A stipulation to refer all future disputes or to submit an ongoing
April 21, 1992 to be dispute to an arbitrator is valid. Republic Act 876, otherwise known
duly AFFIRMED as the Arbitration Law, was enacted by Congress since there was a
and CONFIRMED growing need for a law regulating arbitration in general.
"en toto"; that an
entry of judgment The parties in the present case, upon entering into a Contract for Site
be entered therewith Development, mutually agreed that any dispute arising from the said
pursuant to contract shall be submitted for arbitration. Explicit is Paragraph 19 of
Republic Act No. subject contract, which reads:
876 (the Arbitration
Law); and costs Paragraph 19. ARBITRATION. All disputes,
against respondent questions or differences which may at any time arise
National Steel between the parties hereto in connection with or
Corporation. relating to this Agreement or the subject matter
hereof, including questions of interpretation or
(2) In Special construction, shall be referred to an Arbitration
Proceeding No. II- Board composed of three (3) arbitrators, one to be
2206, ordering the appointed by each party, and the third, to be
petition to vacate appointed by the two (2) arbitrators. The
the aforesaid award appointment of arbitrators and procedure for
be DISMISSED. arbitration shall be governed by. the provisions of
the Arbitration Law (Republic Act No. 876). The
SO ORDERED. 2 Board shall apply Philippine Law in adjudicating the
dispute. The decision of a majority of the members
With the denial on October 18, 1996 of its Motion for of the Arbitration Board shall be valid, binding, final
Reconsideration, the National Steel Corporation (NSC) has come to and conclusive upon the parties, and from which
this court via the present petition. there will be no appeal, subject to the provisions on
vacating, modifying; or correcting an award under
the said Republic Act No. 876. 3
Thereunder, if a dispute should arise from the contract, the (a) The award was
Arbitration Board shall assume jurisdiction and conduct hearings. procured by
After the Board comes up with a decision, the parties may corruption, fraud or
immediately implement the same by treating it as an amicable other undue means;
settlement. However, if one of the parties refuses to comply or is
dissatisfied with the decision, he may file a Petition to Vacate the (b) That there was
Arbitrator's decision before the trial court. On the other hand, the evident partiality or
winning party may ask the trial court's confirmation to have such corruption in the
decision enforced. arbitrators of any of
them; or
It should be stressed that voluntary arbitrators, by the nature of their
functions, act in a quasi-judicial capacity. 4 As a rule, findings of (c) That the
facts by quasi-judicial bodies, which have acquired expertise because arbitrators were
their jurisdiction is confined to specific matters, are accorded not guilty of
only respect but even finality if they are supported by substantial misconduct in
evidence, 5 even if not overwhelming or preponderant. 6 As the refusing to postpone
petitioner has availed of Rule 65, the Court will not review the facts the hearing upon
found nor even of the law as interpreted or applied by the arbitrator sufficient cause
unless the supposed errors of facts or of law are so patent and gross shown, or in
and prejudicial as to amount to a grave abuse of discretion or refusing to hear
an excess de pouvoir on the part of the arbitrators. 7 evidence pertinent
and material to the
Thus, in a Petition to Vacate Arbitrator's Decision before the trial controversy; that
court, regularity in the performance of official functions is presumed one or more of the
and the complaining party has the burden of proving the existence of arbitrators was
any of the grounds for vacating the award, as provided for by disqualified to act
Sections 24 of the Arbitration Law, to wit: as such under
section nine hereof,
Sec. 24 GROUNDS FOR VACATING THE and wilfully
AWARD — In any one of the following cases, the refrained from
court must make an order vacating the award upon disclosing such
the petition of any party to the controversy when disqualification or
such party proves affirmatively that in the arbitration of any other
proceedings: misbehavior by
which the rights of
any party have been
materially Thirdly, this Court cannot find its way to support
prejudiced; or NSC's contention that there was evident partiality in
the assailed Award of the Arbitrator in favor of the
(d) That the respondent because the conclusion of the Board,
arbitrators exceeded which the Court found to be well-founded, is fully
their powers, or so supported by substantial evidence, as follows:
imperfectly
executed them, that . . . The testimonies of witnesses
a mutual, final and from both parties were heard to
definite award upon clarify facts and to threash (sic) out
the subject matter the dispute in the hearings. Upon
submitted to them motion by NSC counsel, the hearing
was not made. . . . of testimony from witnesses was
terminated on 22 January 1992. To
The grounds relied upon by the petitioner were the following (a) end the testimonies in the hearing
That there was evident partiality in the assailed decision of the both litigant parties upon query by
Arbitrators in favor of the respondent; and (b) That there was Arbitrator-Chairman freely
mistaken appreciation of the facts and application of the law by the declared that there has been no
Arbitrators. These were the very same grounds alleged by NSC partiality in the manner the
before the trial court in their Petition to Vacate the Arbitration Arbitrators conducted the hearing,
Award and which petitioner is reiterating in this petition under that there has been no instance,
scrutiny. where Arbitrators refused to
postpone requested or to hear/accept
Petitioner's allegation that there was evident partiality is untenable. It evidence pertinent and material to
is anemic of evidentiary support. the dispute. . . . (emphasis supplied)

In the case of Adamson vs. Court of Appeals, 232 SCRA 602, in Parentethically, and in the light of the record above-
upholding the decision of the Board of Arbitrators, this Court ruled mentioned, this Court hereby holds that the Board of
that the fact that a party was disadvantaged by the decision of the Arbitrators did not commit any "evident partiality"
Arbitration. Committee does not prove evident partiality. Proofs imputed by petitioner NSC. Above all, this Court
other than mere inference are needed to establish evident partiality. must sustain the said decision for it is a well-settled
Here, petitioner merely averred evident partiality without any proof rule that the actual findings of an administrative
to back it up. Petitioner was never deprived of the right to present body should be affirmed if there is substantial
evidence nor was there any showing that the Board showed signs of evidence to support them and the conclusions stated
any bias in favor of EWEI. As correctly found by the trial court: in the decision are not clearly against the law and
jurisprudence, similar to the instant case,
Henceforth, every reasonable intendment. will be The query here therefore is whether there was failure on the part of
indulged to give effect such proceedings and in EWEI to complete the work agreed upon. This will determine
favor of the regulatory and integrity of the whether Final Billing No. 16 can be made chargeable to the cost
arbitrators act. (Corpus Juris, Vol. 5, p. 20) 8 differential paid by NSC to another contractor.

Indeed, the allegation of evident partiality is not well-taken because After a series of hearings, the Board of Arbitrators concluded that the
the petitioner failed to substantiate the same. work was completed by EWEI. As correctly stated:

Anent the issue of mistaken appreciation of facts and law of the case, To authenticate the extent of unfinished work,
the petitioner theorizes that the awards made by the Board were quantity, unit cost differential and amount, NSC was
unsubstantiated and the same were a plain misapplication of the law required to submit copies of payment vouchers
and even contrary to jurisprudence. To have a clearer understanding and/or job awards extended to the other contractor
of the petition, this Court will try to discuss individually the awards engaged to complete the works. The best efforts by
made by the Board, and determine if there was grave abuse of NSC despite the multiplicity of
discretion on the part of the trial court when it adopted such accounting/auditing/engineering records required in
awards in toto. a corporate complex failed to produce documentary
proofs from their Iligan or Makati office despite
I. P458,381.00 representing repeated requests. NSC failed to substantiate such
allusion of completion by another contractor three
EWEI's last billing No. 16 with unfinished items of works, actual quantities
accomplished and unit cost differential paid
interest thereon at the rate of 1-1/4% chargeable against EWEI.

per month from January 1, 1985 xxx xxx xxx

to actual date of payment; The latest evaluation on record of the items of work
completed by EWEI under the contract is drawn
Petitioner seeks to bar payment of the said amount to EWEI. Since from the NSC report (Exhibit "II-d") dated 12
the latter failed to complete the works as agreed upon, NSC had the November 1985 submitted with the EWEI Billing
right to withhold such amount. The same will be used to cover the No. 16-Final in the course of processing claim on
cost differential paid to another contractor who finished the work items of work accomplished. There is no such report
allegedly left uncompleted by EWEI. Said work cost NSC or mention of unfinished work of 90,000 MT of
P1,225,000, and should be made chargeable to EWEI's receivables dumped riprap, 100,000 cu m of site grading and
on Final Billing No. 16 issued to NSC. 300,000 cu m of spreading common excavated
materials in the EWEI contract alluded to by the
NSC as unfinished work otherwise EWEI Billing
No. 16-Final would not have passed processing for (ANNEX "C" ARBITRATION, page 86-88
payment unless there is really no such unfinished of Rollo.)
work NSC evaluation report with no adverse
findings of unfinished work consider the contract as Furthermore, under the contract sued upon, it is clear that should the
completed. Owner feel that the work agreed upon was not completed by the
contractor, it is incumbent upon the OWNER to send to
To affirm the work items, quantity, unit cost CONTRACTOR a letter within seven (7) days after completion of
differential and amount of unfinished work left the inspection to specify the objections thereto. 9 NSC failed to
behind by EWEI, NSC in serving notice of contract comply with such requirement, and therefore it would be unfair to
termination to EWEI should have instead refuse payment to EWEI, considering that the latter had faithfully
specifically cited these obligations in detail for submitted Final Billing No. 16 believing that its work had been
EWEI to perform/comply within 30 days, such completed because NSC did not call its attention to any
failure to perform/comply should have constituted as objectionable aspect of their project.
an event in default that would have justified
termination of contract of NSC with EWEI. If at all, But, what cannot be upheld is the Board's imposition of a 1-1/4%
this unfinished work may be additional/extra work interest per month from January 1, 1985 to actual date of payment.
awarded in 1984 to another contractor at prices There is nothing in the said contract to justify or authorize such an
higher than the unit price tendered by EWEI in 1982 award. The trial court should have therefore disregarded the same
and/or the discrepancy between actual quantities of and instead, applied the legal rate of 6% per annum, from Jan. 1,
work accomplished per plans versus estimated 1985 until this decision becomes final and executory. This is so
quantities of work covered by separate contract as because the legal rate of interest on monetary obligations not arising
expansion of the original project. from loans or forebearance of credits or goods is 6% 10 per annum in
the absence of any stipulation to the contrary.
xxx xxx xxx
(II) Price escalation with the
IN VIEW OF THE FOREGOING, THE SO-
CALLED UNFINISHED WORKS IN THE interest rate of 1-1/4% per
CONTRACT BY EWEI ALLUDED TO BY NSC
IS NOT CONSIDERED AN OBLIGATION TO month from 1 January 1985 to
PERFORM/COMPLY THUS ABSOLVING EWEI
OF ANY FAILURE TO PERFORM/COMPLY actual date of payment.
AND THEREFORE CANNOT BE AVAILED Of
AS A RIGHT OR REMEDY BY NSC TO Petitioner contends that EWEI is not entitled to price escalation
RECOVER UNIT DIFFERENTIAL COST FROM absent any stipulation to that effect in the contract under which, the
EWEI FOR THE SAME UNSUBSTANTIATED contract price is fixed, citing Paragraph 2 thereof, which stipulates:
WORK DONE BY ANOTHER CONTRACTOR.
2. CONTRACT PRICE — payment therefor. Thus, petitioner cannot rely on the case of Llama
Development Corporation vs. Court of Appeals and National Steel
xxx xxx xxx Corporation, GR 88093, Resolution, Third Division, 20 Sept 1989.
It is not applicable here since in that case, the contract explicitly
The applicable unit prices above fixed are based on provided that the contract price stipulated was fixed, inclusive of all
the assumption that the disposal areas for cleared, costs and not subject to escalation, (emphasis supplied). This, in
grubbed materials, debris, excess filling materials effect, waived the provisions of PD 1594. The case under scrutiny is
and other matters that are to be disposed of or are different as the disputed contract does not contain a similar
within the boundary limits of the site, as designated provision.
in Annex A hereof. In the event that disposal areas
fixed and designated in Annex A are diverted and In a vain attempt to evade said law's application, they would like the
transferred to such other areas as would be outside Court to believe that it is an acquired asset corporation and not a
the limits of the site as would require additional government owned or controlled corporation so that they are not
costs to the contractor, then Owner shall be liable for within the coverage of PD 1594. Whether NSC is an asset-acquired
such additional hauling costs of P1.45/km/m3." corporation or a government owned or controlled corporation is of
(Annex "A", Contract for Site Development, page 55 no moment. It is not determinative of the pivot of inquiry. It bears
of Rollo). emphasizing that during the hearings conducted by the Board of
Arbitrators, there was presented documentary evidence to show that
The phrase "prices above fixed" means that the contract price of the NSC, despite its being allegedly an asset acquired corporation,
work shall be that agreed upon by the parties at the time of the allowed price escalation to another contractor, Geo Transport and
execution of the contract, which is the law between them provided it Construction, Inc. (GTCI). As said in the decision of a Board of
is not contrary to law, morals, good customs, public order, or public Arbitrators:
policy. (Article 1306, New Civil Code). It cannot be inferred
therefrom, however, that the parties are prohibited from imposing On the other hand, there was documentary evidence
future increases or price escalation. It is a cardinal rule in the presented that NSC granted Geo Transport and
interpretation of contracts that "if the terms of a contract are clear Construction, Inc. (GTCI), the other favored
and leave no doubt upon the intention of the contracting parties, the contractor working side by side with EWEI on the
literal meaning of its stipulations shall control. 11 site development project during the same period the
GTCE was granted upon request and paid by NSC
But price escalation is expressly allowed under Presidential Decree an actual sum of P6.9 million as price adjustment
1594, which law allows price escalation in all contracts involving compensation even without the benefit of escalation
government projects including contracts entered into by government provision in the contract but allowed in accordance
entities and instrumentalities and Government Owned or Controlled with PD NO. 1594 enforceable among government
Corporations (GOCCs). It is a basic rule in contracts that law is controlled or owned corporation. The statement is
deemed written into the contract between the parties. And when there embodied in an affidavit (Exhibit "111-h") submitted
is no prohibitory clause on price escalation, the Court will allow by affiant Jose M. Mesina, Asst. to the President and
Legal Counsel of GTCI, submitted to the Arbitrators their determination depending upon the amount of compensatory
upon solicitation of EWEI, copy to NSC, on 3 damages that may be awarded to the claimant; (3) the act must be
October 1991. NSC did not assail the affidavit upon accompanied by bad faith or done in a wanton, fraudulent,
receipt of such document as evidence until the oppressive or malevolent manner. 13
hearing of 19 December 1991 when the affidavit
was branded by NSC counsel as incorrect and EWEI cannot claim that NSC acted in bad faith or in a wanton
hearsay. Within 7 days reglamentary period after manner when it refused payment of the Final Billing No. 16. The
receipt of affidavit in 3 October 1991, the NSC had belief that the work was never completed by EWEI and that it (NSC)
the recourse to contest the affidavit even preferably had the right to make it chargeable to the cost differential paid by the
charge the affiant for slander if NSC could disprove latter to another contractor was neither wanton nor done in evident
the statements as untrue. 12 bad faith. The payment of legal rate of interest will suffice to
compensate EWEI of whatever prejudice it suffered by reason of the
If Petitioner seeks to refute such evidence, it should have done so delay caused by NSC.
before the Board of Arbitrators, during the hearings. To raise the
issue now is futile. As regards the award of attorney's fees, award for attorney's fees
without justification is a "conclusion without a premise, its basis
However, the same line of reasoning with respect to the first award being improperly left to speculation and conjencture." 14 The "fixed
should be used in disregarding the interest rate of 1-1/4%. The legal counsel's fee" of P350,000 should be disallowed. The trial court
rate of 6% per annum should be similarly applied to the price acted with grave abuse of discretion when it adopted the same in
escalation to be computed from Jan. 1, 1985 until this decision toto.
becomes final and executory.
WHEREFORE, the awards made by the Board of Arbitrators which
(III) The award of P50,000 as the trial court adopted in its decision of July 31, 1996, are modified,
thus:
exemplary damages and
(1) The award of P474,780.23 for Billing No. 16-Final and
P350,000 as attorney's fees; P1,335,514.20 for price adjustment shall be paid with legal interest
of six (6%) percent per annum, from January 1, 1985 until this
The exemplary damages and attorneys fees awarded by the Board of decision shall have become final and executory;
Arbitrators should be deleted in light of the circumstances
surrounding the case. (2) The award of P50,000 for exemplary damages and attorney's fees
of P350,000 are deleted; and
The requirements for an award of exemplary damages, are: (1) they
may be imposed by way of example in addition to compensatory (3) The cost of arbitration of P35,000 to supplement arbitration
damages, and only after the claimants right to them has been agreement has to be paid.
established; (2) that they cannot be recovered as a matter of right,
No pronouncement as to costs.

SO ORDERED.

G.R. No. 121171 December 29, 1998

ASSET PRIVATIZATION TRUST, petitioner,


vs.
COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S.
CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL
CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U.
MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock-
Holders of Marinduque Mining and Industrial
Corporation, respondents.

KAPUNAN, J.:

The petition for review on certiorari before us seeks to reverse and


set aside the decision of the Court of Appeals which denied due
course to the petition for certiorari filed by the Asset Privatization
Trust (APT) assailing the order of the Regional Trial Court (RTC)
Branch 62, Makati City. The Makati RTC's order upheld and
confirmed the award made by the Arbitration Committee in favor of
Marinduque Mining and Industrial Corporation (MMIC) and against
the Government, represented by herein petitioner APT for damages
in the amount of P2.5 BILLION (or approximately P4.5 BILLION,
including interest).
Ironically, the staggering amount of damages was imposed on the On July 13, 1981, MMIC, PNB and DBP executed a Mortgage
Government for exercising its legitimate right of foreclosure as Trust Agreement3 whereby MMIC, as mortgagor, agreed to
creditor against the debtor MMIC as a consequence of the latter's constitute a mortgage in favor or PNB and DBP as mortgagees,
failure to pay its overdue and unpaid obligation of P22 billion to the over all MMIC's assets; subject of real estate and chattel
Philippine National Bank (PNB) and the Development Bank of the mortgage executed by the mortgagor, and additional assets
Philippines (DBP). described and identified, including assets of whatever kind,
nature or description, which the mortgagor may acquire whether
The antecedent facts in substitution of, in replenishment, or in addition thereto.
of the case.
Article IV of the Mortgage Trust Agreement provides for Events
The development, exploration and utilization of the mineral deposits of Default, which expressly includes the event that the
in the Surigao Mineral Reservation have been authorized by MORTGAGOR shall fail to pay any amount secured by this
Republic Act No. 1528, as amended by Republic Acts Nos. 2077 and Mortgage Trust Agreement when due. 4
4167, by virtue of which laws, a Memorandum of Agreement was
drawn on July 3, 1968, whereby the Republic of the Philippines thru Article V of the Mortgage Trust Agreement prescribes in detail,
the Surigao Mineral Reservation Board, granted MMIC the exclusive and in addition to the enumerated events of defaults,
right to explore, develop and exploit nickel, cobalt and other circumstances by which the mortgagor may be declared in
minerals in the Surigao mineral reservation. 1 MMIC is a domestic default, the procedure therefor, waiver of period to foreclose,
corporation engaged in mining with respondent Jesus S. authority of Trustee before, during and after foreclosure,
Cabarrus, Sr. as President and among its original stockholders. including taking possession of the mortgaged properties. 5

The Philippine Government undertook to support the financing In various requests for advances/remittances of loans if huge
of MMIC by purchase of MMIC debenture bonds and extension amounts, Deeds of Undertaking, Promissory Notes, Loan
of guarantees. Further, the Philippine Government obtained a Documents, Deeds of Real Estate Mortgages, MMIC invariably
firm commitment form the DBP and/or other government committed to pay either on demand or under certain terms the
financing institutions to subscribe in MMIC and issue loans and accommodations secured from or guaranteed by both
guarantee/s for foreign loans or deferred payment arrangements DBP and PNB.
secured from the US Eximbank, Asian Development Bank, Kobe
Steel, of amount not exceeding US$100 Million.2 By 1984, DBP and PNB's financial both in loans and in equity in
MMIC had reached tremendous proportions, and MMIC was
DBP approved guarantees in favor of MMIC and subsequent having a difficult time meeting its financial obligations. MMIC
requests for guarantees were based on the unutilized portion of had an outstanding loan with DBP in the amount of
the Government commitment. Thereafter, the Government P13,792,607,565.92 as of August 31, 1984 and with PNB in the
extended accommodations to MMIC in various amounts. amount of P8,789,028,249.38 as July 15, 1984 or a total
Government expose of Twenty Two Billion Six Hundred Sixty-
Eight Million Five Hundred Thirty-Seven Hundred Seventy and
05/100 (P22, 668,537,770.05), Philippine Currency. 6 Thus, a In the course of the trial, private respondents and petitioner
financial restructuring plan (FRP) designed to reduce MMIC's APT, as successor of the DBP and the PNB's interest in MMIC,
interest expense through debt conversion to equity was drafted mutually agreed to submit the case to arbitration by entering
by the Sycip Gorres Velayo accounting firm. 7 On April 30, 1984, into a "Compromise and Arbitration Agreement,"
the FRP was approved by the Board of Directors of the stipulating, inter alia:
MMIC.8 However, the proposed FRP had never been formally
adopted, approved or ratified by either PNB or DBP.9 NOW THEREFORE, for and in consideration of
the foregoing premises and the mutual covenants
In August and September 1984, as the various loans and contained herein the parties agree as follows:
advances made by DBP and PNB to MMIC had become overdue
and since any restructuring program relative to the loans was no 1. Withdrawal and Compromise. The parties have
longer feasible, and in compliance with the directive of agreed to withdraw their respective claims from
Presidential Decree No. 385, DBP and PNB as mortgagees of the Trial Court and to resolve their dispute
MMIC assets, decided to exercise their right to extrajudicially through arbitration by praying to the Trial Court
foreclose the mortgages in accordance with the Mortgage Trust to issue a Compromise Judgment based on this
Agreement. 10 Compromise and Arbitration Agreement.

The foreclosed assets were sold to PNB as the lone bidder and In withdrawing their dispute from the court and
were assigned to three newly formed corporations, namely, in choosing to resolve it through arbitration, the
Nonoc Mining Corporation, Maricalum Mining and Industrial parties have agreed that:
Corporation, and Island Cement Corporation. In 1986, these
assets were transferred to the Asset Privatization Trust (APT). 11 (a) their respective money claims shall be reduced
to purely money claims; and
On February 28, 1985, Jesus S. Cabarrus, Sr., together with the
other stockholders of MMIC, filed a derivative suit against DBP (b) as successor and assignee of the PNB and DBP
and PNB before the RTC of Makati, Branch 62, for Annulment interests in MMIC and the MMIC accounts, APT
of Foreclosures, Specific Performance and Damages. 12 The suit, shall likewise succeed to the rights and
docketed as Civil Case No. 9900, prayed that the court: (1) annul obligations of PNB and DBP in respect of the
the foreclosures, restore the foreclosed assets to MMIC, and controversy subject of Civil Case No. 9900 to be
require the banks to account for their use and operation in transferred to arbitration and any arbitral
the interim; (2) direct the banks to honor and perform their award/order against either PNB and/or DBP
commitments under the alleged FRP; and (3) pay moral and shall be the responsibility be discharged by and
exemplary damages, attorney's fees, litigation expenses and be enforceable against APT, the parties having
costs. agreed to drop PNB and DBP from the
arbitration.
2. Submission. The parties hereby agree that (a) 2. Approving the Compromise
the controversy in Civil Case No. 9900 shall be and Arbitration Agreement dated
submitted instead to arbitration under RA 876 October 6, 1997, attached as
and (b) the reliefs prayed for in Civil Case No. Annex "C" of the Omnibus
9900 shall, with the approval of the Trial Court Motion.
of this Compromise and Arbitration Agreement,
be transferred and reduced to pure 3. Approving the Transformation
pecuniary/money claims with the parties waiving of the reliefs prayed for [by] the
and foregoing all other forms of reliefs which plaintiffs in this case into pure
they prayed for or should have prayed for in money claims; and
Civil Case No. 9900. 13
4. The Complaint is hereby
The Compromise and Arbitration Agreement limited the issues DISMISSED. 15
to the following:
The Arbitration Committee was composed of retired Supreme
5. Issues The issues to be submitted for the Court Justice Abraham Sarmiento as Chairman, Atty. Jose C.
Committee's resolution shall be (a) Whether Sison and former Court of Appeals Justice Magdangal Elma as
PLAINTIFFS have the capacity or the Members. On November 24, 1993, after conducting several
personality to institute this derivative suit in hearings, the Arbitration Committee rendered a majority
behalf of the MMIC or its directors, (b) Whether decision in favor of MMIC, the pertinent portions of which read
or not the actions leading to, and including,. the as follows:
PNB-DBP foreclosure of the MMIC assets were
proper, valid and in good Since, as this Committee finds, there is no
faith. 14 foreclosure at all as it was not legally and validly
done, the Committee holds and so declares that
This agreement was presented for approval to the trial court. On the loans of PNB and DBP to MMIC. for the
October 14, 1992, the Makati RTC, Branch 61, issued an order, payment and recovery of which the void
to wit: foreclosure sales were undertaken, continue to
remain outstanding and unpaid. Defendant APT
WHEREFORE, this Court orders: as the successor-in-interest of PNB and DBP to
the said loans is therefore entitled and retains the
1. Substituting PNB and DBP with right, to collect the same from MMIC pursuant
the Asset Privatization Trust as to, and based on the loan documents signed by
party defendant. MMIC, subject to the legal and valid defenses
that the latter may duly and seasonably
interpose. Such loans shall, however, be reduced
by the amount which APT may have realized DISPOSITION
from the sale of the seized assets of MMIC which
by agreement should no longer be returned even WHEREFORE, premises considered, judgment
if the foreclosures were found to be null and void. is hereby rendered:

The documentary evidence submitted and 1. Ordering the defendant to pay to the
adopted by the parties (Exhibits "3", "3-B"; Marinduque Mining and Industrial Corporation,
Exhibit "100"; and also Exhibit "ZZZ") as their except the DBP, the sum of P2,531,635,425.02
exhibits would show that the total outstanding with interest thereon at the legal rate of six per
obligation due to DBP and PNB as of the date of cent (6%) per annum reckoned from August 3, 9,
foreclosure is P22,668,537,770.05, more or less. and 24, 1984, pari passu, as and for actual
damages. Payment of these actual damages shall
Therefore defendant APT can, and is still entitled be offset by APT from the outstanding and
to, collect the outstanding obligations of MMIC unpaid loans of MMIC with DBP and PNB,
to PNB and DBP amounting to which have not been converted into equity.
P22,668,537,770.05, more or less, with interest Should there be any balance due to MMIC after
thereon as stipulated in the loan documents from the offsetting, the same shall be satisfied from the
the date of foreclosure up to the time they are funds representing the purchase price of the sale
fully paid less the proportionate liability of DBP of the shares of Island Cement Corporation in the
as owner of 87% of the total capitalization of amount of P503,000,000.00 held under escrow
MMIC under the FRP. Simply put, DBP shall pursuant to the Escrow Agreement dated April
share in the award of damages to, and in the 22, 1988 or to such subsequent escrow agreement
obligations of, MMIC in proportion to its 87% that would supercede [sic] it pursuant to
equity in tile total capital stock of MMIC. paragraph (9) of the Compromise and
Arbitration Agreement;
x x x           x x x          x x x
2. Ordering the defendant to pay to the
As this Committee holds that the FRP is valid, Marinduque Mining and Industrial Corporation,
DBP's equity in MMIC is raised to 87%. So except the DBP, the sum of P13,000.000.00, as
pursuant to the above provision of the and for moral and exemplary damages. Payment
Compromise and Arbitration Agreement, the of these moral and exemplary damages shall be
87% equity of DBP is hereby deducted from the offset by APT from the outstanding and unpaid
actual damages of P19,486,118,654.00 resulting in loans of MMIC with DBP and PNB, which have
the net actual damages of P2,531,635,425.02 plus not been converted into equity. Should there be
interest. any balance due to MMIC after the offsetting, the
same shall be satisfied from the funds
representing the purchase price of the sale of the considering that the said motion is neither a part
shares of Island Cement Corporation in the nor the continuation of the proceedings in Civil
amount of P503,000,000.00 held under escrow Case No. 9900 which was dismissed upon motion
pursuant to the Escrow Agreement dated April of the parties. In fact, the defendants in the said
22, 1988 or to such subsequent escrow agreement Civil Case No. 9900 were the Development Bank
that would supercede [sic] it pursuant to of the Philippines and the Philippine National
paragraph (9) of the Compromise and Bank (PNB);
Arbitration Agreement;
2. Under Section 71 of Rep. Act 876, an
3. Ordering the defendant to pay to the plaintiff, arbitration under a contract or submission shall
Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, be deemed a special proceedings and a party to
to be satisfied likewise from the funds held under the controversy which was arbitrated may apply
escrow pursuant to the Escrow Agreement dated to the court having jurisdiction, (not necessarily
April 22, 1988 or to such subsequent escrow with this Honorable Court) for an order
agreement that would supersede it, pursuant to confirming the award;
paragraph (9) of the Compromise and
Arbitration Agreement, as and for moral 3. The issues submitted for arbitration have been
damages; and limited to two: (1) propriety of the plaintiffs filing
the derivative suit and (2) the regularity of the
4. Ordering the defendant to pay arbitration foreclosure proceedings. The arbitration award
costs. sought to be confirmed herein, far exceeded the
issues submitted and even granted moral
This Decision is FINAL and EXECUTORY. damages to one of the herein plaintiffs;

IT IS SO ORDERED. 16 4. Under Section 24 of Rep. Act 876, the Court


must make an order vacating the award where
Motions for reconsideration were filed by both parties, but the the arbitrators exceeded their powers, or so
same were denied. imperfectly executed them, that a mutual, final
and definite award upon the subject matter
On October 17, 1993, private respondents filed in the same Civil submitted to them was not made. 17
Case No. 9900 an "Application/Motion for Confirmation of
Arbitration Award." Petitioner countered with an "Opposition Private respondents filed a "REPLY AND OPPOSITION" dated
and Motion to Vacate Judgment" raising the following grounds. November 10, 1984, arguing that a dismissal of Civil Case No.
9900 was merely a "qualified dismissal" to pave the way for the
1. The plaintiffs Application/Motion is submission of the controversy to arbitration and operated simply
improperly filed with this branch of the Court,
as "a mere suspension of the proceedings" They denied that the (c) Ordering the defendant to pay to Jesus S.
Arbitration Committee had exceeded its powers. Cabarrus, Sr., the sum of P10,000,000.00 as and
for moral damages; and
In an Order dated November 28, 1993, the trial court confirmed
the award of the Arbitration Committee. The dispositive portion (d) Ordering the defendant to pay the herein
of said order reads: plaintiffs/applicants/movants the sum of
P1,705,410.23 as arbitration costs.
WHEREFORE, premises considered, and in the
light of the parties [sic] Compromise and In reiteration of the mandates of Stipulation No.
Arbitration Agreement dated October 6, 1992, 10 and Stipulation No. 8 paragraph 2 of the
the Decision of the Arbitration Committee Compromise and Arbitration Agreement, and the
promulgated on November 24, 1993, as affirmed final edict of the Arbitration Committee's
in a Resolution dated July 26, 1994, and finally decision, and with this Court's Confirmation, the
settled and clarified in the Separate Opinion issuance of the Arbitration Committee's Award
dated September 2, 1994 of Committee Member shall henceforth be final and executory.
Elma, and the pertinent provisions of RA 876,
also known as the Arbitration Law, this Court SO ORDERED. 18
GRANTS PLAINTIFFS' APPLICATION AND
THUS CONFIRMS THE ARBITRATION On December 27, 1994, petitioner filed its motion for
AWARD, AND JUDGMENT IS HEREBY reconsideration of the Order dated November 28, 1994. Private
RENDERED: respondents, in turn, submitted their reply and opposition
thereto.
(a) Ordering the defendant APT to the
Marinduque Mining and Industrial Corporation On January 18, 1995, the trial court handed down its order
(MMIC), except the DBP, the sum of denying APT's motion for reconsideration for lack of merit and
P3,811,757,425.00, as and for actual damages, for having been filed out of time. The trial court declared that
which shall be partially satisfied from the funds "considering that the defendant APT, through counsel, officially
held under escrow in the amount of and actually received a copy of the Order of this Court dated
P503,000,000.00 pursuant to the Escrow November 28, 1994 on December 6, 1994, the Motion for
Agreement dated April 22, 1988. The balance of Reconsideration thereof filed by the defendant APT on
the award, after the escrow funds are fully December 27, 1994, or after the lapse of 21 days, was clearly filed
applied, shall be executed against the APT; beyond the 15-day reglementary period prescribed
or provided for by law for the filing of an appeal from final
(b) Ordering the defendant to pay to the MMIC, orders, resolutions, awards, judgments or decisions of any court
except the DBP, the sum of P13,000,000.00 as and in all cases, and by necessary implication for the filing of a
for moral and exemplary damages; motion for reconsideration thereof."
On February 7, 1995, petitioner received private respondents' THE RESPONDENT JUDGE GROSSLY
Motion for Execution and Appointment of Custodian of ABUSED HIS DISCRETION AND ACTED
Proceeds of Execution dated February 6, 1995. WITHOUT OR IN EXCESS OF AND
WITHOUT JURISDICTION IN RECKONING
Petitioner thereafter filed with the Court of Appeals a special THE COUNTING OF THE PERIOD TO FILE
civil action for certiorari with temporary restraining order MOTION FOR RECONSIDERATION, NOT
and/or preliminary injunction dated February 13, 1996 to annul FROM THE DATE OF SERVICE OF THE
and declare as void the Orders of the RTC-Makati dated COURT'S COPY CONFIRMING THE
November 28, 1994 and January 18, 1995 for having been issued AWARD, BUT FROM RECEIPT OF A XEROX
without or in excess of jurisdiction and/or with grave abuse of COPY OF WHAT PRESUMABLY IS THE
discretion. 19 As ground therefor, petitioner alleged that: OPPOSING COUNSEL'S COPY THEREOF. 20

I On July 12, 1995, he Court of Appeals, through its Fifth-


Division, denied due course and dismissed the petition
THE RESPONDENT JUDGE HAS NOT for certiorari.
VALIDLY ACQUIRED JURISDICTION MUCH
LESS, HAS THE COURT AUTHORITY, TO Hence, the instant petition for review on certiorari imputing to
CONFIRM THE ARBITRAL AWARD the Court of Appeals the following errors:
CONSIDERING THAT THE ORIGINAL CASE,
CIVIL CASE NO. 9900, HAD PREVIOUSLY ASSIGNMENT OF ERRORS
BEEN DISMISSED.
I
II
THE COURT OF APPEALS ERRED IN NOT
THE RESPONDENT JUDGE COMMITTED HOLDING THAT THE MAKATI REGIONAL
GRAVE ABUSE OF DISCRETION AND TRIAL COURT, BRANCH 62 WHICH HAS
ACTED WITHOUT OR IN EXCESS OF PREVIOUSLY DISMISSED CIVIL CASE NO.
JURISDICTION, IN ISSUING THE 9900 HAD LOST JURISDICTION TO
QUESTIONED ORDERS CONFIRMING THE CONFIRM THE ARBITRAL AWARD UNDER
ARBITRAL AWARD AND DENYING THE THE SAME CIVIL CASE AND NOT RULING
MOTION FOR RECONSIDERATION OF THAT THE APPLICATION FOR
ORDER OF AWARD. CONFIRMATION SHOULD HAVE BEEN
FILED AS A NEW CASE TO BE RAFFLED
III OFF AMONG THE DIFFERENT BRANCHES
OF THE RTC.
II TO RECKON THE COUNTING OF THE
PERIOD TO FILE A MOTION FOR
THE COURT OF APPEALS LIKEWISE RECONSIDERATION. 21
ERRED IN HOLDING THAT PETITIONER
WAS ESTOPPED FROM QUESTIONING THE The petition is impressed with merit.
ARBITRATION AWARD, WHEN
PETITIONER QUESTIONED THE I
JURISDICTION OF THE RTC-MAKATI,
BRANCH 62 AND AT THE SAME TIME The RTC of Makati, Branch 62,
MOVED TO VACATE THE ARBITRAL
AWARD. did not have jurisdiction to confirm

III the arbitral award.

THE COURT OF APPEALS ERRED IN NOT The use of the term "dismissed" is not "a mere semantic
HOLDING THAT THE RESPONDENT TRIAL imperfection". The dispositive portion of the Order of the trial
COURT SHOULD HAVE EITHER court dated October 14, 1992 stated in no uncertain terms:
DISMISSED/DENIED PRIVATE
RESPONDENTS' MOTION/PETITION FOR 4. The Complaint is hereby DISMISSED. 22
CONFIRMATION OF ARBITRATION
AWARD AND/OR SHOULD HAVE
The term "dismiss" has a precise definition in law. "To
CONSIDERED THE MERITS OF THE
dispose of an action, suit, or motion without trial on the
MOTION TO VACATE ARBITRAL AWARD.
issues involved. Conclude, discontinue, terminate,
quash." 23
IV
Admittedly, the correct procedure was for the parties to go back
THE COURT OF APPEALS ERRED IN NOT to the court where the case was pending to have the award
TREATING PETITIONER APT'S PETITION confirmed by said court. However, Branch 62 made
FOR CERTIORARI AS AN APPEAL TAKEN the fatal mistake of issuing a final order dismissing the case.
FROM THE ORDER CONFIRMING THE While Branch 62 should have merely suspended the case and not
AWARD. dismissed it,24 neither of the parties questioned said dismissal.
Thus, both parties as well as said court are bound by such error.
V
It is erroneous then to argue, as private respondents do, that
THE COURT OF APPEALS ERRED IN NOT petitioner APT was charged with the knowledge that the "case
RULING ON THE LEGAL ISSUE OF WHEN
was merely stayed until arbitration finished," as again, the order encountering an adverse decision on the merits, it is too late for
of Branch 62 in very clear terms stated that the "complaint was the loser to question the jurisdiction or power of the court."
dismissed." By its own action, Branch 62 had lost jurisdiction
over the case. It could not have validly reacquired jurisdiction Petitioner's situation is different because from the outset, it has
over the said case on mere motion of one of the parties. The consistently held the position that the RTC, Branch 62 had no
Rules of Court is specific on how a new case may be initiated and jurisdiction to confirm the arbitral award; consequently, it
such is not done by mere motion in a particular branch of the cannot be said that it was estopped from questioning the RTC's
RTC. Consequently, as there was no "pending action" to speak jurisdiction. Petitioner's prayer for the setting aside of the
of, the petition to confirm the arbitral award should have been arbitral award was not inconsistent with its disavowal of the
filed as a new case and raffled accordingly to one of the branches court's jurisdiction.
of the Regional Trial Court.
III
II
Appeal of petitioner to the
Petitioner was not estopped from
Court of Appeals thru certiorari
questioning the jurisdiction of
under Rule 65 was proper.
Branch 62 of the RTC of Makati.
The Court of Appeals in dismissing APT's petition
The Court of Appeals ruled that APT was already estopped to for certiorari upheld the trial court's denial of APT's motion for
question the jurisdiction of the RTC to confirm the arbitral reconsideration of the trial court's order confirming the arbitral
award because it sought affirmative relief in said court by asking award, on the ground that said motion was filed beyond the 15-
that the arbitral award be vacated. day reglementary period; consequently, the petition
for certiorari could not be resorted to as substitute to the lost
The rule is that "Where the court itself clearly has no right of appeal.
jurisdiction over the subject matter or the nature of the action,
the invocation of this defense may be done at any time. It is We do not agree.
neither for the courts nor for the parties to violate or disregard
that rule, let alone to confer that jurisdiction this matter being Section 99 of Republic Act No. 876, 28 provides that:
legislative in character." 25 As a rule then, neither waiver nor
estoppel shall apply to confer jurisdiction upon a court barring . . . An appeal may be taken from an order made
highly meritorious and exceptional circumstances. 26 One such in a proceeding under this Act, or from a
exception was enunciated in Tijam vs. Sibonghanoy, 27 where it judgment entered upon an award
was held that "after voluntarily submitting a cause and through certiorari proceedings, but such appeals
shall be limited to questions of law. . . ..
The aforequoted provision, however, does not preclude a party As a rule, the award of an arbitrator cannot be set aside for mere
aggrieved by the arbitral award from resorting to the errors of judgment either as to the law or as to the
extraordinary remedy of certiorari under Rule 65 of the Rules of facts. 29 Courts are without power to amend or overrule merely
Court where, as in this case, the Regional Trial Court to which because of disagreement with matters of law or facts determined
the award was submitted for confirmation has acted without by the arbitrators. 30 They will not review the findings of law and
jurisdiction or with grave abuse of discretion and there is no fact contained in an award, and will not undertake to substitute
appeal, nor any plain, speedy remedy in the course of law. their judgment for that of the arbitrators, since any other rule
would make an award the commencement, not the end, of
Thus, Section 1 of Rule 65 provides: litigation. 31 Errors of law and fact, or an erroneous decision of
matters submitted to the judgment of the arbitrators, are
Sec 1. Petition for Certiorari: — When any insufficient to invalidate an award fairly and honestly
tribunal, board or officer exercising judicial made. 32 Judicial review of an arbitration is thus, more limited
functions, has acted without or in excess of its or than judicial review of a trial. 33
his jurisdiction, or with grave abuse of discretion
and there is no appeal, nor any plain, speed, and Nonetheless, the arbitrators' award is not absolute and without
adequate remedy in the ordinary course of law, a exceptions. The arbitrators cannot resolve issues beyond the
person aggrieved thereby may file a verified scope of the submission agreement. 34 The parties to such an
petition in the proper court alleging the facts with agreement are bound by the arbitrators' award only to the
certainty and praying that judgment be rendered extent and in the manner prescribed by the contract and only if
annulling or modifying the proceedings, as the the award is rendered in conformity thereto. 35 Thus, Sections 24
law requires, of such tribunal, board or officer. and 25 of the Arbitration Law provide grounds for vacating,
rescinding or modifying an arbitration award. Where the
In the instant case, the respondent court erred in dismissing the conditions described in Articles 2038, 36
37 38
special civil action for certiorari, it being clear from the 2039,   and 1040   of the Civil Code applicable to compromises
pleadings and the evidence that the trial court lacked jurisdiction and arbitration are attendant, the arbitration award may also be
and/or committed grave abuse of discretion in taking cognizance annulled.
of private respondents' motion to confirm the arbitral award
and, worse, in confirming said award which is grossly and In Chung Fu Industries (Phils.) vs. Court of Appeals, 39 we held:
patently not in accord with the arbitration agreement, as will be
hereinafter demonstrated. . . . . It is stated explicitly under Art. 2044 of the
Civil Code that the finality of the arbitrators'
IV award is not absolute and without exceptions.
Where the conditions described in Articles 2038,
The nature and limits of the 2039 and 2040 applicable to both compromises
and arbitrations are obtaining, the arbitrator's
Arbitrators' power. award may be annulled or rescended.
Additionally, under Sections 24 and 25 of the an order vacating the award upon the petition of
Arbitration Law, there are grounds for vacating, any party to the controversy when such party
modifying or rescinding an arbitrator's award. proves affirmatively that in the arbitration
Thus, if and when the factual circumstances proceeding:
referred to the above-cited provisions are
present, judicial review of the award is properly (a) The award was procured by corruption,
warranted. fraud, or other undue means; or

According, Section 20 of R.A. 876 provides: (b) That there was evident partiality or
corruption in the arbitrators or any of them; or
Sec. 20. Form and contents of award. — The
award must be made in writing and signed and (c) That the arbitrators were guilty of misconduct
acknowledge by a majority of the arbitrators, if in refusing to postpone the hearing upon
more than one; and by the sole arbitrator, if sufficient cause shown, or in refusing to hear
there is only only. Each party shall be furnished evidence pertinent and material to the
with a copy of the award. The arbitrators in their controversy; that one or more of the arbitrators
award may grant any remedy or relief which they was disqualified to act as such under section nine
deem just and equitable and within the scope of hereof, and willfully refrained from disclosing
the agreement of the parties, which shall include, such disqualifications or any other misbehavior
but not be limited to, the specific performance of by which the rights of any party have been
a contract. materially prejudiced; or

x x x           x x x          x x x (d) That the arbitrators exceeded their powers, or


so imperfectly executed them, that a mutual, final
The arbitrators shall have the power to decide only and definite award upon the subject matter
those matters which have been submitted to them. submitted to them was not made. (Emphasis ours)
The terms of the award shall be confined to such
disputes. (Emphasis ours). xxx xxx xxx.

x x x           x x x          x x x Section 25 which enumerates the grounds for modifying the


award provides:
Sec. 24 of the same law enumerating the grounds for vacating an
award states: Sec. 25. Grounds for modifying or correcting
award — In anyone of the following cases, the
Sec. 24. Grounds for vacating award. — In any court must make an order modifying or
one of the following cases, the court must make
correcting the award, upon the application of any structuring program:
party to the controversy which was arbitrated:
foreclosure of mortgage
(a) Where there was an evident miscalculation of
figures, or an evident mistake in the description was fully justified.
of any person, thing or property referred to in
the award; or The point need not be belabored that PNB and DBP had the
legitimate right to foreclose of the mortgages of MMIC whose
(b) Where the arbitrators have awarded upon a obligations were past due. The foreclosure was not a wrongful
matter not submitted to them, not affecting the act of the banks and, therefore, could not be the basis of any
merits of the decision upon the matter submitted; award of damages. There was no financial restructuring
or agreement to speak of that could have constituted an impediment
to the exercise of the banks' right to foreclose.
(c) Where the award is imperfect in a matter of
form not affecting the merits of the controversy, As correctly stated by Mr. Jose C. Sison, a member of the
and if it had been a commissioner's report, the Arbitration Committee who wrote a separate opinion:
defect could have been amended or disregarded
by the court. 1. The various loans and advances made by DBP
and PNB to MMIC have become overdue and
x x x           x x x          x x x remain unpaid. The fact that a FRP was drawn
up is enough to establish that MMIC has not been
Finally, it should be stressed that while a court is precluded from complying with the terms of the loan agreement.
overturning an award for errors in the determination of factual Restructuring simply connotes that the
issues, nevertheless, if an examination of the record reveals no obligations are past due that is why it is
support whatever for the arbitrators determinations, their "restructurable";
award must be vacated. 40 in the same manner, an award must be
vacated if it was made in "manifest disregard of the law." 41 2. When MMIC thru its board and the
stockholders agreed and adopted the FRP, it only
Against the backdrop of the foregoing provisions and principles, means that MMIC had been informed or notified
we find that the arbitrators came out with an award in excess of that its obligations were past due and that
their powers and palpably devoid of factual and legal basis. foreclosure is forthcoming;

V 3. At that stage, MMIC also knew that PNB-DBP


had the option of either approving the FRP or
There was no financial proceeding with the foreclosure. Cabarrus, who
filed this case supposedly in behalf of MMIC
should have insisted on the FRP. Yet Cabarrus not anymore expected to be forthcoming because
himself opposed the FRP; it will result in a short fall compared to the prices
that were actually taking place in the market.
4. So when PNB-DBP proceeded with the
foreclosure, it was done without bad faith but Q : And I suppose that was what you were
with the honest and sincere belief that foreclosure referring to when you stated that the production
was the only alternative; a decision further targets and assumed prices of MMIC's products,
explained by Dr. Placido Mapa who testified that among other projections, used in the financial
foreclosure was, in the judgment of PNB, the best reorganization program that will make it viable
move to save MMIC itself. were not met nor expected to be met?

Q : Now in this portion of Exh. "L" which was A : Yes.


marked as Exh. "L-1", and we adopted as Exh.
37-A for the respondent, may I know from you, x x x           x x x          x x x
Dr. Mapa what you meant by "that the decision
to foreclose was neither precipitate nor Which brings me to my last point in this separate
arbitrary"? opinion. Was PNB and DBP absolutely
unjustified in foreclosing the mortgages?
A : Well, it is not a whimsical decision but rather
decision arrived at after weighty consideration of In this connection, it can readily be seen and it
the information that we have received, and cannot quite be denied that MMIC accounts in
listening to the prospects which reported to us PNB-DBP were past due. The drawing up of the
that what we had assumed would be the premises FRP is the best proof of this. When MMIC
of the financial rehabilitation plan was not adopted a restructuring program for its loan, it
materialized nor expected to materialize. only meant that these loans were already due and
unpaid. If these loans were restructurable
Q : And this statement that "it was premised because they were already due and unpaid, they
upon the known fact" that means, it was are likewise "forecloseable". The option is with
referring to the decision to foreclose, was the PNB-DBP on what steps to take.
premised upon the known fact that the
rehabilitation plan earlier approved by the The mere fact that MMIC adopted the FRP does
stockholders was no longer feasible, just what is not mean that DBP-PNB lost the option to
meant "by no longer feasible"? foreclose. Neither does it mean that the FRP is
legally binding and implementable. It must be
A : Because the revenue that they were counting pointed that said FRP will, in effect, supersede
on to make the rehabilitation plan possible, was the existing and past due loans of MMIC with
PNB-DBP. It will become the new loan agreement including the right to foreclosure on loans,
between the lenders and the borrowers. As in all credits, accommodations and/or guarantees on
other contracts, there must therefore be a which the arrearages are less than twenty percent
meeting of minds of the parties; the PNB and (20%).
DBP must have to validly adopt and ratify such
FRP before they can be bound by it; before it can Sec. 2. No restraining order temporary or
be implemented. In this case, not an iota of proof permanent injunction shall be issued by the court
has been presented by the PLAINTIFFS showing against any government financial institution in
that PNB and DBP ratified and adopted the FRP. any action taken by such institution in
PLAINTIFFS simply relied on a legal doctrine of compliance with the mandatory foreclosure
promissory estoppel to support its allegations in provided in Section 1 hereof, whether such
this regard. 42 restraining order, temporary or permanent
injunction is sought by the borrower(s) or any
Moreover, PNB and DBP had to initiate foreclosure proceedings third party or parties, except after due hearing in
as mandated by P.D. No. 385, which took effect on January 31, which it is established by the borrower and
1974. The decree requires government financial institutions to admitted by the government financial institution
foreclose collaterals for loans where the arrearages amount to concerned that twenty percent (20%) of the
20% of the total outstanding obligations. The pertinent outstanding arrearages has been paid after the
provisions of said decree read as follow: filing of foreclosure proceedings. (Emphasis
supplied.)
Sec. 1. It shall be mandatory for government
financial institutions, after the lapse of sixty (60) Private respondents' thesis that the foreclosure proceedings were
days from the issuance of this Decree, to foreclose null and void because of lack of publication in the newspaper is
the collaterals and/or securities for any loan, nothing more than a mere unsubstantiated aliegation not borne
credit, accommodation, and/or guarantees out by the evidence. In any case, a disputable presumption exists
granted by them whenever the arrearages on in favor of petitioner that official duty has been regularly
such account, including accrued interest and performed and ordinary course of business has been followed. 43
other charges, amount to at least twenty percent
(20%) of the total outstanding obligations, VI
including interest and other charges, as
appearing in the books of account and/or related Not only was the foreclosure rightfully exercised by the PNB and
records of the financial institutions concerned. DBP, but also, from the facts of the case, the arbitrators in
This shall be without prejudice to the exercise by making the award went beyond the arbitration agreement.
the government financial institutions of such
rights and/or remedies available to them under In their complaint filed before the trial court, private respondent
their respective contracts with their debtors, Cabarrus, et al. prayed for judgment in their favor:
1. Declaring the foreclosures effected by the Upon submission for arbitration, the Compromise and
defendants DBP and PNB on the assets of MMIC Arbitration Agreement of the parties clearly and explicitly
null and void and directing said defendants to defined and limited the issues to the following:
restore the foreclosed assets to the possession of
MMIC, to render an accounting of their use (a) whether PLAINTIFFS have the capacity or
and/or operation of said assets and to indemnify the personality to institute this derivative suit in
MMIC for the loss occasioned by its dispossession behalf of the MMIC or its directors;
or the deterioration thereof;
(b) whether or not the actions leading to, and
2. Directing the defendants DBP and PNB to including, the PNB-DBP foreclosure of the
honor and perform their commitments under the MMIC assets were proper, valid and in good
financial reorganization plan which was faith. 45
approved at the annual stockholders' meeting of
MMIC on 30 April 1984; Item No. 8 of the Agreement provides for the period by which
the Committee was to render its decision, as well as the nature
3. Condemning the defendants DBP and PNB, thereof:
jointly and severally to pay the plaintiffs actual
damages consisting of the loss of value of their 8. Decision. The committee shall issue a decision
investments amounting to not less than on the controversy not later than six (6) months
P80,000,000, the damnum emergens and lucrum from the date of its constitution.
cessans in such amount as may be established
during the trial, moral damages in such amount In the event the committee finds that
as this Honorable Court may deem just and PLAINTIFFS have the personality to file this suit
equitable in the premises, exemplary damages in and the extra-judicial foreclosure of the MMIC
such amount as this Honorable Court may assets wrongful, it shall make an award in favor
consider appropriate for the purpose of setting an of the PLAINTIFFS (excluding DBP), in an
example for the public good, attorney's fees and amount as may be established or warranted by the
litigation expenses in such amounts as may be evidence which shall be payable in Philippine
proven during the trial, and the costs legally Pesos at the time of the award. Such award shall
taxable in this litigation. be paid by the APT or its successor-in-interest
within sixty (60) days from the date of the award
Further, plaintiffs pray for such other reliefs as in accordance with the provisions of par. 9
may be just and equitable in the premises. 44 hereunder. . . . . The PLAINTIFFS' remedies
under this Section shall be in addition to other
remedies that may be available to the
PLAINTIFFS, all such remedies being In submitting the case to arbitration, the parties had mutually
cumulative and not exclusive of each other. agreed to limit the issue to the "validity of the foreclosure" and
to transform the relief prayed for therein into pure money
On the other hand, in case the arbitration claims.
committee finds that PLAINTIFFS have no
capacity to sue and/or that the extra-judicial There is absolutely no evidence that the DBP and PNB agreed,
foreclosure is valid and legal, it shall also make expressly or impliedly, to the proposed FRP. It cannot be
an award in favor of APT based on the overemphasized that a FRP, as a contract, requires the consent
counterclaims of DBP and PNB in an amount as of the parties thereto. 47 The contract must bind both contracting
may be established or warranted by the evidence. parties. 48 Private respondents even by their own admission
This decision of the arbitration committee in recognized that the FRP had yet not been carried out and that
favor of APT shall likewise finally settle all issues the loans of MMIC had not yet been converted into equity. 49
regarding the foreclosure of the MMIC assets so
that the funds held in escrow mentioned in par. 9 However, the Arbitration Committee not only declared the FRP
hereunder will thus be released in full in favor of valid and effective, but also converted the loans of MMIC into
APT. 46 equity raising the equity of DBP to 87%. 50

The clear and explicit terms of the submission notwithstanding, The Arbitration Committee ruled that there was "a commitment
the Arbitration Committee clearly exceeded its powers or so to carry out the FRP" 51 on the ground of promissory estoppel.
imperfectly executed them: (a) in ruling on and declaring valid
the FRP; (b) in awarding damages to MMIC which was not a Similarly, the principle of promissory estoppel
party to the derivative suit; and (c) in awarding moral damages applies in the present case considering as we
to Jesus S. Cabarrus, Sr. observed, the fact that the government (that is,
Alfredo Velayo) was the FRP's proponent.
The arbiters overstepped Although the plaintiffs are agreed that the
government executed no formal agreement, the
their powers by declaring as fact remains that the DBP itself which made
representations that the FRP constituted a "way
valid the proposed Financial out" for MMIC. The Committee believes that
although the DBP did not formally agree
Restructuring Program. (assuming that the board and stockholders'
approvals were not formal enough), it is bound
The Arbitration Committee went beyond its mandate and thus nonetheless if only for its conspicuous
acted in excess of its powers when it ruled on the validity of, and representations.
gave effect to, the proposed FRP.
Although the DBP sat in the board in a dual may have different decisions. It is unfair to
capacity — as holder of 36% of MMIC's equity impose upon them the decision of the board of
(at that time) and as MMIC's creditor — the another company and thus pin them down on the
DBP can not validly renege on its commitments equitable principle of estoppel. Estoppel is a
simply because at the same time, it held interests principle based on equity and it is certainly not
against the MMIC. equitable to apply it in this particular situation.
Otherwise the rights of entirely separate distinct
The fact, of course, is that as APT itself asserted, and autonomous legal entities like PNB and DBP
the FRP was being "carried out" although with thousands of stockholders will be suppressed
apparently, it would supposedly fall short of its and rendered nugatory. 53
targets. Assuming that the FRP would fail to
meet its targets, the DBP — and so this As a rule, a corporation exercises its powers, including the power
Committee holds — can not, in any event, brook to enter into contracts, through its board of directors. While a
any denial that it was bound to begin with, and corporation may appoint agents to enter into a contract in its
the fact is that adequate or not (the FRP), the behalf, the agent should not exceed his authority. 54 In the case at
government is still bound by virtue of its acts. bar, there was no showing that the representatives of PNB and
DBP in MMIC even had the requisite authority to enter into a
The FRP, of course, did not itself promise a debt-for-equity swap. And if they had such authority, there was
resounding success, although it raised DBP's no showing that the banks, through their board of directors, had
equity in MMIC to 87%. It is not an excuse, ratified the FRP.
however, for the government to deny its
commitments. 52 Further, how could the MMIC be entitled to a big amount of
moral damages when its credit reputation was not exactly
Atty. Sison, however, did not agree and correctly observed that: something to be considered sound and wholesome. Under Article
2217 of the Civil Code, moral damages include besmirched
But the doctrine of promissory estoppel can reputation which a corporation may possibly suffer. A
hardly find application here. The nearest that corporation whose overdue and unpaid debts to the Government
there can be said of any estoppel being present in alone reached a tremendous amount of P22 Billion Pesos cannot
this case is the fact that the board of MMIC was, certainly have a solid business reputation to brag about. As Atty.
at the time the FRP was adopted, mostly Sison in his separate opinion persuasively put it:
composed of PNB and DBP representatives. But
those representatives, singly or collectively, are Besides, it is not yet a well settled jurisprudence
not themselves PNB or DBP. They are individuals that corporations are entitled to moral damages.
with personalities separate and distinct from the While the Supreme Court may have awarded
banks they represent. PNB and DBP have moral damages to a corporation for besmirched
different boards with different members who reputation in Mambulao vs. PNB, 22 SCRA 359,
such ruling cannot find application in this case. It are the ones to be sued or hold the control of the
must be pointed out that when the supposed corporation. In such actions, the suing
wrongful act of foreclosure was done, MMIC's stockholder is regarded as a nominal party, with
credit reputation was no longer a desirable one. the corporation as the real party in
The company then was already suffering from interest. . . . . 56
serious financial crisis which definitely projects
an image not compatible with good and It is a condition sine qua non that the corporation be impleaded
wholesome reputation. So it could not be said that as a party because —
there was a "reputation" besmirched by the act
of foreclosure. 55 . . . Not only is the corporation an indispensable
party, but it is also the present rule that it must
The arbiters exceeded their be served with process. The reason given is that
the judgment must be made binding upon the
authority in awarding damages corporation in order that the corporation may get
the benefit of the suit and may not bring a
to MMIC, which is not impleaded subsequent suit against the same defendants for
the same cause of action. In other words the
as a party to the derivative suit. corporation must be joined as party because it is
its cause of action that is being litigated and
Civil Case No. 9900 filed before the RTC being a derivative suit, because judgment must be a res ajudicata against
MMIC should have been impleaded as a party. It was not joined it. 57
as a party plaintiff or party defendant at any stage of the
proceedings. As it is, the award of damages to MMIC, which was The reasons given for not allowing direct individual suit are:
not a party before the Arbitration Committee, is a complete
nullity. (1) . . . "the universally recognized doctrine that a
stockholder in a corporation has no title legal or
Settled is the doctrine that in a derivative suit, the corporation is equitable to the corporate property; that both of
the real party in interest while the stockholder filing suit for the these are in the corporation itself for the benefit
corporation's behalf is only a nominal party. The corporation of the stockholders." In other words, to allow
should be included as a party in the suit. shareholders to sue separately would conflict
with the separate corporate entity principle;
An individual stockholder is permitted to
institute a derivative suit on behalf of the (2) . . . that the prior rights of the creditors may
corporation wherein he holds stock in order to be prejudiced. Thus, our Supreme Court held in
protect or vindicate corporate rights, whenever the case of Evangelista v. Santos, that "the
the officials of the corporation refuse to sue, or stockholders may not directly claim those
damages for themselves for that would result in to Jesus Cabarrus, Sr.
the appropriation by, and the distribution among
them of part of the corporate assets before the It is perplexing how the Arbitration Committee can in one
dissolution of the corporation and the liquidation breath rule that the case before it is a derivative suit, in which
of its debts and liabilities, something which the aggrieved party or the real party in interest is supposedly the
cannot be legally done in view of section 16 of the MMIC, and at the same time award moral damages to an
Corporation Law . . .; individual stockholder, to wit:

(3) the filing of such suits would conflict with the WHEREFORE, premises considered, judgment
duty of the management to sue for the protection is hereby rendered:
of all concerned;
x x x           x x x          x x x
(4) it would produce wasteful multiplicity of suits;
and 3. Ordering the defendant to pay to the plaintiff,
Jesus S. Cabarrus, Sr., the sum of P10,000,000.00,
(5) it would involve confusion in a ascertaining to be satisfied likewise from the funds held under
the effect of partial recovery by an individual on escrow pursuant to the Escrow Agreement dated
the damages recoverable by the corporation for April 22, 1988 or to such subsequent escrow
the same act. 58 agreement that would supersede it, pursuant to
paragraph (9), Compromise and Arbitration
If at all an award was due MMIC, which it was not, the same Agreement, as and for moral damages; . . . 60
should have been given sans deduction, regardless of whether or
not the party liable had equity in the corporation, in view of the The majority decision of the Arbitration Committee sought to
doctrine that a corporation has a personality separate and justify its award of moral damages to Jesus S. Cabarrus, Sr. by
distinct from its individual stockholders or members. DBP's pointing to the fact that among the assets seized by the
alleged equity, even if it were indeed 87%, did not give it government were assets belonging to Industrial Enterprise Inc.
ownership over any corporate property, including the monetary (IEI), of which Cabarrus is the majority stockholder. It then
award, its right over said corporate property being a mere acknowledged that Cabarrus had already recovered said assets
expectancy or inchoate right. 59 Notably, the stipulation even had in the RTC, but that "he won no more than actual damages.
the effect of prejudicing the other creditors of MMIC. While the Committee cannot possibly speak for the RTC, there is
no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on
The arbiters, likewise, account of that specific foreclosure, damages the Committee
believes and so holds, he, Jesus S. Cabarrus, Sr., may be
exceeded their authority awarded in this proceeding." 61

in awarding moral damages


Cabarrus cause of action for the seizure of the assets belonging stipulation, PLAINTIFFS themselves
to IEI, of which he is the majority stockholder, having been (Cabarrus, et al.) admit that the cause of action
ventilated in a complaint he previously filed with the RTC, from pertains only to the corporation (MMIC) and that
which he obtained actual damages, he was barred by res they are filing this for and in behalf of MMIC.
judicata from filing a similar case in another court, this time
asking for moral damages which he failed to get from the earlier Perforce this has to be so because it is the basic
case. 62 Worse, private respondents violated the rule against non- rule in Corporation Law that "the shareholders
forum shopping. have no title, legal or equitable to the property
which is owned by the corporation (13 Am. Jur.
It is a basic postulate that a corporation has a personality 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon
separate and distinct from its stockholders. 63 The properties & Sons vs. Register of Deeds, 6 SCRA 373, the
foreclosed belonged to MMIC, not to its stockholders. Hence, if rule has been reiterated that "a stockholder is not
wrong was committed in the foreclosure, it was done against the the co-owner of corporate property." Since the
corporation. Another reason is that Jesus S. Cabarrus, Sr. property or assets foreclosed belongs [sic] to
cannot directly claim those damages for himself that would MMIC, the wrong committed, if any, is done
result in the appropriation by, and the distribution to, him part against the corporation. There is therefore no
of the corporation's assets before the dissolution of the direct injury or direct violation of the rights of
corporation and the liquidation of its debts and liabilities. The Cabarrus et al. There is no way, legal or equitable,
Arbitration Committee, therefore, passed upon matters nor by which Cabarrus et al. could recover damages in
submitted to it. Moreover, said cause of action had already been their personal capacities even assuming or just
decided in a separate case. It is thus quite patent that the because the foreclosure is improper or invalid. The
arbitration committee exceeded the authority granted to it by the Compromise and Arbitration Agreement itself
parties' Compromise and Arbitration Agreement by awarding and the elementary principles of Corporation
moral damages to Jesus S. Cabarrus, Sr. Law say so. Therefore, I am constrained to
dissent from the award of moral damages to
Atty. Sison, in his separate opinion, likewise expressed Cabarrus. 64
befuddlement to the award of moral damages to Jesus S.
Cabarrus, Sr.: From the foregoing discussions, it is evident that, not only did the
arbitration committee exceed its powers or so imperfectly
It is clear and it cannot be disputed therefore that execute them, but also, its findings and conclusions are palpably
based on these stipulated issues, devoid of any factual basis, and in manifest disregard of the law.
the parties themselves have agreed that the basic
ingredient of the causes of action in this case is the We do not find it necessary to remand this case to the RTC for
wrong committed on the corporation (MMIC) for appropriate action. The pleadings and memoranda filed with this
the alleged illegal foreclosure of its assets. By Court, as well as in the Court of Appeals, raised and extensively
agreeing to this discussed the issues on the merits. Such being the case, there is
sufficient basis for us to resolve the controversy between the 1) The Court of Appeals erred in not holding that
parties anchored on the records and the pleadings before us. 65 the Makati Regional Trial Court, Branch 62,
which had previously dismissed Civil Case No.
WHEREFORE, the Decision of the Court of Appeals dated July 9900, had lost jurisdiction to confirm the arbitral
17, 1995, as well as the Orders of the Regional Trial Court of award under the same civil case and in not ruling
Makati, Branch 62, dated November 28, 1994 and January 19, that the application for confirmation should have
1995, is hereby REVERSED and SET ASIDE, and the decision been filed as a new case to be raffled among the
of the Arbitration Committee is hereby VACATED. different branches of the RTC;

SO ORDERED. 2) The Court of Appeals likewise erred in holding


that petitioner was estopped from questioning the
Romero, J., Please see dissenting opinion. arbitration award, when petitioner questioned
the jurisdiction of the RTC-Makati, Branch 62,
Purisima, J., Concur and also with the separate concurring and at the same time moved to vacate the arbitral
opinion of Justice Pardo. award;

Pardo, J., With separate concurring opinion. 3) The Court of Appeals erred in not holding that
the respondent Trial Court should have either
  dismissed/denied private respondents'
motion/petition for confirmation of arbitration
award and/or should have considered the merits
 
of the motion to vacate (the) arbitral award;
 
4) The Court of Appeals erred in not treating
petitioner APT's petition for certiorari as an
Separate Opinions appeal taken from the order confirming the
award; and
 
5) The Court of Appeals erred in not ruling on
ROMERO, J., dissenting opinion; the legal issue of when to reckon the counting of
the period to file a motion for reconsideration.1
In the instant petition for review on certiorari, petitioner. Asset
Privatization Trust (APT) is impugning the decision of The resolution of these issues will ultimately test the process of
respondent Court of Appeals in CA-GR SP No. 36484 dated July arbitration, how effective or ineffective it is as an alternative
17, 1995, grounded upon the following assigned errors which it mode of settling disputes, and how it is affected by judicial
had allegedly committed: review. My esteemed colleagues have taken the view that the
petition is impressed with merit and that the assailed decision of On October 6, 1992, the parties entered into a Compromise and
the Court of Appeals should be reversed. In doing so, I believe Arbitration Agreement 6 providing, inter alia, that they were
they have dealt arbitration a terrible blow and wasted years, withdrawing their respective claims, which would be reduced to
even decades, of development in this field. I beg to differ and, pure money claims, and that they were submitting the
therefore, dissent. controversy to arbitration under Republic Act No. 876. 7 The
issues for arbitration were thus limited to a determination of the
The controversy is actually simpler than it appears. The plaintiffs' capacity or right to institute the derivative suit in
Marinduque Mining and Industrial Corporation (MMIC) behalf of the MMIC or its directors, and of the propriety of the
obtained several loans from the Philippine National Bank (PNB) foreclosure. Of notable import was the provision on the nature of
and the Development Bank of the Philippines (DBP) secured by the judgment that the arbitration committee might render, viz.:
mortgages over practically all of its assets. As of July 15, 1984,
MMIC's obligation had ballooned to P22,668,537,770.05, 2 and it 10. Binding Effect and Enforcement. The award of
had no way of making the required payments. MMIC and its two the arbitration committee shall be final and
creditor banks thus ironed out a complex financial restructuring executory upon its issuance upon the parties to the
plan (FRP) designed to drastically reduce MMIC's liability arbitration and their assigns and successors-in-
through a "debt-to-equity" scheme. 3 This notwithstanding, the interest. In the event the award is not voluntarily
creditors opted to sell MMIC's mortgaged properties through satisfied by the losing party, the party in whose
extrajudicial foreclosure proceedings, where PNB turned out to favor the award has been made may, pursuant to
be the lone bidder.4 Republic Act No. 876, apply to the proper
Regional Trial Court for its enforcement.
Aggrieved by this apparent bad faith on the part of the creditor (Emphasis supplied)
banks, private respondents Jesus S. Cabarrus, Sr., and other
minority stockholders of MMIC filed a derivative suit 5 against Upon motion of the parties, this agreement was presented to the
PNB and DBP before the Makati Regional Trial Court. They court a quo for its approval.8 On October 14, 1992, said court
prayed for the annulment of the foreclosure and for the issued an order (a) dismissing the complaint; (b) substituting the
restoration of the company's assets, the recognition by the creditor banks with the APT as party defendant; (c) "approving
creditor banks of their commitments under the FRP, and the the Compromise and Arbitration Agreement dated October 6,
payment of damages, as well as attorney's fees and costs of 1992"; and (d) "approving the transformation of the reliefs
litigation. The case was raffled to Branch 62 and docketed as prayed for by the plaintiffs in this case into pure money claims." 9
Civil Case No. 9900.
On November 24, 1993, after more than six months of hearing,
In the meantime, the rights and interests of PNB and DBP, the arbitration committee 10 concluded that the assailed
including MMIC's indebtedness, were transferred to petitioner, foreclosure was not valid and accordingly decided the case in
created by virtue of Proclamation No. 50, in relation to favor of MMIC. Hence, petitioner was ordered to pay MMIC
Administrative Order No. 14. Hence, petitioner was substituted actual damages in the amount of P2,531,635,425.02, with legal
as party defendant in Civil Case No. 9900. interest, and moral and exemplary damages amounting to
P13,000,000.00, and to pay Jesus S. Cabarrus, Sr., the sum of Petitioner filed a "Motion for Reconsideration" of said order on
P10,000,000.00 by way of moral damages, such awards to be December 27, 1994; but this was denied by the court a quo in its
offset from the outstanding and unpaid obligations of MMIC order dated January 18, 1995 for lack of merit and for having
with the creditor banks, which have not been converted into been filed beyond the reglementary period. Thus, it said:
equity. The committee likewise decreed its decision to be "final
and executory." 11 . . . (C)onsidering that the defendant APT,
through counsel, officially and actually received a
Nearly a year later, MMIC filed in Civil Case No. 9900, a copy of the Order of this Court dated November
verified "Application/Motion for Confirmation of Arbitration 28, 1994 on December 6, 1994, the Motion for
Award." 12 This was opposed by petitioner on two grounds, Reconsideration thereof filed by the defendant
namely, that Branch 62 no longer had jurisdiction to act on said APT on December 27, 1994, or after the lapse of
motion after it "dismissed" the complaint in its order of October 21 days, was clearly filed beyond the 15-day
14, 1992, and that the award "far exceeded the issues submitted" reglementary period prescribed or provided
for arbitration by the parties. 13 Not wanting to be outdone, for . . . (by law) for the filing of an appeal from
MMIC filed a "Reply and Opposition," arguing that the final orders, resolutions, awards, judgments or
"qualified dismissal" of Civil Case No. 9900 was merely intended decisions of any court in all cases, and by
to expedite the submission of the controversy to arbitration and necessary implication, for the filing of a motion
was, therefore, "a mere suspension of the proceedings," and that for reconsideration thereof.
the arbitration committee did not exceed its authority in making
the award. Instead of appealing such denial, petitioner filed on February 15,
1995, an "Appeal by Certiorari . . . . under Sections 1 and 2 of
On November 28, 1994, the trial court issued an Rule 65 of the Revised Rules of Court" before the Court of
order 14 confirming the award of the committee in all respects Appeals, praying for the nullification of the trial court's orders
except as to the award of actual damages to MMIC, which was dated November 28, 1994 and January 18, 1995. It argued that
increased to P3,811,757,425.00. The order closed with the the trial court had no jurisdiction or authority to confirm the
following declaration: arbitral award, "considering that the original case, Civil Case
No. 9900, had previously been dismissed," and that the trial
In reiteration of the mandates of Stipulation No. judge "acted with grave abuse of discretion in issuing the
10 and Stipulation No. 8 paragraph 2 of the questioned orders confirming the award and denying the motion
Compromise and Arbitration Agreement, and the for reconsideration thereof." 15
final edict of the Arbitration Committee's
decision, and with this Court's Confirmation, the On July 17, 1995, the Court of Appeals dismissed the petition for
issuance of the Arbitration Committee's Award lack of merit. 16 From this dismissal, petitioner elevated its cause
shall henceforth be final and executory. to this Tribunal for a review, raising the issues stated at the
outset.
I find it distressing that, in reaching the outcome of this judicium) or else by having the arbiter chosen by
controversy, the majority has emasculated the process of lot. The judges proper, as specially trained state
arbitration itself. This should not be the case for after all, the officials endowed with (their) own power and
decision of the arbitration committee is no longer the one being jurisdiction, and taking cognizance of litigations
attacked in these proceedings, but the judgment of the Court of from beginning to end, only appeared under the
Appeals which herein petitioner found to be erroneous. The Empire, by the so-called cognitio extra ordinem."
Court has had occasion to trace the history of arbitration and to
discuss its significance in the case of Chung Fu Industries Such means of referring a dispute to a third party
(Phils.), Inc. v. Court of Appeals, 17 viz.: has also long been an accepted alternative to
litigation at common law.
Allow us to take a leaf from history and briefly
trace the evolution of arbitration as a mode of Sparse though the law and jurisprudence may be
dispute settlement. on the subject of arbitration in the Philippines, it
was nonetheless recognized in the Spanish Civil
Because conflict is inherent in human society, Code; specifically, the provisions on compromises
much effort has been expended by men and made applicable to arbitrations under Articles
institutions in devising ways of resolving the 1820 and 1821. Although said provisions were
same. With the progress of civilization, physical repealed by implication with the repeal of the
combat has been ruled out and instead, more Spanish Law of Civil Procedure, these and
specific means have been evolved, such as additional ones were reinstated in the present
recourse to the good offices of a disinterested Civil Code.
third party, whether this be a court or a private
individual or individuals. Arbitration found a fertile field in the resolution
of labor-management disputes in the Philippines.
Legal history discloses that "early judges called Although early on, Commonwealth Act 103
upon to solve private conflicts were primarily the (1936) provided for compulsory arbitration as the
arbiters, persons not specially trained but in state policy to be administered by the Court of
whose morality, probity and good sense the Industrial Relations, in time such a modality gave
parties in conflict reposed full trust. Thus, in way to voluntary arbitration. While not
Republican Rome, arbiter and judge (judex) completely supplanting compulsory arbitration
were synonymous. The magistrate of praetor, which until today is practiced by government
after noting down the conflicting claims of officials, the Industrial Peace Act which was
litigants, and clarifying the issues, referred them passed in 1953 as Republic Act No. 875, favored
for decision to a private person designated by the the policy of free collective bargaining, in general,
parties, by common agreement, or selected by and resort to grievance procedure, in particular,
them from an apposite listing (the album as the preferred mode of settling disputes in
industry. It was accepted and enunciated more acknowledged when Republic Act No. 876 (1953),
explicitly in the Labor Code, which was passed on otherwise known as the Arbitration Law, was
November 1, 1974 as Presidential Decree No. 442, passed. "Said Act was obviously adopted to
with the amendments later introduced by supplement — not to supplant — the New Civil
Republic Act No. 6715 (1989). Code on arbitration. It expressly declares that
"the provisions of chapters one and two, Title
Whether utilized in business transactions or in XIV, Book IV of the Civil Code shall remain in
employer-employee relations, arbitration was force."
gaining wide acceptance. A consensual process, it
was preferred to orders imposed by government x x x           x x x          x x x
upon the disputants. Moreover, court litigations
tended to be time-consuming, costly, and In practice nowadays, absent an agreement of the
inflexible due to their scrupulous observance of parties to resolve their disputes via a particular
the due process of law doctrine and their strict mode, it is the regular courts that remain the fora
adherence to rules of evidence. to resolve such matters. However, the parties may
opt for recourse to third parties, exercising their
As early as the 1920's, this Court declared: basic freedom to "establish such stipulations,
clauses, terms and conditions as they may deem
In the Philippines fortunately, the convenient, provided they are not contrary to
attitude of the court towards law, morals, good customs, public order or public
arbitration agreements is slowly policy." In such a case, resort to the arbitration
crystallizing into definite and process may be spelled out by them in a contract
workable form . . . The rule now is in anticipation of disputes that may arise between
that unless the agreement is such them. Or this may be stipulated in a submission
as absolutely to close the doors of agreement when they are actually confronted by
the courts against the parties, a dispute. Whatever be the case, such recourse to
which agreement would be void, an extrajudicial means of settlement is not
the courts will look with favor intended to completely deprive the courts of
upon such amicable arrangements jurisdiction. In fact, the early cases on arbitration
and will only with great carefully spelled out the prevailing doctrine at the
reluctance interfere to anticipate time, thus: ". . . a clause in a contract providing
or nullify the action of the that all matters in dispute between the parties
arbitrator. shall be referred to arbitrators and to them alone
is contrary to public policy and cannot oust the
That there was a growing need for a law courts of jurisdiction."
regulating arbitration in general was
But certainly, the stipulation to refer all future determine whether it is in accordance with law or
disputes to an arbitrator or to submit an ongoing within the scope of his authority? How may the
dispute to one is valid. Being part of a contract power of judicial review be invoked?
between the parties, it is binding and enforceable
in court in case one of them neglects, fails or This is where the proper remedy
refuses to arbitrate. Going a step further, in the is certiorari under Rule 65 of the Revised Rules
event that they declare their intention to refer of Court. It is to be borne in mind, however, that
their differences to arbitration first before taking this action will lie only where a grave abuse of
court action, this constitutes a condition discretion or an act without or in excess of
precedent, such that where a suit has been jurisdiction on the part of the voluntary
instituted prematurely, the court shall suspend arbitrator is clearly shown. For "the writ
the same and the parties shall be directed of certiorari is an extraordinary remedy and
forthwith to proceed to arbitration. that certiorari jurisdiction is not to be equated
with appellate jurisdiction. In a special civil
A court action may likewise be proper where the action of certiorari, the Court will not engage in a
arbitrator has not been selected by the parties. review of the facts found nor even of the law as
interpreted or applied by the arbitrator unless
x x x           x x x          x x x the supposed errors of fact or of law are so patent
and gross and prejudicial as to amount to a grave
. . . It is stated explicitly under Art. 2044 of the abuse of discretion or an exces de pouvoir on the
Civil Code that the finality of the arbitrator's part of the arbitrator." 19
award is not absolute and without exceptions.
Where the conditions described in Articles 2038, So, what are the issues that need to be addressed in this action?
2039 and 2040 18 applicable to both compromises Certainly not the capacity of the plaintiffs below to file the
and arbitrations are obtaining, the arbitrators' derivative suit in behalf of MMIC nor the validity of the
award may be annulled or rescinded. extrajudicial foreclosure conducted by PNB and DBP. These
Additionally, under Sections 24 and 25 of the were the issues submitted for arbitration by the parties
Arbitration Law, there are grounds for vacating, and resolved with finality by the arbitration committee upon
modifying or rescinding an arbitrator's award. agreement of the parties themselves. The issues, therefore, all
Thus, if and when the factual circumstances stemming from the judgment of the Court of Appeals, may be
referred to in the above-cited provisions are narrowed down to three: (1) Was it right in upholding the trial
present, judicial review of the award is properly court's authority to confirm the arbitration award considering
warranted. that said court had earlier dismissed the complaint? (2) Was it
correct in finding that herein petitioner was estopped from
What if courts refuse or neglect to inquire into questioning such award? (3) Was it justified in not treating
the factual milieu of an arbitrator's award to
petitioner's petition for certiorari as an appeal from the trial the parties submitted to the court below not only
court's order confirming said award? an agreement to arbitrate but also a compromise
which is always submitted to the court for
(1) Petitioner overly stresses the fact that in the trial court's approval and as a basis for a judgment. . . . 20
order of October 14, 1992; the complaint was "dismissed" upon
approval of the Compromise and Arbitration Agreement Regarding the trial court's authority to confirm the decision of
between the parties. Such dismissal, however, far from finally the arbitration committee, suffice it to say that such was not
disposing of the controversy as the term denotes, simply merely its right but its duty as well. Under Section 22 of R.A. No.
"suspended" it during the period of arbitration. It is, as a 876, upon application or motion of any party to arbitration, the
colleague pointed out during the deliberation of this action, a court has the obligation of confirming the arbitrators' award
mere "semantic imperfection." Here is a situation where the absent any specific ground to vacate, modify or correct the same.
intent of the tribunal was obviously not to end the case with Herein private respondents did apply for such confirmation on
finality, but to place the proceedings in abeyance while the February 7, 1995. This was even opposed by petitioner on the
parties breathed life into an alternative mode of settling their ground that the judgment had not yet become final and
differences in the most expeditious manner. Arbitration is not a executory, in complete disregard of paragraph 10 of the
self-enforcing process. It focuses the direction of the hearing and Compromise and Arbitration Agreement and the very decision
the reception and appreciation of evidence by assigning these of the arbitration committee.
tasks to a group of persons chosen by the parties, themselves. By
this, a circuitous and time-consuming court trial is avoided, The award itself was properly made since it was not vacated,
leaving the court with the singular duty of confirming the modified or corrected upon any of the grounds enumerated
arbitrators' decision, and allowing it to devote more of its time to under Sections 24 and 25 of R.A. No. 876, to wit:
resolving other cases. As the appellate court correctly pointed
out: Sec. 24. Grounds for vacating award. — In any
one of the following cases, the court must make
. . . (T)he dismissal of the Complaint in Civil Case an order vacating the award upon the petition of
No. 9900 was not intended by the parties and by any party to the controversy when such party
the court a quo, despite the phraseology in Item proves affirmatively that in the arbitration
No. 4 or the dispositive portion of the Order of proceedings:
October 14, 1992, as a dismissal that would put
an end to the case. Rather it was simply a (a) The award was procured by corruption,
pronouncement for the cessation of the fraud, or other undue means; or
proceedings in the court and the commencement
of the arbitration proceedings. It was for all (b) That there was evident partiality or
intents and purposes a stay of the civil action corruption in the arbitrators or any of them; or
until an arbitration has been had or pending the
return of the arbitral award. This is evident since
(c) That the arbitrators were guilty of misconduct correcting the award, upon the application of any
in refusing to postpone the hearing upon party to the controversy which was arbitrated:
sufficient cause shown, or in refusing to hear
evidence pertinent and material to the (a) Where there was an evident
controversy; that one or more of the arbitrators miscalculation of figures, or an
was disqualified to act as such under section nine evident mistake in the description
hereof, and willfully refrained from disclosing of any person, thing or property
such disqualifications or of any other referred to in the award; or
misbehavior by which the rights of any party
have been materially prejudiced; or (b) Where the arbitrators have
awarded upon a matter not
(d) That the arbitrators exceeded their powers, or submitted to them, not affecting
so imperfectly executed them, that a mutual, final the merits of the decision upon the
and definite award upon the subject matter matter submitted; or
submitted to them was not made.
(c) Where the award is imperfect
Where an award is vacated, the court, in its in a matter of form not affecting
discretion, may direct a new hearing either the merits of the controversy, and if
before the same arbitrators or before a new it had been a commissioner's
arbitrator or arbitrators chosen in the manner report, the defect could have been
provided in the submission or contract for the amended or disregarded by the
selection of the original arbitrator or arbitrators, court.
and any provision limiting the time in which the
arbitrators may make a decision shall be deemed The order may modify and correct the award so as to effect the
applicable to the new arbitration and to intent thereof and promote justice between the parties.
commence from the date of the court's order. (Emphasis supplied)

Where the court vacates, an award, costs, not Petitioner utterly failed to prove the existence of any of these
exceeding fifty pesos, and disbursements may be grounds. Its strongest argument, that the arbitration award "far
awarded to the prevailing party and the payment exceeded the issue submitted for arbitration," apart from being
thereof may be enforced in like manner as the unsubstantiated, does not go into the merits of the award, which
payment of costs upon the motion in an action is the only way its modification or correction could be justified
under the terms of Section 25, aforequoted.
Sec. 25. Grounds for modifying or correcting
award. — In any one of the following cases, the Furthermore, petitioner violated several covenants by asking the
court must make an order modifying or court a quo to vacate the arbitration award. First, in paragraph
10 of the Compromise and Arbitration Agreement, it agreed to parties through their respective counsels gave
abide by the arbitration committee's decision which "shall be oral arguments and thereafter agreed to submit
final and executory upon its issuance upon the parties to the the motion for reconsideration for resolution. If
arbitration and their assigns and successors-in-interest." Next, petitioner APT honestly believed that the
the decision that the arbitrators did render on November 24, respondent Judge erroneously took cognizance of
1993 specifically declared the same to be "final and executory." plaintiffs Application/Motion for Confirmation of
Finally, in the court's confirmation order of November 28, 1994, Arbitration Award, then it should have limited
the finality of the award was reiterated by the court. Arbitration, itself to challenging the jurisdiction of said court.
as an alternative mode of settlement, is gaining adherents in legal The fact remains that petitioner APT repeatedly
and judicial circles here and abroad. If its tested mechanism can sought affirmative relief from the respondent
simply be ignored by an aggrieved party, one who, it must be Judge in the same Civil Case No. 9900. Under the
stressed, voluntarily and actively participated in the arbitration circumstances, petitioner APT may not be heard
proceedings from the very beginning, it will destroy the very now to complain that it was deprived of its right
essence of mutuality inherent in consensual contracts. to question the award made by the Arbitration
Committtee. 21 (Emphasis supplied)
2) Petitioner claims that it is not estopped from
questioning the arbitration award probably because, 3) The final issue which, to my mind, has particular
notwithstanding its tenacious quest for affirmative relief, relevance to the case at bar, pertains to the alleged error
it did not translate this pursuit into positive action. The of the Court of Appeals in not treating APT's petition
Court of Appeals succinctly puts it in this wise: for certiorari as an appeal from the trial court's
confirmation order.
. . . The record shows that on its motion,
petitioner APT was able to postpone the hearing Petitioner's counsel received a copy of the confirmation order
on therein plaintiffs' application/motion for dated November 28, 1994, on December 12, 1994. 22 Said order
confirmation of arbitral award to a date and time was, for review purposes, a "final order" because it finally
that it chose. However, when said matter was disposed of the case. Other than executing the confirmation
called for hearing, only counsel for therein order, there was nothing else that the court was duty-bound to
plaintiffs showed up. Nonetheless, respondent perform. Petitioner's remedy, therefore, was to question the
Judge gave APT a period of seven (7) days from order, by appeal on certiorari, not before the Court of Appeals,
notice within which to comment on the but before the Supreme Court 23 within the reglementary period
application/motion for confirmation. At no time of fifteen days which expired on December 27, 1994. Instead of
did petitioner APT ask for a hearing to present appealing, however, petitioner filed a motion for reconsideration
its evidence. While petitioner APT repeatedly of the order on said deadline. Unfortunately, this was denied by
sought to vacate the arbitral award, it made no the court a quo in its order dated January 18, 1995, a copy of
concrete move to pursue its cause. In fact, at the which was received by petitioner's counsel on February 1, 1995.
hearing on its motion for reconsideration, both Under prevailing procedural laws, it had just one day to perfect
its appeal. On February 15, 1995, petitioner opted to file with the The applicable law, of course, is R.A. No. 876, which provides for
Court of Appeals an "Appeal by Certiorari . . . under Sections 1 appeals from arbitration awards under Section 29 thereof, viz.:
and 2 of Rule 65 of the Revised Rules of Court." The reason is
obvious: It could no longer file a regular appeal from the assailed . . . (A)n appeal may be taken from . . . a
order because the period for doing so has lapsed. The Court of judgment entered upon an award
Appeals thus made the following pertinent observation. through certiorari proceedings, but such appeals
shall be limited to questions of law. The
. . . Assuming arguendo that petitioner APT's proceedings upon such an appeal, including the
counsel received a copy (of the November 28, judgment thereon, shall be governed by the Rules
1994, order), as claimed by them, on December of Court in so far as they are applicable.
12, 1994, then the petitioner had fifteen (15) days
therefrom or until December 27, 1994, within The term "certiorari" in the aforequoted provision refers to an
which to appeal. The petitioner's motion for ordinary appeal under Rule 45, not the special action
reconsideration was admittedly filed on of certiorari under Rule 65. It is an "appeal," as Section 29
December 27, 1994, the last day of the proclaims. The proper forum for this action is, under the old and
reglementary 15-day period, and the order dated the new rules of procedure, the Supreme Court. Thus, Section
January 18, 1995, denying the same was received 2(c) of Rule 41 of the 1997 Rules of Civil Procedure states that,
by petitioner's counsel on February 1, 1995. "In all cases where only questions of law are raised or involved,
Petitioner APT had only the following day to the appeal shall be to the Supreme Court by petition for review
perfect his appeal. Instead, it chose to file the on certiorari in accordance with Rule 45." Moreover, Section 29
instant special civil action of certiorari on limits the appeal to "questions of law," another indication that it
February 15, 1995. is referring to an appeal by certiorari under Rule 45 which,
indeed, is the customary manner of reviewing such issues. On the
From the start, petitioner seemed unsure of its position on other hand, the extraordinary remedy of certiorari under Rule
appeal. While initially questioning the "order confirming the 65 may be availed of by a party where there is "no appeal, nor
award" of the arbitration committee, it later stated that it was any plain, speedy, and adequate remedy in the course of law,"
raising the issue of "filing by (herein private respondents) of a and under circumstances where "a tribunal, board or officer
Motion for Execution and Appointment of Custodian of proceeds exercising judicial functions, has acted without or in excess of its
of Execution dated February 6, 1995." The latter recourse is or his jurisdiction, or with grave abuse of discretion." 24
obviously erroneous, for no appeal under either Rule 45 or Rule
65 may be taken from a "motion" or the "filing" of one. Under Based on the foregoing, it is clear that petitioner had run out of
Rule 45, only judgments or final orders of a court or tribunal options after its motion for reconsideration was denied by the
may be appealed to a higher court, while Rule 65 allows a special trial court in its order dated January 18, 1995. To compound its
civil action where the acts of a tribunal, board or officer are negligence, it filed the wrong action with the wrong forum.
under attack for being performed with grave abuse of discretion. These, to my mind, are serious procedural flaws. To rule
otherwise, as the majority did, would constitute a grave injustice (a) Ordering the
to private respondents. defendant APT to
the Marinduque
I vote to DISMISS the petition. Mining and
Industrial
Corporation
(MMIC), except
PARDO, J., separate concurring opinion; the DBP, the sum
of
I concur. However, I wish to add a few points not particularly P3,811,757,425.00,
emphasized in the majority opinion. as and for actual
damages under
escrow in the
The petition before the Court is one for review via
amount of
certiorari under Rule 45 of the Revised Rules of Court seeking to
P503,000,000.00
set aside the resolution of the Court of Appeals that denied due
pursuant to the
course and dismissed APT's petition for certiorari to annul the
Escrow Agreement
proceedings had before the Regional Trial Court, Makati,
dated April 22,
Branch 62, in Civil Case No. 9900, particularly the order
1988. The balance
confirming the arbitration award, reading as follows:
of the award, after
the escrow funds
WHEREFORE, premises considered, and in the are fully applied,
light of the parties Compromise and Arbitration shall be executed
Agreement dated October 6, 1992, the Decision of against the APT;
the Arbitration Committee promulgated on
November 24, 1993, as affirmed in a Resolution
(b) Ordering the
dated July 26, 1994, and finally settled and
defendants to pay
clarified in the Separate Opinion dated
to the MMIC,
September 2, 1994 of Committee Member Elma,
except the DBP,
and the pertinent provisions of R.A. 876, also
the sum of
known as the Arbitration Law, this Court
P13,000.00 as and
GRANTS PLAINTIFFS' APPLICATION AND
for moral and
THUS CONFIRMS THE ARBITRATION
exemplary
AWARD AND JUDGMENT IS HEREBY
damages;
RENDERED:
(c) Ordering the 13, 1995, for annulment of foreclosure, specific performance and
defendant to pay damages against the Philippine National Bank (PNB) and the
to Jesus S. Development Bank of the Philippines (DBP) alleging that in
Caburrus, Sr., the 1984, the PNB and DBP effected illegally the extra-judicial
sum of foreclosure of real estate and chattel mortgages constituted in
P10,000,000.00 as their favor by the MMIC by the latter's assets of real estate and
and for moral chattels, to satisfy an obligation amounting to
damages; and P22,668,537,770.05, and that prior to the extra-judicial
foreclosure, PNB and DBP had agreed to a financial
(d) Ordering the reorganization plan of MMIC to reduce the latter's indebtedness
defendant to pay to P3 billion and to convert the balance of its obligation into
the herein equity.
plaintiff/applicants
/movants the sum In their joint answer to the amended complaint, defendants PNB
of P1,705,410.00 as and DBP denied the material allegations of the amended
arbitration costs. complaint but admitted that in August and September, 1984,
they foreclosed extra-judicially the mortgages on MMIC's assets,
In reiteration of the mandates of with the qualification that the correct amount of obligation owed
Stipulation No. 10 and Stipulation by MMIC as of July 15, 1984, was P22,083,313,168.29; that the
No. 8 paragraph 2 of the foreclosure of the mortgages was legal and valid as mandated by
Compromise and Arbitration Presidential Decree No. 385 and by the provisions of the
Agreement, and the final edict of mortgage trust agreements between PNB, DBP and MMIC; and,
the Arbitration Committee's that the plaintiff's therein, herein respondents Cabarrus, et al.,
decision, and with this Court's were not entitled to actual and moral damages.
Confirmation, the issuance of the
Arbitration Committee's Award In the course of the trial of Civil Case No. 9900, plaintiffs Jesus
shall henceforth be final and S. Cabarrus, et al. and the Asset Privatization Trust (APT), as
executory. successor-in-interest of the DBP and PNB's interest in MMIC
accounts, entered into a compromise and arbitration agreement
SO ORDERED. dated October 6, 1992, whereby they "agreed to move for the
dismissal of the case, to transform the reliefs prayed for therein
Originally instituted on February 8, 1985, in the Regional Trial into pure money claims and to submit the controversy to
Court, Makati, Metro Manila, private respondents, Jesus S. arbitration under Republic Act (RA) 876 before a committee
Cabarrus, Sr., et al., a few of the numerous minority composed of three members" limiting the issues to two, namely:
stockholders of Marinduque Mining and Industrial Corp.
(hereafter MMIC), filed a complaint, later amended on March
(a) whether plaintiffs have the P2,531,635,425,02 with interest
capacity or the personality to thereon at the legal rate of six
institute this derivative suit in (6%) per cent per annum
behalf of the MMIC or its reckoned from August 3, 9 and 24,
directors, and 1984, pari passu, as and for actual
damages. Payment of these actual
(b) whether or not the actions damages shall be offset by APT
leading to, and including, the from the outstanding and unpaid
PNB-DBP foreclosure of the loans of MMIC with DBP and
MMIC assets were proper, valid PNB, which have not been
and in good faith. converted into equity. Should
there be any balance due to
Thus, the parties created an Arbitration Committee composed of MMIC after the offsetting, the
three (3) members, one (1) representative of the plaintiff; one (1) same shall be satisfied from the
representative of APT; and the Chairman to be agreed upon by funds representing the purchase
both parties. Consequently, APT nominated Atty. Jose C. Sison, price of the sale of the shares of
a trustee of APT and its counsel; MMIC nominated former Island Cement Corporation in the
Justice of the Court of Appeals Magtanggol Elma; and they amount of P503,000,000.00 held
selected retired Supreme Court Justice Abraham F. Sarmiento under escrow pursuant to the
as Chairman. Escrow Agreement dated April
22, 1988 or to such subsequent
After conducting hearings and receiving voluminous evidence, escrow agreement that would
on November 24, 1993, the Arbitration Committee released what supersede it pursuant to
purports to be its decision penned by the Chairman, the paragraph (9) of the Compromise
dispositive portion of which reads as follows: and Arbitration Agreement;

DISPOSITION 2. Ordering the defendant to pay


to the Marinduque Mining and
WHEREFORE, premises Industrial Corporation, except the
considered judgment is hereby DBP, the sum of P13,000,000.00,
rendered: as and for moral and exemplary
damages. Payment of these moral
and exemplary damages shall be
1. Ordering the defendant to pay
offset by APT from the
the Marinduque Mining and
outstanding and unpaid loans of
Industrial Corporation, except the
MMIC with DBP and PNB, which
DBP, the sum of
have not been converted into IT IS SO
equity. Should there be any ORDERED.
balance due to MMIC after the
offsetting, the same shall be Member Elma submitted a separate concurring and dissenting
satisfied from the funds opinion reading as follows:
representing the purchase price of
the sale of the shares of island ELMA, concurring and dissenting:
Cement Corporation in the
amount of P503,000,000.00 held I am in complete agreement with the findings of
under escrow pursuant to the the Decision on the principal issues submitted for
Escrow Agreement dated April the Committee's resolution, viz: that plaintiffs
22, 1988 or to such subsequent Cabarrus, et al., have the capacity or the
escrow agreement that would personality to institute this derivative suit in
supersede it pursuant to behalf of Marinduque Milling and Industrial
paragraph (9) of the Compromise Corporation (MMIC) and that the actions
and Arbitration Agreement; leading to, and including, the PNB-DBP
foreclosure of the MMIC assets were improper,
3. Ordering the defendant to pay invalid and/or not done in good faith.
to the plaintiff, Jesus S. Cabarrus, Consequently, there is concurrence on my part to
Sr., the sum of P10,000,000.00, to the award of actual, moral and exemplary
be satisfied likewise from the damages to MMIC, and moral damages to
funds held under escrow pursuant plaintiff Jesus S. Cabarrus, Sr.
to the Escrow Agreement dated
April 22, 1988 or to such However, I am unable to agree with and,
subsequent escrow agreement that therefore, regretfully dissent as to the manner or
would supersede it, pursuant to method of computation and amount of actual
paragraph (9), Compromise and damages awarded to MMIC, particularly set
Arbitration Agreement, as and for forth in paragraph 1 of the dispositive potion of
moral damages; and the Decision.

4. Ordering the defendant to pay x x x           x x x          x x x


arbitration costs.
Considering that under the "Compromise and
This Decision is Arbitration Agreement", the parties agreed that
FINAL and their respective claims be reduced to purely
EXECUTORY. pecuniary/money claims, then MMIC and/or
plaintiffs on behalf of all the other stockholders x x x           x x x          x x x
of MMIC are entitled to actual or compensatory
damages equivalent to the present value of their It is clear and it cannot be
equity over the MMIC assets, i.e. the total disputed therefore that based on
stockholders' equity of P20,826,700,952.00 as of these stipulated issues, the parties
December 31, 1992. Further, since as held in the themselves have agreed that the
Decision that the DBP would have an 87% equity basic ingredient of the causes of
in MMIC as a consequence of the finding that the action in this case is the wrong
Financial Rehabilitation Plan (FRP), is valid (p. committed on the corporation
64 of the Decision), then the amount of (MMIC) for the alleged illegal
P18,119,229,828.24 (equivalent to DBP's 87% foreclosure of its assets. By
equity) should be deducted from the total agreeing to this stipulation,
stockholders' equity of P20,826,700,952.00 PLAINTIFFS themselves
leaving a net amount of P2,707,471,123.76 to be (Cabarrus, et al.) admit that the
awarded to MMIC (excluding DBP's share) as cause of action pertains only to
actual or compensatory damages. the corporation (MMIC) and that
they are filing this for and in
It is to be noted that defendant APT did not behalf of MMIC.
present any evidence rebutting the figures and
computations made by witness Pastor. Since the Perforce this has to be so because
Decision finds the FRP valid, then the it is the basic rule in Corporation
stockholders of MMIC (excluding DBP) should Law that "the shareholders have
be placed in the same position that they would no title, legal or equitable to the
have been where not for the fact that the FRP property which is owned by the
was improperly and illegally aborted by corporation (13 Am. Jur. 165;
PNB/DBP. Accordingly, it is my submission that Pascual vs. Oresco, 14 Phil. 83).
defendant APT should be ordered to pay MMIC In Ganzon & Sons vs. Register of
(excluding DBP) the sum of P2,707,471,123.76 Deeds, 6 SCRA 373, the rule has
with legal interest thereon per annum from been reiterated that "a
August 3, 1984 as and for actual damages. stockholder is not the co-owner of
the corporate property." Since the
x x x           x x x          x x x property or assets foreclosed
belongs to MMIC, the wrong
Member Sison submitted a separate opinion reading as follows: committed, if any, is done against
the corporation. There is therefore
SEPARATE OPINION no direct injury or direct violation
of the rights of Cabarrus et In this connection, it can readily
al. There is no way, legal or be seen and it cannot quite be
equitable by which Cabarrus et al, denied that MMIC accounts in
could recover damages in their PNB-DBP were past due. The
personal capacities even assuming drawing up of the FRP is the best
or just because the foreclosure is proof of this. When MMIC
improper or invalid. The adopted a restructuring program
Compromise and Arbitration for its loan, it only meant that
Agreement itself and the these loans were already due and
elementary principles of unpaid. If these loans were
Corporation Law say so. restructurable because they were
Therefore, I am constrained to already due and unpaid, they are
dissent from the award of moral likewise "forecloseable". The
damages to Cabarrus. option is with the PNB-DBP on
what steps to take.
Neither could I agree to the award
of moral damages to MMIC. The The mere fact that MMIC
acts complained of here in which adopted the FRP does not mean
the Committee based its award of that DBP-PNB lost the option to
moral damages to MMIC is the foreclose. Neither does it mean
foreclosure of the various real that the FRP is legally binding
estate and chattel mortgages. The and implementable. It must be
majority of the Committee pointed that said FRP will, in
believes that these foreclosure effect, supersede the existing and
constitute a violation on an past due loans of MMIC with
agreement forged between PNB- PNB-DBP. It will become the new
DBP, on one hand, and MMIC, on loan agreement between the
the other, regarding the lenders and the borrowers. As in
restructuring of the various past all other contracts, there must
due loans of MMIC to what had therefore be a meeting of the
been termed as the Financial minds of the parties; the PNB and
Restructuring Program (FRP). DBP must have to validly adopt
and ratify such FRP before they
x x x           x x x          x x x can be bound by it; before it can
be implemented. In this case, not
an iota of proof has been
presented by the PLAINTIFFS 602). Following this universally
showing that PNB and DBP accepted rule on damage, I do not
ratified and adopted the FRP. believe it is just to compel APT to
PLAINTIFFS simply relied on a pay such huge amount for such
legal doctrine of promissory minor technical infraction.
estoppel to support its allegations
in this regard. But while I do not agree with this
pronouncement of the Committee,
x x x           x x x          x x x I nevertheless concur with the
result as far as the disposition of
All told, PNB and DBP had the the award for actual damages is
right to foreclose and were concerned. I agree that
justified in doing so. But were the DEFENDANT APT can, and is
foreclosure legally done or carried still entitled to, collect the
out? Were the requirements of outstanding obligations of MMIC
notice, posting and publication to PNB and DBP amounting to
required by Acts 3135 and 1508 P22,668,537,770.05 with interest
substantially complied with? thereon as stipulated in the loan
documents from the date of
x x x           x x x          x x x foreclosure until the time they are
fully paid. The resultant effect of
I cannot, however, concur with such a disposition is that APT can
the for holding that such minor offset the said obligation due from
taint of illegality in the foreclosure MMIC such that ultimately no
is enough to justify the award of damages will be due and payable
damages, amounting to to MMIC. As there may be
P19,486,118,654.00. "Rules of law damage without injury, there can
respecting the recovery of be injury without damage (15 Am.
damages are framed with Jur., p. 388). This case is a case
reference to just rights or both of "injury without damage".
parties, not merely what may be
right for an injured person to Both parties moved for reconsideration of the "decision" of the
receive, but also what is just to Arbitration Committee. In addition, respondents Cabarrus et al.
compel the other party to pay, to filed a motion for clarification and to re-open the case to receive
accord just compensation for the evidence. In a resolution dated July 26, 1984, with one member
injury" (Kennings vs. Kline Ind. dissenting, the Arbitration Committee denied the motions for
reconsideration of both parties as well as all other pending The issue presented in said petition was whether respondent
motions. Judge Roberto C. Diokno, Regional Trial Court, Makati, Branch
62, had jurisdiction to act on private respondents'
On October 17, 1984, respondents Cabarrus et al. filed directly application/motion for confirmation of arbitral award in the
with the Regional Trial Court, Makati, Branch 62, in the same same Civil Case No. 9900, which had been dismissed earlier on
Civil Case No. 9900, a pleading entitled application/motion for motion of the parties, and thus the court gravely abused its
confirmation of arbitral award. discretion in confirming the arbitral award.

On November 4, 1994, petitioner APT filed an opposition and In its decision promulgated on July 17, 1995, the Court of
motion to vacate judgment, contending that respondents' motion Appeals denied due course and dismissed the petition
was improperly filed with the same branch of the court in Civil for certiorari for lack of merit.
Case No. 9900, which was previously dismissed, and that the
motion should have been filed as a separate special proceedings Hence, this petition for review filed on September 07, 1995. 2
in the Regional Trial Court to be docketed by the Clerk of Court.
The petition is impressed with merit.
Nonetheless, acting on the application/motion, Judge Roberto C.
Diokno, presiding judge, Regional Trial Court, Makati, Branch First, the Regional Trial Court, Makati, Branch 62, did not
62, on November 28, 1994, issued an order granting plaintiffs' validly acquire jurisdiction over the case by respondents' filing
application confirming the arbitration award, and rendering of a mere motion in the same Civil Case No. 9900 because the
judgment as set out in the opening paragraph of this opinion. case had been dismissed earlier and such dismissal had become
final and unappealable. As heretofore stated, on October 6, 1992,
On December 12, 1994, petitioner APT received notice of the the parties entered into a compromise and arbitration agreement
lower court's order. On December 27, 1994, petitioner APT filed expressly providing that they "have agreed to withdraw their
a motion for reconsideration. By order dated January 18, 1995, respective claims from the Trial Court and to resolve their
the trial court denied the motion. On February 7, 1995, dispute through arbitration by praying to the Trial Court to
respondents Cabarrus, et al. filed a motion for execution and issue a compromise judgment based on this Compromise and
appointment of custodian of proceeds of execution. Petitioner Arbitration agreement.
opposed the motion. It is apparently still unresolved.
Clearly, the parties had withdrawn the action then pending with
On February 15, 1995, petitioner APT filed with the Court of the Regional Trial Court, Makati, Branch 62, in Civil Case No.
Appeals an original special civil action for certiorari with prayer 9900, and agreed that they would submit their dispute to
for temporary restraining order or preliminary injunction 1 to arbitration and reduce their respective claims to "purely money
annul the two (2) orders of the respondent Regional Trial Court claims", "waiving and foregoing all other forms of reliefs which
above-mentioned confirming the arbitral award and denying its they prayed for or could have prayed for in Civil Case No.
reconsideration. 9900." The parties "agreed to move for the dismissal of the case,
to transform the reliefs prayed for therein to pure money claims
and submit the controversy to arbitration under Republic Act In the purported decision dated November 24, 1994, penned by
(RA) 876 before a committee composed of three members." Chairman Sarmiento, the Committee ordered petitioner APT to
pay to MMIC the sum of P2,531,635,425.02, with interest
In its order dated October 12, 1992, in Civil Case No. 9900, the thereon at the legal rate at 6% per annum from August 3, 9 and
trial court presided over by respondent Judge categorically 24, 1984, pari passu as actual damages; to pay MMIC P13
decreed that "The complaint is hereby dismissed". Such million, as moral and exemplary damages, and to pay Jesus S.
disposition terminated the case finally and irretrievably disposed Cabarrus, Sr. P10 million, as moral damages.
of the same.3 The term "dismissed" has a definite meaning in
law. "A judgment of 'dismissed', without qualifying words In the concurring and dissenting opinion of Member Elma, he
indicating a right to take further proceedings, is presumed to be agreed with the finding on the principal issue submitted for
dismissed on the merits". 4 The dismissal could not have been a resolution. However, he dissented as to the manner or method of
suspension of action provided for in the arbitration law, computation and amount of actual damages awarded to MMIC.
Republic Act No. 876. He submitted that APT should be ordered to pay MMIC the sum
of P2,707,471,123.76, with legal interest thereon per annum from
Upon the finality of such order of dismissal, the case could no August 3, 1984, as actual damages.
longer be revived by mere motion. The trial court had lost its
authority over the case. 5 We cite as squarely applicable the In his separate opinion, Member Sison stated that he concurred
decision where this Court emphatically said "But after the with the result as far as the disposition of the award of actual
dismissal has become final through the lapse of the fifteen-day damage is concerned. He agreed that APT is entitled to collect
reglementary period, the only way by which the action may be the outstanding obligations of MMIC to PNB and DBP
resuscitated or 'revived,' is by the institution of a subsequent amounting to P22,668,537,770.05, with interest as stipulated in
action through the filing of another complaint and the payment the loan documents from the date of foreclosure until fully paid.
of the fees prescribed by law. This is so because upon attainment The resultant effect is that APT can offset said obligation due
of finality of a dismissal through the lapse of said reglementary from MMIC such that ultimately no damages shall be due and
period, the Court loses jurisdiction and control over it and can payable to MMIC. He was against the award of moral and
no longer make any disposition in respect thereof inconsistent exemplary damages to MMIC and Jesus S. Cabarrus, Sr.
with such dismissal"6 It is true that the confirmation of an
arbitral award is within the jurisdiction over the subject matter It is obvious that the disposition in Chairman Sarmiento's award
of a regional trial court. Such jurisdiction must be invoked by and the concurring and dissenting opinion of Member Elma do
proper motion as a special proceedings with notice to the parties not tally and, hence, because of the dissent of Member Sison, the
filed in the proper court with the clerk of court (and upon Arbitration Committee did not reach a majority decision
payment of the prescribed fees). 7 constituting a valid judgment or fallo of the Committee.

Second, the Arbitration Committee did not actually reach a valid The powers and duties of boards
decision on the subject controversy. and commissions may not be
exercised by the individual
members separately. Their acts WHEREFORE, I vote to GRANT the petition at bench, reverse
are official only when done by the the decision of the Court of Appeals9 as well as the orders of the
members convened in session Regional Trial Court, Makati, Branch 62, in Civil Case No. 9900,
upon a concurrence of at least a vacate the "decision" of the Arbitration Committee dated
majority and with at least a November 24, 1993, and, finally, ENJOIN the trial court from
quorum present.8 further acting on the case.

Respondents Cabarrus, et al. considered the disposition as Separate Opinions


confusing and incomplete as to the award of damages and
thereby requiring the reception of further evidence as to ROMERO, J., dissenting opinion;
necessitate the re-opening of hearings on the case. On May 20,
1994, they filed a motion for clarification seeking answer from In the instant petition for review on certiorari, petitioner. Asset
the arbitration committee as to the final amount of actual Privatization Trust (APT) is impugning the decision of
damages the MMIC is entitled to, and, on June 9, 1994, they filed respondent Court of Appeals in CA-GR SP No. 36484 dated July
a motion to reopen the case and to receive evidence. 17, 1995, grounded upon the following assigned errors which it
had allegedly committed:
Even the Arbitration Committee's resolution of the various
motions for reconsideration and other reliefs was conflicting. For 1) The Court of Appeals erred in not holding that
Chairman Sarmiento, respondents' motion for reconsideration, the Makati Regional Trial Court, Branch 62,
dated December 15, 1993, and petitioner's motion for which had previously dismissed Civil Case No.
reconsideration, dated January 3, 1994, respondents' motion for 9900, had lost jurisdiction to confirm the arbitral
clarification dated June 8, 1994, and respondents' urgent motion award under the same civil case and in not ruling
to re-open the case and to receive evidence were all DENIED for that the application for confirmation should have
lack of merit. been filed as a new case to be raffled among the
different branches of the RTC;
Member Elma dissented from the denial of the parties' motion
for reconsideration, reiterating that MMIC is entitled to actual 2) The Court of Appeals likewise erred in holding
damages in the sum of P2,707,471,123.76, with legal interest that petitioner was estopped from questioning the
thereon from August 3, 1984. arbitration award, when petitioner questioned
the jurisdiction of the RTC-Makati, Branch 62,
Member Azura (substituting Sison) concurred with the and at the same time moved to vacate the arbitral
Chairman in denying respondents' motion for reconsideration, award;
motion for clarification and motion to re-open the case but
favored granting petitioner's (APT) motion for reconsideration. 3) The Court of Appeals erred in not holding that
the respondent Trial Court should have either
dismissed/denied private respondents'
motion/petition for confirmation of arbitration Aggrieved by this apparent bad faith on the part of the creditor
award and/or should have considered the merits banks, private respondents Jesus S. Cabarrus, Sr., and other
of the motion to vacate (the) arbitral award; minority stockholders of MMIC filed a derivative suit 5 against
PNB and DBP before the Makati Regional Trial Court. They
4) The Court of Appeals erred in not treating prayed for the annulment of the foreclosure and for the
petitioner APT's petition for certiorari as an restoration of the company's assets, the recognition by the
appeal taken from the order confirming the creditor banks of their commitments under the FRP, and the
award; and payment of damages, as well as attorney's fees and costs of
litigation. The case was raffled to Branch 62 and docketed as
5) The Court of Appeals erred in not ruling on Civil Case No. 9900.
the legal issue of when to reckon the counting of
the period to file a motion for reconsideration.1 In the meantime, the rights and interests of PNB and DBP,
including MMIC's indebtedness, were transferred to petitioner,
The resolution of these issues will ultimately test the process of created by virtue of Proclamation No. 50, in relation to
arbitration, how effective or ineffective it is as an alternative Administrative Order No. 14. Hence, petitioner was substituted
mode of settling disputes, and how it is affected by judicial as party defendant in Civil Case No. 9900.
review. My esteemed colleagues have taken the view that the
petition is impressed with merit and that the assailed decision of On October 6, 1992, the parties entered into a Compromise and
the Court of Appeals should be reversed. In doing so, I believe Arbitration Agreement 6 providing, inter alia, that they were
they have dealt arbitration a terrible blow and wasted years, withdrawing their respective claims, which would be reduced to
even decades, of development in this field. I beg to differ and, pure money claims, and that they were submitting the
therefore, dissent. controversy to arbitration under Republic Act No. 876. 7 The
issues for arbitration were thus limited to a determination of the
The controversy is actually simpler than it appears. The plaintiffs' capacity or right to institute the derivative suit in
Marinduque Mining and Industrial Corporation (MMIC) behalf of the MMIC or its directors, and of the propriety of the
obtained several loans from the Philippine National Bank (PNB) foreclosure. Of notable import was the provision on the nature of
and the Development Bank of the Philippines (DBP) secured by the judgment that the arbitration committee might render, viz.:
mortgages over practically all of its assets. As of July 15, 1984,
MMIC's obligation had ballooned to P22,668,537,770.05, 2 and it 10. Binding Effect and Enforcement. The award of
had no way of making the required payments. MMIC and its two the arbitration committee shall be final and
creditor banks thus ironed out a complex financial restructuring executory upon its issuance upon the parties to the
plan (FRP) designed to drastically reduce MMIC's liability arbitration and their assigns and successors-in-
through a "debt-to-equity" scheme. 3 This notwithstanding, the interest. In the event the award is not voluntarily
creditors opted to sell MMIC's mortgaged properties through satisfied by the losing party, the party in whose
extrajudicial foreclosure proceedings, where PNB turned out to favor the award has been made may, pursuant to
be the lone bidder.4 Republic Act No. 876, apply to the proper
Regional Trial Court for its enforcement. the arbitration committee did not exceed its authority in making
(Emphasis supplied) the award.

Upon motion of the parties, this agreement was presented to the On November 28, 1994, the trial court issued an
court a quo for its approval.8 On October 14, 1992, said court order 14 confirming the award of the committee in all respects
issued an order (a) dismissing the complaint; (b) substituting the except as to the award of actual damages to MMIC, which was
creditor banks with the APT as party defendant; (c) "approving increased to P3,811,757,425.00. The order closed with the
the Compromise and Arbitration Agreement dated October 6, following declaration:
1992"; and (d) "approving the transformation of the reliefs
prayed for by the plaintiffs in this case into pure money claims." 9 In reiteration of the mandates of Stipulation No.
10 and Stipulation No. 8 paragraph 2 of the
On November 24, 1993, after more than six months of hearing, Compromise and Arbitration Agreement, and the
the arbitration committee 10 concluded that the assailed final edict of the Arbitration Committee's
foreclosure was not valid and accordingly decided the case in decision, and with this Court's Confirmation, the
favor of MMIC. Hence, petitioner was ordered to pay MMIC issuance of the Arbitration Committee's Award
actual damages in the amount of P2,531,635,425.02, with legal shall henceforth be final and executory.
interest, and moral and exemplary damages amounting to
P13,000,000.00, and to pay Jesus S. Cabarrus, Sr., the sum of Petitioner filed a "Motion for Reconsideration" of said order on
P10,000,000.00 by way of moral damages, such awards to be December 27, 1994; but this was denied by the court a quo in its
offset from the outstanding and unpaid obligations of MMIC order dated January 18, 1995 for lack of merit and for having
with the creditor banks, which have not been converted into been filed beyond the reglementary period. Thus, it said:
equity. The committee likewise decreed its decision to be "final
and executory." 11 . . . (C)onsidering that the defendant APT,
through counsel, officially and actually received a
Nearly a year later, MMIC filed in Civil Case No. 9900, a copy of the Order of this Court dated November
verified "Application/Motion for Confirmation of Arbitration 28, 1994 on December 6, 1994, the Motion for
Award." 12 This was opposed by petitioner on two grounds, Reconsideration thereof filed by the defendant
namely, that Branch 62 no longer had jurisdiction to act on said APT on December 27, 1994, or after the lapse of
motion after it "dismissed" the complaint in its order of October 21 days, was clearly filed beyond the 15-day
14, 1992, and that the award "far exceeded the issues submitted" reglementary period prescribed or provided
for arbitration by the parties. 13 Not wanting to be outdone, for . . . (by law) for the filing of an appeal from
MMIC filed a "Reply and Opposition," arguing that the final orders, resolutions, awards, judgments or
"qualified dismissal" of Civil Case No. 9900 was merely intended decisions of any court in all cases, and by
to expedite the submission of the controversy to arbitration and necessary implication, for the filing of a motion
was, therefore, "a mere suspension of the proceedings," and that for reconsideration thereof.
Instead of appealing such denial, petitioner filed on February 15, specific means have been evolved, such as
1995, an "Appeal by Certiorari . . . . under Sections 1 and 2 of recourse to the good offices of a disinterested
Rule 65 of the Revised Rules of Court" before the Court of third party, whether this be a court or a private
Appeals, praying for the nullification of the trial court's orders individual or individuals.
dated November 28, 1994 and January 18, 1995. It argued that
the trial court had no jurisdiction or authority to confirm the Legal history discloses that "early judges called
arbitral award, "considering that the original case, Civil Case upon to solve private conflicts were primarily the
No. 9900, had previously been dismissed," and that the trial arbiters, persons not specially trained but in
judge "acted with grave abuse of discretion in issuing the whose morality, probity and good sense the
questioned orders confirming the award and denying the motion parties in conflict reposed full trust. Thus, in
for reconsideration thereof." 15 Republican Rome, arbiter and judge (judex)
were synonymous. The magistrate of praetor,
On July 17, 1995, the Court of Appeals dismissed the petition for after noting down the conflicting claims of
lack of merit. 16 From this dismissal, petitioner elevated its cause litigants, and clarifying the issues, referred them
to this Tribunal for a review, raising the issues stated at the for decision to a private person designated by the
outset. parties, by common agreement, or selected by
them from an apposite listing (the album
I find it distressing that, in reaching the outcome of this judicium) or else by having the arbiter chosen by
controversy, the majority has emasculated the process of lot. The judges proper, as specially trained state
arbitration itself. This should not be the case for after all, the officials endowed with (their) own power and
decision of the arbitration committee is no longer the one being jurisdiction, and taking cognizance of litigations
attacked in these proceedings, but the judgment of the Court of from beginning to end, only appeared under the
Appeals which herein petitioner found to be erroneous. The Empire, by the so-called cognitio extra ordinem."
Court has had occasion to trace the history of arbitration and to
discuss its significance in the case of Chung Fu Industries Such means of referring a dispute to a third party
(Phils.), Inc. v. Court of Appeals, 17 viz.: has also long been an accepted alternative to
litigation at common law.
Allow us to take a leaf from history and briefly
trace the evolution of arbitration as a mode of Sparse though the law and jurisprudence may be
dispute settlement. on the subject of arbitration in the Philippines, it
was nonetheless recognized in the Spanish Civil
Because conflict is inherent in human society, Code; specifically, the provisions on compromises
much effort has been expended by men and made applicable to arbitrations under Articles
institutions in devising ways of resolving the 1820 and 1821. Although said provisions were
same. With the progress of civilization, physical repealed by implication with the repeal of the
combat has been ruled out and instead, more Spanish Law of Civil Procedure, these and
additional ones were reinstated in the present In the Philippines fortunately, the
Civil Code. attitude of the court towards
arbitration agreements is slowly
Arbitration found a fertile field in the resolution crystallizing into definite and
of labor-management disputes in the Philippines. workable form . . . The rule now is
Although early on, Commonwealth Act 103 that unless the agreement is such
(1936) provided for compulsory arbitration as the as absolutely to close the doors of
state policy to be administered by the Court of the courts against the parties,
Industrial Relations, in time such a modality gave which agreement would be void,
way to voluntary arbitration. While not the courts will look with favor
completely supplanting compulsory arbitration upon such amicable arrangements
which until today is practiced by government and will only with great
officials, the Industrial Peace Act which was reluctance interfere to anticipate
passed in 1953 as Republic Act No. 875, favored or nullify the action of the
the policy of free collective bargaining, in general, arbitrator.
and resort to grievance procedure, in particular,
as the preferred mode of settling disputes in That there was a growing need for a law
industry. It was accepted and enunciated more regulating arbitration in general was
explicitly in the Labor Code, which was passed on acknowledged when Republic Act No. 876 (1953),
November 1, 1974 as Presidential Decree No. 442, otherwise known as the Arbitration Law, was
with the amendments later introduced by passed. "Said Act was obviously adopted to
Republic Act No. 6715 (1989). supplement — not to supplant — the New Civil
Code on arbitration. It expressly declares that
Whether utilized in business transactions or in "the provisions of chapters one and two, Title
employer-employee relations, arbitration was XIV, Book IV of the Civil Code shall remain in
gaining wide acceptance. A consensual process, it force."
was preferred to orders imposed by government
upon the disputants. Moreover, court litigations x x x           x x x          x x x
tended to be time-consuming, costly, and
inflexible due to their scrupulous observance of In practice nowadays, absent an agreement of the
the due process of law doctrine and their strict parties to resolve their disputes via a particular
adherence to rules of evidence. mode, it is the regular courts that remain the fora
to resolve such matters. However, the parties may
As early as the 1920's, this Court declared: opt for recourse to third parties, exercising their
basic freedom to "establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to . . . It is stated explicitly under Art. 2044 of the
law, morals, good customs, public order or public Civil Code that the finality of the arbitrator's
policy." In such a case, resort to the arbitration award is not absolute and without exceptions.
process may be spelled out by them in a contract Where the conditions described in Articles 2038,
in anticipation of disputes that may arise between 2039 and 2040 18 applicable to both compromises
them. Or this may be stipulated in a submission and arbitrations are obtaining, the arbitrators'
agreement when they are actually confronted by award may be annulled or rescinded.
a dispute. Whatever be the case, such recourse to Additionally, under Sections 24 and 25 of the
an extrajudicial means of settlement is not Arbitration Law, there are grounds for vacating,
intended to completely deprive the courts of modifying or rescinding an arbitrator's award.
jurisdiction. In fact, the early cases on arbitration Thus, if and when the factual circumstances
carefully spelled out the prevailing doctrine at the referred to in the above-cited provisions are
time, thus: ". . . a clause in a contract providing present, judicial review of the award is properly
that all matters in dispute between the parties warranted.
shall be referred to arbitrators and to them alone
is contrary to public policy and cannot oust the What if courts refuse or neglect to inquire into
courts of jurisdiction." the factual milieu of an arbitrator's award to
determine whether it is in accordance with law or
But certainly, the stipulation to refer all future within the scope of his authority? How may the
disputes to an arbitrator or to submit an ongoing power of judicial review be invoked?
dispute to one is valid. Being part of a contract
between the parties, it is binding and enforceable This is where the proper remedy
in court in case one of them neglects, fails or is certiorari under Rule 65 of the Revised Rules
refuses to arbitrate. Going a step further, in the of Court. It is to be borne in mind, however, that
event that they declare their intention to refer this action will lie only where a grave abuse of
their differences to arbitration first before taking discretion or an act without or in excess of
court action, this constitutes a condition jurisdiction on the part of the voluntary
precedent, such that where a suit has been arbitrator is clearly shown. For "the writ
instituted prematurely, the court shall suspend of certiorari is an extraordinary remedy and
the same and the parties shall be directed that certiorari jurisdiction is not to be equated
forthwith to proceed to arbitration. with appellate jurisdiction. In a special civil
action of certiorari, the Court will not engage in a
A court action may likewise be proper where the review of the facts found nor even of the law as
arbitrator has not been selected by the parties. interpreted or applied by the arbitrator unless
the supposed errors of fact or of law are so patent
x x x           x x x          x x x and gross and prejudicial as to amount to a grave
abuse of discretion or an exces de pouvoir on the arbitrators' decision, and allowing it to devote more of its time to
part of the arbitrator." 19 resolving other cases. As the appellate court correctly pointed
out:
So, what are the issues that need to be addressed in this action?
Certainly not the capacity of the plaintiffs below to file the . . . (T)he dismissal of the Complaint in Civil Case
derivative suit in behalf of MMIC nor the validity of the No. 9900 was not intended by the parties and by
extrajudicial foreclosure conducted by PNB and DBP. These the court a quo, despite the phraseology in Item
were the issues submitted for arbitration by the parties No. 4 or the dispositive portion of the Order of
and resolved with finality by the arbitration committee upon October 14, 1992, as a dismissal that would put
agreement of the parties themselves. The issues, therefore, all an end to the case. Rather it was simply a
stemming from the judgment of the Court of Appeals, may be pronouncement for the cessation of the
narrowed down to three: (1) Was it right in upholding the trial proceedings in the court and the commencement
court's authority to confirm the arbitration award considering of the arbitration proceedings. It was for all
that said court had earlier dismissed the complaint? (2) Was it intents and purposes a stay of the civil action
correct in finding that herein petitioner was estopped from until an arbitration has been had or pending the
questioning such award? (3) Was it justified in not treating return of the arbitral award. This is evident since
petitioner's petition for certiorari as an appeal from the trial the parties submitted to the court below not only
court's order confirming said award? an agreement to arbitrate but also a compromise
which is always submitted to the court for
(1) Petitioner overly stresses the fact that in the trial court's approval and as a basis for a judgment. . . . 20
order of October 14, 1992; the complaint was "dismissed" upon
approval of the Compromise and Arbitration Agreement Regarding the trial court's authority to confirm the decision of
between the parties. Such dismissal, however, far from finally the arbitration committee, suffice it to say that such was not
disposing of the controversy as the term denotes, simply merely its right but its duty as well. Under Section 22 of R.A. No.
"suspended" it during the period of arbitration. It is, as a 876, upon application or motion of any party to arbitration, the
colleague pointed out during the deliberation of this action, a court has the obligation of confirming the arbitrators' award
mere "semantic imperfection." Here is a situation where the absent any specific ground to vacate, modify or correct the same.
intent of the tribunal was obviously not to end the case with Herein private respondents did apply for such confirmation on
finality, but to place the proceedings in abeyance while the February 7, 1995. This was even opposed by petitioner on the
parties breathed life into an alternative mode of settling their ground that the judgment had not yet become final and
differences in the most expeditious manner. Arbitration is not a executory, in complete disregard of paragraph 10 of the
self-enforcing process. It focuses the direction of the hearing and Compromise and Arbitration Agreement and the very decision
the reception and appreciation of evidence by assigning these of the arbitration committee.
tasks to a group of persons chosen by the parties, themselves. By
this, a circuitous and time-consuming court trial is avoided,
leaving the court with the singular duty of confirming the
The award itself was properly made since it was not vacated, arbitrator or arbitrators chosen in the manner
modified or corrected upon any of the grounds enumerated provided in the submission or contract for the
under Sections 24 and 25 of R.A. No. 876, to wit: selection of the original arbitrator or arbitrators,
and any provision limiting the time in which the
Sec. 24. Grounds for vacating award. — In any arbitrators may make a decision shall be deemed
one of the following cases, the court must make applicable to the new arbitration and to
an order vacating the award upon the petition of commence from the date of the court's order.
any party to the controversy when such party
proves affirmatively that in the arbitration Where the court vacates, an award, costs, not
proceedings: exceeding fifty pesos, and disbursements may be
awarded to the prevailing party and the payment
(a) The award was procured by corruption, thereof may be enforced in like manner as the
fraud, or other undue means; or payment of costs upon the motion in an action

(b) That there was evident partiality or Sec. 25. Grounds for modifying or correcting
corruption in the arbitrators or any of them; or award. — In any one of the following cases, the
court must make an order modifying or
(c) That the arbitrators were guilty of misconduct correcting the award, upon the application of any
in refusing to postpone the hearing upon party to the controversy which was arbitrated:
sufficient cause shown, or in refusing to hear
evidence pertinent and material to the (a) Where there was an evident
controversy; that one or more of the arbitrators miscalculation of figures, or an
was disqualified to act as such under section nine evident mistake in the description
hereof, and willfully refrained from disclosing of any person, thing or property
such disqualifications or of any other referred to in the award; or
misbehavior by which the rights of any party
have been materially prejudiced; or (b) Where the arbitrators have
awarded upon a matter not
(d) That the arbitrators exceeded their powers, or submitted to them, not affecting
so imperfectly executed them, that a mutual, final the merits of the decision upon the
and definite award upon the subject matter matter submitted; or
submitted to them was not made.
(c) Where the award is imperfect
Where an award is vacated, the court, in its in a matter of form not affecting
discretion, may direct a new hearing either the merits of the controversy, and if
before the same arbitrators or before a new it had been a commissioner's
report, the defect could have been it did not translate this pursuit into positive action. The
amended or disregarded by the Court of Appeals succinctly puts it in this wise:
court.
. . . The record shows that on its motion,
The order may modify and correct the award so as to effect the petitioner APT was able to postpone the hearing
intent thereof and promote justice between the parties. on therein plaintiffs' application/motion for
(Emphasis supplied) confirmation of arbitral award to a date and time
that it chose. However, when said matter was
Petitioner utterly failed to prove the existence of any of these called for hearing, only counsel for therein
grounds. Its strongest argument, that the arbitration award "far plaintiffs showed up. Nonetheless, respondent
exceeded the issue submitted for arbitration," apart from being Judge gave APT a period of seven (7) days from
unsubstantiated, does not go into the merits of the award, which notice within which to comment on the
is the only way its modification or correction could be justified application/motion for confirmation. At no time
under the terms of Section 25, aforequoted. did petitioner APT ask for a hearing to present
its evidence. While petitioner APT repeatedly
Furthermore, petitioner violated several covenants by asking the sought to vacate the arbitral award, it made no
court a quo to vacate the arbitration award. First, in paragraph concrete move to pursue its cause. In fact, at the
10 of the Compromise and Arbitration Agreement, it agreed to hearing on its motion for reconsideration, both
abide by the arbitration committee's decision which "shall be parties through their respective counsels gave
final and executory upon its issuance upon the parties to the oral arguments and thereafter agreed to submit
arbitration and their assigns and successors-in-interest." Next, the motion for reconsideration for resolution. If
the decision that the arbitrators did render on November 24, petitioner APT honestly believed that the
1993 specifically declared the same to be "final and executory." respondent Judge erroneously took cognizance of
Finally, in the court's confirmation order of November 28, 1994, plaintiffs Application/Motion for Confirmation of
the finality of the award was reiterated by the court. Arbitration, Arbitration Award, then it should have limited
as an alternative mode of settlement, is gaining adherents in legal itself to challenging the jurisdiction of said court.
and judicial circles here and abroad. If its tested mechanism can The fact remains that petitioner APT repeatedly
simply be ignored by an aggrieved party, one who, it must be sought affirmative relief from the respondent
stressed, voluntarily and actively participated in the arbitration Judge in the same Civil Case No. 9900. Under the
proceedings from the very beginning, it will destroy the very circumstances, petitioner APT may not be heard
essence of mutuality inherent in consensual contracts. now to complain that it was deprived of its right
to question the award made by the Arbitration
2) Petitioner claims that it is not estopped from Committtee. 21 (Emphasis supplied)
questioning the arbitration award probably because,
notwithstanding its tenacious quest for affirmative relief, 3) The final issue which, to my mind, has particular
relevance to the case at bar, pertains to the alleged error
of the Court of Appeals in not treating APT's petition Petitioner APT had only the following day to
for certiorari as an appeal from the trial court's perfect his appeal. Instead, it chose to file the
confirmation order. instant special civil action of certiorari on
February 15, 1995.
Petitioner's counsel received a copy of the confirmation order
dated November 28, 1994, on December 12, 1994. 22 Said order From the start, petitioner seemed unsure of its position on
was, for review purposes, a "final order" because it finally appeal. While initially questioning the "order confirming the
disposed of the case. Other than executing the confirmation award" of the arbitration committee, it later stated that it was
order, there was nothing else that the court was duty-bound to raising the issue of "filing by (herein private respondents) of a
perform. Petitioner's remedy, therefore, was to question the Motion for Execution and Appointment of Custodian of proceeds
order, by appeal on certiorari, not before the Court of Appeals, of Execution dated February 6, 1995." The latter recourse is
but before the Supreme Court 23 within the reglementary period obviously erroneous, for no appeal under either Rule 45 or Rule
of fifteen days which expired on December 27, 1994. Instead of 65 may be taken from a "motion" or the "filing" of one. Under
appealing, however, petitioner filed a motion for reconsideration Rule 45, only judgments or final orders of a court or tribunal
of the order on said deadline. Unfortunately, this was denied by may be appealed to a higher court, while Rule 65 allows a special
the court a quo in its order dated January 18, 1995, a copy of civil action where the acts of a tribunal, board or officer are
which was received by petitioner's counsel on February 1, 1995. under attack for being performed with grave abuse of discretion.
Under prevailing procedural laws, it had just one day to perfect
its appeal. On February 15, 1995, petitioner opted to file with the The applicable law, of course, is R.A. No. 876, which provides for
Court of Appeals an "Appeal by Certiorari . . . under Sections 1 appeals from arbitration awards under Section 29 thereof, viz.:
and 2 of Rule 65 of the Revised Rules of Court." The reason is
obvious: It could no longer file a regular appeal from the assailed . . . (A)n appeal may be taken from . . . a
order because the period for doing so has lapsed. The Court of judgment entered upon an award
Appeals thus made the following pertinent observation. through certiorari proceedings, but such appeals
shall be limited to questions of law. The
. . . Assuming arguendo that petitioner APT's proceedings upon such an appeal, including the
counsel received a copy (of the November 28, judgment thereon, shall be governed by the Rules
1994, order), as claimed by them, on December of Court in so far as they are applicable.
12, 1994, then the petitioner had fifteen (15) days
therefrom or until December 27, 1994, within The term "certiorari" in the aforequoted provision refers to an
which to appeal. The petitioner's motion for ordinary appeal under Rule 45, not the special action
reconsideration was admittedly filed on of certiorari under Rule 65. It is an "appeal," as Section 29
December 27, 1994, the last day of the proclaims. The proper forum for this action is, under the old and
reglementary 15-day period, and the order dated the new rules of procedure, the Supreme Court. Thus, Section
January 18, 1995, denying the same was received 2(c) of Rule 41 of the 1997 Rules of Civil Procedure states that,
by petitioner's counsel on February 1, 1995. "In all cases where only questions of law are raised or involved,
the appeal shall be to the Supreme Court by petition for review WHEREFORE, premises considered, and in the
on certiorari in accordance with Rule 45." Moreover, Section 29 light of the parties Compromise and Arbitration
limits the appeal to "questions of law," another indication that it Agreement dated October 6, 1992, the Decision of
is referring to an appeal by certiorari under Rule 45 which, the Arbitration Committee promulgated on
indeed, is the customary manner of reviewing such issues. On the November 24, 1993, as affirmed in a Resolution
other hand, the extraordinary remedy of certiorari under Rule dated July 26, 1994, and finally settled and
65 may be availed of by a party where there is "no appeal, nor clarified in the Separate Opinion dated
any plain, speedy, and adequate remedy in the course of law," September 2, 1994 of Committee Member Elma,
and under circumstances where "a tribunal, board or officer and the pertinent provisions of R.A. 876, also
exercising judicial functions, has acted without or in excess of its known as the Arbitration Law, this Court
or his jurisdiction, or with grave abuse of discretion." 24 GRANTS PLAINTIFFS' APPLICATION AND
THUS CONFIRMS THE ARBITRATION
Based on the foregoing, it is clear that petitioner had run out of AWARD AND JUDGMENT IS HEREBY
options after its motion for reconsideration was denied by the RENDERED:
trial court in its order dated January 18, 1995. To compound its
negligence, it filed the wrong action with the wrong forum. (a) Ordering the
These, to my mind, are serious procedural flaws. To rule defendant APT to
otherwise, as the majority did, would constitute a grave injustice the Marinduque
to private respondents. Mining and
Industrial
I vote to DISMISS the petition. Corporation
(MMIC), except
the DBP, the sum
of
PARDO, J., separate concurring opinion; P3,811,757,425.00,
as and for actual
I concur. However, I wish to add a few points not particularly damages under
emphasized in the majority opinion. escrow in the
amount of
P503,000,000.00
The petition before the Court is one for review via
pursuant to the
certiorari under Rule 45 of the Revised Rules of Court seeking to
Escrow Agreement
set aside the resolution of the Court of Appeals that denied due
dated April 22,
course and dismissed APT's petition for certiorari to annul the
1988. The balance
proceedings had before the Regional Trial Court, Makati,
of the award, after
Branch 62, in Civil Case No. 9900, particularly the order
the escrow funds
confirming the arbitration award, reading as follows:
are fully applied, the Arbitration Committee's
shall be executed decision, and with this Court's
against the APT; Confirmation, the issuance of the
Arbitration Committee's Award
(b) Ordering the shall henceforth be final and
defendants to pay executory.
to the MMIC,
except the DBP, SO ORDERED.
the sum of
P13,000.00 as and Originally instituted on February 8, 1985, in the Regional Trial
for moral and Court, Makati, Metro Manila, private respondents, Jesus S.
exemplary Cabarrus, Sr., et al., a few of the numerous minority
damages; stockholders of Marinduque Mining and Industrial Corp.
(hereafter MMIC), filed a complaint, later amended on March
(c) Ordering the 13, 1995, for annulment of foreclosure, specific performance and
defendant to pay damages against the Philippine National Bank (PNB) and the
to Jesus S. Development Bank of the Philippines (DBP) alleging that in
Caburrus, Sr., the 1984, the PNB and DBP effected illegally the extra-judicial
sum of foreclosure of real estate and chattel mortgages constituted in
P10,000,000.00 as their favor by the MMIC by the latter's assets of real estate and
and for moral chattels, to satisfy an obligation amounting to
damages; and P22,668,537,770.05, and that prior to the extra-judicial
foreclosure, PNB and DBP had agreed to a financial
(d) Ordering the reorganization plan of MMIC to reduce the latter's indebtedness
defendant to pay to P3 billion and to convert the balance of its obligation into
the herein equity.
plaintiff/applicants
/movants the sum In their joint answer to the amended complaint, defendants PNB
of P1,705,410.00 as and DBP denied the material allegations of the amended
arbitration costs. complaint but admitted that in August and September, 1984,
they foreclosed extra-judicially the mortgages on MMIC's assets,
In reiteration of the mandates of with the qualification that the correct amount of obligation owed
Stipulation No. 10 and Stipulation by MMIC as of July 15, 1984, was P22,083,313,168.29; that the
No. 8 paragraph 2 of the foreclosure of the mortgages was legal and valid as mandated by
Compromise and Arbitration Presidential Decree No. 385 and by the provisions of the
Agreement, and the final edict of mortgage trust agreements between PNB, DBP and MMIC; and,
that the plaintiff's therein, herein respondents Cabarrus, et al., purports to be its decision penned by the Chairman, the
were not entitled to actual and moral damages. dispositive portion of which reads as follows:

In the course of the trial of Civil Case No. 9900, plaintiffs Jesus DISPOSITION
S. Cabarrus, et al. and the Asset Privatization Trust (APT), as
successor-in-interest of the DBP and PNB's interest in MMIC WHEREFORE, premises
accounts, entered into a compromise and arbitration agreement considered judgment is hereby
dated October 6, 1992, whereby they "agreed to move for the rendered:
dismissal of the case, to transform the reliefs prayed for therein
into pure money claims and to submit the controversy to 1. Ordering the defendant to pay
arbitration under Republic Act (RA) 876 before a committee the Marinduque Mining and
composed of three members" limiting the issues to two, namely: Industrial Corporation, except the
DBP, the sum of
(a) whether plaintiffs have the P2,531,635,425,02 with interest
capacity or the personality to thereon at the legal rate of six
institute this derivative suit in (6%) per cent per annum
behalf of the MMIC or its reckoned from August 3, 9 and 24,
directors, and 1984, pari passu, as and for actual
damages. Payment of these actual
(b) whether or not the actions damages shall be offset by APT
leading to, and including, the from the outstanding and unpaid
PNB-DBP foreclosure of the loans of MMIC with DBP and
MMIC assets were proper, valid PNB, which have not been
and in good faith. converted into equity. Should
there be any balance due to
Thus, the parties created an Arbitration Committee composed of MMIC after the offsetting, the
three (3) members, one (1) representative of the plaintiff; one (1) same shall be satisfied from the
representative of APT; and the Chairman to be agreed upon by funds representing the purchase
both parties. Consequently, APT nominated Atty. Jose C. Sison, price of the sale of the shares of
a trustee of APT and its counsel; MMIC nominated former Island Cement Corporation in the
Justice of the Court of Appeals Magtanggol Elma; and they amount of P503,000,000.00 held
selected retired Supreme Court Justice Abraham F. Sarmiento under escrow pursuant to the
as Chairman. Escrow Agreement dated April
22, 1988 or to such subsequent
After conducting hearings and receiving voluminous evidence, escrow agreement that would
on November 24, 1993, the Arbitration Committee released what supersede it pursuant to
paragraph (9) of the Compromise April 22, 1988 or to such
and Arbitration Agreement; subsequent escrow agreement that
would supersede it, pursuant to
2. Ordering the defendant to pay paragraph (9), Compromise and
to the Marinduque Mining and Arbitration Agreement, as and for
Industrial Corporation, except the moral damages; and
DBP, the sum of P13,000,000.00,
as and for moral and exemplary 4. Ordering the defendant to pay
damages. Payment of these moral arbitration costs.
and exemplary damages shall be
offset by APT from the This Decision is
outstanding and unpaid loans of FINAL and
MMIC with DBP and PNB, which EXECUTORY.
have not been converted into
equity. Should there be any IT IS SO
balance due to MMIC after the ORDERED.
offsetting, the same shall be
satisfied from the funds Member Elma submitted a separate concurring and dissenting
representing the purchase price of opinion reading as follows:
the sale of the shares of island
Cement Corporation in the ELMA, concurring and dissenting:
amount of P503,000,000.00 held
under escrow pursuant to the
I am in complete agreement with the findings of
Escrow Agreement dated April
the Decision on the principal issues submitted for
22, 1988 or to such subsequent
the Committee's resolution, viz: that plaintiffs
escrow agreement that would
Cabarrus, et al., have the capacity or the
supersede it pursuant to
personality to institute this derivative suit in
paragraph (9) of the Compromise
behalf of Marinduque Milling and Industrial
and Arbitration Agreement;
Corporation (MMIC) and that the actions
leading to, and including, the PNB-DBP
3. Ordering the defendant to pay foreclosure of the MMIC assets were improper,
to the plaintiff, Jesus S. Cabarrus, invalid and/or not done in good faith.
Sr., the sum of P10,000,000.00, to Consequently, there is concurrence on my part to
be satisfied likewise from the the award of actual, moral and exemplary
funds held under escrow pursuant damages to MMIC, and moral damages to
to the Escrow Agreement dated plaintiff Jesus S. Cabarrus, Sr.
However, I am unable to agree with and, have been where not for the fact that the FRP
therefore, regretfully dissent as to the manner or was improperly and illegally aborted by
method of computation and amount of actual PNB/DBP. Accordingly, it is my submission that
damages awarded to MMIC, particularly set defendant APT should be ordered to pay MMIC
forth in paragraph 1 of the dispositive potion of (excluding DBP) the sum of P2,707,471,123.76
the Decision. with legal interest thereon per annum from
August 3, 1984 as and for actual damages.
x x x           x x x          x x x
x x x           x x x          x x x
Considering that under the "Compromise and
Arbitration Agreement", the parties agreed that Member Sison submitted a separate opinion reading as follows:
their respective claims be reduced to purely
pecuniary/money claims, then MMIC and/or SEPARATE OPINION
plaintiffs on behalf of all the other stockholders
of MMIC are entitled to actual or compensatory x x x           x x x          x x x
damages equivalent to the present value of their
equity over the MMIC assets, i.e. the total It is clear and it cannot be
stockholders' equity of P20,826,700,952.00 as of disputed therefore that based on
December 31, 1992. Further, since as held in the these stipulated issues, the parties
Decision that the DBP would have an 87% equity themselves have agreed that the
in MMIC as a consequence of the finding that the basic ingredient of the causes of
Financial Rehabilitation Plan (FRP), is valid (p. action in this case is the wrong
64 of the Decision), then the amount of committed on the corporation
P18,119,229,828.24 (equivalent to DBP's 87% (MMIC) for the alleged illegal
equity) should be deducted from the total foreclosure of its assets. By
stockholders' equity of P20,826,700,952.00 agreeing to this stipulation,
leaving a net amount of P2,707,471,123.76 to be PLAINTIFFS themselves
awarded to MMIC (excluding DBP's share) as (Cabarrus, et al.) admit that the
actual or compensatory damages. cause of action pertains only to
the corporation (MMIC) and that
It is to be noted that defendant APT did not they are filing this for and in
present any evidence rebutting the figures and behalf of MMIC.
computations made by witness Pastor. Since the
Decision finds the FRP valid, then the Perforce this has to be so because
stockholders of MMIC (excluding DBP) should it is the basic rule in Corporation
be placed in the same position that they would Law that "the shareholders have
no title, legal or equitable to the majority of the Committee
property which is owned by the believes that these foreclosure
corporation (13 Am. Jur. 165; constitute a violation on an
Pascual vs. Oresco, 14 Phil. 83). agreement forged between PNB-
In Ganzon & Sons vs. Register of DBP, on one hand, and MMIC, on
Deeds, 6 SCRA 373, the rule has the other, regarding the
been reiterated that "a restructuring of the various past
stockholder is not the co-owner of due loans of MMIC to what had
the corporate property." Since the been termed as the Financial
property or assets foreclosed Restructuring Program (FRP).
belongs to MMIC, the wrong
committed, if any, is done against x x x           x x x          x x x
the corporation. There is therefore
no direct injury or direct violation In this connection, it can readily
of the rights of Cabarrus et be seen and it cannot quite be
al. There is no way, legal or denied that MMIC accounts in
equitable by which Cabarrus et al, PNB-DBP were past due. The
could recover damages in their drawing up of the FRP is the best
personal capacities even assuming proof of this. When MMIC
or just because the foreclosure is adopted a restructuring program
improper or invalid. The for its loan, it only meant that
Compromise and Arbitration these loans were already due and
Agreement itself and the unpaid. If these loans were
elementary principles of restructurable because they were
Corporation Law say so. already due and unpaid, they are
Therefore, I am constrained to likewise "forecloseable". The
dissent from the award of moral option is with the PNB-DBP on
damages to Cabarrus. what steps to take.

Neither could I agree to the award The mere fact that MMIC
of moral damages to MMIC. The adopted the FRP does not mean
acts complained of here in which that DBP-PNB lost the option to
the Committee based its award of foreclose. Neither does it mean
moral damages to MMIC is the that the FRP is legally binding
foreclosure of the various real and implementable. It must be
estate and chattel mortgages. The pointed that said FRP will, in
effect, supersede the existing and taint of illegality in the foreclosure
past due loans of MMIC with is enough to justify the award of
PNB-DBP. It will become the new damages, amounting to
loan agreement between the P19,486,118,654.00. "Rules of law
lenders and the borrowers. As in respecting the recovery of
all other contracts, there must damages are framed with
therefore be a meeting of the reference to just rights or both
minds of the parties; the PNB and parties, not merely what may be
DBP must have to validly adopt right for an injured person to
and ratify such FRP before they receive, but also what is just to
can be bound by it; before it can compel the other party to pay, to
be implemented. In this case, not accord just compensation for the
an iota of proof has been injury" (Kennings vs. Kline Ind.
presented by the PLAINTIFFS 602). Following this universally
showing that PNB and DBP accepted rule on damage, I do not
ratified and adopted the FRP. believe it is just to compel APT to
PLAINTIFFS simply relied on a pay such huge amount for such
legal doctrine of promissory minor technical infraction.
estoppel to support its allegations
in this regard. But while I do not agree with this
pronouncement of the Committee,
x x x           x x x          x x x I nevertheless concur with the
result as far as the disposition of
All told, PNB and DBP had the the award for actual damages is
right to foreclose and were concerned. I agree that
justified in doing so. But were the DEFENDANT APT can, and is
foreclosure legally done or carried still entitled to, collect the
out? Were the requirements of outstanding obligations of MMIC
notice, posting and publication to PNB and DBP amounting to
required by Acts 3135 and 1508 P22,668,537,770.05 with interest
substantially complied with? thereon as stipulated in the loan
documents from the date of
x x x           x x x          x x x foreclosure until the time they are
fully paid. The resultant effect of
I cannot, however, concur with such a disposition is that APT can
the for holding that such minor offset the said obligation due from
MMIC such that ultimately no a motion for reconsideration. By order dated January 18, 1995,
damages will be due and payable the trial court denied the motion. On February 7, 1995,
to MMIC. As there may be respondents Cabarrus, et al. filed a motion for execution and
damage without injury, there can appointment of custodian of proceeds of execution. Petitioner
be injury without damage (15 Am. opposed the motion. It is apparently still unresolved.
Jur., p. 388). This case is a case
of "injury without damage". On February 15, 1995, petitioner APT filed with the Court of
Appeals an original special civil action for certiorari with prayer
Both parties moved for reconsideration of the "decision" of the for temporary restraining order or preliminary injunction 1 to
Arbitration Committee. In addition, respondents Cabarrus et al. annul the two (2) orders of the respondent Regional Trial Court
filed a motion for clarification and to re-open the case to receive above-mentioned confirming the arbitral award and denying its
evidence. In a resolution dated July 26, 1984, with one member reconsideration.
dissenting, the Arbitration Committee denied the motions for
reconsideration of both parties as well as all other pending The issue presented in said petition was whether respondent
motions. Judge Roberto C. Diokno, Regional Trial Court, Makati, Branch
62, had jurisdiction to act on private respondents'
On October 17, 1984, respondents Cabarrus et al. filed directly application/motion for confirmation of arbitral award in the
with the Regional Trial Court, Makati, Branch 62, in the same same Civil Case No. 9900, which had been dismissed earlier on
Civil Case No. 9900, a pleading entitled application/motion for motion of the parties, and thus the court gravely abused its
confirmation of arbitral award. discretion in confirming the arbitral award.

On November 4, 1994, petitioner APT filed an opposition and In its decision promulgated on July 17, 1995, the Court of
motion to vacate judgment, contending that respondents' motion Appeals denied due course and dismissed the petition
was improperly filed with the same branch of the court in Civil for certiorari for lack of merit.
Case No. 9900, which was previously dismissed, and that the
motion should have been filed as a separate special proceedings Hence, this petition for review filed on September 07, 1995. 2
in the Regional Trial Court to be docketed by the Clerk of Court.
The petition is impressed with merit.
Nonetheless, acting on the application/motion, Judge Roberto C.
Diokno, presiding judge, Regional Trial Court, Makati, Branch First, the Regional Trial Court, Makati, Branch 62, did not
62, on November 28, 1994, issued an order granting plaintiffs' validly acquire jurisdiction over the case by respondents' filing
application confirming the arbitration award, and rendering of a mere motion in the same Civil Case No. 9900 because the
judgment as set out in the opening paragraph of this opinion. case had been dismissed earlier and such dismissal had become
final and unappealable. As heretofore stated, on October 6, 1992,
On December 12, 1994, petitioner APT received notice of the the parties entered into a compromise and arbitration agreement
lower court's order. On December 27, 1994, petitioner APT filed expressly providing that they "have agreed to withdraw their
respective claims from the Trial Court and to resolve their of finality of a dismissal through the lapse of said reglementary
dispute through arbitration by praying to the Trial Court to period, the Court loses jurisdiction and control over it and can
issue a compromise judgment based on this Compromise and no longer make any disposition in respect thereof inconsistent
Arbitration agreement. with such dismissal"6 It is true that the confirmation of an
arbitral award is within the jurisdiction over the subject matter
Clearly, the parties had withdrawn the action then pending with of a regional trial court. Such jurisdiction must be invoked by
the Regional Trial Court, Makati, Branch 62, in Civil Case No. proper motion as a special proceedings with notice to the parties
9900, and agreed that they would submit their dispute to filed in the proper court with the clerk of court (and upon
arbitration and reduce their respective claims to "purely money payment of the prescribed fees). 7
claims", "waiving and foregoing all other forms of reliefs which
they prayed for or could have prayed for in Civil Case No. Second, the Arbitration Committee did not actually reach a valid
9900." The parties "agreed to move for the dismissal of the case, decision on the subject controversy.
to transform the reliefs prayed for therein to pure money claims
and submit the controversy to arbitration under Republic Act In the purported decision dated November 24, 1994, penned by
(RA) 876 before a committee composed of three members." Chairman Sarmiento, the Committee ordered petitioner APT to
pay to MMIC the sum of P2,531,635,425.02, with interest
In its order dated October 12, 1992, in Civil Case No. 9900, the thereon at the legal rate at 6% per annum from August 3, 9 and
trial court presided over by respondent Judge categorically 24, 1984, pari passu as actual damages; to pay MMIC P13
decreed that "The complaint is hereby dismissed". Such million, as moral and exemplary damages, and to pay Jesus S.
disposition terminated the case finally and irretrievably disposed Cabarrus, Sr. P10 million, as moral damages.
of the same.3 The term "dismissed" has a definite meaning in
law. "A judgment of 'dismissed', without qualifying words In the concurring and dissenting opinion of Member Elma, he
indicating a right to take further proceedings, is presumed to be agreed with the finding on the principal issue submitted for
dismissed on the merits". 4 The dismissal could not have been a resolution. However, he dissented as to the manner or method of
suspension of action provided for in the arbitration law, computation and amount of actual damages awarded to MMIC.
Republic Act No. 876. He submitted that APT should be ordered to pay MMIC the sum
of P2,707,471,123.76, with legal interest thereon per annum from
Upon the finality of such order of dismissal, the case could no August 3, 1984, as actual damages.
longer be revived by mere motion. The trial court had lost its
authority over the case. 5 We cite as squarely applicable the In his separate opinion, Member Sison stated that he concurred
decision where this Court emphatically said "But after the with the result as far as the disposition of the award of actual
dismissal has become final through the lapse of the fifteen-day damage is concerned. He agreed that APT is entitled to collect
reglementary period, the only way by which the action may be the outstanding obligations of MMIC to PNB and DBP
resuscitated or 'revived,' is by the institution of a subsequent amounting to P22,668,537,770.05, with interest as stipulated in
action through the filing of another complaint and the payment the loan documents from the date of foreclosure until fully paid.
of the fees prescribed by law. This is so because upon attainment The resultant effect is that APT can offset said obligation due
from MMIC such that ultimately no damages shall be due and to re-open the case and to receive evidence were all DENIED for
payable to MMIC. He was against the award of moral and lack of merit.
exemplary damages to MMIC and Jesus S. Cabarrus, Sr.
Member Elma dissented from the denial of the parties' motion
It is obvious that the disposition in Chairman Sarmiento's award for reconsideration, reiterating that MMIC is entitled to actual
and the concurring and dissenting opinion of Member Elma do damages in the sum of P2,707,471,123.76, with legal interest
not tally and, hence, because of the dissent of Member Sison, the thereon from August 3, 1984.
Arbitration Committee did not reach a majority decision
constituting a valid judgment or fallo of the Committee. Member Azura (substituting Sison) concurred with the
Chairman in denying respondents' motion for reconsideration,
The powers and duties of boards motion for clarification and motion to re-open the case but
and commissions may not be favored granting petitioner's (APT) motion for reconsideration.
exercised by the individual
members separately. Their acts WHEREFORE, I vote to GRANT the petition at bench, reverse
are official only when done by the the decision of the Court of Appeals9 as well as the orders of the
members convened in session Regional Trial Court, Makati, Branch 62, in Civil Case No. 9900,
upon a concurrence of at least a vacate the "decision" of the Arbitration Committee dated
majority and with at least a November 24, 1993, and, finally, ENJOIN the trial court from
quorum present.8 further acting on the case.

Respondents Cabarrus, et al. considered the disposition as


confusing and incomplete as to the award of damages and
thereby requiring the reception of further evidence as to
necessitate the re-opening of hearings on the case. On May 20,
1994, they filed a motion for clarification seeking answer from
the arbitration committee as to the final amount of actual
damages the MMIC is entitled to, and, on June 9, 1994, they filed
a motion to reopen the case and to receive evidence.

Even the Arbitration Committee's resolution of the various


motions for reconsideration and other reliefs was conflicting. For
Chairman Sarmiento, respondents' motion for reconsideration,
dated December 15, 1993, and petitioner's motion for
reconsideration, dated January 3, 1994, respondents' motion for
clarification dated June 8, 1994, and respondents' urgent motion
G.R. No. 129169 November 17, 1999

NATIONAL IRRIGATION ADMINISTRATION


(NIA), petitioner,
vs.
HONORABLE COURT OF APPEALS (4th Division),
CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION, and HYDRO RESOURCES CONTRACTORS
CORPORATION, respondents.

DAVIDE, JR., C.J.:

In this special civil action for certiorari under Rule 65 of the Rules


of Court, the National Irrigation Administration (hereafter NIA),
seeks to annul and set aside the Resolutions 1 of the Court of Appeals
in CA-GR. SP No. 37180 dated 28 June 1996 and 24 February 1997,
which dismissed respectively NIA's petition for certiorari and
prohibition against the Construction Industry Arbitration
Commission (hereafter CIAC), and the motion for reconsideration
thereafter filed.

Records show that in a competitive bidding held by NIA in August


1978, Hydro Resources Contractors Corporation (hereafter HYDRO)
was awarded Contract MPI-C-2 for the construction of the main civil After reaching an accord on the issues to be considered by the
works of the Magat River Multi-Purpose Project. The contract arbitration panel, the parties scheduled the dates of hearings and of
provided that HYDRO would be paid partly in Philippine pesos and submission of simultaneous memoranda. 6
partly in U.S. dollars. HYDRO substantially completed the works
under the contract in 1982 and final acceptance by NIA was made in On 13 March 1995, NIA filed a Motion to Dismiss 7 alleging lack of
1984. HYDRO thereafter determined that it still had an account jurisdiction over the disputes. NIA contended that there was no
receivable from NIA representing the dollar rate differential of the agreement with HYDRO to submit the dispute to CIAC for
price escalation for the contract. 2 arbitration considering that the construction contract was executed in
1978 and the project completed in 1982, whereas the Construction
After unsuccessfully pursuing its case with NIA, HYDRO, on 7 Industry Arbitration Law creating CIAC was signed only in 1985;
December 1994, filed with the CIAC a Request for Adjudication of and that while they have agreed to arbitration as a mode of
the aforesaid claim. HYDRO nominated six arbitrators for the settlement of disputes, they could not have contemplated submission
arbitration panel, from among whom CIAC appointed Engr. Lauro of their disputes to CIAC. NIA further argued that records show that
M. Cruz. On 6 January 1995, NIA filed its Answer wherein it it had not voluntarily submitted itself to arbitration by CIAC
questioned the jurisdiction of the CIAC alleging lack of cause of citing TESCO Services, Inc. v. Hon. Abraham Vera, et al., 8 wherein
action, laches and estoppel in view of HYDRO's alleged failure to it was ruled:
avail of its right to submit the dispute to arbitration within the
prescribed period as provided in the contract. On the same date, NIA CIAC did not acquire jurisdiction over the dispute
filed a Compliance wherein it nominated six arbitrators, from among arising from the sub-contract agreement between
whom CIAC appointed Atty. Custodio O. Parlade, and made a petitioner TESCO and private respondent LAROSA.
counterclaim for P1,000,000 as moral damages; at least P100,000 as The records do not show that the parties agreed to
exemplary damages; P100,000 as attorney's fees; and the costs of the submit the disputes to arbitration by the CIAC . . . .
arbitration. 3 While both parties in the sub-contract had agreed to
submit the matter to arbitration, this was only
The two designated arbitrators appointed Certified Public between themselves, no request having been made
Accountant Joven B. Joaquin as Chairman of the Arbitration Panel. by both with the CIAC. Hence, as already stated, the
The parties were required to submit copies of the evidence they CIAC, has no jurisdiction over the dispute. . . . .
intended to present during the proceedings and were provided the Nowhere in the said article (sub-contract) does it
draft Terms of Reference. 4 mention the CIAC, much less, vest jurisdiction with
the CIAC.
At the preliminary conference, NIA through its counsel Atty. Joy C.
Legaspi of the Office of the Government Corporate Counsel, On 11 April 1995, the arbitral body issued an order 9 which deferred
manifested that it could not admit the genuineness of HYDRO's the determination of the motion to dismiss and resolved to proceed
evidence since NIA's records had already been destroyed. NIA with the hearing of the case on the merits as the grounds cited by
requested an opportunity to examine the originals of the documents NIA did not seem to be "indubitable." NIA filed a motion for
which HYDRO agreed to provide. 5 reconsideration of the aforesaid Order. CIAC in denying the motion
for reconsideration ruled that it has jurisdiction over the HYDRO's AN INDORSEMENT OF THE AUDITOR
claim over NIA pursuant to E.O 1008 and that the hearing should GENERAL DECIDING A CONTROVERSY IS A
proceed as scheduled. 10 DECISION BECAUSE ALL THE ELEMENTS
FOR JUDGMENT ARE THERE; THE
On 26 May 1996, NIA filed with the Court of Appeals an original CONTROVERSY, THE AUTHORITY TO
action of certiorari and prohibition with prayer for restraining order DECIDE AND THE DECISION. IF IT IS NOT
and/or injunction, seeking to annul the Orders of the CIAC for APPEALED SEASONABLY, THE SAME
having been issued without or in excess of jurisdiction. In support of BECOMES FINAL.
its petition NIA alleged that:
E
A
NIA HAS TIMELY RAISED THE ISSUE OF
RESPONDENT CIAC HAS NO AUTHORITY OR JURISDICTION. IT DID NOT WAIVE NOR IS IT
JURIDICTION TO HEAR AND TRY THIS ESTOPPED FROM ASSAILING THE SAME.
DISPUTE BETWEEN THE HEREIN PARTIES AS
E.O. NO. 1008 HAD NO RETROACTIVE F
EFFECT.
THE LEGAL DOCTRINE THAT JURISDICTION
B IS DETERMINED BY THE STATUTE IN FORCE
AT THE TIME OF THE COMMENCEMENT OF
THE DISPUTE BETWEEN THE PARTIES THE ACTION DOES NOT ONLY APPLY TO
SHOULD BE SETTLED IN ACCORDANCE THE INSTANT CASE. 11
WITH GC NO. 25, ART. 2046 OF THE CIVIL
CODE AND R.A. NO. 876 THE GOVERNING The Court of Appeals, after finding that there was no grave abuse of
LAWS AT THE TIME CONTRACT WAS discretion on the part of the CIAC in issuing the aforesaid Orders,
EXECUTED AND TERMINATED. dismissed the petition in its Resolution dated 28 June 1996. NIA's
motion for reconsideration of the said decision was likewise denied
C by the Court of Appeals on 26 February 1997.

E.O. NO. 1008 IS A SUBSTANTIVE LAW, NOT On 2 June 1997, NIA filed before us an original action
MERELY PROCEDURAL AS RULED BY THE for certiorari and prohibition with urgent prayer for temporary
CIAC. restraining order and writ of preliminary injunction, praying for the
annulment of the Resolutions of the Court of Appeals dated 28 June
D 1996 and 24 February 1997. In the said special civil action, NIA
merely reiterates the issues it raised before the Court of Appeals. 12
We take judicial notice that on 10 June 1997, CIAC rendered a involved, may be appealed to this Court by filing a petition for
decision in the main case in favor of HYDRO. 13 NIA assailed the review, which would be but a continuation of the appellate process
said decision with the Court of Appeals. In view of the pendency of over the original case. 20 Under Rule 45 the reglementary period to
the present petitions before us the appellate court issued a resolution appeal is fifteen (15) days from notice of judgment or denial of
dated 26 March 1998 holding in abeyance the resolution of the same motion for reconsideration. 21
until after the instant petitions have been finally decided. 14
In the instant case the Resolution of the Court of Appeals dated 24
At the outset, we note that the petition suffers from a procedural February 1997 denying the motion for reconsideration of its
defect that warrants its outright dismissal. The questioned resolutions Resolution dated 28 June 1997 was received by NIA on 4 March
of the Court of Appeals have already become final and executory by 1997. Thus, it had until 19 March 1997 within which to perfect its
reason of the failure of NIA to appeal therefrom. Instead of filing this appeal. NIA did not appeal. What it did was to file an original action
petition for certiorari under Rule 65 of the Rules of Court, NIA for certiorari before this Court, reiterating the issues and arguments
should have filed a timely petition for review under Rule 45. it raised before the Court of Appeals.

There is no doubt that the Court of Appeals has jurisdiction over the For the writ of certiorari under Rule 65 of the Rules of Court to
special civil action for certiorari under Rule 65 filed before it by issue, a petitioner must show that he has no plain, speedy and
NIA. The original jurisdiction of the Court of Appeals over special adequate remedy in the ordinary course of law against its perceived
civil actions for certiorari is vested upon it under Section 9(1) of grievance. 22 A remedy is considered "plain, speedy and adequate" if
B.P. 129. This jurisdiction is concurrent with the Supreme it will promptly relieve the petitioner from the injurious effects of the
Court 15 and with the Regional Trial Court. 16 judgment and the acts of the lower court or agency. 23 In this case,
appeal was not only available but also a speedy and adequate
Thus, since the Court of Appeals had jurisdiction over the petition remedy.
under Rule 65, any alleged errors committed by it in the exercise of
its jurisdiction would be errors of judgment which are reviewable by Obviously, NIA interposed the present special civil action
timely appeal and not by a special civil action of certiorari. 17 If the of certiorari not because it is the speedy and adequate remedy but to
aggrieved party fails to do so within the reglementary period, and the make up for the loss, through omission or oversight, of the right of
decision accordingly becomes final and executory, he cannot avail ordinary appeal. It is elementary that the special civil action
himself of the writ of certiorari, his predicament being the effect of of certiorari is not and cannot be a substitute for an appeal, where
his deliberate inaction. 18 the latter remedy is available, as it was in this case. A special civil
action under Rule 65 of the Rules of Court will not be a cure for
The appeal from a final disposition of the Court of Appeals is a failure to timely file a petition for review on certiorari under Rule
petition for review under Rule 45 and not a special civil action under 45 of the Rules of Court. 24 Rule 65 is an independent action that
Rule 65 of the Rules of Court, now Rule 45 and Rule 65, cannot be availed of as a substitute for the lost remedy of an ordinary
respectively, of the 1997 Rules of Civil Procedure. 19 Rule 45 is clear appeal, including that under Rule 45, 25 especially if such loss or
that decisions, final orders or resolutions of the Court of Appeals in lapse was occasioned by one's own neglect or error in the choice of
any case, i.e., regardless of the nature of the action or proceedings remedies. 26
For obvious reasons the rules forbid recourse to a special civil action connected with construction contract whether the dispute arises
for certiorari if appeal is available, as the remedies of appeal before or after the completion of the contract. Thus, the date the
and certiorari are mutually exclusive and not alternative or parties entered into a contract and the date of completion of the
successive. 27 Although there are exceptions to the rules, none is same, even if these occurred before the constitution of the CIAC, did
present in the case at bar. NIA failed to show circumstances that will not automatically divest the CIAC of jurisdiction as long as the
justify a deviation from the general rule as to make available a dispute submitted for arbitration arose after the constitution of the
petition for certiorari in lieu of taking an appropriate appeal. CIAC. Stated differently, the jurisdiction of CIAC is over the
dispute, not the contract; and the instant dispute having arisen when
Based on the foregoing, the instant petition should be dismissed. CIAC was already constituted, the arbitral board was actually
exercising current, not retroactive, jurisdiction. As such, there is no
In any case, even if the issue of technicality is disregarded and need to pass upon the issue of whether E.O. No. 1008 is a
recourse under Rule 65 is allowed, the same result would be reached substantive or procedural statute.
since a review of the questioned resolutions of the CIAC shows that
it committed no grave abuse of discretion. NIA also contended that the CIAC did not acquire jurisdiction over
the dispute since it was only HYDRO that requested for arbitration.
Contrary to the claim of NIA, the CIAC has jurisdiction over the It asserts that to acquire jurisdiction over a case, as provided under
controversy. Executive Order No. 1008, otherwise known as the E.O. 1008, the request for arbitration filed with CIAC should be
"Construction Industry Arbitration Law" which was promulgated on made by both parties, and hence the request by one party is not
4 February 1985, vests upon CIAC original and exclusive enough.
jurisdiction over disputes arising from, or connected with contracts
entered into by parties involved in construction in the Philippines, It is undisputed that the contracts between HYDRO and NIA
whether the dispute arises before or after the completion of the contained an arbitration clause wherein they agreed to submit to
contract, or after the abandonment or breach thereof. The disputes arbitration any dispute between them that may arise before or after
may involve government or private contracts. For the Board to the termination of the agreement. Consequently, the claim of
acquire jurisdiction, the parties to a dispute must agree to submit the HYDRO having arisen from the contract is arbitrable. NIA's reliance
same to voluntary arbitration. 28 with the ruling on the case of Tesco Services Incorporated
v. Vera, 30 is misplaced.
The complaint of HYDRO against NIA on the basis of the contract
executed between them was filed on 7 December 1994, during the The 1988 CIAC Rules of Procedure which were applied by this
effectivity of E.O. No. 1008. Hence, it is well within the jurisdiction Court in Tesco case had been duly amended by CIAC Resolutions
of CIAC. The jurisdiction of a court is determined by the law in No. 2-91 and 3-93, Section 1 of Article III of which read as follows:
force at the time of the commencement of the action. 29
Submission to CIAC Jurisdiction — An arbitration
NIA's argument that CIAC had no jurisdiction to arbitrate on clause in a construction contract or a submission to
contract which preceded its existence is untenable. E.O. 1008 is clear arbitration of a construction contract or a submission
that the CIAC has jurisdiction over all disputes arising from or to arbitration of a construction dispute shall be
deemed an agreement to submit an existing or future pleadings and must not be resolved in a motion to dismiss. Those
controversy to CIAC jurisdiction, notwithstanding issues must be resolved at the trial of the case on the merits wherein
the reference to a different arbitration institution or both parties will be given ample opportunity to prove their respective
arbitral body in such contract or submission. When a claims and defenses. 33 Under the rule 34 the deferment of the
contract contains a clause for the submission of a resolution of the said issues was, thus, in order. An allegation of
future controversy to arbitration, it is not necessary prescription can effectively be used in a motion to dismiss only when
for the parties to enter into a submission agreement the complaint on its face shows that indeed the action has already
before the claimant may invoke the jurisdiction of prescribed. 35 In the instant case, the issue of prescription and laches
CIAC. cannot be resolved on the basis solely of the complaint. It must,
however, be pointed that under the new rules, 36 deferment of the
Under the present Rules of Procedure, for a particular construction resolution is no longer permitted. The court may either grant the
contract to fall within the jurisdiction of CIAC, it is merely required motion to dismiss, deny it, or order the amendment of the pleading.
that the parties agree to submit the same to voluntary arbitration.
Unlike in the original version of Section 1, as applied in the Tesco WHEREFORE, the instant petition is DISMISSED for lack of merit.
case, the law as it now stands does not provide that the parties should The Court of Appeals is hereby DIRECTED to proceed with
agree to submit disputes arising from their agreement specifically to reasonable dispatch in the disposition of C.A. G.R. No. 44527 and
the CIAC for the latter to acquire jurisdiction over the same. Rather, include in the resolution thereof the issue of laches and prescription.
it is plain and clear that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum they may choose, G.R. No. 155001            May 5, 2003
their agreement will fall within the jurisdiction of the CIAC, such
that, even if they specifically choose another forum, the parties will DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN,
not be precluded from electing to submit their dispute before the JOSE MARI B. REUNILLA, MANUEL ANTONIO B. BOÑE,
CIAC because this right has been vested upon each party by law, i.e., MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V.
E.O. No. 1008. 31 DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON,
REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO,
Moreover, it is undeniable that NIA agreed to submit the dispute for MIASCOR WORKERS UNION - NATIONAL LABOR UNION
arbitration to the CIAC. NIA through its counsel actively (MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES
participated in the arbitration proceedings by filing an answer with ASSOCIATION (PALEA), petitioners,
counterclaim, as well as its compliance wherein it nominated vs.
arbitrators to the proposed panel, participating in the deliberations PHILIPPINE INTERNATIONAL AIR TERMINALS CO.,
on, and the formulation of, the Terms of Reference of the arbitration INC., MANILA INTERNATIONAL AIRPORT AUTHORITY,
proceeding, and examining the documents submitted by HYDRO DEPARTMENT OF TRANSPORTATION AND
after NIA asked for the originals of the said documents. 32 COMMUNICATIONS and SECRETARY LEANDRO M.
MENDOZA, in his capacity as Head of the Department of
As to the defenses of laches and prescription, they are evidentiary in Transportation and Communications, respondents,
nature which could not be established by mere allegations in the MIASCOR GROUNDHANDLING CORPORATION, DNATA-
WINGS AVIATION SYSTEMS CORPORATION, LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD
MACROASIA-EUREST SERVICES, INC., MACROASIA- SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON
MENZIES AIRPORT SERVICES CORPORATION, and SAMAHANG MANGGAGAWA SA PALIPARAN NG
MIASCOR CATERING SERVICES CORPORATION, PILIPINAS (SMPP), petitioners,
MIASCOR AIRCRAFT MAINTENANCE CORPORATION, vs.
and MIASCOR LOGISTICS CORPORATION, petitioners-in- PHILIPPINE INTERNATIONAL AIR TERMINALS CO.,
intervention, INC., MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND
x---------------------------------------------------------x COMMUNICATIONS, SECRETARY LEANDRO M.
MENDOZA, in his capacity as Head of the Department of
G.R. No. 155547 May 5, 2003 Transportation and Communications, respondents.

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and PUNO, J.:


CONSTANTINO G. JARAULA, petitioners,
vs. Petitioners and petitioners-in-intervention filed the instant petitions
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., for prohibition under Rule 65 of the Revised Rules of Court seeking
INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, to prohibit the Manila International Airport Authority (MIAA) and
DEPARTMENT OF TRANSPORTATION AND the Department of Transportation and Communications (DOTC) and
COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS its Secretary from implementing the following agreements executed
AND HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, by the Philippine Government through the DOTC and the MIAA and
in his capacity as Head of the Department of Transportation and the Philippine International Air Terminals Co., Inc. (PIATCO): (1)
Communications, and SECRETARY SIMEON A. the Concession Agreement signed on July 12, 1997, (2) the
DATUMANONG, in his capacity as Head of the Department of Amended and Restated Concession Agreement dated November 26,
Public Works and Highways, respondents, 1999, (3) the First Supplement to the Amended and Restated
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. Concession Agreement dated August 27, 1999, (4) the Second
ZIALCITA, WILLY BUYSON VILLARAMA, PROSPERO C. Supplement to the Amended and Restated Concession Agreement
NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST dated September 4, 2000, and (5) the Third Supplement to the
ABAYON, and BENASING O. MACARANBON, respondents- Amended and Restated Concession Agreement dated June 22, 2001
intervenors, (collectively, the PIATCO Contracts).

x---------------------------------------------------------x The facts are as follows:

G.R. No. 155661 May 5, 2003 In August 1989, the DOTC engaged the services of Aeroport
de Paris (ADP) to conduct a comprehensive study of the
CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. Ninoy Aquino International Airport (NAIA) and determine
VALENCIA, MA. TERESA V. GAERLAN, LEONARDO DE whether the present airport can cope with the traffic
development up to the year 2010. The study consisted of two on January 19, 1996. On February 13, 1996, the NEDA passed Board
parts: first, traffic forecasts, capacity of existing facilities, Resolution No. 2 which approved the NAIA IPT III project.
NAIA future requirements, proposed master plans and
development plans; and second, presentation of the On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in
preliminary design of the passenger terminal building. The two daily newspapers of an invitation for competitive or comparative
ADP submitted a Draft Final Report to the DOTC in proposals on AEDC's unsolicited proposal, in accordance with Sec.
December 1989. 4-A of RA 6957, as amended. The alternative bidders were required
to submit three (3) sealed envelopes on or before 5:00 p.m. of
Some time in 1993, six business leaders consisting of John September 20, 1996. The first envelope should contain the
Gokongwei, Andrew Gotianun, Henry Sy, Sr., Lucio Tan, Prequalification Documents, the second envelope the Technical
George Ty and Alfonso Yuchengco met with then President Proposal, and the third envelope the Financial Proposal of the
Fidel V. Ramos to explore the possibility of investing in the proponent.
construction and operation of a new international airport
terminal. To signify their commitment to pursue the project, On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the
they formed the Asia's Emerging Dragon Corp. (AEDC) availment of the Bid Documents and the submission of the
which was registered with the Securities and Exchange comparative bid proposals. Interested firms were permitted to obtain
Commission (SEC) on September 15, 1993. the Request for Proposal Documents beginning June 28, 1996, upon
submission of a written application and payment of a non-refundable
On October 5, 1994, AEDC submitted an unsolicited fee of P50,000.00 (US$2,000).
proposal to the Government through the DOTC/MIAA for
the development of NAIA International Passenger Terminal The Bid Documents issued by the PBAC provided among others that
III (NAIA IPT III) under a build-operate-and-transfer the proponent must have adequate capability to sustain the financing
arrangement pursuant to RA 6957 as amended by RA 7718 requirement for the detailed engineering, design, construction,
(BOT Law).1 operation, and maintenance phases of the project. The proponent
would be evaluated based on its ability to provide a minimum
On December 2, 1994, the DOTC issued Dept. Order No. 94-832 amount of equity to the project, and its capacity to secure external
constituting the Prequalification Bids and Awards Committee financing for the project.
(PBAC) for the implementation of the NAIA IPT III project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the bidders to a pre-bid conference on July 29, 1996.
proposal of AEDC to the National Economic and Development
Authority (NEDA). A revised proposal, however, was forwarded by On August 16, 1996, the PBAC issued PBAC Bulletin No. 3
the DOTC to NEDA on December 13, 1995. On January 5, 1996, the amending the Bid Documents. The following amendments were
NEDA Investment Coordinating Council (NEDA ICC) – Technical made on the Bid Documents:
Board favorably endorsed the project to the ICC – Cabinet
Committee which approved the same, subject to certain conditions,
a. Aside from the fixed Annual Guaranteed Payment, the the BOT Law. The minimum amount of equity shall be 30%
proponent shall include in its financial proposal an additional of the Project Cost.
percentage of gross revenue share of the Government, as
follows: e. Amendments to the draft Concession Agreement shall be
issued from time to time. Said amendments shall only cover
i. First 5 years 5.0% items that would not materially affect the preparation of the
proponent's proposal.
ii. Next 10 years 7.5%
iii. Next 10 years 10.0% On August 29, 1996, the Second Pre-Bid Conference was held where
certain clarifications were made. Upon the request of prospective
b. The amount of the fixed Annual Guaranteed Payment bidder People's Air Cargo & Warehousing Co., Inc (Paircargo), the
shall be subject of the price challenge. Proponent may offer PBAC warranted that based on Sec. 11.6, Rule 11 of the
an Annual Guaranteed Payment which need not be of equal Implementing Rules and Regulations of the BOT Law, only the
amount, but payment of which shall start upon site proposed Annual Guaranteed Payment submitted by the challengers
possession. would be revealed to AEDC, and that the challengers' technical and
financial proposals would remain confidential. The PBAC also
c. The project proponent must have adequate capability to clarified that the list of revenue sources contained in Annex 4.2a of
sustain the financing requirement for the detailed the Bid Documents was merely indicative and that other revenue
engineering, design, construction, and/or operation and sources may be included by the proponent, subject to approval by
maintenance phases of the project as the case may be. For DOTC/MIAA. Furthermore, the PBAC clarified that only those fees
purposes of pre-qualification, this capability shall be and charges denominated as Public Utility Fees would be subject to
measured in terms of: regulation, and those charges which would be actually deemed
Public Utility Fees could still be revised, depending on the outcome
i. Proof of the availability of the project proponent of PBAC's query on the matter with the Department of Justice.
and/or the consortium to provide the minimum
amount of equity for the project; and In September 1996, the PBAC issued Bid Bulletin No. 5, entitled
"Answers to the Queries of PAIRCARGO as Per Letter Dated
ii. a letter testimonial from reputable banks attesting September 3 and 10, 1996." Paircargo's queries and the PBAC's
that the project proponent and/or the members of the responses were as follows:
consortium are banking with them, that the project
proponent and/or the members are of good financial 1. It is difficult for Paircargo and Associates to meet the
standing, and have adequate resources. required minimum equity requirement as prescribed in
Section 8.3.4 of the Bid Documents considering that the
d. The basis for the prequalification shall be the proponent's capitalization of each member company is so structured to
compliance with the minimum technical and financial meet the requirements and needs of their current respective
requirements provided in the Bid Documents and the IRR of business undertaking/activities. In order to comply with this
equity requirement, Paircargo is requesting PBAC to just The PBAC also stated that it would require AEDC to sign
allow each member of (sic) corporation of the Joint Venture Supplement C of the Bid Documents (Acceptance of Criteria and
to just execute an agreement that embodies a commitment to Waiver of Rights to Enjoin Project) and to submit the same with the
infuse the required capital in case the project is awarded to required Bid Security.
the Joint Venture instead of increasing each corporation's
current authorized capital stock just for prequalification On September 20, 1996, the consortium composed of People's Air
purposes. Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds
Services, Inc. (PAGS) and Security Bank Corp. (Security Bank)
In prequalification, the agency is interested in one's financial (collectively, Paircargo Consortium) submitted their competitive
capability at the time of prequalification, not future or proposal to the PBAC. On September 23, 1996, the PBAC opened
potential capability. the first envelope containing the prequalification documents of the
Paircargo Consortium. On the following day, September 24, 1996,
A commitment to put up equity once awarded the project is the PBAC prequalified the Paircargo Consortium.
not enough to establish that "present" financial capability.
However, total financial capability of all member companies On September 26, 1996, AEDC informed the PBAC in writing of its
of the Consortium, to be established by submitting the reservations as regards the Paircargo Consortium, which include:
respective companies' audited financial statements, shall be
acceptable. a. The lack of corporate approvals and financial capability of
PAIRCARGO;
2. At present, Paircargo is negotiating with banks and other
institutions for the extension of a Performance Security to b. The lack of corporate approvals and financial capability of
the joint venture in the event that the Concessions PAGS;
Agreement (sic) is awarded to them. However, Paircargo is
being required to submit a copy of the draft concession as c. The prohibition imposed by RA 337, as amended (the
one of the documentary requirements. Therefore, Paircargo General Banking Act) on the amount that Security Bank
is requesting that they'd (sic) be furnished copy of the could legally invest in the project;
approved negotiated agreement between the PBAC and the
AEDC at the soonest possible time. d. The inclusion of Siemens as a contractor of the
PAIRCARGO Joint Venture, for prequalification purposes;
A copy of the draft Concession Agreement is included in the and
Bid Documents. Any material changes would be made
known to prospective challengers through bid bulletins. e. The appointment of Lufthansa as the facility operator, in
However, a final version will be issued before the award of view of the Philippine requirement in the operation of a
contract. public utility.
The PBAC gave its reply on October 2, 1996, informing AEDC that match the said bid, otherwise, the project would be awarded to
it had considered the issues raised by the latter, and that based on the Paircargo.
documents submitted by Paircargo and the established
prequalification criteria, the PBAC had found that the challenger, As AEDC failed to match the proposal within the 30-day period,
Paircargo, had prequalified to undertake the project. The Secretary of then DOTC Secretary Amado Lagdameo, on December 11, 1996,
the DOTC approved the finding of the PBAC. issued a notice to Paircargo Consortium regarding AEDC's failure to
match the proposal.
The PBAC then proceeded with the opening of the second envelope
of the Paircargo Consortium which contained its Technical Proposal. On February 27, 1997, Paircargo Consortium incorporated into
Philippine International Airport Terminals Co., Inc. (PIATCO).
On October 3, 1996, AEDC reiterated its objections, particularly
with respect to Paircargo's financial capability, in view of the AEDC subsequently protested the alleged undue preference given to
restrictions imposed by Section 21-B of the General Banking Act PIATCO and reiterated its objections as regards the prequalification
and Sections 1380 and 1381 of the Manual Regulations for Banks of PIATCO.
and Other Financial Intermediaries. On October 7, 1996, AEDC
again manifested its objections and requested that it be furnished On April 11, 1997, the DOTC submitted the concession agreement
with excerpts of the PBAC meeting and the accompanying technical for the second-pass approval of the NEDA-ICC.
evaluation report where each of the issues they raised were
addressed. On April 16, 1997, AEDC filed with the Regional Trial Court of
Pasig a Petition for Declaration of Nullity of the Proceedings,
On October 16, 1996, the PBAC opened the third envelope Mandamus and Injunction against the Secretary of the DOTC, the
submitted by AEDC and the Paircargo Consortium containing their Chairman of the PBAC, the voting members of the PBAC and
respective financial proposals. Both proponents offered to build the Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC
NAIA Passenger Terminal III for at least $350 million at no cost to Technical Committee.
the government and to pay the government: 5% share in gross
revenues for the first five years of operation, 7.5% share in gross On April 17, 1997, the NEDA-ICC conducted an ad referendum to
revenues for the next ten years of operation, and 10% share in gross facilitate the approval, on a no-objection basis, of the BOT
revenues for the last ten years of operation, in accordance with the agreement between the DOTC and PIATCO. As the ad
Bid Documents. However, in addition to the foregoing, AEDC referendum gathered only four (4) of the required six (6) signatures,
offered to pay the government a total of P135 million as guaranteed the NEDA merely noted the agreement.
payment for 27 years while Paircargo Consortium offered to pay the
government a total of P17.75 billion for the same period. On July 9, 1997, the DOTC issued the notice of award for the project
to PIATCO.
Thus, the PBAC formally informed AEDC that it had accepted the
price proposal submitted by the Paircargo Consortium, and gave On July 12, 1997, the Government, through then DOTC Secretary
AEDC 30 working days or until November 28, 1996 within which to Arturo T. Enrile, and PIATCO, through its President, Henry T. Go,
signed the "Concession Agreement for the Build-Operate-and- The First Supplement to the ARCA amended Sec. 1.36 of the ARCA
Transfer Arrangement of the Ninoy Aquino International Airport defining "Revenues" or "Gross Revenues"; Sec. 2.05 (d) of the
Passenger Terminal III" (1997 Concession Agreement). The ARCA referring to the obligation of MIAA to provide sufficient
Government granted PIATCO the franchise to operate and maintain funds for the upkeep, maintenance, repair and/or replacement of all
the said terminal during the concession period and to collect the fees, airport facilities and equipment which are owned or operated by
rentals and other charges in accordance with the rates or schedules MIAA; and further providing additional special obligations on the
stipulated in the 1997 Concession Agreement. The Agreement part of GRP aside from those already enumerated in Sec. 2.05 of the
provided that the concession period shall be for twenty-five (25) ARCA. The First Supplement also provided a stipulation as regards
years commencing from the in-service date, and may be renewed at the construction of a surface road to connect NAIA Terminal II and
the option of the Government for a period not exceeding twenty-five Terminal III in lieu of the proposed access tunnel crossing Runway
(25) years. At the end of the concession period, PIATCO shall 13/31; the swapping of obligations between GRP and PIATCO
transfer the development facility to MIAA. regarding the improvement of Sales Road; and the changes in the
timetable. It also amended Sec. 6.01 (c) of the ARCA pertaining to
On November 26, 1998, the Government and PIATCO signed an the Disposition of Terminal Fees; Sec. 6.02 of the ARCA by
Amended and Restated Concession Agreement (ARCA). Among the inserting an introductory paragraph; and Sec. 6.02 (a) (iii) of the
provisions of the 1997 Concession Agreement that were amended by ARCA referring to the Payments of Percentage Share in Gross
the ARCA were: Sec. 1.11 pertaining to the definition of "certificate Revenues.
of completion"; Sec. 2.05 pertaining to the Special Obligations of
GRP; Sec. 3.02 (a) dealing with the exclusivity of the franchise given The Second Supplement to the ARCA contained provisions
to the Concessionaire; Sec. 4.04 concerning the assignment by concerning the clearing, removal, demolition or disposal of
Concessionaire of its interest in the Development Facility; Sec. 5.08 subterranean structures uncovered or discovered at the site of the
(c) dealing with the proceeds of Concessionaire's insurance; Sec. construction of the terminal by the Concessionaire. It defined the
5.10 with respect to the temporary take-over of operations by GRP; scope of works; it provided for the procedure for the demolition of
Sec. 5.16 pertaining to the taxes, duties and other imposts that may the said structures and the consideration for the same which the GRP
be levied on the Concessionaire; Sec. 6.03 as regards the periodic shall pay PIATCO; it provided for time extensions, incremental and
adjustment of public utility fees and charges; the entire Article VIII consequential costs and losses consequent to the existence of such
concerning the provisions on the termination of the contract; and structures; and it provided for some additional obligations on the part
Sec. 10.02 providing for the venue of the arbitration proceedings in of PIATCO as regards the said structures.
case a dispute or controversy arises between the parties to the
agreement. Finally, the Third Supplement provided for the obligations of the
Concessionaire as regards the construction of the surface road
Subsequently, the Government and PIATCO signed three connecting Terminals II and III.
Supplements to the ARCA. The First Supplement was signed on
August 27, 1999; the Second Supplement on September 4, 2000; and Meanwhile, the MIAA which is charged with the maintenance and
the Third Supplement on June 22, 2001 (collectively, Supplements). operation of the NAIA Terminals I and II, had existing concession
contracts with various service providers to offer international airline
airport services, such as in-flight catering, passenger handling, ramp Golden Shell Export Awards at Malacañang Palace, stated that she
and ground support, aircraft maintenance and provisions, cargo will not "honor (PIATCO) contracts which the Executive Branch's
handling and warehousing, and other services, to several legal offices have concluded (as) null and void." 5
international airlines at the NAIA. Some of these service providers
are the Miascor Group, DNATA-Wings Aviation Systems Corp., and Respondent PIATCO filed its Comments to the present petitions on
the MacroAsia Group. Miascor, DNATA and MacroAsia, together November 7 and 27, 2002. The Office of the Solicitor General and
with Philippine Airlines (PAL), are the dominant players in the the Office of the Government Corporate Counsel filed their
industry with an aggregate market share of 70%. respective Comments in behalf of the public respondents.

On September 17, 2002, the workers of the international airline On December 10, 2002, the Court heard the case on oral argument.
service providers, claiming that they stand to lose their employment After the oral argument, the Court then resolved in open court to
upon the implementation of the questioned agreements, filed before require the parties to file simultaneously their respective Memoranda
this Court a petition for prohibition to enjoin the enforcement of said in amplification of the issues heard in the oral arguments within 30
agreements.2 days and to explore the possibility of arbitration or mediation as
provided in the challenged contracts.
On October 15, 2002, the service providers, joining the cause of the
petitioning workers, filed a motion for intervention and a petition-in- In their consolidated Memorandum, the Office of the Solicitor
intervention. General and the Office of the Government Corporate Counsel prayed
that the present petitions be given due course and that judgment be
On October 24, 2002, Congressmen Salacnib Baterina, Clavel rendered declaring the 1997 Concession Agreement, the ARCA and
Martinez and Constantino Jaraula filed a similar petition with this the Supplements thereto void for being contrary to the Constitution,
Court.3 the BOT Law and its Implementing Rules and Regulations.

On November 6, 2002, several employees of the MIAA likewise On March 6, 2003, respondent PIATCO informed the Court that on
filed a petition assailing the legality of the various agreements. 4 March 4, 2003 PIATCO commenced arbitration proceedings before
the International Chamber of Commerce, International Court of
On December 11, 2002. another group of Congressmen, Hon. Jacinto Arbitration (ICC) by filing a Request for Arbitration with the
V. Paras, Rafael P. Nantes, Eduardo C. Zialcita, Willie B. Villarama, Secretariat of the ICC against the Government of the Republic of the
Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon Philippines acting through the DOTC and MIAA.
and Benasing O. Macaranbon, moved to intervene in the case as
Respondents-Intervenors. They filed their Comment-In-Intervention In the present cases, the Court is again faced with the task of
defending the validity of the assailed agreements and praying for the resolving complicated issues made difficult by their intersecting
dismissal of the petitions. legal and economic implications. The Court is aware of the far
reaching fall out effects of the ruling which it makes today. For more
During the pendency of the case before this Court, President Gloria than a century and whenever the exigencies of the times demand it,
Macapagal Arroyo, on November 29, 2002, in her speech at the 2002 this Court has never shirked from its solemn duty to dispense justice
and resolve "actual controversies involving rights which are legally implementation of the PIATCO Contracts. Each of the petitioners-
demandable and enforceable, and to determine whether or not there intervenors have separate and subsisting concession agreements with
has been grave abuse of discretion amounting to lack or excess of MIAA and with various international airlines which they allege are
jurisdiction."6 To be sure, this Court will not begin to do otherwise being interfered with and violated by respondent PIATCO.
today.
In G.R. No. 155661, petitioners constitute employees of MIAA and
We shall first dispose of the procedural issues raised by respondent Samahang Manggagawa sa Paliparan ng Pilipinas - a legitimate labor
PIATCO which they allege will bar the resolution of the instant union and accredited as the sole and exclusive bargaining agent of all
controversy. the employees in MIAA. Petitioners anchor their petition for
prohibition on the nullity of the contracts entered into by the
Petitioners' Legal Standing to File Government and PIATCO regarding the build-operate-and-transfer
of the NAIA IPT III. They filed the petition as taxpayers and persons
the present Petitions who have a legitimate interest to protect in the implementation of the
PIATCO Contracts.
a. G.R. Nos. 155001 and 155661
Petitioners in both cases raise the argument that the PIATCO
In G.R. No. 155001 individual petitioners are employees of various Contracts contain stipulations which directly contravene numerous
service providers7 having separate concession contracts with MIAA provisions of the Constitution, specific provisions of the BOT Law
and continuing service agreements with various international airlines and its Implementing Rules and Regulations, and public policy.
to provide in-flight catering, passenger handling, ramp and ground Petitioners contend that the DOTC and the MIAA, by entering into
support, aircraft maintenance and provisions, cargo handling and said contracts, have committed grave abuse of discretion amounting
warehousing and other services. Also included as petitioners are to lack or excess of jurisdiction which can be remedied only by a
labor unions MIASCOR Workers Union-National Labor Union and writ of prohibition, there being no plain, speedy or adequate remedy
Philippine Airlines Employees Association. These petitioners filed in the ordinary course of law.
the instant action for prohibition as taxpayers and as parties whose
rights and interests stand to be violated by the implementation of the In particular, petitioners assail the provisions in the 1997 Concession
PIATCO Contracts. Agreement and the ARCA which grant PIATCO the exclusive right
to operate a commercial international passenger terminal within the
Petitioners-Intervenors in the same case are all corporations Island of Luzon, except those international airports already existing
organized and existing under Philippine laws engaged in the business at the time of the execution of the agreement. The contracts further
of providing in-flight catering, passenger handling, ramp and ground provide that upon the commencement of operations at the NAIA IPT
support, aircraft maintenance and provisions, cargo handling and III, the Government shall cause the closure of Ninoy Aquino
warehousing and other services to several international airlines at the International Airport Passenger Terminals I and II as international
Ninoy Aquino International Airport. Petitioners-Intervenors allege passenger terminals. With respect to existing concession agreements
that as tax-paying international airline and airport-related service between MIAA and international airport service providers regarding
operators, each one of them stands to be irreparably injured by the certain services or operations, the 1997 Concession Agreement and
the ARCA uniformly provide that such services or operations will imminent danger of sustaining some direct injury as a result of its
not be carried over to the NAIA IPT III and PIATCO is under no enforcement, and not merely that he suffers thereby in some
obligation to permit such carry over except through a separate indefinite way. It must appear that the person complaining has been
agreement duly entered into with PIATCO. 8 or is about to be denied some right or privilege to which he is
lawfully entitled or that he is about to be subjected to some burdens
With respect to the petitioning service providers and their or penalties by reason of the statute or act complained of. 10
employees, upon the commencement of operations of the NAIA IPT
III, they allege that they will be effectively barred from providing We hold that petitioners have the requisite standing. In the above-
international airline airport services at the NAIA Terminals I and II mentioned cases, petitioners have a direct and substantial interest to
as all international airlines and passengers will be diverted to the protect by reason of the implementation of the PIATCO Contracts.
NAIA IPT III. The petitioning service providers will thus be They stand to lose their source of livelihood, a property right which
compelled to contract with PIATCO alone for such services, with no is zealously protected by the Constitution. Moreover, subsisting
assurance that subsisting contracts with MIAA and other concession agreements between MIAA and petitioners-intervenors
international airlines will be respected. Petitioning service providers and service contracts between international airlines and petitioners-
stress that despite the very competitive market, the substantial capital intervenors stand to be nullified or terminated by the operation of the
investments required and the high rate of fees, they entered into their NAIA IPT III under the PIATCO Contracts. The financial prejudice
respective contracts with the MIAA with the understanding that the brought about by the PIATCO Contracts on petitioners and
said contracts will be in force for the stipulated period, and petitioners-intervenors in these cases are legitimate interests
thereafter, renewed so as to allow each of the petitioning service sufficient to confer on them the requisite standing to file the instant
providers to recoup their investments and obtain a reasonable return petitions.
thereon.
b. G.R. No. 155547
Petitioning employees of various service providers at the NAIA
Terminals I and II and of MIAA on the other hand allege that with In G.R. No. 155547, petitioners filed the petition for prohibition as
the closure of the NAIA Terminals I and II as international passenger members of the House of Representatives, citizens and taxpayers.
terminals under the PIATCO Contracts, they stand to lose They allege that as members of the House of Representatives, they
employment. are especially interested in the PIATCO Contracts, because the
contracts compel the Government and/or the House of
The question on legal standing is whether such parties have "alleged Representatives to appropriate funds necessary to comply with the
such a personal stake in the outcome of the controversy as to assure provisions therein.11 They cite provisions of the PIATCO Contracts
that concrete adverseness which sharpens the presentation of issues which require disbursement of unappropriated amounts in
upon which the court so largely depends for illumination of difficult compliance with the contractual obligations of the Government.
constitutional questions."9 Accordingly, it has been held that the They allege that the Government obligations in the PIATCO
interest of a person assailing the constitutionality of a statute must be Contracts which compel government expenditure without
direct and personal. He must be able to show, not only that the law or appropriation is a curtailment of their prerogatives as legislators,
any government act is invalid, but also that he sustained or is in contrary to the mandate of the Constitution that "[n]o money shall be
paid out of the treasury except in pursuance of an appropriation made instance is a violation of the rule on hierarchy of courts. They
by law."12 contend that trial courts have concurrent jurisdiction with this Court
with respect to a special civil action for prohibition and hence,
Standing is a peculiar concept in constitutional law because in some following the rule on hierarchy of courts, resort must first be had
cases, suits are not brought by parties who have been personally before the trial courts.
injured by the operation of a law or any other government act but by
concerned citizens, taxpayers or voters who actually sue in the public After a thorough study and careful evaluation of the issues involved,
interest. Although we are not unmindful of the cases of Imus this Court is of the view that the crux of the instant controversy
Electric Co. v. Municipality of Imus13 and Gonzales v. involves significant legal questions. The facts necessary to resolve
Raquiza14 wherein this Court held that appropriation must be made these legal questions are well established and, hence, need not be
only on amounts immediately demandable, public interest demands determined by a trial court.
that we take a more liberal view in determining whether the
petitioners suing as legislators, taxpayers and citizens have locus The rule on hierarchy of courts will not also prevent this Court from
standi to file the instant petition. In Kilosbayan, Inc. v. assuming jurisdiction over the cases at bar. The said rule may be
Guingona,15 this Court held "[i]n line with the liberal policy of this relaxed when the redress desired cannot be obtained in the
Court on locus standi, ordinary taxpayers, members of Congress, and appropriate courts or where exceptional and compelling
even association of planters, and non-profit civic organizations were circumstances justify availment of a remedy within and calling for
allowed to initiate and prosecute actions before this Court to question the exercise of this Court's primary jurisdiction. 19
the constitutionality or validity of laws, acts, decisions, rulings, or
orders of various government agencies or It is easy to discern that exceptional circumstances exist in the
instrumentalities."16 Further, "insofar as taxpayers' suits are cases at bar that call for the relaxation of the rule. Both petitioners
concerned . . . (this Court) is not devoid of discretion as to whether and respondents agree that these cases are of transcendental
or not it should be entertained."17 As such ". . . even if, strictly importance as they involve the construction and operation of the
speaking, they [the petitioners] are not covered by the definition, it is country's premier international airport. Moreover, the crucial issues
still within the wide discretion of the Court to waive the requirement submitted for resolution are of first impression and they entail the
and so remove the impediment to its addressing and resolving the proper legal interpretation of key provisions of the Constitution, the
serious constitutional questions raised." 18 In view of the serious legal BOT Law and its Implementing Rules and Regulations. Thus,
questions involved and their impact on public interest, we resolve to considering the nature of the controversy before the Court,
grant standing to the petitioners. procedural bars may be lowered to give way for the speedy
disposition of the instant cases.
Other Procedural Matters
Legal Effect of the Commencement
Respondent PIATCO further alleges that this Court is without
jurisdiction to review the instant cases as factual issues are involved of Arbitration Proceedings by
which this Court is ill-equipped to resolve. Moreover, PIATCO
alleges that submission of this controversy to this Court at the first PIATCO
There is one more procedural obstacle which must be overcome. The objective would not be met if this Court were to allow the parties to
Court is aware that arbitration proceedings pursuant to Section 10.02 settle the cases by arbitration as there are certain issues involving
of the ARCA have been filed at the instance of respondent PIATCO. non-parties to the PIATCO Contracts which the arbitral tribunal will
Again, we hold that the arbitration step taken by PIATCO will not not be equipped to resolve.
oust this Court of its jurisdiction over the cases at bar.
Now, to the merits of the instant controversy.
In Del Monte Corporation-USA v. Court of Appeals,20 even after
finding that the arbitration clause in the Distributorship Agreement in I
question is valid and the dispute between the parties is arbitrable, this
Court affirmed the trial court's decision denying petitioner's Motion Is PIATCO a qualified bidder?
to Suspend Proceedings pursuant to the arbitration clause under the
contract. In so ruling, this Court held that as contracts produce legal Public respondents argue that the Paircargo Consortium, PIATCO's
effect between the parties, their assigns and heirs, only the parties to predecessor, was not a duly pre-qualified bidder on the unsolicited
the Distributorship Agreement are bound by its terms, including the proposal submitted by AEDC as the Paircargo Consortium failed to
arbitration clause stipulated therein. This Court ruled that arbitration meet the financial capability required under the BOT Law and the
proceedings could be called for but only with respect to the parties to Bid Documents. They allege that in computing the ability of the
the contract in question. Considering that there are parties to the case Paircargo Consortium to meet the minimum equity requirements for
who are neither parties to the Distributorship Agreement nor heirs or the project, the entire net worth of Security Bank, a member of
assigns of the parties thereto, this Court, citing its previous ruling in the consortium, should not be considered.
Salas, Jr. v. Laperal Realty Corporation, 21 held that to tolerate the
splitting of proceedings by allowing arbitration as to some of the PIATCO relies, on the other hand, on the strength of the
parties on the one hand and trial for the others on the other hand Memorandum dated October 14, 1996 issued by the DOTC
would, in effect, result in multiplicity of suits, duplicitous Undersecretary Primitivo C. Cal stating that the Paircargo
procedure and unnecessary delay.22 Thus, we ruled that the interest Consortium is found to have a combined net worth of
of justice would best be served if the trial court hears and adjudicates P3,900,000,000.00, sufficient to meet the equity requirements of the
the case in a single and complete proceeding. project. The said Memorandum was in response to a letter from Mr.
Antonio Henson of AEDC to President Fidel V. Ramos questioning
It is established that petitioners in the present cases who have the financial capability of the Paircargo Consortium on the ground
presented legitimate interests in the resolution of the controversy that it does not have the financial resources to put up the required
are not parties to the PIATCO Contracts. Accordingly, they minimum equity of P2,700,000,000.00. This contention is based on
cannot be bound by the arbitration clause provided for in the ARCA the restriction under R.A. No. 337, as amended or the General
and hence, cannot be compelled to submit to arbitration proceedings. Banking Act that a commercial bank cannot invest in any single
A speedy and decisive resolution of all the critical issues in the enterprise in an amount more than 15% of its net worth. In the said
present controversy, including those raised by petitioners, cannot Memorandum, Undersecretary Cal opined:
be made before an arbitral tribunal. The object of arbitration is
precisely to allow an expeditious determination of a dispute. This
The Bid Documents, as clarified through Bid Bulletin Nos. 3 Section 5.4 Pre-qualification Requirements.
and 5, require that financial capability will be evaluated
based on total financial capability of all the member xxx           xxx           xxx
companies of the [Paircargo] Consortium. In this connection,
the Challenger was found to have a combined net worth of c. Financial Capability: The project proponent must have
P3,926,421,242.00 that could support a project costing adequate capability to sustain the financing requirements for
approximately P13 Billion. the detailed engineering design, construction and/or
operation and maintenance phases of the project, as the case
It is not a requirement that the net worth must be may be. For purposes of pre-qualification, this capability
"unrestricted." To impose that as a requirement now will be shall be measured in terms of (i) proof of the ability of the
nothing less than unfair. project proponent and/or the consortium to provide a
minimum amount of equity to the project, and (ii) a letter
The financial statement or the net worth is not the sole basis testimonial from reputable banks attesting that the
in establishing financial capability. As stated in Bid Bulletin project proponent and/or members of the consortium are
No. 3, financial capability may also be established by banking with them, that they are in good financial
testimonial letters issued by reputable banks. The Challenger standing, and that they have adequate resources. The
has complied with this requirement. government agency/LGU concerned shall determine on a
project-to-project basis and before pre-qualification, the
To recap, net worth reflected in the Financial Statement minimum amount of equity needed. (emphasis supplied)
should not be taken as the amount of the money to be used to
answer the required thirty percent (30%) equity of the Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3
challenger but rather to be used in establishing if there is dated August 16, 1996 amending the financial capability
enough basis to believe that the challenger can comply with requirements for pre-qualification of the project proponent as
the required 30% equity. In fact, proof of sufficient equity is follows:
required as one of the conditions for award of contract
(Section 12.1 IRR of the BOT Law) but not for pre- 6. Basis of Pre-qualification
qualification (Section 5.4 of the same document). 23
The basis for the pre-qualification shall be on the compliance
Under the BOT Law, in case of a build-operate-and-transfer of the proponent to the minimum technical and financial
arrangement, the contract shall be awarded to the bidder requirements provided in the Bid Documents and in the IRR
"who, having satisfied the minimum financial, technical, of the BOT Law, R.A. No. 6957, as amended by R.A. 7718.
organizational and legal standards" required by the law,
has submitted the lowest bid and most favorable terms of the The minimum amount of equity to which the proponent's
project.24 Further, the 1994 Implementing Rules and financial capability will be based shall be thirty percent
Regulations of the BOT Law provide: (30%) of the project cost instead of the twenty percent
(20%) specified in Section 3.6.4 of the Bid Documents.
This is to correlate with the required debt-to-equity ratio of Sec. 21-B. The provisions in this or in any other Act to the
70:30 in Section 2.01a of the draft concession agreement. contrary notwithstanding, the Monetary Board, whenever it
The debt portion of the project financing should not exceed shall deem appropriate and necessary to further national
70% of the actual project cost. development objectives or support national priority
projects, may authorize a commercial bank, a bank
Accordingly, based on the above provisions of law, the Paircargo authorized to provide commercial banking services, as
Consortium or any challenger to the unsolicited proposal of AEDC well as a government-owned and controlled bank, to
has to show that it possesses the requisite financial capability to operate under an expanded commercial banking
undertake the project in the minimum amount of 30% of the authority and by virtue thereof exercise, in addition to
project cost through (i) proof of the ability to provide a minimum powers authorized for commercial banks, the powers of
amount of equity to the project, and (ii) a letter testimonial from an Investment House as provided in Presidential Decree
reputable banks attesting that the project proponent or members of No. 129, invest in the equity of a non-allied
the consortium are banking with them, that they are in good financial undertaking, or own a majority or all of the equity in a
standing, and that they have adequate resources. financial intermediary other than a commercial bank or a
bank authorized to provide commercial banking
As the minimum project cost was estimated to be services: Provided, That (a) the total investment in equities
US$350,000,000.00 or roughly P9,183,650,000.00,25 the Paircargo shall not exceed fifty percent (50%) of the net worth of the
Consortium had to show to the satisfaction of the PBAC that it had bank; (b) the equity investment in any one enterprise
the ability to provide the minimum equity for the project in the whether allied or non-allied shall not exceed fifteen
amount of at least P2,755,095,000.00. percent (15%) of the net worth of the bank; (c) the equity
investment of the bank, or of its wholly or majority-owned
Paircargo's Audited Financial Statements as of 1993 and 1994 subsidiary, in a single non-allied undertaking shall not
indicated that it had a net worth of P2,783,592.00 and P3,123,515.00 exceed thirty-five percent (35%) of the total equity in the
respectively.26 PAGS' Audited Financial Statements as of 1995 enterprise nor shall it exceed thirty-five percent (35%) of the
indicate that it has approximately P26,735,700.00 to invest as its voting stock in that enterprise; and (d) the equity investment
equity for the project.27 Security Bank's Audited Financial in other banks shall be deducted from the investing bank's
Statements as of 1995 show that it has a net worth equivalent to its net worth for purposes of computing the prescribed ratio of
capital funds in the amount of P3,523,504,377.00.28 net worth to risk assets.

We agree with public respondents that with respect to Security Bank, xxx           xxx           xxx
the entire amount of its net worth could not be invested in a single
undertaking or enterprise, whether allied or non-allied in accordance Further, the 1993 Manual of Regulations for Banks provides:
with the provisions of R.A. No. 337, as amended or the General
Banking Act: SECTION X383. Other Limitations and Restrictions. — The
following limitations and restrictions shall also apply
regarding equity investments of banks.
a. In any single enterprise. — The equity investments of ceilings provided by applicable law would not result in a proper
banks in any single enterprise shall not exceed at any time evaluation of whether or not a bidder is pre-qualified to undertake
fifteen percent (15%) of the net worth of the investing bank the project as for all intents and purposes, such ceiling or legal
as defined in Sec. X106 and Subsec. X121.5. restriction determines the true maximum amount which a bidder
may invest in the project.
Thus, the maximum amount that Security Bank could validly invest
in the Paircargo Consortium is only P528,525,656.55, representing Further, the determination of whether or not a bidder is pre-qualified
15% of its entire net worth. The total net worth therefore of the to undertake the project requires an evaluation of the financial
Paircargo Consortium, after considering the maximum amounts that capacity of the said bidder at the time the bid is submitted based on
may be validly invested by each of its members is P558,384,871.55 the required documents presented by the bidder. The PBAC should
or only 6.08% of the project cost, 29 an amount substantially less not be allowed to speculate on the future financial ability of the
than the prescribed minimum equity investment required for the bidder to undertake the project on the basis of documents submitted.
project in the amount of P2,755,095,000.00 or 30% of the project This would open doors to abuse and defeat the very purpose of a
cost. public bidding. This is especially true in the case at bar which
involves the investment of billions of pesos by the project proponent.
The purpose of pre-qualification in any public bidding is to The relevant government authority is duty-bound to ensure that the
determine, at the earliest opportunity, the ability of the bidder to awardee of the contract possesses the minimum required financial
undertake the project. Thus, with respect to the bidder's financial capability to complete the project. To allow the PBAC to estimate
capacity at the pre-qualification stage, the law requires the the bidder's future financial capability would not secure the viability
government agency to examine and determine the ability of the and integrity of the project. A restrictive and conservative
bidder to fund the entire cost of the project by considering the application of the rules and procedures of public bidding is necessary
maximum amounts that each bidder may invest in the project at not only to protect the impartiality and regularity of the proceedings
the time of pre-qualification. but also to ensure the financial and technical reliability of the project.
It has been held that:
The PBAC has determined that any prospective bidder for the
construction, operation and maintenance of the NAIA IPT III project The basic rule in public bidding is that bids should be
should prove that it has the ability to provide equity in the minimum evaluated based on the required documents submitted before
amount of 30% of the project cost, in accordance with the 70:30 and not after the opening of bids. Otherwise, the foundation
debt-to-equity ratio prescribed in the Bid Documents. Thus, in the of a fair and competitive public bidding would be
case of Paircargo Consortium, the PBAC should determine defeated. Strict observance of the rules, regulations, and
the maximum amounts that each member of the consortium may guidelines of the bidding process is the only safeguard to
commit for the construction, operation and maintenance of the NAIA a fair, honest and competitive public bidding.30
IPT III project at the time of pre-qualification. With respect to
Security Bank, the maximum amount which may be invested by it Thus, if the maximum amount of equity that a bidder may invest in
would only be 15% of its net worth in view of the restrictions the project at the time the bids are submitted falls short of the
imposed by the General Banking Act. Disregarding the investment minimum amounts required to be put up by the bidder, said bidder
should be properly disqualified. Considering that at the pre- Amendments to the Draft Concessions Agreement shall be
qualification stage, the maximum amounts which the Paircargo issued from time to time. Said amendments shall only cover
Consortium may invest in the project fell short of the minimum items that would not materially affect the preparation of the
amounts prescribed by the PBAC, we hold that Paircargo proponent's proposal.
Consortium was not a qualified bidder. Thus the award of the
contract by the PBAC to the Paircargo Consortium, a disqualified By its very nature, public bidding aims to protect the public interest
bidder, is null and void. by giving the public the best possible advantages through open
competition. Thus:
While it would be proper at this juncture to end the resolution of the
instant controversy, as the legal effects of the disqualification of Competition must be legitimate, fair and honest. In the field
respondent PIATCO's predecessor would come into play and of government contract law, competition requires, not only
necessarily result in the nullity of all the subsequent contracts `bidding upon a common standard, a common basis, upon
entered by it in pursuance of the project, the Court feels that it is the same thing, the same subject matter, the same
necessary to discuss in full the pressing issues of the present undertaking,' but also that it be legitimate, fair and
controversy for a complete resolution thereof. honest; and not designed to injure or defraud the
government.31
II
An essential element of a publicly bidded contract is that all bidders
Is the 1997 Concession Agreement valid? must be on equal footing. Not simply in terms of application of the
procedural rules and regulations imposed by the relevant government
Petitioners and public respondents contend that the 1997 Concession agency, but more importantly, on the contract bidded upon. Each
Agreement is invalid as it contains provisions that substantially bidder must be able to bid on the same thing. The rationale is
depart from the draft Concession Agreement included in the Bid obvious. If the winning bidder is allowed to later include or modify
Documents. They maintain that a substantial departure from the draft certain provisions in the contract awarded such that the contract is
Concession Agreement is a violation of public policy and renders the altered in any material respect, then the essence of fair competition
1997 Concession Agreement null and void. in the public bidding is destroyed. A public bidding would indeed be
a farce if after the contract is awarded, the winning bidder may
PIATCO maintains, however, that the Concession Agreement modify the contract and include provisions which are favorable to it
attached to the Bid Documents is intended to be a draft, i.e., subject that were not previously made available to the other bidders. Thus:
to change, alteration or modification, and that this intention was clear
to all participants, including AEDC, and DOTC/MIAA. It argued It is inherent in public biddings that there shall be a fair
further that said intention is expressed in Part C (6) of Bid Bulletin competition among the bidders. The specifications in such
No. 3 issued by the PBAC which states: biddings provide the common ground or basis for the
bidders. The specifications should, accordingly, operate
6. Amendments to the Draft Concessions Agreement equally or indiscriminately upon all bidders.32
The same rule was restated by Chief Justice Stuart of the Supreme In the case of Caltex (Philippines), Inc. v. Delgado Brothers,
Court of Minnesota: Inc.,34 this Court quoted with approval the ruling of the trial court
that an amendment to a contract awarded through public bidding,
The law is well settled that where, as in this case, municipal when such subsequent amendment was made without a new public
authorities can only let a contract for public work to the bidding, is null and void:
lowest responsible bidder, the proposals and specifications
therefore must be so framed as to permit free and full The Court agrees with the contention of counsel for the
competition. Nor can they enter into a contract with the plaintiffs that the due execution of a contract after public
best bidder containing substantial provisions beneficial bidding is a limitation upon the right of the contracting
to him, not included or contemplated in the terms and parties to alter or amend it without another public bidding,
specifications upon which the bids were invited. 33 for otherwise what would a public bidding be good for if
after the execution of a contract after public bidding, the
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support contracting parties may alter or amend the contract, or
its argument that the draft concession agreement is subject to even cancel it, at their will? Public biddings are held for the
amendment, the pertinent portion of which was quoted above, the protection of the public, and to give the public the best
PBAC also clarified that "[s]aid amendments shall only cover possible advantages by means of open competition between
items that would not materially affect the preparation of the the bidders. He who bids or offers the best terms is awarded
proponent's proposal." the contract subject of the bid, and it is obvious that such
protection and best possible advantages to the public will
While we concede that a winning bidder is not precluded from disappear if the parties to a contract executed after public
modifying or amending certain provisions of the contract bidded bidding may alter or amend it without another previous
upon, such changes must not constitute substantial or material public bidding.35
amendments that would alter the basic parameters of the
contract and would constitute a denial to the other bidders of the Hence, the question that comes to fore is this: is the 1997 Concession
opportunity to bid on the same terms. Hence, the determination of Agreement the same agreement that was offered for public bidding,
whether or not a modification or amendment of a contract bidded out i.e., the draft Concession Agreement attached to the Bid Documents?
constitutes a substantial amendment rests on whether the contract, A close comparison of the draft Concession Agreement attached to
when taken as a whole, would contain substantially different terms the Bid Documents and the 1997 Concession Agreement reveals that
and conditions that would have the effect of altering the technical the documents differ in at least two material respects:
and/or financial proposals previously submitted by other bidders.
The alterations and modifications in the contract executed between a. Modification on the Public
the government and the winning bidder must be such as to render
such executed contract to be an entirely different contract from Utility Revenues and Non-Public
the one that was bidded upon.
Utility Revenues that may be
collected by PIATCO Under the 1997 Concession Agreement, fees which are subject to
adjustment and effective upon MIAA approval are classified as
The fees that may be imposed and collected by PIATCO under the "Public Utility Revenues" and include:37
draft Concession Agreement and the 1997 Concession Agreement
may be classified into three distinct categories: (1) fees which are (1) aircraft parking fees;
subject to periodic adjustment of once every two years in accordance
with a prescribed parametric formula and adjustments are made (2) aircraft tacking fees;
effective only upon written approval by MIAA; (2) fees other than
those included in the first category which maybe adjusted by (3) check-in counter fees; and
PIATCO whenever it deems necessary without need for consent of
DOTC/MIAA; and (3) new fees and charges that may be imposed by (4) Terminal Fees.
PIATCO which have not been previously imposed or collected at the
Ninoy Aquino International Airport Passenger Terminal I, pursuant The implication of the reduced number of fees that are subject to
to Administrative Order No. 1, Series of 1993, as amended. The MIAA approval is best appreciated in relation to fees included in
glaring distinctions between the draft Concession Agreement and the the second category identified above. Under the 1997 Concession
1997 Concession Agreement lie in the types of fees included in each Agreement, fees which PIATCO may adjust whenever it deems
category and the extent of the supervision and regulation which necessary without need for consent of DOTC/MIAA are "Non-Public
MIAA is allowed to exercise in relation thereto. Utility Revenues" and is defined as "all other income not classified
as Public Utility Revenues derived from operations of the Terminal
For fees under the first category, i.e., those which are subject to and the Terminal Complex."38 Thus, under the 1997 Concession
periodic adjustment in accordance with a prescribed parametric Agreement, ground handling fees, rentals from airline offices and
formula and effective only upon written approval by MIAA, the porterage fees are no longer subject to MIAA regulation.
draft Concession Agreement includes the following:36
Further, under Section 6.03 of the draft Concession
(1) aircraft parking fees; Agreement, MIAA reserves the right to regulate (1) lobby and
vehicular parking fees and (2) other new fees and charges that may
(2) aircraft tacking fees; be imposed by PIATCO. Such regulation may be made by periodic
adjustment and is effective only upon written approval of MIAA.
(3) groundhandling fees; The full text of said provision is quoted below:

(4) rentals and airline offices; Section 6.03. Periodic Adjustment in Fees and Charges.
Adjustments in the aircraft parking fees, aircraft tacking
(5) check-in counter rentals; and fees, groundhandling fees, rentals and airline offices, check-
in-counter rentals and porterage fees shall be allowed only
(6) porterage fees. once every two years and in accordance with the Parametric
Formula attached hereto as Annex F. Provided that
adjustments shall be made effective only after the written Agreement, vehicular parking fee is subject to MIAA regulation and
express approval of the MIAA. Provided, further, that such approval under the second paragraph of Section 6.03 thereof while
approval of the MIAA, shall be contingent only on the porterage fee is covered by the first paragraph of the same provision.
conformity of the adjustments with the above said There is an obvious relaxation of the extent of control and regulation
parametric formula. The first adjustment shall be made prior by MIAA with respect to the particular fees that may be charged by
to the In-Service Date of the Terminal. PIATCO.

The MIAA reserves the right to regulate under the Moreover, with respect to the third category of fees that may be
foregoing terms and conditions the lobby and vehicular imposed and collected by PIATCO, i.e., new fees and charges that
parking fees and other new fees and charges as may be imposed by PIATCO which have not been previously
contemplated in paragraph 2 of Section 6.01 if in its imposed or collected at the Ninoy Aquino International Airport
judgment the users of the airport shall be deprived of a Passenger Terminal I, under Section 6.03 of the draft Concession
free option for the services they cover. 39 Agreement MIAA has reserved the right to regulate the same under
the same conditions that MIAA may regulate fees under the first
On the other hand, the equivalent provision under the 1997 category, i.e., periodic adjustment of once every two years in
Concession Agreement reads: accordance with a prescribed parametric formula and effective only
upon written approval by MIAA. However, under the 1997
Section 6.03 Periodic Adjustment in Fees and Charges. Concession Agreement, adjustment of fees under the third category
is not subject to MIAA regulation.
xxx           xxx           xxx
With respect to terminal fees that may be charged by PIATCO, 41 as
(c) Concessionaire shall at all times be judicious in fixing shown earlier, this was included within the category of "Public
fees and charges constituting Non-Public Utility Revenues in Utility Revenues" under the 1997 Concession Agreement. This
order to ensure that End Users are not unreasonably deprived classification is significant because under the 1997 Concession
of services. While the vehicular parking fee, porterage fee Agreement, "Public Utility Revenues" are subject to an "Interim
and greeter/well wisher fee constitute Non-Public Utility Adjustment" of fees upon the occurrence of certain extraordinary
Revenues of Concessionaire, GRP may intervene and events specified in the agreement.42 However, under the draft
require Concessionaire to explain and justify the fee it Concession Agreement, terminal fees are not included in the types
may set from time to time, if in the reasonable opinion of of fees that may be subject to "Interim Adjustment." 43
GRP the said fees have become exorbitant resulting in the
unreasonable deprivation of End Users of such services. 40 Finally, under the 1997 Concession Agreement, "Public Utility
Revenues," except terminal fees, are denominated in US
Thus, under the 1997 Concession Agreement, with respect to (1) Dollars44 while payments to the Government are in Philippine Pesos.
vehicular parking fee, (2) porterage fee and (3) greeter/well wisher In the draft Concession Agreement, no such stipulation was
fee, all that MIAA can do is to require PIATCO to explain and included. By stipulating that "Public Utility Revenues" will be paid
justify the fees set by PIATCO. In the draft Concession to PIATCO in US Dollars while payments by PIATCO to the
Government are in Philippine currency under the 1997 Concession Under the draft Concession Agreement, default by PIATCO of any
Agreement, PIATCO is able to enjoy the benefits of depreciations of of its obligations to creditors who have provided, loaned or advanced
the Philippine Peso, while being effectively insulated from the funds for the NAIA IPT III project does not result in the assumption
detrimental effects of exchange rate fluctuations. by the Government of these liabilities. In fact, nowhere in the said
contract does default of PIATCO's loans figure in the agreement.
When taken as a whole, the changes under the 1997 Concession Such default does not directly result in any concomitant right or
Agreement with respect to reduction in the types of fees that are obligation in favor of the Government.
subject to MIAA regulation and the relaxation of such regulation
with respect to other fees are significant amendments that However, the 1997 Concession Agreement provides:
substantially distinguish the draft Concession Agreement from the
1997 Concession Agreement. The 1997 Concession Agreement, in Section 4.04 Assignment.
this respect, clearly gives PIATCO more favorable terms than
what was available to other bidders at the time the contract was xxx           xxx           xxx
bidded out. It is not very difficult to see that the changes in the 1997
Concession Agreement translate to direct and concrete financial (b) In the event Concessionaire should default in the
advantages for PIATCO which were not available at the time the payment of an Attendant Liability, and the default has
contract was offered for bidding. It cannot be denied that under the resulted in the acceleration of the payment due date of the
1997 Concession Agreement only "Public Utility Revenues" are Attendant Liability prior to its stated date of maturity, the
subject to MIAA regulation. Adjustments of all other fees imposed Unpaid Creditors and Concessionaire shall immediately
and collected by PIATCO are entirely within its control. Moreover, inform GRP in writing of such default. GRP shall, within
with respect to terminal fees, under the 1997 Concession Agreement, one hundred eighty (180) Days from receipt of the joint
the same is further subject to "Interim Adjustments" not previously written notice of the Unpaid Creditors and Concessionaire,
stipulated in the draft Concession Agreement. Finally, the change in either (i) take over the Development Facility and assume the
the currency stipulated for "Public Utility Revenues" under the 1997 Attendant Liabilities, or (ii) allow the Unpaid Creditors, if
Concession Agreement, except terminal fees, gives PIATCO an qualified, to be substituted as concessionaire and operator of
added benefit which was not available at the time of bidding. the Development Facility in accordance with the terms and
conditions hereof, or designate a qualified operator
b. Assumption by the acceptable to GRP to operate the Development Facility,
likewise under the terms and conditions of this Agreement;
Government of the liabilities of Provided that if at the end of the 180-day period GRP shall
not have served the Unpaid Creditors and Concessionaire
PIATCO in the event of the latter's written notice of its choice, GRP shall be deemed to have
elected to take over the Development Facility with the
default thereof concomitant assumption of Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid dependent on the existence and availability of a qualified
Creditors to be substituted as concessionaire, the latter shall operator who is willing to take over the rights and obligations of
form and organize a concession company qualified to take PIATCO under the contract, a circumstance that is not entirely
over the operation of the Development Facility. If the within the control of the Government.
concession company should elect to designate an operator
for the Development Facility, the concession company shall Without going into the validity of this provision at this juncture,
in good faith identify and designate a qualified operator suffice it to state that Section 4.04 of the 1997 Concession
acceptable to GRP within one hundred eighty (180) days Agreement may be considered a form of security for the loans
from receipt of GRP's written notice. If the concession PIATCO has obtained to finance the project, an option that was not
company, acting in good faith and with due diligence, is made available in the draft Concession Agreement. Section 4.04 is
unable to designate a qualified operator within the aforesaid an important amendment to the 1997 Concession Agreement because
period, then GRP shall at the end of the 180-day period take it grants PIATCO a financial advantage or benefit which was not
over the Development Facility and assume Attendant previously made available during the bidding process. This
Liabilities. financial advantage is a significant modification that translates to
better terms and conditions for PIATCO.
The term "Attendant Liabilities" under the 1997 Concession
Agreement is defined as: PIATCO, however, argues that the parties to the bidding procedure
acknowledge that the draft Concession Agreement is subject to
Attendant Liabilities refer to all amounts recorded and from amendment because the Bid Documents permit financing or
time to time outstanding in the books of the borrowing. They claim that it was the lenders who proposed the
Concessionaire as owing to Unpaid Creditors who have amendments to the draft Concession Agreement which resulted in
provided, loaned or advanced funds actually used for the the 1997 Concession Agreement.
Project, including all interests, penalties, associated fees,
charges, surcharges, indemnities, reimbursements and other We agree that it is not inconsistent with the rationale and purpose of
related expenses, and further including amounts owed by the BOT Law to allow the project proponent or the winning bidder to
Concessionaire to its suppliers, contractors and sub- obtain financing for the project, especially in this case which
contractors. involves the construction, operation and maintenance of the NAIA
IPT III. Expectedly, compliance by the project proponent of its
Under the above quoted portions of Section 4.04 in relation to the undertakings therein would involve a substantial amount of
definition of "Attendant Liabilities," default by PIATCO of its investment. It is therefore inevitable for the awardee of the contract
loans used to finance the NAIA IPT III project triggers the to seek alternate sources of funds to support the project. Be that as it
occurrence of certain events that leads to the assumption by the may, this Court maintains that amendments to the contract bidded
Government of the liability for the loans. Only in one instance upon should always conform to the general policy on public bidding
may the Government escape the assumption of PIATCO's liabilities, if such procedure is to be faithful to its real nature and purpose. By
i.e., when the Government so elects and allows a qualified operator its very nature and characteristic, competitive public bidding aims to
to take over as Concessionaire. However, this circumstance is protect the public interest by giving the public the best possible
advantages through open competition.45 It has been held that the the assumption by the Government, under certain conditions, of the
three principles in public bidding are (1) the offer to the public; (2) liabilities of PIATCO directly translates concrete financial
opportunity for competition; and (3) a basis for the exact comparison advantages to PIATCO that were previously not available
of bids. A regulation of the matter which excludes any of these during the bidding process. These amendments cannot be taken as
factors destroys the distinctive character of the system and thwarts merely supplements to or implementing provisions of those already
the purpose of its adoption.46 These are the basic parameters which existing in the draft Concession Agreement. The amendments
every awardee of a contract bidded out must conform to, discussed above present new terms and conditions which provide
requirements of financing and borrowing notwithstanding. Thus, financial benefit to PIATCO which may have altered the technical
upon a concrete showing that, as in this case, the contract signed by and financial parameters of other bidders had they known that such
the government and the contract-awardee is an entirely different terms were available.
contract from the contract bidded, courts should not hesitate to strike
down said contract in its entirety for violation of public policy on III
public bidding. A strict adherence on the principles, rules and
regulations on public bidding must be sustained if only to preserve Direct Government Guarantee
the integrity and the faith of the general public on the procedure.
Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the
Public bidding is a standard practice for procuring government 1997 Concession Agreement provides:
contracts for public service and for furnishing supplies and other
materials. It aims to secure for the government the lowest possible Section 4.04 Assignment
price under the most favorable terms and conditions, to curtail
favoritism in the award of government contracts and avoid suspicion xxx           xxx           xxx
of anomalies and it places all bidders in equal footing. 47 Any
government action which permits any substantial variance
(b) In the event Concessionaire should default in the
between the conditions under which the bids are invited and the
payment of an Attendant Liability, and the default resulted
contract executed after the award thereof is a grave abuse of
in the acceleration of the payment due date of the Attendant
discretion amounting to lack or excess of jurisdiction which
Liability prior to its stated date of maturity, the Unpaid
warrants proper judicial action.
Creditors and Concessionaire shall immediately inform GRP
in writing of such default. GRP shall within one hundred
In view of the above discussion, the fact that the foregoing eighty (180) days from receipt of the joint written notice of
substantial amendments were made on the 1997 Concession the Unpaid Creditors and Concessionaire, either (i) take over
Agreement renders the same null and void for being contrary to the Development Facility and assume the Attendant
public policy. These amendments convert the 1997 Concession Liabilities, or (ii) allow the Unpaid Creditors, if qualified to
Agreement to an entirely different agreement from the contract be substituted as concessionaire and operator of the
bidded out or the draft Concession Agreement. It is not difficult to Development facility in accordance with the terms and
see that the amendments on (1) the types of fees or charges that are conditions hereof, or designate a qualified operator
subject to MIAA regulation or control and the extent thereof and (2) acceptable to GRP to operate the Development Facility,
likewise under the terms and conditions of this Agreement; It is clear from the above-quoted provisions that Government, in the
Provided, that if at the end of the 180-day period GRP shall event that PIATCO defaults in its loan obligations, is obligated to
not have served the Unpaid Creditors and Concessionaire pay "all amounts recorded and from time to time outstanding from
written notice of its choice, GRP shall be deemed to have the books" of PIATCO which the latter owes to its creditors. 49 These
elected to take over the Development Facility with the amounts include "all interests, penalties, associated fees, charges,
concomitant assumption of Attendant Liabilities. surcharges, indemnities, reimbursements and other related
expenses."50 This obligation of the Government to pay PIATCO's
(c) If GRP, by written notice, allow the Unpaid Creditors to creditors upon PIATCO's default would arise if the Government opts
be substituted as concessionaire, the latter shall form and to take over NAIA IPT III. It should be noted, however, that even if
organize a concession company qualified to takeover the the Government chooses the second option, which is to allow
operation of the Development Facility. If the concession PIATCO's unpaid creditors operate NAIA IPT III, the Government is
company should elect to designate an operator for the still at a risk of being liable to PIATCO's creditors should the latter
Development Facility, the concession company shall in good be unable to designate a qualified operator within the prescribed
faith identify and designate a qualified operator acceptable to period.51 In effect, whatever option the Government chooses to
GRP within one hundred eighty (180) days from receipt of take in the event of PIATCO's failure to fulfill its loan
GRP's written notice. If the concession company, acting in obligations, the Government is still at a risk of assuming
good faith and with due diligence, is unable to designate a PIATCO's outstanding loans. This is due to the fact that the
qualified operator within the aforesaid period, then Government would only be free from assuming PIATCO's debts if
GRP shall at the end of the 180-day period take over the the unpaid creditors would be able to designate a qualified operator
Development Facility and assume Attendant Liabilities. within the period provided for in the contract. Thus, the
Government's assumption of liability is virtually out of its
…. control. The Government under the circumstances provided for in
the 1997 Concession Agreement is at the mercy of the existence,
Section 1.06. Attendant Liabilities availability and willingness of a qualified operator. The above
contractual provisions constitute a direct government guarantee
Attendant Liabilities refer to all amounts recorded and which is prohibited by law.
from time to time outstanding in the books of the
Concessionaire as owing to Unpaid Creditors who have One of the main impetus for the enactment of the BOT Law is the
provided, loaned or advanced funds actually used for the lack of government funds to construct the infrastructure and
Project, including all interests, penalties, associated fees, development projects necessary for economic growth and
charges, surcharges, indemnities, reimbursements and other development. This is why private sector resources are being tapped
related expenses, and further including amounts owed by in order to finance these projects. The BOT law allows the private
Concessionaire to its suppliers, contractors and sub- sector to participate, and is in fact encouraged to do so by way of
contractors.48 incentives, such as minimizing the unstable flow of
returns,52 provided that the government would not have to
unnecessarily expend scarcely available funds for the project itself.
As such, direct guarantee, subsidy and equity by the government in reasonably acceptable to both GRP and Senior Lenders, with
these projects are strictly prohibited.53 This is but logical for if the regard, inter alia, to the following parameters:
government would in the end still be at a risk of paying the debts
incurred by the private entity in the BOT projects, then the xxx           xxx           xxx
purpose of the law is subverted.
(iv) If the Concessionaire [PIATCO] is in default
Section 2(n) of the BOT Law defines direct guarantee as follows: under a payment obligation owed to the Senior
Lenders, and as a result thereof the Senior Lenders
(n) Direct government guarantee — An agreement whereby have become entitled to accelerate the Senior Loans,
the government or any of its agencies or local government the Senior Lenders shall have the right to notify
units assume responsibility for the repayment of debt GRP of the same, and without prejudice to any other
directly incurred by the project proponent in rights of the Senior Lenders or any Senior Lenders'
implementing the project in case of a loan default. agent may have (including without limitation under
security interests granted in favor of the Senior
Clearly by providing that the Government "assumes" the attendant Lenders), to either in good faith identify and
liabilities, which consists of PIATCO's unpaid debts, the 1997 designate a nominee which is qualified under sub-
Concession Agreement provided for a direct government guarantee clause (viii)(y) below to operate the Development
for the debts incurred by PIATCO in the implementation of the Facility [NAIA Terminal 3] or transfer the
NAIA IPT III project. It is of no moment that the relevant sections Concessionaire's [PIATCO] rights and obligations
are subsumed under the title of "assignment". The provisions under this Agreement to a transferee which is
providing for direct government guarantee which is prohibited by qualified under sub-clause (viii) below;
law is clear from the terms thereof.
xxx           xxx           xxx
The fact that the ARCA superseded the 1997 Concession Agreement
did not cure this fatal defect. Article IV, Section 4.04(c), in relation (vi) if the Senior Lenders, acting in good faith and
to Article I, Section 1.06, of the ARCA provides: using reasonable efforts, are unable to designate a
nominee or effect a transfer in terms and conditions
Section 4.04 Security satisfactory to the Senior Lenders within one
hundred eighty (180) days after giving GRP notice
xxx           xxx           xxx as referred to respectively in (iv) or (v) above, then
GRP and the Senior Lenders shall endeavor in good
(c) GRP agrees with Concessionaire (PIATCO) that it shall faith to enter into any other arrangement relating to
negotiate in good faith and enter into direct agreement the Development Facility [NAIA Terminal 3] (other
with the Senior Lenders, or with an agent of such Senior than a turnover of the Development Facility [NAIA
Lenders (which agreement shall be subject to the approval of Terminal 3] to GRP) within the following one
the Bangko Sentral ng Pilipinas), in such form as may be hundred eighty (180) days. If no agreement relating
to the Development Facility [NAIA Terminal 3] is It is clear from the foregoing contractual provisions that in the event
arrived at by GRP and the Senior Lenders within the that PIATCO fails to fulfill its loan obligations to its Senior Lenders,
said 180-day period, then at the end thereof the Government is obligated to directly negotiate and enter into an
the Development Facility [NAIA Terminal 3] agreement relating to NAIA IPT III with the Senior Lenders, should
shall be transferred by the Concessionaire the latter fail to appoint a qualified nominee or transferee who will
[PIATCO] to GRP or its designee and GRP shall take the place of PIATCO. If the Senior Lenders and the
make a termination payment to Concessionaire Government are unable to enter into an agreement after the
[PIATCO] equal to the Appraised Value (as prescribed period, the Government must then pay PIATCO, upon
hereinafter defined) of the Development Facility transfer of NAIA IPT III to the Government, termination payment
[NAIA Terminal 3] or the sum of the Attendant equal to the appraised value of the project or the value of the
Liabilities, if greater. Notwithstanding Section attendant liabilities whichever is greater. Attendant liabilities as
8.01(c) hereof, this Agreement shall be deemed defined in the ARCA includes all amounts owed or thereafter may be
terminated upon the transfer of the Development owed by PIATCO not only to the Senior Lenders with whom
Facility [NAIA Terminal 3] to GRP pursuant hereto; PIATCO has defaulted in its loan obligations but to all other persons
who may have loaned, advanced funds or provided any other type of
xxx           xxx           xxx financial facilities to PIATCO for NAIA IPT III. The amount of
PIATCO's debt that the Government would have to pay as a result of
Section 1.06. Attendant Liabilities PIATCO's default in its loan obligations -- in case no qualified
nominee or transferee is appointed by the Senior Lenders and no
Attendant Liabilities refer to all amounts in each case other agreement relating to NAIA IPT III has been reached between
supported by verifiable evidence from time to time owed or the Government and the Senior Lenders -- includes, but is not limited
which may become owing by Concessionaire [PIATCO] to, "all principal, interest, associated fees, charges, reimbursements,
to Senior Lenders or any other persons or entities and other related expenses . . . whether payable at maturity, by
who have provided, loaned, or advanced funds or provided acceleration or otherwise."55
financial facilities to Concessionaire [PIATCO] for the
Project [NAIA Terminal 3], including, without limitation, It is clear from the foregoing that the ARCA provides for a
all principal, interest, associated fees, charges, direct guarantee by the government to pay PIATCO's loans not
reimbursements, and other related expenses (including only to its Senior Lenders but all other entities who provided
the fees, charges and expenses of any agents or trustees of PIATCO funds or services upon PIATCO's default in its loan
such persons or entities), whether payable at maturity, by obligation with its Senior Lenders. The fact that the Government's
acceleration or otherwise, and further including amounts obligation to pay PIATCO's lenders for the latter's obligation would
owed by Concessionaire [PIATCO] to its professional only arise after the Senior Lenders fail to appoint a qualified
consultants and advisers, suppliers, contractors and sub- nominee or transferee does not detract from the fact that, should the
contractors.54 conditions as stated in the contract occur, the ARCA still obligates
the Government to pay any and all amounts owed by PIATCO to its
lenders in connection with NAIA IPT III. Worse, the conditions that
would make the Government liable for PIATCO's debts is triggered The BOT Law and its implementing rules provide that in order for an
by PIATCO's own default of its loan obligations to its Senior unsolicited proposal for a BOT project may be accepted, the
Lenders to which loan contracts the Government was never a party following conditions must first be met: (1) the project involves a new
to. The Government was not even given an option as to what course concept in technology and/or is not part of the list of priority
of action it should take in case PIATCO defaulted in the payment of projects, (2) no direct government guarantee, subsidy or equity is
its senior loans. The Government, upon PIATCO's default, would be required, and (3) the government agency or local government unit
merely notified by the Senior Lenders of the same and it is the Senior has invited by publication other interested parties to a public bidding
Lenders who are authorized to appoint a qualified nominee or and conducted the same.56 The failure to meet any of the above
transferee. Should the Senior Lenders fail to make such an conditions will result in the denial of the proposal. It is further
appointment, the Government is then automatically obligated to provided that the presence of direct government guarantee, subsidy
"directly deal and negotiate" with the Senior Lenders regarding or equity will "necessarily disqualify a proposal from being treated
NAIA IPT III. The only way the Government would not be liable for and accepted as an unsolicited proposal." 57 The BOT Law clearly and
PIATCO's debt is for a qualified nominee or transferee to be strictly prohibits direct government guarantee, subsidy and equity in
appointed in place of PIATCO to continue the construction, unsolicited proposals that the mere inclusion of a provision to that
operation and maintenance of NAIA IPT III. This "pre-condition", effect is fatal and is sufficient to deny the proposal. It stands to
however, will not take the contract out of the ambit of a direct reason therefore that if a proposal can be denied by reason of the
guarantee by the government as the existence, availability and existence of direct government guarantee, then its inclusion in the
willingness of a qualified nominee or transferee is totally out of the contract executed after the said proposal has been accepted is
government's control. As such the Government is virtually at the likewise sufficient to invalidate the contract itself. A prohibited
mercy of PIATCO (that it would not default on its loan obligations provision, the inclusion of which would result in the denial of a
to its Senior Lenders), the Senior Lenders (that they would appoint a proposal cannot, and should not, be allowed to later on be inserted in
qualified nominee or transferee or agree to some other arrangement the contract resulting from the said proposal. The basic rules of
with the Government) and the existence of a qualified nominee or justice and fair play alone militate against such an occurrence and
transferee who is able and willing to take the place of PIATCO in must not, therefore, be countenanced particularly in this instance
NAIA IPT III. where the government is exposed to the risk of shouldering hundreds
of million of dollars in debt.
The proscription against government guarantee in any form is
one of the policy considerations behind the BOT Law. Clearly, in This Court has long and consistently adhered to the legal maxim that
the present case, the ARCA obligates the Government to pay for all those that cannot be done directly cannot be done indirectly. 58 To
loans, advances and obligations arising out of financial facilities declare the PIATCO contracts valid despite the clear statutory
extended to PIATCO for the implementation of the NAIA IPT III prohibition against a direct government guarantee would not
project should PIATCO default in its loan obligations to its Senior only make a mockery of what the BOT Law seeks to prevent --
Lenders and the latter fails to appoint a qualified nominee or which is to expose the government to the risk of incurring a
transferee. This in effect would make the Government liable for monetary obligation resulting from a contract of loan between
PIATCO's loans should the conditions as set forth in the ARCA the project proponent and its lenders and to which the
arise. This is a form of direct government guarantee. Government is not a party to -- but would also render the BOT
Law useless for what it seeks to achieve –- to make use of the as the temporary takeover by the government is in exercise of
resources of the private sector in the "financing, operation and its police power and not of its power of eminent domain.
maintenance of infrastructure and development
59
projects"  which are necessary for national growth and Article V, Section 5.10 (c) of the 1997 Concession Agreement
development but which the government, unfortunately, could ill- provides:
afford to finance at this point in time.
Section 5.10 Temporary Take-over of operations by GRP.
IV
….
Temporary takeover of business affected with public interest
(c) In the event the development Facility or any part thereof
Article XII, Section 17 of the 1987 Constitution provides: and/or the operations of Concessionaire or any part thereof,
become the subject matter of or be included in any notice,
Section 17. In times of national emergency, when the public notification, or declaration concerning or relating to
interest so requires, the State may, during the emergency and acquisition, seizure or appropriation by GRP in times of war
under reasonable terms prescribed by it, temporarily take or national emergency, GRP shall, by written notice to
over or direct the operation of any privately owned public Concessionaire, immediately take over the operations of the
utility or business affected with public interest. Terminal and/or the Terminal Complex. During such take
over by GRP, the Concession Period shall be suspended;
The above provision pertains to the right of the State in times of provided, that upon termination of war, hostilities or national
national emergency, and in the exercise of its police power, to emergency, the operations shall be returned to
temporarily take over the operation of any business affected with Concessionaire, at which time, the Concession period shall
public interest. In the 1986 Constitutional Commission, the term commence to run again. Concessionaire shall be entitled to
"national emergency" was defined to include threat from external reasonable compensation for the duration of the
aggression, calamities or national disasters, but not strikes "unless it temporary take over by GRP, which compensation shall
is of such proportion that would paralyze government service." 60 The take into account the reasonable cost for the use of the
duration of the emergency itself is the determining factor as to how Terminal and/or Terminal Complex, (which is in the
long the temporary takeover by the government would last. 61 The amount at least equal to the debt service requirements of
temporary takeover by the government extends only to the operation Concessionaire, if the temporary take over should occur at
of the business and not to the ownership thereof. As such the time when Concessionaire is still servicing debts owed to
the government is not required to compensate the private entity- project lenders), any loss or damage to the Development
owner of the said business as there is no transfer of Facility, and other consequential damages. If the parties
ownership, whether permanent or temporary. The private entity- cannot agree on the reasonable compensation of
owner affected by the temporary takeover cannot, likewise, claim Concessionaire, or on the liability of GRP as aforesaid, the
just compensation for the use of the said business and its properties matter shall be resolved in accordance with Section 10.01
[Arbitration]. Any amount determined to be payable by GRP
to Concessionaire shall be offset from the amount next Sec. 19. The state shall regulate or prohibit monopolies when
payable by Concessionaire to GRP. 62 the public interest so requires. No combinations in restraint
of trade or unfair competition shall be allowed.
PIATCO cannot, by mere contractual stipulation, contravene the
Constitutional provision on temporary government takeover and Clearly, monopolies are not per se prohibited by the Constitution but
obligate the government to pay "reasonable cost for the use of may be permitted to exist to aid the government in carrying on an
the Terminal and/or Terminal Complex."63 Article XII, section 17 enterprise or to aid in the performance of various services and
of the 1987 Constitution envisions a situation wherein the exigencies functions in the interest of the public.67 Nonetheless, a
of the times necessitate the government to "temporarily take over or determination must first be made as to whether public interest
direct the operation of any privately owned public utility or business requires a monopoly. As monopolies are subject to abuses that can
affected with public interest." It is the welfare and interest of the inflict severe prejudice to the public, they are subject to a higher
public which is the paramount consideration in determining whether level of State regulation than an ordinary business undertaking.
or not to temporarily take over a particular business. Clearly, the
State in effecting the temporary takeover is exercising its police In the cases at bar, PIATCO, under the 1997 Concession Agreement
power. Police power is the "most essential, insistent, and illimitable and the ARCA, is granted the "exclusive right to operate a
of powers."64 Its exercise therefore must not be unreasonably commercial international passenger terminal within the Island of
hampered nor its exercise be a source of obligation by the Luzon" at the NAIA IPT III. 68 This is with the exception of already
government in the absence of damage due to arbitrariness of its existing international airports in Luzon such as those located in the
exercise.65 Thus, requiring the government to pay reasonable Subic Bay Freeport Special Economic Zone ("SBFSEZ"), Clark
compensation for the reasonable use of the property pursuant to the Special Economic Zone ("CSEZ") and in Laoag City. 69 As such,
operation of the business contravenes the Constitution. upon commencement of PIATCO's operation of NAIA IPT III,
Terminals 1 and 2 of NAIA would cease to function as international
V passenger terminals. This, however, does not prevent MIAA to use
Terminals 1 and 2 as domestic passenger terminals or in any other
Regulation of Monopolies manner as it may deem appropriate except those activities that would
compete with NAIA IPT III in the latter's operation as an
A monopoly is "a privilege or peculiar advantage vested in one or international passenger terminal.70 The right granted to PIATCO
more persons or companies, consisting in the exclusive right (or to exclusively operate NAIA IPT III would be for a period of
power) to carry on a particular business or trade, manufacture a twenty-five (25) years from the In-Service Date 71 and renewable for
particular article, or control the sale of a particular another twenty-five (25) years at the option of the
commodity."66 The 1987 Constitution strictly regulates government.72 Both the 1997 Concession Agreement and the
monopolies, whether private or public, and even provides for their ARCA further provide that, in view of the exclusive right
prohibition if public interest so requires. Article XII, Section 19 of granted to PIATCO, the concession contracts of the service
the 1987 Constitution states: providers currently servicing Terminals 1 and 2 would no longer
be renewed and those concession contracts whose expiration are
subsequent to the In-Service Date would cease to be effective on xxx           xxx           xxx
the said date.73
(e) GRP confirms that certain concession
The operation of an international passenger airport terminal is no agreements relative to certain services and operations
doubt an undertaking imbued with public interest. In entering into a currently being undertaken at the Ninoy Aquino
Build–Operate-and-Transfer contract for the construction, operation International Airport passenger Terminal I have a validity
and maintenance of NAIA IPT III, the government has determined period extending beyond the In-Service Date. GRP
that public interest would be served better if private sector resources through DOTC/MIAA, confirms that these services and
were used in its construction and an exclusive right to operate be operations shall not be carried over to the Terminal and the
granted to the private entity undertaking the said project, in this case Concessionaire is under no legal obligation to permit such
PIATCO. Nonetheless, the privilege given to PIATCO is subject to carry-over except through a separate agreement duly
reasonable regulation and supervision by the Government through entered into with Concessionaire. In the event
the MIAA, which is the government agency authorized to operate the Concessionaire becomes involved in any litigation initiated
NAIA complex, as well as DOTC, the department to which MIAA is by any such concessionaire or operator, GRP undertakes and
attached.74 hereby holds Concessionaire free and harmless on full
indemnity basis from and against any loss and/or any
This is in accord with the Constitutional mandate that a monopoly liability resulting from any such litigation, including the cost
which is not prohibited must be regulated. 75 While it is the declared of litigation and the reasonable fees paid or payable to
policy of the BOT Law to encourage private sector participation by Concessionaire's counsel of choice, all such amounts shall be
"providing a climate of minimum government regulations," 76 the fully deductible by way of an offset from any amount which
same does not mean that Government must completely surrender its the Concessionaire is bound to pay GRP under this
sovereign power to protect public interest in the operation of a public Agreement.
utility as a monopoly. The operation of said public utility can not be
done in an arbitrary manner to the detriment of the public which it During the oral arguments on December 10, 2002, the
seeks to serve. The right granted to the public utility may be counsel for the petitioners-in-intervention for G.R. No.
exclusive but the exercise of the right cannot run riot. Thus, while 155001 stated that there are two service providers whose
PIATCO may be authorized to exclusively operate NAIA IPT III as contracts are still existing and whose validity extends
an international passenger terminal, the Government, through the beyond the In-Service Date. One contract remains valid until
MIAA, has the right and the duty to ensure that it is done in accord 2008 and the other until 2010.77
with public interest. PIATCO's right to operate NAIA IPT III cannot
also violate the rights of third parties. We hold that while the service providers presently operating at
NAIA Terminal 1 do not have an absolute right for the renewal or
Section 3.01(e) of the 1997 Concession Agreement and the ARCA the extension of their respective contracts, those contracts whose
provide: duration extends beyond NAIA IPT III's In-Service-Date should not
be unduly prejudiced. These contracts must be respected not just by
3.01 Concession Period the parties thereto but also by third parties. PIATCO cannot, by law
and certainly not by contract, render a valid and binding contract Section 4.04(c) in relation to Section 1.06 of the ARCA, which
nugatory. PIATCO, by the mere expedient of claiming an exclusive constitute a direct government guarantee expressly prohibited by,
right to operate, cannot require the Government to break its among others, the BOT Law and its Implementing Rules and
contractual obligations to the service providers. In contrast to the Regulations are also null and void. The Supplements, being
arrastre and stevedoring service providers in the case of Anglo-Fil accessory contracts to the ARCA, are likewise null and void.
Trading Corporation v. Lazaro78 whose contracts consist of
temporary hold-over permits, the affected service providers in the WHEREFORE, the 1997 Concession Agreement, the Amended and
cases at bar, have a valid and binding contract with the Government, Restated Concession Agreement and the Supplements thereto are set
through MIAA, whose period of effectivity, as well as the other aside for being null and void.
terms and conditions thereof, cannot be violated.
SO ORDERED.
In fine, the efficient functioning of NAIA IPT III is imbued with
public interest. The provisions of the 1997 Concession Agreement Davide, Jr., C.J., Bellosillo, Ynares-Santiago, Sandoval-Gutierrez,
and the ARCA did not strip government, thru the MIAA, of its right Austria-Martinez, Corona, and Carpio-Morales, JJ., concur.
to supervise the operation of the whole NAIA complex, including Vitug, J., see separate (dissenting) opinion.
NAIA IPT III. As the primary government agency tasked with the Panganiban, J., please see separate opinion.
job,79 it is MIAA's responsibility to ensure that whoever by contract Quisumbing, J., no jurisdiction, please see separate opinion of J.
is given the right to operate NAIA IPT III will do so within the Vitug in which he concurs.
bounds of the law and with due regard to the rights of third parties Carpio, J., no part.
and above all, the interest of the public. Callejo, Sr., J., also concur in the separate opinion of J. Panganiban.
Azcuna, J., joins the separate opinion of J. Vitug.
VI

CONCLUSION

In sum, this Court rules that in view of the absence of the requisite SEPARATE OPINIONS
financial capacity of the Paircargo Consortium, predecessor of
respondent PIATCO, the award by the PBAC of the contract for the VITUG, J.:
construction, operation and maintenance of the NAIA IPT III is null
and void. Further, considering that the 1997 Concession Agreement This Court is bereft of jurisdiction to hear the petitions at bar. The
contains material and substantial amendments, which amendments Constitution provides that the Supreme Court shall exercise original
had the effect of converting the 1997 Concession Agreement into an jurisdiction over, among other actual controversies, petitions
entirely different agreement from the contract bidded upon, the 1997 for certiorari, prohibition, mandamus, quo warranto, and habeas
Concession Agreement is similarly null and void for being contrary corpus.1 The cases in question, although denominated to be petitions
to public policy. The provisions under Sections 4.04(b) and (c) in for prohibition, actually pray for the nullification of the PIATCO
relation to Section 1.06 of the 1997 Concession Agreement and
contracts and to restrain respondents from implementing said Court assumes no jurisdiction over petitions for declaratory relief
agreements for being illegal and unconstitutional. which are cognizable by regional trial courts. 5

Section 2, Rule 65 of the Rules of Court states: As I have so expressed in Tolentino vs. Secretary of
Finance,6 reiterated in Santiago vs. Guingona, Jr.7 , the Supreme
"When the proceedings of any tribunal, corporation, board, Court should not be thought of as having been tasked with the
officer or person, whether exercising judicial, quasi-judicial awesome responsibility of overseeing the entire bureaucracy.
or ministerial functions, are without or in excess of its or his Pervasive and limitless, such as it may seem to be under the 1987
jurisdiction, or with grave abuse of discretion amounting to Constitution, judicial power still succumbs to the paramount doctrine
lack or excess of jurisdiction, and there is no appeal or any of separation of powers. The Court may not at good liberty intrude,
other plain, speedy and adequate remedy in the ordinary in the guise of sovereign imprimatur, into every affair of
course of law, a person aggrieved thereby may file a verified government. What significance can still then remain of the time-
petition in the proper court, alleging the facts with certainty honored and widely acclaimed principle of separation of powers if, at
and praying that judgment be rendered commanding the every turn, the Court allows itself to pass upon at will the disposition
respondent to desist from further proceedings in the action or of a co-equal, independent and coordinate branch in our system of
matter specified therein, or otherwise granting such government. I dread to think of the so varied uncertainties that such
incidental reliefs as law and justice may require." an undue interference can lead to.

The rule is explicit. A petition for prohibition may be filed against a Accordingly, I vote for the dismissal of the petition.
tribunal, corporation, board, officer or person, exercising judicial,
quasi-judicial or ministerial functions. What the petitions seek from Quisumbing, and Azcuna, JJ., concur.
respondents do not involve judicial, quasi-judicial or ministerial
functions. In prohibition, only legal issues affecting the jurisdiction
of the tribunal, board or officer involved may be resolved on the
basis of undisputed facts.2 The parties allege, respectively,
contentious evidentiary facts. It would be difficult, if not anomalous, PANGANIBAN, J.:
to decide the jurisdictional issue on the basis of the contradictory
factual submissions made by the parties. 3 As the Court has so often The five contracts for the construction and the operation of Ninoy
exhorted, it is not a trier of facts. Aquino International Airport (NAIA) Terminal III, the subject of the
consolidated Petitions before the Court, are replete with outright
The petitions, in effect, are in the nature of actions for declaratory violations of law, public policy and the Constitution. The only proper
relief under Rule 63 of the Rules of Court. The Rules provide that thing to do is declare them all null and void ab initio and let the chips
any person interested under a contract may, before breach or fall where they may. Fiat iustitia ruat coelum.
violation thereof, bring an action in the appropriate Regional Trial
Court to determine any question of construction or validity arising, The facts leading to this controversy are already well presented in
and for a declaration of his rights or duties thereunder. 4 The Supreme the ponencia. I shall not burden the readers with a retelling thereof.
Instead, I will cut to the chase and directly address the two sets of gut been in past cases. This Court must be permitted to perform its
issues: constitutional duty of determining whether the other agencies of
government have acted within the limits of the Constitution and the
1. The first issue is procedural: Does the Supreme Court have laws, or if they have gravely abused the discretion entrusted to them. 1
original jurisdiction to hear and decide the Petitions? Corollarily, do
petitioners have locus standi and should this Court decide the cases Hierarchy of Courts
without any mandatory referral to arbitration?
The Court has, in the past, held that questions relating to gargantuan
2. The second one is substantive in character: Did the subject government contracts ought to be settled without delay. 2 This
contracts violate the Constitution, the laws, and public policy to such holding applies with greater force to the instant cases. Respondent
an extent as to render all of them void and inexistent? Piatco is partly correct in averring that petitioners can obtain relief
from the regional trial courts via an action to annul the contracts.
My answer to all the above questions is a firm "Yes."
Nevertheless, the unavoidable consequence of having to await the
The Procedural Issue: rendition and the finality of any such judgment would be a prolonged
Jurisdiction, Standing and Arbitration state of uncertainty that would be prejudicial to the nation, the parties
and the general public. And, in light of the feared loss of jobs of the
Definitely and surely, the issues involved in these Petitions are petitioning workers, consequent to the inevitable pretermination of
clearly of transcendental importance and of national interest. The contracts of the petitioning service providers that will follow upon
subject contracts pertain to the construction and the operation of the the heels of the impending opening of NAIA Terminal III, the need
country's premiere international airport terminal - an ultramodern for relief is patently urgent, and therefore, direct resort to this Court
world-class public utility that will play a major role in the country's through the special civil action of prohibition is thus justified. 3
economic development and serve to project a positive image of our
country abroad. The five build-operate-&-transfer (BOT) contracts, Contrary to Piatco's argument that the resolution of the issues raised
while entailing the investment of billions of pesos in capital and the in the Petitions will require delving into factual questions, 4 I submit
availment of several hundred millions of dollars in loans, contain that their disposition ultimately turns on questions of law. 5 Further,
provisions that tend to establish a monopoly, require the many of the significant and relevant factual questions can be easily
disbursements of public funds sans appropriations, and provide addressed by an examination of the documents submitted by the
government guarantees in violation of statutory prohibitions, as well parties. In any event, the Petitions raise some novel questions
as other provisions equally offensive to law, public policy and the involving the application of the amended BOT Law, which this
Constitution. Public interest will inevitably be affected thereby. Court has seen fit to tackle.

Thus, objections to these Petitions, grounded upon (a) the hierarchy Arbitration
of courts, (b) the need for arbitration prior to court action, and (c) the
alleged lack of sufficient personality, standing or interest, being in Should the dispute be referred to arbitration prior to judicial
the main procedural matters, must now be set aside, as they have recourse? Respondent Piatco claims that Section 10.02 of the
Amended and Restated Concession Agreement (ARCA) provides for Reyes,7 this Court held that the petitioner therein, suing as a citizen,
arbitration under the auspices of the International Chamber of taxpayer and member of the House of Representatives, was
Commerce to settle any dispute or controversy or claim arising in sufficiently clothed with standing to bring the suit questioning the
connection with the Concession Agreement, its amendments and validity of the assailed contract. The Court cited the fact that public
supplements. The government disagrees, however, insisting that interest was involved, in view of the important role of the Manila
there can be no arbitration based on Section 10.02 of the ARCA, International Container Terminal (MICT) in the country's economic
since all the Piatco contracts are void ab initio. Therefore, all development and the magnitude of the financial consideration. This,
contractual provisions, including Section 10.02 of the ARCA, are notwithstanding the fact that expenditure of public funds was not
likewise void, inexistent and inoperative. To support its stand, the required under the assailed contract.
government cites Chavez v. Presidential Commission on Good
Government:6 "The void agreement will not be rendered operative by In the cases presently under consideration, petitioners' personal and
the parties' alleged performance (partial or full) of their respective substantial interest in the controversy is shown by the fact that
prestations. A contract that violates the Constitution and the law is certain provisions in the Piatco contracts create obligations on the
null and void ab initio and vests no rights and creates no part of government (through the DOTC and the MIAA) to disburse
obligations. It produces no legal effect at all." public funds without prior congressional appropriations.

As will be discussed at length later, the Piatco contracts are indeed Petitioners thus correctly assert that the injury to them has a twofold
void in their entirety; thus, a resort to the aforesaid provision on aspect: (1) they are adversely affected as taxpayers on account of the
arbitration is unavailing. Besides, petitioners and petitioners-in- illegal disbursement of public funds; and (2) they are
intervention have pointed out that, even granting arguendo that the prejudiced qua legislators, since the contractual provisions requiring
arbitration clause remained a valid provision, it still cannot bind the government to incur expenditures without appropriations also
them inasmuch as they are not parties to the Piatco contracts. And in operate as limitations upon the exclusive power and prerogative of
the final analysis, it is unarguable that the arbitration process Congress over the public purse. As members of the House of
provided for under Section 10.02 of the ARCA, to be undertaken by Representatives, they are actually deprived of discretion insofar as
a panel of three (3) arbitrators appointed in accordance with the the inclusion of those items of expenditure in the budget is
Rules of Arbitration of the International Chamber of Commerce, will concerned. To prevent such encroachment upon the legislative
not be able to address, determine and definitively resolve the privilege and obviate injury to the institution of which they are
constitutional and legal questions that have been raised in the members, petitioners-legislators have locus standi to bring suit.
Petitions before us.
Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus
Locus Standi possessed of standing to challenge the illegal disbursement of public
funds. Messrs. Agan et al., in particular, are employees (or
Given this Court's previous decisions in cases of similar import, no representatives of employees) of various service providers that have
one will seriously doubt that, being taxpayers and members of the (1) existing concession agreements with the MIAA to provide airport
House of Representatives, Petitioners Baterina et al. have locus services necessary to the operation of the NAIA and (2) service
standi to bring the Petition in GR No. 155547. In Albano v.
agreements to furnish essential support services to the international The Substantive Issue:
airlines operating at the NAIA. Violations of the Constitution and the Laws

On the other hand, Messrs. Lopez et al. are employees of the MIAA. From the Outset, the Bidding Process Was Flawed and Tainted
These petitioners (Messrs. Agan et al. and Messrs. Lopez et al.) are
confronted with the prospect of being laid off from their jobs and After studying the documents submitted and arguments advanced by
losing their means of livelihood when their employer-companies are the parties, I have no doubt that, right at the outset, Piatco was not
forced to shut down or otherwise retrench and cut back on qualified to participate in the bidding process for the Terminal III
manpower. Such development would result from the imminent project, but was nevertheless permitted to do so. It even won the
implementation of certain provisions in the contracts that tend bidding and was helped along by what appears to be a series of
toward the creation of a monopoly in favor of Piatco, its subsidiaries collusive and corrosive acts.
and related companies.
The build-operate-and-transfer (BOT) project for the NAIA
Petitioners-in-intervention are service providers in the business of Passenger Terminal III comes under the category of an "unsolicited
furnishing airport-related services to international airlines and proposal," which is the subject of Section 4-A of the BOT
passengers in the NAIA and are therefore competitors of Piatco as Law.10 The unsolicited proposal was originally submitted by the
far as that line of business is concerned. On account of provisions in Asia's Emerging Dragon Corporation (AEDC) to the Department of
the Piatco contracts, petitioners-in-intervention have to enter into a Transportation and Communications (DOTC) and the Manila
written contract with Piatco so as not to be shut out of NAIA International Airport Authority (MIAA), which reviewed and
Terminal III and barred from doing business there. Since there is no approved the proposal.
provision to ensure or safeguard free and fair competition, they are
literally at its mercy. They claim injury on account of their The draft of the concession agreement as negotiated between AEDC
deprivation of property (business) and of the liberty to contract, and DOTC/MIAA was endorsed to the National Economic
without due process of law. Development Authority (NEDA-ICC), which in turn reviewed it on
the basis of its scope, economic viability, financial indicators and
And even if petitioners and petitioners-in-intervention were not risks; and thereafter approved it for bidding.
sufficiently clothed with legal standing, I have at the outset already
established that, given its impact on the public and on national The DOTC/MIAA then prepared the Bid Documents, incorporating
interest, this controversy is laden with transcendental importance and therein the negotiated Draft Concession Agreement, and published
constitutional significance. Hence, I do not hesitate to adopt the same invitations for public bidding, i.e., for the submission of comparative
position as was enunciated in Kilosbayan v. Guingona Jr.8 that "in or competitive proposals. Piatco's predecessor-in-interest, the
cases of transcendental importance, the Court may relax the Paircargo Consortium, was the only company that submitted a
standing requirements and allow a suit to prosper even when there is competitive bid or price challenge.
no direct injury to the party claiming the right of judicial review."9
At this point, I must emphasize that the law requires the award of a
BOT project to the bidder that has satisfied the minimum
requirements; and met the technical, financial, organizational and Aside from complying with the legal and technical requirements
legal standards provided in the BOT Law. Section 5 of this statute (track record or experience of the firm and its key personnel), a
states: project proponent desiring to prequalify must also demonstrate its
financial capacity to undertake the project. To establish such
"Sec. 5. Public bidding of projects. - . . . capability, a proponent must prove that it is able to raise the
minimum amount of equity required for the project and to procure
"In the case of a build-operate-and-transfer arrangement, the the loans or financing needed for it. Section 5.4(c) of the 1994 IRR
contract shall be awarded to the bidder who, having provides:
satisfied the minimum financial, technical, organizational
and legal standards required by this Act, has submitted "Sec. 5.4. Prequalification Requirements. - To pre-qualify, a
the lowest bid and most favorable terms for the project, project proponent must comply with the following
based on the present value of its proposed tolls, fees, rentals requirements:
and charges over a fixed term for the facility to be
constructed, rehabilitated, operated and maintained x x x           x x x           x x x
according to the prescribed minimum design and
performance standards, plans and specifications. . . ." "c. Financial Capability. The project proponent must have
(Emphasis supplied.) adequate capability to sustain the financing requirements for
the detailed engineering design, construction, and/or
The same provision requires that the price challenge via public operation and maintenance phases of the project, as the case
bidding "must be conducted under a two-envelope/two-stage system: may be. For purposes of prequalification, this capability
the first envelope to contain the technical proposal and the second shall be measured in terms of: (i) proof of the ability of the
envelope to contain the financial proposal." Moreover, the 1994 project proponent and/or the consortium to provide a
Implementing Rules and Regulations (IRR) provide that only those minimum amount of equity to the project, and (ii) a letter
bidders that have passed the prequalification stage are permitted to testimonial from reputable banks attesting that the project
have their two envelopes reviewed. proponent and/or members of the consortium are banking
with them, that they are in good financial standing, and that
In other words, prospective bidders must prequalify by submitting they have adequate resources. The government Agency/LGU
their prequalification documents for evaluation; and only the pre- concerned shall determine on a project-to-project basis, and
qualified bidders would be entitled to have their bids opened, before prequalification, the minimum amount of equity
evaluated and appreciated. On the other hand, disqualified bidders needed. . . . ." (Italics supplied)
are to be informed of the reason for their disqualification. This
procedure was confirmed and reiterated in the Bid Documents, Since the minimum amount of equity for the project was set at 30
which I quote thus: "Prequalified proponents will be considered percent12 of the minimum project cost of US$350 million, the
eligible to move to second stage technical proposal evaluation. The minimum amount of equity required of any proponent stood at
second and third envelopes of pre-disqualified proponents will be US$105 million. Converted to pesos at the exchange rate then of
returned."11
P26.239 to US$1.00 (as quoted by the Bangko Sentral ng Pilipinas), need to comply with the financial capability requirement imposed by
the peso equivalent of the minimum equity was P2,755,095,000. the BOT Law and IRR. This position is unmistakably and squarely at
odds with the Supreme Court's consistent doctrine emphasizing the
However, the combined equity or net worth of the Paircargo strict application of pertinent rules, regulations and guidelines for the
consortium stood at only P558,384,871.55.13 This amount was only public bidding process, in order to place each bidder - actual or
slightly over 6 percent of the minimum project cost and very much potential - on the same footing. Thus, it is unarguably irregular and
short of the required minimum equity, which was equivalent to 30 contrary to the very concept of public bidding to permit a variance
percent of the project cost. Such deficiency should have immediately between the conditions under which bids are invited and those under
caused the disqualification of the Paircargo consortium. This matter which proposals are submitted and approved.
was brought to the attention of the Prequalification and Bidding
Committee (PBAC). Republic v. Capulong,14 teaches that if one bidder is relieved from
having to conform to the conditions that impose some duty upon it,
Notwithstanding the glaring deficiency, DOTC Undersecretary that bidder is not contracting in fair competition with those bidders
Primitivo C. Cal, concurrent chair of the PBAC, declared in a that propose to be bound by all conditions. The essence of public
Memorandum dated 14 October 1996 that "the Challenger bidding is, after all, an opportunity for fair competition and a basis
(Paircargo consortium) was found to have a combined net worth of for the precise comparison of bids. 15 Thus, each bidder must bid
P3,926,421,242.00 that could support a project costing under the same conditions; and be subject to the same guidelines,
approximately P13 billion." To justify his conclusion, he asserted: requirements and limitations. The desired result is to be able to
"It is not a requirement that the networth must be `unrestricted'. To determine the best offer or lowest bid, all things being equal.
impose this as a requirement now will be nothing less than unfair."
Inasmuch as the Paircargo consortium did not possess the minimum
He further opined, "(T)he networth reflected in the Financial equity equivalent to 30 percent of the minimum project cost, it
Statement should not be taken as the amount of money to be used to should not have been prequalified or allowed to participate further in
answer the required thirty (30%) percent equity of the challenger but the bidding. The Prequalification and Bidding Committee (PBAC)
rather to be used in establishing if there is enough basis to believe should therefore not have opened the two envelopes of the
that the challenger can comply with the required 30% equity. In fact, consortium containing its technical and financial proposals; required
proof of sufficient equity is required as one of the conditions for AEDC to match the consortium's bid; 16 or awarded the Concession
award of contract (Sec. 12.1 of IRR of the BOT Law) but not for Agreement to the consortium's successor-in-interest, Piatco.
prequalification (Sec. 5.4 of same document)."
As there was effectively no public bidding to speak of, the entire
On the basis of the foregoing dubious declaration, the Paircargo bidding process having been flawed and tainted from the very outset,
consortium was deemed prequalified and thus permitted to proceed therefore, the award of the concession to Paircargo's successor Piatco
to the other stages of the bidding process. was void, and the Concession Agreement executed with the latter
was likewise void ab initio. For this reason, Piatco cannot and should
By virtue of the prequalified status conferred upon the Paircargo, not be allowed to benefit from that Agreement. 17
Undersecretary Cal's findings in effect relieved the consortium of the
AEDC Was Deprived of the Right to Match PIATCO's Price project they conceptualized, involving the use of new technology or
Challenge concepts, through the mechanism of matching a price challenge.

In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal A competing bid is never just any figure conjured from out of the
declared that, for purposes of matching the price challenge of Piatco, blue; it is arrived at after studying economic, financial, technical and
AEDC as originator of the unsolicited proposal would be permitted other, factors; it is likewise based on certain assumptions as to the
access only to the schedule of proposed Annual Guaranteed nature of the business, the market potentials, the probable demand
Payments submitted by Piatco, and not to the latter's financial and for the product or service, the future behavior of cost items, political
technical proposals that constituted the basis for the price challenge and other risks, and so on. It is thus self-evident that in order to be
in the first place. This was supposedly in keeping with Section 11.6 able to intelligently match a bid or price challenge, a bidder must be
of the 1994 IRR, which provides that proprietary information is to be given access to the assumptions and the calculations that went into
respected, protected and treated with utmost confidentiality, and is crafting the competing bid.
therefore not to form part of the bidding/tender and related
documents. In this instance, the financial and technical proposals of Piatco would
have provided AEDC with the necessary information to enable it to
This pronouncement, I believe, was a grievous misapplication of the make a reasonably informed matching bid. To put it more simply, a
mentioned provision. The "proprietary information" referred to in bidder unable to access the competitor's assumptions will never
Section 11.6 of the IRR pertains only to the proprietary information figure out how the competing bid came about; requiring him to
of the originator of an unsolicited proposal, and not to those "counter-propose" is like having him shoot at a target in the dark
belonging to a challenger. The reason for the protection accorded while blindfolded.
proprietary information at all is the fact that, according to Section 4-
A of the BOT Law as amended, a proposal qualifies as an By withholding from AEDC the challenger's financial and technical
"unsolicited proposal" when it pertains to a project that involves "a proposals containing the critical information it needed,
new concept or technology", and/or a project that is not on the Undersecretary Cal actually and effectively deprived AEDC of the
government's list of priority projects. ability to match the price challenge. One could say that AEDC did
not have the benefit of a "level playing field." It seems to me,
To be considered as utilizing a new concept or technology, a project though, that AEDC was actually shut out of the game altogether.
must involve the possession of exclusive rights (worldwide or
regional) over a process; or possession of intellectual property rights At the end of the day, the bottom line is that the validity and the
over a design, methodology or engineering concept. 18 Patently, the propriety of the award to Piatco had been irreparably impaired.
intent of the BOT Law is to encourage individuals and groups to
come up with creative innovations, fresh ideas and new technology. Delayed Issuance of the Notice of Award Violated the BOT Law
Hence, the significance and necessity of protecting proprietary and the IRR
information in connection with unsolicited proposals. And to make
the encouragement real, the law also extends to such individuals and Section 9.5 of the IRR requires that the Notice of Award must
groups what amounts to a "right of first refusal" to undertake the indicate the time frame within which the winner of the bidding (and
therefore the prospective awardee) shall submit the prescribed submitted to the ICC for clearance on a no-objection basis. If the
performance security, proof of commitment of equity contributions, draft contract includes government undertakings already previously
and indications of sources of financing (loans); and, in the case of approved, then the submission shall be for information only.
joint ventures, an agreement showing that the members are jointly
and severally responsible for the obligations of the project proponent However, should there be additional or new provisions different
under the contract. from the original government undertakings, the draft shall have to be
reviewed and approved. The ICC has 15 working days to act thereon,
The purpose of having a definite and firm timetable for the and unless otherwise specified, its failure to act on the contract
submission of the aforementioned requirements is not only to prevent within the specified time frame signifies that the agency or LGU may
delays in the project implementation, but also to expose and weed proceed with the award. The head of agency or LGU shall approve
out unqualified proponents, who might have unceremoniously the Notice of Award within seven days of the clearance by the ICC
slipped through the earlier prequalification process, by compelling on a no-objection basis, and the Notice itself has to be issued within
them to put their money where their mouths are, so to speak. seven days thereafter.

Nevertheless, this provision can be easily circumvented by merely The highly regulated time-frames within which the agents of
postponing the actual issuance of the Notice of Award, in order to government were to act evinced the intent to impose upon them the
give the favored proponent sufficient time to comply with the duty to act expeditiously throughout the process, to the end that the
requirements. Hence, to avert or minimize the manipulation of the project be prosecuted and implemented without delay. This regulated
post-bidding process, the IRR not only set out the precise sequence scenario was likewise intended to discourage collusion and
of events occurring between the completion of the evaluation of the substantially reduce the opportunity for agents of government to
technical bids and the issuance of the Notice of Award, but also abuse their discretion in the course of the award process.
specified the timetables for each such event. Definite allowable
extensions of time were provided for, as were the consequences of a Despite the clear timetables set out in the IRR, several lengthy and
failure to meet a particular deadline. still-unexplained delays occurred in the award process, as can be
observed from the presentation made by the counsel for public
In particular, Section 9.1 of the 1994 IRR prescribed that within 30 respondents,19 quoted hereinbelow:
calendar days from the time the second-stage evaluation shall have
been completed, the Committee must come to a decision whether or "11 Dec. 1996 - The Paircargo Joint Venture was informed
not to award the contract and, within 7 days therefrom, the Notice of by the PBAC that AEDC failed to match and that
Award must be approved by the head of agency or local government negotiations preparatory to Notice of Award should be
unit (LGU) concerned, and its issuance must follow within another 7 commenced. This was the decision to award that should
days thereafter. have commenced the running of the 7-day period to approve
the Notice of Award, as per Section 9.1 of the IRR, or to
Section 9.2 of the IRR set the procedure applicable to projects submit the draft contract to the ICC for approval
involving substantial government undertakings as follows: Within 7 conformably with Section 9.2.
days after the decision to award is made, the draft contract shall be
"01 April 1997 - The PBAC resolved that a copy of the final account of such violation, the award of the contract to Piatco, which
draft of the Concession Agreement be submitted to the undoubtedly gained time and benefited from the delays, must be
NEDA for clearance on a no-objection basis. This resolution deemed null and void from the beginning.
came more than 3 months too late as it should have been
made on the 20th of December 1996 at the latest. Further Amendments Resulted in a Substantially Different
Contract, Awarded Without Public Bidding
"16 April 1997 - The PBAC resolved that the period of
signing the Concession Agreement be extended by 15 days. But the violations and desecrations did not stop there. After the
PBAC made its decision on December 11, 1996 to award the
"18 April 1997 - NEDA approved the Concession contract to Piatco, the latter negotiated changes to the Contract
Agreement. Again this is more than 3 months too late as the bidded out and ended up with what amounts to a substantially new
NEDA's decision should have been released on the 16th of contract without any public bidding. This Contract was subsequently
January 1997 or fifteen days after it should have been further amended four more times through negotiation and without
submitted to it for review. any bidding. Thus, the contract actually executed between Piatco and
DOTC/MIAA on July 12, 1997 (the Concession Agreement or "CA")
"09 July 1997 - The Notice of Award was issued to differed from the contract bidded out (the draft concession agreement
PIATCO. Following the provisions of the IRR, the Notice of or "DCA") in the following very significant respects:
Award should have been issued fourteen days after NEDA's
approval, or the 28th of January 1997. In any case, even if it 1. The CA inserted stipulations creating a monopoly in favor
were to be assumed that the release of NEDA's approval on of Piatco in the business of providing airport-related services
the 18th of April was timely, the Notice of Award should for international airlines and passengers. 21
have been issued on the 9th of May 1997. In both cases,
therefore, the release of the Notice of Award occurred in a 2. The CA provided that government is to answer for Piatco's
decidedly less than timely fashion." unpaid loans and debts (lumped under the term Attendant
Liabilities) in the event Piatco fails to pay its senior
This chronology of events bespeaks an unmistakable disregard, if not lenders.22
disdain, by the persons in charge of the award process for the time
limitations prescribed by the IRR. Their attitude flies in the face of 3. The CA provided that in case of termination of the
this Court's solemn pronouncement in Republic v. Capulong,20 that contract due to the fault of government, government shall
"strict observance of the rules, regulations and guidelines of the pay all expenses that Piatco incurred for the project plus the
bidding process is the only safeguard to a fair, honest and appraised value of the Terminal.23
competitive public bidding."
4. The CA imposed new and special obligations on
From the foregoing, the only conclusion that can possibly be drawn government, including delivery of clean possession of the
is that the BOT law and its IRR were repeatedly violated with site for the terminal; acquisition of additional land at the
unmitigated impunity - and by agents of government, no less! On government's expense for construction of road networks
required by Piatco's approved plans and specifications; and pesos. But per Section 1.33 of the CA, all the aforesaid fees
assistance to Piatco in securing site utilities, as well as all save the terminal fee are denominated in US Dollars.
necessary permits, licenses and authorizations. 24
8. Under Section 8.07 of the DCA, the term attendant
5. Where Section 3.02 of the DCA requires government to liabilities refers to liabilities pertinent to NAIA Terminal III,
refrain from competing with the contractor with respect to such as payment of lease rentals and performance of other
the operation of NAIA Terminal III, Section 3.02(b) of the obligations under the Land Lease Agreement; the obligations
CA excludes and prohibits everyone, including government, under the Tenant Agreements; and payment of all taxes, fees,
from directly or indirectly competing with Piatco, with charges and assessments of whatever kind that may be
respect to the operation of, as well as operations in, NAIA imposed on NAIA Terminal III or parts thereof. But in
Terminal III. Operations in is sufficiently broad to Section 1.06 of the CA, Attendant Liabilities refers
encompass all retail and other commercial business to unpaid debts of Piatco: "All amounts recorded and from
enterprises operating within Terminal III, inclusive of the time to time outstanding in the books of (Piatco) as owing to
businesses of providing various airport-related services to Unpaid Creditors who have provided, loaned or advanced
international airlines, within the scope of the prohibition. funds actually used for the Project, including all interests,
penalties, associated fees, charges, surcharges, indemnities,
6. Under Section 6.01 of the DCA, the following fees are reimbursements and other related expenses, and further
subject to the written approval of MIAA: lease/rental including amounts owed by [Piatco] to its suppliers,
charges, concession privilege fees for passenger services, contractors and subcontractors."
food services, transportation utility concessions,
groundhandling, catering and miscellaneous concession fees, 9. Per Sections 8.04 and 8.06 of the DCA, government may,
porterage fees, greeter/well-wisher fees, carpark fees, on account of the contractors breach, rescind the contract
advertising fees, VIP facilities fees and others. Moreover, and select one of four options: (a) take over the terminal and
adjustments to the groundhandling fees, rentals and assume all its attendant liabilities; (b) allow the contractor's
porterage fees are permitted only once every two years and creditors to assign the Project to another entity acceptable to
in accordance with a parametric formula, per DCA Section DOTC/MIAA; (c) pay the contractor rent for the facilities
6.03. However, the CA as executed with Piatco provides in and equipment the DOTC may utilize; or (d) purchase the
Section 6.06 that all the aforesaid fees, rentals and charges terminal at a price established by independent appraisers.
may be adjusted without MIAA's approval or intervention. Depending on the option selected, government may take
Neither are the adjustments to these fees and charges subject immediate possession and control of the terminal and its
to or limited by any parametric formula.25 operations. Government will be obligated to compensate the
contractor for the "equivalent or proportionate contract costs
7. Section 1.29 of the DCA provides that the terminal fees, actually disbursed," but only where government is the one in
aircraft tacking fees, aircraft parking fees, check-in counter breach of the contract. But under Section 8.06(a) of the CA,
fees and other fees are to be quoted and paid in Philippine whether on account of Piatco's breach of contract or its
inability to pay its creditors, government is obliged to either
(a) take over Terminal III and assume all of Piatco's debts or amend it without another public bidding, for otherwise what
(b) permit the qualified unpaid creditors to be substituted in would a public bidding be good for if after the execution of a
place of Piatco or to designate a new operator. And in the contract after public bidding, the contracting parties may
event of government's breach of contract, Piatco may compel alter or amend the contract, or even cancel it, at their will?
it to purchase the terminal at fair market value, per Section Public biddings are held for the protection of the public, and
8.06(b) of the CA. to give the public the best possible advantages by means of
open competition between the bidders. He who bids or offers
10. Under the DCA, any delay by Piatco in the payment of the best terms is awarded the contract subject of the bid, and
the amounts due the government constitutes breach of it is obvious that such protection and best possible
contract. However, under the CA, such delay does not advantages to the public will disappear if the parties to a
necessarily constitute breach of contract, since Piatco is contract executed after public bidding may alter or amend it
permitted to suspend payments to the government in order to without another previous public bidding."28
first satisfy the claims of its secured creditors, per Section
8.04(d) of the CA. The aforementioned case dealt with the unauthorized amendment of
a contract executed after public bidding; in the situation before us,
It goes without saying that the amendment of the Contract bidded out the amendments were made also after the bidding, but prior to
(the DCA or draft concession agreement) - in such substantial execution. Be that as it may, the same rationale underlying Caltex
manner, without any public bidding, and after the bidding process applies to the present situation with equal force. Allowing the
had been concluded on December 11, 1996 - is violative of public winning bidder to renegotiate the contract for which the bidding
policy on public biddings, as well as the spirit and intent of the BOT process has ended is tantamount to permitting it to put in anything it
Law. The whole point of going through the public bidding exercise wants. Here, the winning bidder (Piatco) did not even bother to wait
was completely lost. Its very rationale was totally subverted by until after actual execution of the contract before rushing to amend it.
permitting Piatco to amend the contract for which public bidding Perhaps it believed that if the changes were made to a contract
had already been concluded. Competitive bidding aims to obtain the already won through bidding (DCA) instead of waiting until it is
best deal possible by fostering transparency and preventing executed, the amendments would not be noticed or discovered by the
favoritism, collusion and fraud in the awarding of contracts. That is public.
the reason why procedural rules pertaining to public bidding demand
strict observance.26 In a later case, Mata v. San Diego,29 this Court reiterated its ruling as
follows:
In a relatively early case, Caltex v. Delgado Brothers,27 this Court
made it clear that substantive amendments to a contract for which a "It is true that modification of government contracts, after
public bidding has already been finished should only be awarded the same had been awarded after a public bidding, is not
after another public bidding: allowed because such modification serves to nullify the
effects of the bidding and whatever advantages the
"The due execution of a contract after public bidding is a Government had secured thereby and may also result in
limitation upon the right of the contracting parties to alter or manifest injustice to the other bidders. This prohibition,
however, refers to a change in vital and essential particulars certainly does not include or permit amendments negotiated for and
of the agreement which results in a substantially new introduced after the bidding process, has been terminated.
contract."
Piatco's Concession Agreement Was Further Amended, (ARCA)
Piatco's counter-argument may be summed up thus: There was Again Without Public Bidding
nothing in the 1994 IRR that prohibited further negotiations and
eventual amendments to the DCA even after the bidding had been Not satisfied with the Concession Agreement, Piatco - once more
concluded. In fact, PBAC Bid Bulletin No. 3 states: "[A]mendments without bothering with public bidding - negotiated with government
to the Draft Concession Agreement shall be issued from time to time. for still more substantial changes. The result was the Amended and
Said amendments will only cover items that would not materially Restated Concession Agreement (ARCA) executed on November 26,
affect the preparation of the proponent's proposal." 1998. The following changes were introduced:

I submit that accepting such warped argument will result in 1. The definition of Attendant Liabilities was further
perverting the policy underlying public bidding. The BOT Law amended with the result that the unpaid loans of Piatco, for
cannot be said to allow the negotiation of contractual stipulations which government may be required to answer, are no longer
resulting in a substantially new contract after the bidding process and limited to only those loans recorded in Piatco's books or
price challenge had been concluded. In fact, the BOT Law, in loans whose proceeds were actually used in the Terminal III
recognition of the time, money and effort invested in an unsolicited project.30
proposal, accords its originator the privilege of matching the
challenger's bid. 2. Although the contract may be terminated due to breach by
Piatco, it will not be liable to pay the government any
Section 4-A of the BOT Law specifically refers to a Liquidated Damages if a new operator is designated to take
"lower price proposal" by a competing bidder; and to the right of the over the operation of the terminal.31
original proponent "to match the price" of the challenger. Thus, only
the price proposals are in play. The terms, conditions and 3. The Liquidated Damages which government becomes
stipulations in the contract for which public bidding has been liable for in case of its breach of contract were substantially
concluded are understood to remain intact and not be subject to increased.32
further negotiation. Otherwise, the very essence of public bidding
will be destroyed - there will be no basis for an exact comparison 4. Government's right to appoint a comptroller for Piatco in
between bids. case the latter encounters liquidity problems was deleted. 33

Moreover, Piatco misinterpreted the meaning behind PBAC Bid 5. Government is made liable for Incremental and
Bulletin No. 3. The phrase amendments . . . from time to time refers Consequential Costs and Losses in case it fails to comply or
only to those amendments to the draft concession agreement issued cause any third party under its direct or indirect control to
by the PBAC prior to the submission of the price challenge; it comply with the special obligations imposed on
government.34
6. The insurance policies obtained by Piatco covering the 13. The illegality and unenforceability of the ARCA or any
terminal are now required to be assigned to the Senior of its material provisions was made an event of default on
Lenders as security for the loans; previously, their proceeds the part of government only, thus constituting a ground for
were to be used to repair and rehabilitate the facility in case Piatco to terminate the ARCA.42
of damage.35
14. Amounts due from and payable by government under the
7. Government bound itself to set the initial rate of the contract were made payable on demand - net of taxes, levies,
terminal fee, to be charged when Terminal III begins imposts, duties, charges or fees of any kind except as
operations, at an amount higher than US$20.36 required by law.43

8. Government waived its defense of the illegality of the 15. The Parametric Formula in the contract, which is utilized
contract and even agreed to be liable to pay damages to to compute for adjustments/increases to the public utility
Piatco in the event the contract was declared illegal. 37 revenues (i.e., aircraft parking and tacking fees, check-in
counter fee and terminal fee), was revised to permit Piatco to
9. Even though government may be entitled to terminate the input its more costly short-term borrowing rates instead of
ARCA on account of breach by Piatco, government is still the longer-terms rates in the computations for adjustments,
liable to pay Piatco the appraised value of Terminal III or the with the end result that the changes will redound to its
Attendant Liabilities, if the termination occurs before the In- greater financial benefit.
Service Date.38 This condition contravenes the BOT Law
provision on termination compensation. 16. The Certificate of Completion simply deleted the
successful performance-testing of the terminal facility in
10. Government is obligated to take the administrative action accordance with defined performance standards as a pre-
required for Piatco's imposition, collection and application of condition for government's acceptance of the terminal
all Public Utility Revenues.39 No such obligation existed facility.44
previously.
In sum, the foregoing revisions and amendments as embodied in the
11. Government is now also obligated to perform and cause ARCA constitute very material alterations of the terms and
other persons and entities under its direct or indirect control conditions of the CA, and give further manifestly undue advantage to
to perform all acts necessary to perfect the security interests Piatco at the expense of government. Piatco claims that the changes
to be created in favor of Piatco's Senior Lenders. 40 No such to the CA were necessitated by the demands of its foreign lenders.
obligation existed previously. However, no proof whatsoever has been adduced to buttress this
claim.
12. DOTC/MIAA's right of intervention in instances where
Piatco's Non-Public Utility Revenues become exorbitant or In any event, it is quite patent that the sum total of the
excessive has been removed.41 aforementioned changes resulted in drastically weakening the
position of government to a degree that seems quite excessive, even
from the standpoint of a businessperson who regularly transacts with 3. The MIAA is obligated to provide funding for the
banks and foreign lenders, is familiar with their mind-set, and maintenance and repair of the airports and facilities owned
understands what motivates them. On the other hand, whatever it or operated by it and by third persons under its control. It
was that impelled government officials concerned to accede to those will also be liable to Piatco for the latter's losses, expenses
grossly disadvantageous changes, I can only hazard a guess. and damages as well as liability to third persons, in case
MIAA fails to perform such obligations. In addition, MIAA
There is no question in my mind that the ARCA was unauthorized will also be liable for the incremental and consequential
and illegal for lack of public bidding and for being patently costs of the remedial work done by Piatco on account of the
disadvantageous to government. former's default.47

The Three Supplements Imposed New Obligations on Government, 4. The FS also imposed on government ten (10) "Additional
Also Without Prior Public Bidding Special Obligations," including the following:

After Piatco had managed to breach the protective rampart of public (a) Working for the removal of the general aviation
bidding, it recklessly went on a rampage of further assaults on the traffic from the NAIA airport complex48
ARCA.
(b) Providing through MIAA the land required by
The First Supplement Is as Void as the ARCA Piatco for the taxilane and one taxiway at no cost to
Piatco49
In the First Supplement ("FS") executed on August 27, 1999, the
following changes were made to the ARCA: (c) Implementing the government's existing storm
drainage master plan50
1. The amounts payable by Piatco to government
were reduced by allowing additional exceptions to the Gross (d) Coordinating with DPWH the financing, the
Revenues in which government is supposed to participate. 45 implementation and the completion of the following
works before the In-Service Date: three left-turning
2. Made part of the properties which government is obliged overpasses (EDSA to Tramo St., Tramo to Andrews
to construct and/or maintain and keep in good repair are (a) Ave., and Manlunas Road to Sales Ave.); 51 and a
the access road connecting Terminals II and III - the road upgrade and improvement program involving
construction of this access road is the obligation of Piatco, in widening, repair and resurfacing of Sales Road,
lieu of its obligation to construct an Access Tunnel Andrews Avenue and Manlunas Road; improvement
connecting Terminals II and III; and (b) the taxilane and of Nichols Interchange; and removal of squatters
taxiway - these are likewise part of Piatco's obligations, along Andrews Avenue.52
since they are part and parcel of the project as described in
Clause 1.3 of the Bid Documents .46
(e) Dealing directly with BCDA and the Phil. Air The Second Supplement ("SS") was executed between the
Force in acquiring additional land or right of way for government and Piatco on September 4, 2000. It calls for Piatco,
the road upgrade and improvement program.53 acting not as concessionaire of NAIA Terminal III but as a public
works contractor, to undertake - in the government's stead - the
5. Government is required to work for the immediate clearing, removal, demolition and disposal of improvements,
reversion to MIAA of the Nayong Pilipino National Park.54 subterranean obstructions and waste materials at the project site. 57

6. Government's share in the terminal fees collected was The scope of the works, the procedures involved, and the obligations
revised from a flat rate of P180 to 36 percent thereof; of the contractor are provided for in Parts II and III of the SS.
together with government's percentage share in the gross Section 4.1 sets out the compensation to be paid, listing specific rates
revenues of Piatco, the amount will be remitted to per cubic meter of materials for each phase of the work - excavation,
government in pesos instead of US dollars. 55 This leveling, removal and disposal, backfilling and dewatering. The
amendment enables Piatco to benefit from the further amounts collectible by Piatco are to be offset against the Annual
erosion of the peso-dollar exchange rate, while preventing Guaranteed Payments it must pay government.
government from building up its foreign exchange reserves.
Though denominated as Second Supplement, it was nothing less than
7. All payments from Piatco to government are now to be an entirely new public works contract. Yet it, too, did not undergo
invoiced to MIAA, and payments are to accrue to the latter's any public bidding, for which reason it is also void and inoperative.
exclusive benefit.56 This move appears to be in support of the
funds MIAA advanced to DPWH. Not surprisingly, Piatco had to subcontract the works to a certain
Wintrack Builders, a firm reputedly owned by a former high-ranking
I must emphasize that the First Supplement is void in two DOTC official. But that is another story altogether.
respects. First, it is merely an amendment to the ARCA, upon which
it is wholly dependent; therefore, since the ARCA is void, inexistent The Third Supplement Is Likewise Void and Inexistent
and not capable of being ratified or amended, it follows that the FS
too is void, inexistent and inoperative. Second, even The Third Supplement ("TS"), executed between the government and
assuming arguendo that the ARCA is somehow remotely valid, Piatco on June 22, 2001, passed on to the government certain
nonetheless the FS, in imposing significant new obligations upon obligations of Piatco as Terminal III concessionaire, with respect to
government, altered the fundamental terms and stipulations of the the surface road connecting Terminals II and III.
ARCA, thus necessitating a public bidding all over again. That the
FS was entered into sans public bidding renders it utterly void and By way of background, at the inception of and forming part of the
inoperative. NAIA Terminal III project was the proposed construction of an
access tunnel crossing Runway 13/31, which. would connect
The Second Supplement Is Similarly Void and Inexistent Terminal III to Terminal II. The Bid Documents in Section
4.1.2.3[B][i] declared that the said access tunnel was subject to
further negotiation; but for purposes of the bidding, the proponent
should submit a bid for it as well. Therefore, the tunnel was hypothetically speaking, both ARCA and FS are valid, still, the Third
supposed to be part and parcel of the Terminal III project. Supplement - imposing as it does significant new obligations upon
government - would in effect alter the terms and stipulations of the
However, in Section 5 of the First Supplement, the parties declared ARCA in material respects, thus necessitating another public
that the access tunnel was not economically viable at that time. In bidding. Since the TS was not subjected to public bidding, it is
lieu thereof, the parties agreed that a surface access road (now called consequently utterly void as well. At any rate, the TS created new
the T2-T3 Road) was to be constructed by Piatco to connect the two monetary obligations on the part of government, for which there
terminals. Since it was plainly in substitution of the tunnel, the were no prior appropriations. Hence it follows that the same is void
surface road construction should likewise be considered part and ab initio.
parcel of the same project, and therefore part of Piatco's obligation as
well. While the access tunnel was estimated to cost about P800 In patiently tracing the progress of the Piatco contracts from their
million, the surface road would have a price tag in the vicinity of inception up to the present, I noted that the whole process was
about P100 million, thus producing significant savings for Piatco. riddled with significant lapses, if not outright irregularity and
wholesale violations of law and public policy. The rationale of
Yet, the Third Supplement, while confirming that Piatco would beginning at the beginning, so to speak, will become evident when
construct the T2-T3 Road, nevertheless shifted to government some the question of what to do with the five Piatco contracts is discussed
of the obligations pertaining to the former, as follows: later on.

1. Government is now obliged to remove at its own expense In the meantime, I shall take up specific, provisions or changes in the
all tenants, squatters, improvements and/or waste materials contracts and highlight the more prominent objectionable features.
on the site where the T2-T3 road is to be constructed. 58 There
was no similar obligation on the part of government insofar Government Directly Guarantees Piatco Debts
as the access tunnel was concerned.
Certainly the most discussed provision in the parties' arguments is
2. Should government fail to carry out its obligation as above the one creating an unauthorized, direct government guarantee of
described, Piatco may undertake it on government's behalf, Piatco's obligations in favor of the lenders.
subject to the terms and conditions (including compensation
payments) contained in the Second Supplement.59 Section 4-A of the BOT Law as amended states that unsolicited
proposals, such as the NAIA Terminal III Project, may be accepted
3. MIAA will answer for the operation, maintenance and by government provided inter alia that no direct government
repair of the T2-T3 Road.60 guarantee, subsidy or equity is required. In short, such guarantee is
prohibited in unsolicited proposals. Section 2(n) of the same
The TS depends upon and is intended to supplement the ARCA as legislation defines direct government guarantee as "an agreement
well as the First Supplement, both of which are void and inexistent whereby the government or any of its agencies or local government
and not capable of being ratified or amended. It follows that the TS units (will) assume responsibility for the repayment of debt directly
is likewise void, inexistent and inoperative. And even if,
incurred by the project proponent in implementing the project in case Lenders or any other persons or entities who have provided,
of a loan default." loaned or advanced funds or provided financial facilities to
Concessionaire for the Project, including, without limitation,
Both the CA and the ARCA have provisions that undeniably create all principal, interest, associated fees, charges,
such prohibited government guarantee. Section 4.04 (c)(iv) to (vi) of reimbursements, and other related expenses (including the
the ARCA, which is similar to Section 4.04 of the CA, provides thus: fees, charges and expenses of any agents or trustees of such
persons or entities), whether payable at maturity, by
"(iv) that if Concessionaire is in default under a payment acceleration or otherwise, and further including amounts
obligation owed to the Senior Lenders, and as a result owed by Concessionaire to its professional consultants and
thereof the Senior Lenders have become entitled to advisers, suppliers, contractors and sub-contractors."
accelerate the Senior Loans, the Senior Lenders shall have
the right to notify GRP of the same . . .; Government's agreement to pay becomes effective in the event of
a default by Piatco on any of its loan obligations to the Senior
(v) . . . the Senior Lenders may after written notification to Lenders, and the amount to be paid by government is the greater of
GRP, transfer the Concessionaire's rights and obligations to a either the Appraised Value of Terminal III or the aggregate amount
transferee . . .; of the moneys owed by Piatco - whether to the Senior Lenders or to
other entities, including its suppliers, contractors and subcontractors.
(vi) if the Senior Lenders . . . are unable to . . . effect a In effect, therefore, this agreement already constitutes the prohibited
transfer . . ., then GRP and the Senior Lenders shall endeavor assumption by government of responsibility for repayment of
. . . to enter into any other arrangement relating to the Piatco's debts in case of a loan default. In fine, a direct government
Development Facility . . . If no agreement relating to the guarantee.
Development Facility is arrived at by GRP and the Senior
Lenders within the said 180-day period, then at the end It matters not that there is a roundabout procedure prescribed by
thereof the Development Facility shall be transferred by the Section 4.04(c)(iv), (v) and (vi) that would require, first, an attempt
Concessionaire to GRP or its designee and GRP shall make a (albeit unsuccessful) by the Senior Lenders to transfer Piatco's rights
termination payment to Concessionaire equal to the to a transferee of their choice; and, second, an effort (equally
Appraised Value (as hereinafter defined) of the Development unsuccessful) to "enter into any other arrangement" with the
Facility or the sum of the Attendant Liabilities, if government regarding the Terminal III facility, before government is
greater. . . ." required to make good on its guarantee. What is abundantly clear is
the fact that, in the devious labyrinthine process detailed in the
In turn, the term Attendant Liabilities is defined in Section 1.06 of aforesaid section, it is entirely within the Senior Lenders' power,
the ARCA as follows: prerogative and control - exercisable via a mere refusal or
inability to agree upon "a transferee" or "any other arrangement"
"Attendant Liabilities refer to all amounts in each case regarding the terminal facility - to push the process forward to the
supported by verifiable evidence from time to time owed or ultimate contractual cul-de-sac, wherein government will be
which may become, owing by Concessionaire to Senior
compelled to abjectly surrender and make good on its guarantee of the phrases recorded and from time to time outstanding in the books
payment. of the Concessionaire and actually used for the project. These
phrases were eliminated from the ARCA's definition of Attendant
Piatco also argues that there is no proviso requiring government to Liabilities.
pay the Senior Lenders in the event of Piatco's default. This is
literally true, in the sense that Section 4.04(c)(vi) of ARCA speaks of Since no explanation has been forthcoming from Piatco as to the
government making the termination payment to Piatco, not to the possible justification for such a drastic change, the only conclusion,
lenders. However, it is almost a certainty that the Senior Lenders will possible is that it intends to have all of its debts covered by the
already have made Piatco sign over to them, ahead of time, its right guarantee, regardless of whether or not they are disclosed in its
to receive such payments from government; and/or they may already books. This has particular reference to those borrowings which were
have had themselves appointed its attorneys-in-fact for the purpose obtained in violation of the loan covenants requiring Piatco to
of collecting and receiving such payments. maintain a minimum 70:30 debt-to-equity ratio, and even if the loan
proceeds were not actually used for the project itself.
Nevertheless, as petitioners-in-intervention pointed out in their
Memorandum,61 the termination payment is to be made to Piatco, not This point brings us back to the guarantee itself. In Section 4.04(c)
to the lenders; and there is no provision anywhere in the contract (vi) of ARCA, the amount which government has guaranteed to pay
documents to prevent it from diverting the proceeds to its own as termination payment is the greater of either (i) the Appraised
benefit and/or to ensure that it will necessarily use the same to pay Value of the terminal facility or (ii) the aggregate of the Attendant
off the Senior Lenders and other creditors, in order to avert the Liabilities. Given that the Attendant Liabilities may include
foreclosure of the mortgage and other liens on the terminal facility. practically any Piatco debt under the sun, it is highly conceivable
Such deficiency puts the interests of government at great risk. that their sum may greatly exceed the appraised value of the facility,
Indeed, if the unthinkable were to happen, government would be and government may end up paying very much more than the real
paying several hundreds of millions of dollars, but the mortgage worth of Terminal III. (So why did government have to bother with
liens on the facility may still be foreclosed by the Senior Lenders just public bidding anyway?)
the same.
In the final analysis, Section 4.04(c)(iv) to (vi) of the ARCA is
Consequently, the Piatco contracts are also objectionable for diametrically at odds with the spirit and the intent of the BOT Law.
grievously failing to adequately protect government's interests. More The law meant to mobilize private resources (the private sector) to
accurately, the contracts would consistently weaken and do away take on the burden and the risks of financing the construction,
with protection of government interests. As such, they are therefore operation and maintenance of relevant infrastructure and
grossly lopsided in favor of Piatco and/or its Senior Lenders. development projects for the simple reason that government is not in
a position to do so. By the same token, government guarantee was
While on this subject, it is well to recall the earlier discussion prohibited, since it would merely defeat the purpose and raison d'être
regarding a particularly noticeable alteration of the concept of of a build-operate-and-transfer project to be undertaken by the
"Attendant Liabilities." In Section 1.06 of the CA defining the term, private sector.
the Piatco debts to be assumed/paid by government were qualified by
To the extent that the project proponent is able to obtain loans to may, by prior notice to the concerned national government
fund the project, those risks are shared between the project proponent agency or local government unit specifying the turn-over
on the one hand, and its banks and other lenders on the other. But date, terminate the contract. The project
where the proponent or its lenders manage to cajol or coerce the proponent/contractor shall be reasonably compensated by the
government into extending a guarantee of payment of the loan Government for equivalent or proportionate contract cost as
obligations, the risks assumed by the lenders are passed right back to defined in the contract."
government. I cannot understand why, in the instant case,
government cheerfully assented to re-assuming the risks of the The foregoing statutory provision in effect provides for the following
project when it gave the prohibited guarantee and thus simply limited instances when termination compensation may be allowed:
negated the very purpose of the BOT Law and the protection it gives
the government. 1. Termination by the government through no fault of the
project proponent
Contract Termination Provisions in the Piatco Contracts Are Void
2. Termination upon the parties' mutual agreement
The BOT Law as amended provides for contract termination as
follows: 3. Termination by the proponent due to government's default
on certain major contractual obligations
"Sec. 7. Contract Termination. - In the event that a project is
revoked, cancelled or terminated by the government through To emphasize, the law does not permit compensation for the project
no fault of the project proponent or by mutual agreement, the proponent when contract termination is due to the proponent's own
Government shall compensate the said project proponent for fault or breach of contract.
its actual expenses incurred in the project plus a reasonable
rate of return thereon not exceeding that stated in the This principle was clearly violated in the Piatco Contracts. The
contract as of the date of such revocation, cancellation or ARCA stipulates that government is to pay termination
termination: Provided, That the interest of the Government compensation to Piatco even when termination is initiated by
in this instances [sic] shall be duly insured with the government for the following causes:
Government Service Insurance System or any other
insurance entity duly accredited by the Office of the "(i) Failure of Concessionaire to finish the Works in all
Insurance Commissioner: Provided, finally, That the cost of material respects in accordance with the Tender Design and
the insurance coverage shall be included in the terms and the Timetable;
conditions of the bidding referred to above.
(ii) Commission by Concessionaire of a material breach of
"In the event that the government defaults on certain major this Agreement . . .;
obligations in the contract and such failure is not remediable
or if remediable shall remain unremedied for an
(iii) . . . a change in control of Concessionaire arising from
unreasonable length of time, the project proponent/contractor
the sale, assignment, transfer or other disposition of capital
stock which results in an ownership structure violative of In essence, the ARCA provisions on termination compensation result
statutory or constitutional limitations; in another unauthorized government guarantee, this time in favor of
Piatco.
(iv) A pattern of continuing or repeated non-compliance,
willful violation, or non-performance of other terms and A Prohibited Direct Government Subsidy, Which at the Same Time
conditions hereof which is hereby deemed a material breach Is an Assault on the National Honor
of this Agreement . . ."62
Still another contractual provision offensive to law and public policy
As if that were not bad enough, the ARCA also inserted into Section is Section 8.01(d) of the ARCA, which is a "bolder and badder"
8.01 the phrase "Subject to Section 4.04." The effect of this insertion version of Section 8.04(d) of the CA.
is that in those instances where government may terminate the
contract on account of Piatco's breach, and it is nevertheless required It will be recalled that Section 4-A of the BOT Law as amended
under the ARCA to make termination compensation to Piatco even prohibits not only direct government guarantees, but likewise
though unauthorized by law, such compensation is to be equivalent a direct government subsidy for unsolicited proposals. Section 13.2.
to the payment amount guaranteed by government - either a) the b. iii. of the 1999 IRR defines a direct government subsidy as
Appraised Value of the terminal facility or (b) the aggregate of the encompassing "an agreement whereby the Government . . .
Attendant Liabilities, whichever amount is greater! will . . . postpone any payments due from the proponent."

Clearly, this condition is not in line with Section 7 of the BOT Law. Despite the statutory ban, Section 8.01 (d) of the ARCA provides
That provision permits a project proponent to recover the actual thus:
expenses it incurred in the prosecution of the project plus a
reasonable rate of return not in excess of that provided in the "(d) The provisions of Section 8.01(a) notwithstanding, and
contract; or to be compensated for the equivalent or proportionate for the purpose of preventing a disruption of the operations
contract cost as defined in the contract, in case the government is in in the Terminal and/or Terminal Complex, in the event that
default on certain major contractual obligations. at any time Concessionaire is of the reasonable opinion that
it shall be unable to meet a payment obligation owed to the
Furthermore, in those instances where such termination Senior Lenders, Concessionaire shall give prompt notice to
compensation is authorized by the BOT Law, it is indispensable that GRP, through DOTC/MIAA and to the Senior Lenders. In
the interest of government be duly insured. Section 5.08 the ARCA such circumstances, the Senior Lenders (or the Senior
mandates insurance coverage for the terminal facility; but all Lenders' Representative) may ensure that after making
insurance policies are to be assigned, and all proceeds are payable, to provision for administrative expenses and depreciation, the
the Senior Lenders. In brief, the interest being secured by such cash resources of Concessionaire shall first be used and
coverage is that of the Senior Lenders, not that of government. This applied to meet all payment obligations owed to the Senior
can hardly be considered compliance with law. Lenders. Any excess cash, after meeting such payment
obligations, shall be earmarked for the payment of all sums
payable by Concessionaire to GRP under this Agreement. If
by reason of the foregoing GRP should be unable to collect seen from Section 8.01(d) above-quoted, the Senior Lenders have
in full all payments due to GRP under this Agreement, then effectively locked in on the right to exercise financial controllership
the unpaid balance shall be payable within a 90-day grace over Piatco and to allocate its cash resources to the payment of all
period counted from the relevant due date, with interest per amounts owed to the Senior Lenders before allowing any payment to
annum at the rate equal to the average 91-day Treasury Bill be made to government.
Rate as of the auction date immediately preceding the
relevant due date. If payment is not effected by In brief, this particular provision of the ARCA has placed in the
Concessionaire within the grace period, then a spread of five hands of foreign lenders the power and the authority to determine
(5%) percent over the applicable 91-day Treasury Bill Rate how much (if at all) and when the Philippine government (as grantor
shall be added on the unpaid amount commencing on the of the franchise) may be allowed to receive from Piatco. In that
expiry of the grace period up to the day of full payment. situation, government will be at the mercy of the foreign lenders.
When the temporary illiquidity of Concessionaire shall have This is a situation completely contrary to the rationale of the BOT
been corrected and the cash position of Concessionaire Law and to public policy.
should indicate its ability to meet its maturing obligations,
then the provisions set forth under this Section 8.01(d) shall The aforesaid provision rouses mixed emotions - shame and
cease to apply. The foregoing remedial measures shall be disgust at the parties' (especially the government officials') docile
applicable only while there remains unpaid and outstanding submission and abject servitude and surrender to the imperious
amounts owed to the Senior Lenders." (Emphasis supplied) and excessive demands of the foreign lenders, on the one hand;
and vehement outrage at the affront to the sovereignty of the
By any manner of interpretation or application, Section 8.01(d) of Republic and to the national honor, on the other. It is indeed
the ARCA clearly mandates the indefinite postponement of payment time to put an end to such an unbearable, dishonorable situation.
of all of Piatco's obligations to the government, in order to ensure
that Piatco's obligations to the Senior Lenders are paid in full first. The Piatco Contracts Unarguably Violate Constitutional
That is nothing more or less than the direct government subsidy Injunctions
prohibited by the BOT Law and the IRR. The fact that Piatco will
pay interest on the unpaid amounts owed to government does not I will now discuss the manner in which the Piatco Contracts offended
change the situation or render the prohibited subsidy any less the Constitution.
unacceptable.
The Exclusive Right Granted to Piatco to Operate a Public Utility Is
But beyond the clear violations of law, there are larger issues Prohibited by the Constitution
involved in the ARCA. Earlier, I mentioned that Section 8.01(d) of
the ARCA completely eliminated the proviso in Section 8.04(d) of While Section 2.02 of the ARCA spoke of granting to Piatco "a
the CA which gave government the right to appoint a financial franchise to operate and maintain the Terminal Complex," Section
controller to manage the cash position of Piatco during situations of 3.02(a) of the same ARCA granted to Piatco, for the entire term of
financial distress. Not only has government been deprived of any the concession agreement, "the exclusive right to operate a
means of monitoring and managing the situation; worse, as can be commercial international passenger terminal within the Island of
Luzon" with the exception of those three terminals already design capacity of ten (10) million passenger capacity per
existing63 at the time of execution of the ARCA. year for three (3) consecutive years during the concession
period.
Section 11 of Article XII of the Constitution prohibits the grant of a
"franchise, certificate, or any other form of authorization for the "This is an onerous and disadvantageous provision. It
operation of a public utility" that is "exclusive in character." effectively grants PIATCO a monopoly in Luzon and ties the
hands of government in the matter of developing new
In its Opinion No. 078, Series of 1995, the Department of justice airports which may be found expedient and necessary in
held that "the NAIA Terminal III which . . . is a 'terminal for public carrying out any future plan for an inter-modal transportation
use' is a public utility." Consequently, the constitutional prohibition system in Luzon.
against the exclusivity of a franchise applies to the franchise for the
operation of NAIA Terminal III as well. "Additionally, it imposes an unreasonable restriction on the
operation of the Clark International Airport which could
What was granted to Piatco was not merely a franchise, but an adversely affect the operation and development of the Clark
"exclusive right" to operate an international passenger terminal Special Economic Zone to the economic prejudice of the
within the "Island of Luzon." What this grant effectively means is local constituencies that are being benefited by its
that the government is now estopped from exercising its inherent operation." (Emphasis supplied)
power to award any other person another franchise or a right to
operate such a public utility, in the event public interest in Luzon While it cannot be gainsaid that an enterprise that is a public utility
requires it. This restriction is highly detrimental to government and may happen to constitute a monopoly on account of the very nature
to the public interest. Former Secretary of Justice Hernando B. Perez of its business and the absence of competition, such a situation does
expressed this point well in his Memorandum for the President dated not however constitute justification to violate the constitutional
21 May 2002: prohibition and grant an exclusive franchise or exclusive right to
operate a public utility.
"Section 3.02 on 'Exclusivity'
Piatco's contention that the Constitution does not actually prohibit
"This provision gives to PIATCO (the Concessionaire) the monopolies is beside the point. As correctly argued, 64 the existence
exclusive right to operate a commercial international airport of a monopoly by a public utility is a situation created by
within the Island of Luzon with the exception of those circumstances that do not encourage competition. This situation is
already existing at the time of the execution of the different from the grant of a franchise to operate a public utility, a
Agreement, such as the airports at Subic, Clark and Laoag privilege granted by government. Of course, the grant of a franchise
City. In the case of the Clark International Airport, however, may result in a monopoly. But making such franchise exclusive is
the provision restricts its operation beyond its design what is expressly proscribed by the Constitution.
capacity of 850,000 passengers per annum and the operation
of new terminal facilities therein until after the new NAIA Actually, the aforementioned Section 3.02 of the ARCA more than
Terminal III shall have consistently reached or exceeded its just guaranteed exclusivity; it also guaranteed that the government
will not improve or expand the facilities at Clark - and in fact is Prior to the full payment of the Liquidated Damages,
required to put a cap on the latter's operations - until after Terminal Concessionaire shall to the extent practicable
III shall have been operated at or beyond its peak capacity for continue to operate the Terminal and the Terminal
three consecutive years.65 As counsel for public respondents pointed Complex and shall be entitled to retain and withhold
out, in the real world where the rate of influx of international all payments to GRP for the purpose of offsetting the
passengers can fluctuate substantially from year to year, it may take same against the Liquidated Damages. Upon full
many years before Terminal III sees three consecutive years' payment of the Liquidated Damages, Concessionaire
operations at peak capacity. The Diosdado Macapagal International shall immediately transfer the Development Facility
Airport may thus end up stagnating for a long time. Indeed, in order to GRP on 'as-is-where-is' basis."
to ensure greater profits for Piatco, the economic progress of a region
has had to be sacrificed. The aforesaid easy payment scheme is less beneficial than it first
appears. Although it enables government to avoid having to make
The Piatco Contracts Violate the Time Limitation on Franchises outright payment of an obligation that will likely run into billions of
pesos, this easy payment plan will nevertheless cost government
Section 11 of Article XII of the Constitution also provides that "no considerable loss of income, which it would earn if it were to operate
franchise, certificate or any other form of authorization for the Terminal III by itself. Inasmuch as payments to the concessionaire
operation of a public utility shall be . . . for a longer period than fifty (Piatco) will be on "installment basis," interest charges on the
years." After all, a franchise held for an unreasonably long time remaining unpaid balance would undoubtedly cause the total
would likely give rise to the same evils as a monopoly. outstanding balance to swell. Piatco would thus be entitled to remain
in the driver's seat and keep operating the terminal for an indefinite
The Piatco Contracts have come up with an innovative way to length of time.
circumvent the prohibition and obtain an extension. This fact can be
gleaned from Section 8.03(b) of the ARCA, which I quote thus: The Contracts Create Two Monopolies for Piatco

"Sec. 8.03. Termination Procedure and Consequences of By way of background, two monopolies were actually created by the
Termination. - Piatco contracts. The first and more obvious one refers to the
business of operating an international passenger terminal in Luzon,
a) x x x           x x x           x x x the business end of which involves providing international airlines
with parking space for their aircraft, and airline passengers with the
b) In the event the Agreement is terminated pursuant use of departure and arrival areas, check-in counters, information
to Section 8.01 (b) hereof, Concessionaire shall be systems, conveyor systems, security equipment and paraphernalia,
entitled to collect the Liquidated Damages specified immigrations and customs processing areas; and amenities such as
in Annex 'G'. The full payment by GRP to comfort rooms, restaurants and shops.
Concessionaire of the Liquidated Damages shall be a
condition precedent to the transfer by In furtherance of the first monopoly, the Piatco Contracts stipulate
Concessionaire to GRP of the Development Facility. that the NAIA Terminal III will be the only facility to be operated as
an international passenger terminal; 66 that NAIA Terminals I and II Terminal III and render the airport-related services needed by
will no longer be operated as such; 67 and that no one (including the international airlines. It thereby possesses the power to exclude
government) will be allowed to compete with Piatco in the operation competition. By necessary implication, it also has effective control
of an international passenger terminal in the NAIA Complex. 68 Given over the fees and charges that will be imposed and collected by these
that, at this time, the government and Piatco are the only ones service providers.
engaged in the business of operating an international passenger
terminal, I am not acutely concerned with this particular This intention is exceedingly clear in the declaration by Piatco that it
monopolistic situation. is "completely within its rights to exclude any party that it has not
contracted with from NAIA Terminal III."71
There was however another monopoly within the NAIA created by
the subject contracts for Piatco - in the business of providing Worse, there is nothing whatsoever in the Piatco Contracts that can
international airlines with the following: groundhandling, in-flight serve to restrict, control or regulate the concessionaire's discretion
catering, cargo handling, and aircraft repair and maintenance and power to reject any service provider and/or impose any term or
services. These are lines of business activity in which are engaged condition it may see fit in any contract it enters into with a service
many service providers (including the petitioners-in-intervention), provider. In brief, there is no safeguard whatsoever to ensure free
who will be adversely affected upon full implementation of the and fair competition in the service-provider sector.
Piatco Contracts, particularly Sections 3.01(d) 69 and (e)70 of both the
ARCA and the CA. In the meantime, and not surprisingly, Piatco is first in line, ready to
exploit the unique business opportunity. It announced 72 that it has
On the one hand, Section 3.02(a) of the ARCA makes Terminal III accredited three groundhandlers for Terminal III. Aside from the
the only international passenger terminal at the NAIA, and therefore Philippine Airlines, the other accredited entities are the Philippine
the only place within the NAIA Complex where the business of Airport and Ground Services Globeground, Inc.
providing airport-related services to international airlines may be ("PAGSGlobeground") and the Orbit Air Systems, Inc. ("Orbit").
conducted. On the other hand, Section 3.01(d) of the ARCA requires PAGSGlobeground is a wholly-owned subsidiary of the Philippine
government, through the MIAA, not to allow service providers with Airport and Ground Services, Inc. or PAGS, 73 while Orbit is a
expired MIAA contracts to renew or extend their contracts to render wholly-owned subsidiary of Friendship Holdings, Inc., 74 which is in
airport-related services to airlines. Meanwhile, Section 3.01(e) of the turn owned 80 percent by PAGS.75 PAGS is a service provider
ARCA requires government, through the DOTC and MIAA, not to owned 60 percent by the Cheng Family; 76 it is a stockholder of 35
allow service providers - those with subsisting concession percent of Piatco77 and is the latter's designated contractor-operator
agreements for services and operations being conducted at Terminal for NAIA Terminal III.78
I - to carry over their concession agreements, services and operations
to Terminal III, unless they first enter into a separate agreement with Such entry into and domination of the airport-related services sector
Piatco. appear to be very much in line with the following provisions
contained in the First Addendum to the Piatco Shareholders
The aforementioned provisions vest in Piatco effective and exclusive Agreement,79 executed on July 6, 1999, which appear to constitute a
control over which service provider may and may not operate at
sort of master plan to create a monopoly and combinations in combination in restraint of trade is an agreement or
restraint of trade: understanding between two or more persons, in the form of a
contract, trust, pool, holding company, or other form of
"11. The Shareholders shall ensure: association, for the purpose of unduly restricting
competition, monopolizing trade and commerce in a certain
a. x x x           x x x           x x x.; commodity, controlling its production, distribution and price,
or otherwise interfering with freedom of trade without
b. That (Phil. Airport and Ground Services, Inc.) PAGS statutory authority. Combination in restraint of trade refers to
and/or its designated Affiliates shall, at all times during the the means while monopoly refers to the end.
Concession Period, be exclusively authorized by (PIATCO)
to engage in the provision of ground-handling, catering and "x x x           x x x           x x x
fueling services within the Terminal Complex.
"Section 19, Article XII of our Constitution is anti-trust in
c. That PAIRCARGO and/or its designated Affiliate shall, history and in spirit. It espouses competition. The
during the Concession Period, be the only entities authorized desirability of competition is the reason for the prohibition
to construct and operate a warehouse for all cargo handling against restraint of trade, the reason for the interdiction of
and related services within the Site." unfair competition, and the reason for regulation of
unmitigated monopolies. Competition is thus the underlying
Precisely, proscribed by our Constitution are the monopoly and the principle of [S]ection 19, Article XII of our
restraint of trade being fostered by the Piatco Contracts through the Constitution, . . ."81
erection of barriers to the entry of other service providers into
Terminal III. In Tatad v. Secretary of the Department of Gokongwei Jr. v. Securities and Exchange Commission 82 elucidates
Energy,80 the Court ruled: the criteria to be employed: "A 'monopoly' embraces any
combination the tendency of which is to prevent competition in the
". . . [S]ection 19 of Article XII of the Constitution . . . broad and general sense, or to control prices to the detriment of the
mandates: 'The State shall regulate or prohibit monopolies public. In short, it is the concentration of business in the hands of a
when the public interest so requires. No combinations in few. The material consideration in determining its existence is not
restraint of trade or unfair competition shall be allowed.' that prices are raised and competition actually excluded, but that
power exists to raise prices or exclude competition when
"A monopoly is a privilege or peculiar advantage vested in desired."83 (Emphasis supplied)
one or more persons or companies, consisting in the
exclusive right or power to carry on a particular business or The Contracts Encourage Monopolistic Pricing, Too
trade, manufacture a particular article, or control the sale or
the whole supply of a particular commodity. It is a form of Aside from creating a monopoly, the Piatco contracts also give the
market structure in which one or only a few firms dominate concessionaire virtually limitless power over the charging of fees,
the total sales of a product or service. On the other hand, a rentals and so forth. What little "oversight function" the government
might be able and minded to exercise is less than sufficient to protect Earlier, I discussed how Section 3.01(e) 84 of both the CA and the
the public interest, as can be gleaned from the following provisions: ARCA requires government, through DOTC/MIAA, not to permit
the carry-over to Terminal III of the services and operations of
"Sec. 6.06. Adjustment of Non-Public Utility Fees and certain service providers currently operating at Terminal I with
Charges subsisting contracts.

"For fees, rentals and charges constituting Non-Public Utility By the In-Service Date, Terminal III shall be the only facility to be
Revenues, Concessionaire may make any adjustments it operated as an international passenger terminal at the NAIA; 85 thus,
deems appropriate without need for the consent of GRP or Terminals I and II shall no longer operate as such, 86 and no one shall
any government agency subject to Sec. 6.03(c)." be allowed to compete with Piatco in the operation of an
international passenger terminal in the NAIA. 87 The bottom line is
Section 6.03(c) in turn provides: that, as of the In-Service Date, Terminal III will be the only terminal
where the business of providing airport-related services to
"(c) Concessionaire shall at all times be judicious in fixing international airlines and passengers may be conducted at all.
fees and charges constituting Non-Public Utility Revenues in
order to ensure that End Users are not unreasonably deprived Consequently, government through the DOTC/MIAA will be
of services. While the vehicular parking fee, porterage fee compelled to cease honoring existing contracts with service
and greeter/wellwisher fee constitute Non-Public Utility providers after the In-Service Date, as they cannot be allowed to
Revenues of Concessionaire, GRP may require operate in Terminal III.
Concessionaire to explain and justify the fee it may set from
time to time, if in the reasonable opinion of GRP the said In short, the CA and the ARCA obligate and constrain government to
fees have become exorbitant resulting in the unreasonable break its existing contracts with these service providers.
deprivation of End Users of such services."
Notably, government is not in a position to require Piatco to
It will be noted that the above-quoted provision has no teeth, so the accommodate the displaced service providers, and it would be
concessionaire can defy the government without fear of any sanction. unrealistic to think that these service providers can perform their
Moreover, Section 6.06 - taken together with Section 6.03(c) of the service contracts in some other international airport outside Luzon.
ARCA - falls short of the standard set by the BOT Law as amended, Obviously, then, these displaced service providers are - to borrow a
which expressly requires in Section 2(b) that the project proponent is quaint expression - up the river without a paddle. In plainer terms,
"allowed to charge facility users appropriate tolls, fees, rentals and they will have lost their businesses entirely, in the blink of an eye.
charges not exceeding those proposed in its bid or as negotiated
and incorporated in the contract x x x." What we have here is a set of contractual provisions that impair the
obligation of contracts and contravene the constitutional prohibition
The Piatco Contracts Violate Constitutional Prohibitions Against against deprivation of property without due process of law. 88
Impairment of Contracts and Deprivation of Property Without Due
Process
Moreover, since the displaced service providers, being unable to Ban on Disbursement of Public Funds Without Valid
operate, will be forced to close shop, their respective employees - Appropriation
among them Messrs. Agan and Lopez et al. - have very grave cause
for concern, as they will find themselves out of employment and Clearly prohibited by the Constitution is the disbursement of public
bereft of their means of livelihood. This situation comprises still funds out of the treasury, except in pursuance of an appropriation
another violation of the constitution prohibition against deprivation made by law.92 The immediate effect of this constitutional ban is that
of property without due process. all the various agencies of government are constrained to limit their
expenditures to the amounts appropriated by law for each fiscal year;
True, doing business at the NAIA may be viewed more as a privilege and to carefully count their cash before taking on contractual
than as a right. Nonetheless, where that privilege has been availed of commitments. Giving flesh and form to the injunction of the
by the petitioners-in-intervention service providers for years on end, fundamental law, Sections 46 and 47 of Executive Order 292,
a situation arises, similar to that in American Inter-fashion v. otherwise known as the Administrative Code of 1987, provide as
GTEB.89 We held therein that a privilege enjoyed for seven years follows:
"evolved into some form of property right which should not be
removed x x x arbitrarily and without due process." Said "Sec. 46. Appropriation Before Entering into Contract. - (1)
pronouncement is particularly relevant and applicable to the situation No contract involving the expenditure of public funds shall
at bar because the livelihood of the employees of petitioners- be entered into unless there is an appropriation therefor, the
intervenors are at stake. unexpended balance of which, free of other obligations, is
sufficient to cover the proposed expenditure; and . .
The Piatco Contracts Violate Constitutional Prohibition
Against Deprivation of Liberty Without Due Process "Sec. 47. Certificate Showing Appropriation to Meet
Contract. - Except in the case of a contract for personal
The Piatco Contracts by locking out existing service providers from service, for supplies for current consumption or to be carried
entry into Terminal III and restricting entry of future service in stock not exceeding the estimated consumption for three
providers, thereby infringed upon the freedom - guaranteed to and (3) months, or banking transactions of government-owned or
heretofore enjoyed by international airlines - to contract with local controlled banks, no contract involving the expenditure of
service providers of their choice, and vice versa. public funds by any government agency shall be entered into
or authorized unless the proper accounting official of the
Both the service providers and their client airlines will be deprived of agency concerned shall have certified to the officer entering
the right to liberty, which includes the right to enter into all into the obligation that funds have been duly appropriated
contracts,90 and/or the right to make a contract in relation to one's for the purpose and that the amount necessary to cover the
business.91 proposed contract for the current calendar year is available
for expenditure on account thereof, subject to verification by
By Creating New Financial Obligations for Government, the auditor concerned. The certificate signed by the proper
Supplements to the ARCA Violate the Constitutional accounting official and the auditor who verified it, shall be
attached to and become an integral part of the proposed
contract, and the sum so certified shall not thereafter be third persons, in case MIAA fails to perform such
available for expenditure for any other purpose until the obligations; in addition, MIAA will also be liable for the
obligation of the government agency concerned under the incremental and consequential costs of the remedial work
contract is fully extinguished." done by Piatco on account of the former's default.

Referring to the aforequoted provisions, this Court has held that "(I)t • Section 4 of the FS imposed on government ten (10)
is quite evident from the tenor of the language of the law that the "Additional Special Obligations," including the following:
existence of appropriations and the availability of funds are
indispensable pre-requisites to or conditions sine qua non for the o Providing thru MIAA the land required by Piatco for
execution of government contracts. The obvious intent is to impose the taxilane and one taxiway, at no cost to Piatco
such conditions as a priori requisites to the validity of the proposed o Implementing the government's existing storm
contract."93 drainage master plan
o Coordinating with DPWH the financing,
Notwithstanding the constitutional ban, statutory mandates and implementation and completion of the following
Jurisprudential precedents, the three Supplements to the ARCA, works before the In-Service Date: three left-turning
which were not approved by NEDA, imposed on government the overpasses (Edsa to Tramo St., Tramo to Andrews
additional burden of spending public moneys without prior Ave., and Manlunas Road to Sales Ave.) and a road
appropriation. upgrade and improvement program involving
widening, repair and resurfacing of Sales Road,
In the First Supplement ("FS") dated August 27, 1999, the following Andrews Avenue and Manlunas Road; improvement
requirements were imposed on the government: of Nichols Interchange; and removal of squatters
along Andrews Avenue
• To construct, maintain and keep in good repair and o Dealing directly with BCDA and the Philippine Air
operating condition all airport support services, facilities, Force in acquiring additional land or right of way for
equipment and infrastructure owned and/or operated by the road upgrade and improvement program
MIAA, which are not part of the Project or which are located o Requiring government to work for the immediate
outside the Site, even though constructed by Concessionaire reversion to MIAA of the Nayong Pilipino National
- including the access road connecting Terminals II and III Park, in order to permit the building of the second
and the taxilane, taxiways and runways west parallel taxiway

• To obligate the MIAA to provide funding for the upkeep, • Section 5 of the FS also provides that in lieu of the access
maintenance and repair of the airports and facilities owned tunnel, a surface access road (T2-T3) will be constructed.
or operated by it and by third persons under its control in This provision requires government to expend funds to
order to ensure compliance with international standards; and purchase additional land from Nayong Pilipino and to clear
holding MIAA liable to Piatco for the latter's losses, the same in order to be able to deliver clean possession of
expenses and damages as well as for the latter's liability to the site to Piatco, as required in Section 5(c) of the FS.
On the other hand, the Third Supplement ("TS") obligates the Contracts. Whereupon, the concessionaire may outrightly terminate
government to deliver, within 120 days from date thereof, clean the Contracts pursuant to Section 8.01(b)(i) and (ii) of the ARCA
possession of the land on which the T2-T3 Road is to be constructed. and seek payment of Liquidated Damages in accordance with
Section 8.02(a) of the ARCA; or the concessionaire may instead
The foregoing contractual stipulations undeniably impose on require government to pay the Incremental and Consequential Losses
government the expenditures of public funds not included in any under Section 1.23 of the ARCA. 94 The logical conclusion then is
congressional appropriation or authorized by any other statute. Piatco that the obligations in the Supplements are not to be performed on a
however attempts to take these stipulations out of the ambit of best-efforts basis only, but are unarguably mandatory in character.
Sections 46 and 47 of the Administrative Code by characterizing
them as stipulations for compliance on a "best-efforts basis" only. Regarding MIAA's obligation to coordinate with the DPWH for the
complete implementation of the road upgrading and improvement
To determine whether the additional obligations under the program for Sales, Andrews and Manlunas Roads (which provide
Supplements may really be undertaken on a best-efforts basis only, access to the Terminal III site) prior to the In-Service Date, it is
the nature of each of these obligations must be examined in the essential to take note of the fact that there was a pressing need to
context of its relevance and significance to the Terminal III Project, complete the program before the opening of Terminal III. 95 For that
as well as of any adverse impact that may result if such obligation is reason, the MIAA was compelled to enter into a memorandum of
not performed or undertaken on time. In short, the criteria for agreement with the DPWH in order to ensure the timely completion
determining whether the best-efforts basis will apply is whether the of the road widening and improvement program. MIAA agreed to
obligations are critical to the success of the Project and, accordingly, advance the total amount of P410.11 million to DPWH for the
whether failure to perform them (or to perform them on time) works, while the latter was committed to do the following:
could result in a material breach of the contract.
"2.2.8. Reimburse all advance payments to MIAA including
Viewed in this light, the "Additional Special Obligations" set out in but not limited to interest, fees, plus other costs of money
Section 4 of the FS take on a different aspect. In particular, each of within the periods CY2004 and CY2006 with payment of no
the following may all be deemed to play a major role in the less than One Hundred Million Pesos (PhP100M) every year.
successful and timely prosecution of the Terminal III Project: the
obtention of land required by PIATCO for the taxilane and taxiway; "2.2.9. Perform all acts necessary to include in its CY2004 to
the implementation of government's existing storm drainage master CY2006 budget allocation the repayments for the advances
plan; and coordination with DPWH for the completion of the three made by MIAA, to ensure that the advances are fully repaid
left-turning overpasses before the In-Service Date, as well as by CY2006. For this purpose, DPWH shall include the
acquisition and delivery of additional land for the construction of the amounts to be appropriated for reimbursement to MIAA in
T2-T3 access road. the "Not Needing Clearance" column of their Agency
Budget Matrix (ABM) submitted to the Department of
Conversely, failure to deliver on any of these obligations may Budget and Management."
conceivably result in substantial prejudice to the concessionaire, to
such an extent as to constitute a material breach of the Piatco
It can be easily inferred, then, that DPWH did not set aside enough Prescinding from all the foregoing disquisition, I find that all the
funds to be able to complete the upgrading program for the crucially Piatco contracts, without exception, are void ab initio, and therefore
situated access roads prior to the targeted opening date of Terminal inoperative. Even the very process by which the contracts came into
III; and that, had MIAA not agreed to lend the P410 Million, DPWH being - the bidding and the award - has been riddled with
would not have been able to complete the program on time. As a irregularities galore and blatant violations of law and public policy,
consequence, government would have been in breach of a material far too many to ignore. There is thus no conceivable way, as
obligation. Hence, this particular undertaking of government may proposed by some, of saving one (the original Concession
likewise not be construed as being for best-efforts compliance only. Agreement) while junking all the rest.

They also Infringe on the Legislative Prerogative and Power Over Neither is it possible to argue for the retention of the Draft
the Public Purse Concession Agreement (referred to in the various pleadings as the
Contract Bidded Out) as the contract that should be kept in force and
But the particularly sad thing about this transaction between MIAA effect to govern the situation, inasmuch as it was never executed by
and DPWH is the fact that both agencies were maneuvered into (or the parties. What Piatco and the government executed was the
allowed themselves to be maneuvered into) an agreement that would Concession Agreement which is entirely different from the Draft
ensure delivery of upgraded roads for Piatco's benefit, using funds Concession Agreement.
not allocated for that purpose. The agreement would then be
presented to Congress as a done deal. Congress would thus be Ultimately, though, it would be tantamount to an outrageous,
obliged to uphold the agreement and support it with the necessary grievous and unforgivable mutilation of public policy and an insult
allocations and appropriations for three years, in order to enable to ourselves if we opt to keep in place a contract - any contract - for
DPWH to deliver on its committed repayments to MIAA. The net to do so would assume that we agree to having Piatco continue as
result is an infringement on the legislative power over the public the concessionaire for Terminal III.
purse and a diminution of Congress' control over expenditures of
public funds - a development that would not have come about, were Despite all the insidious contraventions of the Constitution, law and
it not for the Supplements. Very clever but very illegal! public policy Piatco perpetrated, keeping Piatco on as concessionaire
and even rewarding it by allowing it to operate and profit from
EPILOGUE Terminal III - instead of imposing upon it the stiffest sanctions
What Do We Do Now? permissible under the laws - is unconscionable.

In the final analysis, there remains but one ultimate question, which I It is no exaggeration to say that Piatco may not really mind which
raised during the Oral Argument on December 10, 2002: What do contract we decide to keep in place. For all it may care, we can do
we do with the Piatco Contracts and Terminal III?96 (Feeding just as well without one, if we only let it continue and operate the
directly into the resolution of the decisive question is the other facility. After all, the real money will come not from building the
nagging issue: Why should we bother with determining the legality Terminal, but from actually operating it for fifty or more years and
and validity of these contracts, when the Terminal itself has already charging whatever it feels like, without any competition at all. This
been built and is practically complete?) scenario must not be allowed to happen.
If the Piatco contracts are junked altogether as I think they should be, How the payment or series of payments to the builder, funders,
should not AEDC automatically be considered the winning bidder investors and contractors will be staggered and scheduled, will have
and therefore allowed to operate the facility? My answer is a stone- to be built into the bids, along with the annual guaranteed payments
cold 'No'. AEDC never won the bidding, never signed any contract, to government. In this manner, this whole sordid mess could result in
and never built any facility. Why should it be allowed something truly beneficial for all, especially for the Filipino people.
to automatically step in and benefit from the greed of another?
WHEREFORE, I vote to grant the Petitions and to declare the
Should government pay at all for reasonable expenses incurred in the subject contracts NULL and VOID.
construction of the Terminal? Indeed it should, otherwise it will be
unjustly enriching itself at the expense of Piatco and, in particular, its
funders, contractors and investors - both local and foreign. After all,
there is no question that the State needs and will make use of
Terminal III, it being part and parcel of the critical infrastructure and
transportation-related programs of government.

In Melchor v. Commission on Audit,97 this Court held that even if the


contract therein was void, the principle of payment by quantum
meruit was found applicable, and the contractor was allowed to
recover the reasonable value of the thing or services rendered
(regardless of any agreement as to the supposed value), in order to
avoid unjust enrichment on the part of government. The principle
of quantum meruit was likewise applied in Eslao v. Commission on
Audit,98 because to deny payment for a building almost completed
and already occupied would be to permit government to unjustly
enrich itself at the expense of the contractor. The same principle was
applied in Republic v. Court of Appeals.99

One possible practical solution would be for government - in view of


the nullity of the Piatco contracts and of the fact that Terminal III has
already been built and is almost finished - to bid out the operation of
the facility under the same or analogous principles as build-operate-
and-transfer projects. To be imposed, however, is the condition that
the winning bidder must pay the builder of the facility a price fixed
by government based on quantum meruit; on the real, reasonable -
not inflated - value of the built facility.
Inc. entered into a "Subcontract Agreement" involving electrical
work at the Third Port of Zamboanga.5

On April 25, 1985, respondent took over some of the work


G. R. No. 141833 - March 26, 2003 contracted to petitioner.6 Allegedly, the latter had failed to finish it
because of its inability to procure materials. 7
LM POWER ENGINEERING CORPORATION, Petitioner,
vs. CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, Upon completing its task under the Contract, petitioner billed
INC., Respondent. respondent in the amount of P6,711,813.90.8 Contesting the accuracy
of the amount of advances and billable accomplishments listed by
PANGANIBAN, J.: the former, the latter refused to pay. Respondent also took refuge in
the termination clause of the Agreement. 9 That clause allowed it to
Alternative dispute resolution methods or ADRs -- like arbitration, set off the cost of the work that petitioner had failed to undertake --
mediation, negotiation and conciliation -- are encouraged by the due to termination or take-over -- against the amount it owed the
Supreme Court. By enabling parties to resolve their disputes latter.
amicably, they provide solutions that are less time-consuming, less
tedious, less confrontational, and more productive of goodwill and Because of the dispute, petitioner filed with the Regional Trial Court
lasting relationships.1 (RTC) of Makati (Branch 141) a Complaint 10 for the collection of the
amount representing the alleged balance due it under the
The Case Subcontract. Instead of submitting an Answer, respondent filed a
Motion to Dismiss,11 alleging that the Complaint was premature,
Before us is a Petition for Review on Certiorari 2 under Rule 45 of the because there was no prior recourse to arbitration.
Rules of Court, seeking to set aside the January 28, 2000 Decision of
the Court of Appeals3 (CA) in CA-GR CV No. 54232. The In its Order12 dated September 15, 1987, the RTC denied the Motion
dispositive portion of the Decision reads as follows: on the ground that the dispute did not involve the interpretation or
the implementation of the Agreement and was, therefore, not covered
"WHEREFORE, the judgment appealed from is REVERSED and by the arbitral clause.13
SET ASIDE. The parties are ORDERED to present their dispute to
arbitration in accordance with their Sub-contract Agreement. The After trial on the merits, the RTC 14 ruled that the take-over of some
surety bond posted by [respondent] is [d]ischarged."4 work items by respondent was not equivalent to a termination, but a
mere modification, of the Subcontract. The latter was ordered to give
The Facts full payment for the work completed by petitioner.

On February 22, 1983, Petitioner LM Power Engineering Ruling of the Court of Appeals
Corporation and Respondent Capitol Industrial Construction Groups
On appeal, the CA reversed the RTC and ordered the referral of the Petitioner claims that there is no conflict regarding the interpretation
case to arbitration. The appellate court held as arbitrable the issue of or the implementation of the Agreement. Thus, without having to
whether respondents take-over of some work items had been resort to prior arbitration, it is entitled to collect the value of the
intended to be a termination of the original contract under Letter "K" services it rendered through an ordinary action for the collection of a
of the Subcontract. It ruled likewise on two other issues: whether sum of money from respondent. On the other hand, the latter
petitioner was liable under the warranty clause of the Agreement, contends that there is a need for prior arbitration as provided in the
and whether it should reimburse respondent for the work the latter Agreement. This is because there are some disparities between the
had taken over.15 parties positions regarding the extent of the work done, the amount
of advances and billable accomplishments, and the set off of
Hence, this Petition.16 expenses incurred by respondent in its take-over of petitioners work.

The Issues We side with respondent. Essentially, the dispute arose from the
parties ncongruent positions on whether certain provisions of their
In its Memorandum, petitioner raises the following issues for the Agreement could be applied to the facts. The instant case involves
Courts consideration: technical discrepancies that are better left to an arbitral body that has
expertise in those areas. In any event, the inclusion of an arbitration
"A clause in a contract does not ipso facto divest the courts of
jurisdiction to pass upon the findings of arbitral bodies, because the
Whether or not there exist[s] a controversy/dispute between awards are still judicially reviewable under certain conditions. 18
petitioner and respondent regarding the interpretation and
implementation of the Sub-Contract Agreement dated February 22, In the case before us, the Subcontract has the following arbitral
1983 that requires prior recourse to voluntary arbitration; clause:

"B "6. The Parties hereto agree that any dispute or conflict as regards to
interpretation and implementation of this Agreement which cannot
In the affirmative, whether or not the requirements provided in be settled between [respondent] and [petitioner] amicably shall be
Article III 1 of CIAC Arbitration Rules regarding request for settled by means of arbitration x x x."19
arbitration ha[ve] been complied with[.]"17
Clearly, the resolution of the dispute between the parties herein
The Courts Ruling requires a referral to the provisions of their Agreement. Within the
scope of the arbitration clause are discrepancies as to the amount of
advances and billable accomplishments, the application of the
The Petition is unmeritorious.
provision on termination, and the consequent set-off of expenses.
First Issue:
A review of the factual allegations of the parties reveals that they
Whether Dispute Is Arbitrable
differ on the following questions: (1) Did a take-over/termination
occur? (2) May the expenses incurred by respondent in the take-over Supposedly, as a result of the "take-over," respondent incurred
be set off against the amounts it owed petitioner? (3) How much expenses in excess of the contracted price. It sought to set off those
were the advances and billable accomplishments? expenses against the amount claimed by petitioner for the work the
latter accomplished, pursuant to the following provision:
The resolution of the foregoing issues lies in the interpretation of the
provisions of the Agreement. According to respondent, the take-over "If the total direct and indirect cost of completing the remaining part
was caused by petitioners delay in completing the work. Such delay of the WORK exceed the sum which would have been payable to
was in violation of the provision in the Agreement as to time [petitioner] had it completed the WORK, the amount of such excess
schedule: [may be] claimed by [respondent] from either of the following:

"G. TIME SCHEDULE 1. Any amount due [petitioner] from [respondent] at the time of the
termination of this Agreement."22
"[Petitioner] shall adhere strictly to the schedule related to the
WORK and complete the WORK within the period set forth in The issue as to the correct amount of petitioners advances and
Annex C hereof. NO time extension shall be granted by [respondent] billable accomplishments involves an evaluation of the manner in
to [petitioner] unless a corresponding time extension is granted by which the parties completed the work, the extent to which they did it,
[the Ministry of Public Works and Highways] to the and the expenses each of them incurred in connection therewith.
CONSORTIUM."20 Arbitrators also need to look into the computation of foreign and
local costs of materials, foreign and local advances, retention fees
Because of the delay, respondent alleges that it took over some of the and letters of credit, and taxes and duties as set forth in the
work contracted to petitioner, pursuant to the following provision in Agreement. These data can be gathered from a review of the
the Agreement: Agreement, pertinent portions of which are reproduced hereunder:

"K. TERMINATION OF AGREEMENT "C. CONTRACT PRICE AND TERMS OF PAYMENT

"[Respondent] has the right to terminate and/or take over this xxx-xxx-xxx


Agreement for any of the following causes:
"All progress payments to be made by [respondent] to [petitioner]
xxx-xxx-xxx shall be subject to a retention sum of ten percent (10%) of the value
of the approved quantities. Any claims by [respondent] on
6. If despite previous warnings by [respondent], [petitioner] does not [petitioner] may be deducted by [respondent] from the progress
execute the WORK in accordance with this Agreement, payments and/or retained amount. Any excess from the retained
or persistently or flagrantly neglects to carry out [its] obligations amount after deducting [respondents] claims shall be released by
under this Agreement."21 [respondent] to [petitioner] after the issuance of [the Ministry of
Public Works and Highways] of the Certificate of Completion and
final acceptance of the WORK by [the Ministry of Public Works and disputes.26 Brushing aside a contractual agreement calling for
Highways]. arbitration between the parties would be a step backward. 27

xxx-xxx-xxx Consistent with the above-mentioned policy of encouraging


alternative dispute resolution methods, courts should liberally
"D. IMPORTED MATERIALS AND EQUIPMENT construe arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate
"[Respondent shall open the letters of credit for the importation of should be granted.28 Any doubt should be resolved in favor of
equipment and materials listed in Annex E hereof after the drawings, arbitration.29
brochures, and other technical data of each items in the list have been
formally approved by [the Ministry of Public Works and Highways]. Second Issue:
However, petitioner will still be fully responsible for all imported Prior Request for Arbitration
materials and equipment.
According to petitioner, assuming arguendo that the dispute is
"All expenses incurred by [respondent], both in foreign and local arbitrable, the failure to file a formal request for arbitration with the
currencies in connection with the opening of the letters of credit shall Construction Industry Arbitration Commission (CIAC) precluded the
be deducted from the Contract Prices. latter from acquiring jurisdiction over the question. To bolster its
position, petitioner even cites our ruling in Tesco Services
xxx-xxx-xxx Incorporated v. Vera.30 We are not persuaded.

"N. OTHER CONDITIONS Section 1 of Article II of the old Rules of Procedure Governing


Construction Arbitration indeed required the submission of a request
xxx-xxx-xxx for arbitration, as follows:

"2. All customs duties, import duties, contractors taxes, income "SECTION. 1. Submission to Arbitration -- Any party to a
taxes, and other taxes that may be required by any government construction contract wishing to have recourse to arbitration by the
agencies in connection with this Agreement shall be for the sole Construction Industry Arbitration Commission (CIAC) shall submit
account of [petitioner]."23 its Request for Arbitration in sufficient copies to the Secretariat of
the CIAC; PROVIDED, that in the case of government construction
Being an inexpensive, speedy and amicable method of settling contracts, all administrative remedies available to the parties must
disputes,24 arbitration -- along with mediation, conciliation and have been exhausted within 90 days from the time the dispute arose."
negotiation -- is encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens the resolution of Tesco was promulgated by this Court, using the foregoing provision
disputes, especially of the commercial kind. 25 It is thus regarded as as reference.
the "wave of the future" in international civil and commercial
On the other hand, Section 1 of Article III of the new Rules of not be precluded from electing to submit their dispute before the
Procedure Governing Construction Arbitration has dispensed with CIAC because this right has been vested upon each party by law, i.e.,
this requirement and recourse to the CIAC may now be availed of E.O. No. 1008."34
whenever a contract "contains a clause for the submission of a future
controversy to arbitration," in this wise: Clearly, there is no more need to file a request with the CIAC in
order to vest it with jurisdiction to decide a construction dispute.
"SECTION 1. Submission to CIAC Jurisdiction An arbitration clause
in a construction contract or a submission to arbitration of a The arbitral clause in the Agreement is a commitment on the part of
construction dispute shall be deemed an agreement to submit an the parties to submit to arbitration the disputes covered therein.
existing or future controversy to CIAC jurisdiction, notwithstanding Because that clause is binding, they are expected to abide by it in
the reference to a different arbitration institution or arbitral body in good faith.35 And because it covers the dispute between the parties in
such contract or submission. When a contract contains a clause for the present case, either of them may compel the other to arbitrate. 36
the submission of a future controversy to arbitration, it is not
necessary for the parties to enter into a submission agreement before Since petitioner has already filed a Complaint with the RTC without
the claimant may invoke the jurisdiction of CIAC." prior recourse to arbitration, the proper procedure to enable the
CIAC to decide on the dispute is to request the stay or suspension of
The foregoing amendments in the Rules were formalized by CIAC such action, as provided under RA 876 [the Arbitration Law]. 37
Resolution Nos. 2-91 and 3-93.31
WHEREFORE, the Petition is DENIED and the assailed Decision
The difference in the two provisions was clearly explained in China AFFIRMED. Costs against petitioner.
Chang Jiang Energy Corporation (Philippines) v. Rosal
Infrastructure Builders et al.32 (an extended unsigned Resolution) SO ORDERED.
and reiterated in National Irrigation Administration v. Court of
Appeals,33 from which we quote thus:

"Under the present Rules of Procedure, for a particular construction


contract to fall within the jurisdiction of CIAC, it is merely required
that the parties agree to submit the same to voluntary arbitration
Unlike in the original version of Section 1, as applied in the Tesco
case, the law as it now stands does not provide that the parties should
agree to submit disputes arising from their agreement specifically to
the CIAC for the latter to acquire jurisdiction over the same. Rather,
it is plain and clear that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum they may choose,
their agreement will fall within the jurisdiction of the CIAC, such
that, even if they specifically choose another forum, the parties will
the Court of Appeals3 (CA) in CA-GR CV No. 54232. The
dispositive portion of the Decision reads as follows:

"WHEREFORE, the judgment appealed from is


REVERSED and SET ASIDE. The parties are ORDERED to
present their dispute to arbitration in accordance with their
Sub-contract Agreement. The surety bond posted by
[respondent] is [d]ischarged."4

The Facts

On February 22, 1983, Petitioner LM Power Engineering


Corporation and Respondent Capitol Industrial Construction Groups
Inc. entered into a "Subcontract Agreement" involving electrical
G.R. No. 141833            March 26, 2003 work at the Third Port of Zamboanga.5

LM POWER ENGINEERING CORPORATION, petitioner, On April 25, 1985, respondent took over some of the work
vs. contracted to petitioner.6 Allegedly, the latter had failed to finish it
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, because of its inability to procure materials. 7
INC., respondent.
Upon completing its task under the Contract, petitioner billed
PANGANIBAN, J.: respondent in the amount of P6,711,813.90.8 Contesting the accuracy
of the amount of advances and billable accomplishments listed by
the former, the latter refused to pay. Respondent also took refuge in
Alternative dispute resolution methods or ADRs -- like arbitration,
the termination clause of the Agreement. 9 That clause allowed it to
mediation, negotiation and conciliation -- are encouraged by the
set off the cost of the work that petitioner had failed to undertake --
Supreme Court. By enabling parties to resolve their disputes
due to termination or take-over -- against the amount it owed the
amicably, they provide solutions that are less time-consuming, less
latter.
tedious, less confrontational, and more productive of goodwill and
lasting relationships.1
Because of the dispute, petitioner filed with the Regional Trial Court
(RTC) of Makati (Branch 141) a Complaint 10 for the collection of the
The Case
amount representing the alleged balance due it under the
Subcontract. Instead of submitting an Answer, respondent filed a
Before us is a Petition for Review on Certiorari 2 under Rule 45 of the Motion to Dismiss,11 alleging that the Complaint was premature,
Rules of Court, seeking to set aside the January 28, 2000 Decision of because there was no prior recourse to arbitration.
In its Order12 dated September 15, 1987, the RTC denied the Motion In the affirmative, whether or not the requirements provided in
on the ground that the dispute did not involve the interpretation or Article III 1 of CIAC Arbitration Rules regarding request for
the implementation of the Agreement and was, therefore, not covered arbitration ha[ve] been complied with[.]"17
by the arbitral clause.13
The Court’s Ruling
After trial on the merits, the RTC 14 ruled that the take-over of some
work items by respondent was not equivalent to a termination, but a The Petition is unmeritorious.
mere modification, of the Subcontract. The latter was ordered to give
full payment for the work completed by petitioner. First Issue:
Whether Dispute Is Arbitrable
Ruling of the Court of Appeals
Petitioner claims that there is no conflict regarding the interpretation
On appeal, the CA reversed the RTC and ordered the referral of the or the implementation of the Agreement. Thus, without having to
case to arbitration. The appellate court held as arbitrable the issue of resort to prior arbitration, it is entitled to collect the value of the
whether respondent’s take-over of some work items had been services it rendered through an ordinary action for the collection of a
intended to be a termination of the original contract under Letter "K" sum of money from respondent. On the other hand, the latter
of the Subcontract. It ruled likewise on two other issues: whether contends that there is a need for prior arbitration as provided in the
petitioner was liable under the warranty clause of the Agreement, Agreement. This is because there are some disparities between the
and whether it should reimburse respondent for the work the latter parties’ positions regarding the extent of the work done, the amount
had taken over.15 of advances and billable accomplishments, and the set off of
expenses incurred by respondent in its take-over of petitioner’s work.
Hence, this Petition.16
We side with respondent. Essentially, the dispute arose from the
The Issues parties’ ncongruent positions on whether certain provisions of their
Agreement could be applied to the facts. The instant case involves
In its Memorandum, petitioner raises the following issues for the technical discrepancies that are better left to an arbitral body that has
Court’s consideration: expertise in those areas. In any event, the inclusion of an arbitration
clause in a contract does not ipso facto divest the courts of
"A jurisdiction to pass upon the findings of arbitral bodies, because the
awards are still judicially reviewable under certain conditions. 18
Whether or not there exist[s] a controversy/dispute between
petitioner and respondent regarding the interpretation and In the case before us, the Subcontract has the following arbitral
implementation of the Sub-Contract Agreement dated February 22, clause:
1983 that requires prior recourse to voluntary arbitration;
"6. The Parties hereto agree that any dispute or conflict as
"B regards to interpretation and implementation of this
Agreement which cannot be settled between [respondent] "[Respondent] has the right to terminate and/or take
and [petitioner] amicably shall be settled by means of over this Agreement for any of the following causes:
arbitration x x x."19
x x x           x x x           x x x
Clearly, the resolution of the dispute between the parties herein
requires a referral to the provisions of their Agreement. Within the ‘6. If despite previous warnings by [respondent],
scope of the arbitration clause are discrepancies as to the amount of [petitioner] does not execute the WORK in
advances and billable accomplishments, the application of the accordance with this Agreement, or persistently or
provision on termination, and the consequent set-off of expenses. flagrantly neglects to carry out [its] obligations
under this Agreement."21
A review of the factual allegations of the parties reveals that they
differ on the following questions: (1) Did a take-over/termination Supposedly, as a result of the "take-over," respondent incurred
occur? (2) May the expenses incurred by respondent in the take-over expenses in excess of the contracted price. It sought to set off those
be set off against the amounts it owed petitioner? (3) How much expenses against the amount claimed by petitioner for the work the
were the advances and billable accomplishments? latter accomplished, pursuant to the following provision:

The resolution of the foregoing issues lies in the interpretation of the "If the total direct and indirect cost of completing the
provisions of the Agreement. According to respondent, the take-over remaining part of the WORK exceed the sum which would
was caused by petitioner’s delay in completing the work. Such delay have been payable to [petitioner] had it completed the
was in violation of the provision in the Agreement as to time WORK, the amount of such excess [may be] claimed by
schedule: [respondent] from either of the following:

"G. TIME SCHEDULE ‘1. Any amount due [petitioner] from [respondent] at the
time of the termination of this Agreement."22
"[Petitioner] shall adhere strictly to the schedule related to
the WORK and complete the WORK within the period set The issue as to the correct amount of petitioner’s advances and
forth in Annex C hereof. NO time extension shall be granted billable accomplishments involves an evaluation of the manner in
by [respondent] to [petitioner] unless a corresponding time which the parties completed the work, the extent to which they did it,
extension is granted by [the Ministry of Public Works and and the expenses each of them incurred in connection therewith.
Highways] to the CONSORTIUM."20 Arbitrators also need to look into the computation of foreign and
local costs of materials, foreign and local advances, retention fees
Because of the delay, respondent alleges that it took over some of the and letters of credit, and taxes and duties as set forth in the
work contracted to petitioner, pursuant to the following provision in Agreement. These data can be gathered from a review of the
the Agreement: Agreement, pertinent portions of which are reproduced hereunder:

"K. TERMINATION OF AGREEMENT "C. CONTRACT PRICE AND TERMS OF PAYMENT


x x x           x x x           x x x "2. All customs duties, import duties, contractor’s taxes,
income taxes, and other taxes that may be required by any
"All progress payments to be made by [respondent] to government agencies in connection with this Agreement
[petitioner] shall be subject to a retention sum of ten percent shall be for the sole account of [petitioner]."23
(10%) of the value of the approved quantities. Any claims by
[respondent] on [petitioner] may be deducted by Being an inexpensive, speedy and amicable method of settling
[respondent] from the progress payments and/or retained disputes,24 arbitration -- along with mediation, conciliation and
amount. Any excess from the retained amount after negotiation -- is encouraged by the Supreme Court. Aside from
deducting [respondent’s] claims shall be released by unclogging judicial dockets, arbitration also hastens the resolution of
[respondent] to [petitioner] after the issuance of [the disputes, especially of the commercial kind. 25 It is thus regarded as
Ministry of Public Works and Highways] of the Certificate the "wave of the future" in international civil and commercial
of Completion and final acceptance of the WORK by [the disputes.26 Brushing aside a contractual agreement calling for
Ministry of Public Works and Highways]. arbitration between the parties would be a step backward. 27

x x x           x x x           x x x Consistent with the above-mentioned policy of encouraging


alternative dispute resolution methods, courts should liberally
"D. IMPORTED MATERIALS AND EQUIPMENT construe arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate
"[Respondent shall open the letters of credit for the should be granted.28 Any doubt should be resolved in favor of
importation of equipment and materials listed in Annex E arbitration.29
hereof after the drawings, brochures, and other technical data
of each items in the list have been formally approved by [the Second Issue:
Ministry of Public Works and Highways]. However, Prior Request for Arbitration
petitioner will still be fully responsible for all imported
materials and equipment. According to petitioner, assuming arguendo that the dispute is
arbitrable, the failure to file a formal request for arbitration with the
"All expenses incurred by [respondent], both in foreign and Construction Industry Arbitration Commission (CIAC) precluded the
local currencies in connection with the opening of the letters latter from acquiring jurisdiction over the question. To bolster its
of credit shall be deducted from the Contract Prices. position, petitioner even cites our ruling in Tesco Services
Incorporated v. Vera.30 We are not persuaded.
x x x           x x x           x x x
Section 1 of Article II of the old Rules of Procedure Governing
"N. OTHER CONDITIONS Construction Arbitration indeed required the submission of a request
for arbitration, as follows:
x x x           x x x           x x x
"SECTION. 1. Submission to Arbitration -- Any party to a Infrastructure Builders et al.32 (an extended unsigned Resolution)
construction contract wishing to have recourse to arbitration and reiterated in National Irrigation Administration v. Court of
by the Construction Industry Arbitration Commission Appeals,33 from which we quote thus:
(CIAC) shall submit its Request for Arbitration in sufficient
copies to the Secretariat of the CIAC; PROVIDED, that in "Under the present Rules of Procedure, for a particular
the case of government construction contracts, all construction contract to fall within the jurisdiction of CIAC,
administrative remedies available to the parties must have it is merely required that the parties agree to submit the same
been exhausted within 90 days from the time the dispute to voluntary arbitration Unlike in the original version of
arose." Section 1, as applied in the Tesco case, the law as it now
stands does not provide that the parties should agree to
Tesco was promulgated by this Court, using the foregoing provision submit disputes arising from their agreement specifically to
as reference. the CIAC for the latter to acquire jurisdiction over the same.
Rather, it is plain and clear that as long as the parties agree
On the other hand, Section 1 of Article III of the new Rules of to submit to voluntary arbitration, regardless of what forum
Procedure Governing Construction Arbitration has dispensed with they may choose, their agreement will fall within the
this requirement and recourse to the CIAC may now be availed of jurisdiction of the CIAC, such that, even if they specifically
whenever a contract "contains a clause for the submission of a future choose another forum, the parties will not be precluded from
controversy to arbitration," in this wise: electing to submit their dispute before the CIAC because this
right has been vested upon each party by law, i.e., E.O. No.
"SECTION 1. Submission to CIAC Jurisdiction — An 1008."34
arbitration clause in a construction contract or a submission
to arbitration of a construction dispute shall be deemed an Clearly, there is no more need to file a request with the CIAC in
agreement to submit an existing or future controversy to order to vest it with jurisdiction to decide a construction dispute.
CIAC jurisdiction, notwithstanding the reference to a
different arbitration institution or arbitral body in such The arbitral clause in the Agreement is a commitment on the part of
contract or submission. When a contract contains a clause the parties to submit to arbitration the disputes covered therein.
for the submission of a future controversy to arbitration, it is Because that clause is binding, they are expected to abide by it in
not necessary for the parties to enter into a submission good faith.35 And because it covers the dispute between the parties in
agreement before the claimant may invoke the jurisdiction of the present case, either of them may compel the other to arbitrate. 36
CIAC."
Since petitioner has already filed a Complaint with the RTC without
The foregoing amendments in the Rules were formalized by CIAC prior recourse to arbitration, the proper procedure to enable the
Resolution Nos. 2-91 and 3-93.31 CIAC to decide on the dispute is to request the stay or suspension of
such action, as provided under RA 876 [the Arbitration Law]. 37
The difference in the two provisions was clearly explained in China
Chang Jiang Energy Corporation (Philippines) v. Rosal
WHEREFORE, the Petition is DENIED and the assailed Decision In our jurisdiction, the policy is to favor alternative methods of
AFFIRMED. Costs against petitioner. resolving disputes, particularly in civil and commercial disputes.
Arbitration along with mediation, conciliation, and negotiation,
SO ORDERED. being inexpensive, speedy and less hostile methods have long been
favored by this Court. The petition before us puts at issue an
arbitration clause in a contract mutually agreed upon by the parties
stipulating that they would submit themselves to arbitration in a
foreign country. Regrettably, instead of hastening the resolution of
their dispute, the parties wittingly or unwittingly prolonged the
controversy.

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean


corporation which is engaged in the supply and installation of
Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants,
while private respondent Pacific General Steel Manufacturing Corp.
(PGSMC) is a domestic corporation.

On March 5, 1997, PGSMC and KOGIES executed a


Contract1 whereby KOGIES would set up an LPG Cylinder
Manufacturing Plant in Carmona, Cavite. The contract was executed
in the Philippines. On April 7, 1997, the parties executed, in Korea,
an Amendment for Contract No. KLP-970301 dated March 5,
G.R. No. 143581             January 7, 2008 19972 amending the terms of payment. The contract and its
amendment stipulated that KOGIES will ship the machinery and
KOREA TECHNOLOGIES CO., LTD., petitioner, facilities necessary for manufacturing LPG cylinders for which
vs. PGSMC would pay USD 1,224,000. KOGIES would install and
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge initiate the operation of the plant for which PGSMC bound itself to
of Branch 256 of Regional Trial Court of Muntinlupa City, and pay USD 306,000 upon the plant’s production of the 11-kg. LPG
PACIFIC GENERAL STEEL MANUFACTURING cylinder samples. Thus, the total contract price amounted to USD
CORPORATION, respondents. 1,530,000.

DECISION On October 14, 1997, PGSMC entered into a Contract of Lease 3 with
Worth Properties, Inc. (Worth) for use of Worth’s 5,079-square
VELASCO, JR., J.: meter property with a 4,032-square meter warehouse building to
house the LPG manufacturing plant. The monthly rental was PhP
322,560 commencing on January 1, 1998 with a 10% annual
increment clause. Subsequently, the machineries, equipment, and machineries and equipment it delivered to PGSMC, and that PGSMC
facilities for the manufacture of LPG cylinders were shipped, would dismantle and transfer the machineries, equipment, and
delivered, and installed in the Carmona plant. PGSMC paid KOGIES facilities installed in the Carmona plant. Five days later, PGSMC
USD 1,224,000. filed before the Office of the Public Prosecutor an Affidavit-
Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae
However, gleaned from the Certificate 4 executed by the parties on Hyun Kang, President of KOGIES.
January 22, 1998, after the installation of the plant, the initial
operation could not be conducted as PGSMC encountered financial On June 15, 1998, KOGIES wrote PGSMC informing the latter that
difficulties affecting the supply of materials, thus forcing the parties PGSMC could not unilaterally rescind their contract nor dismantle
to agree that KOGIES would be deemed to have completely and transfer the machineries and equipment on mere imagined
complied with the terms and conditions of the March 5, 1997 violations by KOGIES. It also insisted that their disputes should be
contract. settled by arbitration as agreed upon in Article 15, the arbitration
clause of their contract.
For the remaining balance of USD306,000 for the installation and
initial operation of the plant, PGSMC issued two postdated checks: On June 23, 1998, PGSMC again wrote KOGIES reiterating the
(1) BPI Check No. 0316412 dated January 30, 1998 for PhP contents of its June 1, 1998 letter threatening that the machineries,
4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 equipment, and facilities installed in the plant would be dismantled
for PhP 4,500,000.5 and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES
instituted an Application for Arbitration before the Korean
When KOGIES deposited the checks, these were dishonored for the Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to
reason "PAYMENT STOPPED." Thus, on May 8, 1998, KOGIES Art. 15 of the Contract as amended.
sent a demand letter6 to PGSMC threatening criminal action for
violation of Batas Pambansa Blg. 22 in case of nonpayment. On the On July 3, 1998, KOGIES filed a Complaint for Specific
same date, the wife of PGSMC’s President faxed a letter dated May Performance, docketed as Civil Case No. 98-117 8 against PGSMC
7, 1998 to KOGIES’ President who was then staying at a Makati before the Muntinlupa City Regional Trial Court (RTC). The RTC
City hotel. She complained that not only did KOGIES deliver a granted a temporary restraining order (TRO) on July 4, 1998, which
different brand of hydraulic press from that agreed upon but it had was subsequently extended until July 22, 1998. In its complaint,
not delivered several equipment parts already paid for. KOGIES alleged that PGSMC had initially admitted that the checks
that were stopped were not funded but later on claimed that it
On May 14, 1998, PGSMC replied that the two checks it issued stopped payment of the checks for the reason that "their value was
KOGIES were fully funded but the payments were stopped for not received" as the former allegedly breached their contract by
reasons previously made known to KOGIES.7 "altering the quantity and lowering the quality of the machinery and
equipment" installed in the plant and failed to make the plant
On June 1, 1998, PGSMC informed KOGIES that PGSMC was operational although it earlier certified to the contrary as shown in a
canceling their Contract dated March 5, 1997 on the ground that January 22, 1998 Certificate. Likewise, KOGIES averred that
KOGIES had altered the quantity and lowered the quality of the PGSMC violated Art. 15 of their Contract, as amended, by
unilaterally rescinding the contract without resorting to arbitration. WHEREFORE, in view of the foregoing consideration, this
KOGIES also asked that PGSMC be restrained from dismantling and Court believes and so holds that no cogent reason exists for
transferring the machinery and equipment installed in the plant this Court to grant the writ of preliminary injunction to
which the latter threatened to do on July 4, 1998. restrain and refrain defendant from dismantling the
machineries and facilities at the lot and building of Worth
On July 9, 1998, PGSMC filed an opposition to the TRO arguing Properties, Incorporated at Carmona, Cavite and transfer the
that KOGIES was not entitled to the TRO since Art. 15, the same to another site: and therefore denies plaintiff’s
arbitration clause, was null and void for being against public policy application for a writ of preliminary injunction.
as it ousts the local courts of jurisdiction over the instant
controversy. On July 29, 1998, KOGIES filed its Reply to Answer and Answer to
Counterclaim.11 KOGIES denied it had altered the quantity and
On July 17, 1998, PGSMC filed its Answer with Compulsory lowered the quality of the machinery, equipment, and facilities it
Counterclaim9 asserting that it had the full right to dismantle and delivered to the plant. It claimed that it had performed all the
transfer the machineries and equipment because it had paid for them undertakings under the contract and had already produced certified
in full as stipulated in the contract; that KOGIES was not entitled to samples of LPG cylinders. It averred that whatever was unfinished
the PhP 9,000,000 covered by the checks for failing to completely was PGSMC’s fault since it failed to procure raw materials due to
install and make the plant operational; and that KOGIES was liable lack of funds. KOGIES, relying on Chung Fu Industries (Phils.),
for damages amounting to PhP 4,500,000 for altering the quantity Inc. v. Court of Appeals,12 insisted that the arbitration clause was
and lowering the quality of the machineries and equipment. without question valid.
Moreover, PGSMC averred that it has already paid PhP 2,257,920 in
rent (covering January to July 1998) to Worth and it was not willing After KOGIES filed a Supplemental Memorandum with Motion to
to further shoulder the cost of renting the premises of the plant Dismiss13 answering PGSMC’s memorandum of July 22, 1998 and
considering that the LPG cylinder manufacturing plant never became seeking dismissal of PGSMC’s counterclaims, KOGIES, on August
operational. 4, 1998, filed its Motion for Reconsideration 14 of the July 23, 1998
Order denying its application for an injunctive writ claiming that the
After the parties submitted their Memoranda, on July 23, 1998, the contract was not merely for machinery and facilities worth USD
RTC issued an Order denying the application for a writ of 1,224,000 but was for the sale of an "LPG manufacturing plant"
preliminary injunction, reasoning that PGSMC had paid KOGIES consisting of "supply of all the machinery and facilities" and
USD 1,224,000, the value of the machineries and equipment as "transfer of technology" for a total contract price of USD 1,530,000
shown in the contract such that KOGIES no longer had proprietary such that the dismantling and transfer of the machinery and facilities
rights over them. And finally, the RTC held that Art. 15 of the would result in the dismantling and transfer of the very plant itself to
Contract as amended was invalid as it tended to oust the trial court or the great prejudice of KOGIES as the still unpaid owner/seller of the
any other court jurisdiction over any dispute that may arise between plant. Moreover, KOGIES points out that the arbitration clause under
the parties. KOGIES’ prayer for an injunctive writ was denied. 10 The Art. 15 of the Contract as amended was a valid arbitration stipulation
dispositive portion of the Order stated: under Art. 2044 of the Civil Code and as held by this Court in Chung
Fu Industries (Phils.), Inc.15
In the meantime, PGSMC filed a Motion for Inspection of Thereafter, KOGIES filed a Supplement to the Petition 20 in CA-G.R.
Things16 to determine whether there was indeed alteration of the SP No. 49249 informing the CA about the October 19, 1998 RTC
quantity and lowering of quality of the machineries and equipment, Order. It also reiterated its prayer for the issuance of the writs of
and whether these were properly installed. KOGIES opposed the prohibition, mandamus and preliminary injunction which was not
motion positing that the queries and issues raised in the motion for acted upon by the CA. KOGIES asserted that the Branch Sheriff did
inspection fell under the coverage of the arbitration clause in their not have the technical expertise to ascertain whether or not the
contract. machineries and equipment conformed to the specifications in the
contract and were properly installed.
On September 21, 1998, the trial court issued an Order (1) granting
PGSMC’s motion for inspection; (2) denying KOGIES’ motion for On November 11, 1998, the Branch Sheriff filed his Sheriff’s
reconsideration of the July 23, 1998 RTC Order; and (3) denying Report21 finding that the enumerated machineries and equipment
KOGIES’ motion to dismiss PGSMC’s compulsory counterclaims as were not fully and properly installed.
these counterclaims fell within the requisites of compulsory
counterclaims. The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
On October 2, 1998, KOGIES filed an Urgent Motion for
Reconsideration17 of the September 21, 1998 RTC Order granting On May 30, 2000, the CA rendered the assailed Decision 22 affirming
inspection of the plant and denying dismissal of PGSMC’s the RTC Orders and dismissing the petition for certiorari filed by
compulsory counterclaims. KOGIES. The CA found that the RTC did not gravely abuse its
discretion in issuing the assailed July 23, 1998 and September 21,
Ten days after, on October 12, 1998, without waiting for the 1998 Orders. Moreover, the CA reasoned that KOGIES’ contention
resolution of its October 2, 1998 urgent motion for reconsideration, that the total contract price for USD 1,530,000 was for the whole
KOGIES filed before the Court of Appeals (CA) a petition for plant and had not been fully paid was contrary to the finding of the
certiorari18 docketed as CA-G.R. SP No. 49249, seeking annulment RTC that PGSMC fully paid the price of USD 1,224,000, which was
of the July 23, 1998 and September 21, 1998 RTC Orders and for all the machineries and equipment. According to the CA, this
praying for the issuance of writs of prohibition, mandamus, and determination by the RTC was a factual finding beyond the ambit of
preliminary injunction to enjoin the RTC and PGSMC from a petition for certiorari.
inspecting, dismantling, and transferring the machineries and
equipment in the Carmona plant, and to direct the RTC to enforce the On the issue of the validity of the arbitration clause, the CA agreed
specific agreement on arbitration to resolve the dispute. with the lower court that an arbitration clause which provided for a
final determination of the legal rights of the parties to the contract by
In the meantime, on October 19, 1998, the RTC denied KOGIES’ arbitration was against public policy.
urgent motion for reconsideration and directed the Branch Sheriff to
proceed with the inspection of the machineries and equipment in the On the issue of nonpayment of docket fees and non-attachment of a
plant on October 28, 1998.19 certificate of non-forum shopping by PGSMC, the CA held that the
counterclaims of PGSMC were compulsory ones and payment of
docket fees was not required since the Answer with counterclaim c. DECREEING PRIVATE RESPONDENT’S
was not an initiatory pleading. For the same reason, the CA said a COUNTERCLAIMS TO BE ALL COMPULSORY NOT
certificate of non-forum shopping was also not required. NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;
Furthermore, the CA held that the petition for certiorari had been
filed prematurely since KOGIES did not wait for the resolution of its d. RULING THAT THE PETITION WAS FILED
urgent motion for reconsideration of the September 21, 1998 RTC PREMATURELY WITHOUT WAITING FOR THE
Order which was the plain, speedy, and adequate remedy available. RESOLUTION OF THE MOTION FOR
According to the CA, the RTC must be given the opportunity to RECONSIDERATION OF THE ORDER DATED
correct any alleged error it has committed, and that since the assailed SEPTEMBER 21, 1998 OR WITHOUT GIVING THE
orders were interlocutory, these cannot be the subject of a petition TRIAL COURT AN OPPORTUNITY TO CORRECT
for certiorari. ITSELF;

Hence, we have this Petition for Review on Certiorari under Rule 45. e. PROCLAIMING THE TWO ORDERS DATED JULY 23
AND SEPTEMBER 21, 1998 NOT TO BE PROPER
The Issues SUBJECTS OF CERTIORARI AND PROHIBITION FOR
BEING "INTERLOCUTORY IN NATURE;"
Petitioner posits that the appellate court committed the following
errors: f. NOT GRANTING THE RELIEFS AND REMEDIES
PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD,
a. PRONOUNCING THE QUESTION OF OWNERSHIP DISMISSING THE SAME FOR ALLEGEDLY
23
OVER THE MACHINERY AND FACILITIES AS "A "WITHOUT MERIT."
QUESTION OF FACT" "BEYOND THE AMBIT OF A
PETITION FOR CERTIORARI" INTENDED ONLY FOR The Court’s Ruling
CORRECTION OF ERRORS OF JURISDICTION OR
GRAVE ABUSE OF DISCRETION AMOUNTING TO The petition is partly meritorious.
LACK OF (SIC) EXCESS OF JURISDICTION, AND
CONCLUDING THAT THE TRIAL COURT’S FINDING Before we delve into the substantive issues, we shall first tackle the
ON THE SAME QUESTION WAS IMPROPERLY procedural issues.
RAISED IN THE PETITION BELOW;
The rules on the payment of docket fees for counterclaims
b. DECLARING AS NULL AND VOID THE and cross claims were amended effective August 16, 2004
ARBITRATION CLAUSE IN ARTICLE 15 OF THE
CONTRACT BETWEEN THE PARTIES FOR BEING KOGIES strongly argues that when PGSMC filed the counterclaims,
"CONTRARY TO PUBLIC POLICY" AND FOR it should have paid docket fees and filed a certificate of non-forum
OUSTING THE COURTS OF JURISDICTION; shopping, and that its failure to do so was a fatal defect.
We disagree with KOGIES. judgment of the trial court is adverse to him. The general rule is that
interlocutory orders cannot be challenged by an appeal. 27 Thus,
As aptly ruled by the CA, the counterclaims of PGSMC were in Yamaoka v. Pescarich Manufacturing Corporation, we held:
incorporated in its Answer with Compulsory Counterclaim dated
July 17, 1998 in accordance with Section 8 of Rule 11, 1997 Revised The proper remedy in such cases is an ordinary appeal from
Rules of Civil Procedure, the rule that was effective at the time the an adverse judgment on the merits, incorporating in said
Answer with Counterclaim was filed. Sec. 8 on existing counterclaim appeal the grounds for assailing the interlocutory orders.
or cross-claim states, "A compulsory counterclaim or a cross-claim Allowing appeals from interlocutory orders would result in
that a defending party has at the time he files his answer shall be the ‘sorry spectacle’ of a case being subject of a
contained therein." counterproductive ping-pong to and from the appellate court
as often as a trial court is perceived to have made an error in
On July 17, 1998, at the time PGSMC filed its Answer incorporating any of its interlocutory rulings. However, where the assailed
its counterclaims against KOGIES, it was not liable to pay filing fees interlocutory order was issued with grave abuse of discretion
for said counterclaims being compulsory in nature. We stress, or patently erroneous and the remedy of appeal would not
however, that effective August 16, 2004 under Sec. 7, Rule 141, as afford adequate and expeditious relief, the Court allows
amended by A.M. No. 04-2-04-SC, docket fees are now required to certiorari as a mode of redress.28
be paid in compulsory counterclaim or cross-claims.
Also, appeals from interlocutory orders would open the floodgates to
As to the failure to submit a certificate of forum shopping, PGSMC’s endless occasions for dilatory motions. Thus, where the interlocutory
Answer is not an initiatory pleading which requires a certification order was issued without or in excess of jurisdiction or with grave
against forum shopping under Sec. 524 of Rule 7, 1997 Revised Rules abuse of discretion, the remedy is certiorari. 29
of Civil Procedure. It is a responsive pleading, hence, the courts a
quo did not commit reversible error in denying KOGIES’ motion to The alleged grave abuse of discretion of the respondent court
dismiss PGSMC’s compulsory counterclaims. equivalent to lack of jurisdiction in the issuance of the two assailed
orders coupled with the fact that there is no plain, speedy, and
Interlocutory orders proper subject of certiorari adequate remedy in the ordinary course of law amply provides the
basis for allowing the resort to a petition for certiorari under Rule 65.
Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari
and Prohibition are neither the remedies to question the propriety of Prematurity of the petition before the CA
an interlocutory order of the trial court." 26 The CA erred on its
reliance on Gamboa. Gamboa involved the denial of a motion to Neither do we think that KOGIES was guilty of forum shopping in
acquit in a criminal case which was not assailable in an action for filing the petition for certiorari. Note that KOGIES’ motion for
certiorari since the denial of a motion to quash required the accused reconsideration of the July 23, 1998 RTC Order which denied the
to plead and to continue with the trial, and whatever objections the issuance of the injunctive writ had already been denied. Thus,
accused had in his motion to quash can then be used as part of his KOGIES’ only remedy was to assail the RTC’s interlocutory order
defense and subsequently can be raised as errors on his appeal if the via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of binding upon both parties concerned. (Emphasis
the September 21, 1998 RTC Order relating to the inspection of supplied.)
things, and the allowance of the compulsory counterclaims has not
yet been resolved, the circumstances in this case would allow an Petitioner claims the RTC and the CA erred in ruling that the
exception to the rule that before certiorari may be availed of, the arbitration clause is null and void.
petitioner must have filed a motion for reconsideration and said
motion should have been first resolved by the court a quo. The Petitioner is correct.
reason behind the rule is "to enable the lower court, in the first
instance, to pass upon and correct its mistakes without the Established in this jurisdiction is the rule that the law of the place
intervention of the higher court."30 where the contract is made governs. Lex loci contractus. The
contract in this case was perfected here in the Philippines. Therefore,
The September 21, 1998 RTC Order directing the branch sheriff to our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code
inspect the plant, equipment, and facilities when he is not competent sanctions the validity of mutually agreed arbitral clause or the
and knowledgeable on said matters is evidently flawed and devoid of finality and binding effect of an arbitral award. Art. 2044 provides,
any legal support. Moreover, there is an urgent necessity to resolve "Any stipulation that the arbitrators’ award or decision shall be
the issue on the dismantling of the facilities and any further delay final, is valid, without prejudice to Articles 2038, 2039 and 2040."
would prejudice the interests of KOGIES. Indeed, there is real and (Emphasis supplied.)
imminent threat of irreparable destruction or substantial damage to
KOGIES’ equipment and machineries. We find the resort to Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a
certiorari based on the gravely abusive orders of the trial court sans compromise or an arbitral award, as applied to Art. 2044 pursuant to
the ruling on the October 2, 1998 motion for reconsideration to be Art. 2043,34 may be voided, rescinded, or annulled, but these would
proper. not denigrate the finality of the arbitral award.

The Core Issue: Article 15 of the Contract The arbitration clause was mutually and voluntarily agreed upon by
the parties. It has not been shown to be contrary to any law, or
We now go to the core issue of the validity of Art. 15 of the against morals, good customs, public order, or public policy. There
Contract, the arbitration clause. It provides: has been no showing that the parties have not dealt with each other
on equal footing. We find no reason why the arbitration clause
Article 15. Arbitration.—All disputes, controversies, or should not be respected and complied with by both parties.
differences which may arise between the parties, out of or in In Gonzales v. Climax Mining Ltd.,35 we held that submission to
relation to or in connection with this Contract or for the arbitration is a contract and that a clause in a contract providing that
breach thereof, shall finally be settled by arbitration in Seoul, all matters in dispute between the parties shall be referred to
Korea in accordance with the Commercial Arbitration Rules arbitration is a contract.36 Again in Del Monte Corporation-USA v.
of the Korean Commercial Arbitration Board. The award Court of Appeals, we likewise ruled that "[t]he provision to submit to
rendered by the arbitration(s) shall be final and arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract." 37
Arbitration clause not contrary to public policy Having said that the instant arbitration clause is not against public
policy, we come to the question on what governs an arbitration
The arbitration clause which stipulates that the arbitration must be clause specifying that in case of any dispute arising from the
done in Seoul, Korea in accordance with the Commercial Arbitration contract, an arbitral panel will be constituted in a foreign country and
Rules of the KCAB, and that the arbitral award is final and binding, the arbitration rules of the foreign country would govern and its
is not contrary to public policy. This Court has sanctioned the award shall be final and binding.
validity of arbitration clauses in a catena of cases. In the 1957 case
of Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,38 this RA 9285 incorporated the UNCITRAL Model law
Court had occasion to rule that an arbitration clause to resolve to which we are a signatory
differences and breaches of mutually agreed contractual terms is
valid. In BF Corporation v. Court of Appeals, we held that "[i]n this For domestic arbitration proceedings, we have particular agencies to
jurisdiction, arbitration has been held valid and constitutional. Even arbitrate disputes arising from contractual relations. In case a foreign
before the approval on June 19, 1953 of Republic Act No. 876, this arbitral body is chosen by the parties, the arbitration rules of our
Court has countenanced the settlement of disputes through domestic arbitration bodies would not be applied. As signatory to the
arbitration. Republic Act No. 876 was adopted to supplement the Arbitration Rules of the UNCITRAL Model Law on International
New Civil Code’s provisions on arbitration."39 And in LM Power Commercial Arbitration41 of the United Nations Commission on
Engineering Corporation v. Capitol Industrial Construction Groups, International Trade Law (UNCITRAL) in the New York Convention
Inc., we declared that: on June 21, 1985, the Philippines committed itself to be bound by the
Model Law. We have even incorporated the Model Law in Republic
Being an inexpensive, speedy and amicable method of Act No. (RA) 9285, otherwise known as the Alternative Dispute
settling disputes, arbitration––along with mediation, Resolution Act of 2004 entitled An Act to Institutionalize the Use of
conciliation and negotiation––is encouraged by the Supreme an Alternative Dispute Resolution System in the Philippines and to
Court. Aside from unclogging judicial dockets, arbitration Establish the Office for Alternative Dispute Resolution, and for
also hastens the resolution of disputes, especially of the Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of
commercial kind. It is thus regarded as the "wave of the Chapter 4 of the Model Law are the pertinent provisions:
future" in international civil and commercial disputes.
Brushing aside a contractual agreement calling for CHAPTER 4 - INTERNATIONAL COMMERCIAL
arbitration between the parties would be a step backward. ARBITRATION

Consistent with the above-mentioned policy of encouraging SEC. 19. Adoption of the Model Law on International
alternative dispute resolution methods, courts should Commercial Arbitration.––International commercial
liberally construe arbitration clauses. Provided such clause is arbitration shall be governed by the Model Law on
susceptible of an interpretation that covers the asserted International Commercial Arbitration (the "Model Law")
dispute, an order to arbitrate should be granted. Any doubt adopted by the United Nations Commission on International
should be resolved in favor of arbitration.40 Trade Law on June 21, 1985 (United Nations Document
A/40/17) and recommended for enactment by the General
Assembly in Resolution No. 40/72 approved on December arbitration agreement shall, if at least one party so requests
11, 1985, copy of which is hereto attached as Appendix "A". not later than the pre-trial conference, or upon the request of
both parties thereafter, refer the parties to arbitration unless
SEC. 20. Interpretation of Model Law.––In interpreting the it finds that the arbitration agreement is null and void,
Model Law, regard shall be had to its international origin inoperative or incapable of being performed.
and to the need for uniformity in its interpretation and resort
may be made to the travaux preparatories and the report of (2) Foreign arbitral awards must be confirmed by the RTC
the Secretary General of the United Nations Commission on
International Trade Law dated March 25, 1985 entitled, Foreign arbitral awards while mutually stipulated by the parties in
"International Commercial Arbitration: Analytical the arbitration clause to be final and binding are not immediately
Commentary on Draft Trade identified by reference number enforceable or cannot be implemented immediately. Sec. 35 43 of the
A/CN. 9/264." UNCITRAL Model Law stipulates the requirement for the arbitral
award to be recognized by a competent court for enforcement, which
While RA 9285 was passed only in 2004, it nonetheless applies in court under Sec. 36 of the UNCITRAL Model Law may refuse
the instant case since it is a procedural law which has a retroactive recognition or enforcement on the grounds provided for. RA 9285
effect. Likewise, KOGIES filed its application for arbitration before incorporated these provisos to Secs. 42, 43, and 44 relative to Secs.
the KCAB on July 1, 1998 and it is still pending because no arbitral 47 and 48, thus:
award has yet been rendered. Thus, RA 9285 is applicable to the
instant case. Well-settled is the rule that procedural laws are SEC. 42. Application of the New York Convention.––The
construed to be applicable to actions pending and undetermined at New York Convention shall govern the recognition and
the time of their passage, and are deemed retroactive in that sense enforcement of arbitral awards covered by said Convention.
and to that extent. As a general rule, the retroactive application of
procedural laws does not violate any personal rights because no The recognition and enforcement of such arbitral awards
vested right has yet attached nor arisen from them. 42 shall be filed with the Regional Trial Court in accordance
with the rules of procedure to be promulgated by the
Among the pertinent features of RA 9285 applying and incorporating Supreme Court. Said procedural rules shall provide that the
the UNCITRAL Model Law are the following: party relying on the award or applying for its enforcement
shall file with the court the original or authenticated copy of
(1) The RTC must refer to arbitration in proper cases the award and the arbitration agreement. If the award or
agreement is not made in any of the official languages, the
Under Sec. 24, the RTC does not have jurisdiction over disputes that party shall supply a duly certified translation thereof into any
are properly the subject of arbitration pursuant to an arbitration of such languages.
clause, and mandates the referral to arbitration in such cases, thus:
The applicant shall establish that the country in which
SEC. 24. Referral to Arbitration.––A court before which an foreign arbitration award was made in party to the New York
action is brought in a matter which is the subject matter of an Convention.
xxxx SEC. 48. Notice of Proceeding to Parties.––In a special
proceeding for recognition and enforcement of an arbitral
SEC. 43. Recognition and Enforcement of Foreign Arbitral award, the Court shall send notice to the parties at their
Awards Not Covered by the New York Convention.––The address of record in the arbitration, or if any part cannot be
recognition and enforcement of foreign arbitral awards not served notice at such address, at such party’s last known
covered by the New York Convention shall be done in address. The notice shall be sent al least fifteen (15) days
accordance with procedural rules to be promulgated by the before the date set for the initial hearing of the application.
Supreme Court. The Court may, on grounds of comity and
reciprocity, recognize and enforce a non-convention award It is now clear that foreign arbitral awards when confirmed by the
as a convention award. RTC are deemed not as a judgment of a foreign court but as a foreign
arbitral award, and when confirmed, are enforced as final and
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.–– executory decisions of our courts of law.
A foreign arbitral award when confirmed by a court of a
foreign country, shall be recognized and enforced as a Thus, it can be gleaned that the concept of a final and binding
foreign arbitral award and not as a judgment of a foreign arbitral award is similar to judgments or awards given by some of
court. our quasi-judicial bodies, like the National Labor Relations
Commission and Mines Adjudication Board, whose final judgments
A foreign arbitral award, when confirmed by the Regional are stipulated to be final and binding, but not immediately executory
Trial Court, shall be enforced in the same manner as final in the sense that they may still be judicially reviewed, upon the
and executory decisions of courts of law of the Philippines instance of any party. Therefore, the final foreign arbitral awards are
similarly situated in that they need first to be confirmed by the RTC.
xxxx
(3) The RTC has jurisdiction to review foreign arbitral awards
SEC. 47. Venue and Jurisdiction.––Proceedings for
recognition and enforcement of an arbitration agreement or Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the
for vacations, setting aside, correction or modification of an RTC with specific authority and jurisdiction to set aside, reject, or
arbitral award, and any application with a court for vacate a foreign arbitral award on grounds provided under Art. 34(2)
arbitration assistance and supervision shall be deemed as of the UNCITRAL Model Law. Secs. 42 and 45 provide:
special proceedings and shall be filed with the Regional Trial
Court (i) where arbitration proceedings are conducted; (ii) SEC. 42. Application of the New York Convention.––The
where the asset to be attached or levied upon, or the act to be New York Convention shall govern the recognition and
enjoined is located; (iii) where any of the parties to the enforcement of arbitral awards covered by said Convention.
dispute resides or has his place of business; or (iv) in the
National Judicial Capital Region, at the option of the The recognition and enforcement of such arbitral awards
applicant. shall be filed with the Regional Trial Court in accordance
with the rules of procedure to be promulgated by the
Supreme Court. Said procedural rules shall provide that the binding, do not oust courts of jurisdiction since these arbitral awards
party relying on the award or applying for its enforcement are not absolute and without exceptions as they are still judicially
shall file with the court the original or authenticated copy of reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral
the award and the arbitration agreement. If the award or awards, whether domestic or foreign, are subject to judicial review
agreement is not made in any of the official languages, the on specific grounds provided for.
party shall supply a duly certified translation thereof into any
of such languages. (4) Grounds for judicial review different in domestic and foreign
arbitral awards
The applicant shall establish that the country in which
foreign arbitration award was made is party to the New York The differences between a final arbitral award from an international
Convention. or foreign arbitral tribunal and an award given by a local arbitral
tribunal are the specific grounds or conditions that vest jurisdiction
If the application for rejection or suspension of enforcement over our courts to review the awards.
of an award has been made, the Regional Trial Court may, if
it considers it proper, vacate its decision and may also, on For foreign or international arbitral awards which must first be
the application of the party claiming recognition or confirmed by the RTC, the grounds for setting aside, rejecting or
enforcement of the award, order the party to provide vacating the award by the RTC are provided under Art. 34(2) of the
appropriate security. UNCITRAL Model Law.

xxxx For final domestic arbitral awards, which also need confirmation by
the RTC pursuant to Sec. 23 of RA 876 44 and shall be recognized as
SEC. 45. Rejection of a Foreign Arbitral Award.––A party final and executory decisions of the RTC, 45 they may only be
to a foreign arbitration proceeding may oppose an assailed before the RTC and vacated on the grounds provided under
application for recognition and enforcement of the arbitral Sec. 25 of RA 876.46
award in accordance with the procedures and rules to be
promulgated by the Supreme Court only on those grounds (5) RTC decision of assailed foreign arbitral award appealable
enumerated under Article V of the New York Convention.
Any other ground raised shall be disregarded by the Sec. 46 of RA 9285 provides for an appeal before the CA as the
Regional Trial Court. remedy of an aggrieved party in cases where the RTC sets aside,
rejects, vacates, modifies, or corrects an arbitral award, thus:
Thus, while the RTC does not have jurisdiction over disputes
governed by arbitration mutually agreed upon by the parties, still the SEC. 46. Appeal from Court Decision or Arbitral Awards.—
foreign arbitral award is subject to judicial review by the RTC which A decision of the Regional Trial Court confirming, vacating,
can set aside, reject, or vacate it. In this sense, what this Court held setting aside, modifying or correcting an arbitral award may
in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is be appealed to the Court of Appeals in accordance with the
applicable insofar as the foreign arbitral awards, while final and
rules and procedure to be promulgated by the Supreme Unilateral rescission improper and illegal
Court.
Having ruled that the arbitration clause of the subject contract is
The losing party who appeals from the judgment of the court valid and binding on the parties, and not contrary to public policy;
confirming an arbitral award shall be required by the consequently, being bound to the contract of arbitration, a party may
appellate court to post a counterbond executed in favor of not unilaterally rescind or terminate the contract for whatever cause
the prevailing party equal to the amount of the award in without first resorting to arbitration.
accordance with the rules to be promulgated by the Supreme
Court. What this Court held in University of the Philippines v. De Los
Angeles47 and reiterated in succeeding cases, 48 that the act of treating
Thereafter, the CA decision may further be appealed or reviewed a contract as rescinded on account of infractions by the other
before this Court through a petition for review under Rule 45 of the contracting party is valid albeit provisional as it can be judicially
Rules of Court. assailed, is not applicable to the instant case on account of a valid
stipulation on arbitration. Where an arbitration clause in a contract is
PGSMC has remedies to protect its interests availing, neither of the parties can unilaterally treat the contract as
rescinded since whatever infractions or breaches by a party or
Thus, based on the foregoing features of RA 9285, PGSMC must differences arising from the contract must be brought first and
submit to the foreign arbitration as it bound itself through the subject resolved by arbitration, and not through an extrajudicial rescission or
contract. While it may have misgivings on the foreign arbitration judicial action.
done in Korea by the KCAB, it has available remedies under RA
9285. Its interests are duly protected by the law which requires that The issues arising from the contract between PGSMC and KOGIES
the arbitral award that may be rendered by KCAB must be confirmed on whether the equipment and machineries delivered and installed
here by the RTC before it can be enforced. were properly installed and operational in the plant in Carmona,
Cavite; the ownership of equipment and payment of the contract
With our disquisition above, petitioner is correct in its contention price; and whether there was substantial compliance by KOGIES in
that an arbitration clause, stipulating that the arbitral award is final the production of the samples, given the alleged fact that PGSMC
and binding, does not oust our courts of jurisdiction as the could not supply the raw materials required to produce the sample
international arbitral award, the award of which is not absolute and LPG cylinders, are matters proper for arbitration. Indeed, we note
without exceptions, is still judicially reviewable under certain that on July 1, 1998, KOGIES instituted an Application for
conditions provided for by the UNCITRAL Model Law on ICA as Arbitration before the KCAB in Seoul, Korea pursuant to Art. 15 of
applied and incorporated in RA 9285. the Contract as amended. Thus, it is incumbent upon PGSMC to
abide by its commitment to arbitrate.
Finally, it must be noted that there is nothing in the subject Contract
which provides that the parties may dispense with the arbitration Corollarily, the trial court gravely abused its discretion in granting
clause. PGSMC’s Motion for Inspection of Things on September 21, 1998,
as the subject matter of the motion is under the primary jurisdiction Anent the July 23, 1998 Order denying the issuance of the injunctive
of the mutually agreed arbitral body, the KCAB in Korea. writ paving the way for PGSMC to dismantle and transfer the
equipment and machineries, we find it to be in order considering the
In addition, whatever findings and conclusions made by the RTC factual milieu of the instant case.
Branch Sheriff from the inspection made on October 28, 1998, as
ordered by the trial court on October 19, 1998, is of no worth as said Firstly, while the issue of the proper installation of the equipment
Sheriff is not technically competent to ascertain the actual status of and machineries might well be under the primary jurisdiction of the
the equipment and machineries as installed in the plant. arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has
jurisdiction to hear and grant interim measures to protect vested
For these reasons, the September 21, 1998 and October 19, 1998 rights of the parties. Sec. 28 pertinently provides:
RTC Orders pertaining to the grant of the inspection of the
equipment and machineries have to be recalled and nullified. SEC. 28. Grant of interim Measure of Protection.—(a) It is
not incompatible with an arbitration agreement for a
Issue on ownership of plant proper for arbitration party to request, before constitution of the tribunal, from
a Court to grant such measure. After constitution of the
Petitioner assails the CA ruling that the issue petitioner raised on arbitral tribunal and during arbitral proceedings, a request for
whether the total contract price of USD 1,530,000 was for the whole an interim measure of protection, or modification thereof,
plant and its installation is beyond the ambit of a Petition for may be made with the arbitral or to the extent that the
Certiorari. arbitral tribunal has no power to act or is unable to act
effectivity, the request may be made with the Court. The
Petitioner’s position is untenable. arbitral tribunal is deemed constituted when the sole
arbitrator or the third arbitrator, who has been nominated,
It is settled that questions of fact cannot be raised in an original has accepted the nomination and written communication of
action for certiorari.49 Whether or not there was full payment for the said nomination and acceptance has been received by the
machineries and equipment and installation is indeed a factual issue party making the request.
prohibited by Rule 65.
(b) The following rules on interim or provisional relief shall
However, what appears to constitute a grave abuse of discretion is be observed:
the order of the RTC in resolving the issue on the ownership of the
plant when it is the arbitral body (KCAB) and not the RTC which Any party may request that provisional relief be granted
has jurisdiction and authority over the said issue. The RTC’s against the adverse party.
determination of such factual issue constitutes grave abuse of
discretion and must be reversed and set aside. Such relief may be granted:

RTC has interim jurisdiction to protect the rights of the parties (i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of any xxx xxx xxx
obligation;
(2) An interim measure is any temporary measure, whether
(iii) to produce or preserve any evidence; or in the form of an award or in another form, by which, at any
time prior to the issuance of the award by which the dispute
(iv) to compel any other appropriate act or omission. is finally decided, the arbitral tribunal orders a party to:

(c) The order granting provisional relief may be conditioned (a) Maintain or restore the status quo pending determination
upon the provision of security or any act or omission of the dispute;
specified in the order.
(b) Take action that would prevent, or refrain from taking
(d) Interim or provisional relief is requested by written action that is likely to cause, current or imminent harm or
application transmitted by reasonable means to the Court or prejudice to the arbitral process itself;
arbitral tribunal as the case may be and the party against
whom the relief is sought, describing in appropriate detail (c) Provide a means of preserving assets out of which a
the precise relief, the party against whom the relief is subsequent award may be satisfied; or
requested, the grounds for the relief, and the evidence
supporting the request. (d) Preserve evidence that may be relevant and material to
the resolution of the dispute.
(e) The order shall be binding upon the parties.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts
(f) Either party may apply with the Court for assistance in power and jurisdiction to issue interim measures:
implementing or enforcing an interim measure ordered by an
arbitral tribunal. Article 17 J. Court-ordered interim measures

(g) A party who does not comply with the order shall be A court shall have the same power of issuing an interim
liable for all damages resulting from noncompliance, measure in relation to arbitration proceedings, irrespective of
including all expenses, and reasonable attorney's fees, paid whether their place is in the territory of this State, as it has in
in obtaining the order’s judicial enforcement. (Emphasis relation to proceedings in courts. The court shall exercise
ours.) such power in accordance with its own procedures in
consideration of the specific features of international
Art. 17(2) of the UNCITRAL Model Law on ICA defines an arbitration.
"interim measure" of protection as:
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon
Article 17. Power of arbitral tribunal to order interim Hydro Corporation, we were explicit that even "the pendency of an
measures
arbitral proceeding does not foreclose resort to the courts for Fourthly, and corollarily, while the KCAB can rule on motions or
provisional reliefs." We explicated this way: petitions relating to the preservation or transfer of the equipment and
machineries as an interim measure, yet on hindsight, the July 23,
As a fundamental point, the pendency of arbitral proceedings 1998 Order of the RTC allowing the transfer of the equipment and
does not foreclose resort to the courts for provisional reliefs. machineries given the non-recognition by the lower courts of the
The Rules of the ICC, which governs the parties’ arbitral arbitral clause, has accorded an interim measure of protection to
dispute, allows the application of a party to a judicial PGSMC which would otherwise been irreparably damaged.
authority for interim or conservatory measures. Likewise,
Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Fifth, KOGIES is not unjustly prejudiced as it has already been
Law) recognizes the rights of any party to petition the court paid a substantial amount based on the contract. Moreover, KOGIES
to take measures to safeguard and/or conserve any matter is amply protected by the arbitral action it has instituted before the
which is the subject of the dispute in arbitration. In addition, KCAB, the award of which can be enforced in our jurisdiction
R.A. 9285, otherwise known as the "Alternative Dispute through the RTC. Besides, by our decision, PGSMC is compelled to
Resolution Act of 2004," allows the filing of provisional or submit to arbitration pursuant to the valid arbitration clause of its
interim measures with the regular courts whenever the contract with KOGIES.
arbitral tribunal has no power to act or to act effectively. 50
PGSMC to preserve the subject equipment and machineries
It is thus beyond cavil that the RTC has authority and jurisdiction to
grant interim measures of protection. Finally, while PGSMC may have been granted the right to dismantle
and transfer the subject equipment and machineries, it does not have
Secondly, considering that the equipment and machineries are in the the right to convey or dispose of the same considering the pending
possession of PGSMC, it has the right to protect and preserve the arbitral proceedings to settle the differences of the parties. PGSMC
equipment and machineries in the best way it can. Considering that therefore must preserve and maintain the subject equipment and
the LPG plant was non-operational, PGSMC has the right to machineries with the diligence of a good father of a family 51 until
dismantle and transfer the equipment and machineries either for their final resolution of the arbitral proceedings and enforcement of the
protection and preservation or for the better way to make good use of award, if any.
them which is ineluctably within the management discretion of
PGSMC. WHEREFORE, this petition is PARTLY GRANTED, in that:

Thirdly, and of greater import is the reason that maintaining the (1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249
equipment and machineries in Worth’s property is not to the best is REVERSED and SET ASIDE;
interest of PGSMC due to the prohibitive rent while the LPG plant as
set-up is not operational. PGSMC was losing PhP322,560 as monthly (2) The September 21, 1998 and October 19, 1998 RTC Orders in
rentals or PhP3.87M for 1998 alone without considering the 10% Civil Case No. 98-117 are REVERSED and SET ASIDE;
annual rent increment in maintaining the plant.
(3) The parties are hereby ORDERED to submit themselves to the
arbitration of their dispute and differences arising from the subject
Contract before the KCAB; and

(4) PGSMC is hereby ALLOWED to dismantle and transfer the


equipment and machineries, if it had not done so, and ORDERED to
preserve and maintain them until the finality of whatever arbitral
award is given in the arbitration proceedings.

No pronouncement as to costs.

SO ORDERED.

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