G.R. No.
L-6339             April 20, 1954
MANUEL LARA, ET AL., plaintiffs-appellants,
vs.
PETRONILO DEL ROSARIO, JR., defendant-appellee.
In 1950 defendant Petronilo del Rosario, Jr., owner of twenty-five taxi cabs or cars, operated a taxi
business under the name of "Waval Taxi." He employed among others three mechanics and 49 chauffeurs
or drivers, the latter having worked for periods ranging from 2 to 37 months. On September 4, 1950,
without giving said mechanics and chauffeurs 30 days advance notice, Del Rosario sold his 25 units or
cabs to La Mallorca, a transportation company, as a result of which, according to the mechanics and
chauffeurs above-mentioned they lost their jobs because the La Mallorca failed to continue them in their
employment. They brought this action against Del Rosario to recover compensation for overtime work
rendered beyond eight hours and on Sundays and legal holidays, and one month salary (mesada)
provided for in article 302 of the Code of Commerce because the failure of their former employer to give
them one month notice. Subsequently, the three mechanics unconditionally withdrew their claims. So
only the 49 drivers remained as plaintiffs. The defendant filed a motion for dismissal of the complaint on
the ground that it stated no cause of action and the trial court for the time being denied the motion
saying that it will be considered when the case was heard on the merits. After trial the complaint was
dismissed. Plaintiffs appealed from the order of dismissal to the Court of Appeals which Tribunal after
finding only questions of law are involved, certified the case to us.
The parties are agreed that the plaintiffs as chauffeurs received no fixed compensation based on the
hours or the period of time that they worked. Rather, they were paid on the commission basis, that is to
say, each driver received 20 per cent of the gross returns or earnings from the operation of his taxi cab.
Plaintiffs claim that as a rule, each drive operated a taxi 12 hours a day with gross earnings ranging from
P20 to P25, receiving therefrom the corresponding 20 per cent share ranging from P4 to P5, and that in
some cases, especially during Saturdays, Sundays, and holidays when a driver worked 24 hours a day he
grossed from P40 to P50, thereby receiving a share of from P8 to P10 for the period of twenty-four hours.
The reason given by the trial court in dismissing the complaint is that the defendant being engaged in the
taxi or transportation business which is a public utility, came under the exception provided by the Eight-
Hour Labor Law (Commonwealth Act No. 444); and because plaintiffs did not work on a salary basis, that
is to say, they had no fixed or regular salary or remuneration other than the 20 per cent of their gross
earnings "their situation was therefore practically similar to piece workers and hence, outside the ambit of
article 302 of the Code of Commerce."
For purposes of reference we are reproducing the pertinent provisions of the Eight-Hour Labor Law,
namely, sections 1 to 4.
SECTION 1. The legal working day for any person employed by another shall not be more than eight
hours daily. When the work is not continuous, the time during which the laborer is not working and can
leave his working place and can rest completely shall not be counted.
SEC. 2. This Act shall apply to all persons employed in any industry or occupation, whether public or
private, with the exception of farm laborers, laborers who prefer to be paid on piece work basis,
domestic servants and persons in the personal service of another and members of the family of the
employer working for him.
SEC. 3. Work may be performed beyond eight hours a day in case of actual or impending emergencies,
caused by serious accidents, fire flood, typhoon, earthquakes, epidemic, or other disaster or calamity in
order to prevent loss of life and property or imminent danger to public safety; or in case of urgent work
to be performed on the machines, equipment, or installations in order to avoid a serious loss which the
employer would otherwise suffer, or some other just cause of a similar nature; but in all cases the
laborers and the employees shall be entitled to receive compensation for the overtime work performed
at the same rate as their regular wages or salary, plus at least twenty-five per centum additional.
In case of national emergency the Government is empowered to establish rules and regulations for the
operation of the plants and factories and to determine the wages to be paid the laborers.
SEC. 4. No person, firm, or corporation, business establishment or place or center of work shall compel
an employee or laborer to work during Sundays and legal holidays, unless he is paid an additional sum
of at least twenty-five per centum of his regular remuneration:  Provided however, That this prohibition
shall not apply to public utilities performing some public service such as supplying gas, electricity,
power, water, or providing means of transportation or communication.
Under section 4, as a public utility, the defendant could have his chauffeurs work on Sundays and legal
holidays without paying them an additional sum of at least 25 per cent of their regular remuneration: but
that with reference only to work performed on Sundays and holidays. If the work done on such days
exceeds 8 hours a day, then the Eight-Hour Labor Law would operate, provided of course that plaintiffs
came under section 2 of the said law. So that the question to be decided here is whether or not plaintiffs
are entitled to extra compensation for work performed in excess of 8 hours a day, Sundays and holidays
included.
It will be noticed that the last part of section 3 of Commonwealth Act 444 provides for extra
compensation for over-time work "at the same rate as their regular wages or salary,  plus at least twenty-
five per centum additional'" and that section 2 of the same act excludes application thereof laborers who
preferred to be on  piece work basis. This connotes that a laborer or employee with no fixed salary, wages
or remuneration but receiving as compensation from his employer uncertain and variable amount
depending upon the work done or the result of said work (piece work) irrespective of the amount of time
employed, is not covered by the Eight-Hour Labor Law and is not entitled to extra compensation should
he work in excess of 8 hours a day. And this seems to be the condition of employment of the plaintiffs. A
driver in the taxi business of the defendant, like the plaintiffs, in one day could operate his taxi cab eight
hours, or less than eight hours or in excess of 8 hours, or even 24 hours on Saturdays, Sundays, and
holidays, with no limit or restriction other than his desire, inclination and state of health and physical
endurance. He could drive continuously or intermittently, systematically or haphazardly, fast or slow, etc.
depending upon his exclusive wish or inclination. One day when he feels strong, active and enthusiastic
he works long, continuously, with diligence and industry and makes considerable gross returns and
receives as much as his 20 per cent commission. Another day when he feels despondent, run down, weak
or lazy and wants to rest between trips and works for less number of hours, his gross returns are less and
so is his commission. In other words, his compensation for the day depends upon the result of his work,
which in turn depends on the amount of industry, intelligence and experience applied to it, rather than
the period of time employed. In short, he has no fixed salary or wages. In this we agree with the learned
trial court presided by Judge Felicisimo Ocampo which makes the following findings and observations of
this point.
. . . As already stated, their earnings were in the form of commission based on the gross receipts of the
day. Their participation in most cases depended upon their own industry. So much so that the more
hours they stayed on the road, the greater the gross returns and the higher their commissions. They
have no fixed hours of labor. They can retire at pleasure, they not being paid a fixed salary on the
hourly, daily, weekly or monthly basis.
It results that the working hours of the plaintiffs as taxi drivers were entirely characterized by its
irregularity, as distinguished from the specific regular remuneration predicated on specific and regular
hours of work of factories and commercial employees.
In the case of the plaintiffs, it is the result of their labor, not the labor itself, which determines their
commissions. They worked under no compulsion of turning a fixed income for each given day. . . ..
In an opinion dated June 1, 1939 (Opinion No. 115) modified by Opinion No. 22, series 1940, dated June
11, 1940, the Secretary of Justice held that chauffeurs of the Manila Yellow Taxicab Co. who "observed in
a loose way certain working hours daily," and "the time they report for work as well as the time they
1
leave work was left to their discretion.," receiving no fixed salary but only 20 per cent of their gross
earnings, may be considered as piece workers and therefore not covered by the provisions of the Eight-
Hour Labor Law.
The Wage Administration Service of the Department of Labor in its Interpretative Bulletin No. 2 dated
May 28, 1953, under "Overtime Compensation," in section 3 thereof entitled Coverage, says:
The provisions of this bulletin on overtime compensation  shall apply to all persons employed in any
industry or occupation, whether public or private, with the  exception  of farm laborers, non-agricultural
laborers or employees who are paid on piece work, contract, pakiao, task or  commission
basis, domestic servants and persons in the personal service of another and members of the family of
the employer working for him.
From all this, to us it is clear that the claim of the plaintiffs-appellants for overtime compensation under
the Eight-Hour Labor Law has no valid support.
As to the month pay (mesada) under article 302 of the Code of Commerce, article 2270 of the new Civil
Code (Republic Act 386) appears to have repealed said Article 302 when it repealed the provisions of the
Code of Commerce governing Agency. This repeal took place on August 30, 1950, when the new Civil
Code went into effect, that is, one year after its publication in the  Official Gazette. The alleged
termination of services of the plaintiffs by the defendant took place according to the complaint on
September 4, 1950, that is to say, after the repeal of Article 302 which they invoke. Moreover, said
Article 302 of the Code of Commerce, assuming that it were still in force speaks of "salary corresponding
to said month." commonly known as "mesada." If the plaintiffs herein had no fixed salary either by the
day, week or month, then computation of the month's salary payable would be impossible. Article 302
refers to employees receiving a fixed salary. Dr. Arturo M. Tolentino in his book entitled "Commentaries
and Jurisprudence on the Commercial Laws of the Philippines," Vol. 1, 4th edition, p. 160, says that
article 302 is not applicable to employees without fixed salary. We quote —
Employees not entitled to indemnity. — This article refers only to those who are engaged under salary
basis, and not to those who only receive compensation equivalent to whatever service they may render.
(1 Malagarriga 314, citing decision of Argentina Court of Appeals on Commercial Matters.)
In view of the foregoing, the order appealed from is hereby affirmed, with costs against appellants.
2
G.R. No. 96283 February 25, 1992
CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers namely: HUANG KUO-
CHANG, HUANG AN-CHUNG, JAMES J.R. CHEN, TRISTAN A. CATINDIG, VICENTE B. AMADOR,
ROCK A.C. HUANG, JEM S.C. HUANG, MARIA TERESA SOLIVEN and VIRGILIO M. DEL
ROSARIO, petitioners,
vs.
COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge, Regional Trail Court of
Makati [Branch 57]) and ROBLECOR PHILIPPINES, INC., respondents.
This is a special civil action for certiorari seeking to annul the Resolutions of the Court of Appeals* dated
October 22, 1990 and December 3, 1990 upholding the Orders of July 31, 1990 and August 23, 1990 of
the Regional Trial Court of Makati, Branch 57, in Civil Case No. 90-1335. Respondent Court of Appeals
affirmed the ruling of the trial court that herein petitioners, after submitting themselves for arbitration
and agreeing to the terms and conditions thereof, providing that the arbitration award shall be final and
unappealable, are precluded from seeking judicial review of subject arbitration award.
It appears that on May 17, 1989, petitioner Chung Fu Industries (Philippines) (Chung Fu for brevity) and
private respondent Roblecor Philippines, Inc. (Roblecor for short) forged a construction
agreement 1 whereby respondent contractor committed to construct and finish on December 31, 1989,
petitioner corporation's industrial/factory complex in Tanawan, Tanza, Cavite for and in consideration of
P42,000,000.00. In the event of disputes arising from the performance of subject contract, it was
stipulated therein that the issue(s) shall be submitted for resolution before a single arbitrator chosen by
both parties.
Apart from the aforesaid construction agreement, Chung Fu and Roblecor entered into two (2) other
ancillary contracts, to wit: one dated June 23, 1989, for the construction of a dormitory and support
facilities with a contract price of P3,875,285.00, to be completed on or before October 31, 1989; 2 and
the other dated August 12, 1989, for the installation of electrical, water and hydrant systems at the plant
site, commanding a price of P12.1 million and requiring completion thereof one month after civil works
have been finished. 3
However, respondent Roblecor failed to complete the work despite the extension of time allowed it by
Chung Fu. Subsequently, the latter had to take over the construction when it had become evident that
Roblecor was not in a position to fulfill its obligation.
Claiming an unsatisfied account of P10,500,000.00 and unpaid progress billings of P2,370,179.23,
Roblecor on May 18, 1990, filed a petition for Compulsory Arbitration with prayer for Temporary
Restraining Order before respondent Regional Trial Court, pursuant to the arbitration clause in the
construction agreement. Chung Fu moved to dismiss the petition and further prayed for the quashing of
the restraining order.
Subsequent negotiations between the parties eventually led to the formulation of an arbitration
agreement which, among others, provides:
2. The parties mutually agree that the arbitration shall proceed in accordance with the following terms
and conditions: —
d. The parties mutually agree that they will abide by the decision of the arbitrator including any
amount that may be awarded to either party as compensation, consequential damage and/or interest
thereon;
e. The parties mutually agree that the decision of the arbitrator shall be final and unappealable.
Therefore, there shall be no further judicial recourse if either party disagrees with the whole or any
part of the arbitrator's award.
f. As an exception to sub-paragraph (e) above, the parties mutually agree that either party is entitled
to seek judicial assistance for purposes of enforcing the arbitrator's award;
Respondent Regional Trial Court approved the arbitration agreement thru its Order of May 30, 1990.
Thereafter, Engr. Willardo Asuncion was appointed as the sole arbitrator.
On June 30, 1990, Arbitrator Asuncion ordered petitioners to immediately pay respondent contractor, the
sum of P16,108,801.00. He further declared the award as final and unappealable, pursuant to the
Arbitration Agreement precluding judicial review of the award.
Consequently, Roblecor moved for the confirmation of said award. On the other hand, Chung Fu moved to
remand the case for further hearing and asked for a reconsideration of the judgment award claiming that
Arbitrator Asuncion committed twelve (12) instances of grave error by disregarding the provisions of the
parties' contract.
Respondent lower court denied Chung Fu's Motion to Remand thus compelling it to seek reconsideration
therefrom but to no avail. The trial court granted Roblecor's Motion for Confirmation of Award and
accordingly, entered judgment in conformity therewith. Moreover, it granted the motion for the issuance
of a writ of execution filed by respondent.
Chung Fu elevated the case via a petition for certiorari to respondent Court of Appeals. On October
22,1990 the assailed resolution was issued. The respondent appellate court concurred with the findings
and conclusions of respondent trial court resolving that Chung Fu and its officers, as signatories to the
Arbitration Agreement are bound to observe the stipulations thereof providing for the finality of the award
and precluding any appeal therefrom.
selected by them from an apposite listing (the album judicium) or else by having the arbiter chosen by
lot. The judges proper, as specially trained state officials endowed with own power and jurisdiction, and
taking cognizance of litigations from beginning to end, only appeared under the Empire, by the so-
called cognitio extra ordinem." 5
Such means of referring a dispute to a third party has also long been an accepted alternative to litigation
at common law. 6
Sparse though the law and jurisprudence may be on the subject of arbitration in the Philippines, it was
nonetheless recognized in the Spanish Civil Code; specifically, the provisions on compromises made
applicable to arbitrations under Articles 1820 and 1821.7 Although said provisions were repealed by
implication with the repeal of the Spanish Law of Civil Procedure, 8 these and additional ones were
reinstated in the present Civil Code. 9
Arbitration found a fertile field in the resolution of labor-management disputes in the Philippines.
Although early on, Commonwealth Act 103 (1936) provided for compulsory arbitration as the state policy
to be administered by the Court of Industrial Relations, in time such a modality gave way to voluntary
arbitration. While not completely supplanting compulsory arbitration which until today is practiced by
government officials, the Industrial Peace Act which was passed in 1953 as Republic Act No. 875, favored
the policy of free collective bargaining, in general, and resort to grievance procedure, in particular, as the
preferred mode of settling disputes in industry. It was accepted and enunciated more explicitly in the
Labor Code, which was passed on November 1, 1974 as Presidential Decree No. 442, with the
amendments later introduced by Republic Act No. 6715 (1989).

A motion for reconsideration of said resolution was filed by petitioner, but it was similarly denied by
Whether utilized in business transactions or in employer-employee relations, arbitration was gaining wide
respondent Court of Appeals thru its questioned resolution of December 3, 1990.
acceptance. A consensual process, it was preferred to orders imposed by government upon the
disputants. Moreover, court litigations tended to be time-consuming, costly, and inflexible due to their
Hence, the instant petition anchored on the following grounds: scrupulous observance of the due process of law doctrine and their strict adherence to rules of evidence.
First. Respondents Court of Appeals and trial Judge gravely abused their discretion and/or exceeded
their jurisdiction, as well as denied due process and substantial justice to petitioners, — (a) by refusing
As early as the 1920's, this Court declared:
to exercise their judicial authority and legal duty to review the arbitration award, and (b) by declaring
In the Philippines fortunately, the attitude of the courts toward arbitration agreements is slowly
that petitioners are estopped from questioning the arbitration award allegedly in view of the stipulations
crystallizing into definite and workable form. . . . The rule now is that unless the agreement is such as
in the parties' arbitration agreement that "the decision of the arbitrator shall be final and unappealable"
absolutely to close the doors of the courts against the parties, which agreement would be void, the
and that "there shall be no further judicial recourse if either party disagrees with the whole or any part
courts will look with favor upon such amicable arrangements and will only with great reluctance
of the arbitrator's award."
interfere to anticipate or nullify the action of the arbitrator. 10
Second. Respondent Court of Appeals and trial Judge gravely abused their discretion and/or exceeded
their jurisdiction, as well as denied due process and substantial justice to petitioner, by not vacating
and annulling the award dated 30 June 1990 of the Arbitrator, on the ground that the Arbitrator grossly That there was a growing need for a law regulating arbitration in general was acknowledged
departed from the terms of the parties' contracts and misapplied the law, and thereby exceeded the when Republic Act No. 876 (1953), otherwise known as the Arbitration Law, was passed. "Said
authority and power delegated to him. (Rollo, p. 17) Act was obviously adopted to supplement — not to supplant — the New Civil Code on
arbitration. It expressly declares that "the provisions of chapters one and two, Title XIV, Book
IV of the Civil Code shall remain in force." 11
Allow us to take a leaf from history and briefly trace the evolution of arbitration as a mode of dispute
settlement.
In recognition of the pressing need for an arbitral machinery for the early and expeditious settlement of
disputes in the construction industry, a Construction Industry Arbitration Commission (CIAC) was created
Because conflict is inherent in human society, much effort has been expended by men and institutions in
by Executive Order No. 1008, enacted on February 4, 1985.
devising ways of resolving the same. With the progress of civilization, physical combat has been ruled out
and instead, more specific means have been evolved, such as recourse to the good offices of a
disinterested third party, whether this be a court or a private individual or individuals. In practice nowadays, absent an agreement of the parties to resolve their disputes via a particular mode,
it is the regular courts that remain the fora to resolve such matters. However, the parties may opt for
recourse to third parties, exercising their basic freedom to "establish such stipulation, clauses, terms and
Legal history discloses that "the early judges called upon to solve private conflicts were primarily the
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
arbiters, persons not specially trained but in whose morality, probity and good sense the parties in
public order or public policy." 12 In such a case, resort to the arbitration process may be spelled out by
conflict reposed full trust. Thus, in Republican Rome, arbiter and judge (judex) were synonymous. The
them in a contract in anticipation of disputes that may arise between them. Or this may be stipulated in a
magistrate or praetor, after noting down the conflicting claims of litigants, and clarifying the issues,
submission agreement when they are actually confronted by a dispute. Whatever be the case, such
referred them for decision to a private person designated by the parties, by common agreement, or

3
recourse to an extrajudicial means of settlement is not intended to completely deprive the courts of
jurisdiction. In fact, the early cases on arbitration carefully spelled out the prevailing doctrine at the time,
thus: ". . . a clause in a contract providing that all matters in dispute between the parties shall be
referred to arbitrators and to them alone is contrary to public policy and cannot oust the courts of
Jurisdiction." 13
But certainly, the stipulation to refer all future disputes to an arbitrator or to submit an ongoing dispute
to one is valid. Being part of a contract between the parties, it is binding and enforceable in court in case
one of them neglects, fails or refuses to arbitrate. Going a step further, in the event that they declare
their intention to refer their differences to arbitration first before taking court action, this constitutes a
condition precedent, such that where a suit has been instituted prematurely, the court shall suspend the
same and the parties shall be directed forthwith to proceed to arbitration. 14
A court action may likewise be proven where the arbitrator has not been selected by the parties. 15
Under present law, may the parties who agree to submit their disputes to arbitration further provide that
the arbitrators' award shall be final, unappealable and executory?
Article 2044 of the Civil Code recognizes the validity of such stipulation, thus:
Any stipulation that the arbitrators' award or decision shall be final is valid, without prejudice to Articles
2038, 2039 and 2040.
Similarly, the Construction Industry Arbitration Law provides that the arbitral award "shall be final and
inappealable except on questions of law which shall be appealable to the Supreme Court." 16
Under the original Labor Code, voluntary arbitration awards or decisions were final, unappealable and
executory. "However, voluntary arbitration awards or decisions on money claims, involving an amount
exceeding One Hundred Thousand Pesos (P100,000.00) or forty-percent (40%) of the paid-up capital of
the respondent employer, whichever is lower, maybe appealed to the National Labor Relations
Commission on any of the following grounds: (a) abuse of discretion; and (b) gross incompetence." 17 It
is to be noted that the appeal in the instances cited were to be made to the National Labor Relations
Commission and not to the courts.
With the subsequent deletion of the above-cited provision from the Labor Code, the voluntary arbitrator is
now mandated to render an award or decision within twenty (20) calendar days from the date of
submission of the dispute and such decision shall be final and executory after ten (10) calendar days from
receipt of the copy of the award or decision by the parties. 18
Where the parties agree that the decision of the arbitrator shall be final and unappealable as in the
instant case, the pivotal inquiry is whether subject arbitration award is indeed beyond the ambit of the
court's power of judicial review.
We rule in the negative. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the
arbitrators' award is not absolute and without exceptions. Where the conditions described in Articles
2038, 2039 and 2040 applicable to both compromises and arbitrations are obtaining, the arbitrators'
award may be annulled or rescinded. 19 Additionally, under Sections 24 and 25 of the Arbitration Law,
there are grounds for vacating, modifying or rescinding an arbitrator's award. 20 Thus, if and when the
factual circumstances referred to in the above-cited provisions are present, judicial review of the award is
properly warranted.
4
What if courts refuse or neglect to inquire into the factual milieu of an arbitrator's award to determine
whether it is in accordance with law or within the scope of his authority? How may the power of judicial
review be invoked?
This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of Court. It is to be
borne in mind, however, that this action will lie only where a grave abuse of discretion or an act without
or in excess of jurisdiction on the part of the voluntary arbitrator is clearly shown. For "the writ
of certiorari is an extra-ordinary remedy and that certiorari jurisdiction is not to be equated with appellate
jurisdiction. In a special civil action of certiorari, the Court will not engage in a review of the facts found
nor even of the law as interpreted or applied by the arbitrator unless the supposed errors of fact or of law
are so patent and gross and prejudicial as to amount to a grave abuse of discretion or an exces de
pouvoir on the part of the arbitrator." 21
Even decisions of administrative agencies which are declared "final" by law are not exempt from judicial
review when so warranted. Thus, in the case of Oceanic Bic Division (FFW), et al. v. Flerida Ruth P.
Romero, et al., 22 this Court had occasion to rule that:
. . . Inspite of statutory provisions making "final" the decisions of certain administrative agencies, we
have taken cognizance of petitions questioning these decisions where want of jurisdiction, grave abuse
of discretion, violation of due process, denial of substantial justice or erroneous interpretation of the
law were brought to our attention . . . 23 (Emphasis ours).
It should be stressed, too, that voluntary arbitrators, by the nature of their functions, act in a quasi-
judicial capacity. 24 It stands to reason, therefore, that their decisions should not be beyond the scope of
the power of judicial review of this Court.
In the case at bar, petitioners assailed the arbitral award on the following grounds, most of which allege
error on the part of the arbitrator in granting compensation for various items which apparently are
disputed by said petitioners:
1. The Honorable Arbitrator committed grave error in failing to apply the terms and conditions of the
Construction Agreement, Dormitory Contract and Electrical Contract, and in using instead the
"practices" in the construction industry;
2. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss
of productivity due to adverse weather conditions;
3. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss
due to delayed payment of progress billings;
4. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss
of productivity due to the cement crisis;
5. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for
losses allegedly sustained on account of the failed coup d'état;
6. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing the
alleged unpaid billings of Chung Fu;
7. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing the
alleged extended overhead expenses;
8. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing
expenses for change order for site development outside the area of responsibility of Roblecor;
9. The Honorable Arbitrator committed grave error in granting to Roblecor the cost of warehouse No. 2;
10. The Honorable Arbitrator committed grave error in granting to Roblecor extra compensation for
airduct change in dimension;
11. The Honorable Arbitrator committed grave error in granting to Roblecor extra compensation for
airduct plastering; and
12. The Honorable Arbitrator committed grave error in awarding to Roblecor attorney's fees.
After closely studying the list of errors, as well as petitioners' discussion of the same in their Motion to
Remand Case For Further Hearing and Reconsideration and Opposition to Motion for Confirmation of
Award, we find that petitioners have amply made out a case where the voluntary arbitrator failed to apply
the terms and provisions of the Construction Agreement which forms part of the law applicable as
between the parties, thus committing a grave abuse of discretion. Furthermore, in granting unjustified
extra compensation to respondent for several items, he exceeded his powers — all of which would have
constituted ground for vacating the award under Section 24 (d) of the Arbitration Law.
But the respondent trial court's refusal to look into the merits of the case, despite  prima facie showing of
the existence of grounds warranting judicial review, effectively deprived petitioners of their opportunity to
prove or substantiate their allegations. In so doing, the trial court itself committed grave abuse of
discretion. Likewise, the appellate court, in not giving due course to the petition, committed grave abuse
of discretion. Respondent courts should not shirk from exercising their power to review, where under the
applicable laws and jurisprudence, such power may be rightfully exercised; more so where the objections
raised against an arbitration award may properly constitute grounds for annulling, vacating or modifying
said award under the laws on arbitration.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated October 22, 1990
and December 3, 1990 as well as the Orders of respondent Regional Trial Court dated July 31, 1990 and
August 23, 1990, including the writ of execution issued pursuant thereto, are hereby SET ASIDE.
Accordingly, this case is REMANDED to the court of origin for further hearing on this matter. All incidents
arising therefrom are reverted to the status quo ante until such time as the trial court shall have passed
upon the merits of this case. No costs.
5
G.R. No. 136154        February 7, 2001
DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL COLLINS and LUIS
HIDALGO, petitioners,
vs.
COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in his capacity as Presiding Judge, RTC-Br. 74,
Malabon, Metro Manila, MONTEBUENO MARKETING, INC., LIONG LIONG C. SY and SABROSA
FOODS, INC., respondents.
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 panel shall consist of
three members, one of whom shall be selected by DMC-USA, one of whom shall be selected by MMI,
and third of whom shall be selected by the other two members and shall have relevant experience in
the industry x x x x
In October 1994 the appointment of private respondent MMI as the sole and exclusive distributor of Del
Monte products in the Philippines was published in several newspapers in the country. Immediately after
its appointment, private respondent MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of
petitioner DMC-USA, as MMI's marketing arm to concentrate on its marketing and selling function as well
as to manage its critical relationship with the trade.
On 3 October 1996 private respondents MMI, SFI and MMI's Managing Director Liong Liong C. Sy (LILY
SY) filed a Complaint5 against petitioners DMC-USA, Paul E. Derby, Jr.,6 Daniel Collins7 and Luis
Hidalgo,8 and Dewey Ltd.9 before the Regional Trial Court of Malabon, Metro Manila. Private respondents
predicated their complaint on the alleged violations by petitioners of Arts. 20,10 2111 and 2312 of the Civil
Code. According to private respondents, DMC-USA products continued to be brought into the country by
parallel importers despite the appointment of private respondent MMI as the sole and exclusive distributor
of Del Monte products thereby causing them great embarrassment and substantial damage. They alleged
that the products brought into the country by these importers were aged, damaged, fake or counterfeit,
so that in March 1995 they had to cause, after prior consultation with Antonio Ongpin, Market Director for
Special Markets of Del Monte Philippines, Inc., the publication of a "warning to the trade" paid
advertisement in leading newspapers. Petitioners DMC-USA and Paul E. Derby, Jr., apparently upset with
the publication, instructed private respondent MMI to stop coordinating with Antonio Ongpin and to
communicate directly instead with petitioner DMC-USA through Paul E. Derby, Jr.
Private respondents further averred that petitioners knowingly and surreptitiously continued to deal with
the former in bad faith by involving disinterested third parties and by proposing solutions which were
entirely out of their control. Private respondents claimed that they had exhausted all possible avenues for
an amicable resolution and settlement of their grievances; that as a result of the fraud, bad faith, malice
and wanton attitude of petitioners, they should be held responsible for all the actual expenses incurred by
private respondents in the delayed shipment of orders which resulted in the extra handling thereof, the
actual expenses and cost of money for the unused Letters of Credit (LCs) and the substantial opportunity
losses due to created out-of-stock situations and unauthorized shipments of Del Monte-USA products to
the Philippine Duty Free Area and Economic zone; that the bad faith, fraudulent acts and willful
negligence of petitioners, motivated by their determination to squeeze private respondents out of the
outstanding and ongoing Distributorship Agreement in favor of another party, had placed private
respondent LILY SY on tenterhooks since then; and, that the shrewd and subtle manner with which
petitioners concocted imaginary violations by private respondent MMI of the Distributorship Agreement in
order to justify the untimely termination thereof was a subterfuge. For the foregoing, private respondents
claimed, among other reliefs, the payment of actual damages, exemplary damages, attorney's fees and
litigation expenses.
On 21 October 1996 petitioners filed a Motion to Suspend Proceedings13 invoking the arbitration clause in
their Agreement with private respondents.1âwphi1.nêt
In a Resolution14 dated 23 December 1996 the trial court deferred consideration of petitioners' Motion to
Suspend Proceedings as the grounds alleged therein did not constitute the suspension of the proceedings
considering that the action was for damages with prayer for the issuance of Writ of Preliminary
Attachment and not on the Distributorship Agreement.
On 15 January 1997 petitioners filed a Motion for Reconsideration to which respondents filed
their Comment/Opposition. On 31 January 1997 petitioners filed their Reply. Subsequently, private
respondents filed an Urgent Motion for Leave to Admit Supplemental Pleading dated 2 April 1997. This
Motion was admitted, over petitioners' opposition, in an Order of the trial court dated 27 June 1997.
As a result of the admission of the Supplemental Complaint, petitioners filed on 22 July 1997
a Manifestation adopting their Motion to Suspend Proceedings of 17 October 1996 and Motion for
Reconsideration of 14 January 1997.
On 11 November 1997 the Motion to Suspend Proceedings was denied by the trial court on the ground
that it "will not serve the ends of justice and to allow said suspension will only delay the determination of
the issues, frustrate the quest of the parties for a judicious determination of their respective claims,
and/or deprive and delay their rights to seek redress." 15
On appeal, the Court of appeals affirmed the decision of the trial court. It held that the alleged damaging
acts recited in the Complaint, constituting petitioners' causes of action, required the interpretation of Art.
21 of the Civil Code16 and that in determining whether petitioners had violated it "would require a full
blown trial" making arbitration "out of the question." 17 Petitioners' Motion for Reconsideration of the
affirmation was denied. Hence, this Petition for Review.
The crux of the controversy boils down to whether the dispute between the parties warrants an order
compelling them to submit to arbitration.
Petitioners contend that the subject matter of private respondents' causes of action arises out of or
relates to the Agreement between petitioners and private respondents. Thus, considering that the
arbitration clause of the Agreement provides that all disputes arising out of or relating to the Agreement
or the parties' relationship, including the termination thereof, shall be resolved by arbitration, they insist
on the suspension of the proceedings in Civil Case No. 2637-MN as mandated by Sec. 7 of RA 87618 –
6
Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue arising out of an
agreement providing for arbitration thereof, the court in which such suit or proceeding is pending, upon
being satisfied that the issue involved in such suit or proceeding is referable to arbitration, shall stay
the action or proceeding until an arbitration has been had in accordance with the terms of the
agreement.  Provided, That the applicant for the stay is not in default in proceeding with such
arbitration.
Private respondents claim, on the other hand, that their causes of action are rooted in Arts. 20, 21 and 23
of the Civil Code,19 the determination of which demands a full blown trial, as correctly held by the Court of
Appeals. Moreover, they claim that the issues before the trial court were not joined so that the Honorable
Judge was not given the opportunity to satisfy himself that the issue involved in the case was referable to
arbitration. They submit that, apparently, petitioners filed a motion to suspend proceedings instead of
sending a written demand to private respondents to arbitrate because petitioners were not sure whether
the case could be a subject of arbitration. They maintain that had petitioners done so and private
respondents failed to answer the demand, petitioners could have filed with the trial court their demand
for arbitration that would warrant a determination by the judge whether to refer the case to arbitration.
Accordingly, private respondents assert that arbitration is out of the question.
Private respondents further contend that the arbitration clause centers more on venue rather than on
arbitration. They finally allege that petitioners filed their motion for extension of time to file this petition
on the same date20 petitioner DMC-USA filed a petition to compel private respondent MMI to arbitrate
before the United States District Court in Northern California, docketed as Case No. C-98-4446. They
insist that the filing of the petition to compel arbitration in the United States made the petition filed
before this Court an alternative remedy and, in a way, an abandonment of the cause they are fighting for
her in the Philippines, thus warranting the dismissal of the present petition before this Court.
There is no doubt that arbitration is valid and constitutional in our jurisdiction. 21 Even before the
enactment of RA 876, this Court has countenanced the settlement of disputes through arbitration. Unless
the agreement is such as absolutely to close the doors of the courts against the parties, which agreement
would be void, the courts will look with favor upon such amicable arrangement and will only interfere with
great reluctance to anticipate or nullify the action of the arbitrator. 22 Moreover, as RA 876 expressly
authorizes arbitration of domestic disputes, foreign arbitration as a system of settling commercial
disputes was likewise recognized when the Philippines adhered to the United Nations "Convention on the
Recognition and the Enforcement of Foreign Arbitral Awards of 1958" under the 10 May 1965 Resolution
No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of international
arbitration agreements between parties of different nationalities within a contracting state.23
A careful examination of the instant case shows that the arbitration clause in the Distributorship
Agreement between petitioner DMC-USA and private respondent MMI is valid and the dispute between
the parties is arbitrable. However, this Court must deny the petition.
The Agreement between petitioner DMC-USA and private respondent MMI is a contract. The provision to
submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that
contract and is itself a contract. As a rule, contracts are respected as the law between the contracting
parties and produce effect as between them, their assigns and heirs.24 Clearly, only parties to the
Agreement, i.e., petitioners DMC-USA and its Managing Director for Export Sales Paul E. Derby, Jr., and
private respondents MMI and its Managing Director LILY SY are bound by the Agreement and its
arbitration clause as they are the only signatories thereto. Petitioners Daniel Collins and Luis Hidalgo, and
private respondent SFI, not parties to the Agreement and cannot even be considered assigns or heirs of
the parties, are not bound by the Agreement and the arbitration clause therein. Consequently, referral to
arbitration in the State of California pursuant to the arbitration clause and the suspension of the
proceedings in Civil Case No. 2637-MN pending the return of the arbitral award could be called for25 but
only as to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY SY, and not
as to the other parties in this case. This is consistent with the recent case of Heirs of Augusto L. Salas, Jr.
v. Laperal Realty Corporation,26 which superseded that of Toyota Motor Philippines Corp. v. Court of
Appeals.27
In Toyota, the Court ruled that "[t]he contention that the arbitration clause has become dysfunctional
because of the presence of third parties is untenable" ratiocinating that "[c]ontracts are respected as the
law between the contracting parties" 28 and that "[a]s such, the parties are thereby expected to abide with
good faith in their contractual commitments." 29 However, in Salas, Jr., only parties to the Agreement,
their assigns or heirs have the right to arbitrate or could be compelled to arbitrate. The Court went
further by declaring that in recognizing the right of the contracting parties to arbitrate or to compel
arbitration, the splitting of the proceedings to arbitration as to some of the parties on one hand and trial
for the others on the other hand, or the suspension of trial pending arbitration between some of the
parties, should not be allowed as it would, in effect, result in multiplicity of suits, duplicitous procedure
and unnecessary delay.30
The object of arbitration is to allow the expeditious determination of a dispute. 31 Clearly, the issue before
us could not be speedily and efficiently resolved in its entirety if we allow simultaneous arbitration
proceedings and trial, or suspension of trial pending arbitration. Accordingly, the interest of justice would
only be served if the trial court hears and adjudicates the case in a single and complete proceeding.32
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals affirming the Order of the
Regional Trial Court of Malabon, Metro Manila, in Civil Case No. 2637-MN, which denied
petitioners' Motion to Suspend Proceedings, is AFFIRMED. The Regional Trial Court concerned is directed
to proceed with the hearing of Civil Case No. 2637-MN with dispatch. No costs.
7
G.R. No. 103200 August 31, 1994
LA NAVAL DRUG CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and WILSON C. YAO, respondents.
In an effort to declog the courts of an increasing volume of work load and, most importantly, in order to
accord contending parties with expenditious alternatives for settling disputes, the law authorities, indeed
encourages, out of court settlements or adjudications. Compromises and arbitration are widely known
and used as such acceptable methods of resolving adversarial claims.
Arbitrations, in particular, is governed by a special law, Republic Act 876, suppletory to which are laws
and rules of general application. This case before us concerns the jurisdiction of courts, in relation to the
provisions of Section 6 of Republic Act No. 876, and, in that respect, the applicability of the doctrine of
estoppel. The law (R.A. 876), specifically Section 6 thereof, provides:
Sec. 6. Hearing by court. — A party aggrieved by the failure, neglect or refusal of another to perform
under an agreement in writing providing for arbitration may petition the court for an order directing
that such arbitration proceed in the manner provided for in such agreement. Five days notice in writing
of the hearing of such application shall be served either personally or by registered mail upon the party
in default. The court shall hear the parties, and upon being satisfied that the making of the agreement
or such failure to comply therewith is not in issue, shall make an order directing the parties to proceed
to arbitration in accordance with the terms of the agreement. If the making of the agreement or default
be in issue the court shall proceed to summarily hear such issue. If the finding be that no agreement in
writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the
proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and
there is a default in proceeding thereunder, an order shall be made summarily directing the parties to
proceed with the arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or application filed under the provisions of this Act, within
ten days after such motions, petitions, or applications have been heard by it.
In chronology, the events that have led to the case at bench are detailed in the appealed decision of
respondent appellate court, which we here reproduce in toto.
Original action for Certiorari and Prohibition for Annulment of the Orders, dated April 26, 1990 and June
22, 1990, respectively, of Branch LXI, Regional Trial Court, Angeles City, in Special Case No. 6024 for
Enforcement of ARBITRATION Agreement with Damages. Petitioner assails that portion of subject Order
of April 26, 1990, stating as follows:
(1) Petitioner's claim for damages predicated on alleged tortuous acts of respondents La Naval Drug
corporation such as their alleged interference and dilatory tactics, etc. in the implementation of the
Arbitration Agreement in the Contract of Lease, thereby compelling among others the petitioner to go
to Court for redress; and respondent La Naval Drug Corporation's counterclaim for damages may be
entertained by this Court in a hearing — not summary — for the purpose, under the Rules of Court.
(2) A preliminary hearing of the special and affirmative defense to show that Petitioner has not cause
of action against respondent's claim for damages is denied; a resolution on this issue is deferred after
the trial of the case on the merits.
And challenges the Order of June 22, 1990 denying its motion for reconsideration of the said earlier
Order.
From the petition below of respondent Yao, it appears that he is the present owner of a commercial
building a portion of which is leased to petitioner under a contract of lease executed on December 23,
1993 with the former owner thereof, La Proveedora, Inc., which contract expired on April 30, 1989.
However, petitioner exercised its option to lease the same building for another five years. But petitioner
and respondent Yao disagreed on the rental rate, and to resolve the controversy, the latter, thru
written notices to the former, expressed his intention to submit their disagreement to arbitration, in
accordance with Republic Act 876, otherwise known as the Arbitration Law, and paragraph 7 of their
lease contract, providing that:
7. . . . Should the parties fail to agree on the rate of rentals, the same shall be submitted to a group
of Arbitrators composed of three (3) members, one to be appointed by LESSOR, another by LESSEE
and the third one to be agreed upon by the two arbitrators previously chosen and the parties hereto
shall submit to the decision of the arbitrators.
Thus, on May 6, 1989, respondent Yao appointed Domingo Alamarez, Jr. as his arbitrator, while on June
5, 1989, petitioner chose Atty. Casiano Sabile as its arbitrator. The confirmation of the appointment of
Aurelio Tupang, as third arbitrator, was held in abeyance because petitioner instructed Atty. Sabile to
defer the same until its Board of Directors could convene and approve Tupang's appointment.
Respondent Yao theorizes that this was petitioner's design to delay the arbitration proceedings, in
violation of the Arbitration Law, and the governing stipulation of their contract of lease.
On the basis of the aforesaid allegations, respondent Yao prayed that after summary hearing pursuant
to Section 6 of the Arbitration Law, Atty. Casiano Sabile and Domingo Alamarez be directed to proceed
with the arbitration in accordance with Section 7 of subject Contract of Lease and the applicable
provisions of the Arbitration law, by appointing and confirming the appointment of the Third Arbitrator;
and that the Board of Three Arbitrators be ordered to immediately convene and resolve the controversy
before it, pursuant to Section 12 and the succeeding sections of the Arbitration Law. (Annex "A,"
Petition.)
In its Answer with Counterclaim (Annex "C," Petition), petitioner here specifically denied the averments
of the petition below; theorizing that such petition is premature since respondent Yao has not yet
formally required arbitrators Alamarez and Sabile to agree on the third arbitrator, within ten (10) days
from notice, and that the delay in the arbitration was due to respondent Yao's failure to perform what is
incumbent upon him, of notifying and thereafter, requiring both arbitrators to appoint the third member
of the Board of Arbitrators. According to petitioner, it actually gave arbitrators Sabile and Alamarez a
free hand in choosing the third arbitrator; and, therefore, respondent Yao has no cause of action
against it (petitioner). By way of Counterclaim, petitioner alleged that it suffered actual damages of
P100,000.00; and incurred attorney's fees of P50,000.00, plus P500.00 for every court appearance of
its counsel.
On October 20, 1989, respondent Yao filed an amended petition for "Enforcement of Arbitration
Agreement with Damages;" praying that petitioner be ordered to pay interest on the unpaid rents, at
the prevailing rate of interest in commercial banks, and exemplary damages of at least P250,000.00.
On October 24, 1989, despite petitioner's opposition to the motion to admit the amended petition, the
respondent court admitted the same.
On October 31, 1989, petitioner answered the amended petition; contending, among others, that the
amended petition should be dismissed on the ground of non-payment of the requisite filing fees
therefor; and it being in the nature of an ordinary civil action, a full blown and regular trial, is
necessary; so that respondent Yao's proposition for a summary hearing of the arbitration issue and
separate trial for his claim for damages is procedurally untenable and implausible.
8
Invoking Section 5, Rule 16 of the Rules of Court, petitioner presented a "Motion to Set Case for
Preliminary Hearing" of its special and affirmative defenses, which are grounds fro a motion to dismiss.
In its Order of November 14, 1989, the respondent court announced that the two arbitrators chose Mrs.
Eloisa R. Narciso as the third arbitrator. And on November 21, 1989, it ordered the parties to submit
their position papers on the issue as to whether or not respondent Yao's claim for damages may be
litigated upon in the summary proceeding for enforcement of arbitration agreement. It likewise
informed the parties that petitioner's Motion to Set Case for Preliminary Hearing" of Special and
Affirmative Defenses would be resolved together with the question of damages.
On April 26, 1990, the aforequoted assailed Order issued. In moving for reconsideration of the said
Order, petitioner argued that in Special Case No. 6024, the respondent court sits as a special court
exercising limited jurisdiction and is not competent to act on respondent Yao's claim for damages,
which poses an issue litigable in an ordinary civil action. But the respondent court was not persuaded
by petitioner's submission. On June 22, 1990, it denied the motion for reconsideration. (Rollo, pp. 89-
93).
While the appellate court has agreed with petitioner that, under Section 6 of Republic Act No. 876, a
court, acting within the limits of its special jurisdiction, may in this case solely determine the issue of
whether the litigants should proceed or not to arbitration, it, however, considered petitioner in estoppel
from questioning the competence of the court to additionally hear and decide in the summary
proceedings private respondent's claim for damages, it (petitioner) having itself filed similarly its own
counterclaim with the court a quo.
It is hardly disputable that when a court is called upon to exercise limited and special jurisdiction, that
court cannot stray to matters outside the area of its declared authority or beyond what has been
expressly invested by law (Elumbaring vs. Elumbaring, 12 Phil. 384, 387), particularly, such as in this
instance, where the proceedings are summary in nature.
Prefatorily, recalling the distinctions, pertinent to the case, between the court's lack of jurisdiction over
the person of the defendant, on the one hand, and its lack of jurisdiction over the subject matter or
the nature  of the action, upon the other hand, should be useful.
The lack of jurisdiction over the person of the defendant may be waived either expressly or impliedly.
When a defendant voluntarily appears, he is deemed to have submitted himself to the jurisdiction of the
court. If he so wishes not to waive this defense, he must do so seasonably by motion for the purpose of
objecting to the jurisdiction of the court; otherwise, he shall be deemed to have submitted himself to that
jurisdiction. The decisions promulgated heretofore by this Court would likewise seemingly apply estoppel
to bar the defendant from pursuing that defense by alleging in his answer any other issue for dismissing
the action.
A citation of a few of our decisions might be apropos.
In Wang Laboratories, Inc., vs. Mendoza (156 SCRA 44), this Court has ruled that if the defendant,
besides setting up in a motion to dismiss his objection to the jurisdiction of the court, alleges at the same
time any other ground for dismissing the action, he is deemed to have submitted himself to the
jurisdiction of the court. In the process, it has equated the matter to a situation where, such as
in Immaculata vs. Judge Navarro, et al. (146 SCRA 5), the defendant invokes an affirmative relief  against
his opponent.
In De Midgely vs. Judge Ferandos (64 SCRA 23, 31), the Court elaborated thusly:
 We are of the opinion that the lower court has acquired jurisdiction over the person of Mrs. Midgely by
reason of her voluntary appearance. The reservation in her motion to dismiss that she was making a
special appearance to contest the court's jurisdiction over her person may be disregarded.
It may be disregarded because it was nullified by the fact that in her motion to dismiss she relied not
only on the ground of lack of jurisdiction over her person but also on the ground that there was no
showing that earnest efforts were exerted to compromise the case and because she prayed "for such
other relief as" may be deemed "appropriate and proper."
When the appearance is by motion for the purpose of objecting to the jurisdiction of the court over the
person, it must be for the sole and separate purpose of objecting to the jurisdiction of the court. If his
motion is for any other purpose than to object to the jurisdiction of the court over his person, he
thereby submits himself to the jurisdiction of the court. A special appearance by motion made for the
purpose of objecting to the jurisdiction of the court over the person will be held to be a general
appearance, if the party in said motion should, for example, ask for a dismissal of the action upon the
further ground that the court had no jurisdiction over the subject matter. (Syllabus, Flores vs.
Zurbito, supra, at page 751. That rule was followed in Ocampo vs. Mina and Arejola, 41 Phil. 308).
The justification for the rule was expressed in Republic vs. Ker and Companry, Ltd. (18 SCRA 207, 213-
214), in this wise:
We observed that the motion to dismiss filed on April 14, 1962, aside from disputing the lower court's
jurisdiction over defendant's person, prayed for dismissal of the complaint on the ground that plaintiff's
cause of action had prescribed. By interposing such second ground in its motion to dismiss, Ker & Co.,
Ltd. availed of an affirmative defense on the basis of which it prayed the court to resolve controversy in
its favor. For the court to validly decide the said plea of defendant Ker & Co., Ltd., it necessarily had to
acquire jurisdiction upon the latter's person, who, being the proponent of the affirmative defense,
should be deemed to have abandoned its special appearance and voluntarily submitted itself to the
jurisdiction of the court.
Voluntary appearance cures defects of summons, if any, Such defect, if any, was further cured when
defendant filed its answer to the complaint. A defendant can not be permitted to speculate upon the
judgment of the court by objecting to the court's jurisdiction over its person if the judgment is adverse
to it, and acceding to jurisdiction over its person if and when the judgment sustains its defenses.
The doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice
according to natural law and right. It is a principle intended to avoid a clear case of injustice. The term is
hardly distinguishable from a waiver of right. Estoppel, like its said counterpart, must be unequivocal and
intentional for, when misapplied, it can easily become a most convenient and effective means of injustice.
Estoppel is not understood to be a principle that, as a rule, should prevalently apply but, such as it
concededly is, as a mere exception from the standard legal norms of general application that can be
invoked only in highly exceptional and justifiable cases.
Tested by the above criteria, the Court sees it propitious to re-examine specifically the question of
whether or not the submission of other issues in a motion to dismiss, or of an affirmative defense (as
distinguished from an affirmative relief) in an answer, would necessarily foreclose, and have the effect of
a waiver of, the right of a defendant to set up the court's lack of jurisdiction over the person of the
defendant.
Not inevitably.
Section 1, Rule 16, of the Rules of Court, provides that a motion to dismiss may be made on the following
grounds:
(a) That the court has no jurisdiction over the person of the defendant or over the subject of the action
or suit;
(b) That the court has no jurisdiction over the nature of the action or suit;
9
(c) The venue is improperly laid;
(d) That the plaintiff has no legal capacity to sue;
(e) That there is another action pending between the same parties for the same cause;
(f) That the cause of action is barred by a prior judgment or by statute of limitations;
(g) That the complaint states no cause of action;
(h) That the claim or demand set forth in the plaintiff's pleading has been paid, waived, abandoned, or
otherwise extinguished;
( i ) That the claim on which the action or suit is founded is unenforceable under the provisions of the
statute of frauds;
( j ) That the suit is between members of the same family and no earnest efforts towards a compromise
have been made.
Any ground for dismissal in a motion to dismiss, except improper venue, may, as further set forth in
Section 5 of the same rule, be pleaded as an affirmative defense and a preliminary hearing may be had
thereon as if a motion to dismiss had been filed. An answer itself contains the negative, as well as
affirmative, defenses upon which the defendant may rely (Section 4, Rule 6, Rules of Court). A negative
defense denies the material facts averred in the complaint essential to establish the plaintiff's cause of
action, while an affirmative defense in an allegation of a new matter which, while admitting the material
allegations of the complaint, would, nevertheless, prevent or bar recovery by the plaintiff. Inclusive of
these defenses are those mentioned in Rule 16 of the Rules of Court which would permit the filing of a
motion to dismiss.
In the same manner that the plaintiff may assert two or more causes of action in a court suit, a defendant
is likewise expressly allowed, under Section 2, Rule 8, of the Rules of Court, to put up his own defenses
alternatively or even hypothetically. Indeed, under Section 2, Rule 9, of the Rules of Court, defenses and
objections not pleaded either in a motion to dismiss or in an answer, except for the failure to state a
cause of action, are deemed waived. We take this to mean that a defendant may, in fact, feel enjoined to
set up, along with his objection to the court's jurisdiction over his person, all other possible defenses. It
thus appears that it is not the invocation of any of such defenses, but the failure to so raise them, that
can result in waiver or estoppel. By defenses, of course, we refer to the grounds provided for in Rule 16
of the Rules of Court that must be asserted in a motion to dismiss or by way of affirmative defenses in an
answer.
Mindful of the foregoing, in Signetics Corporation vs. Court of Appeals and Freuhauf Electronics Phils.,
Inc. (225 SCRA 737, 738), we lately ruled:
This is not to say, however, that the petitioner's right to question the jurisdiction of the court over its
person is now to be deemed a foreclosed matter. If it is true, as Signetics claims, that its only
involvement in the Philippines was through a passive investment in Sigfil, which it even later disposed
of, and that TEAM Pacific is not its agent, then it cannot really be said to be doing business in the
Philippines. It is a defense, however, that requires the contravention of the allegations of the complaint,
as well as full ventilation, in effect, of the main merits of the case, which should not thus be within the
province of a mere motion to dismiss. So, also, the issue posed by the petitioner as to whether a
foreign corporation which has done business in the country, but which has ceased to do business at the
time of the filing of a complaint, can still be made to answer for a cause of action which accrued while it
was doing business, is another matter that would yet have to await the reception and admission of
evidence. Since these points have seasonably been raised by the petitioner, there should be no real
cause for what may understandably be its apprehension, i.e., that by its participation during the trial on
the merits, it may, absent an invocation of separate or independent reliefs of its own, be considered to
have voluntarily submitted itself to the court's jurisdiction.
Lack of jurisdiction over the subject matter of the suit is yet another matter. Whenever it appears that
the court has no jurisdiction over the subject matter, the action shall be dismissed (Section 2, Rule 9,
Rules of Court). This defense may be interposed at any time, during appeal (Roxas vs. Rafferty, 37 Phil.
957) or even after final judgment (Cruzcosa vs. Judge Concepcion, et al., 101 Phil. 146). Such is
understandable, as this kind of jurisdiction is conferred by law and not within the courts, let alone the
parties, to themselves determine or conveniently set aside. In People vs. Casiano (111 Phil. 73 93-94),
this Court, on the issue of estoppel, held:
The operation of the principle of estoppel on the question of jurisdiction seemingly depends upon
whether the lower court actually had jurisdiction or not. If it had no jurisdiction, but the case was tried
and decided upon the theory that it had jurisdiction, the parties are not barred, on appeal, from
assailing such jurisdiction, for the same "must exist as a matter of law, and may not be conferred by
consent of the parties or by estoppel" (5 C.J.S., 861-863). However, if the lower court had jurisdiction,
and the case was heard and decided upon a given theory, such, for instance, as that the court had no
jurisdiction, the party who induced it to adopt such theory will not be permitted, on appeal, to assume
an inconsistent position — that the lower court had jurisdiction. Here, the principle of estoppel applies.
The rule that jurisdiction is conferred by law, and does not depend upon the will of the parties, has not
bearing thereon.

Jurisdiction over the nature of the action, in concept, differs from jurisdiction over the subject matter.
Illustrated, lack of jurisdiction over the nature of the action is the situation that arises when a court,
which ordinarily would have the authority and competence to take a case, is rendered without it either
because a special law has limited the exercise of its normal jurisdiction on a particular matter or because
the type of action has been reposed by law in certain other courts or quasi-judicial agencies for
determination. Nevertheless, it can hardly be questioned that the rules relating to the effects of want of
jurisdiction over the subject matter should apply with equal vigor to cases where the court is similarly
bereft of jurisdiction over the nature of the action.
In summary, it is our considered view, as we now so hereby express, that —
(1) Jurisdiction over the person must be seasonably raised, i.e., that it is pleaded in a motion to dismiss
or by way of an affirmative defense in an answer. Voluntary appearance shall be deemed a waiver of
this defense. The assertion, however, of affirmative defenses shall not be constructed as an estoppel or
as a waiver of such defense.
(2) Where the court itself clearly has no jurisdiction over the subject matter or the nature of the action,
the invocation of this defense may be done at any time. It is neither for the courts nor the parties to
violate or disregard that rule, let alone to confer that jurisdiction, this matter being legislative in
character. Barring highly meritorious and exceptional circumstances, such as hereinbefore exemplified,
neither estoppel nor waiver shall apply.
In the case at bench, the want of jurisdiction by the court is indisputable, given the nature of the
controversy. The arbitration law explicitly confines the court's authority only to pass upon the issue of
whether there is or there is no agreement in writing providing for arbitration. In the affirmative, the
statute ordains that the court shall issue an order "summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof." If the court, upon the other hand, finds that no such
agreement exists, "the proceeding shall be dismissed." The proceedings are summary in nature.
All considered, the court a quo  must then refrain from taking up the claims of the contending parties for
damages, which, upon the other hand, may be ventilated in separate regular proceedings at an opportune
time and venue. The circumstances obtaining in this case are far, we hold, from justifying the application
of estoppel against either party.
WHEREFORE, the decision of the Court of Appeals and the orders of the trial court in question are SET
ASIDE. The court a quo, in the instant proceedings, is ordered to DESIST from further hearing private
respondent's claim, as well as petitioner's counterclaim, for damages. No costs.
G.R. No. 141818             June 22, 2006
INSULAR SAVINGS BANK, Petitioner,
vs.
FAR EAST BANK AND TRUST COMPANY, Respondent.
This petition for review on certiorari 1 assails the November 9, 1999 Order2 of the Regional Trial Court of
Makati City, Branch 135, in Civil Case No. 92-145 which dismissed the petition for review for lack of
jurisdiction and its February 1, 2000 Order3 denying reconsideration thereof.
On December 11, 1991, Far East Bank and Trust Company (Respondent) filed a complaint against Home
Bankers Trust and Company (HBTC)4 with the Philippine Clearing House Corporation’s (PCHC) Arbitration
Committee docketed as Arbicom Case No. 91-069.5 Respondent sought to recover from the petitioner, the
sum of P25,200,000.00 representing the total amount of the three checks drawn and debited against its
clearing account. HBTC sent these checks to respondent for clearing by operation of the PCHC clearing
system. Thereafter, respondent dishonored the checks for insufficiency of funds and returned the checks
to HBTC. However, the latter refused to accept them since the checks were returned by respondent after
the reglementary regional clearing period.6
Meanwhile, on January 17, 1992, before the termination of the arbitration proceedings, respondent filed
another complaint but this time with the Regional Trial Court (RTC) in Makati City docketed as Civil Case
No. 92-145 for Sum of Money and Damages with Preliminary Attachment. The complaint was filed not
only against HBTC but also against Robert Young, Eugene Arriesgado and Victor Tancuan (collectively
known as Defendants), who were the president and depositors of HBTC respectively.7 Aware of the
arbitration proceedings between respondent and petitioner, the RTC, in an Omnibus Order dated April 30,
1992,8 suspended the proceedings in the case against all the defendants pending the decision of the
Arbitration Committee, to wit:
WHEREFORE, the Court hereby orders:
(a) Home Bankers & Trust Co. to produce and permit plaintiff to inspect, copy and/or photograph the
checking account deposit ledger of Victor Tancuan’s Account No. 1803-00605-3;
(b) The Motions to Dismiss filed by all defendants denied, for lack of merit; and
(c) Proceedings in this case against all defendants be suspended pending award/decision
in the arbitration proceedings against Home Bankers and Trust Co.

The above Omnibus Order was amended by the trial court in its October 1, 1992 Order, 10 the dispositive
portion of which reads as follows:
WHEREFORE, the Omnibus Order dated 30 April 1992 is hereby reconsidered by deleting the phrase
"since the complaint also seeks exemplary damages, attorney’s fees, litigation expenses and costs of
suit against HBT," on page 4 thereof and par. C of its dispositive portion is amended to read:

10
 (c) "Procedings against Home Bankers and Trust Co. are suspended pending award/decision in the
arbitration proceedings while those against individual defendants be immediately reinstated and
continued."
HBT and Tancuan’s separate Motions for Reconsiderations are hereby denied, for lack of merit.
On February 2, 1998, the PCHC Arbitration Committee rendered its decision in favor of
respondent,12 thus:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the
defendant sentencing the latter to pay the plaintiff the sum of P25.2 million as principal. In view of the
fact, however, that this amount was split between the plaintiff and the defendant in the course of the
proceedings, the amount to be paid by the defendant to the plaintiff should only be P12,600,000.00
plus interest on this latter amount at the rate of 12% per annum from February 11, 1992, the date
when the total amount of P25.2 Million was split between plaintiff and defendant up to the date of
payment.
In view of the facts found by the committee, no attorney’s fees nor other damages are awarded.
The motion for reconsideration filed by petitioner was denied by the Arbitration
Committee.14 Consequently, to appeal the decision of the Arbitration Committee in Arbicom Case No. 91-
069, petitioner filed a petition for review in the earlier case filed by respondent in Branch 135 of the RTC
of Makati and docketed as Civil Case No. 92-145.15 In an order dated January 20, 1999, the RTC directed
both petitioner and respondent to file their respective memoranda, after which, said petition would be
deemed submitted for resolution.16
Both parties filed several pleadings. On February 8, 1999, respondent filed a Motion to Dismiss Petition
for Review for Lack of Jurisdiction,17 which was opposed by the petitioner.18 Respondent then filed its
Reply to the opposition,19 to which petitioner filed a Rejoinder.20 On August 16, 1999, respondent
submitted its Surrejoinder.21
On November 9, 1999, the RTC rendered the assailed Order which held, thus:
Acting on plaintiff Far East Bank and Trust Company’s "Motion To Dismiss Petition For Review For Lack
Of Jurisdiction", considering that the petition for review is a separate and distinct case, the same must
comply with all the requirements for filing initiatory pleadings for civil actions before this Court so that
since the commencement of the subject petition lacks the mandatory requirements provided for, except
the payment of docket fees, for lack of jurisdiction, the petition for review is hereby dismissed.
The RTC denied petitioner’s motion for reconsideration,23 hence, this petition on the sole ground, to wit:
THE REGIONAL TRIAL COURT ERRED IN DISMISSING THE PETITION OF PETITIONER FOR LACK OF
JURISDICTION ON THE GROUND THAT IT SHOULD HAVE BEEN DOCKETED AS A SEPARATE CASE.24
Petitioner contends that Civil Case No. 92-145 was merely suspended to await the outcome of the
arbitration case pending before the PCHC. Thus, any petition questioning the decision of the Arbitration
Committee must be filed in Civil Case No. 92-145 and should not be docketed as a separate action.
Likewise, petitioner avers that had it filed a separate action, "this would have resulted in a multiplicity of
suits, which is abhorred in procedure."
Meanwhile respondent avers that the RTC correctly dismissed the appeal from the award of private
arbitrators since there is no statutory basis for such appeal. Respondent argues that petitioner’s claim
that the parties by agreement had conferred on the RTC appellate jurisdiction over decisions of private
arbitrators is erroneous because they cannot confer a non-existent jurisdiction on the RTC or any court.
Furthermore, the petition for review filed by petitioner violated the rule on commencing an original action
under Section 5, Rule 1, and the raffle of cases under Section 2, Rule 20 of the Rules of Court, when it
filed the same in Branch 135 of the RTC of Makati where there was already a pending original action, i.e.,
Civil Case No. 92-145.
11
The petition lacks merit.
The Philippine Clearing House Corporation was created to facilitate the clearing of checks of member
banks. Among these member banks exists a compromissoire,25 or an arbitration agreement embedded in
their contract wherein they consent that any future dispute or controversy between its PCHC participants
involving any check would be submitted to the Arbitration Committee for arbitration. Petitioner and
respondent are members of PCHC, thus they underwent arbitration proceedings.
The PCHC has its own Rules of Procedure for Arbitration (PCHC Rules). However, this is governed by
Republic Act No. 876, also known as The Arbitration Law26 and supplemented by the Rules of
Court.27 Thus, we first thresh out the remedy of petition for review availed of by the petitioner to appeal
the order of the Arbitration Committee.
Sections 23, 24 and 29 of The Arbitration Law, and Section 13 of the PCHC Rules, provide:
SEC. 23. Confirmation of award. – At any time within one month after the award is made, any party to
the controversy which was arbitrated may apply to the court having jurisdiction, as provided in
Section 28, for an order confirming the award; and thereupon the court must grant such order
unless the award is vacated, modified or corrected, as prescribed herein.  Notice of such motion
must be served upon the adverse party or his attorney as prescribed by law for the service of such
notice upon an attorney in action in the same court.
SEC. 24. Grounds for vacating award. – In any one of the following cases, the court must make an
order vacating the award upon the petition of any party to the controversy when such party proves
affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud or other undue means; or
(b) That there was evident partiality or corruption in the arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient
cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or
more of the arbitrators was disqualified to act as such under section nine hereof, and willfully
refrained from disclosing such disqualification or of any other misbehavior by which the rights of any
party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final
and definite award upon the subject matter submitted to them was not made.
SEC. 25. Grounds for modifying or correcting award. – In any one of the following cases, the court must
make an order modifying or correcting the award, upon the application of any party to the controversy
which was arbitrated:
(a) Where there was an evident miscalculation of figures, or an evident mistake in the description of
any person, thing or property referred to in the award; or
(b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the
merits of the decision upon the matter submitted; or
(c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and
if it had been a commissioner’s report, the defect could have been amended or disregarded by the
court.
The order may modify and correct the award so as to effect the intent thereof and promote justice
between the parties.
SEC. 29. Appeals. – An appeal may be taken from an order made in a proceeding under this Act, or
from judgment entered upon an award through certiorari proceedings, but such appeals shall
be limited to questions of law. The proceedings upon such an appeal, including the judgment
thereon shall be governed by the Rules of Court insofar as they are applicable.
AMENDED ARBITRATION RULES OF PROCEDURE OF PCHC
Sec. 13. – The findings of facts of the decision or award rendered by the Arbitration
Committee or by the sole Arbitrator as the case may be shall be final and conclusive upon all
the parties in said arbitration dispute. The decision or award of the Arbitration Committee or of the
 Sole Arbitrator or of the Board of Directors, as the case may be, shall be appealable only on
questions of law to any of the Regional Trial Courts in the National Capital Region where the
Head Office of any of the parties is located. The appellant shall perfect his appeal by filing a notice
of appeal to the Arbitration Secretariat and filing a Petition with the Regional Trial Court of the National
Capital Region for the review of the decision or award of the committee or sole arbitrator or of the
Board of Directors, as the case may be, within a non-extendible period of fifteen (15) days from and
after its receipt of the order denying or granting said motion for reconsideration or new trial had been
filed, within a non-extendible period of fifteen (15) days from and after its receipt of the order denying
or granting said motion for reconsideration or of the decision rendered after the new trial if one had
been granted.
As provided in the PCHC Rules, the findings of facts of the decision or award rendered by the Arbitration
Committee shall be final and conclusive upon all the parties in said arbitration dispute. 28 Under Article
204429 of the New Civil Code, the validity of any stipulation on the finality of the arbitrators’ award or
decision is recognized. However, where the conditions described in Articles 2038, 30 203931 and
204032 applicable to both compromises and arbitrations are obtaining, the arbitrators’ award may be
annulled or rescinded.33 Consequently, the decision of the Arbitration Committee is subject to judicial
review.
Furthermore, petitioner had several judicial remedies available at its disposal after the Arbitration
Committee denied its Motion for Reconsideration. It may petition the proper RTC to issue an order
vacating the award on the grounds provided for under Section 24 of the Arbitration Law.34 Petitioner
likewise has the option to file a petition for review under Rule 43 of the Rules of Court with the Court of
Appeals on questions of fact, of law, or mixed questions of fact and law.35 Lastly, petitioner may file a
petition for certiorari under Rule 65 of the Rules of Court on the ground that the Arbitrator Committee
acted without or in excess of its jurisdiction or with grave abuse of discretion amounting to lack or excess
of jurisdiction. Since this case involves acts or omissions of a quasi-judicial agency, the petition should be
filed in and cognizable only by the Court of Appeals.36
In this instance, petitioner did not avail of any of the abovementioned remedies available to it. Instead it
filed a petition for review with the RTC where Civil Case No. 92-145 is pending pursuant to Section 13 of
the PCHC Rules to sustain its action. Clearly, it erred in the procedure it chose for judicial review of the
arbitral award.
Having established that petitioner failed to avail of the abovementioned remedies, we now discuss the
issue of the jurisdiction of the trial court with respect to the petition for review filed by petitioner.
Jurisdiction is the authority to hear and determine a cause - the right to act in a case.37 Jurisdiction over
the subject matter is the power to hear and determine the general class to which the proceedings in
question belong. Jurisdiction over the subject matter is conferred by law and not by the consent or
acquiescence of any or all of the parties or by erroneous belief of the court that it exists.38
In the instant case, petitioner and respondent have agreed that the PCHC Rules would govern in case of
controversy. However, since the PCHC Rules came about only as a result of an agreement between and
among member banks of PCHC and not by law, it cannot confer jurisdiction to the RTC. Thus, the portion
of the PCHC Rules granting jurisdiction to the RTC to review arbitral awards, only on questions of law,
cannot be given effect.
Consequently, the proper recourse of petitioner from the denial of its motion for reconsideration by the
Arbitration Committee is to file either a motion to vacate the arbitral award with the RTC, a petition for
review with the Court of Appeals under Rule 43 of the Rules of Court, or a petition for certiorari under
Rule 65 of the Rules of Court. In the case at bar, petitioner filed a petition for review with the RTC when
the same should have been filed with the Court of Appeals under Rule 43 of the Rules of Court. Thus, the
RTC of Makati did not err in dismissing the petition for review for lack of jurisdiction but not on the
12
ground that petitioner should have filed a separate case from Civil Case No. 92-145 but on the necessity
of filing the correct petition in the proper court. It is immaterial whether petitioner filed the petition for
review in Civil Case No. 92-145 as an appeal of the arbitral award or whether it filed a separate case in
the RTC, considering that the RTC will only have jurisdiction over an arbitral award in cases of motions to
vacate the same. Otherwise, as elucidated herein, the Court of Appeals retains jurisdiction in petitions for
review or in petitions for certiorari. Consequently, petitioner’s arguments, with respect to the filing of
separate action from Civil Case No. 92-145 resulting in a multiplicity of suits, cannot be given due course.
Alternative dispute resolution methods or ADRs – like arbitration, mediation, negotiation and conciliation
– are encouraged by the Supreme Court. By enabling parties to resolve their disputes amicably, they
provide solutions that are less time-consuming, less tedious, less confrontational, and more productive of
goodwill and lasting relationships. 39 It must be borne in mind that arbitration proceedings are mainly
governed by the Arbitration Law and suppletorily by the Rules of Court.
WHEREFORE, in light of the foregoing, the petition is DENIED. The November 9, 1999 Order of the
Regional Trial Court of Makati City, Branch 135, in Civil Case No. 92-145 which dismissed the petition for
review for lack of jurisdiction and the February 1, 2000 Order denying its reconsideration, are AFFIRMED.
529 Phil. 844
[ GR No. 168384, Aug 07, 2006 ]
CHARLES BERNARD H. REYES DOING BUSINESS UNDER NAME v. ANTONIO YULO BALDE II
This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the Decision[1] of the
Court of Appeals dated February 18, 2005, which sustained the Order[2] dated April 23, 2004 of the
Arbitral Tribunal[3] of the Construction Industry Arbitration Commission (CIAC), denying petitioner's
Motion to Terminate Proceedings and its Resolution[4] dated May 20, 2005 denying petitioner's motion
for reconsideration.
On October 20, 2002, respondent-spouses Cesar and Carmelita Esquig entered into a Design-Build
Construction Agreement[5] with petitioner Charles Bernard H. Reyes, doing business under the name and
style of CBH Reyes Architects, for the architectural design and construction of a 2-storey residence in
Tahanan Village, Paranaque City.
In accordance with the contract, spouses Esquig paid the amount of P1,050,000 as down payment.[6]
Thereafter, construction commenced.
The relationship between petitioner and respondent spouses went on smoothly until sometime in January
2003 when the latter left for the United States and designated their co-respondent, Rosemarie Papas, as
their representative. According to petitioner, Papas meddled with the construction works by demanding
changes and additional works which entailed additional cost. Papas also refused to pay petitioner's
progress billing and the salary of the laborers. Petitioner thereafter prepared an accounting report of all
the additional works and their corresponding costs, however, Papas denied all the items in the list and
refused to pay the same. Worse, On May 8, 2003, Papas wrote the Board of Directors of Tahanan Village
Homeowner's Association requesting for the cancellation of the contractor's work permit.
Thus, on May 26, 2003, petitioner filed a complaint for Accounting, Collection of Sum of Money,
Rescission of Contract with Damages against spouses Esquig and Rosemarie Papas with the Regional Trial
Court of Muntinlupa City which was docketed as Civil Case No. 03-110. In the complaint, petitioner
prayed that an accounting be rendered to determine the cost of the materials purchased by Papas; that
respondents be ordered to pay the cost of the additional works done on the property; that the Design-
Build Construction Agreement be ordered rescinded because respondents breached the same; and that
respondents be ordered to pay moral and exemplary damages and litigation expenses.
On July 15, 2003, respondents filed a motion to dismiss Civil Case No. 03-110 on the ground that the
court has no jurisdiction over the subject matter of the case. They claimed that the Design-Build
Construction Agreement contained an arbitration clause, thus any dispute arising therefrom should be
brought before the CIAC.
On even date, respondents also filed a complaint before the CIAC against the petitioner, docketed as
CIAC Case No. 13-2003. Respondents alleged that petitioner unreasonably delayed the construction and
refused to finish the project. Thus, they prayed that petitioner be ordered to finish the project or, in the
alternative, to pay the cost to finish the same; to reimburse the overpayments made by respondents; and
to pay liquidated damages, attorney's fees and costs of the suit.
Instead of submitting an answer, petitioner filed with the CIAC a motion to dismiss[7] on grounds of lack
of jurisdiction to hear and decide the case as well as the pendency of the case before the trial court
involving the same subject matter.
In an Order dated October 17, 2003, CIAC denied petitioner's motion to dismiss, holding that since the
Design-Build Construction Agreement contained an arbitration clause, any dispute arising from said
contract is within CIAC's jurisdiction.
Petitioner filed a motion for reconsideration which was denied by CIAC in its Order dated November 27,
2003. Thus, petitioner filed his Answer Ad Cautelam. Thereafter, CIAC constituted the Arbitral Tribunal
and directed the same to carry on with the arbitration proceedings in accordance with CIAC Rules.
Meanwhile, on February 27, 2004, the Regional Trial Court of Muntinlupa City, Branch 203 issued an
Order[8] denying the motion to dismiss filed by respondents. The trial court held that it has jurisdiction
over the complaint for accounting, rescission of contract and damages. Petitioner then filed with the CIAC
a motion to terminate proceedings but the same was denied[9] in an Order dated April 23, 2004.
Thus, petitioner filed a petition for certiorari and prohibition before the Court of Appeals which was
docketed as CA-G.R. SP No. 83816. On February 18, 2005, the Court of Appeals rendered the assailed
Decision dismissing the petition for lack of merit. It held that CIAC properly acquired jurisdiction over the
subject property. Petitioner's motion for reconsideration was denied hence this petition raising the
following issues:
I. THE COURT OF APPEALS ERRED WHEN IT RULED THAT PETITIONER AGREED TO HAVE THE CASE
SUBMITTED FOR VOLUNTARY ARBITRATION.
II. EVEN ASSUMING ARGUENDO THAT PETITIONER AGREED TO HAVE THE PRESENT CASE SUBMITTED
FOR ARBITRATION, THE COURT OF APPEALS ERRED IN HOLDING THAT THE CIAC MAY TAKE
COGNIZANCE OF THE PRESENT CASE CONSIDERING THAT THE PRESENT CASE INVOLVED ISSUES
WHICH ARE OUTSIDE ITS JURISDICTION.
III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT ANY PROCEEDING IN THE CIAC MUST BE
TERMINATED SINCE THE RTC ALREADY ASSUMED JURISDICTION OVER THE SUBJECT CONTROVERSY
AND HAD NOT RELINQUISHED THE SAME TO CIAC.[10]
The primordial issue in the instant case is, which body has jurisdiction over the present controversy - the
Regional Trial Court or the CIAC?
Petitioner contends that the CIAC has no jurisdiction to entertain the case because it is purely civil in
nature and does not involve construction dispute nor require the resolution of highly technical issues.
Moreover, petitioner alleges that the trial court acquired jurisdiction prior to the CIAC since petitioner's
complaint was filed earlier thus, rendering the arbitration clause moot, unenforceable and revocable.
13
The petition lacks merit.
Executive Order (EO) No. 1008 entitled, "Construction Industry Arbitration Law"[11] provided for an
arbitration mechanism for the speedy resolution of construction disputes other than by court litigation. It
recognized the role of the construction industry in the country's economic progress as it utilizes a large
segment of the labor force and contributes substantially to the gross national product of the country.[12]
Section 4 of E.O. No. 1008 provides:
SECTION 4. Jurisdiction. - The CIAC shall have original and exclusive jurisdiction over disputes arising
from, or connected with contracts entered into by parties involved in construction in the Philippines,
whether the dispute arises before or after the completion of the contract, or after the abandonment or
breach thereof. These disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual
provisions; amount of damages and penalties; commencement time and delays; maintenance and
defects; payment default of employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships which
shall continue to be covered by the Labor Code of the Philippines.
In the case of Philrock, Inc. v. Construction Industry Arbitration Commission,[13] the Court has ruled that
CIAC has original and exclusive jurisdiction over disputes arising from or connected with construction
contracts entered into by parties that have agreed to submit their dispute to voluntary arbitration.
Section 1, Article III of the CIAC Rules of Procedure Governing Construction Arbitration likewise provides
that recourse to the CIAC may be availed of whenever a contract contains a clause for the submission of
a future controversy to arbitration, thus:
SECTION 1. Submission to CIAC Jurisdiction. - An arbitration clause in a construction contract or a
submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing
or future controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission. When a contract contains a clause for the
submission of a future controversy to arbitration, it is not necessary for the parties to enter into a
submission agreement before the claimant may invoke the jurisdiction of CIAC. (Emphasis supplied)
We agree with the findings of the Court of Appeals that the Design-Build Construction Agreement
mutually entered into by the parties contain an arbitration clause, to wit:
ARTICLE 10. ARBITRATION. All questions in dispute under the Agreement shall be submitted in
accordance with the provisions of Philippine Law on Arbitration and provided for in Article 2042 of the
New Civil Code of the Philippines and the provisions of Republic Act No. 876.
Clearly, the presence of the arbitration clause in the parties' contract vests jurisdiction on the CIAC on all
controversies arising from such contract. The arbitral clause in the agreement is a commitment by the
parties to submit to arbitration the disputes covered therein. Because that clause is binding, they are
expected to abide by it in good faith.[14] Where the jurisdiction of CIAC is properly invoked, the failure or
refusal of herein petitioner to arbitrate shall not affect the proceedings. Arbitration proceedings shall
continue notwithstanding the absence or lack of participation of petitioner, and the award shall be made
after receiving the evidence of the claimant.[15]
With respect to petitioner's contention that the action is purely civil in nature hence, jurisdiction rests
with the Regional Trial Court, the same must fail. Since the action is rooted on alleged violations of the
agreement, it is embraced by the term " construction dispute". As CIAC aptly ruled:
 As regards Respondent's assertion that the claims in the civil case are not arbitrable, this Commission Motion to Terminate Proceedings, and its Resolution dated May 20, 2005 denying petitioner's motion for
again begs to digress. A cursory perusal of the claims in civil case would show that such fall within the reconsideration, are AFFIRMED. The Presiding Judge of the Regional Trial Court of Muntinlupa City,
scope of CIAC jurisdiction, to wit: (1) accounting of all payments made for the purchase of construction Branch 203 is PERMANENTLY ENJOINED from proceeding with Civil Case NO. 03-110 and all the
materials; (2) cost of additional work; (3) balance on the contract price; (4) interest; (5) rescission of proceedings therein are DECLARED NULL AND VOID. Sheriff Melvin T. Bagabaldo is ENJOINED from
contract; (6) moral damages; (7) exemplary damages; and (8) cost of suit.[16] proceedings with the sale of the levied personal properties and is ORDERED to return them to the
respondents. The Presiding Judge of the Regional Trial Court of Muntinlupa City, Branch 203 is further
DIRECTED to dismiss Civil Case No. 03-110 for lack of jurisdiction.
Besides, Section 23 of E.O. No. 1008 expressly provides that all provisions of existing laws,
proclamations, decrees, letters of instructions and executive orders contrary to or inconsistent with E.O.
No. 1008 are repealed or modified accordingly. E.O. No. 1008 which vests jurisdiction to the CIAC over
construction disputes is a special law; hence, it takes precedence over Batas Pambansa Blg. 129 or the
Judiciary Reorganization Act of 1980, a general law which vests jurisdiction to the Regional Trial Courts
over civil actions in which the subject of the litigation is incapable of pecuniary estimation.

Meanwhile, it appears that the Regional Trial Court of Muntinlupa City, Branch 203 rendered judgment on
July 29, 2005[17] in Civil Case No. 03-110 in favor of herein petitioner, the dispositive portion of which
reads:
WHEREFORE, judgment is rendered declaring a rescission of the Design Build Construction Agreement
dated 20 October 2002; ordering defendants to render an accounting of all the construction materials
they bought for the construction of the project subject matter of the present case; further ordering
defendants, jointly and severally, to pay plaintiff as follows:
P840,300.00 representing cost of additional works and changes in the project plus legal interest until G.R. No. 141833            March 26, 2003
fully paid;
P296,658.85 representing balance of the contract price plus legal interest until fully paid; LM POWER ENGINEERING CORPORATION, petitioner,
P500,000.00 as and by way of moral damages; vs.
P500,000.00 as and by way of exemplary damages; CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.
P500,000.00 as and by way of attorney's fees;
Cost of suit.
Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation and conciliation
-- are encouraged by the Supreme Court. By enabling parties to resolve their disputes amicably, they
On June 29, 2006, the presiding judge ordered the designated sheriff to implement the writ of execution provide solutions that are less time-consuming, less tedious, less confrontational, and more productive of
dated May 17, 2006. Consequently, Sheriff Melvin T. Bagabaldo levied on the personal properties of goodwill and lasting relationships.1
respondent Papas. Hence, respondent's manifestation with prayer for the issuance of a temporary
restraining order (TRO).
The Case

In the Resolution dated July 12, 2006, we issued a TRO enjoining the Presiding Judge of Regional Trial
Before us is a Petition for Review on Certiorari 2 under Rule 45 of the Rules of Court, seeking to set aside
Court of Muntinlupa City, Branch 203, from continuing with any of the proceedings in Civil Case No. 03-
the January 28, 2000 Decision of the Court of Appeals3 (CA) in CA-GR CV No. 54232. The dispositive
110 and from enforcing the Order dated June 29, 2006 ordering the sheriff to implement the writ.
portion of the Decision reads as follows:
"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties are ORDERED to
Thus, considering our findings that the CIAC and not the RTC which has jurisdiction over the instant present their dispute to arbitration in accordance with their Sub-contract Agreement. The surety bond
controversy, the injunction against the Presiding Judge of the Regional Trial Court of Muntinlupa City, posted by [respondent] is [d]ischarged."4
Branch 203 from further proceeding with Civil Case No. 03-110 must be made permanent. All the
proceedings therein are declared null and void for lack of jurisdiction. The designated sheriff is enjoined
The Facts
from proceeding with the sale of the levied personal properties and is ordered to return the same to
respondents. Accordingly, Civil Case No. 03-110 must be dismissed on the ground of lack of jurisdiction.
On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent Capitol Industrial
Construction Groups Inc. entered into a "Subcontract Agreement" involving electrical work at the Third
It bears to stress that being an inexpensive, speedy and amicable method of settling disputes, arbitration
Port of Zamboanga.5
- along with mediation, conciliation and negotiation - is encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of the
commercial kind. It is thus regarded as the "wave of the future" in international civil and commercial On April 25, 1985, respondent took over some of the work contracted to petitioner. 6 Allegedly, the latter
disputes. Brushing aside a contractual agreement calling for arbitration between the parties would be a had failed to finish it because of its inability to procure materials.7
step backward.[19]

WHEREFORE, in view of the foregoing, the instant petition is DENIED. The Decision of the Court of
Appeals dated February 18, 2005 in CA-G.R. SP No. 83816 which sustained the Order of the Arbitral
Tribunal of the Construction Industry Arbitration Commission dated April 23, 2004 denying petitioner's

14
Upon completing its task under the Contract, petitioner billed respondent in the amount of
P6,711,813.90.8 Contesting the accuracy of the amount of advances and billable accomplishments listed
by the former, the latter refused to pay. Respondent also took refuge in the termination clause of the
Agreement.9 That clause allowed it to set off the cost of the work that petitioner had failed to undertake
-- due to termination or take-over -- against the amount it owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch 141) a
Complaint10 for the collection of the amount representing the alleged balance due it under the
Subcontract. Instead of submitting an Answer, respondent filed a Motion to Dismiss, 11 alleging that the
Complaint was premature, because there was no prior recourse to arbitration.
In its Order12 dated September 15, 1987, the RTC denied the Motion on the ground that the dispute did
not involve the interpretation or the implementation of the Agreement and was, therefore, not covered by
the arbitral clause.13
After trial on the merits, the RTC 14 ruled that the take-over of some work items by respondent was not
equivalent to a termination, but a mere modification, of the Subcontract. The latter was ordered to give
full payment for the work completed by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The appellate
court held as arbitrable the issue of whether respondent’s take-over of some work items had been
intended to be a termination of the original contract under Letter "K" of the Subcontract. It ruled likewise
on two other issues: whether petitioner was liable under the warranty clause of the Agreement, and
whether it should reimburse respondent for the work the latter had taken over.15
Hence, this Petition. 16
The Issues
In its Memorandum, petitioner raises the following issues for the Court’s consideration:
"A. Whether or not there exist[s] a controversy/dispute between petitioner and respondent regarding
the interpretation and implementation of the Sub-Contract Agreement dated February 22, 1983 that
requires prior recourse to voluntary arbitration;
"B. In the affirmative, whether or not the requirements provided in Article III 1 of CIAC Arbitration Rules
regarding request for arbitration ha[ve] been complied with[.]"17
The Court’s Ruling
The Petition is unmeritorious.
First Issue: Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the implementation of the
Agreement. Thus, without having to resort to prior arbitration, it is entitled to collect the value of the
services it rendered through an ordinary action for the collection of a sum of money from respondent. On
the other hand, the latter contends that there is a need for prior arbitration as provided in the
Agreement. This is because there are some disparities between the parties’ positions regarding the extent
of the work done, the amount of advances and billable accomplishments, and the set off of expenses
incurred by respondent in its take-over of petitioner’s work.
15
We side with respondent. Essentially, the dispute arose from the parties’ ncongruent positions on whether
certain provisions of their Agreement could be applied to the facts. The instant case involves technical
discrepancies that are better left to an arbitral body that has expertise in those areas. In any event, the
inclusion of an arbitration clause in a contract does not ipso facto divest the courts of jurisdiction to pass
upon the findings of arbitral bodies, because the awards are still judicially reviewable under certain
conditions.18
In the case before us, the Subcontract has the following arbitral clause:
"6. The Parties hereto agree that any dispute or conflict as regards to interpretation and
implementation of this Agreement which cannot be settled between [respondent] and [petitioner]
amicably shall be settled by means of arbitration x x x."19
Clearly, the resolution of the dispute between the parties herein requires a referral to the provisions of
their Agreement. Within the scope of the arbitration clause are discrepancies as to the amount of
advances and billable accomplishments, the application of the provision on termination, and the
consequent set-off of expenses.
A review of the factual allegations of the parties reveals that they differ on the following questions: (1)
Did a take-over/termination occur? (2) May the expenses incurred by respondent in the take-over be set
off against the amounts it owed petitioner? (3) How much were the advances and billable
accomplishments?
The resolution of the foregoing issues lies in the interpretation of the provisions of the Agreement.
According to respondent, the take-over was caused by petitioner’s delay in completing the work. Such
delay was in violation of the provision in the Agreement as to time schedule:
"G. TIME SCHEDULE
"[Petitioner] shall adhere strictly to the schedule related to the WORK and complete the WORK within
the period set forth in Annex C hereof. NO time extension shall be granted by [respondent] to
[petitioner] unless a corresponding time extension is granted by [the Ministry of Public Works and
Highways] to the CONSORTIUM." 20
Because of the delay, respondent alleges that it took over some of the work contracted to petitioner,
pursuant to the following provision in the Agreement:
"K. TERMINATION OF AGREEMENT
"[Respondent] has the right to terminate and/or take over this Agreement for any of the following
causes:
‘6. If despite previous warnings by [respondent], [petitioner] does not execute the WORK in
accordance with this Agreement, or persistently or flagrantly neglects to carry out [its] obligations
under this Agreement."21
Supposedly, as a result of the "take-over," respondent incurred expenses in excess of the contracted
price. It sought to set off those expenses against the amount claimed by petitioner for the work the latter
accomplished, pursuant to the following provision:
"If the total direct and indirect cost of completing the remaining part of the WORK exceed the sum
which would have been payable to [petitioner] had it completed the WORK, the amount of such excess
[may be] claimed by [respondent] from either of the following:
‘1. Any amount due [petitioner] from [respondent] at the time of the termination of this
Agreement."22
The issue as to the correct amount of petitioner’s advances and billable accomplishments involves an
evaluation of the manner in which the parties completed the work, the extent to which they did it, and
the expenses each of them incurred in connection therewith. Arbitrators also need to look into the
computation of foreign and local costs of materials, foreign and local advances, retention fees and letters
of credit, and taxes and duties as set forth in the Agreement. These data can be gathered from a review
of the Agreement, pertinent portions of which are reproduced hereunder:
"C. CONTRACT PRICE AND TERMS OF PAYMENT
"All progress payments to be made by [respondent] to [petitioner] shall be subject to a retention sum
of ten percent (10%) of the value of the approved quantities. Any claims by [respondent] on
[petitioner] may be deducted by [respondent] from the progress payments and/or retained amount.
Any excess from the retained amount after deducting [respondent’s] claims shall be released by
[respondent] to [petitioner] after the issuance of [the Ministry of Public Works and Highways] of the
Certificate of Completion and final acceptance of the WORK by [the Ministry of Public Works and
Highways].
On the other hand, Section 1 of Article III of the new Rules of Procedure Governing Construction
Arbitration has dispensed with this requirement and recourse to the CIAC may now be availed of
whenever a contract "contains a clause for the submission of a future controversy to arbitration," in this
wise:
"SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a construction contract or a
submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing
or future controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission. When a contract contains a clause for the
submission of a future controversy to arbitration, it is not necessary for the parties to enter into a
submission agreement before the claimant may invoke the jurisdiction of CIAC."
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and 3-93.31

"D. IMPORTED MATERIALS AND EQUIPMENT
"[Respondent shall open the letters of credit for the importation of equipment and materials listed in
Annex E hereof after the drawings, brochures, and other technical data of each items in the list have
been formally approved by [the Ministry of Public Works and Highways]. However, petitioner will still
be fully responsible for all imported materials and equipment.
"All expenses incurred by [respondent], both in foreign and local currencies in connection with the
opening of the letters of credit shall be deducted from the Contract Prices.
"N. OTHER CONDITIONS
"2. All customs duties, import duties, contractor’s taxes, income taxes, and other taxes that may be
required by any government agencies in connection with this Agreement shall be for the sole account
of [petitioner]."23
The difference in the two provisions was clearly explained in China Chang Jiang Energy Corporation
(Philippines) v. Rosal Infrastructure Builders et al.32 (an extended unsigned Resolution) and reiterated
in National Irrigation Administration v. Court of Appeals,33 from which we quote thus:
"Under the present Rules of Procedure, for a particular construction contract to fall within the
jurisdiction of CIAC, it is merely required that the parties agree to submit the same to voluntary
arbitration Unlike in the original version of Section 1, as applied in the Tesco case, the law as it now
stands does not provide that the parties should agree to submit disputes arising from their agreement
specifically to the CIAC for the latter to acquire jurisdiction over the same. Rather, it is plain and clear
that as long as the parties agree to submit to voluntary arbitration, regardless of what forum they may
choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically
choose another forum, the parties will not be precluded from electing to submit their dispute before the
CIAC because this right has been vested upon each party by law, i.e., E.O. No. 1008."34

Being an inexpensive, speedy and amicable method of settling disputes, 24 arbitration -- along with
mediation, conciliation and negotiation -- is encouraged by the Supreme Court. Aside from unclogging
judicial dockets, arbitration also hastens the resolution of disputes, especially of the commercial kind.25 It
is thus regarded as the "wave of the future" in international civil and commercial disputes.26 Brushing
aside a contractual agreement calling for arbitration between the parties would be a step backward.27
Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts
should liberally construe arbitration clauses. Provided such clause is susceptible of an interpretation that
covers the asserted dispute, an order to arbitrate should be granted. 28 Any doubt should be resolved in
favor of arbitration.29
Clearly, there is no more need to file a request with the CIAC in order to vest it with jurisdiction to decide
a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to submit to arbitration
the disputes covered therein. Because that clause is binding, they are expected to abide by it in good
faith.35 And because it covers the dispute between the parties in the present case, either of them may
compel the other to arbitrate.36
Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration, the
proper procedure to enable the CIAC to decide on the dispute is to request the stay or suspension of such
action, as provided under RA 876 [the Arbitration Law].37

Second Issue: Prior Request for Arbitration

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file a formal
request for arbitration with the Construction Industry Arbitration Commission (CIAC) precluded the latter
from acquiring jurisdiction over the question. To bolster its position, petitioner even cites our ruling
in Tesco Services Incorporated v. Vera.30 We are not persuaded.

Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration indeed required
the submission of a request for arbitration, as follows:
"SECTION. 1. Submission to Arbitration -- Any party to a construction contract wishing to have recourse
to arbitration by the Construction Industry Arbitration Commission (CIAC) shall submit its Request for
Arbitration in sufficient copies to the Secretariat of the CIAC; PROVIDED, that in the case of
government construction contracts, all administrative remedies available to the parties must have been
exhausted within 90 days from the time the dispute arose."

Tesco was promulgated by this Court, using the foregoing provision as reference.

16

BF CORPORATION, petitioner,
vs.
COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC., RUFO B. COLAYCO, ALFREDO C. RAMOS,
MAXIMO G. LICAUCO III and BENJAMIN C. RAMOS, respondents.
The basic issue in this petition for review on certiorari is whether or not the contract for the construction
of the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la Properties, Inc. embodies
an arbitration clause in case of disagreement between the parties in the implementation of contractual
provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby the latter
engaged the former to construct the main structure of the "EDSA Plaza Project," a shopping mall complex
in the City of Mandaluyong. The construction work was in progress when SPI decided to expand the
project by engaging the services of petitioner again. Thus, the parties entered into an agreement for the
main contract works after which construction work began.
However, petitioner incurred delay in the construction work that SPI considered as "serious and
substantial." 1 On the other hand, according to petitioner, the construction works "progressed in faithful
compliance with the First Agreement until a fire broke out on November 30, 1990 damaging Phase I" of
the Project.2 Hence, SPI proposed the re-negotiation of the agreement between them.
Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement denominated as
"Agreement for the Execution of Builder's Work for the EDSA Plaza Project." Said agreement would cover
the construction work on said project as of May 1, 1991 until its eventual completion.
According to SPI, petitioner "failed to complete the construction works and abandoned the project."3 This
resulted in disagreements between the parties as regards their respective liabilities under the contract.
On July 12, 1993, upon SPI's initiative, the parties' respective representatives met in conference but they
failed to come to an agreement.4
Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of Pasig a
complaint for collection of the balance due under the construction agreement. Named defendants therein
17
were SPI and members of its board of directors namely, Alfredo C. Ramos, Rufo B. Calayco, Antonio B.
Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of filing an
answer. The motion was anchored on defendants' allegation that the formal trade contract for the
construction of the project provided for a clause requiring prior resort to arbitration before judicial
intervention could be invoked in any dispute arising from the contract. The following day, SPI submitted a
copy of the conditions of the contract containing the arbitration clause that it failed to append to its
motion to suspend proceedings.
Petitioner opposed said motion claiming that there was no formal contract between the parties although
they entered into an agreement defining their rights and obligations in undertaking the project. It
emphasized that the agreement did not provide for arbitration and therefore the court could not be
deprived of jurisdiction conferred by law by the mere allegation of the existence of an arbitration clause in
the agreement between the parties.
In reply to said opposition, SPI insisted that there was such an arbitration clause in the existing contract
between petitioner and SPI. It alleged that suspension of proceedings would not necessarily deprive the
court of its jurisdiction over the case and that arbitration would expedite rather than delay the settlement
of the parties' respective claims against each other.
In a rejoinder to SPI's reply, petitioner reiterated that there was no arbitration clause in the contract
between the parties. It averred that granting that such a clause indeed formed part of the contract,
suspension of the proceedings was no longer proper. It added that defendants should be declared in
default for failure to file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of petitioner's admission of the due execution of the
"Articles of Agreement." Thus, on page D/6 thereof, the signatures of Rufo B. Colayco, SPI president, and
Bayani Fernando, president of petitioner appear, while page D/7 shows that the agreement is a public
document duly notarized on November 15, 1991 by Notary Public Nilberto R. Briones as document No.
345, page 70, book No. LXX, Series of 1991 of his notarial register.5
Thereafter, upon a finding that an arbitration clause indeed exists, the lower court 6 denied the motion to
suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated May 30, 1991 (Annex C,
Complaint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed upon the terms and
conditions of the Builders Work for the EDSA Plaza Project (Phases I, II and Carpark), subject to the
execution by the parties of a formal trade contract. Defendants have submitted a copy of the alleged
trade contract, which is entitled "Contract Documents For Builder's Work Trade Contractor" dated 01
May 1991, page 2 of which is entitled "Contents of Contract Documents" with a list of the documents
therein contained, and Section A thereof consists of the abovementioned Letter-Agreement dated May
30, 1991. Section C of the said Contract Documents is entitled "Articles of Agreement and Conditions of
Contract" which, per its Index, consists of Part A (Articles of Agreement) and B (Conditions of
Contract). The said Articles of Agreement appears to have been duly signed by President Rufo B.
Colayco of Shangri-La Properties, Inc. and President Bayani F. Fernando of BF and their witnesses, and
was thereafter acknowledged before Notary Public Nilberto R. Briones of Makati, Metro Manila on
November 15, 1991.  The said Articles of Agreement also provides that the "Contract Documents"
therein listed "shall be deemed an integral part of this Agreement", and one of the said documents is
the "Conditions of Contract" which contains the Arbitration Clause relied upon by the defendants in
their Motion to Suspend Proceedings.
This Court notes, however, that the 'Conditions of Contract' referred to, contains the following provisions:
3. Contract Document.
 Three copies of the Contract Documents referred to in the Articles of Agreement shall be signed by
the parties to the contract  and distributed to the Owner and the Contractor for their safe keeping."
And it is significant to note further that the said "Conditions of Contract" is not duly signed by the
parties on any page thereof — although it bears the initials of BF's representatives (Bayani F. Fernando
and Reynaldo M. de la Cruz) without the initials thereon of any representative of Shangri-La Properties,
Inc.
Considering the insistence of the plaintiff that the said Conditions of Contract was not duly executed or
signed by the parties, and the failure of the defendants to submit any signed copy of the said
document, this Court entertains serious doubt whether or not the arbitration clause found in the said
Conditions of Contract is binding upon the parties to the Articles of Agreement." (Emphasis supplied.)
The lower court then ruled that, assuming that the arbitration clause was valid and binding, still, it was
"too late in the day for defendants to invoke arbitration." It quoted the following provision of the
arbitration clause:
Notice of the demand for arbitration of a dispute shall be filed in writing with the other party to the
contract and a copy filed with the Project Manager. The demand for arbitration shall be made within a
reasonable time after the dispute has arisen and attempts to settle amicably have failed; in no case,
however, shall the demand he made be later than the time of final payment except as otherwise
expressly stipulated in the contract.
Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the project was
to be completed by October 31, 1991. Thereafter, the contractor would pay P80,000 for each day of delay
counted from November 1, 1991 with "liquified (sic) damages up to a maximum of 5% of the total
contract price."
The lower court also found that after the project was completed in accordance with the agreement that
contained a provision on "progress payment billing," SPI "took possession and started operations thereof
by opening the same to the public in November, 1991." SPI, having failed to pay for the works, petitioner
billed SPI in the total amount of P110,883,101.52, contained in a demand letter sent by it to SPI on
February 17, 1993. Instead of paying the amount demanded, SPI set up its own claim of
P220,000,000.00 and scheduled a conference on that claim for July 12, 1993. The conference took place
but it proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed Arbitration Clause invoked by defendants, it is required
that "Notice of the demand for arbitration of a dispute shall be filed in writing with the other party . . . .
in no case . . . . later than the time of final payment . . . "which apparently, had elapsed, not only
because defendants had taken possession of the finished works and the plaintiff's billings for the
payment thereof had remained pending since November, 1991 up to the filing of this case on July 14,
1993, but also for the reason that defendants have failed to file any written notice of any demand for
arbitration during the said long period of one year and eight months, this Court finds that it cannot stay
the proceedings in this case as required by Sec. 7 of Republic Act No. 876, because defendants are in
default in proceeding with such arbitration.
The lower court denied SPI's motion for reconsideration for lack of merit and directed it and the other
defendants to file their responsive pleading or answer within fifteen (15) days from notice.
Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65 of the Rules
of Court before the Court of Appeals. Said appellate court granted the petition, annulled and set aside the
orders and stayed the proceedings in the lower court. In so ruling, the Court of Appeals held:
The reasons given by the respondent Court in denying petitioners' motion to suspend proceedings are
untenable.
Hence, this petition before this Court. Petitioner assigns the following errors:
18
1. The notarized copy of the articles of agreement attached as Annex A to petitioners' reply dated
August 26, 1993, has been submitted by them to the respondent Court (Annex G, petition). It bears the
signature of petitioner Rufo B. Colayco, president of petitioner Shangri-La Properties, Inc., and of
Bayani Fernando, president of respondent Corporation (Annex G-1, petition). At page D/4 of said
articles of agreement it is expressly provided that the conditions of contract are "deemed an integral
part" thereof (page 188, rollo). And it is at pages D/42 to D/44 of the conditions of contract that the
provisions for arbitration are found (Annexes G-3 to G-5, petition, pp. 227-229). Clause No. 35 on
arbitration specifically provides:
Provided always that in case any dispute or difference shall arise between the Owner or the Project
Manager on his behalf and the Contractor, either during the progress or after the completion or
abandonment of the Works as to the construction of this Contract or as to any matter or thing of
whatsoever nature arising thereunder or in connection therewith (including any matter or being left
by this Contract to the discretion of the Project Manager or the withholding by the Project Manager of
any certificate to which the Contractor may claim to be entitled or the measurement and valuation
mentioned in clause 30 (5) (a) of these Conditions' or the rights and liabilities of the parties under
clauses 25, 26, 32 or 33 of these Conditions), the Owner and the Contractor hereby agree to exert all
efforts to settle their differences or dispute amicably. Failing these efforts then such dispute or
difference shall be referred to Arbitration in accordance with the rules and procedures of the
Philippine Arbitration Law.
The fact that said conditions of contract containing the arbitration clause bear only the initials of
respondent Corporation's representatives, Bayani Fernando and Reynaldo de la Cruz, without that of
the representative of petitioner Shangri-La Properties, Inc. does not militate against its effectivity. Said
petitioner having categorically admitted that the document, Annex A to its reply dated August 26, 1993
(Annex G, petition), is the agreement between the parties, the initial or signature of said petitioner's
representative to signify conformity to arbitration is no longer necessary. The parties, therefore, should
be allowed to submit their dispute to arbitration in accordance with their agreement.
2. The respondent Court held that petitioners "are in default in proceeding with such arbitration." It
took note of "the fact that under the supposed Arbitration Clause invoked by defendants, it is required
that "Notice of the demand for arbitration of a dispute shall be filed in writing with the other party . . .
in no case . . . later than the time of final payment," which apparently, had elapsed, not only because
defendants had taken possession of the finished works and the plaintiff's billings for the payment
thereof had remained pending since November, 1991 up to the filing of this case on July 14, 1993, but
also for the reason that defendants have failed to file any written notice of any demand for arbitration
during the said long period of one year and eight months, . . . ."
Respondent Court has overlooked the fact that under the arbitration clause —
Notice of the demand for arbitration dispute shall be filed in writing with the other party to the
contract and a copy filed with the Project Manager.  The demand for arbitration shall be made within a
reasonable time after the dispute has arisen and attempts to settle amicably had failed; in no case,
however, shall the demand be made later than the time of final payment except as otherwise
expressly stipulated in the contract (emphasis supplied)
quoted in its order (Annex A, petition). As the respondent Court there said, after the final demand to
pay the amount of P110,883,101.52, instead of paying, petitioners set up its own claim against
respondent Corporation in the amount of P220,000,000.00 and set a conference thereon on July 12,
1993. Said conference proved futile. The next day, July 14, 1993, respondent Corporation filed its
complaint against petitioners. On August 13, 1993, petitioners wrote to respondent Corporation
requesting arbitration. Under the circumstances, it cannot be said that petitioners' resort to arbitration
was made beyond reasonable time. Neither can they be considered in default of their obligation to
respondent Corporation.
 A. THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT OF CERTIORARI ALTHOUGH THE REMEDY
OF APPEAL WAS AVAILABLE TO RESPONDENTS.
B. THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF DISCRETION IN THE FACTUAL FINDINGS OF THE
TRIAL COURT THAT:
(i) THE PARTIES DID NOT ENTER INTO AN AGREEMENT TO ARBITRATE.
(ii) ASSUMING THAT THE PARTIES DID ENTER INTO THE AGREEMENT TO ARBITRATE, RESPONDENTS ARE ALREADY
IN DEFAULT IN INVOKING THE AGREEMENT TO ARBITRATE.
On the first assigned error, petitioner contends that the Order of the lower court denying the motion to
suspend proceedings "is a resolution of an incident on the merits." As such, upon the continuation of the
proceedings, the lower court would appreciate the evidence adduced in their totality and thereafter render
a decision on the merits that may or may not sustain the existence of an arbitration clause. A decision
containing a finding that the contract has no arbitration clause can then be elevated to a higher court "in
an ordinary appeal" where an adequate remedy could be obtained. Hence, to petitioner, the Court of
Appeals should have dismissed the petition for certiorari because the remedy of appeal would still be
available to private respondents at the proper time.7
The above contention is without merit.
The rule that the special civil action of certiorari may not be invoked as a substitute for the remedy of
appeal is succinctly reiterated in Ongsitco v. Court of Appeals8 as follows:
. . . . Countless times in the past, this Court has held that "where appeal is the proper
remedy, certiorari will not lie." The writs of certiorari and prohibition are remedies to correct lack or
excess of jurisdiction or grave abuse of discretion equivalent to lack of jurisdiction committed by a
lower court. "Where the proper remedy is appeal, the action for certiorari will not be
entertained. . . . Certiorari is not a remedy for errors of judgment. Errors of judgment are correctible by
appeal, errors of jurisdiction are reviewable by certiorari."
Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition and mandamus are available
only when "there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law .
. . ." That is why they are referred to as "extraordinary." . . . .
The Court has likewise ruled that "certiorari will not be issued to cure errors in proceedings or correct
erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors
committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment which
are reviewable by timely appeal and not by a special civil action of certiorari."9
This is not exactly so in the instant case. While this Court does not deny the eventual jurisdiction of the
lower court over the controversy, the issue posed basically is whether the lower court prematurely
assumed jurisdiction over it. If the lower court indeed prematurely assumed jurisdiction over the case,
then it becomes an error of jurisdiction which is a proper subject of a petition for certiorari before the
Court of Appeals. And if the lower court does not have jurisdiction over the controversy, then any decision
or order it may render may be annulled and set aside by the appellate court.
However, the question of jurisdiction, which is a question of law depends on the determination of the
existence of the arbitration clause, which is a question of fact. In the instant case, the lower court found
that there exists an arbitration clause. However, it ruled that in contemplation of law, said arbitration
clause does not exist.
The issue, therefore, posed before the Court of Appeals in a petition for certiorari is whether the
Arbitration Clause does not in fact exist. On its face, the the question is one of fact which is not proper in
a petition for certiorari.
The Court of Appeals found that an Arbitration Clause does in fact exist. In resolving said question of fact,
the Court of Appeals interpreted the construction of the subject contract documents containing the
19
Arbitration Clause in accordance with Republic Act No. 876 (Arbitration Law) and existing jurisprudence
which will be extensively discussed hereunder. In effect, the issue posed before the Court of Appeals was
likewise a question of law. Being a question of law, the private respondents rightfully invoked the special
civil action of certiorari.
It is that mode of appeal taken by private respondents before the Court of Appeals that is being
questioned by the petitioners before this Court. But at the heart of said issue is the question of whether
there exists an Arbitration Clause because if an Arbitration Clause does not exist, then private
respondents took the wrong mode of appeal before the Court of Appeals.
For this Court to be able to resolve the question of whether private respondents took the proper mode of
appeal, which, incidentally, is a question of law, then it has to answer the core issue of whether there
exists an Arbitration Clause which, admittedly, is a question of fact.
Moreover, where a rigid application of the rule that certiorari cannot be a substitute for appeal will result
in a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are technical
rules may be relaxed. 10 As we shall show hereunder, had the Court of Appeals dismissed the petition
for certiorari, the issue of whether or not an arbitration clause exists in the contract would not have been
resolved in accordance with evidence extant in the record of the case. Consequently, this would have
resulted in a judicial rejection of a contractual provision agreed by the parties to the contract.
In the same vein, this Court holds that the question of the existence of the arbitration clause in the
contract between petitioner and private respondents is a legal issue that must be determined in this
petition for review on certiorari.
Petitioner, while not denying that there exists an arbitration clause in the contract in question, asserts
that in contemplation of law there could not have been one considering the following points. First, the
trial court found that the "conditions of contract" embodying the arbitration clause is not duly signed by
the parties. Second, private respondents misrepresented before the Court of Appeals that they produced
in the trial court a notarized duplicate original copy of the construction agreement because what were
submitted were mere photocopies thereof. The contract(s) introduced in court by private respondents
were therefore "of dubious authenticity" because: (a) the Agreement for the Execution of Builder's Work
for the EDSA Plaza Project does not contain an arbitration clause, (b) private respondents "surreptitiously
attached as Annexes "G-3" to "G-5" to their petition before the Court of Appeals but these documents are
not parts of the Agreement of the parties as "there was no formal trade contract executed," (c) if the
entire compilation of documents "is indeed a formal trade contract," then it should have been duly
notarized, (d) the certification from the Records Management and Archives Office dated August 26, 1993
merely states that "the notarial record of Nilberto Briones . . . is available in the files of (said) office
as Notarial Registry Entry only," (e) the same certification attests that the document entered in the
notarial registry pertains to the Articles of Agreement only without any other accompanying documents,
and therefore, it is not a formal trade contract, and (f) the compilation submitted by respondents are a
"mere hodge-podge of documents and do not constitute a single intelligible agreement."
In other words, petitioner denies the existence of the arbitration clause primarily on the ground that the
representatives of the contracting corporations did not sign the "Conditions of Contract" that contained
the said clause. Its other contentions, specifically that insinuating fraud as regards the alleged insertion of
the arbitration clause, are questions of fact that should have been threshed out below.
This Court may as well proceed to determine whether the arbitration clause does exist in the parties'
contract. Republic Act No. 876 provides for the formal requisites of an arbitration agreement as follows:
Sec. 4. Form of arbitration agreement. — A contract to arbitrate a controversy thereafter arising
between the parties, as well as a submission to arbitrate an existing controversy, shall be in writing and
subscribed by the party sought to be charged, or by his lawful agent.
 The making of a contract or submission for arbitration described in section two hereof, providing for
arbitration of any controversy, shall be deemed a consent of the parties of the province or city where
any of the parties resides, to enforce such contract of submission. (Emphasis supplied.).
The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be in
writing and (b) it must be subscribed by the parties or their representatives. There is no denying that the
parties entered into a written contract that was submitted in evidence before the lower court. To
"subscribe" means to write underneath, as one's name; to sign at the end of a document. 11 That word
may sometimes be construed to mean to give consent to or to attest.12
The Court finds that, upon a scrutiny of the records of this case, these requisites were complied with in
the contract in question. The Articles of Agreement, which incorporates all the other contracts and
agreements between the parties, was signed by representatives of both parties and duly notarized. The
failure of the private respondent's representative to initial the "Conditions of Contract" would therefor not
affect compliance with the formal requirements for arbitration agreements because that particular portion
of the covenants between the parties was included by reference in the Articles of Agreement.
Petitioner's contention that there was no arbitration clause because the contract incorporating said
provision is part of a "hodge-podge" document, is therefore untenable. A contract need not be contained
in a single writing. It may be collected from several different writings which do not conflict with each
other and which, when connected, show the parties, subject matter, terms and consideration, as in
contracts entered into by correspondence. 13 A contract may be encompassed in several instruments even
though every instrument is not signed by the parties, since it is sufficient if the unsigned instruments are
clearly identified or referred to and made part of the signed instrument or instruments. Similarly, a
written agreement of which there are two copies, one signed by each of the parties, is binding on both to
the same extent as though there had been only one copy of the agreement and both had signed it. 14
The flaw in petitioner's contentions therefore lies in its having segmented the various components of the
whole contract between the parties into several parts. This notwithstanding, petitioner ironically admits
the execution of the Articles of Agreement. Notably, too, the lower court found that the said Articles of
Agreement "also provides that the 'Contract Documents' therein listed 'shall be deemed an integral part
of this Agreement,' and one of the said documents is the 'Conditions of Contract' which contains the
Arbitration Clause.'" It is this Articles of Agreement that was duly signed by Rufo B. Colayco, president of
private respondent SPI, and Bayani F. Fernando, president of petitioner corporation. The same agreement
was duly subscribed before notary public Nilberto R. Briones. In other words, the subscription of the
principal agreement effectively covered the other documents incorporated by reference therein.
This Court likewise does not find that the Court of Appeals erred in ruling that private respondents were
not in default in invoking the provisions of the arbitration clause which states that "(t)he demand for
arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle
amicably had failed." Under the factual milieu, private respondent SPI should have paid its liabilities
tinder the contract in accordance with its terms. However, misunderstandings appeared to have cropped
up between the parties ostensibly brought about by either delay in the completion of the construction
work or by force majeure or the fire that partially gutted the project. The almost two-year delay in paying
its liabilities may not therefore be wholly ascribed to private respondent SPI.
Besides, private respondent SPI's initiative in calling for a conference between the parties was a step
towards the agreed resort to arbitration. However, petitioner posthaste filed the complaint before the
lower court. Thus, while private respondent SPI's request for arbitration on August 13, 1993 might appear
an afterthought as it was made after it had filed the motion to suspend proceedings, it was because
petitioner also appeared to act hastily in order to resolve the controversy through the courts.
The arbitration clause provides for a "reasonable time" within which the parties may avail of the relief
under that clause. "Reasonableness" is a relative term and the question of whether the time within which
20
an act has to be done is reasonable depends on attendant circumstances. 15 This Court finds that under
the circumstances obtaining in this case, a one-month period from the time the parties held a conference
on July 12, 1993 until private respondent SPI notified petitioner that it was invoking the arbitration
clause, is a reasonable time. Indeed, petitioner may not be faulted for resorting to the court to claim what
was due it under the contract. However, we find its denial of the existence of the arbitration clause as an
attempt to cover up its misstep in hurriedly filing the complaint before the lower court.
In this connection, it bears stressing that the lower court has not lost its jurisdiction over the case.
Section 7 of Republic Act No. 876 provides that proceedings therein have only been stayed. After the
special proceeding of arbitration 16 has been pursued and completed, then the lower court may confirm
the award 17 made by the arbitrator.
It should be noted that in this jurisdiction, arbitration has been held valid and constitutional. Even before
the approval on June 19, 1953 of Republic Act No. 876, this Court has countenanced the settlement of
disputes through arbitration. 18 Republic Act No. 876 was adopted to supplement the New Civil Code's
provisions on arbitration. 19 Its potentials as one of the alternative dispute resolution methods that are
now rightfully vaunted as "the wave of the future" in international relations, is recognized worldwide. To
brush aside a contractual agreement calling for arbitration in case of disagreement between the parties
would therefore be a step backward.
WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and the petition
for certiorari DENIED. This Decision is immediately executory. Costs against petitioner.
G.R. No. 182248             December 18, 2008
EQUITABLE PCI BANKING CORPORATION,1 GEORGE L. GO, PATRICK D. GO, GENEVIEVE W.J.
GO, FERDINAND MARTIN G. ROMUALDEZ, OSCAR P. LOPEZ-DEE, RENE J. BUENAVENTURA,
GLORIA L. TAN-CLIMACO, ROGELIO S. CHUA, FEDERICO C. PASCUAL, LEOPOLDO S. VEROY,
WILFRIDO V. VERGARA, EDILBERTO V. JAVIER, ANTHONY F. CONWAY, ROMULAD U. DY TANG,
WALTER C. WESSMER, and ANTONIO N. COTOCO, petitioners,
vs.
RCBC CAPITAL CORPORATION, respondent.
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, 2007 4 rendered by the International
Chamber of Commerce-International Court of Arbitration (ICC-ICA) in Case No. 13290/MS/JB/JEM,
entitled RCBC Capital Corporation (Philippines) v. Equitable PCI Bank, Inc. & Others (Philippines). The
March 17, 2008 Order denied petitioners’ motion for reconsideration of the January 8, 2008 Order.
The Facts
On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB) and the individual shareholders of
Bankard, Inc., as sellers, and respondent RCBC Capital Corporation (RCBC), as buyer, executed a Share
Purchase Agreement5 (SPA) for the purchase of petitioners’ interests in Bankard, representing
226,460,000 shares, for the price of PhP 1,786,769,400. To expedite the purchase, RCBC agreed to
dispense with the conduct of a due diligence audit on the financial status of Bankard.
Under the SPA, RCBC undertakes, on the date of contract execution, to deposit, as downpayment, 20% of
the purchase price, or PhP 357,353,880, in an escrow account. The escrowed amount, the SPA stated,
should be released to petitioners on an agreed-upon release date and the balance of the purchase price
shall be delivered to the share buyers upon the fulfillment of certain conditions agreed upon, in the form
of a manager’s check.
The other relevant provisions of the SPA are:
Section 5. Sellers’ Representations and Warranties
The SELLERS jointly and severally represent and warrant to the BUYER that:
The Financial Condition of Bankard
g. The audited financial statements of Bankard for the three (3) fiscal years ended December 31,
1997, 1998 and 1999, and the unaudited financial statements for the first quarter ended 31 March
2000, are fair and accurate, and complete in all material respects, and have been prepared in
accordance with generally accepted accounting principles consistently followed throughout the period
indicated and:
i) the balance sheet of Bankard as of 31 December 1999, as prepared and certified by SGV & Co.
("SGV"), and the unaudited balance sheet for the first quarter ended 31 March 2000, present a fair
and accurate statement as of those dates, of Bankard’s financial condition and of all its assets and
liabilities, and is complete in all material respects; and
ii) the statements of Bankard’s profit and loss accounts for the fiscal years 1996 to 1999, as
prepared and certified by SGV, and the unaudited profit and loss accounts for the first quarter
ended 31 March 2000, fairly and accurately present the results of the operations of Bankard for the
periods indicated, and are complete in all material respects.
h. Except as disclosed in the Disclosures, and except to the extent set forth or reserved in the audited
financial statements of Bankard as of 31 December 1999 and its unaudited financial statements as of
31 March 2000, Bankard, as of such dates and up to 31 May 2000, had and shall have no liabilities,
omissions or mistakes in its records which will have material adverse effect on the net worth or
financial condition of Bankard to the extent of more than One Hundred Million Pesos
(P100,000,000.00) in the aggregate. In the event such material adverse effect on the net worth or
financial condition of Bankard exceeds One Hundred Million Pesos (P100,000,000.00), the Purchase
Price shall be reduced in accordance with the following formula:
Reduction in Purchase Price = X multiplied by 226,460,000
where
Amount by which negative adjustment exceeds P100
Million
X= -------------------------------------------- (1.925)
338,000,000
xxxx
Section 7. Remedies for Breach of Warranties
a. If any of the representations and warranties of any or all of the SELLERS or the BUYER (the
"Defaulting Party") contained in Sections 5 and 6 shall be found to be untrue when made and/or as of
the Closing Date, the other party, i.e., the BUYER if the Defaulting Party is any or all of the SELLERS
and the SELLERS if the Defaulting Party is the BUYER (hereinafter referred to as the "Non-Defaulting
Party") shall have the right to require the Defaulting Party, at the latter’s expense, to cure such breach,
and/or seek damages, by providing notice or presenting a claim to the Defaulting Party, reasonably
specifying therein the particulars of the breach. The foregoing remedies shall be available to the Non-
Defaulting Party only if the demand therefor is presented in writing to the Defaulting Party within three
(3) years from the Closing Date except that the remedy for a breach of the SELLERS’ representation
and warrant in Section 5 (h) shall be available only if the demand therefor is presented to the
21
Defaulting Party in writing together with schedules and to substantiate such demand, within six (6)
months from the Closing Date.6
On June 2, 2000, RCBC deposited the stipulated downpayment amount in an escrow account after which
it was given full management and operational control of Bankard. June 2, 2000 is also considered by the
parties as the Closing Date referred to in the SPA.
Thereafter, the parties executed an Amendment to Share Purchase Agreement (ASPA) dated September
19, 2000.7 Its paragraph 2(e) provided that:
2. Notwithstanding any provisions to the contrary in the Share Purchase Agreement and/or any
agreement, instrument or document entered into or executed by the Parties in relation thereto (the
"Related Agreements"), the Parties hereby agree that:
e) Notwithstanding the provisions of Sec. 7 of the Share Purchase Agreement to the contrary, the
remedy for a breach of the SELLERS’ representation and warranty in Section 5(h)  of the
Share Purchase Agreement shall be available if the demand therefor is presented to the
SELLERS in writing together with schedules and data to substantiate such demand, on or before 31
December 2000. (Emphasis added.)
Sometime in September 2000, RCBC had Bankard’s accounts audited, creating for the purpose an audit
team led by a certain Rubio, the Vice-President for Finance of RCBC at the time. Rubio’s conclusion was
that the warranty, as contained in Section 5(h) of the SPA (simply Sec. 5[h] hereinafter), was correct.
On December 28, 2000, RCBC paid the balance of the contract price. The corresponding deeds of sale for
the shares in question were executed in January 2001.
Thereafter, in a letter of May 5, 2003, RCBC informed petitioners of its having overpaid the purchase
price of the subject shares, claiming that there was an overstatement of valuation of accounts amounting
to PhP 478 million, resulting in the overpayment of over PhP 616 million. Thus, RCBC claimed that
petitioners violated their warranty, as sellers, embodied in Sec. 5(g) of the SPA (Sec. 5[g] hereinafter).
Following unsuccessful attempts at settlement, RCBC, in accordance with Sec. 10 of the SPA, filed
a Request for Arbitration dated May 12, 20048 with the ICC-ICA. In the request, RCBC charged Bankard
with deviating from, contravening and not following generally accepted accounting principles and
practices in maintaining their books. Due to these improper accounting practices, RCBC alleged that both
the audited and unaudited financial statements of Bankard prior to the stock purchase were far from fair
and accurate and, hence, violated the representations and warranties of petitioners in the SPA. Per RCBC,
its overpayment amounted to PhP 556 million. It thus prayed for the rescission of the SPA, restitution of
the purchase price, payment of actual damages in the amount of PhP 573,132,110, legal interest on the
purchase price until actual restitution, moral damages, and litigation and attorney’s fees. As alternative to
rescission and restitution, RCBC prayed for damages in the amount of at least PhP 809,796,092 plus legal
interest.
To the Request for Arbitration, petitioners filed an Answer dated July 28, 2004,9 denying RCBC’s
inculpatory averments and setting up the following affirmative allegations: the period for filing of the
asserted claim had already lapsed by force of Sec. 7 of the SPA; RCBC is not entitled to rescission having
had ample opportunity and reasonable time to file a claim against petitioners; RCBC is not entitled to its
alternative prayer of damages, being guilty of laches and failing to set out the details of the breach as
required under Sec. 7.
Arbitration in the ICC-ICA proceeded after the formation of the arbitration tribunal consisting of retired
Justice Santiago M. Kapunan, nominated by petitioners; Neil Kaplan, RCBC’s nominee; and Sir Ian Barker,
appointed by the ICC-ICA.
After drawn out proceedings with each party alleging deviation and non-compliance by the other with
arbitration rules, the tribunal, with Justice Kapunan dissenting, rendered a Partial Award dated September
27, 2007,10 the dispositive portion of which states:
15 AWARD AND DIRECTIONS
15.1 The Tribunal makes the following declarations by way of Partial Award:
(a) The Claimant’s claim is not time-barred under the provisions of this SPA.
(b) The Claimant is not estopped by its conduct or the equitable doctrine of laches from pursuing its
claim.
(c) As detailed in the Partial Award, the Claimant has established the following breaches by the
Respondents of clause 5(g) of the SPA:
i) the assets, revenue and net worth of Bankard were overstated by reason of its policy on and
recognition of Late Payment Fees;
ii) reported receivables were higher than their realizable values by reason of the ‘bucketing’
method, thus overstating Bankard’s assets; and
iii) the relevant Bankard statements were inadequate and misleading in that their disclosures
caused readers to be misinformed about Bankard’s accounting policies on revenue and receivables.
(d) Subject to proof of loss the Claimant is entitled to damages for the foregoing breaches.
(e) The Claimant is not entitled to rescission of the SPA.
(f) All other issues, including any issue relating to costs, will be dealt with in a further or final award.
15.2 A further Procedural Order will be necessary subsequent to the delivery of this Partial Award to
deal with the determination of quantum and in particular, whether there should be an Expert appointed
by the Tribunal under Article 20(4) of the ICC Rules to assist the Tribunal in this regard.
15.3 This Award is delivered by a majority of the Tribunal (Sir Ian Barker and Mr. Kaplan). Justice
Kapunan is unable to agree with the majority’s conclusion on the claim of estoppel brought by the
respondents.
On the matter of prescription, the tribunal held that RCBC’s claim is not time-barred, the claim properly
falling under the contemplation of Sec. 5(g) and not Sec. 5(h). As such, the tribunal concluded, RCBC’s
claim was filed within the three (3)-year period under Sec. 5(g) and that the six (6)-month period under
Sec. 5(h) did not apply.
The tribunal also exonerated RCBC from laches, the latter having sought relief within the three (3)-year
period prescribed in the SPA. On the matter of estoppel suggested in petitioners’ answer, the tribunal
stated in par. 10.27 of the Partial Award the following:
10.27 Clearly, there has to be both an admission or representation by (in this case) the Claimant
[RCBC], plus reliance upon it by (in this case) the Respondents [herein petitioners]. The Tribunal
cannot find as proved any admission/representation that the Claimant was abandoning a 5(g) claim,
any reliance by the Respondents on an admission, and any detriment to the Respondents such as would
entitle them to have the Claimant deprived of the benefit of clause 5(g). These aspects of the claim for
estoppels are rejected.11
Notably, the tribunal considered the rescission of the SPA and ASPA as impracticable and "totally out of
the question." 12
In his Dissenting Opinion13 which he submitted to and which was received on September 24, 2007 by the
ICC-ICA, Justice Kapunan stated the observation that RCBC’s claim is time-barred, falling as such claim
did under Sec. 5(h), which prescribes a comparatively shorter prescriptive period, not 5(g) as held by the
majority of the tribunal, to wit:
Claimant admits that the Claim is for recovery of P431 million on account of alleged "overvaluation of
the net worth of Bankard," allegedly for "improper accounting practices" resulting in "its book value per
share as of 31 December 1999 [being] overstated." Claimant’s witness, Dean Echanis asserts that "the
inadequate provisioning for Bankard’s doubtful accounts result[ed] in an overstatement of its December
31, 1999 total assets and net worth of by [sic] least P418.2 million."
In addition, Claimant’s demand letter addressed to the Respondents alleged that "we overpaid for the
Shares to the extent of the impact of the said overstatement on the Book Value per share".
22
These circumstances establish beyond dispute that the Claim is based on the alleged overstatement of
the 1999 net worth of Bankard, which the parties relied on in setting the purchase price of the shares.
Moreover, it is clear that there was an overstatement because of "improper accounting practices" which
led Claimant to overpay for the shares.
Ultimately, the Claim is one for recovery of overpayment in the purchase price of the shares. x x x
As to the issue of estoppel, Justice Kapunan stated:
Moreover, Mr. Rubio’s findings merely corroborated the disclosures made in the Information
Memorandum that Claimant received from the Respondents prior to the execution of the SPA. In this
connection, I note that Bankard’s policy on provisioning and setting of allowances using the Bucketed
Method and income recognition from AR/Principal, AR/Interest and AR/LPFs were disclosed in the
Information Memorandum. Thus, these alleged improper accounting practices were known to the
Claimant even prior to the execution of the SPA.
Thus, when Claimant paid the balance of the purchase price, it did so with full knowledge of these
accounting practices of Bankard that it now assails. By paying the balance of the purchase price without
taking exception or objecting to the accounting practices disclosed through Mr. Rubio’ s review and the
Information Memorandum, Claimant is deemed to have accepted such practices as correctly reporting
the 1999 net worth. x x x
As last point, I note that my colleagues invoke a principle that for estoppels to apply there must be
positive indication that the right to sue was waived. I am of the view that there is no such principle
under Philippine law. What is applicable is the holding in Knecht and in Coca- Cola that prior
knowledge of an unfavorable fact is binding on the party who has such knowledge; "when the purchaser
proceeds to make investigations by himself, and the vendor does nothing to prevent such investigation
from being as complete as the former might wish, the purchaser cannot later allege that the vendor
made false representations to him" (Cf. Songco v. Sellner, 37 Phil 254 citations omitted).
Applied to this case, the Claimant cannot seek relief on the basis that when it paid the purchase price in
December 2000, it was unaware that the accounting practices that went into the reporting of the 1999
net worth as amounting to P1,387,275,847 were not in conformity with GAAP [generally accepted
accounting principles]. (Emphasis added.)
On October 26, 2007, RCBC filed with the RTC a Motion to Confirm Partial Award. On the same day,
petitioners countered with a Motion to Vacate the Partial Award. On November 9, 2007, petitioners again
filed a Motion to Suspend and Inhibit Barker and Kaplan.
On January 8, 2008, the RTC issued the first assailed order confirming the Partial Award and denying the
adverted separate motions to vacate and to suspend and inhibit. From this order, petitioners sought
reconsideration, but their motion was denied by the RTC in the equally assailed second order of March 17,
2008.
From the assailed orders, petitioners came directly to this Court through this petition for review.
The Issues
This petition seeks the review, reversal and setting aside of the orders Annexes A and B and, in lieu of
them, it seeks judgment vacating the arbitrators’ liability award, Annex C, on these grounds:
(a) The trial court acted contrary to law and judicial authority in refusing to vacate the arbitral award,
notwithstanding it was rendered in plain disregard of the parties’ contract and applicable Philippine law,
under which the claim in arbitration was indubitably time-barred.
 (b) The trial court acted contrary to law and judicial authority in refusing to vacate and in confirming
the arbitral award, notwithstanding that the arbitrators had plainly and admittedly failed to accord
petitioners’ due process by denying them a hearing on the basic factual matter upon which their liability
is predicated.
(c) The trial court committed grave error in confirming the arbitrators’ award, which held petitioners-
sellers liable for an alleged improper recording of accounts, allegedly affecting the value of the shares
they sold, notwithstanding that the respondent-buyer knew before contracting that the accounts were
kept in the manner complained of, and in fact ratified and adopted the questioned accounting practice
and policies.14
The Court’s Ruling
The petition must be denied.
On Procedural Misstep of Direct Appeal to This Court
As earlier recited, the ICC-ICA’s Partial Award dated September 27, 2007 was confirmed by the RTC in its
first assailed order of January 8, 2008. Thereafter, the RTC, by order of March 17, 2008, denied
petitioners’ motion for reconsideration. Therefrom, petitioners came directly to this Court on a petition for
review under Rule 45 of the Rules of Court.
This is a procedural miscue for petitioners who erroneously bypassed the Court of Appeals (CA) in pursuit
of its appeal. While this procedural gaffe has not been raised by RCBC, still we would be remiss in not
pointing out the proper mode of appeal from a decision of the RTC confirming, vacating, setting aside,
modifying, or correcting an arbitral award.
Rule 45 is not the remedy available to petitioners as the proper mode of appeal assailing the decision of
the RTC confirming as arbitral award is an appeal before the CA pursuant to Sec. 46 of Republic Act No.
(RA) 9285, otherwise known as the Alternative Dispute Resolution Act of 2004, or completely, An Act to
Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish the
Office for Alternative Dispute Resolution, and for other Purposes, promulgated on April 2, 2004 and
became effective on April 28, 2004 after its publication on April 13, 2004.
In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the RTC decision of an assailed
arbitral award is appealable to the CA and may further be appealed to this Court, thus:
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in cases
where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.–A decision of the Regional Trial Court
confirming, vacating, setting aside, modifying or correcting an arbitral award may be appealed to
the Court of Appeals in accordance with the rules and procedure to be promulgated by the
Supreme Court.
The losing party who appeals from the judgment of the court confirming an arbitral award shall be
required by the appellate court to post a counterbond executed in favor of the prevailing party equal
to the amount of the award in accordance with the rules to be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition
for review under Rule 45 of the Rules of Court.15
It is clear from the factual antecedents that RA 9285 applies to the instant case. This law was already
effective at the time the arbitral proceedings were commenced by RCBC through a request for arbitration
filed before the ICC-ICA on May 12, 2004. Besides, the assailed confirmation order of the RTC was issued
on March 17, 2008. Thus, petitioners clearly took the wrong mode of appeal and the instant petition can
be outright rejected and dismissed.
23
Even if we entertain the petition, the outcome will be the same.
The Court Will Not Overturn an Arbitral Award Unless It Was Made in Manifest Disregard of the
Law
In Asset Privatization Trust v. Court of Appeals,16 the Court passed on similar issues as the ones tendered
in the instant petition. In that case, the arbitration committee issued an arbitral award which the trial
court, upon due proceedings, confirmed despite the opposition of the losing party. Motions for
reconsideration by the losing party were denied. An appeal interposed by the losing party to the CA was
denied due course. On appeal to this Court, we established the parameters by which an arbitral award
may be set aside, to wit:
As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either
as to the law or as to the facts. Courts are without power to amend or overrule merely
because of disagreement with matters of law or facts determined by the arbitrators. They
will not review the findings of law and fact contained in an award, and will not undertake to
substitute their judgment for that of the arbitrators, since any other rule would make an
award the commencement, not the end, of litigation. Errors of law and fact, or an erroneous
decision of matters submitted to the judgment of the arbitrators, are insufficient to
invalidate an award fairly and honestly made. Judicial review of an arbitration is, thus, more
limited than judicial review of a trial.
Nonetheless, the arbitrators’ awards is not absolute and without exceptions. The arbitrators cannot
resolve issues beyond the scope of the submission agreement. The parties to such an agreement are
bound by the arbitrators’ award only to the extent and in the manner prescribed by the contract and
only if the award is rendered in conformity thereto. Thus, Sections 24 and 25 of the Arbitration Law
provide grounds for vacating, rescinding or modifying an arbitration award. Where the conditions
described in Articles 2038, 2039 and 2040 of the Civil Code applicable to compromises and arbitration
are attendant, the arbitration award may also be annulled.
xxxx
Finally, it should be stressed that while a court is precluded from overturning an award for errors in
determination of factual issues, nevertheless, if an examination of the record reveals no support
whatever for the arbitrators’ determinations, their award must be vacated. In the same manner, an
award must be vacated if it was made in "manifest disregard of the law ."17 (Emphasis
supplied.)
Following Asset Privatization Trust, errors in law and fact would not generally justify the reversal of an
arbitral award. A party asking for the vacation of an arbitral award must show that any of the grounds for
vacating, rescinding, or modifying an award are present or that the arbitral award was made in manifest
disregard of the law. Otherwise, the Court is duty-bound to uphold an arbitral award.
The instant petition dwells on the alleged manifest disregard of the law by the ICC-ICA.
The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros18 expounded on the phrase "manifest
disregard of the law" in the following wise:
This court has emphasized that manifest disregard of the law is a very narrow standard of
review. Anaconda Co. v. District Lodge No. 27, 693 F.2d 35 (6th Cir.1982). A mere error in
interpretation or application of the law is insufficient. Anaconda, 693 F.2d at 37-38. Rather, the decision
must fly in the face of clearly established legal precedent. When faced with questions of law, an
arbitration panel does not act in manifest disregard of the law unless (1) the applicable legal principle is
clearly defined and not subject to reasonable debate; and (2) the arbitrators refused to heed that legal
principle.
Thus, to justify the vacation of an arbitral award on account of "manifest disregard of the law," the
arbiter’s findings must clearly and unequivocally violate an established legal precedent. Anything less
would not suffice.
In the present case, petitioners, in a bid to establish that the arbitral award was issued in manifest
disregard of the law, allege that the Partial Award violated the principles of prescription, due process, and
estoppel. A review of petitioners’ arguments would, however, show that their arguments are bereft of
merit. Thus, the Partial Award dated September 27, 2007 cannot be vacated.
RCBC’s Claim Is Not Time-Barred
Petitioners argue that RCBC’s claim under Sec. 5(g) is based on overvaluation of Bankard’s revenues,
assets, and net worth, hence, for price reduction falling under Sec. 5(h), in which case it was belatedly
filed, for RCBC presented the claim to petitioners on May 5, 2003, when the period for presenting it under
Sec. 5(h) expired on December 31, 2000. As a counterpoint, RCBC asserts that its claim clearly comes
under Sec. 5(g) in relation to Sec. 7 which thus gave it three (3) years from the closing date of June 2,
2000, or until June 1, 2003, within which to make its claim. RCBC contends having acted within the
required period, having presented its claim-demand on May 5, 2003.
To make clear the issue at hand, we highlight the pertinent portions of Secs. 5(g), 5(h), and 7 bearing on
what petitioners warranted relative to the financial condition of Bankard and the remedies available to
RCBC in case of breach of warranty:
g. The audited financial statements of Bankard for the three (3) fiscal years ended December
31, 1997, 1998 and 1999, and the unaudited financial statements for the first quarter ended
31 March 2000, are fair and accurate, and complete in all material respects, and have
been prepared in accordance with generally accepted accounting principles consistently
followed throughout the period indicated and:
i) the balance sheet of Bankard as of 31 December 1999, as prepared and certified by SGV &
Co. ("SGV"), and the unaudited balance sheet for the first quarter ended 31 March 2000, present a
fair and accurate statement as of those dates, of Bankard’s financial condition and of all its
assets and liabilities, and is complete in all material respects; and
ii) the statements of Bankard’s profit and loss accounts for the fiscal years 1996 to 1999 , as
prepared and certified by SGV, and the unaudited profit and loss accounts for the first quarter
ended 31 March 2000, fairly and accurately present the results of the operations of
Bankard for the periods indicated, and are complete in all material respects.
h. Except as disclosed in the Disclosures, and except to the extent set forth or reserved in the audited
financial statements of Bankard as of 31 December 1999 and its unaudited financial statements for the
first quarter ended 31 March 2000, Bankard, as of such dates and up to 31 May 2000, had and
shall have no liabilities, omissions or mistakes in its records which will have a material
adverse effect on the net worth or financial condition of Bankard to the extent of more than
One Hundred Million Pesos (P 100,000,000.00) in the aggregate. In the event such material
adverse effect on the net worth or financial condition of Bankard exceeds One Hundred Million Pesos (P
100,000,000.00), the Purchase Price shall be reduced in accordance with the following formula:
xxxx
Section 7. Remedies for Breach of Warranties
If any of the representations and warranties of any or all of the SELLERS or the BUYER (the "Defaulting
Party") contained in Sections 5 and 6 shall be found to be untrue when made and/or as of the Closing
Date, the other party, i.e., the BUYER if the Defaulting is any of the SELLERS and the SELLERS if the
Defaulting Party is the BUYER (hereinafter referred to as the "Non-Defaulting Party") shall have the
right to require the Defaulting Party, at the latter’s expense, to cure such breach, and/or
seek damages, by providing notice or presenting a claim to the Defaulting Party, reasonably
specifying therein the particulars of the breach. The foregoing remedies shall be available to the Non-
Defaulting Party only if the demand therefor is presented in writing to the Defaulting Party
within three (3) years from the Closing Date, except that the remedy for a breach of the
SELLERS’ representation and warranty in Section 5 (h) shall be available only if the demand
therefor is presented to the Defaulting Party in writing together with schedules and data to
substantiate such demand, within six (6) months from the Closing Date. (Emphasis supplied.)
24
Before we address the issue put forward by petitioners, there is a necessity to determine the nature and
application of the reliefs provided under Sec. 5(g) and Sec. 5(h) in conjunction with Sec. 7, thus:
(1) The relief under Sec. 5(h) is specifically for price reduction as said section explicitly states that the
"Purchase Price shall be reduced in accordance with the following formula x x x." In addition, Sec. 7
gives the aggrieved party the right to ask damages based on the stipulation that the non-defaulting
party "shall have the right to require the Defaulting Party, at the latter’s expense, to cure such breach
and/or seek damages."
On the other hand, the remedy under Sec. 5(g) in conjunction with Sec. 7 can include specific
performance, damages, and other reliefs excluding price reduction.
(2) Sec. 5(g) warranty covers the audited financial statements (AFS) for the three (3) years ending
December 31, 1997 to 1999 and the unaudited financial statements (UFS) for the first quarter ending
March 31, 2000. On the other hand, the Sec. 5(h) warranty refers only to the AFS for the year ending
December 31, 1999 and the UFS up to May 31, 2000. It is undenied that Sec. 5(h) refers to price
reduction as it covers "only the most up-to-date audited and unaudited financial statements upon which
the price must have been based."19
(3) Under Sec. 5(h), the responsibility of petitioners for its warranty shall exclude the disclosures and
reservations made in AFS of Bankard as of December 31, 1999 and its UFS up to May 31, 2000. No
such exclusions were made under Sec. 5(g) with respect to the warranty of petitioners in the AFS and
UFS of Bankard.
(4) Sec. 5(h) gives relief only if there is material adverse effect in the net worth in excess of PhP 100
million and it provides a formula for price reduction.20 On the other hand, Sec. 5(g) can be the basis for
remedies like specific performance, damages, and other reliefs, except price reduction, even if the
overvaluation is less or above PhP 100 million and there is no formula for computation of damages.
(5) Under Sec. 7, the aggrieved party shall present its written demand to the defaulting party within
three (3) years from closing date. Under Sec. 5(h), the written demand shall be presented within six
(6) months from closing date. In accordance with par. 2(c) of the ASPA, the deadline to file the demand
under Sec. 5(h) was extended to December 31, 2000.
From the above determination, it becomes clear that the aggrieved party is entitled to two (2) separate
alternative remedies under Secs. 5 and 7 of the SPA, thus:
1. A claim for price reduction under Sec. 5(h) and/or damages based on the breach of warranty by
Bankard on the absence of liabilities, omissions and mistakes on the financial statements as of 31
December 1999 and the UFS as of 31 May 2000, provided that the material adverse effect on the net
worth exceeds PhP 100M and the written demand is presented within six (6) months from closing date
(extended to 31 December 2000); and
2. An action to cure the breach like specific performance and/or damages under Sec. 5(g) based on
Bankard’s breach of warranty involving its AFS for the three (3) fiscal years ending 31 December 1997,
1998, and 1999 and the UFS for the first quarter ending 31 March 2000 provided that the written
demand shall be presented within three (3) years from closing date.
Has RCBC the option to choose between Sec. 5(g) or Sec. 5(h)?
The answer is yes. Sec. 5 and Sec. 7 are clear that it is discretionary on the aggrieved parties to avail
themselves of any remedy mentioned above. They may choose one and dispense with the other. Of
course, the relief for price reduction under Sec. 5(h) will have to conform to the prerequisites and time
frame of six (6) months; otherwise, it is waived.
Preliminarily, petitioners’ basic posture that RCBC’s claim is for the recovery of overpayment is specious.
The records show that in its Request for Arbitration dated May 12, 2004, RCBC prayed for the rescission
of the SPA, restitution of the whole purchase price, and damages not for reduction of price or for the
return of any overpayment. Even in its May 5, 2000 letter, 21 RCBC did not ask for the recovery of any
overpayment or reduction of price, merely stating in it that the accounts of Bankard, as reflected in its
AFS for 1999, were overstated which, necessarily, resulted in an overpayment situation. RCBC was
emphatic and unequivocal that petitioners violated their warranty covered by Sec. 5(g) of the SPA.
It is thus evident that RCBC did not avail itself of the option under Sec. 5(h), i.e., for price reduction or
the return of any overpayment arising from the overvaluation of Bankard’s financial condition. Clearly,
RCBC invoked Sec. 5(g) to claim damages from petitioners which is one of the alternative reliefs granted
under Sec. 7 in addition to rescission and restitution of purchase price.
Petitioners do not deny that RCBC formally filed its claim under Sec. 5(g) which is anchored on the
material overstatement or overvaluation of Bankard’s revenues, assets, and net worth and, hence, the
overstatement of the purchase price. They, however, assert that such claim for overpayment is actually a
claim under Sec. 5(h) of the SPA for price reduction which it forfeited after December 31, 2000.
We cannot sustain petitioners’ position.
It cannot be disputed that an overstatement or overvaluation of Bankard’s financial condition as of closing
date translates into a misrepresentation not only of the accuracy and truthfulness of the financial
statements under Sec. 5(g), but also as to Bankard’s actual net worth mentioned in Sec. 5(h).
Overvaluation presupposes mistakes in the entries in the financial statements and amounts to a breach of
petitioners’ representations and warranties under Sec. 5. Consequently, such error in the financial
statements would impact on the figure representing the net worth of Bankard as of closing date. An
overvaluation means that the financial condition of Bankard as of closing date, i.e., June 2, 2000, is
overstated, a situation that will definitely result in a breach of EPCIB’s representations and warranties.
A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of the SPA would indicate the following
remedies available to RCBC should it be discovered, as of closing date, that there is overvaluation which
will constitute breach of the warranty clause under either Sec. 5(g) or (h), to wit:
(1) An overvaluation of Bankard’s actual financial condition as of closing date taints the veracity and
accuracy of the AFS for 1997, 1998, and 1999 and the UFS for the first quarter of 2000 and is an
actionable breach of petitioners’ warranties under Sec. 5(g).
(2) An overvaluation of Bankard’s financial condition as of May 31, 2000, encompassing the warranted
financial condition as of December 31, 1999 through the AFS for 1999 and as of March 31, 2000
through the UFS for the first quarter of 2000, is a breach of petitioners’ representations and warranties
under Sec. 5(h).
Thus, RCBC has two distinct alternative remedies in case of an overvaluation of Bankard’s financial
condition. It may invoke Sec. 5(h) when the conditions of the threshold aggregate overvaluation and the
claim made within the six-month time-bar are present. In the alternative, it may invoke Sec. 5(g) when it
finds that a claim for "curing the breach" and/or damages will be more advantageous to its interests
provided it is filed within three (3) years from closing date. Since it has two remedies, RCBC may opt to
exercise either one. Of course, the exercise of either one will preclude the other.
Moreover, the language employed in Sec. 5(g) and Sec. 5(h) is clear and bereft of any ambiguity. The
SPA’s stipulations reveal that the non-use or waiver of Sec. 5(h) does not preclude RCBC from availing
itself of the second relief under Sec. 5(g). Article 1370 of the Civil Code is explicit that "if terms of a
contract are clear and leave no doubt upon the intention of the contracting parties the literal meaning of
its stipulations shall control." Since the terms of a contract have the force of law between the
parties,22 then the parties must respect and strictly conform to it. Lastly, it is a long held cardinal rule
that when the terms of an agreement are reduced to writing, it is deemed to contain all the terms agreed
upon and no evidence of such terms can be admitted other than the contents of the agreement
itself.23 Since the SPA is unambiguous, and petitioners failed to adduce evidence to the contrary, then
they are legally bound to comply with it.
Petitioners agreed ultimately to the stipulation that:
Each of the representations and warranties of the SELLERS is deemed to be a separate
representation and warranty, and the BUYER has placed complete reliance thereon in agreeing to
the Purchase Price and in entering into this Agreement. The representations and warranties of the
25
SELLERS shall be correct as of the date of this Agreement and as of the Closing Date with the same
force and effect as though such representations and warranties had been made as of the Closing
Date.24 (Emphasis supplied.)
The Court sustains the finding in the Partial Award that Sec. 5(g) of the SPA is a free standing warranty
and not constricted by Sec. 5(h) of the said agreement.
Upon the foregoing premises and in the light of the undisputed facts on record, RCBC’s claim for
rescission of the SPA and damages due to overvaluation of Bankard’s accounts was properly for a breach
of the warranty under Sec. 5(g) and was not time-barred. To repeat, RCBC presented its written claim on
May 5, 2003, or a little less than a month before closing date, well within the three (3)-year prescriptive
period provided under Sec. 7 for the exercise of the right provided under Sec. 5(g).
Petitioners bemoan the fact that "the arbitrators’ liability award (a) disregarded the 6-month contractual
limitation for RCBC’s ‘overprice’ claim, and [b] substituted in its place the 3-year limitation under the
contract for other claims,"25 adopting in that regard the interpretation of the SPA made by arbitral tribunal
member, retired Justice Kapunan, in his Dissenting Opinion, in which he asserted:
Ultimately, the Claim is one for recovery of overpayment in the purchase price of the shares. And it is in
this context, that I respectfully submit that Section 5(h) and not Section 5(g), applies to the present
controversy.26
xxxx
True, without Section 5(h), the Claim for price recovery would fall under Section 5(g). The recovery of
the pecuniary loss of the Claimant in the form of the excess price paid would be in the nature of a claim
for actual damages by way of compensation. In that situation, all the accounts in the 1999 financial
statements would be the subject of the warranty in Section 5(g).
However, since the parties explicitly included Section 5(h) in their SPA, which assures the Claimant that
there were no "omissions or mistakes in the records" that would misstate the 1999 net worth account, I
am left with no other conclusion but that the accuracy of the net worth was the subject of
the warranty in Section 5(h), while the accuracy or correctness of the other accounts that
did not bear on, or affect Bankard’s net worth, were guaranteed by Section 5(g).
xxxx
This manner of reconciling the two provisions is consistent with the principle in Rule 130, Section 12 of
the Rules of Court that "when a general and a particular provision are inconsistent, the latter is
paramount to the former… [so] a particular intent will control a general one that is inconsistent with it."
This is also consistent with existing doctrines on statutory construction, the application of which is
illustrated in the case of Commissioner of Customs vs. Court of Tax Appeals, GR No. L-41861, dated
March 23, 1987 x x x.
xxxx
The Claim is for recovery of the excess price by way of actual damages.
Justice Kapunan noted that without Sec. 5(h), RCBC’s claim would fall under Sec. 5(g), impliedly
admitting that both provisions could very well cover RCBC’s claim, except that Sec. 5(h) excludes the
situation contemplated in it from the general terms of Sec. 5(g).
Such view is incorrect.
While it is true that Sec. 5(h), as couched, is a warranty on the accuracy of the Bankard’s net worth while
Sec. 5(g), as also couched, is a warranty on the veracity, accuracy, and completeness of the AFS in all
material respects as prepared in accordance with generally accepted accounting principles consistently
followed throughout the period audited, yet both warranties boil down to the same thing and stem from
the same accounts as summarized in the AFS. Since the net worth is the balance of Bankard’s assets
less its liabilities, it necessarily includes all the accounts under the AFS. In short, there are no
accounts in the AFS that do not bear on the net worth of Bankard . Moreover, as earlier elucidated,
any overvaluation of Bankard’s net worth is necessarily a misrepresentation of the veracity, accuracy, and
completeness of the AFS and also a breach of the warranty under Sec. 5(g). Thus, the subject of the
warranty in Sec. 5(h) is also covered by the warranty in Sec. 5(g), and Sec. 5(h) cannot exclude such
breach from the ambit of Sec. 5(g). There is no need to rely on Sec. 12, Rule 130 of the Rules of Court
for both Sec. 5(g) and Sec. 5(h) as alternative remedies are of equal footing and one need not categorize
one section as a general provision and the other a particular provision.
More importantly, a scrutiny of the four corners of the SPA does not explicitly reveal any stipulation nor
even impliedly that the parties intended to limit the scope of the warranty in Sec. 5(g) or gave priority to
Sec. 5(h) over Sec. 5(g).
The arbitral tribunal did not find any legal basis in the SPA that Sec. 5(h) "somehow cuts down" the scope
of Sec. 5(g), thus:
9.10 In the opinion of the Tribunal, there is nothing in the wording used in the SPA to give
priority to one warranty over the other. There is nothing in the wording used to indicate that
the parties intended to limit the scope of the warranty in 5(g) . If it be contended that, on a true
construction of the two warranties, 5(h) somehow cuts down the scope of 5(g), the Tribunal can find
no justification for such conclusion on the wording used. Furthermore, the Tribunal is of the view
that very clear words would be needed to cut down the scope of the 5(g) warranty.28
The Court upholds the conclusion of the tribunal and rules that the claim of RCBC under Sec. 5(g) is not
time-barred.
Petitioners Were Not Denied Due Process
Petitioners impute on RCBC the act of creating summaries of the accounts of Bankard which "in turn were
used by its experts to conclude that Bankard improperly recorded its receivables and committed material
deviations from GAAP requirements." 29 Later, petitioners would assert that "the arbitrators’ partial award
admitted and used the Summaries as evidence, and held on the basis of the ‘information’ contained in
them that petitioners were in breach of their warranty in GAAP compliance."
To petitioners, the ICC-ICA’s use of such summaries but without presenting the source documents
violates their right to due process. Pressing the point, petitioners had moved, but to no avail, for the
exclusion of the said summaries. Petitioners allege that they had reserved the right to cross-examine the
witnesses of RCBC who testified on the summaries, pending the resolution of their motion to exclude.
But, according to them, they were effectively denied the right to cross-examine RCBC’s witnesses when
the ICC-ICA admitted the summaries of RCBC as evidence.
Petitioners’ position is bereft of merit.
Anent the use but non-presentation of the source documents as the jumping board for a claim of denial of
due process, petitioners cite Compania Maritima v. Allied Free Worker’s Union.30 It may be stated,
however, that such case is not on all fours with the instant case and, therefore, cannot be applied here
considering that it does not involve an administrative body exercising quasi-judicial function but rather
the regular court.
In a catena of cases, we have ruled that "[t]he essence of due process is the opportunity to be heard.
What the law prohibits is not the absence of previous notice but the absolute absence thereof and the
lack of opportunity to be heard."31
We also explained in Lastimoso v. Asayo that "[d]ue process in an administrative context does not require
trial type proceedings similar to those in courts of justice. Where an opportunity to be heard either
through oral arguments or through pleadings is accorded, there is no denial of procedural due process."32
26
Were petitioners afforded the opportunity to refute the summaries and pieces of evidence submitted by
RCBC which became the bases of the experts’ opinion?
The answer is in the affirmative.
We recall the events that culminated in the issuance of the challenged Partial Award, thus:
On May 17, 2004, the ICC-ICA received the Request for Arbitration dated May 12, 2004 from RCBC
seeking rescission of the SPA and restitution of all the amounts paid by RCBC to petitioners, with actual
and moral damages, interest, and costs of suit.
On August 8, 2004, petitioners filed an Answer to the Request for Arbitration dated July 28, 2004, setting
up a counterclaim for USD 300,000 for actual and exemplary damages.
RCBC filed its Reply33 dated August 31, 2004 to petitioners’ Answer to the Request for Arbitration.
On October 4, 2004, the parties entered into the Terms of Reference. 34 At the same time, the chairperson
of the arbitral tribunal issued a provisional timetable35 for the arbitration.
On October 25, 2004, as previously agreed upon in the meeting on October 4, 2004, petitioners filed a
Motion to Dismiss36 while RCBC filed a "Claimant’s Position Paper (Re: [Petitioners’] Assertion that RCBC
CAPITAL CORPORATION’s Present Claim Is Time Barred)."37
Then, the tribunal issued Procedural Order No. 1 dated January 12, 2005, 38 denying the motion to dismiss
and setting the initial hearing of the case on April 11, 2005.
In a letter dated February 9, 2005,39 petitioners requested that the tribunal direct RCBC to produce
certain documents. At the same time, petitioners sought the postponement of the hearing on April 11,
2005 to March 21, 2005, in light of their own request.
On February 11, 2005, petitioners received RCBC’s brief of evidence and supporting documentation in
accordance with the provisional timetable.40 In the brief of evidence, RCBC provided summaries of the
accounts of Bankard, which petitioners now question.
Later, in a letter dated February 14, 2005,41 petitioners complained to the tribunal with regard to their
lack of access to RCBC’s external auditor. Petitioners sought an audit by an accounting firm of the records
of Bankard with respect to the claims of RCBC. By virtue of such requests, petitioners also sought a
rescheduling of the provisional timetable, despite their earlier assurance to the tribunal that if they
received the documents that they requested on February 9, 2005 on or before February 21, 2005, they
would abide by the provisional timetable.
Thereafter, the tribunal issued Procedural Order No. 2 dated February 18, 2005, 42 in which it allowed the
discovery and inspection of the documents requested by petitioners that were also scheduled on February
18, 2005. The request for an audit of Bankard’s accounts was denied without prejudice to the conduct of
such audit during the course of the hearings. Consequently, the tribunal amended the provisional
timetable, extending the deadline for petitioners to file their brief of evidence and documents to March
21, 2005. The date of the initial hearing, however, remained on April 11, 2005.
On February 18, 2005, petitioners were furnished the documents that they requested RCBC. 43 The parties
also agreed to meet again on February 23, 2005 to provide petitioners with a "walk-through" of Bankard’s
Statistical Analysis System and to provide petitioners with a soft copy of all of Bankard’s cardholders.44
During the February 23, 2005 meeting, EPCIB’s counsels/representatives were accompanied to the
Bankard’s Credit-MIS Group. There, Bankard’s representative, Amor Lazaro, described and explained to
petitioners’ representatives the steps involved in procuring and translating raw data on customer
transactions. Lazaro explained that Bankard captures cardholder information and transactions through
encoding or electronic data capture. Thereafter, such data are transmitted to its main credit card
administration system. Such raw data are then sent to Bankard’s Information Technology Group. Using a
proprietary software called SAS, the raw data is then converted into SAS files which may be viewed,
handled, and converted into Excel files for reporting purposes. During the walk-through, petitioners’
representatives asked questions which were answered in detail by Lazaro.
At the same time, another Bankard representative, Felix L. Sincoñegue, accompanied two
auditors/representatives of petitioners to examine the journal vouchers and supporting documents of
Bankard consisting of several boxes. The auditors randomly sifted through the boxes which they had
earlier requested to be inspected.
In addition, petitioners were furnished with an electronic copy of the details of all cardholders, including
relevant data for aging of receivables for the years 2000 to 2003, as well as data containing details of
written-off accounts from 1999 to March 2000 contained in compact discs.45
On March 4, 2005, petitioners sent a letter46 to the tribunal requesting for a postponement of the April 11,
2005 hearing of the case. Petitioners claim that they could not confirm the summaries prepared by RCBC,
considering that RCBC allegedly did not cooperate in providing data that would facilitate their verification.
Petitioners specifically mentioned the following data: (1) list of names of cardholders whose accounts are
sources of data gathered or calculated in the summaries; (2) references to the basic cardholder
documents from which such data were collected; and (3) access to the underlying cardholder documents
at a time and under conditions mutually convenient to the parties. As regards the compact discs of
information provided to petitioners, it is claimed that such information could not be accessed as the
software necessary for the handling of the data could not be made immediately available to them.
In Procedural Order No. 3 dated March 11 2005,47 the initial hearing was moved to June 13 to 16, 2005,
considering that petitioners failed to pay the advance on costs of the tribunal.
On March 23, 2005, RCBC paid the balance of the advance on costs.48
On April 22, 2005, petitioners sent the tribunal a letter,49 requesting for the postponement of the hearing
scheduled on June 13 to 16, 2005 on the ground that they could not submit their witness’ statements due
to the volume of data that they acquired from RCBC.
In a letter dated April 25, 2005,50 petitioners demanded from RCBC that they be allowed to examine the
journal vouchers earlier made available to them during the February 23, 2005 meeting. This demand was
answered by RCBC in a letter dated April 26, 2005,51 stating that such demand was being denied by
virtue of Procedural Order No. 2, in which it was ruled that further requests for discovery would not be
made except with leave of the chairperson of the tribunal.
In Procedural Order No. 4,52 the tribunal granted petitioners’ request for the postponement of the hearing
on June 13, 2005 and rescheduled it to November 21, 2005 in light of the pending motions filed by EPCIB
with the RTC in Makati City.
On July 29, 2005, the parties held a meeting wherein it was agreed that petitioners would be provided
with hard and soft copies of the inventory of the journal vouchers earlier presented to its representatives,
while making the journal vouchers available to petitioners for two weeks for examination and
photocopying.53
27
On September 2, 2005, petitioners applied for the postponement of the November 21, 2005 hearing due
to the following: (1) petitioners had earlier filed a motion dated August 11, 2005 with the RTC, in which
the issue of whether the non-Filipino members of the tribunal were illegally practicing law in the
Philippines by hearing their case, which was still pending; and (2) the gathering and processing of the
data and documents made available by RCBC would require 26 weeks. 54 Such application was denied by
the tribunal in Procedural Order No. 5 dated September 16, 2005.55
On October 21, 2005, the tribunal issued Procedural Order No. 6,56 postponing the November 21, 2005
hearing by virtue of an order issued by the RTC in Makati City directing the tribunal to reset the hearing
for April 21 and 24, 2006.
Thereafter, in a letter dated January 18, 2006,57 petitioners wrote the tribunal requesting that RCBC be
directed to: (1) provide petitioners with information identifying the journal vouchers and other supporting
documents that RCBC used to arrive at the figures set out in the summaries and other relevant
information necessary to enable them to reconstruct and/or otherwise understand the figures or amounts
in each summary; and (2) submit to petitioners the requested pieces of information as soon as these are
or have become available, or in any case not later than five days.
In response to such letter, RCBC addressed a letter dated January 31, 2006 58 to the tribunal claiming that
the pieces of information that petitioners requested are already known to petitioners considering that
RCBC merely maintained the systems that they inherited when it bought Bankard from petitioners. RCBC
added that the documents that EPCIB originally transmitted to it when RCBC bought Bankard were all
being made available to petitioners; thus, any missing supporting documents from these files were never
transmitted to them in the first place.
Later, petitioners sent to the tribunal a letter dated February 10, 2006, 59 asking that it direct RCBC to
provide petitioners with the supporting documents that RCBC mentioned in its letter dated January 31,
2006. Petitioners wrote that should RCBC fail to present such documents, RCBC’s summaries should be
excluded from the records.
In a letter dated March 10, 2006,60 petitioners requested that they be given an additional period of at
least 47 days within which to submit their evidence-in-chief with the corresponding request for the
cancellation of the hearing on April 24, 2006. Petitioners submit that should such request be denied,
RCBC’s summaries should be excluded from the records.
On April 6, 2006, petitioners filed their arbitration briefs and witness statements. By way of reply, on April
17, 2006, RCBC submitted Volumes IV and V of its exhibits and Volume II of its evidence-in-chief.61
On April 18, 2006, petitioners requested the tribunal that they be allowed to file rejoinder briefs, or
otherwise exclude RCBC’s reply brief and witness statements.62 In this request, petitioners also requested
that the hearing set for April 24, 2006 be moved. These requests were denied.
Consequently, on April 24 to 27, 2006, the arbitral tribunal conducted hearings on the case.63
On December 4, 2006, petitioners submitted rejoinder affidavits, raising new issues for the first time, to
which RCBC submitted Volume III of its evidence-in-chief by way of a reply.
On January 16, 2007, both parties simultaneously submitted their memoranda. On January 26, 2007,
both parties simultaneously filed their reply to the other’s memorandum.64
Thus, on September 27, 2007, the Partial Award was rendered by the Tribunal.
Later, petitioners moved to vacate the said award before the RTC. Such motion was denied by the trial opportunity to be heard either through oral arguments or through pleadings is accorded, there is no
court in the first assailed order dated January 8, 2008. Petitioners then moved for a reconsideration of denial of procedural due process.67 (Emphasis supplied.)
such order, but their motion was also denied in the second assailed order dated March 17, 2008.

The foregoing events unequivocally demonstrate ample opportunity for petitioners to verify and examine
RCBC’s summaries, accounting records, and reports. The pleadings reveal that RCBC granted petitioners’
requests for production of documents and accounting records. More so, they had more than three (3)
years to prepare for their defense after RCBC’s submission of its brief of evidence. Finally, it must be
emphasized that petitioners had the opportunity to appeal the Partial Award to the RTC, which they in
fact did. Later, petitioners even moved for the reconsideration of the denial of their appeal. Having been
able to appeal and move for a reconsideration of the assailed rulings, petitioners cannot claim a denial of
due process.65
Petitioners’ right to due process was not breached.
Citing Vertudes v. Buenaflor, petitioners also cry denial of due process when they were allegedly denied
the right to cross-examine the witnesses presented by RCBC. It is true that in Vertudes, we stated: "The
right of a party to confront and cross-examine opposing witnesses in a judicial litigation, be it criminal or
civil in nature, or in proceedings before administrative tribunals with quasi-judicial powers, is a
fundamental right which is part of due process." 68
It is, however, equally true that:
[T]he right is a personal one which may be waived expressly or impliedly by conduct amounting to a
renunciation of the right of cross-examination. Thus, where a party has had the opportunity to
cross-examine a witness but failed to avail himself of it, he necessarily forfeits the right to
cross-examine and the testimony given on direct examination of the witness will be received or
allowed to remain in the record.69 (Emphasis supplied.)

As regards petitioners’ claim that its right to due process was violated when they were allegedly denied
the right to cross-examine RCBC’s witnesses, their claim is also bereft of merit.
Sec. 15 of RA 876 or the Arbitration Law provides that:
Section 15. Hearing by arbitrators. – Arbitrators may, at the commencement of the hearing, ask both
parties for brief statements of the issues in controversy and/or an agreed statement of facts. Thereafter
the parties may offer such evidence as they desire, and shall produce such additional evidence as the
arbitrators shall require or deem necessary to an understanding and determination of the dispute. The
arbitrators shall be the sole judge of the relevancy and materiality of the evidence offered or
produced, and shall not be bound to conform to the Rules of Court pertaining to evidence.
Arbitrators shall receive as exhibits in evidence any document which the parties may wish to
submit and the exhibits shall be properly identified at the time of submission. All exhibits shall
remain in the custody of the Clerk of Court during the course of the arbitration and shall be returned to
the parties at the time the award is made. The arbitrators may make an ocular inspection of any matter
or premises which are in dispute, but such inspection shall be made only in the presence of all parties
to the arbitration, unless any party who shall have received notice thereof fails to appear, in which
event such inspection shall be made in the absence of such party. (Emphasis supplied.)
The well-settled rule is that administrative agencies exercising quasi-judicial powers shall not be fettered
by the rigid technicalities of procedure, albeit they are, at all times required, to adhere to the basic
concepts of fair play. The Court wrote in CMP Federal Security Agency, Inc. v. NLRC:
While administrative tribunals exercising quasi-judicial powers, like the NLRC and Labor Arbiters, are
free from the rigidity of certain procedural requirements, they are nonetheless bound by law and
practice to observe the fundamental and essential requirements of due process. The standard of due
process that must be met in administrative tribunals allows a certain degree of latitude as long as
fairness is not ignored. Hence, it is not legally objectionable, for being violative of due process, for the
Labor Arbiter to resolve a case based solely on the position papers, affidavits or documentary evidence
submitted by the parties. The affidavits of witnesses in such case may take the place of their direct
testimony.66
We also held in one case:
However, the right has always been understood as requiring not necessarily an actual cross-
examination but merely an opportunity to exercise the right to cross-examine if desired.
What is proscribed by statutory norm and jurisprudential precept is the absence of the
opportunity to cross-examine. The right is a personal one and may be waived expressly or
impliedly. There is an implied waiver when the party was given the opportunity to confront and cross-
examine an opposing witness but failed to take advantage of it for reasons attributable to himself alone.
If by his actuations, the accused lost his opportunity to cross-examine wholly or in part the witnesses
against him, his right to cross-examine is impliedly waived.70 (Emphasis supplied.)
And later in Velez v. De Vera, the Court En Banc expounded on the above rulings, adding that in
administrative proceedings, cross-examination is not indispensable, thus:
Due process of law in administrative cases is not identical with "judicial process" for a trial in court is
not always essential to due process. While a day in court is a matter of right in judicial proceedings, it is
otherwise in administrative proceedings since they rest upon different principles. The due process
clause guarantees no particular form of procedure and its requirements are not technical. Thus, in
certain proceedings of administrative character, the right to a notice or hearing [is] not essential to due
process of law. The constitutional requirement of due process is met by a fair hearing before a regularly
established administrative agency or tribunal. It is not essential that hearings be had before the making
of a determination if thereafter, there is available trial and tribunal before which all objections and
defenses to the making of such determination may be raised and considered. One adequate hearing is
all that due process requires. What is required for "hearing" may differ as the functions of the
administrative bodies differ.
The right to cross-examine is not an indispensable aspect of due process.
Clearly, the right to cross-examine a witness, although a fundamental right of a party, may be waived.
Petitioners themselves admit having had the opportunity to cross-examine RCBC’s witnesses during the
hearings before the tribunal, but declined to do so by reserving such right at a later time. Having had the
opportunity to cross-examine RCBC’s witnesses, petitioners were not denied their right to due process.

Of the same tenor is our holding in Quiambao v. Court of Appeals:

In resolving administrative cases, conduct of full-blown trial is not indispensable to dispense justice to RCBC Is Not Estopped from Questioning the Financial Condition of Bankard
the parties. The requirement of notice and hearing does not connote full adversarial proceedings.
Submission of position papers may be sufficient for as long as the parties thereto are given the
opportunity to be heard. In administrative proceedings, the essence of due process is simply an
opportunity to be heard, or an opportunity to explain one’s side or opportunity to seek a
reconsideration of the action or ruling complained of. This constitutional mandate is deemed
satisfied if a person is granted an opportunity to seek reconsideration of an action or a
ruling. It does not require trial-type proceedings similar to those in the courts of justice. Where

28
On estoppel, petitioners contend that RCBC already knew the recording of the Bankard accounts before it conduct shall be acted upon by the other party; and (3) knowledge, actual or constructive, of the actual
paid the balance of the purchase price and could no longer challenge the financial statements of Bankard. facts.74
RCBC, they claim, had full control of the operations of Bankard since June 2, 2000 and RCBC’s audit team
reviewed the accounts in September 2000. Thus, RCBC is now precluded from denying the fairness and
In the case at bar, the first element of estoppel in relation to the party sought to be estopped is not
accuracy of said accounts since it did not seek price reduction under Sec. 5(h). Lastly, they asseverate
present. Petitioners claim that RCBC misrepresented itself when RCBC made it appear that they
that RCBC continued with Bankard’s accounting policies and practices and found them to conform to the
considered petitioners to have sufficiently complied with its warranties under Sec. 5(g) and 5(h), in
generally accepted accounting principles, contrary to RCBC’s allegations.
relation to Sec. 7 of the SPA. Petitioners’ position is that "RCBC was aware of the manner in which the
Bankard accounts were recorded, well before it consummated the SPA by taking delivery of the shares
It also bears stating that in his dissent, retired Justice Kapunan, an arbitral tribunal member, argued that and paying the outstanding 80% balance of the contract price."75
Bankard’s accounting practices were disclosed in the information memorandum provided to RCBC; hence,
RCBC was supposed to know such accounting practices and to have accepted their propriety even before
Petitioners, therefore, theorize that in this case, the first element of estoppel in relation to the party
the execution of the SPA. He then argued that when it paid the purchase price on December 29, 2000,
sought to be estopped is that RCBC made a false representation that it considered Bankard’s accounts to
RCBC could no longer claim that the accounting practices that went into the reporting of the 1999 AFS of
be in order and, thus, RCBC abandoned any claim under Sec. 5(g) and 5(h) by its inaction.
Bankard were not in accord with generally accepted accounting principles. He pointed out that RCBC was
bound by the audit conducted by a certain Rubio prior to the full payment of the purchase price of
Bankard. Anchored on these statements by Justice Kapunan, petitioners conclude that RCBC is estopped Such contention is incorrect.
from claiming that the former violated their warranties under the SPA.
It must be emphasized that it was only after a second audit that RCBC presented its claim to petitioners
Petitioners’ contention is not meritorious. for violation of Sec. 5(g), within the three (3)-year period prescribed. In other words, RCBC, prior to such
second audit, did not have full and thorough knowledge of the correctness of Bankard’s accounts, in
relation to Sec. 5(g). RCBC, therefore, could not have misrepresented itself considering that it was still in
Art. 1431 of the Civil Code, on the subject of estoppel, provides: "Through estoppel an admission or
the process of verifying the warranties covered under Sec. 5(g). Considering that there must be a
representation is rendered conclusive upon the person making it, and cannot be denied or disproved as
concurrence of the elements of estoppel for it to arise, on this ground alone such claim is already
against the person relying thereon."
negated. As will be shown, however, all the other elements of estoppel are likewise absent in the case at
bar.
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith, and justice;
and its purpose is to forbid one to speak against one’s own acts, representations, or commitments to the
As to the second element, in order to establish estoppel, RCBC must have intended that petitioners would
injury of one to whom they were directed and who reasonably relied on them.72
act upon its actions. This element is also missing. RCBC by its actions did not mislead petitioners into
believing that it waived any claim for violation of a warranty. The periods under Sec. 5(g) and 5(h) were
We explained the principle of estoppel in Philippine Savings Bank v. Chowking Food Corporation: still available to RCBC.
x x x The equitable doctrine of estoppel was explained by this Court in Caltex (Philippines), Inc. v.
Court of Appeals:
The element that petitioners relied on the acts and conduct of RCBC is absent. The Court finds that there
Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the
was no reliance on the part of petitioners on the acts of RCBC that would lead them to believe that the
person making it, and cannot be denied or disproved as against the person relying thereon. A party
RCBC will forego the filing of a claim under Sec. 5(g). The allegation that RCBC knew that the Bankard
may not go back on his own acts and representations to the prejudice of the other party who relied
accounts did not comply with generally accepted accounting principles before payment and, hence, it
upon them. In the law of evidence, whenever a party has, by his own declaration, act, or omission,
cannot question the financial statements of Bankard is meritless. Precisely, the SPA explicitly provides
intentionally and deliberately led another to believe a particular thing true, to act upon such belief, he
that claims for violation of the warranties under Sec. 5(g) can still be filed within three (3) years from the
cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it.
closing date. Petitioners’ contention that RCBC had full control of Bankard operations after payment of the
The principle received further elaboration in Maneclang v. Baun:
price and that an audit undertaken by the Rubio team did not find anything wrong with the accounts
In estoppel by pais, as related to the party sought to be estopped, it is necessary that there be a
could not have plausibly misled petitioners into believing that RCBC will waive its right to file a claim
concurrence of the following requisites: (a) conduct amounting to false representation or concealment
under Sec. 5(g). After all, the period to file a claim under Sec. 5(g) is three (3) years under Sec. 7, much
of material facts or at least calculated to convey the impression that the facts are otherwise than, and
longer than the six (6)-month period under Sec. 5(h). Petitioners are fully aware that the warranties
inconsistent with, those which the party subsequently attempts to assert; (b) intent, or at least
under Sec. 5(g) (1997 up to March 2000) are of a wider scope than that of Sec. 5(h) (AFS of 1999 and
expectation that this conduct shall be acted upon, or at least influenced by the other party; and (c)
UFS up to May 31, 2000), necessitating a longer audit period than the six (6)-month period under Sec.
knowledge, actual or constructive of the actual facts.
5(h).
Estoppel may vary somewhat in definition, but all authorities agree that a party invoking the
doctrine must have been misled to one’s prejudice. That is the final and, in reality, most
important of the elements of equitable estoppel. It is this element that is lacking here.73 (Emphasis The third element of estoppel in relation to the party sought to be estopped is also absent considering
supplied.) that, as stated, RCBC was still in the process of verifying the correctness of Bankard’s accounts prior to
presenting its claim of overvaluation to petitioners. RCBC, therefore, had no sufficient knowledge of the
correctness of Bankard’s accounts.
The elements of estoppel pertaining to the party estopped are:
(1) conduct which amounts to a false representation or concealment of material facts, or, at least,
which calculated to convey the impression that the facts are otherwise than, and inconsistent with, On another issue, RCBC could not have immediately changed the Bankard accounting practices until it
those which the party subsequently attempts to assert; (2) intention, or at least expectation, that such had conducted a more extensive and thorough audit of Bankard’s voluminous records and transactions to
uncover any irregularities. That would be the only logical explanation why Bankard’s alleged irregular

29
practices were maintained for more than two (2) years from closing date. The fact that RCBC continued
with the audit of Bankard’s AFS and records after the termination of the Rubio audit can only send the
clear message to petitioners that RCBC is still entertaining the possibility of filing a claim under Sec. 5(g).
It cannot then be said that petitioners’ reliance on RCBC’s acts after full payment of the price could have
misled them into believing that no more claim will be presented by RCBC.
The Arbitral Tribunal explained in detail why estoppel is not present in the case at bar, thus:
10.18 The audit exercise conducted by Mr. Legaspi and Mr. Rubio was clearly not one comprehensive
enough to have discovered the problems later unearthed by Dr. Laya and Dean Ledesma. x x x
10.19 Although the powers of the TC [Transition Committee] may have been widely expressed in the
view of Mr. Rogelio Chua, then in charge of Bankard x x x the TC conducted meetings only to get
updated on the status and progress of Bankard’s operations. Commercially, one would expect that an
unpaid vendor expecting to receive 80% of a large purchase price would not be receptive to a
purchaser making vast policy changes in the operation of the business until the purchaser has paid up
its money. It is more likely that, until the settlement date, there was a practice of maintaining
the status quo at Bankard.
10.20 But neither the Claimant nor the TC did anything, in the Tribunal’s view, which would have given
the Respondents the impression that they were being relieved over the next three years of
susceptibility to a claim under clause 5(g). Maybe the TC could have been more proactive in
commissioning further or more in-depth audits but it was not. It did not have to be. It is commercially
unlikely that it have been done so, with the necessary degree of attention to detail, within the relatively
short time between the appointment of the TC and the ultimate settlement date of the purchase – a
period of some three months. An interim arrangement was obviously sensible to enable the Claimant
and its staff to become familiar with the practices and procedures of Bankard.
10.21 The core consideration weighing with the Tribunal in assessing these claims for estoppel is that
the SPA allowed two types of claim; one within six months under 5(h) and one within three years under
5(g). The Tribunal has already held the present claim is not barred by clause 5(h). It must therefore
have been within the reasonable contemplation of the parties that a 5(g) claim could surface within the
three-year period and that it could be somewhat differently assessed than the claim under 5(h). The
Tribunal cannot find estoppel by conduct either from the formation of the TC or from the limited
auditing exercise done by Mr. Rubio and Mr. Legaspi. The onus proving estoppel is on the Respondents
and it has not been discharged.
10.22 If the parties had wished the avenues of relief for misrepresentation afforded to the Claimant to
have been restricted to a claim under Clause 5(h), then they could have said so. The ‘special audit’ may
have provided an answer to any claim based on clause 5(h) but it cannot do so in respect of a claim
based on Clause 5(g). Clause 5(g) imposed a positive obligation on the Respondents from which they
cannot be excused, simply by reason of either the formation and conduct of the TC or of the limited
audit.
10.23 The three-year limitation period obviously contemplated that it could take some time to ascertain
whether there had been a breach of the GAAP standards, etc. Such was the case. A six-month limitation
period under Clause 5(h), in contrast, presaged a somewhat less stringent enquiry of the kind carried
out by Mr. Rubio and Mr. Legaspi.
10.24 Clause 2(3) of the Amendment to the SPA strengthens the conclusion that the parties were
concerned only with a 5(h) claim during the TC’s reign. The focus of the ‘audit’ – however intense it was
– conducted by Mr. Rubio and Mr. Legaspi, was on establishing possible liability under that section and
thus as a possible reduction in the price to be paid on settlement.
30
10.25 The fact that the purchase price was paid over in full without any deduction in terms of clause
5(h) is not a bar to the Claimant bringing a claim under 5(g) within the three-year period. The fact that
payment was made can be, as the Tribunal has held, a barrier to a claim for rescission and restitution
ad inegrum. A claim for estoppel needs a finding of representation by words of conduct or a shared
presumption that a right would not be relied upon. The party relying on estoppel has to show reliance
to its detriment or that, otherwise, it would be unconscionable to resile from the provision.
10.26 Article 1431 of the Civil Code states:
"Through estoppel an admission or representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the person relying thereon."
10.27 Clearly, there has to both an admission or representation by (in this case) the Claimant, plus
reliance upon it by (in this case) the Respondents. The Tribunal cannot find as proved any
admission/representation that the Claimant was abandoning a 5(g) claim, any reliance by Respondents
on an admission, and any detriment to the Respondents such as would entitle them to have the
Claimant deprived of the benefit of clause 5(g). These aspects of the claim of estoppel are rejected.
xxxx
10.42 The Tribunal is not the appropriate forum for deciding whether there have been any regulatory or
ethical infractions by Bankard and/or the Claimant in setting the ‘buy-back’ price. It has no bearing on
whether the Claimant must be considered as having waived its right to claim against the Respondents.
10.43 In the Tribunal’s view, neither any infraction by Bankard in failing to advise the Central Bank of
the experts’ findings, nor a failure to put a tag on the accounts nor to have said something to the
shareholders in the buy-back exercise operates as a "technical knock-out" of Claimant’s claim.
10.44 The Tribunal notes that the conciliation process mandated by the SPA took most of 2003 and this
may explain a part of the delay in commencing arbitral proceedings.
10.45 Whatever the status of Mr. Rubio’s and Mr. Legaspi’s enquiries in late 2000, the Claimant was
quite entitled to commission subsequent reports from Dr. Laya and Dr. Echanis and, on the basis of
those reports, make a timeous claim under clause 5(g) of the SPA.
10.46 In the Tribunal’s view, therefore, there is no merit in Respondents’ various submissions that the
Claimant is debarred from prosecuting its claims on the grounds of estoppel. There is just no proof of
the necessary representation to the Respondent, nor any detriment to the Respondent proved. The
grounds of delay and laches are not substantiated.
In summary, the tribunal properly ruled that petitioners failed to prove that the formation of the
Transition Committee and the conduct of the audit by Rubio and Legaspi were admissions or
representations by RCBC that it would not pursue a claim under Sec. 5(g) and that petitioners relied on
such representation to their detriment. We agree with the findings of the tribunal that estoppel is not
present in the situation at bar.
Additionally, petitioners claim that in Knecht v. Court of Appeals76 and Coca-Cola Bottlers Philippines, Inc.
v. Court of Appeals (Coca-Cola),77 this Court ruled that the absence of the element of reliance by a party
on the representation of another does not negate the principle of estoppel. Those cases are, however, not
on all fours with and cannot be applied to this case.
In Knecht, the buyer had the opportunity of knowing the conditions of the land he was buying early on in
the transaction, but proceeded with the sale anyway. According to the Court, the buyer was estopped
from claiming that the vendor made a false representation as to the condition of the land. This is not true
in the instant case. RCBC did not conduct a due diligence audit in relation to Sec.5(g) prior to the sale
due to petitioners’ express representations and warranties. The examination conducted by RCBC, through
Rubio, after the execution of the SPA on June 2, 2000, was confined to finding any breach under Sec.
5(h) for a possible reduction of the purchase price prior to the payment of its balance on December 31,
2000. Further, the parties clearly agreed under Sec. 7 of the SPA to a three (3)-year period from closing
date within which to present a claim for damages for violation of the warranties under the SPA.
Hence, Knecht is not a precedent to the case at bar.
So is Coca-Cola. As lessee, Coca-Cola Bottlers was well aware of the nature and situation of the land
relative to its intended use prior to the signing of the contract. Its subsequent assertion that the land was
not suited for the purpose it was leased was, therefore, cast aside for being unmeritorious. Such
circumstance does not obtain in the instant case. There was no prior due diligence audit conducted by
RCBC, it having relied, as earlier stated, on the warranties of petitioners with regard to the financial
condition of Bankard under Sec. 5(g). As such, Sec. 5(g) guaranteed RCBC that it could file a claim for
damages for any mistakes in the AFS and UFS of Bankard. Clearly, Coca-Cola also cannot be applied to
the instant case.
It becomes evident from all of the foregoing findings that the ICC-ICA is not guilty of any manifest
disregard of the law on estoppel. As shown above, the findings of the ICC-ICA in the Partial Award are
well-supported in law and grounded on facts. The Partial Award must be upheld.
We close this disposition with the observation that a member of the three-person arbitration panel was
selected by petitioners, while another was respondent’s choice. The respective interests of the parties,
therefore, are very much safeguarded in the arbitration proceedings. Any suggestion, therefore, on the
partiality of the arbitration tribunal has to be dismissed.
WHEREFORE, the instant petition is hereby DENIED. The assailed January 8, 2008 and March 17, 2008
Orders of the RTC, Branch 148 in Makati City are hereby AFFIRMED.
G.R. No. 143581             January 7, 2008
KOREA TECHNOLOGIES CO., LTD., petitioner,
vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional Trial
Court of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING
CORPORATION, respondents.
In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in civil and
commercial disputes. Arbitration along with mediation, conciliation, and negotiation, being inexpensive,
speedy and less hostile methods have long been favored by this Court. The petition before us puts at
issue an arbitration clause in a contract mutually agreed upon by the parties stipulating that they would
submit themselves to arbitration in a foreign country. Regrettably, instead of hastening the resolution of
their dispute, the parties wittingly or unwittingly prolonged the controversy.
31
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the supply
and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while private respondent
Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract 1 whereby KOGIES would set up an LPG
Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines. On April
7, 1997, the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated March 5,
19972 amending the terms of payment. The contract and its amendment stipulated that KOGIES will ship
the machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD
1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC bound itself to
pay USD 306,000 upon the plant’s production of the 11-kg. LPG cylinder samples. Thus, the total contract
price amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of Lease 3 with Worth Properties, Inc. (Worth) for
use of Worth’s 5,079-square meter property with a 4,032-square meter warehouse building to house the
LPG manufacturing plant. The monthly rental was PhP 322,560 commencing on January 1, 1998 with a
10% annual increment clause. Subsequently, the machineries, equipment, and facilities for the
manufacture of LPG cylinders were shipped, delivered, and installed in the Carmona plant. PGSMC paid
KOGIES USD 1,224,000.
However, gleaned from the Certificate4 executed by the parties on January 22, 1998, after the installation
of the plant, the initial operation could not be conducted as PGSMC encountered financial difficulties
affecting the supply of materials, thus forcing the parties to agree that KOGIES would be deemed to have
completely complied with the terms and conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and initial operation of the plant, PGSMC
issued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP 4,500,000; and
(2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000.5
When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT STOPPED." Thus,
on May 8, 1998, KOGIES sent a demand letter6 to PGSMC threatening criminal action for violation
of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMC’s President
faxed a letter dated May 7, 1998 to KOGIES’ President who was then staying at a Makati City hotel. She
complained that not only did KOGIES deliver a different brand of hydraulic press from that agreed upon
but it had not delivered several equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but the
payments were stopped for reasons previously made known to KOGIES.7
On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated March 5, 1997
on the ground that KOGIES had altered the quantity and lowered the quality of the machineries and
equipment it delivered to PGSMC, and that PGSMC would dismantle and transfer the machineries,
equipment, and facilities installed in the Carmona plant. Five days later, PGSMC filed before the Office of
the Public Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae
Hyun Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescind
their contract nor dismantle and transfer the machineries and equipment on mere imagined violations by
KOGIES. It also insisted that their disputes should be settled by arbitration as agreed upon in Article 15,
the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998 letter
threatening that the machineries, equipment, and facilities installed in the plant would be dismantled and
transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an Application for Arbitration before
the Korean Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as
amended.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case No. 98-
1178 against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC granted a temporary
restraining order (TRO) on July 4, 1998, which was subsequently extended until July 22, 1998. In its
complaint, KOGIES alleged that PGSMC had initially admitted that the checks that were stopped were not
funded but later on claimed that it stopped payment of the checks for the reason that "their value was
not received" as the former allegedly breached their contract by "altering the quantity and lowering the
quality of the machinery and equipment" installed in the plant and failed to make the plant operational
although it earlier certified to the contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIES
averred that PGSMC violated Art. 15 of their Contract, as amended, by unilaterally rescinding the contract
without resorting to arbitration. KOGIES also asked that PGSMC be restrained from dismantling and
transferring the machinery and equipment installed in the plant which the latter threatened to do on July
4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the TRO
since Art. 15, the arbitration clause, was null and void for being against public policy as it ousts the local
courts of jurisdiction over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim 9 asserting that it had the full
right to dismantle and transfer the machineries and equipment because it had paid for them in full as
stipulated in the contract; that KOGIES was not entitled to the PhP 9,000,000 covered by the checks for
failing to completely install and make the plant operational; and that KOGIES was liable for damages
amounting to PhP 4,500,000 for altering the quantity and lowering the quality of the machineries and
equipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in rent (covering January to
July 1998) to Worth and it was not willing to further shoulder the cost of renting the premises of the plant
considering that the LPG cylinder manufacturing plant never became operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying the
application for a writ of preliminary injunction, reasoning that PGSMC had paid KOGIES USD 1,224,000,
the value of the machineries and equipment as shown in the contract such that KOGIES no longer had
proprietary rights over them. And finally, the RTC held that Art. 15 of the Contract as amended was
invalid as it tended to oust the trial court or any other court jurisdiction over any dispute that may arise
between the parties. KOGIES’ prayer for an injunctive writ was denied. 10 The dispositive portion of the
Order stated:
WHEREFORE, in view of the foregoing consideration, this Court believes and so holds that no cogent
reason exists for this Court to grant the writ of preliminary injunction to restrain and refrain defendant
from dismantling the machineries and facilities at the lot and building of Worth Properties, Incorporated
at Carmona, Cavite and transfer the same to another site: and therefore denies plaintiff’s application
for a writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim. 11 KOGIES denied it had
altered the quantity and lowered the quality of the machinery, equipment, and facilities it delivered to the
plant. It claimed that it had performed all the undertakings under the contract and had already produced
certified samples of LPG cylinders. It averred that whatever was unfinished was PGSMC’s fault since it
failed to procure raw materials due to lack of funds. KOGIES, relying on Chung Fu Industries (Phils.), Inc.
v. Court of Appeals,12 insisted that the arbitration clause was without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to Dismiss 13 answering PGSMC’s
memorandum of July 22, 1998 and seeking dismissal of PGSMC’s counterclaims, KOGIES, on August 4,
1998, filed its Motion for Reconsideration 14 of the July 23, 1998 Order denying its application for an
injunctive writ claiming that the contract was not merely for machinery and facilities worth USD
32
1,224,000 but was for the sale of an "LPG manufacturing plant" consisting of "supply of all the machinery
and facilities" and "transfer of technology" for a total contract price of USD 1,530,000 such that the
dismantling and transfer of the machinery and facilities would result in the dismantling and transfer of the
very plant itself to the great prejudice of KOGIES as the still unpaid owner/seller of the plant. Moreover,
KOGIES points out that the arbitration clause under Art. 15 of the Contract as amended was a valid
arbitration stipulation under Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries
(Phils.), Inc.15
In the meantime, PGSMC filed a Motion for Inspection of Things16 to determine whether there was indeed
alteration of the quantity and lowering of quality of the machineries and equipment, and whether these
were properly installed. KOGIES opposed the motion positing that the queries and issues raised in the
motion for inspection fell under the coverage of the arbitration clause in their contract.
On September 21, 1998, the trial court issued an Order (1) granting PGSMC’s motion for inspection; (2)
denying KOGIES’ motion for reconsideration of the July 23, 1998 RTC Order; and (3) denying KOGIES’
motion to dismiss PGSMC’s compulsory counterclaims as these counterclaims fell within the requisites of
compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration 17 of the September 21, 1998 RTC
Order granting inspection of the plant and denying dismissal of PGSMC’s compulsory counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998 urgent
motion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for
certiorari18 docketed as CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and September
21, 1998 RTC Orders and praying for the issuance of writs of prohibition, mandamus, and preliminary
injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and transferring the machineries
and equipment in the Carmona plant, and to direct the RTC to enforce the specific agreement on
arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES’ urgent motion for reconsideration and
directed the Branch Sheriff to proceed with the inspection of the machineries and equipment in the plant
on October 28, 1998.19
Thereafter, KOGIES filed a Supplement to the Petition 20 in CA-G.R. SP No. 49249 informing the CA about
the October 19, 1998 RTC Order. It also reiterated its prayer for the issuance of the writs of prohibition,
mandamus and preliminary injunction which was not acted upon by the CA. KOGIES asserted that the
Branch Sheriff did not have the technical expertise to ascertain whether or not the machineries and
equipment conformed to the specifications in the contract and were properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriff’s Report 21 finding that the enumerated
machineries and equipment were not fully and properly installed.
The Court of Appeals affirmed the trial court and declared the arbitration clause against public
policy
On May 30, 2000, the CA rendered the assailed Decision 22 affirming the RTC Orders and dismissing the
petition for certiorari filed by KOGIES. The CA found that the RTC did not gravely abuse its discretion in
issuing the assailed July 23, 1998 and September 21, 1998 Orders. Moreover, the CA reasoned that
KOGIES’ contention that the total contract price for USD 1,530,000 was for the whole plant and had not
been fully paid was contrary to the finding of the RTC that PGSMC fully paid the price of USD 1,224,000,
which was for all the machineries and equipment. According to the CA, this determination by the RTC was
a factual finding beyond the ambit of a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an
arbitration clause which provided for a final determination of the legal rights of the parties to the contract
by arbitration was against public policy.
On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum shopping by
PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones and payment of docket fees
was not required since the Answer with counterclaim was not an initiatory pleading. For the same reason,
the CA said a certificate of non-forum shopping was also not required.
Furthermore, the CA held that the petition for certiorari had been filed prematurely since KOGIES did not
wait for the resolution of its urgent motion for reconsideration of the September 21, 1998 RTC Order
which was the plain, speedy, and adequate remedy available. According to the CA, the RTC must be given
the opportunity to correct any alleged error it has committed, and that since the assailed orders were
interlocutory, these cannot be the subject of a petition for certiorari.
Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following errors:
a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY AND FACILITIES AS "A
QUESTION OF FACT" "BEYOND THE AMBIT OF A PETITION FOR CERTIORARI" INTENDED ONLY FOR
CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE TRIAL COURT’S FINDING ON THE
SAME QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW;
b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15 OF THE CONTRACT
BETWEEN THE PARTIES FOR BEING "CONTRARY TO PUBLIC POLICY" AND FOR OUSTING THE COURTS
OF JURISDICTION;
c. DECREEING PRIVATE RESPONDENT’S COUNTERCLAIMS TO BE ALL COMPULSORY NOT
NECESSITATING PAYMENT OF DOCKET FEES AND CERTIFICATION OF NON-FORUM SHOPPING;
d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT WAITING FOR THE RESOLUTION
OF THE MOTION FOR RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT
GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21, 1998 NOT TO BE PROPER
SUBJECTS OF CERTIORARI AND PROHIBITION FOR BEING "INTERLOCUTORY IN NATURE;"
f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD,
DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT MERIT."23
The Court’s Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first tackle the procedural issues.
The rules on the payment of docket fees for counterclaims and cross claims were amended
effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket fees and
filed a certificate of non-forum shopping, and that its failure to do so was a fatal defect.
We disagree with KOGIES.
33
As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with Compulsory
Counterclaim dated July 17, 1998 in accordance with Section 8 of Rule 11, 1997 Revised Rules of Civil
Procedure, the rule that was effective at the time the Answer with Counterclaim was filed. Sec. 8 on
existing counterclaim or cross-claim states, "A compulsory counterclaim or a cross-claim that a defending
party has at the time he files his answer shall be contained therein."
On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against KOGIES, it
was not liable to pay filing fees for said counterclaims being compulsory in nature. We stress, however,
that effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-SC, docket fees
are now required to be paid in compulsory counterclaim or cross-claims.
As to the failure to submit a certificate of forum shopping, PGSMC’s Answer is not an initiatory pleading
which requires a certification against forum shopping under Sec. 524 of Rule 7, 1997 Revised Rules of Civil
Procedure. It is a responsive pleading, hence, the courts a quo did not commit reversible error in denying
KOGIES’ motion to dismiss PGSMC’s compulsory counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are neither the remedies
to question the propriety of an interlocutory order of the trial court." 26 The CA erred on its reliance
on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal case which was not assailable
in an action for certiorari since the denial of a motion to quash required the accused to plead and to
continue with the trial, and whatever objections the accused had in his motion to quash can then be used
as part of his defense and subsequently can be raised as errors on his appeal if the judgment of the trial
court is adverse to him. The general rule is that interlocutory orders cannot be challenged by an
appeal.27 Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we held:
The proper remedy in such cases is an ordinary appeal from an adverse judgment on the merits,
incorporating in said appeal the grounds for assailing the interlocutory orders. Allowing appeals from
interlocutory orders would result in the ‘sorry spectacle’ of a case being subject of a
counterproductive ping-pong to and from the appellate court as often as a trial court is perceived to
have made an error in any of its interlocutory rulings. However, where the assailed interlocutory order
was issued with grave abuse of discretion or patently erroneous and the remedy of appeal would not
afford adequate and expeditious relief, the Court allows certiorari as a mode of redress.28
Also, appeals from interlocutory orders would open the floodgates to endless occasions for dilatory
motions. Thus, where the interlocutory order was issued without or in excess of jurisdiction or with grave
abuse of discretion, the remedy is certiorari.29
The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in the
issuance of the two assailed orders coupled with the fact that there is no plain, speedy, and adequate
remedy in the ordinary course of law amply provides the basis for allowing the resort to a petition for
certiorari under Rule 65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum shopping in filing the petition for certiorari. Note
that KOGIES’ motion for reconsideration of the July 23, 1998 RTC Order which denied the issuance of the
injunctive writ had already been denied. Thus, KOGIES’ only remedy was to assail the RTC’s interlocutory
order via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998 RTC Order
relating to the inspection of things, and the allowance of the compulsory counterclaims has not yet been
resolved, the circumstances in this case would allow an exception to the rule that before certiorari may be
availed of, the petitioner must have filed a motion for reconsideration and said motion should have been
first resolved by the court a quo. The reason behind the rule is "to enable the lower court, in the first
instance, to pass upon and correct its mistakes without the intervention of the higher court."30
The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment, and
facilities when he is not competent and knowledgeable on said matters is evidently flawed and devoid of
any legal support. Moreover, there is an urgent necessity to resolve the issue on the dismantling of the
facilities and any further delay would prejudice the interests of KOGIES. Indeed, there is real and
imminent threat of irreparable destruction or substantial damage to KOGIES’ equipment and machineries.
We find the resort to certiorari based on the gravely abusive orders of the trial court sans the ruling on
the October 2, 1998 motion for reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It provides:
Article 15. Arbitration.—All disputes, controversies, or differences which may arise between the parties,
out of or in relation to or in connection with this Contract or for the breach thereof, shall finally be
settled by arbitration in Seoul, Korea in accordance with the Commercial Arbitration Rules of the Korean
Commercial Arbitration Board. The award rendered by the arbitration(s) shall be final and
binding upon both parties concerned. (Emphasis supplied.)
Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the place where the contract is made
governs. Lex loci contractus. The contract in this case was perfected here in the Philippines. Therefore,
our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutually
agreed arbitral clause or the finality and binding effect of an arbitral award. Art. 2044 provides, "Any
stipulation that the arbitrators’ award or decision shall be final, is valid , without prejudice to
Articles 2038, 2039 and 2040." (Emphasis supplied.)
Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or an arbitral award,
as applied to Art. 2044 pursuant to Art. 2043,34 may be voided, rescinded, or annulled, but these would
not denigrate the finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown to
be contrary to any law, or against morals, good customs, public order, or public policy. There has been no
showing that the parties have not dealt with each other on equal footing. We find no reason why the
arbitration clause should not be respected and complied with by both parties. In Gonzales v. Climax
Mining Ltd.,35 we held that submission to arbitration is a contract and that a clause in a contract providing
that all matters in dispute between the parties shall be referred to arbitration is a contract. 36 Again in Del
Monte Corporation-USA v. Court of Appeals, we likewise ruled that "[t]he provision to submit to
arbitration any dispute arising therefrom and the relationship of the parties is part of that contract and is
itself a contract." 37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in accordance
with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is final and binding, is not
contrary to public policy. This Court has sanctioned the validity of arbitration clauses in a catena of cases.
In the 1957 case of Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,38 this Court had occasion to
34
rule that an arbitration clause to resolve differences and breaches of mutually agreed contractual terms is
valid. In BF Corporation v. Court of Appeals, we held that "[i]n this jurisdiction, arbitration has been held
valid and constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this Court
has countenanced the settlement of disputes through arbitration. Republic Act No. 876 was adopted to
supplement the New Civil Code’s provisions on arbitration." 39 And in LM Power Engineering Corporation v.
Capitol Industrial Construction Groups, Inc., we declared that:
Being an inexpensive, speedy and amicable method of settling disputes, arbitration––along with
mediation, conciliation and negotiation––is encouraged by the Supreme Court. Aside from unclogging
judicial dockets, arbitration also hastens the resolution of disputes, especially of the commercial kind. It
is thus regarded as the "wave of the future" in international civil and commercial disputes. Brushing
aside a contractual agreement calling for arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.40
Having said that the instant arbitration clause is not against public policy, we come to the question on
what governs an arbitration clause specifying that in case of any dispute arising from the contract, an
arbitral panel will be constituted in a foreign country and the arbitration rules of the foreign country would
govern and its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising from
contractual relations. In case a foreign arbitral body is chosen by the parties, the arbitration rules of our
domestic arbitration bodies would not be applied. As signatory to the Arbitration Rules of the UNCITRAL
Model Law on International Commercial Arbitration41 of the United Nations Commission on International
Trade Law (UNCITRAL) in the New York Convention on June 21, 1985, the Philippines committed itself to
be bound by the Model Law. We have even incorporated the Model Law in Republic Act No. (RA) 9285,
otherwise known as the Alternative Dispute Resolution Act of 2004 entitled An Act to Institutionalize the
Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for
Alternative Dispute Resolution, and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of
Chapter 4 of the Model Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model Law on International Commercial Arbitration.––International
commercial arbitration shall be governed by the Model Law on International Commercial Arbitration (the
"Model Law") adopted by the United Nations Commission on International Trade Law on June 21, 1985
(United Nations Document A/40/17) and recommended for enactment by the General Assembly in
Resolution No. 40/72 approved on December 11, 1985, copy of which is hereto attached as Appendix
"A".
SEC. 20. Interpretation of Model Law.––In interpreting the Model Law, regard shall be had to its
international origin and to the need for uniformity in its interpretation and resort may be made to
the travaux preparatories and the report of the Secretary General of the United Nations Commission on
International Trade Law dated March 25, 1985 entitled, "International Commercial Arbitration:
Analytical Commentary on Draft Trade identified by reference number A/CN. 9/264."
While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a procedural
law which has a retroactive effect. Likewise, KOGIES filed its application for arbitration before the KCAB
on July 1, 1998 and it is still pending because no arbitral award has yet been rendered. Thus, RA 9285 is
applicable to the instant case. Well-settled is the rule that procedural laws are construed to be applicable
to actions pending and undetermined at the time of their passage, and are deemed retroactive in that
sense and to that extent. As a general rule, the retroactive application of procedural laws does not violate
any personal rights because no vested right has yet attached nor arisen from them.42
Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law are the
following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of
arbitration pursuant to an arbitration clause, and mandates the referral to arbitration in such cases, thus:
SEC. 24. Referral to Arbitration.––A court before which an action is brought in a matter which is the
subject matter of an arbitration agreement shall, if at least one party so requests not later than the
pre-trial conference, or upon the request of both parties thereafter, refer the parties to arbitration
unless it finds that the arbitration agreement is null and void, inoperative or incapable of being
performed.
(2) Foreign arbitral awards must be confirmed by the RTC
Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be final and
binding are not immediately enforceable or cannot be implemented immediately. Sec. 35 43 of the
UNCITRAL Model Law stipulates the requirement for the arbitral award to be recognized by a competent
court for enforcement, which court under Sec. 36 of the UNCITRAL Model Law may refuse recognition or
enforcement on the grounds provided for. RA 9285 incorporated these provisos to Secs. 42, 43, and 44
relative to Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention.––The New York Convention shall govern the
recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court in
accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules
shall provide that the party relying on the award or applying for its enforcement shall file with the court
the original or authenticated copy of the award and the arbitration agreement. If the award or
agreement is not made in any of the official languages, the party shall supply a duly certified translation
thereof into any of such languages.
The applicant shall establish that the country in which foreign arbitration award was made in party to
the New York Convention.
SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the New York
Convention.––The recognition and enforcement of foreign arbitral awards not covered by the New York
Convention shall be done in accordance with procedural rules to be promulgated by the Supreme Court.
The Court may, on grounds of comity and reciprocity, recognize and enforce a non-convention award as
a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.––A foreign arbitral award when confirmed by a
court of a foreign country, shall be recognized and enforced as a foreign arbitral award and not as a
judgment of a foreign court.
A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced in the same
manner as final and executory decisions of courts of law of the Philippines
SEC. 47. Venue and Jurisdiction.––Proceedings for recognition and enforcement of an arbitration
agreement or for vacations, setting aside, correction or modification of an arbitral award, and any
application with a court for arbitration assistance and supervision shall be deemed as special
proceedings and shall be filed with the Regional Trial Court (i) where arbitration proceedings are
conducted; (ii) where the asset to be attached or levied upon, or the act to be enjoined is located; (iii)
where any of the parties to the dispute resides or has his place of business; or (iv) in the National
Judicial Capital Region, at the option of the applicant.
35
SEC. 48. Notice of Proceeding to Parties.––In a special proceeding for recognition and enforcement of
an arbitral award, the Court shall send notice to the parties at their address of record in the arbitration,
or if any part cannot be served notice at such address, at such party’s last known address. The notice
shall be sent al least fifteen (15) days before the date set for the initial hearing of the application.
It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a judgment of
a foreign court but as a foreign arbitral award, and when confirmed, are enforced as final and executory
decisions of our courts of law.
Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments or
awards given by some of our quasi-judicial bodies, like the National Labor Relations Commission and
Mines Adjudication Board, whose final judgments are stipulated to be final and binding, but not
immediately executory in the sense that they may still be judicially reviewed, upon the instance of any
party. Therefore, the final foreign arbitral awards are similarly situated in that they need first to be
confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority and
jurisdiction to set aside, reject, or vacate a foreign arbitral award on grounds provided under Art. 34(2) of
the UNCITRAL Model Law. Secs. 42 and 45 provide:
SEC. 42. Application of the New York Convention.––The New York Convention shall govern the
recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court in
accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules
shall provide that the party relying on the award or applying for its enforcement shall file with the court
the original or authenticated copy of the award and the arbitration agreement. If the award or
agreement is not made in any of the official languages, the party shall supply a duly certified translation
thereof into any of such languages.
The applicant shall establish that the country in which foreign arbitration award was made is party to
the New York Convention.
If the application for rejection or suspension of enforcement of an award has been made, the Regional
Trial Court may, if it considers it proper, vacate its decision and may also, on the application of the
party claiming recognition or enforcement of the award, order the party to provide appropriate security.
SEC. 45. Rejection of a Foreign Arbitral Award.––A party to a foreign arbitration proceeding may
oppose an application for recognition and enforcement of the arbitral award in accordance with the
procedures and rules to be promulgated by the Supreme Court only on those grounds enumerated
under Article V of the New York Convention. Any other ground raised shall be disregarded by the
Regional Trial Court.
Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually agreed
upon by the parties, still the foreign arbitral award is subject to judicial review by the RTC which can set
aside, reject, or vacate it. In this sense, what this Court held in Chung Fu Industries (Phils.), Inc. relied
upon by KOGIES is applicable insofar as the foreign arbitral awards, while final and binding, do not oust
courts of jurisdiction since these arbitral awards are not absolute and without exceptions as they are still
judicially reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether domestic or
foreign, are subject to judicial review on specific grounds provided for.
(4) Grounds for judicial review different in domestic and foreign arbitral awards
The differences between a final arbitral award from an international or foreign arbitral tribunal and an
award given by a local arbitral tribunal are the specific grounds or conditions that vest jurisdiction over
our courts to review the awards.
For foreign or international arbitral awards which must first be confirmed by the RTC, the grounds for
setting aside, rejecting or vacating the award by the RTC are provided under Art. 34(2) of the UNCITRAL
Model Law.
For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23 of RA
87644 and shall be recognized as final and executory decisions of the RTC, 45 they may only be assailed
before the RTC and vacated on the grounds provided under Sec. 25 of RA 876.46
(5) RTC decision of assailed foreign arbitral award appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in cases
where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.—A decision of the Regional Trial Court
confirming, vacating, setting aside, modifying or correcting an arbitral award may be appealed to the
Court of Appeals in accordance with the rules and procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court confirming an arbitral award shall be
required by the appellate court to post a counterbond executed in favor of the prevailing party equal to
the amount of the award in accordance with the rules to be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition for
review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as it
bound itself through the subject contract. While it may have misgivings on the foreign arbitration done in
Korea by the KCAB, it has available remedies under RA 9285. Its interests are duly protected by the law
which requires that the arbitral award that may be rendered by KCAB must be confirmed here by the RTC
before it can be enforced.
With our disquisition above, petitioner is correct in its contention that an arbitration clause, stipulating
that the arbitral award is final and binding, does not oust our courts of jurisdiction as the international
arbitral award, the award of which is not absolute and without exceptions, is still judicially reviewable
under certain conditions provided for by the UNCITRAL Model Law on ICA as applied and incorporated in
RA 9285.
Finally, it must be noted that there is nothing in the subject Contract which provides that the parties may
dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid and binding on the parties, and not
contrary to public policy; consequently, being bound to the contract of arbitration, a party may not
unilaterally rescind or terminate the contract for whatever cause without first resorting to arbitration.
What this Court held in University of the Philippines v. De Los Angeles47 and reiterated in succeeding
cases,48 that the act of treating a contract as rescinded on account of infractions by the other contracting
36
party is valid albeit provisional as it can be judicially assailed, is not applicable to the instant case on
account of a valid stipulation on arbitration. Where an arbitration clause in a contract is availing, neither
of the parties can unilaterally treat the contract as rescinded since whatever infractions or breaches by a
party or differences arising from the contract must be brought first and resolved by arbitration, and not
through an extrajudicial rescission or judicial action.
The issues arising from the contract between PGSMC and KOGIES on whether the equipment and
machineries delivered and installed were properly installed and operational in the plant in Carmona,
Cavite; the ownership of equipment and payment of the contract price; and whether there was
substantial compliance by KOGIES in the production of the samples, given the alleged fact that PGSMC
could not supply the raw materials required to produce the sample LPG cylinders, are matters proper for
arbitration. Indeed, we note that on July 1, 1998, KOGIES instituted an Application for Arbitration before
the KCAB in Seoul, Korea pursuant to Art. 15 of the Contract as amended. Thus, it is incumbent upon
PGSMC to abide by its commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in granting PGSMC’s Motion for Inspection of
Things on September 21, 1998, as the subject matter of the motion is under the primary jurisdiction of
the mutually agreed arbitral body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the inspection made
on October 28, 1998, as ordered by the trial court on October 19, 1998, is of no worth as said Sheriff is
not technically competent to ascertain the actual status of the equipment and machineries as installed in
the plant.
For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the grant of
the inspection of the equipment and machineries have to be recalled and nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price of USD
1,530,000 was for the whole plant and its installation is beyond the ambit of a Petition for Certiorari.
Petitioner’s position is untenable.
It is settled that questions of fact cannot be raised in an original action for certiorari.49 Whether or not
there was full payment for the machineries and equipment and installation is indeed a factual issue
prohibited by Rule 65.
However, what appears to constitute a grave abuse of discretion is the order of the RTC in resolving the
issue on the ownership of the plant when it is the arbitral body (KCAB) and not the RTC which has
jurisdiction and authority over the said issue. The RTC’s determination of such factual issue constitutes
grave abuse of discretion and must be reversed and set aside.
RTC has interim jurisdiction to protect the rights of the parties
Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for PGSMC to
dismantle and transfer the equipment and machineries, we find it to be in order considering the factual
milieu of the instant case.
Firstly, while the issue of the proper installation of the equipment and machineries might well be under
the primary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has
jurisdiction to hear and grant interim measures to protect vested rights of the parties. Sec. 28 pertinently
provides:
SEC. 28. Grant of interim Measure of Protection.—(a) It is not incompatible with an arbitration
agreement for a party to request, before constitution of the tribunal, from a Court to grant
such measure. After constitution of the arbitral tribunal and during arbitral proceedings, a request for
an interim measure of protection, or modification thereof, may be made with the arbitral or to the
extent that the arbitral tribunal has no power to act or is unable to act effectivity, the
request may be made with the Court. The arbitral tribunal is deemed constituted when the sole
arbitrator or the third arbitrator, who has been nominated, has accepted the nomination and written
communication of said nomination and acceptance has been received by the party making the request.
(b) The following rules on interim or provisional relief shall be observed:
Any party may request that provisional relief be granted against the adverse party.
Such relief may be granted:
(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
(c) The order granting provisional relief may be conditioned upon the provision of security or any act or
omission specified in the order.
(d) Interim or provisional relief is requested by written application transmitted by reasonable means to
the Court or arbitral tribunal as the case may be and the party against whom the relief is sought,
describing in appropriate detail the precise relief, the party against whom the relief is requested, the
grounds for the relief, and the evidence supporting the request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance in implementing or enforcing an interim
measure ordered by an arbitral tribunal.
(g) A party who does not comply with the order shall be liable for all damages resulting from
noncompliance, including all expenses, and reasonable attorney's fees, paid in obtaining the order’s
judicial enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of protection as:
Article 17. Power of arbitral tribunal to order interim measures
xxx xxx xxx
(2) An interim measure is any temporary measure, whether in the form of an award or in another
form, by which, at any time prior to the issuance of the award by which the dispute is finally decided,
the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of the dispute;
(b)  Take action that would prevent, or refrain from taking action that is likely to cause, current or
imminent harm or prejudice to the arbitral process itself;
(c)  Provide a means of preserving assets out of which a subsequent award may be satisfied; or
(d)  Preserve evidence that may be relevant and material to the resolution of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue interim
measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an interim measure in relation to arbitration proceedings,
irrespective of whether their place is in the territory of this State, as it has in relation to proceedings in
courts. The court shall exercise such power in accordance with its own procedures in consideration of
the specific features of international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we were explicit that
even "the pendency of an arbitral proceeding does not foreclose resort to the courts for provisional
reliefs." We explicated this way:
37
As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the courts for
provisional reliefs. The Rules of the ICC, which governs the parties’ arbitral dispute, allows the
application of a party to a judicial authority for interim or conservatory measures. Likewise, Section 14
of Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes the rights of any party to petition the
court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in
arbitration. In addition, R.A. 9285, otherwise known as the "Alternative Dispute Resolution Act of
2004," allows the filing of provisional or interim measures with the regular courts whenever the arbitral
tribunal has no power to act or to act effectively.50
It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of protection.
Secondly, considering that the equipment and machineries are in the possession of PGSMC, it has the
right to protect and preserve the equipment and machineries in the best way it can. Considering that the
LPG plant was non-operational, PGSMC has the right to dismantle and transfer the equipment and
machineries either for their protection and preservation or for the better way to make good use of them
which is ineluctably within the management discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining the equipment and machineries in Worth’s
property is not to the best interest of PGSMC due to the prohibitive rent while the LPG plant as set-up is
not operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for 1998 alone without
considering the 10% annual rent increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the preservation or
transfer of the equipment and machineries as an interim measure, yet on hindsight, the July 23, 1998
Order of the RTC allowing the transfer of the equipment and machineries given the non-recognition by
the lower courts of the arbitral clause, has accorded an interim measure of protection to PGSMC which
would otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based on the
contract. Moreover, KOGIES is amply protected by the arbitral action it has instituted before the KCAB,
the award of which can be enforced in our jurisdiction through the RTC. Besides, by our decision, PGSMC
is compelled to submit to arbitration pursuant to the valid arbitration clause of its contract with KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to dismantle and transfer the subject equipment
and machineries, it does not have the right to convey or dispose of the same considering the pending
arbitral proceedings to settle the differences of the parties. PGSMC therefore must preserve and maintain
the subject equipment and machineries with the diligence of a good father of a family 51 until final
resolution of the arbitral proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117
are REVERSED and SET ASIDE;
(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute and
differences arising from the subject Contract before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it had not
done so, and ORDERED to preserve and maintain them until the finality of whatever arbitral award is
given in the arbitration proceedings.
 G.R. NO. 152471 August 18, 2006

FIESTA WORLD MALL CORPORATION, Petitioner,

vs.
LINBERG PHILIPPINES, INC., Respondent.

For our resolution is the instant Petition for Review on Certiorari 1 assailing the Decision2 dated December
12, 2001 and Resolution3 dated February 28, 2002 rendered by the Court of Appeals in CA-G.R. SP No.
63671, entitled "Fiesta World Mall Corporation, petitioner, versus Hon. Florito S. Macalino, Presiding
Judge of the Regional Trial Court (RTC), Branch 267, Pasig City, and Linberg Philippines, Inc.,
respondents."

The facts of this case are:

Fiesta World Mall Corporation, petitioner, owns and operates Fiesta World Mall located at Barangay
Maraouy, Lipa City; while Linberg Philippines, Inc., respondent, is a corporation that builds and operates
power plants.

On January 19, 2000, respondent filed with the Regional Trial Court (RTC), Branch 267, Pasig City, a
Complaint for Sum of Money against petitioner, docketed as Civil Case No. 67755. The complaint alleges
that on November 12, 1997, petitioner and respondent executed a build-own-operate agreement, entitled
"Contract Agreement for Power Supply Services, 3.8 MW Base Load Power Plant" 4 (the Contract). Under
this Contract, respondent will construct, at its own cost, and operate as owner a power plant, and to
supply petitioner power/electricity at its shopping mall in Lipa City. Petitioner, on the other hand, will pay
respondent "energy fees" to be computed in accordance with the Seventh Schedule of the Contract, the
pertinent portions of which provide:
2.1 x x x
E1 – 988,888 kw-hr x BER
E2 – (ED-988,888) x BER
Where:
E1 & E2 – Energy fees in pesos for the billing period. Where E1 is based on the minimum energy off-
take of 988,888 kw-hrs. per month and E2 is based on the actual meter reading less the minimum
off-take.
BER – Base energy rate at Ps 2.30/Kw-Hr billing rate based on the exchange rate of Ps 26.20 to the
US dollar, and with fuel oil to be supplied by LINBERG at its own cost. The base energy rate is subject
to exchange rate adjustment accordingly to the formula as follows:
BER – 0.6426 + 0.3224 Pn + 1.345 Fn
26.40 4.00
WHERE:
Pn – is defined as the average of the Bangko Sentral ng Pilipinas’ published dealing rates for thirty
(30) trading days immediately prior to the new billing rate.
Fn – Weighted average of fuel price per liter based on the average of the last three (3) purchases
made by LINBERG as evidenced by purchase invoices.
ED – Energy delivered in kw-hrs per meter reading.
3. Minimum Energy Off-Take
The energy fees payable to LINBERG shall be on the basis of actual KWH generated by the plant.
However, if the actual KWH generated is less than the minimum energy off-take level, the calculation
of the energy fees shall be made as if LINBERG has generated the minimum energy off-take level of
988,888 KW-HR per month.

The complaint further alleges that respondent constructed the power plant in Lipa City at a cost of
about P130,000,000.00. In November 1997, the power plant became operational and started supplying
power/electricity to petitioner’s shopping mall in Lipa City. In December 1997, respondent started billing
petitioner. As of May 21, 1999, petitioner’s unpaid obligation amounted to P15,241,747.58, exclusive of

38
interest. However, petitioner questioned the said amount and refused to pay despite respondent’s
repeated demands.
In its Answer with Compulsory Counterclaim, petitioner specifically denied the allegations in the
complaint, claiming that respondent failed to fulfill its obligations under the Contract by failing to supply
all its power/fuel needs. From November 10, 1998 until May 21, 1999, petitioner personally shouldered
the cost of fuel. Petitioner also disputed the amount of energy fees specified in the billings made by
respondent because the latter failed to monitor, measure, and record the quantities of electricity
delivered by taking photographs of the electricity meter reading prior to the issuance of its invoices and
billings, also in violation of the Contract. 5 Moreover, in the computation of the electrical billings, the
minimum off-take of energy (E2) was based solely on the projected consumption as computed by
respondent. However, based on petitioner’s actual experience, it could not consume the energy pursuant
to the minimum off-take even if it kept open all its lights and operated all its machinery and equipment
for twenty-four hours a day for a month. This fact was admitted by respondent. While both parties had
discussions on the questioned billings, however, "there were no earnest efforts to resolve the differences
in accordance with the arbitration clause provided for in the Contract."
Finally, as a special affirmative defense in its answer, petitioner alleged that respondent’s filing of the
complaint is premature and should be dismissed on the ground of non-compliance with paragraph 7.4 of
the Contract which provides:
7.4 Disputes
If FIESTA WORLD disputes the amount specified by any invoice, it shall pay the undisputed amount
on or before such date(s), and the disputed amount shall be resolved by arbitration of three (3)
persons, one (1) by mutual choice, while the other two (2) to be each chosen by the parties
themselves, within fourteen (14) days after the due date for such invoice and all or any part of the
disputed amount paid to LINBERG shall be paid together with interest pursuant to Article XXV from
the due date of the invoice. It is agreed, however, that both parties must resolve the disputes within
thirty (30) days, otherwise any delay in payment resulting to loss to LINBERG when converted to $US
as a result of depreciation of the Pesos shall be for the account of FIESTA WORLD. Corollarily, in case
of erroneous billings, however, LINBERG shall be liable to pay FIESTA WORLD for the cost of such
deterioration, plus interest computed pursuant to Art. XXV from the date FIESTA WORLD paid for the
erroneous billing. (Underscoring supplied)
Thereafter, petitioner filed a Motion to Set Case for Preliminary Hearing on the ground that
respondent violated the arbitration clause provided in the Contract, thereby rendering its cause of
action premature.
This was opposed by respondent, claiming that paragraph 7.4 of the Contract on arbitration is not the
provision applicable to this case; and that since the parties failed to settle their dispute, then
respondent may resort to court action pursuant to paragraph 17.2 of the same Contract which
provides:
17.2 Amicable Settlement
The parties hereto agree that in the event there is any dispute or difference between them arising out
of this Agreement or in the interpretation of any of the provisions hereto, they shall endeavor to meet
together in an effort to resolve such dispute by discussion between them but failing such resolution
the Chief Executives of LINBERG and FIESTA WORLD shall meet to resolve such dispute or difference
and the joint decision of such shall be binding upon the parties hereto, and in the event that a
settlement of any such dispute or difference is not reached, then the provisions of Article XXI shall
apply.
Article XXI, referred to in paragraph 17.2 above, reads:
ARTICLE XXI: JURISDICTION
The parties hereto submit to the exclusive jurisdiction of the proper courts of Pasig City, Republic of the
Philippines for the hearing and determination of any action or proceeding arising out of or in connection
with this Agreement.
39
In its Order dated October 3, 2000, the trial court denied petitioner’s motion for lack of merit.
Petitioner then filed a Motion for Reconsideration but it was denied in an Order dated January 11, 2001.
Dissatisfied, petitioner elevated the matter to the Court of Appeals via a Petition for Certiorari, docketed
as CA-G.R. SP No. 63671. On December 12, 2001, the appellate court rendered its Decision dismissing
the petition and affirming the challenged Orders of the trial court.
Petitioner’s Motion for Reconsideration of the above Decision was likewise denied by the appellate court in
its Resolution6 dated February 28, 2002.
Hence, the instant Petition for Review on Certiorari.
The sole issue for our resolution is whether the filing with the trial court of respondent’s complaint is
premature.
Paragraph 7.4 of the Contract, quoted earlier, mandates that should petitioner dispute any amount of
energy fees in the invoice and billings made by respondent, the same "shall be resolved by arbitration of
three (3) persons, one (1) by mutual choice, while the other two (2) to be each chosen by the parties
themselves." The parties, in incorporating such agreement in their Contract, expressly intended that the
said matter in dispute must first be resolved by an arbitration panel before it reaches the court. They
made such arbitration mandatory.
It is clear from the records that petitioner disputed the amount of energy fees demanded by respondent.
However, respondent, without prior recourse to arbitration as required in the Contract, filed directly with
the trial court its complaint, thus violating the arbitration clause in the Contract.
It bears stressing that such arbitration agreement is the law between the parties. Since that agreement is
binding between them, they are expected to abide by it in good faith.7 And because it covers the dispute
between them in the present case, either of them may compel the other to arbitrate.8 Thus, it is well
within petitioner’s right to demand recourse to arbitration.
We cannot agree with respondent that it can directly seek judicial recourse by filing an action against
petitioner simply because both failed to settle their differences amicably. Suffice it to state that there is
nothing in the Contract providing that the parties may dispense with the arbitration clause. Article XXI on
jurisdiction cited by respondent, i.e., that "the parties hereto submit to the exclusive jurisdiction of the
proper courts of Pasig City" merely provides for the venue of any action arising out of or in connection
with the stipulations of the parties in the Contract.
Moreover, we note that the computation of the energy fees disputed by petitioner also involves technical
matters that are better left to an arbitration panel who has expertise in those areas. Alternative dispute
resolution methods or ADRs – like arbitration, mediation, negotiation and conciliation – are encouraged
by this Court. By enabling the parties to resolve their disputes amicably, they provide solutions that are
less time-consuming, less tedious, less confrontational, and more productive of goodwill and lasting
relationships.9 To brush aside such agreement providing for arbitration in case of disputes between the
parties would be a step backward. As we held in BF Corporation v. Court of Appeals,10
It should be noted that in this jurisdiction, arbitration has been held valid and constitutional. Even before
the approval on June 19, 1953 of Republic Act No. 876 (The Arbitration Law), this Court has
countenanced the settlement of disputes through arbitration (Puromines, Inc. v. Court of Appeals, G.R.
No. 91228, March 22, 1993, 220 SCRA 281-290). Republic Act No. 876 was adopted to supplement the
New Civil Code’s provisions on arbitration (Chung Fu Industries Phils., Inc. v. Court of Appeals, G.R. No.
92683, February 25, 1992, 206 SCRA 545, 551). Its potentials as one of the alternative dispute resolution
methods that are now rightfully vaunted as ‘the wave of the future’ in international relations, is
recognized worldwide. To brush aside a contractual agreement calling for arbitration in case of
G.R. No. 196171               December 10, 2012
disagreement between the parties would therefore be a step backward.

RCBC CAPITAL CORPORATION, Petitioners,

In this connection, since respondent has already filed a complaint with the trial court without prior
vs.
recourse to arbitration, the proper procedure to enable an arbitration panel to resolve the parties’ dispute
BANCO DE ORO UNIBANK, INC., Respondent.
pursuant to their Contract is for the trial court to stay the proceedings. 11 After the arbitration proceeding
has been pursued and completed, then the trial court may confirm the award made by the arbitration
panel.12 X- - - - - - - - - - - - - - - - - - - - - - - - - -X

In sum, we hold that the Court of Appeals erred in disregarding the arbitration clause in the parties’ G.R. No. 199238
Contract.
BANCO DE ORO UNIBANK, INC., Petitioner,
WHEREFORE, we GRANT the instant petition. The assailed Decision and Resolution of the Court of vs.
Appeals in CA-G.R. SP No. 63671 are REVERSED. The parties are ordered to submit their controversy to COURT OF APPEALS and RCBC CAPITAL CORPORATION, Respondents.
the arbitration panel pursuant to paragraph 7.4 of the Contract. The Regional Trial Court, Branch 267,
Pasig City is directed to suspend the proceedings in Civil Case No. 67755 until after the Arbitration Panel Before the Court are two consolidated petitions separately filed by the parties in an arbitration case
shall have resolved the controversy and submitted its report to the trial court. Costs against respondent. administered by the International Chamber of Commerce-International Court of Arbitration (ICC-ICA)
pursuant to the arbitration clause in their contract.

The Case

In G.R. No. 196171, a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, RCBC Capital Corporation (RCBC) seeks to reverse the Court of Appeals (CA) Decision 1 dated
December 23, 2010 in CA-G.R. SP No. 113525 which reversed and set aside the June 24, 2009 Order 2 of
the Regional Trial Court (RTC) of Makati City, Branch 148 in SP Proc. Case No. M-6046.

In G.R. No. 199238,a petition for certiorari under Rule 65, Banco De Oro Unibank, Inc. (BDO)assails the
Resolution3 dated September 13, 2011 in CA-G.R. SP No. 120888 which denied BDO’s application for the
issuance of a stay order and/or temporary restraining order (TRO)/preliminary injunction against the
implementation of the Writ of Execution4 dated August 22, 2011 issued by the Makati City RTC, Branch
148 in SP Proc. Case No. M-6046.

Factual Antecedents

On May 24, 2000, RCBC entered into a Share Purchase Agreement5 (SPA) with Equitable-PCI Bank, Inc.
(EPCIB), George L. Go and the individual shareholders6 of Bankard, Inc. (Bankard) for the sale to RCBC of
226,460,000 shares (Subject Shares) of Bankard, constituting 67% of the latter’s capital stock. After
completing payment of the contract price (₱1,786,769,400), the corresponding deeds of sale over the
subject shares were executed in January 2001.

The dispute between the parties arose sometime in May 2003 when RCBC informed EPCIB and the other
selling shareholdersof an overpayment of the subject shares, claiming there was an overstatement of
valuation of accounts amounting to ₱478 million and that the sellers violated their warrantyunder Section
5(g)of the SPA.7

As no settlement was reached, RCBC commenced arbitration proceedings with the ICC-ICA in accordance
with Section 10 of the SPA which states:
Section 10.Arbitration
Should there be any dispute arising between the parties relating to this Agreement including the
interpretation or performance hereof which cannot be resolved by agreement of the parties within

40
 fifteen (15) days after written notice by a party to another, such matter shall then be finally settled by set a new time limit, and if such requested deposit remains unpaid at the expiry thereof, the
arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce in counterclaims would be considered withdrawn.15
force as of the time of arbitration, by three arbitrators appointed in accordance with such rules. The
venue of arbitration shall be in Makati City, Philippines and the arbitration proceedings shall be
In a fax-letter dated January 4, 2005, the ICC-ICA invited RCBC to pay the said amount in substitution of
conducted in the English language. Substantive aspects of the dispute shall be settled by applying the
Respondents.It also granted an extension until January 17, 2005 within which to pay the balance of the
laws of the Philippines. The decision of the arbitrators shall be final and binding upon the parties hereto
advance cost (US$175,000). RCBC replied that it was not willing to shoulder the share of Respondents in
and the expenses of arbitration (including without limitation the award of attorney’s fees to the
the advance on costs but nevertheless requested for a clarification as to the effect of such refusal to
prevailing party) shall be paid as the arbitrators shall determine.8
substitute for Respondents’share.16

In its Request for Arbitration9 dated May 12, 2004, Claimant RCBC charged Bankard with deviating from
On March 10, 2005, the ICC-ICA instructed the Arbitration Tribunal to suspend its work and granted the
and contravening generally accepted accounting principles and practices, due to which the financial
parties a final time-limit of 15 days to pay the balance of the advanceon costs, failing which the claims
statements of Bankard prior to the stock purchase were far from fair and accurate, and resulted in the
shall be considered withdrawn, without prejudice to their reintroduction at a later date in another
overpayment of ₱556 million. For this violation of sellers’representations and warranties under the SPA,
proceeding. The parties were advised that if any of them objects to the measure, it should make a
RCBC sought its rescission, as well as payment of actual damages in the amount of ₱573,132,110, legal
request in writing within such period.17 For the same reason of non-receipt of the balance of the advance
interest on the purchase price until actual restitution, moral damages and litigation and attorney’s fees,
cost, the ICC-ICA issued Procedural Order No. 3 for the adjournment of the substantive hearings and
with alternative prayer for award of damages in the amount of at least ₱809,796,082 plus legal interest.
granting the Respondents a two-month extension within which to submit their brief of evidence and
witnesses.
In their Answer,10 EPCIB, Go and the other selling individual shareholders (Respondents) denied RCBC’s
allegations contending that RCBC’s claim is one for overpayment or price reduction under Section 5(h) of
RCBC objected to the cancellation of hearings, pointing out that Respondents have been given ample time
the SPA which is already time-barred, the remedy of rescission is unavailable, and even assuming that
and opportunity to submit their brief of evidence and prepare for the hearings and that their request for
rescission is permitted by the SPA, RCBC failed to file its claim within a reasonable time. They further
postponement serves no other purpose but to delay the proceedings. It alleged that Respondents’
asserted that RCBC is not entitled to its alternative prayer for damages, being guilty of laches and failing
unjustified refusal to pay their share in the advance on costs warrants a ruling that they have lost
to set out the details of the breach as required under Section 7 of the SPA. A counterclaim for litigation
standing to participate in the proceedings. It thus prayed that Respondents be declared as in default, the
expenses and costs of arbitration in the amount of US$300,000, as well as moral and exemplary
substantive hearings be conducted as originally scheduled, and RCBC be allowed to submit rebuttal
damages, was likewise raised by the Respondents.
evidence and additional witness statements.18

RCBC submitted a Reply11 to the aforesaid Answer.

Subsequently, the Arbitration Tribunal was constituted. Mr. Neil Kaplan was nominated by RCBC; Justice
Santiago M. Kapunan (a retired Member of this Court) was nominated by the Respondents; and Sir Ian
Barker was appointed by the ICC-ICA as Chairman.
On December 15, 2005, the ICC-ICA notified the parties of its decision to increase the advances on costs
from US$350,000 to US$450,000 subject to later readjustments, and again invited the Respondents to
pay the US$100,000 increment within 30 days from notice. Respondents, however, refused to pay the
increment, insisting that RCBC should bear the cost of prosecuting its own claim and that compelling the
Respondents to fund such prosecution is inequitable. Respondents reiterated that it was willing to pay the
advance on costs for their counterclaim.19

On August 13, 2004, the ICC-ICA informed the parties that they are required to pay US$350,000 as
advance on costs pursuant to Article 30 (3) of the ICC Rules of Arbitration (ICC Rules). RCBC paid its On December 27, 2005, the ICC-ICA advised that it was not possible to fix separate advances on costs as
share of US$107,000, the balance remaining after deducting payments of US$2,500 and US$65,000 it explained in its December 3, 2004 letter, and again invited Respondents to pay their share in the advance
made earlier. Respondents’ share of the advance on costs was thus fixed at US$175,000. on costs. Respondents’ response contained in the letter dated January 6, 2006 was still the same: it was
willing to pay only the separate advance on costs of their counterclaim. 20 In view of Respondents’
continuing refusal to pay its equal share in the advance on costs and increment, RCBC wrote the ICC-ICA
Respondents filed an Application for Separate Advances on Costs12 dated September 17, 2004 under
stating that the latter should compel the Respondents to pay as otherwise RCBC will be prejudiced and
Article 30(2) of the ICC Rules, praying that the ICC fix separate advances on the cost of the parties’
the inaction of the ICC-ICA and the Arbitration Tribunal will detract from the effectiveness of arbitration
respective claims and counterclaims, instead of directing them to share equally on the advance cost of
as a means of settling disputes. In accordance with Article 30(4) of the ICC Rules, RCBC reiterated its
Claimant’s (RCBC) claim. Respondents deemed this advance cost allocation to be proper, pointing out
request to declare the Respondents as in default without any personality to participate in the proceedings
that the total amount of RCBC’s claim is substantially higher – more than 40 times –the total amount of
not only with respect to their counterclaims but also to the claim of RCBC.21
their counterclaims, and that it would be unfair to require them to share in the costs of arbitrating what is
essentially a price issue that is now time-barred under the SPA.
Chairman Ian Barker, in a letter dated January 25, 2006, stated in part:
2. The Tribunal has no power under the ICC Rules to order the Respondents to pay the
On September 20, 2004, the ICC-ICA informed Respondents that their application for separate advances
advance on costs sought by the ICC or to give the Claimant any relief against the
on costs was premature pending the execution of the Terms of Reference (TOR). 13 The TOR was settled by
Respondents’ refusal to pay. The ICC Rules differ from, for example, the Rules of the LCIA (Article
the parties and signed by the Chairman and Members of the Arbitral Tribunal by October 11, 2004. On
24.3) which enables a party paying the share of costs which the other party has refused to pay, to
December 3, 2004,14 the ICC-ICA denied the application for separate advances on costs and invited anew
recover "that amount as a debt immediately due from the defaulting party."
the Respondents to pay its share in the advance on costs. However, despite reminders from the ICC-ICA,
3. The only sanction under the ICC Rules is contained within Article 30 (4). Where a request for an
Respondents refused to pay their share in the advance cost fixed by the ICC-ICA. On December 16, 2004,
advance on costs has not been complied with, after consultation with the Tribunal, the Secretary-
the ICC-ICA informed the parties that if Respondents still failed to pay its share in the advance cost, it
General may direct the Tribunal to suspend its work. After expiry of a time limit, all claims and
would apply Article 30(4) of the ICC Rules and request the Arbitration Tribunal to suspend its work and
counterclaims are then considered as withdrawn. This provision cannot assist a Claimant who is anxious

41
 to litigate its claim. Such a Claimant has to pay the sums requested (including the Respondents’ share)
if it wishes the arbitration to proceed.
4. It may be possible for a Claimant in the course of the arbitral hearing (or whenever costs
are being considered by the Tribunal) to make submissions based on the failure of the
Respondents to pay their share of the costs advance.What relief, if any, would have to be
then determined by the Tribunal after having heard submissions from the Respondents.
5. I should be pleased if the Claimant will advise the Tribunal of its intention in relation to the costs
advance. If the costs are not paid, the arbitration cannot proceed.
RCBC paid the additional US$100,000 under the second assessment to avert suspension of the Arbitration
Tribunal’s proceedings.
Upon the commencement of the hearings, the Arbitration Tribunal decided that hearings will be initially
confined to issues of liability (liability phase) while the substantial issues will be heard on a later date
(quantum phase).
Meanwhile, EPCIB’s corporate name was officially changed to Banco De Oro (BDO)-EPCIB after its merger
with BDO was duly approved by the Securities and Exchange Commission. As such, BDO assumed all the
obligations and liabilities of EPCIB under the SPA.
On September 27, 2007, the Arbitration Tribunal rendered a Partial Award 23 (First Partial Award) in ICC-
ICA Case No. 13290/MS/JB/JEM,as follows:
15 AWARD AND DIRECTIONS
15.1 The Tribunal makes the following declarations by way of Partial Award:
(a) The Claimant’s claim is not time-barred under the provisions of this SPA.
(b) The Claimant is not estopped by its conduct or the equitable doctrine of laches from pursuing its
claim.
(c) As detailed in the Partial Award, the Claimant has established the following breaches by the
Respondents of clause 5(g) of the SPA:
i) the assets, revenue and net worth of Bankard were overstated by reason of its policy on and
recognition of Late Payment Fees;
ii) reported receivables were higher than their realisable values by reason of the ‘bucketing’
method, thus overstating Bankard’s assets; and
iii) the relevant Bankard statements were inadequate and misleading in that their disclosures
caused readers to be misinformed about Bankard’s accounting policies on revenue and
receivables.
(d) Subject to proof of loss the Claimant is entitled to damages for the foregoing breaches.
(e) The Claimant is not entitled to rescission of the SPA.
(f) All other issues, including any issue relating to costs, will be dealt with in a further or
final award.
15.2 A further Procedural Order will be necessary subsequent to the delivery of this Partial Award to
deal with the determination of quantum and in particular, whether there should be an Expert
appointed by the Tribunal under Article 20(4) of the ICC Rules to assist the Tribunal in this regard.
15.3 This Award is delivered by a majority of the Tribunal (Sir Ian Barker and Mr. Kaplan). Justice
Kapunan is unable to agree with the majority’s conclusion on the claim of estoppel brought by the
Respondents.24 (Emphasis supplied)
On October 26, 2007, RCBC filed with the Makati City RTC, Branch 148 (SP Proc. Case No. M-
6046)amotion to confirm the First Partial Award, while Respondents filed a motion to vacate the same.
ICC-ICA by letter25 dated October 12, 2007 increased the advance on costs from US$450,000 to
US$580,000. Under this third assessment, RCBC paid US$130,000 as its share on the increment.
Respondents declined to pay its adjudged total share of US$290,000 on account of its filing in the RTC of
a motion to vacate the First Partial Award. 26 The ICC-ICA then invited RCBC to substitute for Respondents
42
in paying the balance of US$130,000 by December 21, 2007. 27 RCBC complied with the request, making
its total payments in the amount of US$580,000.28
While RCBC paid Respondents’ share in the increment (US$130,000), it reiterated its plea that
Respondents be declared as in default and the counterclaimsdeemed as withdrawn.29
Chairman Barker’s letter dated December 18, 2007 states in part:
8. Contrary to the Complainant’s view, the Tribunal has no jurisdiction to declare that the Respondents
have no right to participate in the proceedings concerning the claim. Article 30(4) of the ICC Rules
applies only to any counterclaim of the Respondents.
9. The Tribunal interprets the Claimant’s latest letter as an application by the Claimant to the
Tribunal for the issue of a partial award against the Respondents in respect of their failure to
pay their share of the ICC’s requests for advance on costs.
10. I should be grateful if the Claimant would confirm that this is the situation. If so, the Claimant
should propose a timetable for which written submissions should be made by both parties. This is an
application which can be considered by the Tribunal on written submissions.30 (Emphasis supplied)
RCBC, in a letter dated December 26, 2007, confirmed the Arbitration Tribunal’s interpretation that it was
applying for a partial award against Respondents’ failure to pay their share in the advance on costs.31
Meanwhile, on January 8, 2008, the Makati City RTC, Branch 148 issued an order in SP Proc. Case No. M-
6046 confirming the First Partial Award and denying Respondents’ separate motions to vacate and to
suspend and inhibit Barker and Kaplan. Respondents’ motion for reconsideration was likewise denied.
Respondents directly filed with this Court a petition for review on certiorari under Rule 45, docketed
as G.R. No. 182248 and entitled Equitable PCI Banking Corporation v. RCBC Capital Corporation.32 In our
Decision dated December 18, 2008, we denied the petition and affirmed the RTC’s ruling confirming the
First Partial Award.
On January 18, 2008, the Arbitration Tribunal set a timetable for the filing of submission by the parties on
whether it should issue a Second Partial Award in respect of the Respondents’ refusal to pay an advance
on costs to the ICC-ICA.
In compliance, RCBC filed on February 7, 2008an Application for Reimbursement of Advance on Costs
Paid, praying for the issuance of a partial award directing the Respondents to reimburse its payment in
the amount of US$290,000 representing Respondents’ share in the Advance on Costs and to consider
Respondents’ counterclaim for actual damages in the amount of US$300,000, and moral and exemplary
damages as withdrawn for their failure to pay their equal share in the advance on costs. RCBC invoked
the plain terms of Article 30 (2) and (3) to stress the liability of Respondents to share equally in paying
the advance on costs where the Arbitration Tribunal has fixed the same.33
Respondents, on the other hand, filed their Opposition34 to the said application alleging that the
Arbitration Tribunal has lost its objectivity in an unnecessary litigation over the payment of Respondents’
share in the advance costs. They pointed out that RCBC’s letter merely asked that Respondents be
declared as in default for their failure to pay advance costs but the Arbitration Tribunal, while denying the
request offered an alternative to RCBC: a Partial Award for Respondents’ share in the advance costs even
if it was clear from the language of RCBC’s December 11, 2007 letter that it had no intention of litigating
for the advance costs. Chairman Barker, after ruling earlier that it cannot grant RCBC’s request to declare
the Respondents as having no right to participate in the proceedings concerning the claim, interpreted
RCBC’s letter as an application for the Arbitration Tribunal to issue a partial award in respect of such
refusal of Respondents to pay their share in the advance on costs, and subsequently directed the parties
to make submissions on the matter.Aside from violating their right to due process and to be heard by an
impartial tribunal, Respondents also argued that in issuing the award for advance cost, the
ArbitrationTribunal decided an issue beyond the terms of the TOR.
Respondents also emphasized that the parties agreed on a two-part arbitration: the first part of the
Tribunal’s proceedings would determine Respondents’ liability, if any, for alleged violation of Section 5(g)
and (h) of the SPA; and the second part of the proceedings would determine the amounts owed by one
party to another as a consequence of a finding of liability or lack thereof. An award for "reimbursement of
advances for costs" clearly falls outside the scope of either proceedings. Neither can the Tribunal justify
such proceedings under Article 23 of the ICC Rules (Conservatory and Interim Measures) because that
provision does not contemplate an award for the reimbursement of advance on costs in arbitration cases.
Respondents further asserted that since the advances on costs have been paid by the Claimant (RCBC),
the main claim and counterclaim may both be heard by the Arbitration Tribunal.
In his letter dated March 13, 2008, Chairman Barker advised the parties, as follows:
1. The Tribunal acknowledges the Respondents’ response to the Claimant’s application for a Partial
Award, based on the Respondents’ failure to pay their share of the costs, as requested by the ICC.
2. The Tribunal notes that neither party has referred to an article by Mat[t]hew Secomb on
this very subject which appears in the ICC Bulletin Vol. 14 No.1 (Spring 2003) . To assist both
sides and to ensure that the Tribunal does not consider material on which the parties have not been
given an opportunity to address, I attach a copy of this article, which also contains reference to other
scholarly works on the subject.
3. The Tribunal will give each party seven days within which to submit further written comments as a
consequence of being alerted to the above authorities.35 (Additional emphasis supplied)
The parties complied by submitting their respective comments.
RCBC refuted Respondents’ allegation of partiality on the part of Chairman Barker and reiterated the
prayer in its application for reimbursement of advance on costs paid to the ICC-ICA. RCBC
contended that based on Mr. Secomb’s article, whether the "contractual" or "provisional measures"
approach is applied, the Arbitration Tribunal is vested with jurisdiction and authority to render an award
with respect to said reimbursement of advance cost paid by the non-defaulting party.36
Respondents, on the other hand, maintained that RCBC’s application for reimbursement of advance cost
has no basis under the ICC Rules. They contended that no manifest injustice can be inferred from an act
of a party paying for the share of the defaulting party as this scenario is allowed by the ICC Rules.
Neither can a partial award for advance cost be justified under the "contractual approach" since the
matter of costs for arbitration is between the ICC and the parties, not the Arbitration Tribunal and the
parties. An arbitration tribunal can issue decisions on costs only for those costs not fixed by the ICC.37
Respondents reiterated their position that Article 30(3) envisions a situation whereby a party would
refuse to pay its share on the advance on costs and provides a remedy therefor – the other party "shall
be free to pay the whole of the advance on costs." Such party’s reimbursement for payments of the
defaulting party’s share depends on the final arbitral award where the party liable for costs would be
determined. This is the only remedy provided by the ICC Rules.38
On May 28, 2008, the Arbitration Tribunal rendered the Second Partial Award,39 as follows:
7 AWARD
7.1 Having read and considered the submissions of both parties, the Tribunal AWARDS, DECLARES AND
ORDERS as follows:
(a) The Respondents are forthwith to pay to the Claimant the sum of US$290,000.
(b) The Respondents’ counterclaim is to be considered as withdrawn.
(c) All other questions, including interest and costs, will be dealt with in a subsequent award.40
The above partial award was received by RCBC and Respondents on June 12, 2008.
On July 11, 2008, EPCIB filed a Motion to Vacate Second Partial Award 41 in the Makati City RTC, Branch
148 (SP Proc. Case No. M-6046). On July 10, 2008, RCBC filed in the same court a Motion to Confirm
Second Partial Award.42
43
EPCIB raised the following grounds for vacating the Second Partial Award: (a) the award is void ab
initio  having been rendered by the arbitrators who exceeded their power or acted without it; and (b) the
award was procured by undue means or issued with evident partiality or attended by misbehavior on the
part of the Tribunal which resulted in a material prejudice to the rights of the Respondents. EPCIB argued
that there is no express agreement either in the SPA or the ICC Rules for such right of reimbursement.
There is likewise no implied agreement because from the ICC Rules, the only inference is that the parties
agreed to await the dispositions on costs liability in the Final Award, not before.
On the ruling of the Arbitration Tribunal that Respondents’ application for costs are not counterclaims,
EPCIB asserted that this is contrary to Philippine law as it is basic in our jurisdiction that counterclaims for
litigation expenses, moral and exemplary damages are proper counterclaims, which rule should be
recognized in view of Section 10 of the SPA which provides that "substantive aspects of the dispute shall
be settled by applying the laws of the Philippines." Finally, EPCIB takes issue with Chairman Barker’s
interpretation of RCBC’s December 11, 2007 letter as an application for a partial award for
reimbursement of the substituted payments. Such conduct of Chairman Barker is prejudicial and proves
his evident partiality in favor of RCBC.
RCBC filed its Opposition, 43 asserting that the Arbitration Tribunal had jurisdiction to consider
Respondents’ counterclaim as withdrawn, the same having been abandoned by not presenting any
computation or substantiation by evidence, their only computation relates only to attorney’s fees which
are simply cost of litigation properly brought at the conclusion of the arbitration. It also pointed out that
the Arbitration Tribunal was empowered by the parties’ arbitral clause to determine the manner of
payment of expenses of arbitration, and that the Second Partial Award was based on authorities and
treatiseson the mandatory and contractual nature of the obligation to pay advances on costs.
In its Reply,44 EPCIB contended that RCBC had the option to agree to its proposal for separate advances
on costs but decided against it; RCBC’s act of paying the balance of the advance cost in substitution of
EPCIB was for the purpose of having EPCIB defaulted and the latter’s counterclaim withdrawn. Having
agreed to finance the arbitration until its completion, RCBC is not entitled to immediate reimbursement of
the amount it paid in substitution of EPCIB under an interim award, as its right to a partial or total
reimbursement will have to be determined under the final award. EPCIB asserted that the matter of
reimbursement of advance cost paid cannot be said to have properly arisen during arbitration. EPCIB
reiterated that Chairman Barker’s interpretation of RCBC’s December 11, 2007 letter as an application for
interim award for reimbursement is tantamount to a promise that the award will be issued in due course.
After a further exchange of pleadings, and other motions seeking relief from the court in connection with
the arbitration proceedings (quantum phase), the Makati City RTC, Branch 148 issued the Order 45 dated
June 24, 2009 confirming the Second Partial Award and denying EPCIB’s motion to vacate the same. Said
court held that since the parties agreed to submit any dispute under the SPA to arbitration and to be
bound by the ICC Rules, they are also bound to pay in equal shares the advance on costs as provided in
Article 30 (2) and (3). It noted that RCBC was forced to pay the share of EPCIB in substitution of the
latter to prevent a suspension of the arbitration proceedings, while EPCIB’s non-payment seems more like
a scheme to delay such proceedings. On the Arbitration Tribunal’s ruling on EPCIB’s counterclaim, no
error was committed in considering it withdrawn for failure of EPCIB to quantify and substantiate it with
supporting evidence. As to EPCIB’s claim for attorney’s fees, the RTC agreed that these should be brought
only at the close of arbitration.
EPCIB moved to reconsider the June 24, 2009 Order and for the voluntary inhibition of the Presiding
Judge (Judge Oscar B. Pimentel) on the ground that EPCIB’s new counsel represented another client in
another case before him in which said counsel assailed his conduct and had likewise sought his inhibition.
Both motions were denied in the Joint Order46 dated March 23, 2010.
On April 14, 2010, EPCIB filed in the CA a petition for review 47 with application for TRO and/or writ of
preliminary injunction (CA-G.R. SP No. 113525) in accordance with Rule 19, Section 4 of the Special
Rules of Court on Alternative Dispute Resolution 48 (Special ADR Rules). EPCIB assailed the Makati City
RTC, Branch 148 in denying its motion to vacate the Second Partial Award despite (a) said award having
been rendered in excess of jurisdiction or power, and contrary to public policy; (b) the fact that it was
issued with evident partiality and serious misconduct; (c) the award deals with a dispute not
contemplated within the terms of submission to arbitration or beyond the scope of such submission,
which therefore ought to be vacated pursuant to Article 34 of the UNCITRAL Model Law; and (d) the
Presiding Judge having exhibited bias and prejudice against BDO and its counsel as confirmed by his
pronouncements in the Joint Order dated March 23, 2010 in which, instead of recusing himself, he
imputed malice and unethical conduct in the entry of appearance of Belo Gozon Elma Asuncion and Lucila
Law Offices in SP Proc. Case No. M-6046, which warrants his voluntary inhibition.
Meanwhile, on June 16, 2010, the Arbitration Tribunal issued the Final Award,49 as follows:
15 AWARD
15.1 The Tribunal by a majority (Sir Ian Barker & Mr. Kaplan) awards, declares and adjudges as
follows:
(a) the Respondents are to pay damages to the Claimant for breach of the sale and purchase
agreement for Bankard shares in the sum of ₱348,736,920.29.
(b) The Respondents are to pay to the Claimant the sum of US$880,000 in respect of the costs of
the arbitration as fixed by the ICC Court.
(c) The Respondents are to pay to the Claimant the sum of US$582,936.56 for the fees and
expenses of Mr. Best.
(d) The Respondents are to pay to the Claimant their expenses of the arbitration as follows:
(i) Experts’ fees ₱7,082,788.55
(ii) Costs of without prejudice meeting ₱22,571.45
(iii) Costs of arbitration hearings ₱553,420.66
(iv) Costs of transcription service ₱483,597.26
Total ₱8,144,377.62
(e) The Respondents are to pay to the Claimant the sum of ₱7,000,000 for party-and-party legal
costs.
(f) The Counterclaims of the Respondents are all dismissed.
(g) All claims of the Claimant are dismissed, other than those referred to above.
15.2 Justice Kapunan does not agree with the majority of the members of the Tribunal and has issued
a dissenting opinion. He has refused to sign this Award.50
On July 1, 2010 BDO filed in the Makati City RTC a Petition to Vacate Final Award Ad Cautelam,51 docketed
as SP Proc. Case No. M-6995, which was raffled to Branch 65.
On July 28, 2010, RCBC filed with the Makati City RTC, Branch 148 (SP Proc. Case No. M-6046) a Motion
to Confirm Final Award.52 BDO filed its Opposition With Motion to Dismiss 53 on grounds that a Petition to
Vacate Final Award Ad Cautelamhad already been filed in SP Proc. Case No. M-6995. BDO also pointed
out that RCBC did not file the required petition but instead filed a mere motion which did not go through
the process of raffling to a proper branch of the RTC of Makati City and the payment of the required
docket/filing fees. Even assuming that Branch 148 has jurisdiction over RCBC’s motion to confirm final
award, BDO asserted that RCBC had filed before the Arbitration Tribunal an Application for Correction and
Interpretation of Award under Article 29 of the ICC Rules, which is irreconcilable with its Motion to
Confirm Final Award before said court. Hence, the Motion to Confirm Award was filed precipitately.
On August 18, 2010, RCBC filed an Omnibus Motion in SP Proc. Case No. M-6995 (Branch 65) praying for
the dismissal of BDO’s Petition to Vacate Final Award or the transfer of the same to Branch 148 for
consolidation with SP Proc. Case No. M-6046. RCBC contended that BDO’s filing of its petition with
another court is a blatant violation of the Special ADR Rules and is merely a subterfuge to commit forum-
shopping. BDO filed its Opposition to the Omnibus Motion.54
44
On October 28, 2010, Branch 65 issued a Resolution 55 denying RCBC’s omnibus motion and directing the
service of the petition to RCBC for the latter’s filing of a comment thereon. RCBC’s motion for
reconsideration was likewise denied in the said court’s Order dated December 15, 2010. RCBC then filed
its Opposition to the Petition to Vacate Final Award Ad Cautelam.
Meanwhile, on November 10, 2010, Branch 148 (SP Proc. Case No. M-6046) issued an Order 56 confirming
the Final Award "subject to the correction/interpretation thereof by the Arbitral Tribunal pursuant to the
ICC Rules and the UNCITRAL Model Law," and denying BDO’s Opposition with Motion to Dismiss.
On December 30, 2010, George L. Go, in his personal capacity and as attorney-in-fact of the other listed
shareholders of Bankard, Inc. in the SPA (Individual Shareholders), filed a petition in the CA, CA-G.R. SP
No. 117451, seeking to set aside the above-cited November 10, 2010 Order and to enjoin Branch 148
from further proceeding in SP Proc. Case No. M-6046. By Decision 57 dated June 15, 2011, the CA
dismissed the said petition. Their motion for reconsideration of the said decision was likewise denied by
the CA in its Resolution58 dated December 14, 2011.
On December 23, 2010, the CA rendered its Decision in CA-G.R. SP No. 113525, the dispositive portion of
which states:
WHEREFORE, premises considered, the following are hereby REVERSED and SET ASIDE:
1. the Order dated June 24, 2009 issued in SP Proc. Case No. M-6046 by the Regional Trial Court of
Makati City, Branch 148, insofar as it denied the Motion to Vacate Second Partial Award dated July 8,
2008 and granted the Motion to Confirm Second Partial Award dated July 10, 2008;
2. the Joint Order dated March 23, 2010 issued in SP Proc. Case No. M-6046 by the Regional Trial
Court of Makati City, Branch 148, insofar as it denied the Motion For Reconsideration dated July 28,
2009 relative to the motions concerning the Second Partial Award immediately mentioned above; and
3. the Second Partial Award dated May 28, 2008 issued in International Chamber of Commerce Court
of Arbitration Reference No. 13290/MS/JB/JEM.
RCBC filed a motion for reconsideration but the CA denied the same in its Resolution 60 dated March 16,
2011. On April 6, 2011, it filed a petition for review on certiorari in this Court (G.R. No. 196171).
On February 25, 2011, Branch 65 rendered a Decision61 in SP Proc. Case No. M-6995, as follows:
WHEREFORE, premises considered, the Final Award dated June 16, 2010 in ICC Ref. No.
13290/MS/JB/JEM is hereby VACATED with cost against the respondent.
In SP Proc. Case No. M-6046, Branch 148 issued an Order 63 dated August 8, 2011 resolving the following
motions: (1) Motion for Reconsideration filed by BDO, Go and Individual Shareholders of the November
10, 2010 Order confirming the Final Award; (2) RCBC’s Omnibus Motion to expunge the motion for
reconsideration filed by Go and Individual Shareholders, and for execution of the Final Award; (3) Motion
for Execution filed by RCBC against BDO; (4) BDO’s Motion for Leave to File Supplement to the Motion for
Reconsideration; and (5) Motion for Inhibition filed by Go and Individual Shareholders. Said Order
decreed:
WHEREFORE, premises considered, it is hereby ORDERED, to wit:
1. Banco De Oro’s Motion for Reconsideration, Motion for Leave to File Supplement to Motion for
Reconsideration, and Motion to Inhibit are DENIED  for lack of merit.
2. RCBC Capital’s Motion to Expunge, Motion to Execute against Mr. George L. Go and the Bankard
Shareholders, and the Motion to Execute against Banco De Oro are hereby GRANTED.
3. The damages awarded to RCBC Capital Corporation in the amount of Ph₱348,736,920.29 is subject
to an interest of 6% per annum reckoned from the date of RCBC Capital’s extra-judicial demand or
from May 5, 2003 until the confirmation of the Final Award. Likewise, this compounded amount is
subject to 12% interest per annum from the date of the confirmation of the Final Award until its
satisfaction. The costs of the arbitration amounting to US$880,000.00, the fees and expenses of Mr.
Best amounting to US$582,936.56, the Claimant’s expenses of the arbitration amounting to
Ph₱8,144,377.62, and the party-and-party legal costs amounting to Ph₱7,000,000.00 all ruled in
 favor of RCBC Capital Corporation in the Final Award of the Arbitral Tribunal dated June 16, 2010 are
subject to 12% legal interest per annum, also reckoned from the date of the confirmation of the Final
Award until its satisfaction.
4. Pursuant to Section 40 of R.A. No. 9285, otherwise known as the Alternative Dispute Resolution
Act of 2004 in relation to Rule 39 of the Rules of Court, since the Final Award have been confirmed,
the same shall be enforced in the same manner as final and executory decisions of the Regional Trial
Court, let a writ of execution be issued commanding the Sheriff to enforce this instant Order
confirming this Court’s Order dated November 10, 2010 that judicially confirmed the June 16, 2010
Final Award.
Immediately thereafter, RCBC filed an Urgent Motion for Issuance of a Writ of Execution.65 On August 22,
2011, after approving the execution bond, Branch 148 issued a Writ of Execution for the implementation
of the said court’s "Order dated August 8, 2011 confirming the November 10, 2010 Order that judicially
confirmed the June 16, 2010 Final Award x x x."66
BDO then filed in the CA, a "Petition for Review (With Application for a Stay Order or Temporary
Restraining Order and/or Writ of Preliminary Injunction," docketed as CA-G.R. SP No. 120888. BDO
sought to reverse and set aside the Orders dated November 10, 2010 and August 8, 2011, and any writ
of execution issued pursuant thereto, as well as the Final Award dated June 16, 2010 issued by the
Arbitration Tribunal.
In its Urgent Omnibus Motion67 to resolve the application for a stay order and/or TRO/writ of preliminary
injunction, and to quash the Writ of Execution dated August 22, 2011 and lift the Notices of Garnishment
dated August 22, 2011, BDO argued that the assailed orders of execution (Writ of Execution and Notice of
Garnishment) were issued with indecent haste and despite the non-compliance with the procedures in
Special ADR Rules of the November 10, 2010 Order confirming the Final Award. BDO was not given
sufficient time to respond to the demand for payment or to elect the method of satisfaction of the
judgment debt or the property to be levied upon. In any case, with the posting of a bond by BDO, Branch
148 has no jurisdiction to implement the appealed orders as it would pre-empt the CA from exercising its
review under Rule 19 of the Special ADR Rules after BDO had perfected its appeal. BDO stressed that the
bond posted by RCBC was for a measly sum of ₱3,000,000.00 to cause execution pending appeal of a
monetary award that may reach ₱631,429,345.29. RCBC also failed to adduce evidence of "good cause"
or "good reason" to justify discretionary execution under Section 2(a), Rule 39 of the Rules of Court.
BDO further contended that the writ of execution should be quashed for having been issued with grave
abuse of discretion amounting to lack or excess of jurisdiction as Branch 148 modified the Final Award at
the time of execution by imposing the payment of interests though none was provided therein nor in the
Order confirming the same.
During the pendency of CA-G.R. SP No. 120888, Branch 148 continued with execution proceedings and
on motion by RCBC designated/deputized additional sheriffs to replace Sheriff Flora who was supposedly
physically indisposed.68 These court personnel went to the offices/branches of BDO attempting to serve
notices of garnishment and to levy the furniture, fixtures and equipment.
On September 12, 2011, BDO filed a Very Urgent Motion to Lift Levy and For Leave to Post Counter-
Bond69 before Branch 148 praying for the lifting of the levy of BDO Private Bank, Inc. (BPBI) shares and
the cancellation of the execution sale thereof scheduled on September 15, 2011, which was set for
hearing on September 14, 2011. BDO claimed that the levy was invalid because it was served by the RTC
Sheriffs not to the authorized representatives of BPBI, as provided under Section 9(b), Rule 39 in relation
to Section 7, Rule 57 of the Rules of Court stating that a notice of levy on shares of stock must be served
to the president or managing agent of the company which issued the shares. However, BDO was advised
by court staff that Judge Sarabia was on leave and the case could not be set for hearing.
45
In its Opposition to BDO’s application for injunctive relief, RCBC prayed for its outright denial as BDO’s
petition raises questions of fact and/or law which call for the CA to substitute its judgment with that of
the Arbitration Tribunal, in patent violation of applicable rules of procedure governing domestic arbitration
and beyond the appellate court’s jurisdiction. RCBC asserted that BDO’s application has become moot and
academic as the writ of execution was already implemented and/or enforced. It also contended that BDO
has no clear and unmistakable right to warrant injunctive relief because the issue of jurisdiction was
already ruled upon in CA-G.R. SP No. 117451 which dismissed the petition filed by Go and the Individual
Shareholders of Bankard questioning the authority of Branch 148 over RCBC’s motion to confirm the Final
Award despite the earlier filing by BDO in another branch of the RTC (Branch 65) of a petition to vacate
the said award.
On September 13, 2011, BDO, to avert the sale of the BPBI shares scheduled on September 15, 2011
and prevent further disruption in the operations of BDO and BPBI, paid under protest by tendering a
Manager’s Check in the amount of ₱637,941,185.55, which was accepted by RCBC as full and complete
satisfaction of the writ of execution. BDO manifested before Branch 148 that such payment was made
without prejudice to its appeal before the CA.70
On even date, the CA denied BDO’s application for a stay order and/or TRO/preliminary injunction for
non-compliance with Rule 19.25 of the Special ADR Rules. The CA ruled that BDO failed to show the
existence of a clear right to be protected and that the acts sought to be enjoined violated any right.
Neither was BDO able to demonstrate that the injury to be suffered by it is irreparable or not susceptible
to mathematical computation.
BDO did not file a motion for reconsideration and directly filed with this Court a petition for certiorari with
urgent application for writ of preliminary mandatory injunction (G.R. No. 199238).
The Petitions
In G.R. No. 196171, RCBC set forth the following grounds for the reversal of the CA Decision dated
December 23, 2010:
I. THE COURT OF APPEALS ACTED CONTRARY TO LAW AND PRIOR RULINGS OF THIS HONORABLE
COURT AND COMMITTED REVERSIBLE ERROR IN VACATING THE SECOND PARTIAL AWARD ON THE
BASIS OF CHAIRMAN BARKER’S ALLEGED PARTIALITY, WHICH IT CLAIMS IS INDICATIVE OF BIAS
CONSIDERING THAT THE ALLEGATIONS CONTAINED IN BDO/EPCIB’S PETITION FALL SHORT OF THE
JURISPRUDENTIAL REQUIREMENT THAT THE SAME BE SUPPORTED BY CLEAR AND CONVINCING
EVIDENCE.
II. THE COURT OF APPEALS ACTED CONTRARY TO LAW AND PRIOR RULINGS OF THIS HONORABLE
COURT AND COMMITTED REVERSIBLE ERROR WHEN IT REVERSED THE ARBITRAL TRIBUNAL’S
FINDINGS OF FACT AND LAW IN THE SECOND PARTIAL AWARD IN PATENT CONTRAVENTION OF THE
SPECIAL ADR RULES WHICH EXPRESSLY PROHIBITS THE COURTS, IN AN APPLICATION TO VACATE AN
ARBITRAL AWARD, FROM DISTURBING THE FINDINGS OF FACT AND/OR INTERPRE[TA]TION OF LAW
OF THE ARBITRAL TRIBUNAL.71
BDO raises the following arguments in G.R. No. 199238:
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION IN PERFUNCTORILY DENYING PETITIONER BDO’S APPLICATION FOR STAY ORDER,
AND/OR TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION DESPITE THE EXISTENCE
AND CONCURRENCE OF ALL THE ELEMENTS FOR THE ISSUANCE OF SAID PROVISIONAL RELIEFS
A. PETITIONER BDO HAS CLEAR AND UNMISTAKABLE RIGHTS TO BE PROTECTED BY THE ISSUANCE OF
THE INJUNCTIVE RELIEF PRAYED FOR, WHICH, HOWEVER, WERE DISREGARDED BY PUBLIC
RESPONDENT WHEN IT DENIED PETITIONER BDO’S PRAYER FOR ISSUANCE OF A STAY ORDER AND/OR
TRO
 B. PETITIONER BDO’S RIGHT TO DUE PROCESS AND EQUAL PROTECTION OF THE LAW WAS GROSSLY
VIOLATED BY THE RTC-MAKATI CITY BRANCH 148, THE DEPUTIZED SHERIFFS AND RESPONDENT
RCBC CAPITAL, WHICH VIOLATION WAS AIDED BY PUBLIC RESPONDENT’S INACTION ON AND
EVENTUAL DENIAL OF THE PRAYER FOR STAY ORDER AND/OR TRO
C. DUE TO THE ACTS AND ORDERS OF RTC BRANCH 148, PETITIONER BDO SUFFERED IRREPARABLE
DAMAGE AND INJURY, AND THERE WAS DIRE AND URGENT NECESSITY FOR THE ISSUANCE OF THE
INJUNCTIVE RELIEF PRAYED FOR WHICH PUBLIC RESPONDENT DENIED IN GRAVE ABUSE OF
DISCRETION72
Essentially, the issues to be resolved are: (1) whether there is legal ground to vacate the Second Partial
Award; and (2) whether BDO is entitled to injunctive relief in connection with the execution proceedings
in SP Proc. Case No. M-6046.
In their TOR, the parties agreed on the governing law and rules as follows:
Laws to be Applied
13 The Tribunal shall determine the issues to be resolved in accordance with the laws of the Republic of
the Philippines.
Procedure to be Applied
14 The proceedings before the Tribunal shall be governed by the ICC Rules of Arbitration (1 January
1998) and the law currently applicable to arbitration in the Republic of the Philippines.73
As stated in the Partial Award dated September 27, 2007, although the parties provided in Section 10 of
the SPA that the arbitration shall be conducted under the ICC Rules, it was nevertheless arbitration under
Philippine law since the parties are both residents of this country. The provisions of Republic Act No.
87674 (RA 876),as amended by Republic Act No. 928575 (RA 9285)principally applied in the arbitration
between the herein parties.76
The pertinent provisions of R.A. 9285 provide:
SEC. 40. Confirmation of Award. – The confirmation of a domestic arbitral award shall be governed
by Section 23 of R.A. 876.
A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory
decisions of the Regional Trial Court.
The confirmation of a domestic award shall be made by the regional trial court in accordance with the
Rules of Procedure to be promulgated by the Supreme Court.
xxxx
SEC. 41. Vacation Award. – A party to a domestic arbitration may question the arbitral award with
the appropriate regional trial court in accordance with the rules of procedure to be promulgated by the
Supreme Court only on those grounds enumerated in Section 25 of Republic Act No. 876. Any other
ground raised against a domestic arbitral award shall be disregarded by the regional trial court.
Rule 11.4 of the Special ADR Rules sets forth the grounds for vacating an arbitral award:
Rule 11.4. Grounds.—(A) To vacate an arbitral award. –  The arbitral award may be vacated on the
following grounds:
a. The arbitral award was procured through corruption, fraud or other undue means;
b. There was evident partiality or corruption in the arbitral tribunal or any of its members;
c. The arbitral tribunal was guilty of misconduct or any form of misbehavior that has materially
prejudiced the rights of any party such as refusing to postpone a hearing upon sufficient cause shown
or to hear evidence pertinent and material to the controversy;
d. One or more of the arbitrators was disqualified to act as such under the law and willfully refrained
from disclosing such disqualification; or
e. The arbitral tribunal exceeded its powers, or so imperfectly executed them, such that a
complete, final and definite award upon the subject matter submitted to them was not made.
The award may also be vacated on any or all of the following grounds:
46
a. The arbitration agreement did not exist, or is invalid for any ground for the revocation of a contract
or is otherwise unenforceable; or
b. A party to arbitration is a minor or a person judicially declared to be incompetent.
In deciding the petition to vacate the arbitral award, the court shall disregard any other ground than
those enumerated above. (Emphasis supplied)
Judicial Review
At the outset, it must be stated that a review brought to this Court under the Special ADR Rules is not a
matter of right. Rule 19.36 of said Rules specified the conditions for the exercise of this Court’s
discretionary review of the CA’s decision.
Rule 19.36.Review discretionary.—A review by the Supreme Court is not a matter of right, but of sound
judicial discretion, which will be granted only for serious and compelling reasons resulting in grave
prejudice to the aggrieved party. The following, while neither controlling nor fully measuring the
court’s discretion, indicate the serious and compelling, and necessarily, restrictive nature of the grounds
that will warrant the exercise of the Supreme Court’s discretionary powers, when the Court of Appeals:
a. Failed to apply the applicable standard or test for judicial review prescribed in these
Special ADR Rules in arriving at its decision resulting in substantial prejudice to the aggrieved party;
b. Erred in upholding a final order or decision despite the lack of jurisdiction of the court that rendered
such final order or decision;
c. Failed to apply any provision, principle, policy or rule contained in these Special ADR Rules resulting
in substantial prejudice to the aggrieved party; and
d. Committed an error so egregious and harmful to a party as to amount to an undeniable excess of
jurisdiction.
The mere fact that the petitioner disagrees with the Court of Appeals’ determination of questions of fact,
of law or both questions of fact and law, shall not warrant the exercise of the Supreme Court’s
discretionary power. The error imputed to the Court of Appeals must be grounded upon any of
the above prescribed grounds for review or be closely analogous thereto.
A mere general allegation that the Court of Appeals has committed serious and substantial error or that it
has acted with grave abuse of discretion resulting in substantial prejudice to the petitioner without
indicating with specificity the nature of such error or abuse of discretion and the serious prejudice
suffered by the petitioner on account thereof, shall constitute sufficient ground for the Supreme Court to
dismiss outright the petition. (Emphasis supplied)
The applicable standard for judicial review of arbitral awards in this jurisdiction is set forth in Rule 19.10
which states:
Rule 19.10. Rule on judicial review on arbitration in the Philippines.--As a general rule, the court can
only vacate or set aside the decision of an arbitral tribunal upon a clear showing that the award
suffers from any of the infirmities or grounds for vacating an arbitral award under Section 24
of Republic Act No. 876 or under Rule 34 of the Model Law in a domestic arbitration, or for
setting aside an award in an international arbitration under Article 34 of the Model Law, or for such
other grounds provided under these Special Rules.
xxxx
The court shall not set aside or vacate the award of the arbitral tribunal merelyon the ground that the
arbitral tribunal committed errors of fact, or of law, or of fact and law, as the court cannot substitute its
judgment for that of the arbitral tribunal. (Emphasis supplied)
The above rule embodied the stricter standard in deciding appeals from arbitral awards established by
jurisprudence. In the case of Asset Privatization Trust v. Court of Appeals,77 this Court held:
As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law
or as to the facts.Courts are without power to amend or overrule merely because of disagreement with
matters of law or facts determined by the arbitrators.They will not review the findings of law and fact
contained in an award, and will not undertake to substitute their judgment for that of the arbitrators,
since any other rule would make an award the commencement, not the end, of litigation.Errors of law and
fact, or an erroneous decision of matters submitted to the judgment of the arbitrators, are insufficient to
invalidate an award fairly and honestly made. Judicial review of an arbitration is, thus, more limited than
judicial review of a trial.78
Accordingly, we examine the merits of the petition before us solely on the statutory ground raised for
vacating the Second Partial Award: evident partiality, pursuant to Section 24 (b) of the Arbitration Law
(RA 876) and Rule 11.4 (b) of the Special ADR Rules.
Evident Partiality
Evident partiality is not defined in our arbitration laws. As one of the grounds for vacating an arbitral
award under the Federal Arbitration Act (FAA) in the United States (US), the term "encompasses both an
arbitrator’s explicit bias toward one party and an arbitrator’s inferred bias when an arbitrator fails to
disclose relevant information to the parties."79
From a recent decision80 of the Court of Appeals of Oregon, we quote a brief discussion of the common
meaning of evident partiality:
To determine the meaning of "evident partiality," we begin with the terms themselves. The common
meaning of "partiality" is "the inclination to favor one side."Webster’s Third New Int'l
Dictionary  1646 (unabridged ed 2002); see also id.  (defining "partial" as "inclined to favor one party in
a cause or one side of a question more than the other: biased, predisposed" (formatting in original)).
"Inclination," in turn, means "a particular disposition of mind or character : propensity, bent" or "a
tendency to a particular aspect, state, character, or action."Id.  at 1143 (formatting in original); see
also id.  (defining "inclined" as "having inclination, disposition, or tendency").
The common meaning of "evident" is "capable of being perceived esp[ecially] by sight : distinctly visible
: being in evidence : discernable[;] * * * clear to the understanding : obvious, manifest,
apparent."Id.  at 789 (formatting in original); see also id. (stating that synonyms of "evident" include
"apparent, patent, manifest, plain, clear, distinct, obvious, [and] palpable" and that, "[s]ince evident
rather naturally suggests evidence,  it may imply the existence of signs and indications that
must lead to an identification or inference" (formatting in original)). (Emphasis supplied)
Evident partiality in its common definition thus implies "the existence of signs and indications that must
lead to an identification or inference" of partiality. 81 Despite the increasing adoption of arbitration in many
jurisdictions, there seems to be no established standard for determining the existence of evident
partiality. In the US, evident partiality "continues to be the subject of somewhat conflicting and
inconsistent judicial interpretation when an arbitrator’s failure to disclose prior dealings is at issue."82
The first case to delineate the standard of evident partiality in arbitration proceedings
was Commonwealth Coatings Corp. v. Continental Casualty Co., et al.83 decided by the US Supreme Court
in 1968. The Court therein addressed the issue of whether the requirement of impartiality applies to an
arbitration proceeding. The plurality opinion written by Justice Black laid down the rule that the
arbitrators must disclose to the parties "any dealings that might create an impression of possible
bias,"84 and that underlying such standard is "the premise that any tribunal permitted by law to try cases
and controversies not only must be unbiased but also must avoid even the appearance of bias." 85 In a
separate concurring opinion, Justice White joined by Justice Marshall, remarked that "[t]he Court does
not decide today that arbitrators are to be held to the standards of judicial decorum of Article III judges,
or indeed of any judges."86 He opined that arbitrators should not automatically be disqualified from an
arbitration proceeding because of a business relationship where both parties are aware of the relationship
in advance, or where the parties are unaware of the circumstances but the relationship is trivial.
47
However, in the event that the arbitrator has a "substantial interest" in the transaction at hand, such
information must be disclosed.
Subsequent cases decided by the US Court of Appeals Circuit Courts adopted different approaches, given
the imprecise standard of evident partiality in Commonwealth Coatings.
In Morelite Construction Corp. v. New York District Council Carpenters Benefit Funds,87 the Second Circuit
reversed the judgment of the district court and remanded with instructions to vacate the arbitrator’s
award, holding that the existence of a father-son relationship between the arbitrator and the president of
appellee union provided strong evidence of partiality and was unfair to appellant construction contractor.
After examining prior decisions in the Circuit, the court concluded that –
x x x we cannot countenance the promulgation of a standard for partiality as insurmountable as "proof
of actual bias" -- as the literal words of Section 10  might suggest. Bias is always difficult, and indeed
often impossible, to "prove." Unless an arbitrator publicly announces his partiality, or is overheard in a
moment of private admission, it is difficult to imagine how "proof" would be obtained. Such a standard,
we fear, occasionally would require that we enforce awards in situations that are clearly repugnant to
our sense of fairness, yet do not yield "proof" of anything.
If the standard of "appearance of bias" is too low for the invocation of Section 10, and "proof
of actual bias" too high, with what are we left? Profoundly aware of the competing forces that have
already been discussed, we hold that "evident partiality" within the meaning of 9 U.S.C. § 10  will
be found where a reasonable person would have to conclude that an arbitrator was partial to
one party to the arbitration.x x x88 (Emphasis supplied)
In Apperson v. Fleet Carrier Corporation,89 the Sixth Circuit agreed with the Morelite court’s analysis, and
accordingly held that to invalidate an arbitration award on the grounds of bias, the challenging party must
show that "a reasonable person would have to conclude that an arbitrator was partial" to the other party
to the arbitration.
This "myriad of judicial interpretations and approaches to evident partiality" resulted in a lack of a
uniform standard, leaving the courts "to examine evident partiality on a case-by-case basis." 90 The case at
bar does not present a non-disclosure issue but conduct allegedly showing an arbitrator’s partiality to one
of the parties.
EPCIB/BDO, in moving to vacate the Second Partial Award claimed that the Arbitration Tribunal exceeded
its powers in deciding the issue of advance cost not contemplated in the TOR, and that Chairman Barker
acted with evident partiality in making such award. The RTC held that BDO failed to substantiate these
allegations. On appeal, the CA likewise found that the Arbitration Tribunal did not go beyond the
submission of the parties because the phrasing of the scope of the agreed issues in the TOR ("[t]he
issues to be determined by the Tribunal are those issues arising from the said Request for Arbitration,
Answer and Reply and such other issues as may properly arise during the arbitration")is broad enough to
accommodate a finding on the liability and the repercussions of BDO’s failure to share in the advances on
costs. Section 10 of the SPA also gave the Arbitration Tribunal authority to decide how the costs should
be apportioned between them.
However, the CA found factual support in BDO’s charge of partiality, thus:
On the issue on evident partiality, the rationale in the American case of Commonwealth Coatings Corp.
v. Continental Cas. Co.  appears to be very prudent. In Commonwealth, the United States Supreme
Court reasoned that courts "should…be even more scrupulous to safeguard the impartiality of
arbitrators than judges, since the former have completely free rein to decide the law as well as the
facts, and are not subject to appellate review" in general. This taken into account , the Court applies
the standard demanded of the conduct of magistrates by analogy . After all, the ICC Rules
require that an arbitral tribunal should act fairly and impartially. Hence, an arbitrator’s conduct
should be beyond reproach and suspicion. His acts should be free from the appearances of
impropriety.
 An examination of the circumstances claimed to be illustrative of Chairman Barker’s partiality is
indicative of bias. Although RCBC had repeatedly asked for reimbursement and the withdrawal of BDO’s
counterclaims prior to Chairman Barker’s December 18, 2007 letter, it is baffling why it is only in the
said letter that RCBC’s prayer was given a complexion of being an application for a partial
award. To the Court, the said letter signaled a preconceived course of action that the relief
prayed for by RCBC will be granted.
That there was an action to be taken beforehand is confirmed by Chairman Barker’s furnishing the
parties with a copy of the Secomb article. This article ultimately favored RCBC by advancing its
cause. Chairman Barker makes it appear that he intended good to be done in doing so but
due process dictates the cold neutrality of impartiality. This means that "it is not enough…[that]
cases [be decided] without bias and favoritism. Nor is it sufficient that…prepossessions [be rid of].
[A]ctuations should moreover inspire that belief." These put into the equation, the furnishing of the
Secomb article further marred the trust reposed in Chairman Barker. The suspicion of his partiality on
the subject matter deepened. Specifically, his act established that he had pre-formed opinions.
Chairman Barker’s providing of copies of the said text is easily interpretable that he had prejudged the
matter before him. In any case, the Secomb article tackled bases upon which the Second Partial Award
was founded. The subject article reflected in advance the disposition of the ICC arbitral
tribunal. The award can definitely be viewed as an affirmation that the bases in the Secomb article
were adopted earlier on. To the Court, actuations of arbitrators, like the language of judges, "must be
guarded and measured lest the best of intentions be misconstrued."
We affirm the foregoing findings and conclusion of the appellate court save for its reference to
the obiter in Commonwealth Coatings that arbitrators are held to the same standard of conduct imposed
on judges. Instead, the Court adopts the reasonable impression of partiality standard, which requires a
showing that a reasonable person would have to conclude that an arbitrator was partial to the other party
to the arbitration. Such interest or bias, moreover, "must be direct, definite and capable of demonstration
rather than remote, uncertain, or speculative."92 When a claim of arbitrator’s evident partiality is made,
"the court must ascertain from such record as is available whether the arbitrators’ conduct was so biased
and prejudiced as to destroy fundamental fairness." 93
Applying the foregoing standard, we agree with the CA in finding that Chairman Barker’s act of furnishing
the parties with copies of Matthew Secomb’s article, considering the attendant circumstances,is indicative
of partiality such that a reasonable man would have to conclude that he was favoring the Claimant, RCBC.
Even before the issuance of the Second Partial Award for the reimbursement of advance costs paid by
RCBC, Chairman Barker exhibited strong inclination to grant such relief to RCBC, notwithstanding his
categorical ruling that the Arbitration Tribunal "has no power under the ICC Rules  to order the
Respondents to pay the advance on costs sought by the ICC or to give the Claimantany relief against the
Respondents’ refusal to pay."94 That Chairman Barker was predisposed to grant relief to RCBC was shown
by his act of interpreting RCBC’s letter, which merely reiterated its plea to declare the Respondents in
default and consider all counterclaims withdrawn – as what the ICC Rules provide – as an application to
the Arbitration Tribunal to issue a partial award in respect of BDO’s failure to share in the advance costs.
It must be noted that RCBC in said letter did not contemplate the issuance of a partial order, despite
Chairman Barker’s previous letter which mentioned the possibility of granting relief upon the parties
making submissions to the Arbitration Tribunal. Expectedly, in compliance with Chairman Barker’s
December 18, 2007 letter, RCBC formally applied for the issuance of a partial award ordering BDO to pay
its share in the advance costs.
Mr. Secomb’s article, "Awards and Orders Dealing With the Advance on Costs in ICC Arbitration:
Theoretical Questions and Practical Problems" 95 specifically dealt with the situation when one of the
parties to international commercial arbitration refuses to pay its share on the advance on costs. After a
brief discussion of the provisions of ICC Rules dealing with advance on costs, which did not provide for
issuance of a partial award to compel payment by the defaulting party, the author stated:
48
4. As we can see, the Rules have certain mechanisms to deal with defaulting parties. Occasionally,
however, parties have sought to use other methods to tackle the problem of a party refusing to pay its
part of the advance on costs. These have included seeking an order or award from the arbitral tribunal
condemning the defaulting party to pay its share of the advance on costs.1âwphi1 Such applications are
the subject of this article.96
By furnishing the parties with a copy of this article, Chairman Barker practically armed RCBC with
supporting legal arguments under the "contractual approach" discussed by Secomb. True enough, RCBC
in its Application for Reimbursement of Advance Costs Paid utilized said approach as it singularly focused
on Article 30(3)97 of the ICC Rules and fiercely argued that BDO was contractually bound to share in the
advance costs fixed by the ICC. 98 But whether under the "contractual approach" or "provisional approach"
(an application must be treated as an interim measure of protection under Article 23 [1] rather than
enforcement of a contractual obligation), both treated in the Secomb article, RCBC succeeded in availing
of a remedy which was not expressly allowed by the Rules but in practice has been resorted to by parties
in international commercial arbitration proceedings. It may also be mentioned that the author, Matthew
Secomb, is a member of the ICC Secretariat and the "Counsel in charge of the file", as in fact he signed
some early communications on behalf of the ICC Secretariat pertaining to the advance costs fixed by the
ICC.99 This bolstered the impression that Chairman Barker was predisposed to grant relief to RCBC by
issuing a partial award.
Indeed, fairness dictates that Chairman Barker refrainfrom suggesting to or directing RCBC towards a
course of action to advance the latter’s cause, by providing it with legal arguments contained in an article
written by a lawyer who serves at the ICC Secretariat and was involved or had participation -- insofar as
the actions or recommendations of the ICC – in the case. Though done purportedly to assist both parties,
Chairman Barker’s act clearly violated Article 15 of the ICC Rules declaring that "[i]n all cases, the
Arbitral Tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity
to present its case." Having pre-judged the matter in dispute, Chairman Barker had lost his objectivity in
the issuance of the Second Partial Award.
In fine, we hold that the CA did not err in concluding that the article ultimately favored RCBC as it
reflected in advance the disposition of the Arbitral Tribunal, as well as "signalled a preconceived course of
action that the relief prayed for by RCBC will be granted." This conclusion is further confirmed by the
Arbitral Tribunal’s pronouncements in its Second Partial Award which not only adopted the "contractual
approach" but even cited Secomb’s article along with other references, thus:
6.1 It appears to the Tribunal that the issue posed by this application is essentially a contractual one. x
xx
6.5 Matthew Secomb, considered these points in the article in 14 ICC Bulletin No. 1 (2003) which was
sent to the parties. At Para. 19, the learned author quoted from an ICC Tribunal (Case No. 11330) as
follows:
"The Arbitral Tribunal concludes that the partiesin arbitrations conducted under the ICC Rules have a
mutually binding obligation to pay the advance on costs as determined by the ICC Court, based on Article
30-3 ICC Rules which – by reference – forms part of the parties’ agreement to arbitration under such
Rules."100
The Court, however, must clarify that the merits of the parties’ arguments as to the propriety of the
issuance of the Second Partial Award are not in issue here. Courts are generally without power to amend
or overrule merely because of disagreement with matters of law or facts determined by the arbitrators.
They will not review the findings of law and fact contained in an award, and will not undertake to
substitute their judgment for that of the arbitrators. A contrary rule would make an arbitration award the
commencement, not the end, of litigation.101 It is the finding of evident partiality which constitutes legal
ground for vacating the Second Partial Award and not the Arbitration Tribunal’s application of the ICC
Rules adopting the "contractual approach" tackled in Secomb’s article.
Alternative dispute resolution methods or ADRs – like arbitration, mediation, negotiation and conciliation
– are encouraged by this Court. By enabling parties to resolve their disputes amicably, they provide
solutions that are less time-consuming, less tedious, less confrontational, and more productive of goodwill
and lasting relationship.102 Institutionalization of ADR was envisioned as "an important means to achieve
speedy and impartial  justice and declog court dockets." 103 The most important feature of arbitration, and
indeed, the key to its success, is the public’s confidence and trust in the integrity of the process. 104 For
this reason, the law authorizes vacating an arbitral award when there is evident partiality in the
arbitrators.
Injunction Against Execution Of Arbitral Award
Before an injunctive writ can be issued, it is essential that the following requisites are present: (1) there
must be a right inesse  or the existence of a right to be protected; and (2) the act against which
injunction to be directed is a violation of such right. The onus probandi  is on movant to show that there
exists a right to be protected, which is directly threatened by the act sought to be enjoined. Further,
there must be a showing that the invasion of the right is material and substantial and that there is an
urgent and paramount necessity for the writ to prevent a serious damage.105
Rule 19.22 of the Special ADR Rules states:
Rule 19.22. Effect of appeal.—The appeal shall not stay the award, judgment, final order or resolution
sought to be reviewed unless the Court of Appeals directs otherwise upon such terms as it may deem
just.
We find no reversible error or grave abuse of discretion in the CA’s denial of the application for stay order
or TRO upon its finding that BDO failed to establish the existence of a clear legal right to enjoin execution
of the Final Award confirmed by the Makati City RTC, Branch 148, pending resolution of its appeal.It
would be premature to address on the merits the issues raised by BDO in the present petition considering
that the CA still has to decide on the validity of said court's orders confirming the Final Award. But more
important, since 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. Looyuko that when the events sought to be prevented by injunction or
107 
prohibition have already happened, nothing more could be enjoined or prohibited. Indeed, it is a universal
principle of law that an injunction will not issue to restrain the performance of an act already done. This is
so for the simple reason that nothing more can be done in reference thereto. A writ of injunction becomes
moot and academic after the act sought to be enjoined has already been consummated.
WHEREFORE, premises considered, the petition m G.R. No. 199238 is DENIED. The Resolution dated
September 13,2011 ofthe Court of Appeals in CA-G.R. SP No. 120888 is AFFIRMED.
The petition in G.R. No. 196171 is DENIED. The Decision dated December 23, 2010 of the Court of
Appeals in CA-G.R. SP No. 113525 is hereby AFFIRMED.
49
G.R. No. 171763               June 5, 2009
MARIA LUISA PARK ASSOCIATION, INC., Petitioner,
vs.
SAMANTHA MARIE T. ALMENDRAS and PIA ANGELA T. ALMENDRAS, Respondents.
This petition for review on certiorari assails the Decision 1 dated August 31, 2005 and the
Resolution2 dated February 13, 2006 of the Court of Appeals in CA-G.R. SP No. 81069.
On February 6, 2002, respondents Samantha Marie T. Almendras and Pia Angela T. Almendras purchased
from MRO Development Corporation a residential lot located in Maria Luisa Estate Park, Banilad, Cebu
City. After some time, respondents filed with petitioner Maria Luisa Park Association, Incorporated
(MLPAI) an application to construct a residential house, which was approved in February 10, 2002. Thus,
respondents commenced the construction of their house.
Upon ocular inspection of the house, MLPAI found out that respondents violated the prohibition against
multi-dwelling3 stated in MLPAI’s Deed of Restriction. Consequently, on April 28, 2003, MLPAI sent a
letter to the respondents, demanding that they rectify the structure; otherwise, it will be constrained to
forfeit respondents’ construction bond and impose stiffer penalties.
In a Letter4 dated April 29, 2003, respondents, as represented by their father Ruben D. Almendras denied
having violated MLPAI’s Deed of Restriction.
On May 5, 2003, MLPAI, in its reply, pointed out respondents’ specific violations of the subdivision rules,
to wit: (a) installation of a second water meter and tapping the subdivision’s main water pipeline, and (b)
construction of "two separate entrances that are mutually exclusive of each other." It likewise reiterated
its warning that failure to comply with its demand will result in its exercise of more stringent measures.
In view of these, respondents filed with the Regional Trial Court of Cebu City, Branch 7, a Complaint 5 on
June 2, 2003 for Injunction, Declaratory Relief, Annulment of Provisions of Articles and By-Laws with
Prayer for Issuance of a Temporary Restraining Order (TRO)/Preliminary Injunction.
MLPAI moved for the dismissal of the complaint on the ground of lack of jurisdiction and failure to comply
with the arbitration clause6 provided for in MLPAI’s by-laws.
In an Order7 dated July 31, 2003, the trial court dismissed the complaint for lack of jurisdiction, holding
that it was the Housing and Land Use Regulatory Board (HLURB) that has original and exclusive
jurisdiction over the case. Respondents moved for reconsideration but their motion was denied.
Aggrieved, the respondents questioned the dismissal of their complaint in a petition for certiorari and
prohibition before the Court of Appeals.
The Court of Appeals granted the petition in its Decision dated August 31, 2005, the dispositive portion of
which reads:
WHEREFORE, in view of all the foregoing, the petition is GRANTED and the assailed orders of the
respondent trial court are declared NULL AND VOID, and SET ASIDE. Respondent RTC is hereby
ordered to take jurisdiction of Civil Case No. CEB-29002.
MLPAI filed a motion for reconsideration but it was denied by the Court of Appeals in its Resolution dated
February 13, 2006.
Hence, this petition raising the following issues:
I. WHETHER THE HONORABLE COURT OF APPEALS HAS DISREGARDED LAWS AND WELL-SETTLED
JURISPRUDENCE IN HOLDING THAT JURISDICTION OVER [THE] DISPUTE BETWEEN HOMEOWNERS
AND HOMEOWNERS’ ASSOCIATION LIES WITH THE REGULAR COURTS AND NOT WITH HLURB.
II. WHETHER THERE IS NO OTHER RELIEF AND REMEDY AVAILABLE TO PETITIONER TO AVERT THE
CONDUCT OF A VOID [PROCEEDING] THAN THE PRESENT RECOURSE.9
Simply stated, the issue is whether the appellate court erred in ruling that it was the trial court and not
the HLURB that has jurisdiction over the case.
Petitioner MLPAI contends that the HLURB10 has exclusive jurisdiction over the present controversy, it
being a dispute between a subdivision lot owner and a subdivision association, where the latter aimed to
compel respondents to comply with the MLPAI’s Deed of Restriction, specifically the provision prohibiting
multi-dwelling.
Respondents, on the other hand, counter that the case they filed against MLPAI is one for declaratory
relief and annulment of the provisions of the by-laws; hence, it is outside the competence of the HLURB
to resolve. They likewise stated that MLPAI’s rules and regulations are discriminatory and violative of
their basic rights as members of the association. They also argued that MLPAI’s acts are illegal, immoral
and against public policy and that they did not commit any violation of the MLPAI’s Deed of Restriction.
We agree with the trial court that the instant controversy falls squarely within the exclusive and original
jurisdiction of the Home Insurance and Guaranty Corporation (HIGC),11 now HLURB.
Originally, administrative supervision over homeowners’ associations was vested by law with the
Securities and Exchange Commission (SEC). However, pursuant to Executive Order No. 535,12 the HIGC
assumed the regulatory and adjudicative functions of the SEC over homeowners’ associations. Section 2
of E.O. No. 535 provides:
2. In addition to the powers and functions vested under the Home Financing Act, the Corporation, shall
have among others, the following additional powers:
(a) . . . and exercise all the powers, authorities and responsibilities that are vested on the Securities
and Exchange Commission with respect to homeowners associations, the provision of Act 1459, as
amended by P.D. 902-A, to the contrary notwithstanding;
(b) To regulate and supervise the activities and operations of all houseowners associations registered
in accordance therewith;
Moreover, by virtue of this amendatory law, the HIGC also assumed the SEC’s original and exclusive
jurisdiction under Section 5 of Presidential Decree No. 902-A to hear and decide cases involving:
b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members, or associates; between any and/or all of them and the corporation,
partnership or association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and the state insofar as it
concerns their individual franchise or right to exist as such entity;13 (Emphasis supplied.)
Consequently, in Sta. Clara Homeowners’ Association v. Gaston14 and Metro Properties, Inc. v. Magallanes
Village Association, Inc.,15 the Court recognized HIGC’s "Revised Rules of Procedure in the Hearing of
Home Owner’s Disputes," pertinent portions of which are reproduced below:
RULE II: Disputes Triable by HIGC/Nature of Proceedings
Section 1. Types of Disputes – The HIGC or any person, officer, body, board or committee duly
designated or created by it shall have jurisdiction to hear and decide cases involving the following:
50
(b) Controversies arising out of intra-corporate relations between and among members of the
association, between any or all of them and the association of which they are members, and
between such association and the state/general public or other entity in so far as it concerns its right
to exist as a corporate entity.16 (Emphasis supplied.)
Later on, the above-mentioned powers and responsibilities, which had been vested in the HIGC with
respect to homeowners’ associations, were transferred to the HLURB pursuant to Republic Act No.
8763,17 entitled "Home Guaranty Corporation Act of 2000."
In the present case, there is no question that respondents are members of MLPAI as they have even
admitted it.18 Therefore, as correctly ruled by the trial court, the case involves a controversy between the
homeowners’ association and some of its members. Thus, the exclusive and original jurisdiction lies with
the HLURB.
Indeed, in Sta. Clara Homeowners’ Association v. Gaston, we held:
. . . the HIGC exercises limited jurisdiction over homeowners' disputes. The law confines its
authority to controversies that arise from any of the following intra-corporate relations: (1)
between and among members of the association; (2) between any and/or all of them and the
association of which they are members; and (3) between the association and the state insofar as
the controversy concerns its right to exist as a corporate entity.19 (Emphasis supplied.)
The extent to which the HLURB has been vested with quasi-judicial authority must also be determined by
referring to Section 3 of P.D. No. 957,20 which provides:
SEC. 3. National Housing Authority. – The National Housing Authority shall have exclusive jurisdiction to
regulate the real estate trade and business in accordance with the provisions of this Decree.
The provisions of P.D. No. 957 were intended to encompass all questions regarding subdivisions and
condominiums. The intention was aimed at providing for an appropriate government agency, the HLURB,
to which all parties aggrieved in the implementation of provisions and the enforcement of contractual
rights with respect to said category of real estate may take recourse. The business of developing
subdivisions and corporations being imbued with public interest and welfare, any question arising from
the exercise of that prerogative should be brought to the HLURB which has the technical know-how on
the matter.22
It is apparent that although the complaint was denominated as one for declaratory relief/annulment of
contracts, the allegations therein reveal otherwise. It should be stressed that respondents neither asked
for the interpretation of the questioned by-laws nor did they allege that the same is doubtful or
ambiguous and require judicial construction. In fact, what respondents really seek to accomplish is to
have a particular provision of the MLPAI’s by-laws nullified and thereafter absolve them from any
violations of the same.23 In Kawasaki Port Service Corporation v. Amores,24 the rule was stated:
. . . where a declaratory judgment as to a disputed fact would be determinative of issues rather than a
construction of definite stated rights, status and other relations, commonly expressed in written
instrument, the case is not one for declaratory judgment.25
Contrary to the observation of the Court of Appeals, jurisdiction cannot be made to depend on the
exclusive characterization of the case by one of the parties. 26 While respondents are questioning the
validity or legality of the MLPAI’s articles of incorporation and its by-laws, they did not, however, raise
any legal ground to support its nullification. The legality of the by-laws in its entirety was never an issue
in the instant controversy but merely the provision prohibiting multi-dwelling which respondents assert
they did not violate.27 So to speak, there is no justiciable controversy here that would warrant declaratory
relief, or even an annulment of contracts.
We reiterate that in jurisdictional issues, what determines the nature of an action for the purpose of by the member to an arbitration panel for final settlement. The arbitral award shall be valid and binding
ascertaining whether a court has jurisdiction over a case are the allegations in the complaint and the between the parties unless repudiated on grounds that the same was procured through fraud or violence,
nature of the relief sought.28 or that there are patent or gross errors in the tribunal’s findings of facts upon which the decision was
based.

Moreover, under the doctrine of primary administrative jurisdiction, courts cannot or will not determine a
controversy where the issues for resolution demand the exercise of sound administrative discretion The terms of Article XII of the MLPAI by-laws clearly express the intention of the parties to bring first to
requiring the special knowledge, experience, and services of the administrative tribunal to determine the arbitration process all disputes between them before a party can file the appropriate action. The
technical and intricate matters of fact.29 agreement to submit all disputes to arbitration is a contract. As such, the arbitration agreement binds the
parties thereto, as well as their assigns and heirs.32 Respondents, being members of MLPAI, are bound by
its by-laws, and are expected to abide by it in good faith.33
In the instant case, the HLURB has the expertise to resolve the basic technical issue of whether the house
built by the respondents violated the Deed of Restriction, specifically the prohibition against multi-
dwelling.1avvphi1 In the instant case, we observed that while both parties exchanged correspondence pertaining to the
alleged violation of the Deed of Restriction, they, however, made no earnest effort to resolve their
differences in accordance with the arbitration clause provided for in their by-laws. Mere exchange of
As observed in C.T. Torres Enterprises, Inc. v. Hibionada:30
correspondence will not suffice much less satisfy the requirement of arbitration. Arbitration being the
The argument that only courts of justice can adjudicate claims resoluble under the provisions of the
mode of settlement between the parties expressly provided for in their by-laws, the same should be
Civil Code is out of step with the fast-changing times. There are hundreds of administrative bodies now
respected. Unless an arbitration agreement is such as absolutely to close the doors of the courts against
performing this function by virtue of a valid authorization from the legislature. This quasi-judicial
the parties, the courts should look with favor upon such amicable arrangements.34
function, as it is called, is exercised by them as an incident of the principal power entrusted to them of
regulating certain activities falling under their particular expertise.
Arbitration is one of the alternative methods of dispute resolution that is now rightfully vaunted as "the
wave of the future" in international relations, and is recognized worldwide. To brush aside a contractual
In the Solid Homes case for example the Court affirmed the competence of the Housing and Land Use
agreement calling for arbitration in case of disagreement between the parties would therefore be a step
Regulatory Board to award damages although this is an essentially judicial power exercisable ordinarily
backward.35
only by the courts of justice. This departure from the traditional allocation of governmental powers is
justified by expediency, or the need of the government to respond swiftly and competently to the
pressing problems of the modern world.31 WHEREFORE, the instant petition is GRANTED. The Decision dated August 31, 2005 and Resolution
dated February 13, 2006 of the Court of Appeals in CA-G.R. SP No. 81069 are SET ASIDE. The Order
dated July 31, 2003 of the Regional Trial Court of Cebu City, Branch 7, is hereby REINSTATED.
We also note that the parties failed to abide by the arbitration agreement in the MLPAI by-laws. Article
XII of the MLPAI by-laws entered into by the parties provide:

Mode of Dispute Resolution

Mode of Dispute Resolution. Should any member of the Association have any grievance, dispute or
claim against the Association or any of the officers and governors thereof in connection with their
function and/or position in the Association, the parties shall endeavor to settle the same amicably. In
the event that efforts at amicable settlement fail, such dispute, difference or disagreement shall be
brought by the member to an arbitration panel composed of three (3) arbitrators for final settlement, to
the exclusion of all other fora. Such arbitration may be initiated by giving notice to the other party,
such notice designating one (1) independent arbitrator. Within thirty (30) from the receipt of said
notice, the other party shall designate a second independent arbitrator by written notice to the first
party. Both arbitrators shall within fifteen (15) days thereafter select a third independent arbitrator,
who shall be the chairman of the Arbitration Tribunal. In the event that the two (2) arbitrators
respectively nominated by the parties fail to select the third independent arbitrator within the fifteen-
day period, the third arbitrator shall be jointly selected by the parties. In the event that the other party
does not nominate an arbitrator, the Arbitration Tribunal shall be composed of one (1) arbitrator
nominated by the party initiating the proceedings. The Arbitration Tribunal shall render its decision
within forty-five (45) days from the selection of the third arbitrator, which decision shall be valid and
binding between the parties unless repudiated within five (5) days from receipt thereof on grounds that
the same was procured through fraud or violence, or that there are patent or gross errors in facts made
basis of the decision. The award of the Tribunal shall be enforced by a court of competent jurisdiction.
Venue of action covered by this Article shall be in the courts of justice of Cebu City only.

Under the said provision of the by-laws, any dispute or claim against the Association or any of its officers
and governors shall first be settled amicably. If amicable settlement fails, such dispute shall be brought

51

G.R. No. 158560               August 17, 2007
FRABELLE FISHING CORPORATION, Petitioner,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, PHILAM PROPERTIES CORPORATION
and PERF REALTY CORPORATION, Respondents.
Philam Properties Corporation, Philippine American Life Insurance Company, and PERF Realty
Corporation, herein respondents, are all corporations duly organized and existing under Philippine laws.
On May 8, 1996, respondents entered into a Memorandum of Agreement (1996 MOA)2 whereby each
agreed to contribute cash, property, and services for the construction and development of Philamlife
Tower, a 45-storey office condominium along Paseo de Roxas, Makati City.
On December 6, 1996, respondents executed a Deed of Assignment (1996 DOA)  wherein they assigned
3
to Frabelle Properties Corporation (Frabelle) their rights and obligations under the 1996 MOA with respect
to the construction, development, and subsequent ownership of Unit No. 38-B located at the 38th floor of
Philamlife Tower. The parties also stipulated that the assignee shall be deemed as a co-developer of the
construction project with respect to Unit No. 38-B.4
Frabelle, in turn, assigned to Frabelle Fishing Corporation (Frabelle Fishing), petitioner herein, its rights,
obligations and interests over Unit No. 38-B.
On March 9, 1998, petitioner Frabelle Fishing and respondents executed a Memorandum of Agreement
(1998 MOA)5 to fund the construction of designated office floors in Philamlife Tower.
The dispute between the parties started when petitioner found material concealment on the part of
respondents regarding certain details in the 1996 DOA and 1998 MOA and their gross violation of their
contractual obligations as condominium developers. These violations are: (a) the non-construction of a
partition wall between Unit No. 38-B and the rest of the floor area; and (b) the reduction of the net
usable floor area from four hundred sixty eight (468) square meters to only three hundred fifteen (315)
square meters.
Dissatisfied with its existing arrangement with respondents, petitioner, on October 22, 2001, referred the
matter to the Philippine Dispute Resolution Center, Inc. (PDRCI) for arbitration. 6 However, in a
letter7 dated November 7, 2001, respondents manifested their refusal to submit to PDRCI’s jurisdiction.
On February 11, 2002, petitioner filed with the Housing and Land Use Regulatory Board (HLURB),
Expanded National Capital Region Field Office a complaint8 for reformation of instrument, specific
performance and damages against respondents, docketed as HLURB Case No. REM-021102-11791.
Petitioner alleged, among others, that the contracts do not reflect the true intention of the parties; and
that it is a mere buyer and not co-developer and/or co-owner of the condominium unit.
After considering their respective memoranda, HLURB Arbiter Atty. Dunstan T. San Vicente, with the
approval of HLURB Regional Director Jesse A. Obligacion, issued an Order 9 dated May 14, 2002, the
dispositive portion of which reads:
52
Accordingly, respondents’ plea for the outright dismissal of the present case is denied. Set the initial
preliminary hearing of this case on June 25, 2002 at 10:00 A.M.
Respondents then filed with the Court of Appeals a petition for prohibition with prayer for the issuance of
a temporary restraining order and/or writ of preliminary injunction, 10 docketed as CA-G.R. SP No. 71389.
Petitioner claimed, among others, that the HLURB has no jurisdiction over the subject matter of the
controversy and that the contracts between the parties provide for compulsory arbitration.
On December 2, 2002, the Court of Appeals rendered its Decision11 granting the petition, thus:
WHEREFORE, premises considered, the petition is GRANTED. Public respondents Atty. Dunstan San
Vicente and Jesse A. Obligacion of the Housing and Land Use Regulatory Board, Expanded National
Capital Region Field Office are hereby permanently ENJOINED and PROHIBITED from further proceeding
with and acting on HLURB Case No. REM-021102-11791. The order of May 14, 2002 is hereby SET
ASIDE and the complaint is DISMISSED.
In dismissing petitioner’s complaint, the Court of Appeals held that the HLURB has no jurisdiction over an
action for reformation of contracts. The jurisdiction lies with the Regional Trial Court.
Forthwith, petitioner filed a motion for reconsideration 12 but it was denied by the appellate court in its
Resolution13 dated May 30, 2003.
Hence, the instant petition for review on certiorari.
The issues for our resolution are: (1) whether the HLURB has jurisdiction over the complaint for
reformation of instruments, specific performance and damages; and (2) whether the parties should
initially resort to arbitration.
The petition lacks merit.
As the records show, the complaint filed by petitioner with the HLURB is one for reformation of
instruments. Petitioner claimed that the terms of the contract are not clear and prayed that they should
be reformed to reflect the true stipulations of the parties. Petitioner prayed:
WHEREFORE, in view of all the foregoing, it is respectfully prayed of this Honorable Office that after due
notice and hearing, a judgment be please rendered:
1. Declaring that the instruments executed by the complainant FRABELLE and respondent PHILAM to
have been in fact a Contract to Sell. The parties are thereby governed by the provisions of P.D. 957
entitled, "Regulating the Sale of Subdivision Lots and Condominiums, Providing Penalties for
Violations Thereof" as buyer and developer, respectively, of a condominium unit and not as co-
developer and/or co-owner of the same;
We hold that being an action for reformation of instruments, petitioner’s complaint necessarily falls under
the jurisdiction of the Regional Trial Court pursuant to Section 1, Rule 63 of the 1997 Rules of Civil
Procedure, as amended, which provides:
SECTION 1. Who may file petition. – Any person interested under a deed, will, contract or other written
instrument, whose rights are affected by a statute, executive order or regulation, ordinance, or any
other governmental regulation may, before breach or violation thereof, bring an action in the
appropriate Regional Trial Court to determine any question of construction or validity arising, and for
a declaration of his rights or duties thereunder.
An action for the reformation of an instrument, to quiet title to real property or remove clouds
therefrom, or to consolidate ownership under Article 1607 of the Civil Code, may be brought under this
Rule. (Emphasis ours)
As correctly held by the Court of Appeals, any disagreement as to the nature of the parties’ relationship
which would require first an amendment or reformation of their contract is an issue which the courts may
and can resolve without the need of the expertise and specialized knowledge of the HLURB.

With regard to the second and last issue, paragraph 4.2 of the 1998 MOA mandates that any dispute
G.R. No. 126212             March 2, 2000
between or among the parties "shall finally be settled by arbitration conducted in accordance with
the Rules of Conciliation and Arbitration of the International Chamber of
Commerce."14 Petitioner referred the dispute to the PDRCI but respondents refused to submit to its SEA-LAND SERVICE, INC., petitioner,
jurisdiction. vs.
COURT OF APPEALS, A.P. MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING AGENCY
(FILIPINAS), INC., respondents.
It bears stressing that such arbitration agreement is the law between the parties.1awphi1 They are,
therefore, expected to abide by it in good faith.15
This petition for review on certiorari seeks to annul and set aside the decision of the Court of Appeals
dated September 29, 1995 in CA-G.R. SP No. 35777,1 dismissing the petition for certiorari filed by
This Court has previously held that arbitration is one of the alternative methods of dispute resolution that
petitioner to annul the two (2) orders issued by the Regional Trial Court of Quezon City, Branch 216, in
is now rightfully vaunted as "the wave of the future" in international relations, and is recognized
Civil Case No. Q-92-12593.
worldwide. To brush aside a contractual agreement calling for arbitration in case of disagreement
between the parties would therefore be a step backward.16
On April 29, 1991, petitioner Sea-Land Services, Inc. and private respondent A.P. Moller/Maersk Line
(hereinafter referred to as "AMML"), both carriers of cargo in containerships as well as common carriers,
WHEREFORE, we DENY the petition. The challenged Decision and Resolution of the Court of Appeals in
entered into a contract entitled, "Co-operation in the Pacific" 2 (hereinafter referred to as the
CA-G.R. SP No. 71389 are AFFIRMED.
"Agreement"), a vessel sharing agreement whereby they mutually agreed to purchase, share and
exchange needed space for cargo in their respective containerships. Under the Agreement, they could be,
depending on the occasion, either a principal carrier (with a negotiable bill of lading or other contract of
carriage with respect to cargo) or a containership operator (owner, operator or charterer of containership
on which the cargo is carried).

During the lifetime of the said Agreement, or on 18 May 1991, Florex International, Inc. (hereinafter
referred to as "Florex") delivered to private respondent AMML cargo of various foodstuffs, with Oakland,
California as port of discharge and San Francisco as place of delivery. The corresponding Bill of Lading No.
MAEU MNL110263 was issued to Florex by respondent AMML. Pursuant to the Agreement, respondent
AMML loaded the subject cargo on MS Sealand Pacer, a vessel owned by petitioner. Under this
arrangement, therefore, respondent AMML was the principal carrier while petitioner was the containership
operator.

The consignee refused to pay for the cargo, alleging that delivery thereof was delayed. Thus, on June 26,
1992, Florex filed a complaint against respondent Maersk-Tabacalera Shipping Agency (Filipinas), Inc. for
reimbursement of the value of the cargo and other charges. 3 According to Florex, the cargo was received
by the consignee only on June 28, 1991, since it was discharged in Long Beach, California, instead of in
Oakland, California on June 5, 1991 as stipulated.

Respondent AMML filed its Answer4 alleging that even on the assumption that Florex was entitled to
reimbursement, it was petitioner who should be liable. Accordingly, respondent AMML filed a Third Party
Complaint5 against petitioner on November 10, 1992, averring that whatever damages sustained by
Florex were caused by petitioner, which actually received and transported Florex's cargo on its vessels
and unloaded them.

On January 1, 1993, petitioner filed a Motion to Dismiss the Third Party Complaint 6 on the ground of
failure to state a cause of action and lack of jurisdiction, the amount of damages not having been
specified therein. Petitioner also prayed either for dismissal or suspension of the Third Party Complaint on
the ground that there exists an arbitration agreement between it and respondent AMML. On September
27, 1993, the lower court issued an Order denying petitioner's Motion to Dismiss. Petitioner's Motion for
Reconsideration was likewise denied by the lower court in its August 22, 1994 Order.

53
Undaunted, petitioner filed a petition for certiorari7 with the Court of Appeals on November 23, 1994. 32.2 Failing agreement upon an arbitrator within such period of 14 days, the dispute shall be settled by
Meanwhile, petitioner also filed its Answer to the Third Party Complaint in the trial court. three Arbitrators, each party appointing one Arbitrator, the third being appointed by the President of
the London Maritime Arbitrators Association.

On September 29, 1995, respondent Court of Appeals rendered the assailed Decision dismissing the
petition for certiorari. With the denial of its Motion for Reconsideration, petitioner filed the instant petition 32.3 If either of the appointed Arbitrators refuses or is incapable of acting, the party who appointed him
for review, raising the following issues — shall appoint a new Arbitrator in his place.
I. THE COURT OF APPEALS DISREGARDED AN AGREEMENT TO ARBITRATE IN VIOLATION OF STATUTE
AND SUPREME COURT DECISIONS HOLDING THAT ARBITRATION IS A CONDITION PRECEDENT TO
32.4 If one of the parties fails to appoint an Arbitrator — either originally or by way of substitution — for
SUIT WHERE SUCH AN AGREEMENT TO ARBITRATE EXISTS.
two weeks after the other party having appointed his Arbitrator has sent the party making default
II. THE COURT OF APPEALS HAS RULED IN A MANNER NOT IN ACCORD WITH JURISPRUDENCE WHEN
notice by mail, fax or telex to make the appointment, the party appointing the third Arbitrator shall,
IT REFUSED TO HAVE THE THIRD-PARTY COMPLAINT DISMISSED FOR FAILURE TO STATE A CAUSE OF
after application from the party having appointed his Arbitrator, also appoint an Arbitrator in behalf of
ACTION AND FOR RULING THAT THE FAILURE TO STATE A CAUSE OF ACTION MAY BE REMEDIED BY
the party making default.
REFERENCE TO ITS ATTACHMENTS.8

32.5 Any such arbitration shall be in accordance with the Arbitration Act 1950 as amended by the
Resolving first the issue of failure to state a cause of action, respondent Court of Appeals did not err in
Arbitration Act 1979 or any other subsequent legislation and the arbitrator's award shall be final and
reading the Complaint of Florex and respondent AMML's Answer together with the Third Party Complaint
binding upon Lines. To the extent permitted by the Arbitration Act 1979 the Lines hereto exclude
to determine whether a cause of action is properly alleged. In Fil-Estate Golf and
pursuant to S 3(1) of that Act the jurisdiction of the English High Court of Justice to entertain any
Development,  Inc. vs. Court of Appeals,9 this Court ruled that in the determination of whether or not the
appeal or application under Section 1 and 2 of the Arbitration Act 1979. 10
complaint states a cause of action, the annexes attached to the complaint may be considered, they being
parts of the complaint.
From the foregoing, the following matters are clear: First, disputes between the Principal Carrier and the
Containership Operator arising from contracts of carriage shall be governed by the provisions of the bills
Coming now to the main issue of arbitration, the pertinent clauses of the "Co-operation in the Pacific"
of lading issued to the Principal Carrier by the Containership Operator. Second, the Principal Carrier shall
contract entered into by the parties provide:
use its best efforts to defend or settle all suits against it for loss of or damage to cargo pursuant to bills of
lading issued by it. Third, the Principal Carrier shall have the right to seek damages and/or indemnity
16.2 For the purposes of this agreement the Containership Operator shall be deemed to have issued to from the Containership Operator by arbitration, pursuant to Clause 32 of the agreement. Fourth, the
the Principal Carrier for good consideration and for both loaded and empty containers its non- Principal Carrier shall have the right to commence such arbitration any time until one year after its
negotiable memo bills of lading in the form attached hereto as Appendix 6, consigned only to the liability has been finally determined by agreement, arbitration award or judgment, provided that the
Principal Carrier or its agents, provisions of which shall govern the liability between the Principal Carrier Containership Operator was given notice in writing by the Principal Carrier within three months of the
and the Containership Operator and that for the purpose of determining the liability in accordance with Principal Carrier receiving notice in writing of said claim.
either Lines' memo bill of lading, the number of packages or customary freight units shown on the bill
of lading issued by the Principal Carrier to its shippers shall be controlling.
Prescinding from the foregoing matters, we find that both the trial court and the Court of Appeals erred in
denying petitioner's prayer for arbitration.
16.3 The Principal Carrier shall use all reasonable endeavours to defend all in  personam and in rem suits
for loss of or damage to cargo carried pursuant to bills of lading issued by it, or to settle such suits for
To begin with, allowing respondent AMML's Third Party Claim against petitioner to proceed would be in
as low a figure as reasonably possible. The Principal Carrier shall have the right to seek damages
violation of Clause 16.2 of the Agreement. As summarized, the clause provides that whatever dispute
and/or an indemnity from the Containership Operator by arbitration pursuant to Clause 32
there may be between the Principal Carrier and the Containership Operator arising from contracts of
hereof.  Notwithstanding the provisions of the Lines' memo bills of lading or any statutory rules
carriage shall be governed by the provisions of the bills of lading deemed issued to the Principal Carrier
incorporated therein or applicable thereto, the Principal Carrier shall be entitled to commence such
by the Containership Operator. On the other hand, to sustain the Third Party Complaint would be to allow
arbitration at any time until one year after its liability has been finally determined by agreement,
private respondent to hold petitioner liable under the provisions of the bill of lading issued by the Principal
arbitration award or judgment, such award or judgment not being the subject of appeal, provided that
Carrier to Florex, under which the latter is suing in its Complaint, not under the bill of lading petitioner, as
the Containership Operator has been given notice of the said claim in writing by the Principal Carrier
containership operator, issued to respondent AMML, as Principal Carrier, contrary to what is contemplated
within three months of the Principal Carrier receiving notice in writing of the claim. Further the Principal
in Clause 16.2.
Carrier shall have the right to grant extensions of time for the commencement of suit to any third party
interested in the cargo without prior reference to the Containership Operator provided that notice of
any extension so granted is given to the Containership Operator within 30 days of any such extension The Court of Appeals ruled that the terms of the Agreement "explicitly required that the principal carrier's
being granted. claim against the containership operator first be finally determined by, among others, a court judgment,
before the right to arbitration accrues." However, the Court of Appeals failed to consider that, precisely,
arbitration is the mode by which the liability of the Containership Operator may be finally determined.
32. ARBITRATION
This is clear from the mandate of Clause 16.3 that "(T)he Principal Carrier shall have the right to seek
damages and/or an indemnity from the Containership Operator by arbitration" and that it "shall be
32.1 If at any time a dispute or claim arises out of or in connection with the Agreement the Lines shall entitled to commence such arbitration at any time until one year after its liability has been finally
endeavour to settle such amicably, failing which it shall be referred to arbitration by a single arbitrator determined by agreement, arbitration award  or judgment".
in London, such arbitrator to be appointed by agreement between the Lines within 14 days after service
by one Line upon the other of a notice specifying the nature of the dispute or claim and requiring
reference of such dispute or claim to arbitration pursuant to this Article.

54
For respondent Court of Appeals to say that the terms of the contract do not require arbitration as a
condition precedent to judicial action is erroneous. In the light of the Agreement clauses aforequoted, it is
clear that arbitration is the mode provided by which respondent AMML as Principal Carrier can seek
damages and/or indemnity from petitioner, as Containership Operator. Stated differently, respondent
AMML is barred from taking judicial action against petitioner by the clear terms of their Agreement.

As the Principal Carrier with which Florex directly dealt with, respondent AMML can and should be held
accountable by Florex in the event that it has a valid claim against the former. Pursuant to Clause 16.3 of GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,
the Agreement, respondent AMML, when faced with such a suit "shall use all reasonable endeavours to vs.
defend" itself or "settle such suits for as low a figure as reasonably possible". In turn, respondent AMML BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B. COLAYCO,
can seek damages and/or indemnity from petitioner as Containership Operator for whatever final MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, Respondents.
judgment may be adjudged against it under the Complaint of Florex. The crucial point is that collection of
said damages and/or indemnity from petitioner should be by arbitration. Corporate representatives may be compelled to submit to arbitration proceedings pursuant to a contract
entered into by the corporation they represent if there are allegations of bad faith or malice in their acts
All told, when the text of a contract is explicit and leaves no doubt as to its intention, the court may not representing the corporation.
read into it any other intention that would contradict its plain import. 11 Arbitration being the mode of
settlement between the parties expressly provided for by their Agreement, the Third Party Complaint This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and October 5, 2006
should have been dismissed. resolution. The Court of Appeals affirmed the trial court's decision holding that petitioners, as director,
should submit themselves as parties tothe arbitration proceedings between BF Corporation and Shangri-
This Court has previously held that arbitration is one of the alternative methods of dispute resolution that La Properties, Inc. (Shangri-La).
is now rightfully vaunted as "the wave of the future" in international relations, and is recognized
worldwide. To brush aside a contractual agreement calling for arbitration in case of disagreement In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-Laand
between the parties would therefore be a step backward. 12 the members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo
Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos.1
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is GRANTED. The decision
of the Court of Appeals in CA-G.R. SP No. 35777 is REVERSED and SET ASIDE. The Regional Trial Court of BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered into
Quezon City, Branch 77, is ordered to DISMISS Respondent AMML's Third Party Complaint in Civil Case agreements with Shangri-La wherein it undertook to construct for Shangri-La a mall and a multilevel
No. Q-92-12593. No pronouncement as to costs. parking structure along EDSA.2

Shangri-La had been consistent in paying BF Corporation in accordance with its progress billing
statements.3 However, by October 1991, Shangri-La started defaulting in payment.4

BF Corporation alleged that Shangri-La induced BF Corporation to continue with the construction of the
buildings using its own funds and credit despite Shangri-La’s default.5 According to BF Corporation,
ShangriLa misrepresented that it had funds to pay for its obligations with BF Corporation, and the delay in
payment was simply a matter of delayed processing of BF Corporation’s progress billing statements.6

BF Corporation eventually completed the construction of the buildings. 7 Shangri-La allegedly took
possession of the buildings while still owing BF Corporation an outstanding balance.8

BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the balance owed to
it.9 It also alleged that the Shangri-La’s directors were in bad faith in directing Shangri-La’s affairs.
Therefore, they should be held jointly and severally liable with Shangri-La for its obligations as well as for
the damages that BF Corporation incurred as a result of Shangri-La’s default.10

On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and Benjamin
C. Ramos filed a motion to suspend the proceedings in view of BF Corporation’s failure to submit its
dispute to arbitration, in accordance with the arbitration clauseprovided in its contract, quoted in the
motion as follows:11
35. Arbitration
(1) Provided always that in case any dispute or difference shall arise between the Owner or the Project
Manager on his behalf and the Contractor, either during the progress or after the completion or

55
 abandonment of the Works as to the construction of this Contract or as to any matter or thing of
whatsoever nature arising there under or inconnection therewith (including any matter or thing left by
this Contract to the discretion of the Project Manager or the withholding by the Project Manager of any
certificate to which the Contractor may claim to be entitled or the measurement and valuation
mentioned in clause 30(5)(a) of these Conditions or the rights and liabilities of the parties under
clauses 25, 26, 32 or 33 of these Conditions), the owner and the Contractor hereby agree to exert all
efforts to settle their differences or dispute amicably. Failing these efforts then such dispute or
difference shall be referred to arbitration in accordance with the rules and procedures of the Philippine
Arbitration Law.
x x x x x x x x x x
(6) The award of such Arbitrators shall be final and binding on the parties. The decision of the
Arbitrators shall be a condition precedent to any right of legal action that either party may have against
the other. . . .12 (Underscoring in the original)
On August 19, 1993, BF Corporation opposed the motion to suspend proceedings.13
In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend proceedings.14
On December 8, 1993, petitioners filed an answer to BF Corporation’s complaint, with compulsory counter
claim against BF Corporation and crossclaim against Shangri-La. 15 They alleged that they had resigned as
members of Shangri-La’s board of directors as of July 15, 1991.16
After the Regional Trial Court denied on February 11, 1994 the motion for reconsideration of its
November 18, 1993 order, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,Maximo G. Licauco III, and
Benjamin Ramos filed a petition for certiorari with the Court of Appeals.17
On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the submission of
the dispute to arbitration.18
Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition for review on certiorari with
this court.19 On March 27, 1998, this court affirmed the Court of Appeals’ decision, directing that the
dispute be submitted for arbitration.20
Another issue arose after BF Corporation had initiated arbitration proceedings. BF Corporation and
Shangri-La failed to agree as to the law that should govern the arbitration proceedings. 21 On October 27,
1998, the trial court issued the order directing the parties to conduct the proceedings in accordance with
Republic Act No. 876.22
Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification, both seeking to
clarify the term, "parties," and whether Shangri-La’s directors should be included in the arbitration
proceedings and served with separate demands for arbitration.23
Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying that they be
excluded from the arbitration proceedings for being non-parties to Shangri-La’s and BF Corporation’s
agreement.24
On July 28, 2003, the trial court issued the order directing service of demands for arbitration upon all
defendants in BF Corporation’s complaint.25 According to the trial court, Shangri-La’s directors were
interested parties who "must also be served with a demand for arbitration to give them the opportunity to
ventilate their side of the controversy, safeguard their interest and fend off their respective
positions." 26 Petitioners’ motion for reconsideration ofthis order was denied by the trial court on January
19, 2005.27
56
Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse of discretion in the
issuance of orders compelling them to submit to arbitration proceedings despite being third parties to the
contract between Shangri-La and BF Corporation.28
In its May 11, 2006 decision, 29 the Court of Appeals dismissed petitioners’ petition for certiorari. The
Court of Appeals ruled that ShangriLa’s directors were necessary parties in the arbitration
proceedings.30 According to the Court of Appeals:
[They were] deemed not third-parties tothe contract as they [were] sued for their acts in
representation of the party to the contract pursuant to Art. 31 of the Corporation Code, and that as
directors of the defendant corporation, [they], in accordance with Art. 1217 of the Civil Code, stand to
be benefited or injured by the result of the arbitration proceedings, hence, being necessary parties,
they must be joined in order to have complete adjudication of the controversy. Consequently, if [they
were] excluded as parties in the arbitration proceedings and an arbitral award is rendered, holding
[Shangri-La] and its board of directors jointly and solidarily liable to private respondent BF Corporation,
a problem will arise, i.e., whether petitioners will be bound bysuch arbitral award, and this will prevent
complete determination of the issues and resolution of the controversy.31
The Court of Appeals further ruled that "excluding petitioners in the arbitration proceedings . . . would be
contrary to the policy against multiplicity of suits."32
The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003 and January 19, 2005
of public respondent RTC, Branch 157, Pasig City, in Civil Case No. 63400, are AFFIRMED.33
The Court of Appeals denied petitioners’ motion for reconsideration in the October 5, 2006 resolution.34
On November 24, 2006, petitioners filed a petition for review of the May 11, 2006 Court of Appeals
decision and the October 5, 2006 Court of Appeals resolution.35
The issue in this case is whether petitioners should be made parties to the arbitration proceedings,
pursuant to the arbitration clause provided in the contract between BF Corporation and Shangri-La.
Petitioners argue that they cannot be held personally liable for corporate acts or obligations. 36 The
corporation is a separate being, and nothing justifies BF Corporation’s allegation that they are solidarily
liable with Shangri-La.37 Neither did they bind themselves personally nor did they undertake to shoulder
Shangri-La’s obligations should it fail in its obligations.38 BF Corporation also failed to establish fraud or
bad faith on their part.39
Petitioners also argue that they are third parties to the contract between BF Corporation and Shangri-
La.40 Provisions including arbitration stipulations should bind only the parties. 41 Based on our arbitration
laws, parties who are strangers to an agreement cannot be compelled to arbitrate.42
Petitioners point out thatour arbitration laws were enacted to promote the autonomy of parties in
resolving their disputes.43 Compelling them to submit to arbitration is against this purpose and may be
tantamount to stipulating for the parties.44
Separate comments on the petition werefiled by BF Corporation, and Maximo G. Licauco III, Alfredo
C.Ramos and Benjamin C. Ramos.45
Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners that Shangri-
La’sdirectors, being non-parties to the contract, should not be made personally liable for Shangri-La’s
acts.46 Since the contract was executed only by BF Corporation and Shangri-La, only they should be
affected by the contract’s stipulation.47 BF Corporation also failed to specifically allege the unlawful acts of
the directors that should make them solidarily liable with Shangri-La for its obligations.48
Meanwhile, in its comment, BF Corporation argued that the courts’ ruling that the parties should undergo
arbitration "clearly contemplated the inclusion of the directors of the corporation[.]" 49 BF Corporation also
argued that while petitioners were not parties to the agreement, they were still impleaded under Section
31 of the Corporation Code.50 Section 31 makes directors solidarily liable for fraud, gross negligence, and
bad faith.51 Petitioners are not really third parties to the agreement because they are being sued as
Shangri-La’s representatives, under Section 31 of the Corporation Code.52
BF Corporation further argued that because petitioners were impleaded for their solidary liability, they are
necessary parties to the arbitration proceedings. 53 The full resolution of all disputes in the arbitration
proceedings should also be done in the interest of justice.54
In the manifestation dated September 6, 2007, petitioners informed the court that the Arbitral Tribunal
had already promulgated its decision on July 31, 2007.55 The Arbitral Tribunal denied BF Corporation’s
claims against them.56 Petitioners stated that "[they] were included by the Arbitral Tribunal in the
proceedings conducted . . . notwithstanding [their] continuing objection thereto. . . ."57 They also stated
that "[their] unwilling participation in the arbitration case was done ex abundante ad cautela, as
manifested therein on several occasions." 58 Petitioners informed the court that they already manifested
with the trial court that "any action taken on [the Arbitral Tribunal’s decision] should be without prejudice
to the resolution of [this] case."59
Upon the court’s order, petitioners and Shangri-La filed their respective memoranda. Petitioners and
Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos reiterated their arguments that they
should not be held liable for Shangri-La’s default and made parties to the arbitration proceedings because
only BF Corporation and Shangri-La were parties to the contract.
In its memorandum, Shangri-La argued that petitioners were impleaded for their solidary liability under
Section 31 of the Corporation Code. Shangri-La added that their exclusion from the arbitration
proceedings will result in multiplicity of suits, which "is not favored in this jurisdiction." 60 It pointed out
that the case had already been mooted by the termination of the arbitration proceedings, which
petitioners actively participated in.61 Moreover, BF Corporation assailed only the correctness of the
Arbitral Tribunal’s award and not the part absolving Shangri-La’s directors from liability.62
BF Corporation filed a counter-manifestation with motion to dismiss 63 in lieu of the required
memorandum.
In its counter-manifestation, BF Corporation pointed out that since "petitioners’ counterclaims were
already dismissed with finality, and the claims against them were likewise dismissed with finality, they no
longer have any interest orpersonality in the arbitration case. Thus, there is no longer any need to
resolve the present Petition, which mainly questions the inclusion of petitioners in the arbitration
proceedings."64 The court’s decision in this case will no longer have any effect on the issue of petitioners’
inclusion in the arbitration proceedings.65
The petition must fail.
The Arbitral Tribunal’s decision, absolving petitioners from liability, and its binding effect on BF
Corporation, have rendered this case moot and academic.
The mootness of the case, however, had not precluded us from resolving issues so that principles may be
established for the guidance of the bench, bar, and the public. In De la Camara v. Hon. Enage, 66 this
57
court disregarded the fact that petitioner in that case already escaped from prison and ruled on the issue
of excessive bails:
While under the circumstances a ruling on the merits of the petition for certiorari is notwarranted, still, as
set forth at the opening of this opinion, the fact that this case is moot and academic should not preclude
this Tribunal from setting forth in language clear and unmistakable, the obligation of fidelity on the part of
lower court judges to the unequivocal command of the Constitution that excessive bail shall not be
required.67
This principle was repeated in subsequent cases when this court deemed it proper to clarify important
matters for guidance.68
Thus, we rule that petitioners may be compelled to submit to the arbitration proceedings in accordance
with Shangri-Laand BF Corporation’s agreement, in order to determine if the distinction between Shangri-
La’s personality and their personalities should be disregarded.
This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to avoid litigation and
settle disputes amicably and more expeditiously by themselves and through their choice of arbitrators.
The policy in favor of arbitration has been affirmed in our Civil Code,69 which was approved as early as
1949. It was later institutionalized by the approval of Republic Act No. 876,70 which expressly authorized,
made valid, enforceable, and irrevocable parties’ decision to submit their controversies, including
incidental issues, to arbitration. This court recognized this policy in Eastboard Navigation, Ltd. v. Ysmael
and Company, Inc.:71
As a corollary to the question regarding the existence of an arbitration agreement, defendant raises the
issue that, even if it be granted that it agreed to submit its dispute with plaintiff to arbitration, said
agreement is void and without effect for it amounts to removing said dispute from the jurisdiction of the
courts in which the parties are domiciled or where the dispute occurred. It is true that there are
authorities which hold that "a clause in a contract providing that all matters in dispute between the
parties shall be referred to arbitrators and to them alone, is contrary to public policy and cannot oust
the courts of jurisdiction" (Manila Electric Co. vs. Pasay Transportation Co., 57 Phil., 600, 603),
however, there are authorities which favor "the more intelligent view that arbitration, as an
inexpensive, speedy and amicable method of settling disputes, and as a means of avoiding litigation,
should receive every encouragement from the courts which may be extended without contravening
sound public policy or settled law" (3 Am. Jur., p. 835). Congress has officially adopted the modern
view when it reproduced in the new Civil Code the provisions of the old Code on Arbitration. And only
recently it approved Republic Act No. 876 expressly authorizing arbitration of future
disputes.72 (Emphasis supplied)
In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses are liberally
construed to favor arbitration. Thus, in LM Power Engineering Corporation v. Capitol Industrial
Construction Groups, Inc.,73 this court said:
Being an inexpensive, speedy and amicable method of settling disputes, arbitration — along with
mediation, conciliation and negotiation — is encouraged by the Supreme Court. Aside from unclogging
judicial dockets, arbitration also hastens the resolution of disputes, especially of the commercial kind. It
is thus regarded as the "wave of the future" in international civil and commercial disputes. Brushing
aside a contractual agreement calling for arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.74 (Emphasis supplied)
A more clear-cut statement of the state policy to encourage arbitration and to favor interpretations that
would render effective an arbitration clause was later expressed in Republic Act No. 9285:75
 SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of the party to make their own arrangements to
resolve their disputes. Towards this end, the State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice
and declog court dockets. As such, the State shall provide means for the use of ADR as an efficient tool
and an alternative procedure for the resolution of appropriate cases. Likewise, the State shall enlist
active private sector participation in the settlement of disputes through ADR. This Act shall be without
prejudice to the adoption by the Supreme Court of any ADR system, such as mediation, conciliation,
arbitration, or any combination thereof as a means of achieving speedy and efficient means of resolving
cases pending before all courts in the Philippines which shall be governed by such rules as the Supreme
Court may approve from time to time.
SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have due regard to the policy
of the law in favor of arbitration.Where action is commenced by or against multiple parties, one or more
of whomare parties who are bound by the arbitration agreement although the civil action may continue
as to those who are not bound by such arbitration agreement. (Emphasis supplied)
Thus, if there is an interpretation that would render effective an arbitration clause for purposes ofavoiding
litigation and expediting resolution of the dispute, that interpretation shall be adopted. Petitioners’ main
argument arises from the separate personality given to juridical persons vis-à-vis their directors, officers,
stockholders, and agents. Since they did not sign the arbitration agreement in any capacity, they cannot
be forced to submit to the jurisdiction of the Arbitration Tribunal in accordance with the arbitration
agreement. Moreover, they had already resigned as directors of Shangri-Laat the time of the alleged
default.
Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and distinct
from Shangri-La.
A corporation is an artificial entity created by fiction of law.76 This means that while it is not a person,
naturally, the law gives it a distinct personality and treats it as such. A corporation, in the legal sense, is
an individual with a personality that is distinct and separate from other persons including its stockholders,
officers, directors, representatives,77 and other juridical entities. The law vests in corporations
rights,powers, and attributes as if they were natural persons with physical existence and capabilities to
act on their own.78 For instance, they have the power to sue and enter into transactions or contracts.
Section 36 of the Corporation Code enumerates some of a corporation’s powers, thus:
Section 36. Corporate powers and capacity.– Every corporation incorporated under this Code has the
power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the articles of incorporation
and the certificate ofincorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in
accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to admit members to the corporation if it be a non-
stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal
with such real and personal property, including securities and bonds of other corporations, as the
transaction of the lawful business of the corporation may reasonably and necessarily require, subject
to the limitations prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall
give donations in aid of any political party or candidate or for purposes of partisan political activity;
58
10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers
and employees; and
11. To exercise such other powers asmay be essential or necessary to carry out its purpose or
purposes as stated in its articles of incorporation. (13a)
Because a corporation’s existence is only by fiction of law, it can only exercise its rights and powers
through itsdirectors, officers, or agents, who are all natural persons. A corporation cannot sue or enter
into contracts without them.
A consequence of a corporation’s separate personality is that consent by a corporation through its
representatives is not consent of the representative, personally. Its obligations, incurred through official
acts of its representatives, are its own. A stockholder, director, or representative does not become a
party to a contract just because a corporation executed a contract through that stockholder, director or
representative.
Hence, a corporation’s representatives are generally not bound by the terms of the contract executed by
the corporation. They are not personally liable for obligations and liabilities incurred on or in behalf of the
corporation.
Petitioners are also correct that arbitration promotes the parties’ autonomy in resolving their disputes.
This court recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty Corporation79 that an arbitration
clause shall not apply to persons who were neither parties to the contract nor assignees of previous
parties, thus:
A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on
arbitration, binds the parties thereto, as well as their assigns and heirs. But only they. 80 (Citations
omitted)
Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court ruled:
The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties
is part of that contract and is itself a contract. As a rule, contracts are respected as the law between the
contracting parties and produce effect as between them, their assigns and heirs. Clearly, only parties to
the Agreement . . . are bound by the Agreement and its arbitration clause as they are the only
signatories thereto.82 (Citation omitted)
This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals Co., Inc. 83 and
Stanfilco Employees v. DOLE Philippines, Inc., et al.84
As a general rule, therefore, a corporation’s representative who did not personally bind himself or herself
to an arbitration agreement cannot be forced to participate in arbitration proceedings made pursuant to
an agreement entered into by the corporation. He or she is generally not considered a party to that
agreement.
However, there are instances when the distinction between personalities of directors, officers,and
representatives, and of the corporation, are disregarded. We call this piercing the veil of corporate fiction.
Piercing the corporate veil is warranted when "[the separate personality of a corporation] is used as a
means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues." 85 It is also warranted in alter ego cases "where
a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation."86
When corporate veil is pierced, the corporation and persons who are normally treated as distinct from the
corporation are treated as one person, such that when the corporation is adjudged liable, these persons,
too, become liable as if they were the corporation.
Among the persons who may be treatedas the corporation itself under certain circumstances are its
directors and officers. Section 31 of the Corporation Code provides the instances when directors, trustees,
or officers may become liable for corporate acts:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly
vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or
bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest
adverse to the corporation in respect of any matter which has been reposed inhim in confidence, as to
which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the
corporation and must account for the profits which otherwise would have accrued to the corporation. (n)
Based on the above provision, a director, trustee, or officer of a corporation may be made solidarily liable
with it for all damages suffered by the corporation, its stockholders or members, and other persons in any
of the following cases:
a) The director or trustee willfully and knowingly voted for or assented to a patently unlawful corporate
act;
b) The director or trustee was guilty of gross negligence or bad faith in directing corporate affairs; and
c) The director or trustee acquired personal or pecuniary interest in conflict with his or her duties as
director or trustee.
Solidary liability with the corporation will also attach in the following instances:
a) "When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto";87
b) "When a director, trustee or officer has contractually agreed or stipulated to hold himself personally
and solidarily liable with the corporation";88 and
c) "When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action."89
When there are allegations of bad faith or malice against corporate directors or representatives, it
becomes the duty of courts or tribunals to determine if these persons and the corporation should be
treated as one. Without a trial, courts and tribunals have no basis for determining whether the veil of
corporate fiction should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the
courts or tribunals must first determine whether circumstances exist towarrant the courts or tribunals to
disregard the distinction between the corporation and the persons representing it. The determination of
these circumstances must be made by one tribunal or court in a proceeding participated in by all parties
involved, including current representatives of the corporation, and those persons whose personalities are
impliedly the sameas the corporation. This is because when the court or tribunal finds that circumstances
exist warranting the piercing of the corporate veil, the corporate representatives are treated as the
corporation itself and should be held liable for corporate acts. The corporation’s distinct personality is
disregarded, and the corporation is seen as a mere aggregation of persons undertaking a business under
the collective name of the corporation.
Hence, when the directors, as in this case, are impleaded in a case against a corporation, alleging malice
orbad faith on their part in directing the affairs of the corporation, complainants are effectively alleging
that the directors and the corporation are not acting as separate entities. They are alleging that the acts
or omissions by the corporation that violated their rights are also the directors’ acts or omissions. 90 They
are alleging that contracts executed by the corporation are contracts executed by the directors.
59
Complainants effectively pray that the corporate veilbe pierced because the cause of action between the
corporation and the directors is the same.
In that case, complainants have no choice but to institute only one proceeding against the
parties.1âwphi1 Under the Rules of Court, filing of multiple suits for a single cause of action is prohibited.
Institution of more than one suit for the same cause of action constitutes splitting the cause of action,
which is a ground for the dismissal ofthe others. Thus, in Rule 2:
Section 3. One suit for a single cause of action. — A party may not institute more than one suit for a
single cause of action. (3a)
Section 4. Splitting a single cause of action;effect of. — If two or more suits are instituted on the basis
of the same cause of action, the filing of one or a judgment upon the merits in any one is available as a
ground for the dismissal of the others. (4a)
It is because the personalities of petitioners and the corporation may later be found to be indistinct that
we rule that petitioners may be compelled to submit to arbitration.
However, in ruling that petitioners may be compelled to submit to the arbitration proceedings, we are not
overturning Heirs of Augusto Salas wherein this court affirmed the basic arbitration principle that only
parties to an arbitration agreement may be compelled to submit to arbitration. In that case, this court
recognizedthat persons other than the main party may be compelled to submit to arbitration, e.g.,
assignees and heirs. Assignees and heirs may be considered parties to an arbitration agreement entered
into by their assignor because the assignor’s rights and obligations are transferred to them upon
assignment. In other words, the assignor’s rights and obligations become their own rights and
obligations. In the same way, the corporation’s obligations are treated as the representative’s obligations
when the corporate veil is pierced. Moreover, in Heirs of Augusto Salas, this court affirmed its policy
against multiplicity of suits and unnecessary delay. This court said that "to split the proceeding into
arbitration for some parties and trial for other parties would "result in multiplicity of suits, duplicitous
procedure and unnecessary delay."91 This court also intimated that the interest of justice would be best
observed if it adjudicated rights in a single proceeding.92 While the facts of that case prompted this court
to direct the trial court to proceed to determine the issues of thatcase, it did not prohibit courts from
allowing the case to proceed to arbitration, when circumstances warrant.
Hence, the issue of whether the corporation’s acts in violation of complainant’s rights, and the incidental
issue of whether piercing of the corporate veil is warranted, should be determined in a single proceeding.
Such finding would determine if the corporation is merely an aggregation of persons whose liabilities must
be treated as one with the corporation.
However, when the courts disregard the corporation’s distinct and separate personality from its directors
or officers, the courts do not say that the corporation, in all instances and for all purposes, is the same as
its directors, stockholders, officers, and agents. It does not result in an absolute confusion of personalities
of the corporation and the persons composing or representing it. Courts merely discount the distinction
and treat them as one, in relation to a specific act, in order to extend the terms of the contract and the
liabilities for all damages to erring corporate officials who participated in the corporation’s illegal acts.
This is done so that the legal fiction cannot be used to perpetrate illegalities and injustices.
Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the corporate
veil, parties who are normally treated as distinct individuals should be made to participate in the
arbitration proceedings in order to determine ifsuch distinction should indeed be disregarded and, if so, to
determine the extent of their liabilities.
In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to prove the
existence of circumstances that render petitioners and the other directors solidarily liable. It ruled that
petitioners and Shangri-La’s other directors were not liable for the contractual obligations of Shangri-La to
BF Corporation. The Arbitral Tribunal’s decision was made with the participation of petitioners, albeit with
their continuing objection. In view of our discussion above, we rule that petitioners are bound by such
decision.

WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006 and resolution of
October 5, 2006 are AFFIRMED.

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