G.R. No.

191336 January 25, 2012

CRISANTA ALCARAZ MIGUEL, Petitioner,

vs.
JERRY D. MONTANEZ, Respondent.

DECISION

REYES, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. Petitioner Crisanta Alcaraz Miguel
(Miguel) seeks the reversal and setting aside of the September 17, 2009 Decision 1 and February 11, 2010 Resolution2 of the Court of
Appeals (CA) in CA-G.R. SP No. 100544, entitled "Jerry D. Montanez v. Crisanta Alcaraz Miguel."

Antecedent Facts

On February 1, 2001, respondent Jerry Montanez (Montanez) secured a loan of One Hundred Forty-Three Thousand Eight Hundred
Sixty-Four Pesos (₱143,864.00), payable in one (1) year, or until February 1, 2002, from the petitioner. The respondent gave as
collateral therefor his house and lot located at Block 39 Lot 39 Phase 3, Palmera Spring, Bagumbong, Caloocan City.

Due to the respondent’s failure to pay the loan, the petitioner filed a complaint against the respondent before the Lupong
Tagapamayapa of Barangay San Jose, Rodriguez, Rizal. The parties entered into a Kasunduang Pag-aayos wherein the respondent
agreed to pay his loan in installments in the amount of Two Thousand Pesos (₱2,000.00) per month, and in the event the house and lot
given as collateral is sold, the respondent would settle the balance of the loan in full. However, the respondent still failed to pay, and
on December 13, 2004, the Lupong Tagapamayapa issued a certification to file action in court in favor of the petitioner.

On April 7, 2005, the petitioner filed before the Metropolitan Trial Court (MeTC) of Makati City, Branch 66, a complaint for
Collection of Sum of Money. In his Answer with Counterclaim, 3 the respondent raised the defense of improper venue considering that
the petitioner was a resident of Bagumbong, Caloocan City while he lived in San Mateo, Rizal.

After trial, on August 16, 2006, the MeTC rendered a Decision, 4 which disposes as follows:

WHEREFORE, premises considered[,] judgment is hereby rendered ordering defendant Jerry D. Montanez to pay plaintiff the
following:

1. The amount of [Php147,893.00] representing the obligation with legal rate of interest from February 1, 2002 which was the
date of the loan maturity until the account is fully paid;

2. The amount of Php10,000.00 as and by way of attorney’s fees; and the costs.

SO ORDERED. 5

On appeal to the Regional Trial Court (RTC) of Makati City, Branch 146, the respondent raised the same issues cited in his Answer.
In its March 14, 2007 Decision,6 the RTC affirmed the MeTC Decision, disposing as follows:

WHEREFORE, finding no cogent reason to disturb the findings of the court a quo, the appeal is hereby DISMISSED, and the
DECISION appealed from is hereby AFFIRMED in its entirety for being in accordance with law and evidence.

SO ORDERED.7

Dissatisfied, the respondent appealed to the CA raising two issues, namely, (1) whether or not venue was improperly laid, and (2)
whether or not the Kasunduang Pag-aayos effectively novated the loan agreement. On September 17, 2009, the CA rendered the
assailed Decision, disposing as follows:

WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed Decision dated March 14, 2007 of the Regional
Trial Court (RTC) of Makati City, Branch 146, is REVERSED and SET ASIDE. A new judgment is entered dismissing respondent’s
complaint for collection of sum of money, without prejudice to her right to file the necessary action to enforce the Kasunduang Pag-
aayos.

SO ORDERED.8

Anent the issue of whether or not there is novation of the loan contract, the CA ruled in the negative. It ratiocinated as follows:

Judging from the terms of the Kasunduang Pag-aayos, it is clear that no novation of the old obligation has taken
place.1âwphi1 Contrary to petitioner’s assertion, there was no reduction of the term or period originally stipulated. The original period
in the first agreement is one (1) year to be counted from February 1, 2001, or until January 31, 2002. When the complaint was filed
before the barangay on February 2003, the period of the original agreement had long expired without compliance on the part of

1
petitioner. Hence, there was nothing to reduce or extend. There was only a change in the terms of payment which is not incompatible
with the old agreement. In other words, the Kasunduang Pag-aayos merely supplemented the old agreement.9

The CA went on saying that since the parties entered into a Kasunduang Pag-aayos before the Lupon ng Barangay, such settlement has
the force and effect of a court judgment, which may be enforced by execution within six (6) months from the date of settlement by the
Lupon ng Barangay, or by court action after the lapse of such time. 10Considering that more than six (6) months had elapsed from the
date of settlement, the CA ruled that the remedy of the petitioner was to file an action for the execution of the Kasunduang Pag-aayos
in court and not for collection of sum of money. 11 Consequently, the CA deemed it unnecessary to resolve the issue on venue. 12

The petitioner now comes to this Court.

Issues

(1) Whether or not a complaint for sum of money is the proper remedy for the petitioner, notwithstanding the Kasunduang
Pag-aayos;13 and

(2) Whether or not the CA should have decided the case on the merits rather than remand the case for the enforcement of the
Kasunduang Pag-aayos.14

Our Ruling

Because the respondent failed to comply with the terms of the Kasunduang Pag-aayos, said agreement is deemed rescinded pursuant to
Article 2041 of the New Civil Code and the petitioner can insist on his original demand. Perforce, the complaint for collection of sum
of money is the proper remedy.

The petitioner contends that the CA erred in ruling that she should have followed the procedure for enforcement of the amicable
settlement as provided in the Revised Katarungang Pambarangay Law, instead of filing a collection case. The petitioner points out that
the cause of action did not arise from the Kasunduang Pag-aayos but on the respondent’s breach of the original loan agreement.15

This Court agrees with the petitioner.

It is true that an amicable settlement reached at the barangay conciliation proceedings, like the Kasunduang Pag-aayos in this case, is
binding between the contracting parties and, upon its perfection, is immediately executory insofar as it is not contrary to law, good
morals, good customs, public order and public policy. 16 This is in accord with the broad precept of Article 2037 of the Civil Code, viz:

A compromise has upon the parties the effect and authority of res judicata; but there shall be no execution except in compliance with a
judicial compromise.

Being a by-product of mutual concessions and good faith of the parties, an amicable settlement has the force and effect of res judicata
even if not judicially approved.17 It transcends being a mere contract binding only upon the parties thereto, and is akin to a judgment
that is subject to execution in accordance with the Rules.18 Thus, under Section 417 of the Local Government Code, 19 such amicable
settlement or arbitration award may be enforced by execution by the Barangay Lupon within six (6) months from the date of
settlement, or by filing an action to enforce such settlement in the appropriate city or municipal court, if beyond the six-month period.

Under the first remedy, the proceedings are covered by the Local Government Code and the Katarungang Pambarangay Implementing
Rules and Regulations. The Punong Barangay is called upon during the hearing to determine solely the fact of non-compliance of the
terms of the settlement and to give the defaulting party another chance at voluntarily complying with his obligation under the
settlement. Under the second remedy, the proceedings are governed by the Rules of Court, as amended. The cause of action is the
amicable settlement itself, which, by operation of law, has the force and effect of a final judgment. 20

It must be emphasized, however, that enforcement by execution of the amicable settlement, either under the first or the second
remedy, is only applicable if the contracting parties have not repudiated such settlement within ten (10) days from the date thereof in
accordance with Section 416 of the Local Government Code. If the amicable settlement is repudiated by one party, either expressly or
impliedly, the other party has two options, namely, to enforce the compromise in accordance with the Local Government Code or
Rules of Court as the case may be, or to consider it rescinded and insist upon his original demand. This is in accord with Article 2041
of the Civil Code, which qualifies the broad application of Article 2037, viz:

If one of the parties fails or refuses to abide by the compromise, the other party may either enforce the compromise or regard it as
rescinded and insist upon his original demand.

In the case of Leonor v. Sycip, 21 the Supreme Court (SC) had the occasion to explain this provision of law. It ruled that Article 2041
does not require an action for rescission, and the aggrieved party, by the breach of compromise agreement, may just consider it already
rescinded, to wit:

It is worthy of notice, in this connection, that, unlike Article 2039 of the same Code, which speaks of "a cause of annulment or
rescission of the compromise" and provides that "the compromise may be annulled or rescinded" for the cause therein specified, thus
suggesting an action for annulment or rescission, said Article 2041 confers upon the party concerned, not a "cause" for rescission, or
the right to "demand" the rescission of a compromise, but the authority, not only to "regard it as rescinded", but, also, to "insist upon
his original demand". The language of this Article 2041, particularly when contrasted with that of Article 2039, denotes that no action
2
for rescission is required in said Article 2041, and that the party aggrieved by the breach of a compromise agreement may, if he
chooses, bring the suit contemplated or involved in his original demand, as if there had never been any compromise agreement,
without bringing an action for rescission thereof. He need not seek a judicial declaration of rescission, for he may "regard" the
compromise agreement already "rescinded".22 (emphasis supplied)

As so well stated in the case of Chavez v. Court of Appeals, 23 a party's non-compliance with the amicable settlement paved the way for
the application of Article 2041 under which the other party may either enforce the compromise, following the procedure laid out in the
Revised Katarungang Pambarangay Law, or consider it as rescinded and insist upon his original demand. To quote:

In the case at bar, the Revised Katarungang Pambarangay Law provides for a two-tiered mode of enforcement of an amicable
settlement, to wit: (a) by execution by the Punong Barangay which is quasi-judicial and summary in nature on mere motion of the
party entitled thereto; and (b) an action in regular form, which remedy is judicial. However, the mode of enforcement does not rule out
the right of rescission under Art. 2041 of the Civil Code. The availability of the right of rescission is apparent from the wording of
Sec. 417 itself which provides that the amicable settlement "may" be enforced by execution by the lupon within six (6) months from
its date or by action in the appropriate city or municipal court, if beyond that period. The use of the word "may" clearly makes the
procedure provided in the Revised Katarungang Pambarangay Law directory or merely optional in nature.

Thus, although the "Kasunduan" executed by petitioner and respondent before the Office of the Barangay Captain had the force and
effect of a final judgment of a court, petitioner's non-compliance paved the way for the application of Art. 2041 under which
respondent may either enforce the compromise, following the procedure laid out in the Revised Katarungang Pambarangay Law, or
regard it as rescinded and insist upon his original demand. Respondent chose the latter option when he instituted Civil Case No. 5139-
V-97 for recovery of unrealized profits and reimbursement of advance rentals, moral and exemplary damages, and attorney's fees.
Respondent was not limited to claiming ₱150,000.00 because although he agreed to the amount in the "Kasunduan," it is axiomatic
that a compromise settlement is not an admission of liability but merely a recognition that there is a dispute and an impending
litigation which the parties hope to prevent by making reciprocal concessions, adjusting their respective positions in the hope of
gaining balanced by the danger of losing. Under the "Kasunduan," respondent was only required to execute a waiver of all possible
claims arising from the lease contract if petitioner fully complies with his obligations thereunder. It is undisputed that herein petitioner
did not.24 (emphasis supplied and citations omitted)

In the instant case, the respondent did not comply with the terms and conditions of the Kasunduang Pag-aayos. Such non-compliance
may be construed as repudiation because it denotes that the respondent did not intend to be bound by the terms thereof, thereby
negating the very purpose for which it was executed. Perforce, the petitioner has the option either to enforce the Kasunduang Pag-
aayos, or to regard it as rescinded and insist upon his original demand, in accordance with the provision of Article 2041 of the Civil
Code. Having instituted an action for collection of sum of money, the petitioner obviously chose to rescind the Kasunduang Pag-
aayos. As such, it is error on the part of the CA to rule that enforcement by execution of said agreement is the appropriate remedy
under the circumstances.

Considering that the Kasunduang Pag-aayos is deemed rescinded by the non-compliance of the respondent of the terms thereof,
remanding the case to the trial court for the enforcement of said agreement is clearly unwarranted.

The petitioner avers that the CA erred in remanding the case to the trial court for the enforcement of the Kasunduang Pag-aayos as it
prolonged the process, "thereby putting off the case in an indefinite pendency." 25 Thus, the petitioner insists that she should be allowed
to ventilate her rights before this Court and not to repeat the same proceedings just to comply with the enforcement of the Kasunduang
Pag-aayos, in order to finally enforce her right to payment. 26

The CA took off on the wrong premise that enforcement of the Kasunduang Pag-aayos is the proper remedy, and therefore erred in its
conclusion that the case should be remanded to the trial court. The fact that the petitioner opted to rescind the Kasunduang Pag-aayos
means that she is insisting upon the undertaking of the respondent under the original loan contract. Thus, the CA should have decided
the case on the merits, as an appeal before it, and not prolong the determination of the issues by remanding it to the trial court.
Pertinently, evidence abounds that the respondent has failed to comply with his loan obligation. In fact, the Kasunduang Pag-aayos is
the well nigh incontrovertible proof of the respondent’s indebtedness with the petitioner as it was executed precisely to give the
respondent a second chance to make good on his undertaking. And since the respondent still reneged in paying his indebtedness,
justice demands that he must be held answerable therefor.

WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals is SET ASIDE and the Decision of the
Regional Trial Court, Branch 146, Makati City, dated March 14, 2007 is REINSTATED.

SO ORDERED.

3
G.R. No. 185582 February 29, 2012

TUNA PROCESSING, INC., Petitioner,

vs.
PHILIPPINE KINGFORD, INC., Respondent.

DECISION

PEREZ, J.:

Can a foreign corporation not licensed to do business in the Philippines, but which collects royalties from entities in the Philippines,
sue here to enforce a foreign arbitral award?

In this Petition for Review on Certiorari under Rule 45,1 petitioner Tuna Processing, Inc. (TPI), a foreign corporation not licensed to
do business in the Philippines, prays that the Resolution2 dated 21 November 2008 of the Regional Trial Court (RTC) of Makati City
be declared void and the case be remanded to the RTC for further proceedings. In the assailed Resolution, the RTC dismissed
petitioner’s Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award 3 against respondent Philippine
Kingford, Inc. (Kingford), a corporation duly organized and existing under the laws of the Philippines, 4 on the ground that petitioner
lacked legal capacity to sue.5

The Antecedents

On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the "licensor"), co-patentee of U.S. Patent No. 5,484,619,
Philippine Letters Patent No. 31138, and Indonesian Patent No. ID0003911 (collectively referred to as the "Yamaoka Patent"), 6 and
five (5) Philippine tuna processors, namely, Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources,
Santa Cruz Seafoods, Inc., and respondent Kingford (collectively referred to as the "sponsors"/"licensees")7 entered into a
Memorandum of Agreement (MOA),8 pertinent provisions of which read:

1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619, Philippine Patent No. 31138, and
Indonesian Patent No. ID0003911 xxx wishes to form an alliance with Sponsors for purposes of enforcing his three
aforementioned patents, granting licenses under those patents, and collecting royalties.

The Sponsors wish to be licensed under the aforementioned patents in order to practice the processes claimed in those patents
in the United States, the Philippines, and Indonesia, enforce those patents and collect royalties in conjunction with Licensor.

xxx

4. Establishment of Tuna Processors, Inc. The parties hereto agree to the establishment of Tuna Processors, Inc. ("TPI"), a
corporation established in the State of California, in order to implement the objectives of this Agreement.

5. Bank account. TPI shall open and maintain bank accounts in the United States, which will be used exclusively to deposit
funds that it will collect and to disburse cash it will be obligated to spend in connection with the implementation of this
Agreement.

6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor shall be assigned one share of TPI for the
purpose of being elected as member of the board of directors. The remaining shares of TPI shall be held by the Sponsors
according to their respective equity shares. 9

xxx

The parties likewise executed a Supplemental Memorandum of Agreement10 dated 15 January 2003 and an Agreement to Amend
Memorandum of Agreement11 dated 14 July 2003.

Due to a series of events not mentioned in the petition, the licensees, including respondent Kingford, withdrew from petitioner TPI
and correspondingly reneged on their obligations.12 Petitioner submitted the dispute for arbitration before the International Centre for
Dispute Resolution in the State of California, United States and won the case against respondent.13 Pertinent portions of the award
read:

13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties, pursuant to the terms of this award, the total sum
to be paid by RESPONDENT KINGFORD to CLAIMANT TPI, is the sum of ONE MILLION SEVEN HUNDRED FIFTY
THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS ($1,750,846.10).

(A) For breach of the MOA by not paying past due assessments, RESPONDENT KINGFORD shall pay CLAIMANT the
total sum of TWO HUNDRED TWENTY NINE THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS
AND NINETY CENTS ($229,355.90) which is 20% of MOA assessments since September 1, 2005[;]

4
 (B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the objectives of the MOA,
RESPONDENT KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED SEVENTY ONE THOUSAND
FOUR HUNDRED NINETY DOLLARS AND TWENTY CENTS ($271,490.20)[;]14 and

(C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619 PATENT, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND
DOLLARS AND NO CENTS ($1,250,000.00). xxx

xxx15

To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation, Recognition, and Enforcement of Foreign
Arbitral Award before the RTC of Makati City. The petition was raffled to Branch 150 presided by Judge Elmo M. Alameda.

At Branch 150, respondent Kingford filed a Motion to Dismiss. 16 After the court denied the motion for lack of merit,17respondent
sought for the inhibition of Judge Alameda and moved for the reconsideration of the order denying the motion. 18 Judge Alameda
inhibited himself notwithstanding "[t]he unfounded allegations and unsubstantiated assertions in the motion."19 Judge Cedrick O. Ruiz
of Branch 61, to which the case was re-raffled, in turn, granted respondent’s Motion for Reconsideration and dismissed the petition on
the ground that the petitioner lacked legal capacity to sue in the Philippines. 20

Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under Rule 45, the order of the trial court
dismissing its Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award.

Issue

The core issue in this case is whether or not the court a quo was correct in so dismissing the petition on the ground of petitioner’s lack
of legal capacity to sue.

Our Ruling

The petition is impressed with merit.

The Corporation Code of the Philippines expressly provides:

Sec. 133. Doing business without a license. - No foreign corporation transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative
agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals
on any valid cause of action recognized under Philippine laws.

It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus:

Herein plaintiff TPI’s "Petition, etc." acknowledges that it "is a foreign corporation established in the State of California" and "was
given the exclusive right to license or sublicense the Yamaoka Patent" and "was assigned the exclusive right to enforce the said patent
and collect corresponding royalties" in the Philippines. TPI likewise admits that it does not have a license to do business in the
Philippines.

There is no doubt, therefore, in the mind of this Court that TPI has been doing business in the Philippines, but sans a license to do so
issued by the concerned government agency of the Republic of the Philippines, when it collected royalties from "five (5) Philippine
tuna processors[,] namely[,] Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz
Seafoods, Inc. and respondent Philippine Kingford, Inc." This being the real situation, TPI cannot be permitted to maintain or
intervene in any action, suit or proceedings in any court or administrative agency of the Philippines." A priori, the "Petition, etc."
extant of the plaintiff TPI should be dismissed for it does not have the legal personality to sue in the Philippines. 21

The petitioner counters, however, that it is entitled to seek for the recognition and enforcement of the subject foreign arbitral award in
accordance with Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004),22 the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference on International Commercial Arbitration in
1958 (New York Convention), and the UNCITRAL Model Law on International Commercial Arbitration (Model Law),23 as none of
these specifically requires that the party seeking for the enforcement should have legal capacity to sue. It anchors its argument on the
following:

In the present case, enforcement has been effectively refused on a ground not found in the [Alternative Dispute Resolution Act
of 2004], New York Convention, or Model Law. It is for this reason that TPI has brought this matter before this most Honorable Court,
as it [i]s imperative to clarify whether the Philippines’ international obligations and State policy to strengthen arbitration as a means of
dispute resolution may be defeated by misplaced technical considerations not found in the relevant laws. 24

Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines on one hand, and the Alternative Dispute
Resolution Act of 2004, the New York Convention and the Model Law on the other?

5
In several cases, this Court had the occasion to discuss the nature and applicability of the Corporation Code of the Philippines, a
general law, viz-a-viz other special laws. Thus, in Koruga v. Arcenas, Jr.,25 this Court rejected the application of the Corporation Code
and applied the New Central Bank Act. It ratiocinated:

Koruga’s invocation of the provisions of the Corporation Code is misplaced. In an earlier case with similar antecedents, we ruled that:

"The Corporation Code, however, is a general law applying to all types of corporations, while the New Central Bank Act regulates
specifically banks and other financial institutions, including the dissolution and liquidation thereof. As between a general and special
law, the latter shall prevail – generalia specialibus non derogant." (Emphasis supplied)26

Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian Reform Council, 27 this Court held:

Without doubt, the Corporation Code is the general law providing for the formation, organization and regulation of private
corporations. On the other hand, RA 6657 is the special law on agrarian reform. As between a general and special law, the latter shall
prevail—generalia specialibus non derogant.28

Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this case as the Act, as its title - An Act to
Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative
Dispute Resolution, and for Other Purposes - would suggest, is a law especially enacted "to actively promote party autonomy in the
resolution of disputes or the freedom of the party to make their own arrangements to resolve their disputes." 29 It specifically provides
exclusive grounds available to the party opposing an application for recognition and enforcement of the arbitral award. 30

Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in the instant petition, we do not see the need to
discuss compliance with international obligations under the New York Convention and the Model Law. After all, both already form
part of the law.

In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York Convention in the Act by specifically
providing:

SEC. 42. Application of the New York Convention. - The New York Convention shall govern the recognition and enforcement of
arbitral awards covered by the said Convention.

xxx

SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration proceeding may oppose an application for
recognition and enforcement of the arbitral award in accordance with the procedural rules to be promulgated by the Supreme Court
only on those grounds enumerated under Article V of the New York Convention. Any other ground raised shall be disregarded by the
regional trial court.

It also expressly adopted the Model Law, to wit:

Sec. 19. Adoption of the Model Law on International Commercial Arbitration. International commercial arbitration shall be governed
by the Model Law on International Commercial Arbitration (the "Model Law") adopted by the United Nations Commission on
International Trade Law on June 21, 1985 xxx."

Now, does a foreign corporation not licensed to do business in the Philippines have legal capacity to sue under the provisions of
the Alternative Dispute Resolution Act of 2004? We answer in the affirmative.

Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an application for recognition and
enforcement of the arbitral award may raise only those grounds that were enumerated under Article V of the New York Convention, to
wit:

Article V

1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if
that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some
incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any
indication thereon, under the law of the country where the award was made; or

(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or
of the arbitration proceedings or was otherwise unable to present his case; or

(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the
decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award
which contains decisions on matters submitted to arbitration may be recognized and enforced; or

6
 (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of
the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took
place; or

(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent
authority of the country in which, or under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where
recognition and enforcement is sought finds that:

(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or

(b) The recognition or enforcement of the award would be contrary to the public policy of that country.

Clearly, not one of these exclusive grounds touched on the capacity to sue of the party seeking the recognition and enforcement of the
award.

Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,31 which was promulgated by the Supreme Court,
likewise support this position.

Rule 13.1 of the Special Rules provides that "[a]ny party to a foreign arbitration may petition the court to recognize and enforce a
foreign arbitral award." The contents of such petition are enumerated in Rule 13.5. 32 Capacity to sue is not included. Oppositely, in the
Rule on local arbitral awards or arbitrations in instances where "the place of arbitration is in the Philippines," 33 it is specifically
required that a petition "to determine any question concerning the existence, validity and enforceability of such arbitration
agreement"34 available to the parties before the commencement of arbitration and/or a petition for "judicial relief from the ruling of the
arbitral tribunal on a preliminary question upholding or declining its jurisdiction" 35 after arbitration has already commenced should
state "[t]he facts showing that the persons named as petitioner or respondent have legal capacity to sue or be sued." 36

Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award, we deny availment by the losing party of
the rule that bars foreign corporations not licensed to do business in the Philippines from maintaining a suit in our courts. When a
party enters into a contract containing a foreign arbitration clause and, as in this case, in fact submits itself to arbitration, it becomes
bound by the contract, by the arbitration and by the result of arbitration, conceding thereby the capacity of the other party to enter into
the contract, participate in the arbitration and cause the implementation of the result. Although not on all fours with the instant case,
also worthy to consider is the

wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization Trust v. Court of
Appeals,37 to wit:

xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial circles here and abroad. If its tested
mechanism can simply be ignored by an aggrieved party, one who, it must be stressed, voluntarily and actively participated in the
arbitration proceedings from the very beginning, it will destroy the very essence of mutuality inherent in consensual contracts.38

Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not because it is favored over domestic laws and
procedures, but because Republic Act No. 9285 has certainly erased any conflict of law question.

Finally, even assuming, only for the sake of argument, that the court a quo correctly observed that the Model Law, not the New York
Convention, governs the subject arbitral award,39 petitioner may still seek recognition and enforcement of the award in Philippine
court, since the Model Law prescribes substantially identical exclusive grounds for refusing recognition or enforcement.40

Premises considered, petitioner TPI, although not licensed to do business in the Philippines, may seek recognition and enforcement of
the foreign arbitral award in accordance with the provisions of the Alternative Dispute Resolution Act of 2004.

II

The remaining arguments of respondent Kingford are likewise unmeritorious.

First. There is no need to consider respondent’s contention that petitioner TPI improperly raised a question of fact when it posited that
its act of entering into a MOA should not be considered "doing business" in the Philippines for the purpose of determining capacity to
sue. We reiterate that the foreign corporation’s capacity to sue in the Philippines is not material insofar as the recognition and
enforcement of a foreign arbitral award is concerned.

Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of the assailed Resolution dated 21 November
2008 dismissing the case. We have, time and again, ruled that the prior filing of a motion for reconsideration is not required
in certiorari under Rule 45.41

Third. While we agree that petitioner failed to observe the principle of hierarchy of courts, which, under ordinary circumstances,
warrants the outright dismissal of the case,42 we opt to relax the rules following the pronouncement in Chua v. Ang,43 to wit:

7
[I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases involving conflicting factual allegations.
Cases which depend on disputed facts for decision cannot be brought immediately before us as we are not triers of facts. 44 A strict
application of this rule may be excused when the reason behind the rule is not present in a case, as in the present case, where the
issues are not factual but purely legal.1âwphi1 In these types of questions, this Court has the ultimate say so that we merely abbreviate
the review process if we, because of the unique circumstances of a case, choose to hear and decide the legal issues outright. 45

Moreover, the novelty and the paramount importance of the issue herein raised should be seriously considered. 46Surely, there is a need
to take cognizance of the case not only to guide the bench and the bar, but if only to strengthen arbitration as a means of dispute
resolution, and uphold the policy of the State embodied in the Alternative Dispute Resolution Act of 2004, to wit:

Sec. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively promote party autonomy in the resolution of
disputes or the freedom of the party to make their own arrangements to resolve their disputes. Towards this end, the State shall
encourage and actively promote the use of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and
impartial justice and declog court dockets. xxx

Fourth. As regards the issue on the validity and enforceability of the foreign arbitral award, we leave its determination to the court a
quo where its recognition and enforcement is being sought.

Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the motion for time to file petition for review
on certiorari before the petition was filed with this Court.47 We, however, find petitioner’s reply in order. Thus:

26. Admittedly, reference to "Branch 67" in petitioner TPI’s "Motion for Time to File a Petition for Review on Certiorari under Rule
45" is a typographical error. As correctly pointed out by respondent Kingford, the order sought to be assailed originated from Regional
Trial Court, Makati City, Branch 61.

27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a copy of petitioner TPI’s motion was received by
the Metropolitan Trial Court, Makati City, Branch 67. On 8 January 2009, the motion was forwarded to the Regional Trial Court,
Makati City, Branch 61.48

All considered, petitioner TPI, although a foreign corporation not licensed to do business in the Philippines, is not, for that reason
alone, precluded from filing the Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before a
Philippine court.

WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch 61, Makati City in Special Proceedings
No. M-6533 is hereby REVERSED and SET ASIDE. The case is REMANDED to Branch 61 for further proceedings.

SO ORDERED.

8
G.R. No. 161957 January 22, 2007

JORGE GONZALES and PANEL OF ARBITRATORS, Petitioners,

vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES MINING
INC.,Respondents.

x--------------------------------------------------------------------------------- x

G.R. No. 167994 January 22, 2007

JORGE GONZALES, Petitioner,

vs.
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of BR. 148 of the REGIONAL TRIAL COURT of
MAKATI CITY, and CLIMAX-ARIMCO MINING CORPORATION, Respondents.

RESOLUTION

TINGA, J.:

This is a consolidation of two petitions rooted in the same disputed Addendum Contract entered into by the parties. In G.R. No.
161957, the Court in its Decision of 28 February 2005 1 denied the Rule 45 petition of petitioner Jorge Gonzales (Gonzales). It held
that the DENR Panel of Arbitrators had no jurisdiction over the complaint for the annulment of the Addendum Contract on grounds of
fraud and violation of the Constitution and that the action should have been brought before the regular courts as it involved judicial
issues. Both parties filed separate motions for reconsideration. Gonzales avers in his Motion for Reconsideration 2 that the Court erred
in holding that the DENR Panel of Arbitrators was bereft of jurisdiction, reiterating its argument that the case involves a mining
dispute that properly falls within the ambit of the Panel’s authority. Gonzales adds that the Court failed to rule on other issues he
raised relating to the sufficiency of his complaint before the DENR Panel of Arbitrators and the timeliness of its filing.

Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial Reconsideration and/or Clarification3 seeking
reconsideration of that part of the Decision holding that the case should not be brought for arbitration under Republic Act (R.A.) No.
876, also known as the Arbitration Law.4 Respondents, citing American jurisprudence 5 and the UNCITRAL Model Law,6 argue that
the arbitration clause in the Addendum Contract should be treated as an agreement independent of the other terms of the contract, and
that a claimed rescission of the main contract does not avoid the duty to arbitrate. Respondents add that Gonzales’s argument relating
to the alleged invalidity of the Addendum Contract still has to be proven and adjudicated on in a proper proceeding; that is, an action
separate from the motion to compel arbitration. Pending judgment in such separate action, the Addendum Contract remains valid and
binding and so does the arbitration clause therein. Respondents add that the holding in the Decision that "the case should not be
brought under the ambit of the Arbitration Law" appears to be premised on Gonzales’s having "impugn[ed] the existence or validity"
of the addendum contract. If so, it supposedly conveys the idea that Gonzales’s unilateral repudiation of the contract or mere
allegation of its invalidity is all it takes to avoid arbitration. Hence, respondents submit that the court’s holding that "the case should
not be brought under the ambit of the Arbitration Law" be understood or clarified as operative only where the challenge to the
arbitration agreement has been sustained by final judgment.

Both parties were required to file their respective comments to the other party’s motion for reconsideration/clarification.7 Respondents
filed their Comment on 17 August 2005,8 while Gonzales filed his only on 25 July 2006.9

On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or while the motions for reconsideration in G.R. No.
16195710 were pending, wherein Gonzales challenged the orders of the Regional Trial Court (RTC) requiring him to proceed with the
arbitration proceedings as sought by Climax-Arimco Mining Corporation (Climax-Arimco).

On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated upon the recommendation of the Assistant Division
Clerk of Court since the cases are rooted in the same Addendum Contract.

We first tackle the more recent case which is G.R. No. 167994. It stemmed from the petition to compel arbitration filed by respondent
Climax-Arimco before the RTC of Makati City on 31 March 2000 while the complaint for the nullification of the Addendum Contract
was pending before the DENR Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales a Demand for Arbitration
pursuant to Clause 19.111 of the Addendum Contract and also in accordance with Sec. 5 of R.A. No. 876. The petition for arbitration
was subsequently filed and Climax-Arimco sought an order to compel the parties to arbitrate pursuant to the said arbitration clause.
The case, docketed as Civil Case No. 00-444, was initially raffled to Br. 132 of the RTC of Makati City, with Judge Herminio I.
Benito as Presiding Judge. Respondent Climax-Arimco filed on 5 April 2000 a motion to set the application to compel arbitration for
hearing.

On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to set for hearing. On 15 May 2000, he filed an Answer
with Counterclaim,12 questioning the validity of the Addendum Contract containing the arbitration clause. Gonzales alleged that the
Addendum Contract containing the arbitration clause is void in view of Climax-Arimco’s acts of fraud, oppression and violation of the
Constitution. Thus, the arbitration clause, Clause 19.1, contained in the Addendum Contract is also null and void ab initio and legally
inexistent.1awphi1.net

9
On 18 May 2000, the RTC issued an order declaring Gonzales’s motion to dismiss moot and academic in view of the filing of his
Answer with Counterclaim.13

On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial.14 This the RTC denied on 16 June 2000, holding that the
petition for arbitration is a special proceeding that is summary in nature. 15 However, on 7 July 2000, the RTC granted Gonzales’s
motion for reconsideration of the 16 June 2000 Order and set the case for pre-trial on 10 August 2000, it being of the view that
Gonzales had raised in his answer the issue of the making of the arbitration agreement. 16

Climax-Arimco then filed a motion to resolve its pending motion to compel arbitration. The RTC denied the same in its 24 July 2000
order.

On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. Benito for "not possessing the cold neutrality of an
impartial judge."17 On 5 August 2000, Judge Benito issued an Order granting the Motion to Inhibit and ordered the re-raffling of the
petition for arbitration.18 The case was raffled to the sala of public respondent Judge Oscar B. Pimentel of Branch 148.

On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24 July 2000 Order.19 Climax-Arimco argued that R.A.
No. 876 does not authorize a pre-trial or trial for a motion to compel arbitration but directs the court to hear the motion summarily and
resolve it within ten days from hearing. Judge Pimentel granted the motion and directed the parties to arbitration. On 13 February
2001, Judge Pimentel issued the first assailed order requiring Gonzales to proceed with arbitration proceedings and appointing retired
CA Justice Jorge Coquia as sole arbitrator.20

Gonzales moved for reconsideration on 20 March 2001 but this was denied in the Order dated 7 March 2005. 21

Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 February 2001 and 7 March 2005 of Judge Pimentel. Gonzales
contends that public respondent Judge Pimentel acted with grave abuse of discretion in immediately ordering the parties to proceed
with arbitration despite the proper, valid, and timely raised argument in his Answer with Counterclaim that the Addendum Contract,
containing the arbitration clause, is null and void. Gonzales has also sought a temporary restraining order to prevent the enforcement
of the assailed orders directing the parties to arbitrate, and to direct Judge Pimentel to hold a pre-trial conference and the necessary
hearings on the determination of the nullity of the Addendum Contract.

In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:

Sec. 6. Hearing by court.—A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in writing
providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner provided for in such
agreement. Five days notice in writing of the hearing of such application shall be served either personally or by registered mail upon
the party in default. The court shall hear the parties, and upon being satisfied that the making of the agreement or such failure to
comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding be
that no agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the
proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in proceeding
thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.

The court shall decide all motions, petitions or applications filed under the provisions of this Act, within ten (10) days after such
motions, petitions, or applications have been heard by it.

Gonzales also cites Sec. 24 of R.A. No. 9285 or the "Alternative Dispute Resolution Act of 2004:"

Sec. 24. Referral to Arbitration.—A court before which an action is brought in a matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not later than the pre-trial conference, or upon the request of both parties thereafter,
refer the parties to arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable of being
performed.

According to Gonzales, the above-quoted provisions of law outline the procedure to be followed in petitions to compel arbitration,
which the RTC did not follow. Thus, referral of the parties to arbitration by Judge Pimentel despite the timely and properly raised
issue of nullity of the Addendum Contract was misplaced and without legal basis. Both R.A. No. 876 and R.A. No. 9285 mandate that
any issue as to the nullity, inoperativeness, or incapability of performance of the arbitration clause/agreement raised by one of the
parties to the alleged arbitration agreement must be determined by the court prior to referring them to arbitration. They require that the
trial court first determine or resolve the issue of nullity, and there is no other venue for this determination other than a pre-trial and
hearing on the issue by the trial court which has jurisdiction over the case. Gonzales adds that the assailed 13 February 2001 Order
also violated his right to procedural due process when the trial court erroneously ruled on the existence of the arbitration agreement
despite the absence of a hearing for the presentation of evidence on the nullity of the Addendum Contract.

Respondent Climax-Arimco, on the other hand, assails the mode of review availed of by Gonzales. Climax-Arimco cites Sec. 29 of
R.A. No. 876:

Sec. 29. Appeals.—An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an
award through certiorari proceedings, but such appeals shall be limited to questions of law. The proceedings upon such an appeal,
including the judgment thereon shall be governed by the Rules of Court in so far as they are applicable.

10
Climax-Arimco mentions that the special civil action for certiorari employed by Gonzales is available only where there is no appeal or
any plain, speedy, and adequate remedy in the ordinary course of law against the challenged orders or acts. Climax-Arimco then
points out that R.A. No. 876 provides for an appeal from such orders, which, under the Rules of Court, must be filed within 15 days
from notice of the final order or resolution appealed from or of the denial of the motion for reconsideration filed in due time. Gonzales
has not denied that the relevant 15-day period for an appeal had elapsed long before he filed this petition for certiorari. He cannot use
the special civil action of certiorari as a remedy for a lost appeal.

Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A. No. 876 confers on the trial court only a limited
and special jurisdiction, i.e., a jurisdiction solely to determine (a) whether or not the parties have a written contract to arbitrate, and (b)
if the defendant has failed to comply with that contract. Respondent cites La Naval Drug Corporation v. Court of Appeals,22 which
holds that in a proceeding to compel arbitration, "[t]he arbitration law explicitly confines the court’s authority only to pass upon the
issue of whether there is or there is no agreement in writing providing for arbitration," and "[i]n the affirmative, the statute ordains that
the court shall issue an order ‘summarily directing the parties to proceed with the arbitration in accordance with the terms
thereof.’"23Climax-Arimco argues that R.A. No. 876 gives no room for any other issue to be dealt with in such a proceeding, and that
the court presented with an application to compel arbitration may order arbitration or dismiss the same, depending solely on its finding
as to those two limited issues. If either of these matters is disputed, the court is required to conduct a summary hearing on it.
Gonzales’s proposition contradicts both the trial court’s limited jurisdiction and the summary nature of the proceeding itself.

Climax-Arimco further notes that Gonzales’s attack on or repudiation of the Addendum Contract also is not a ground to deny effect to
the arbitration clause in the Contract. The arbitration agreement is separate and severable from the contract evidencing the parties’
commercial or economic transaction, it stresses. Hence, the alleged defect or failure of the main contract is not a ground to deny
enforcement of the parties’ arbitration agreement. Even the party who has repudiated the main contract is not prevented from
enforcing its arbitration provision. R.A. No. 876 itself treats the arbitration clause or agreement as a contract separate from the
commercial, economic or other transaction to be arbitrated. The statute, in particular paragraph 1 of Sec. 2 thereof, considers the
arbitration stipulation an independent contract in its own right whose enforcement may be prevented only on grounds which legally
make the arbitration agreement itself revocable, thus:

Sec. 2. Persons and matters subject to arbitration.—Two or more persons or parties may submit to the arbitration of one or more
arbitrators any controversy existing, between them at the time of the submission and which may be the subject of an action, or the
parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such
submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any
contract.

xxxx

The grounds Gonzales invokes for the revocation of the Addendum Contract—fraud and oppression in the execution thereof—are also
not grounds for the revocation of the arbitration clause in the Contract, Climax-Arimco notes. Such grounds may only be raised by
way of defense in the arbitration itself and cannot be used to frustrate or delay the conduct of arbitration proceedings. Instead, these
should be raised in a separate action for rescission, it continues.

Climax-Arimco emphasizes that the summary proceeding to compel arbitration under Sec. 6 of R.A. No. 876 should not be confused
with the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an application to compel arbitration where the court’s
authority is limited to resolving the issue of whether there is or there is no agreement in writing providing for arbitration, while Sec.
24 of R.A. No. 9285 refers to an ordinary action which covers a matter that appears to be arbitrable or subject to arbitration under the
arbitration agreement. In the latter case, the statute is clear that the court, instead of trying the case, may, on request of either or both
parties, refer the parties to arbitration, unless it finds that the arbitration agreement is null and void, inoperative or incapable of being
performed. Arbitration may even be ordered in the same suit brought upon a matter covered by an arbitration agreement even without
waiting for the outcome of the issue of the validity of the arbitration agreement. Art. 8 of the UNCITRAL Model Law 24 states that
where a court before which an action is brought in a matter which is subject of an arbitration agreement refers the parties to
arbitration, the arbitral proceedings may proceed even while the action is pending.

Thus, the main issue raised in the Petition for Certiorari is whether it was proper for the RTC, in the proceeding to compel arbitration
under R.A. No. 876, to order the parties to arbitrate even though the defendant therein has raised the twin issues of validity and nullity
of the Addendum Contract and, consequently, of the arbitration clause therein as well. The resolution of both Climax-Arimco’s
Motion for Partial Reconsideration and/or Clarification in G.R. No. 161957 and Gonzales’s Petition for Certiorari in G.R. No. 167994
essentially turns on whether the question of validity of the Addendum Contract bears upon the applicability or enforceability of the
arbitration clause contained therein. The two pending matters shall thus be jointly resolved.

We address the Rule 65 petition in G.R. No. 167994 first from the remedial law perspective. It deserves to be dismissed on procedural
grounds, as it was filed in lieu of appeal which is the prescribed remedy and at that far beyond the reglementary period. It is
elementary in remedial law that the use of an erroneous mode of appeal is cause for dismissal of the petition for certiorari and it has
been repeatedly stressed that a petition for certiorari is not a substitute for a lost appeal. As its nature, a petition for certiorari lies only
where there is "no appeal," and "no plain, speedy and adequate remedy in the ordinary course of law." 25 The Arbitration Law
specifically provides for an appeal by certiorari, i.e., a petition for review under certiorari under Rule 45 of the Rules of Court that
raises pure questions of law.26 There is no merit to Gonzales’s argument that the use of the permissive term "may" in Sec. 29, R.A.
No. 876 in the filing of appeals does not prohibit nor discount the filing of a petition for certiorari under Rule 65. 27 Proper
interpretation of the aforesaid provision of law shows that the term "may" refers only to the filing of an appeal, not to the mode of
review to be employed. Indeed, the use of "may" merely reiterates the principle that the right to appeal is not part of due process of
law but is a mere statutory privilege to be exercised only in the manner and in accordance with law.

11
Neither can BF Corporation v. Court of Appeals28 cited by Gonzales support his theory. Gonzales argues that said case recognized and
allowed a petition for certiorari under Rule 65 "appealing the order of the Regional Trial Court disregarding the arbitration agreement
as an acceptable remedy."29 The BF Corporation case had its origins in a complaint for collection of sum of money filed by therein
petitioner BF Corporation against Shangri-la Properties, Inc. (SPI). SPI moved to suspend the proceedings alleging that the
construction agreement or the Articles of Agreement between the parties contained a clause requiring prior resort to arbitration before
judicial intervention. The trial court found that an arbitration clause was incorporated in the Conditions of Contract appended to and
deemed an integral part of the Articles of Agreement. Still, the trial court denied the motion to suspend proceedings upon a finding
that the Conditions of Contract were not duly executed and signed by the parties. The trial court also found that SPI had failed to file
any written notice of demand for arbitration within the period specified in the arbitration clause. The trial court denied SPI's motion
for reconsideration and ordered it to file its responsive pleading. Instead of filing an answer, SPI filed a petition for certiorari under
Rule 65, which the Court of Appeals, favorably acted upon. In a petition for review before this Court, BF Corporation alleged, among
others, that the Court of Appeals should have dismissed the petition for certiorari since the order of the trial court denying the motion
to suspend proceedings "is a resolution of an incident on the merits" and upon the continuation of the proceedings, the trial court
would eventually render a decision on the merits, which decision could then be elevated to a higher court "in an ordinary appeal."30

The Court did not uphold BF Corporation’s argument. The issue raised before the Court was whether SPI had taken the proper mode
of appeal before the Court of Appeals. The question before the Court of Appeals was whether the trial court had prematurely assumed
jurisdiction over the controversy. The question of jurisdiction in turn depended on the question of existence of the arbitration clause
which is one of fact. While on its face the question of existence of the arbitration clause is a question of fact that is not proper in a
petition for certiorari, yet since the determination of the question obliged the Court of Appeals as it did to interpret the contract
documents in accordance with R.A. No. 876 and existing jurisprudence, the question is likewise a question of law which may be
properly taken cognizance of in a petition for certiorari under Rule 65, so the Court held. 31

The situation in B.F. Corporation is not availing in the present petition. The disquisition in B.F. Corporation led to the conclusion that
in order that the question of jurisdiction may be resolved, the appellate court had to deal first with a question of law which could be
addressed in a certiorari proceeding. In the present case, Gonzales’s petition raises a question of law, but not a question of jurisdiction.
Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876 when he ordered Gonzales to proceed with
arbitration and appointed a sole arbitrator after making the determination that there was indeed an arbitration agreement. It has been
held that as long as a court acts within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any supposed
error committed by it will amount to nothing more than an error of judgment reviewable by a timely appeal and not assailable by a
special civil action of certiorari.32 Even if we overlook the employment of the wrong remedy in the broader interests of justice, the
petition would nevertheless be dismissed for failure of Gonzalez to show grave abuse of discretion.

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction. The Civil Code is
explicit on the matter.33 R.A. No. 876 also expressly authorizes arbitration of domestic disputes. Foreign arbitration, as a system of
settling commercial disputes of an international character, was likewise recognized when the Philippines adhered to the United
Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965
Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of international arbitration
agreements between parties of different nationalities within a contracting state.34 The enactment of R.A. No. 9285 on 2 April 2004
further institutionalized the use of alternative dispute resolution systems, including arbitration, in the settlement of disputes.

Disputes do not go to arbitration unless and until the parties have agreed to abide by the arbitrator’s decision. Necessarily, a contract is
required for arbitration to take place and to be binding. R.A. No. 876 recognizes the contractual nature of the arbitration agreement,
thus:

Sec. 2. Persons and matters subject to arbitration.—Two or more persons or parties may submit to the arbitration of one or more
arbitrators any controversy existing, between them at the time of the submission and which may be the subject of an action, or the
parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such
submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any
contract.

Such submission or contract may include question arising out of valuations, appraisals or other controversies which may be collateral,
incidental, precedent or subsequent to any issue between the parties.

A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or a person judicially declared to be
incompetent, unless the appropriate court having jurisdiction approve a petition for permission to submit such controversy to
arbitration made by the general guardian or guardian ad litem of the infant or of the incompetent. [Emphasis added.]

Thus, we held in Manila Electric Co. v. Pasay Transportation Co. 35 that a submission to arbitration is a contract. A clause in a contract
providing that all matters in dispute between the parties shall be referred to arbitration is a contract, 36 and in Del Monte Corporation-
USA v. Court of Appeals37 that "[t]he provision to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract. As a rule, contracts are respected as the law between the contracting parties and
produce effect as between them, their assigns and heirs."38

The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual nature of arbitration clauses or agreements. It
provides:

Sec. 6. Hearing by court.—A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in writing
providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner provided for in such
agreement. Five days notice in writing of the hearing of such application shall be served either personally or by registered mail upon

12
the party in default. The court shall hear the parties, and upon being satisfied that the making of the agreement or such failure to
comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding be
that no agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the
proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in proceeding
thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.

The court shall decide all motions, petitions or applications filed under the provisions of this Act, within ten days after such motions,
petitions, or applications have been heard by it. [Emphasis added.]

This special proceeding is the procedural mechanism for the enforcement of the contract to arbitrate. The jurisdiction of the courts in
relation to Sec. 6 of R.A. No. 876 as well as the nature of the proceedings therein was expounded upon in La Naval Drug Corporation
v. Court of Appeals.39 There it was held that R.A. No. 876 explicitly confines the court's authority only to the determination of
whether or not there is an agreement in writing providing for arbitration. In the affirmative, the statute ordains that the court shall issue
an order "summarily directing the parties to proceed with the arbitration in accordance with the terms thereof." If the court, upon the
other hand, finds that no such agreement exists, "the proceeding shall be dismissed." 40 The cited case also stressed that the proceedings
are summary in nature.41 The same thrust was made in the earlier case of Mindanao Portland Cement Corp. v. McDonough
Construction Co. of Florida42 which held, thus:

Since there obtains herein a written provision for arbitration as well as failure on respondent's part to comply therewith, the court a
quo rightly ordered the parties to proceed to arbitration in accordance with the terms of their agreement (Sec. 6, Republic Act 876).
Respondent's arguments touching upon the merits of the dispute are improperly raised herein. They should be addressed to the
arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate. The duty of the court in this case is not
to resolve the merits of the parties' claims but only to determine if they should proceed to arbitration or not. x x x x 43

Implicit in the summary nature of the judicial proceedings is the separable or independent character of the arbitration clause or
agreement. This was highlighted in the cases of Manila Electric Co. v. Pasay Trans. Co. 44 and Del Monte Corporation-USA v. Court
of Appeals.45

The doctrine of separability, or severability as other writers call it, enunciates that an arbitration agreement is independent of the main
contract. The arbitration agreement is to be treated as a separate agreement and the arbitration agreement does not automatically
terminate when the contract of which it is part comes to an end. 46

The separability of the arbitration agreement is especially significant to the determination of whether the invalidity of the main
contract also nullifies the arbitration clause. Indeed, the doctrine denotes that the invalidity of the main contract, also referred to as the
"container" contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that the main contract is invalid,
the arbitration clause/agreement still remains valid and enforceable. 47

The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL Model Law and Art. 21(2) of the UNCITRAL
Arbitration Rules.48

The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint Corp. v. Flood & Conklin Manufacturing Co.49 In
that case, Prima Paint and Flood and Conklin (F & C) entered into a consulting agreement whereby F & C undertook to act as
consultant to Prima Paint for six years, sold to Prima Paint a list of its customers and promised not to sell paint to these customers
during the same period. The consulting agreement contained an arbitration clause. Prima Paint did not make payments as provided in
the consulting agreement, contending that F & C had fraudulently misrepresented that it was solvent and able for perform its contract
when in fact it was not and had even intended to file for bankruptcy after executing the consultancy agreement. Thus, F & C served
Prima Paint with a notice of intention to arbitrate. Prima Paint sued in court for rescission of the consulting agreement on the ground
of fraudulent misrepresentation and asked for the issuance of an order enjoining F & C from proceeding with arbitration. F & C
moved to stay the suit pending arbitration. The trial court granted F & C’s motion, and the U.S. Supreme Court affirmed.

The U.S. Supreme Court did not address Prima Paint’s argument that it had been fraudulently induced by F & C to sign the consulting
agreement and held that no court should address this argument. Relying on Sec. 4 of the Federal Arbitration Act—which provides that
"if a party [claims to be] aggrieved by the alleged failure x x x of another to arbitrate x x x, [t]he court shall hear the parties, and upon
being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make
an order directing the parties to proceed to arbitration x x x. If the making of the arbitration agreement or the failure, neglect, or
refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof"—the U.S. High Court held that the court
should not order the parties to arbitrate if the making of the arbitration agreement is in issue. The parties should be ordered to
arbitration if, and only if, they have contracted to submit to arbitration. Prima Paint was not entitled to trial on the question of whether
an arbitration agreement was made because its allegations of fraudulent inducement were not directed to the arbitration clause itself,
but only to the consulting agreement which contained the arbitration agreement. 50 Prima Paint held that "arbitration clauses are
‘separable’ from the contracts in which they are embedded, and that where no claim is made that fraud was directed to the arbitration
clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by
fraud."51

There is reason, therefore, to rule against Gonzales when he alleges that Judge Pimentel acted with grave abuse of discretion in
ordering the parties to proceed with arbitration. Gonzales’s argument that the Addendum Contract is null and void and, therefore the
arbitration clause therein is void as well, is not tenable. First, the proceeding in a petition for arbitration under R.A. No. 876 is limited
only to the resolution of the question of whether the arbitration agreement exists. Second, the separability of the arbitration clause

13
from the Addendum Contract means that validity or invalidity of the Addendum Contract will not affect the enforceability of the
agreement to arbitrate. Thus, Gonzales’s petition for certiorari should be dismissed.

This brings us back to G.R. No. 161957. The adjudication of the petition in G.R. No. 167994 effectively modifies part of the Decision
dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the validity of the contract containing the agreement to submit
to arbitration does not affect the applicability of the arbitration clause itself. A contrary ruling would suggest that a party’s mere
repudiation of the main contract is sufficient to avoid arbitration. That is exactly the situation that the separability doctrine, as well as
jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case should not be brought for
arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators,
which was for the nullification of the main contract on the ground of fraud, as it had already been determined that the case should have
been brought before the regular courts involving as it did judicial issues.

The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be denied. In the motion, Gonzales raises the same
question of jurisdiction, more particularly that the complaint for nullification of the Addendum Contract pertained to the DENR Panel
of Arbitrators, not the regular courts. He insists that the subject of his complaint is a mining dispute since it involves a dispute
concerning rights to mining areas, the Financial and Technical Assistance Agreement (FTAA) between the parties, and it also involves
claimowners. He adds that the Court failed to rule on other issues he raised, such as whether he had ceded his claims over the mineral
deposits located within the Addendum Area of Influence; whether the complaint filed before the DENR Panel of Arbitrators alleged
ultimate facts of fraud; and whether the action to declare the nullity of the Addendum Contract on the ground of fraud has
prescribed.1avvphi1.net

These are the same issues that Gonzales raised in his Rule 45 petition in G.R. No. 161957 which were resolved against him in the
Decision of 28 February 2005. Gonzales does not raise any new argument that would sway the Court even a bit to alter its holding that
the complaint filed before the DENR Panel of Arbitrators involves judicial issues which should properly be resolved by the regular
courts. He alleged fraud or misrepresentation in the execution of the Addendum Contract which is a ground for the annulment of a
voidable contract. Clearly, such allegations entail legal questions which are within the jurisdiction of the courts.

The question of whether Gonzales had ceded his claims over the mineral deposits in the Addendum Area of Influence is a factual
question which is not proper for determination before this Court. At all events, moreover, the question is irrelevant to the issue of
jurisdiction of the DENR Panel of Arbitrators. It should be pointed out that the DENR Panel of Arbitrators made a factual finding in
its Order dated 18 October 2001, which it reiterated in its Order dated 25 June 2002, that Gonzales had, "through the various
agreements, assigned his interest over the mineral claims all in favor of [Climax-Arimco]" as well as that without the complainant
[Gonzales] assigning his interest over the mineral claims in favor of [Climax-Arimco], there would be no FTAA to speak of." 52 This
finding was affirmed by the Court of Appeals in its Decision dated 30 July 2003 resolving the petition for certiorari filed by Climax-
Arimco in regard to the 18 October 2001 Order of the DENR Panel.53

The Court of Appeals likewise found that Gonzales’s complaint alleged fraud but did not provide any particulars to substantiate it. The
complaint repeatedly mentioned fraud, oppression, violation of the Constitution and similar conclusions but nowhere did it give any
ultimate facts or particulars relative to the allegations.54

Sec. 5, Rule 8 of the Rules of Court specifically provides that in all averments of fraud, the circumstances constituting fraud must be
stated with particularity. This is to enable the opposing party to controvert the particular facts allegedly constituting the same. Perusal
of the complaint indeed shows that it failed to state with particularity the ultimate facts and circumstances constituting the alleged
fraud. It does not state what particulars about Climax-Arimco’s financial or technical capability were misrepresented, or how the
misrepresentation was done. Incorporated in the body of the complaint are verbatim reproductions of the contracts, correspondence
and government issuances that reportedly explain the allegations of fraud and misrepresentation, but these are, at best, evidentiary
matters that should not be included in the pleading.

As to the issue of prescription, Gonzales’s claims of fraud and misrepresentation attending the execution of the Addendum Contract
are grounds for the annulment of a voidable contract under the Civil Code. 55 Under Art. 1391 of the Code, an action for annulment
shall be brought within four years, in the case of fraud, beginning from the time of the discovery of the same. However, the time of the
discovery of the alleged fraud is not clear from the allegations of Gonzales’s complaint. That being the situation coupled with the fact
that this Court is not a trier of facts, any ruling on the issue of prescription would be uncalled for or even unnecessary.

WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED. Such dismissal effectively renders superfluous formal
action on the Motion for Partial Reconsideration and/or Clarification filed by Climax Mining Ltd., et al. in G.R. No. 161957.

The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957 is DENIED WITH FINALITY.

SO ORDERED.

14
G.R. No. 175404 January 31, 2011

CARGILL PHILIPPINES, INC., Petitioner,

vs.
SAN FERNANDO REGALA TRADING, INC., Respondent.

DECISION

PERALTA, J.:

Before us is a petition for review on certiorari seeking to reverse and set aside the Decision1 dated July 31, 2006 and the
Resolution2 dated November 13, 2006 of the Court of Appeals (CA) in CA G.R. SP No. 50304.

The factual antecedents are as follows:

On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional Trial Court (RTC) of Makati City a
Complaint for Rescission of Contract with Damages3 against petitioner Cargill Philippines, Inc. In its Complaint, respondent alleged
that it was engaged in buying and selling of molasses and petitioner was one of its various sources from whom it purchased molasses.
Respondent alleged that it entered into a contract dated July 11, 1996 with petitioner, wherein it was agreed upon that respondent
would purchase from petitioner 12,000 metric tons of Thailand origin cane blackstrap molasses at the price of US$192 per metric ton;
that the delivery of the molasses was to be made in January/February 1997 and payment was to be made by means of an Irrevocable
Letter of Credit payable at sight, to be opened by September 15, 1996; that sometime prior to September 15, 1996, the parties agreed
that instead of January/February 1997, the delivery would be made in April/May 1997 and that payment would be by an Irrevocable
Letter of Credit payable at sight, to be opened upon petitioner's advice. Petitioner, as seller, failed to comply with its obligations under
the contract, despite demands from respondent, thus, the latter prayed for rescission of the contract and payment of damages.

On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary
Arbitration,4 wherein it argued that the alleged contract between the parties, dated July 11, 1996, was never consummated because
respondent never returned the proposed agreement bearing its written acceptance or conformity nor did respondent open the
Irrevocable Letter of Credit at sight. Petitioner contended that the controversy between the parties was whether or not the alleged
contract between the parties was legally in existence and the RTC was not the proper forum to ventilate such issue. It claimed that the
contract contained an arbitration clause, to wit:

ARBITRATION

Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled by arbitration in the City of
New York before the American Arbitration Association. The Arbitration Award shall be final and binding on both parties. 5

that respondent must first comply with the arbitration clause before resorting to court, thus, the RTC must either dismiss the case or
suspend the proceedings and direct the parties to proceed with arbitration, pursuant to Sections 6 6 and 77 of Republic Act (R.A.) No.
876, or the Arbitration Law.

Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the action for rescission of contract and could
not be changed by the subject arbitration clause. It cited cases wherein arbitration clauses, such as the subject clause in the contract,
had been struck down as void for being contrary to public policy since it provided that the arbitration award shall be final and binding
on both parties, thus, ousting the courts of jurisdiction.

In its Reply, petitioner maintained that the cited decisions were already inapplicable, having been rendered prior to the effectivity of
the New Civil Code in 1950 and the Arbitration Law in 1953.

In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is invalid and unenforceable, considering that
the requirements imposed by the provisions of the Arbitration Law had not been complied with.

By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the issue boiled down to whether the arbitration
clause contained in the contract subject of the complaint is valid and enforceable; that the arbitration clause did not violate any of the
cited provisions of the Arbitration Law.

On September 17, 1998, the RTC rendered an Order,8 the dispositive portion of which reads:

Premises considered, defendant's "Motion To Dismiss/Suspend Proceedings and To Refer Controversy To Voluntary Arbitration" is
hereby DENIED. Defendant is directed to file its answer within ten (10) days from receipt of a copy of this order. 9

In denying the motion, the RTC found that there was no clear basis for petitioner's plea to dismiss the case, pursuant to Section 7 of
the Arbitration Law. The RTC said that the provision directed the court concerned only to stay the action or proceeding brought upon
an issue arising out of an agreement providing for the arbitration thereof, but did not impose the sanction of dismissal. However, the
RTC did not find the suspension of the proceedings warranted, since the Arbitration Law contemplates an arbitration proceeding that
must be conducted in the Philippines under the jurisdiction and control of the RTC; and before an arbitrator who resides in the
country; and that the arbitral award is subject to court approval, disapproval and modification, and that there must be an appeal from
the judgment of the RTC. The RTC found that the arbitration clause in question contravened these procedures, i.e., the arbitration
15
clause contemplated an arbitration proceeding in New York before a non-resident arbitrator (American Arbitration Association); that
the arbitral award shall be final and binding on both parties. The RTC said that to apply Section 7 of the Arbitration Law to such an
agreement would result in disregarding the other sections of the same law and rendered them useless and mere surplusages.

Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order 10 dated November 25, 1998.

Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted in excess of jurisdiction or with grave
abuse of discretion in refusing to dismiss or at least suspend the proceedings a quo, despite the fact that the party's agreement to
arbitrate had not been complied with.

Respondent filed its Comment and Reply. The parties were then required to file their respective Memoranda.

On July 31, 2006, the CA rendered its assailed Decision denying the petition and affirming the RTC Orders.

In denying the petition, the CA found that stipulation providing for arbitration in contractual obligation is both valid and
constitutional; that arbitration as an alternative mode of dispute resolution has long been accepted in our jurisdiction and expressly
provided for in the Civil Code; that R.A. No. 876 (the Arbitration Law) also expressly authorized the arbitration of domestic disputes.
The CA found error in the RTC's holding that Section 7 of R.A. No. 876 was inapplicable to arbitration clause simply because the
clause failed to comply with the requirements prescribed by the law. The CA found that there was nothing in the Civil Code, or R.A.
No. 876, that require that arbitration proceedings must be conducted only in the Philippines and the arbitrators should be Philippine
residents. It also found that the RTC ruling effectively invalidated not only the disputed arbitration clause, but all other agreements
which provide for foreign arbitration. The CA did not find illegal or against public policy the arbitration clause so as to render it null
and void or ineffectual.

Notwithstanding such findings, the CA still held that the case cannot be brought under the Arbitration Law for the purpose of
suspending the proceedings before the RTC, since in its Motion to Dismiss/Suspend proceedings, petitioner alleged, as one of the
grounds thereof, that the subject contract between the parties did not exist or it was invalid; that the said contract bearing the
arbitration clause was never consummated by the parties, thus, it was proper that such issue be first resolved by the court through an
appropriate trial; that the issue involved a question of fact that the RTC should first resolve. Arbitration is not proper when one of the
parties repudiated the existence or validity of the contract.

Petitioner's motion for reconsideration was denied in a Resolution dated November 13, 2006.

Hence, this petition.

Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot proceed despite the fact that: (a) it had ruled,
in its assailed decision, that the arbitration clause is valid, enforceable and binding on the parties; (b) the case of Gonzales v. Climax
Mining Ltd.11 is inapplicable here; (c) parties are generally allowed, under the Rules of Court, to adopt several defenses, alternatively
or hypothetically, even if such

defenses are inconsistent with each other; and (d) the complaint filed by respondent with the trial court is premature.

Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration clause between the parties as valid and
enforceable and yet in the same breath decreed that the arbitration cannot proceed because petitioner assailed the existence of the
entire agreement containing the arbitration clause. Petitioner claims the inapplicability of the cited Gonzales case decided in 2005,
because in the present case, it was respondent who had filed the complaint for rescission and damages with the RTC, which based its
cause of action against petitioner on the alleged agreement dated July 11, 2006 between the parties; and that the same agreement
contained the arbitration clause sought to be enforced by petitioner in this case. Thus, whether petitioner assails the genuineness and
due execution of the agreement, the fact remains that the agreement sued upon provides for an arbitration clause; that respondent
cannot use the provisions favorable to him and completely disregard those that are unfavorable, such as the arbitration clause.

Petitioner contends that as the defendant in the RTC, it presented two alternative defenses, i.e., the parties had not entered into any
agreement upon which respondent as plaintiff can sue upon; and, assuming that such agreement existed, there was an arbitration
clause that should be enforced, thus, the dispute must first be submitted to arbitration before an action can be instituted in court.
Petitioner argues that under Section 1(j) of Rule 16 of the Rules of Court, included as a ground to dismiss a complaint is when a
condition precedent for filing the complaint has not been complied with; and that submission to arbitration when such has been agreed
upon is one such condition precedent. Petitioner submits that the proceedings in the RTC must be dismissed, or at least suspended, and
the parties be ordered to proceed with arbitration.

On March 12, 2007, petitioner filed a Manifestation12 saying that the CA's rationale in declining to order arbitration based on the
2005 Gonzales ruling had been modified upon a motion for reconsideration decided in 2007; that the CA decision lost its legal basis,
because it had been ruled that the arbitration agreement can be implemented notwithstanding that one of the parties thereto repudiated
the contract which contained such agreement based on the doctrine of separability.

In its Comment, respondent argues that certiorari under Rule 65 is not the remedy against an order denying a Motion to
Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary Arbitration. It claims that the Arbitration Law which petitioner
invoked as basis for its Motion prescribed, under its Section 29, a remedy, i.e., appeal by a petition for review on certiorari under Rule
45. Respondent contends that the Gonzales case, which was decided in 2007, is inapplicable in this case, especially as to the doctrine
of separability enunciated therein. Respondent argues that even if the existence of the contract and the arbitration clause is conceded,

16
the decisions of the RTC and the CA declining referral of the dispute between the parties to arbitration would still be correct. This is
so because respondent's complaint filed in Civil Case No. 98-1376 presents the principal issue of whether under the facts alleged in the
complaint, respondent is entitled to rescind its contract with petitioner and for the latter to pay damages; that such issue constitutes a
judicial question or one that requires the exercise of judicial function and cannot be the subject of arbitration.

Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to adopt in the same action several defenses,
alternatively or hypothetically, even if such defenses are inconsistent with each other refers to allegations in the pleadings, such as
complaint, counterclaim, cross-claim, third-party complaint, answer, but not to a motion to dismiss. Finally, respondent claims that
petitioner's argument is premised on the existence of a contract with respondent containing a provision for arbitration. However, its
reliance on the contract, which it repudiates, is inappropriate.

In its Reply, petitioner insists that respondent filed an action for rescission and damages on the basis of the contract, thus, respondent
admitted the existence of all the provisions contained thereunder, including the arbitration clause; that if respondent relies on said
contract for its cause of action against petitioner, it must also consider itself bound by the rest of the terms and conditions contained
thereunder notwithstanding that respondent may find some provisions to be adverse to its position; that respondent’s citation of
the Gonzales case, decided in 2005, to show that the validity of the contract cannot be the subject of the arbitration proceeding and
that it is the RTC which has the jurisdiction to resolve the situation between the parties herein, is not correct since in the resolution of
the Gonzales' motion for reconsideration in 2007, it had been ruled that an arbitration agreement is effective notwithstanding the fact
that one of the parties thereto repudiated the main contract which contained it.

We first address the procedural issue raised by respondent that petitioner’s petition for certiorari under Rule 65 filed in the CA against
an RTC Order denying a Motion to Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration was a wrong
remedy invoking Section 29 of R.A. No. 876, which provides:

Section 29.

x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to question of law. x x x.

To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd.13 (Gonzales case), wherein we ruled the
impropriety of a petition for certiorari under Rule 65 as a mode of appeal from an RTC Order directing the parties to arbitration.

We find the cited case not in point.

In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel arbitration under R.A. No. 876, pursuant to
the arbitration clause found in the Addendum Contract it entered with Gonzales. Judge Oscar Pimentel of the RTC of Makati then
directed the parties to arbitration proceedings. Gonzales filed a petition for certiorari with Us contending that Judge Pimentel acted
with grave abuse of discretion in immediately ordering the parties to proceed with arbitration despite the proper, valid and timely
raised argument in his Answer with counterclaim that the Addendum Contract containing the arbitration clause was null and void.
Climax-Arimco assailed the mode of review availed of by Gonzales, citing Section 29 of R.A. No. 876 contending
that certiorariunder Rule 65 can be availed of only if there was no appeal or any adequate remedy in the ordinary course of law; that
R.A. No. 876 provides for an appeal from such order. We then ruled that Gonzales' petition for certiorari should be dismissed as it
was filed in lieu of an appeal by certiorari which was the prescribed remedy under R.A. No. 876 and the petition was filed far beyond
the reglementary period.

We found that Gonzales’ petition for certiorari raises a question of law, but not a question of jurisdiction; that Judge Pimentel acted in
accordance with the procedure prescribed in R.A. No. 876 when he ordered Gonzales to proceed with arbitration and appointed a sole
arbitrator after making the determination that there was indeed an arbitration agreement. It had been held that as long as a court acts
within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any supposed error committed by it will amount
to nothing more than an error of judgment reviewable by a timely appeal and not assailable by a special civil action of certiorari.14

In this case, petitioner raises before the CA the issue that the respondent Judge acted in excess of jurisdiction or with grave abuse of
discretion in refusing to dismiss, or at least suspend, the proceedings a quo, despite the fact that the party’s agreement to arbitrate had
not been complied with. Notably, the RTC found the existence of the arbitration clause, since it said in its decision that "hardly
disputed is the fact that the arbitration clause in question contravenes several provisions of the Arbitration Law x x x and to apply
Section 7 of the Arbitration Law to such an agreement would result in the disregard of the afore-cited sections of the Arbitration Law
and render them useless and mere surplusages." However, notwithstanding the finding that an arbitration agreement existed, the RTC
denied petitioner's motion and directed petitioner to file an answer.

In La Naval Drug Corporation v. Court of Appeals,15 it was held that R.A. No. 876 explicitly confines the court’s authority only to the
determination of whether or not there is an agreement in writing providing for arbitration. In the affirmative, the statute ordains that
the court shall issue an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. If
the court, upon the other hand, finds that no such agreement exists, the proceedings shall be dismissed.

In issuing the Order which denied petitioner's Motion to Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary
Arbitration, the RTC went beyond its authority of determining only the issue of whether or not there is an agreement in writing
providing for arbitration by directing petitioner to file an answer, instead of ordering the parties to proceed to arbitration. In so doing,
it acted in excess of its jurisdiction and since there is no plain, speedy, and adequate remedy in the ordinary course of law, petitioner’s
resort to a petition for certiorari is the proper remedy.

17
We now proceed to the substantive issue of whether the CA erred in finding that this case cannot be brought under the arbitration law
for the purpose of suspending the proceedings in the RTC.

We find merit in the petition.

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction. 16R.A. No.
87617 authorizes arbitration of domestic disputes. Foreign arbitration, as a system of settling commercial disputes of an international
character, is likewise recognized.18 The enactment of R.A. No. 9285 on April 2, 2004 further institutionalized the use of alternative
dispute resolution systems, including arbitration, in the settlement of disputes.19

A contract is required for arbitration to take place and to be binding. 20 Submission to arbitration is a contract 21 and a clause in a
contract providing that all matters in dispute between the parties shall be referred to arbitration is a contract. 22 The provision to submit
to arbitration any dispute arising therefrom and the relationship of the parties is part of the contract and is itself a contract. 23

In this case, the contract sued upon by respondent provides for an arbitration clause, to wit:

ARBITRATION

Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled by arbitration in the City of
New York before the American Arbitration Association, The Arbitration Award shall be final and binding on both parties.

The CA ruled that arbitration cannot be ordered in this case, since petitioner alleged that the contract between the parties did not exist
or was invalid and arbitration is not proper when one of the parties repudiates the existence or validity of the contract. Thus, said the
CA:

Notwithstanding our ruling on the validity and enforceability of the assailed arbitration clause providing for foreign arbitration, it is
our considered opinion that the case at bench still cannot be brought under the Arbitration Law for the purpose of suspending the
proceedings before the trial court. We note that in its Motion to Dismiss/Suspend Proceedings, etc, petitioner Cargill alleged, as one of
the grounds thereof, that the alleged contract between the parties do not legally exist or is invalid. As posited by petitioner, it is their
contention that the said contract, bearing the arbitration clause, was never consummated by the parties. That being the case, it is but
proper that such issue be first resolved by the court through an appropriate trial. The issue involves a question of fact that the trial
court should first resolve.

Arbitration is not proper when one of the parties repudiates the existence or validity of the contract. Apropos is Gonzales v. Climax
Mining Ltd., 452 SCRA 607, (G.R.No.161957), where the Supreme Court held that:

The question of validity of the contract containing the agreement to submit to arbitration will affect the applicability of the
arbitration clause itself. A party cannot rely on the contract and claim rights or obligations under it and at the same time
impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions....

Consequently, the petitioner herein cannot claim that the contract was never consummated and, at the same time, invokes the
arbitration clause provided for under the contract which it alleges to be non-existent or invalid. Petitioner claims that private
respondent's complaint lacks a cause of action due to the absence of any valid contract between the parties. Apparently, the arbitration
clause is being invoked merely as a fallback position. The petitioner must first adduce evidence in support of its claim that there is no
valid contract between them and should the court a quo find the claim to be meritorious, the parties may then be spared the rigors and
expenses that arbitration in a foreign land would surely entail. 24

However, the Gonzales case,25 which the CA relied upon for not ordering arbitration, had been modified upon a motion for
reconsideration in this wise:

x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the Decision dated 28 February 2005 in
G.R. No. 161957. Hence, we now hold that the validity of the contract containing the agreement to submit to arbitration does
not affect the applicability of the arbitration clause itself. A contrary ruling would suggest that a party's mere repudiation of
the main contract is sufficient to avoid arbitration. That is exactly the situation that the separability doctrine, as well as
jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case should not be brought
for arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of
Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it had already been determined that the case
should have been brought before the regular courts involving as it did judicial issues. 26

In so ruling that the validity of the contract containing the arbitration agreement does not affect the applicability of the arbitration
clause itself, we then applied the doctrine of separability, thus:

The doctrine of separability, or severability as other writers call it, enunciates that an arbitration agreement is independent of the main
contract. The arbitration agreement is to be treated as a separate agreement and the arbitration agreement does not automatically
terminate when the contract of which it is a part comes to an end.

The separability of the arbitration agreement is especially significant to the determination of whether the invalidity of the main
contract also nullifies the arbitration clause. Indeed, the doctrine denotes that the invalidity of the main contract, also referred to as the

18
"container" contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that the main contract is invalid,
the arbitration clause/agreement still remains valid and enforceable. 27

Respondent argues that the separability doctrine is not applicable in petitioner's case, since in the Gonzales case, Climax-Arimco
sought to enforce the arbitration clause of its contract with Gonzales and the former's move was premised on the existence of a valid
contract; while Gonzales, who resisted the move of Climax-Arimco for arbitration, did not deny the existence of the contract but
merely assailed the validity thereof on the ground of fraud and oppression. Respondent claims that in the case before Us, petitioner
who is the party insistent on arbitration also claimed in their Motion to Dismiss/Suspend Proceedings that the contract sought by
respondent to be rescinded did not exist or was not consummated; thus, there is no room for the application of the separability
doctrine, since there is no container or main contract or an arbitration clause to speak of.

We are not persuaded.

Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract shall not be regarded as invalid or non-
existent just because the main contract is invalid or did not come into existence, since the arbitration agreement shall be treated as a
separate agreement independent of the main contract. To reiterate. a contrary ruling would suggest that a party's mere repudiation of
the main contract is sufficient to avoid arbitration and that is exactly the situation that the separability doctrine sought to avoid. Thus,
we find that even the party who has repudiated the main contract is not prevented from enforcing its arbitration clause.

Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and damages with the RTC. In so doing,
respondent alleged that a contract exists between respondent and petitioner. It is that contract which provides for an arbitration clause
which states that "any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled before the
City of New York by the American Arbitration Association. The arbitration agreement clearly expressed the parties' intention that any
dispute between them as buyer and seller should be referred to arbitration. It is for the arbitrator and not the courts to decide whether a
contract between the parties exists or is valid.

Respondent contends that assuming that the existence of the contract and the arbitration clause is conceded, the CA's decision
declining referral of the parties' dispute to arbitration is still correct. It claims that its complaint in the RTC presents the issue of
whether under the facts alleged, it is entitled to rescind the contract with damages; and that issue constitutes a judicial question or one
that requires the exercise of judicial function and cannot be the subject of an arbitration proceeding. Respondent cites our ruling
in Gonzales, wherein we held that a panel of arbitrator is bereft of jurisdiction over the complaint for declaration of nullity/or
termination of the subject contracts on the grounds of fraud and oppression attendant to the execution of the addendum contract and
the other contracts emanating from it, and that the complaint should have been filed with the regular courts as it involved issues which
are judicial in nature.

Such argument is misplaced and respondent cannot rely on the Gonzales case to support its argument.

In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region II, Mines and Geosciences Bureau, of the
Department of Environment and Natural Resources (DENR) against respondents Climax- Mining Ltd, Climax-Arimco and
Australasian Philippines Mining Inc, seeking the declaration of nullity or termination of the addendum contract and the other contracts
emanating from it on the grounds of fraud and oppression. The Panel dismissed the complaint for lack of jurisdiction. However, the
Panel, upon petitioner's motion for reconsideration, ruled that it had jurisdiction over the dispute maintaining that it was a mining
dispute, since the subject complaint arose from a contract between the parties which involved the exploration and exploitation of
minerals over the disputed area.1âwphi1 Respondents assailed the order of the Panel of Arbitrators via a petition for certiorari before
the CA. The CA granted the petition and declared that the Panel of Arbitrators did not have jurisdiction over the complaint, since its
jurisdiction was limited to the resolution of mining disputes, such as those which raised a question of fact or matter requiring the
technical knowledge and experience of mining authorities and not when the complaint alleged fraud and oppression which called for
the interpretation and application of laws. The CA further ruled that the petition should have been settled through arbitration under
R.A. No. 876 − the Arbitration Law − as provided under the addendum contract.

On a review on certiorari, we affirmed the CA’s finding that the Panel of Arbitrators who, under R.A. No. 7942 of the Philippine
Mining Act of 1995, has exclusive and original jurisdiction to hear and decide mining disputes, such as mining areas, mineral
agreements, FTAAs or permits and surface owners, occupants and claimholders/concessionaires, is bereft of jurisdiction over the
complaint for declaration of nullity of the addendum contract; thus, the Panels' jurisdiction is limited only to those mining disputes
which raised question of facts or matters requiring the technical knowledge and experience of mining authorities. We then said:

In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to make the adjudication of mining cases a
purely administrative matter. Decisions of the Supreme Court on mining disputes have recognized a distinction between (1) the
primary powers granted by pertinent provisions of law to the then Secretary of Agriculture and Natural Resources (and the bureau
directors) of an executive or administrative nature, such as granting of license, permits, lease and contracts, or approving, rejecting,
reinstating or canceling applications, or deciding conflicting applications, and (2) controversies or disagreements of civil or
contractual nature between litigants which are questions of a judicial nature that may be adjudicated only by the courts of justice. This
distinction is carried on even in Rep. Act No. 7942. 28

We found that since the complaint filed before the DENR Panel of Arbitrators charged respondents with disregarding and ignoring the
addendum contract, and acting in a fraudulent and oppressive manner against petitioner, the complaint filed before the Panel was not a
dispute involving rights to mining areas, or was it a dispute involving claimholders or concessionaires, but essentially judicial issues.
We then said that the Panel of Arbitrators did not have jurisdiction over such issue, since it does not involve the application of
technical knowledge and expertise relating to mining. It is in this context that we said that:

19
Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties as to some provisions of the
contract between them, which needs the interpretation and the application of that particular knowledge and expertise possessed by
members of that Panel. It is not proper when one of the parties repudiates the existence or validity of such contract or agreement on
the ground of fraud or oppression as in this case. The validity of the contract cannot be subject of arbitration proceedings. Allegations
of fraud and duress in the execution of a contract are matters within the jurisdiction of the ordinary courts of law. These questions are
legal in nature and require the application and interpretation of laws and jurisprudence which is necessarily a judicial function.29

In fact, We even clarified in our resolution on Gonzales’ motion for reconsideration that "when we declared that the case should not be
brought for arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of
Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it had already been determined that the case
should have been brought before the regular courts involving as it did judicial issues." We made such clarification in our resolution of
the motion for reconsideration after ruling that the parties in that case can proceed to arbitration under the Arbitration Law, as
provided under the Arbitration Clause in their Addendum Contract.

WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and the Resolution dated November 13, 2006 of the
Court of Appeals in CA-G.R. SP No. 50304 are REVERSED and SET ASIDE. The parties are
hereby ORDERED to SUBMIT themselves to the arbitration of their dispute, pursuant to their July 11, 1996 agreement.

SO ORDERED.

20
June 29, 2016

G.R. No. 210858

DEPARTMENT OF FOREIGN AFFAIRS, Petitioner,

vs.
BCA INTERNATIONAL CORPORATION, Respondent.

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the Orders dated 11 October 20132 and 8 January 2014,3 as well as the Resolution dated 2 September
2013,4 of the Regional Trial Court of Makati City (RTC), Branch 146, in SP. PROC. No. M-7458.

The Facts

In an Amended Build-Operate-Transfer Agreement dated 5 April 2002 (Agreement), petitioner Department of Foreign Affairs (DFA)
awarded the Machine Readable Passport and Visa Project (MRPN Project) to respondent BCA International Corporation (BCA), a
domestic corporation. During the implementation of the MRPN Project, DFA sought to terminate the Agreement. However, BCA
opposed the termination and filed a Request for Arbitration, according to the provision in the Agreement:

Section 19.02. Failure to Settle Amicably - If the Dispute cannot be settled amicably within ninety (90) days by mutual discussion as
contemplated under Section 19.01 herein, the Dispute shall be settled with finality by an arbitrage tribunal operating under
International Law, hereinafter referred to as the "Tribunal", under the UNCITRAL Arbitration Rules contained in Resolution
31/98 adopted by the United Nations General Assembly on December 15, 1976, and entitled "Arbitration Rules on the United
Nations Commission on the International Trade Law". The DFA and the BCA undertake to abide by and implement the arbitration
award. The place of arbitration shall be Pasay City, Philippines, or such other place as may be mutually agreed upon by both parties.
The arbitration proceeding shall be conducted in the English language. 5 (Emphasis supplied)

On 29 June 2009, an ad hoc arbitral tribunal6 was constituted. In an Order dated 15 April 2013,7 the arbitral tribunal approved BCA's
request to apply in court for the issuance of subpoena, subject to the conditions that the application will not affect its proceedings and
the hearing set in October 2013 will proceed whether the witnesses attend or not.

On 16 May 2013, BCA filed before the RTC a Petition for Assistance in Taking Evidence 8 pursuant to the Implementing Rules and
Regulations (IRR) of "The Alternative Dispute Resolution Act of 2004," or Republic Act No. 9285 (RA 9285). In its petition, BCA
sought the issuance of subpoena ad testificandum and subpoena duces tecum to the following witnesses and documents in their
custody:9

Witnesses Documents to be produced

1. Secretary of Foreign Affairs or his a. Request for Proposal dated September 10,
representative/s, specifically Undersecretary 1999 for the MRP/V Project;
Franklin M. Ebdalin and Ambassador Belen F. b. Notice of Award dated September 29, 2000
Anota awarding the MRP/V Project Company to
implement the MRP/V Project;
c. Department of Foreign Affairs Machine
Readable Passport and Visa Project Build-
Operate-Transfer Agreement dated
February 8, 2001;
d. Department of Foreign Affairs Machine
Readable Passport and Visa Project
Amended Build-Operate-Transfer
Agreement dated April 5, 2002;
e. Documents, records, papers and
correspondence between DFA and BCA
regarding the negotiations for the contract
of lease of the PNB building, which was
identified in the Request for Proposal as the
Central Facility Site, and the failure of said
negotiations;
f. Documents, records, reports, studies,
papers and correspondence between DFA
and BCA regarding the search for
alternative Central Facility Site;
g. Documents, records, papers and
correspondence between DFA and BCA

21
 regarding the latter’s submission of the
Project Master Plan (Phase One of the
MRP/V Project);
h. Documents, records, papers and
correspondence among DFA, DFA’s
Project Planning Team, Questronix
Corporation, MRP/V Advisory Board and
other related government agencies, and
BCA regarding the recommendation for the
issuance of the Certificate of Acceptance in
favor of BCA;
i. Certificate of Acceptance for Phase One
dated June 9, 2004 issued by DFA;
j. Documents, records, papers and
correspondence between DFA and BCA
regarding the approval of the Star Mall
complex as the Central Facility Site;
k. Documents, records, papers and
correspondence among DFA, Questronix
Corporation, MRP/V Advisory Board and
other related government agencies, and
BCA regarding the recommendation for the
approval of the Stare Mall complex as the
Central Facility Site;
l. Documents, records, papers and
correspondence between DFA and BCA
regarding the DFA’s request for BCA to
terminate its Assignment Agreement with
Philpass, including BCA’s compliance
therewith;
m. Documents, records, papers and
correspondence between DFA and BCA
regarding the DFA’s demand for BCA to
prove its financial capability to implement
the MRP/V Project, including the
compliance therewith by BCA;
n. Documents, records, papers and
correspondence between DFA and BCA
regarding the DFA’s attempt to termiante
the Amended BOT Agreement, including
BCA’s response to DFA and BCA’s
attempts to mutually discuss the matter
with DFA;
o. Documents, records, papers and
correspondence among DFA and MRP/V
Advisory Board, DTI-BOT Center,
Department of Finance and Commission on
Audit regarding the delays in the
implementation of the MRP/V Project,
DFA’s requirement for BCA to prove its
financial capability, and the opinions of the
said government agencies in relation to
DFA’s attempt to terminate the Amended
BOT Agreement; and
p. Other related documents, records, papers
and correspondence.

2. Secretary of Finance or his representative/s, a. Documents, records, papers and

specifically former Secretary of Finance Juanita D. correspondence between DFA and
Amatong Department of Finance regarding the
DFA’s requirement for BCA to prove its
financial capability to implement the
MRP/V Project and its opinion thereon;
b. Documents, records, papers and
correspondence between DFA and DOF
regarding BCA’s compliance with DFA’s
demand for BCA to further prove its
financial capability to implement the
MRP/V Project;
c. Documents, records, papers and

22
 correspondence between DFA and DOF
regarding the delays in the implementation
of the MRP/V Project;
d. Documents, records, papers and
correspondence between DFA and DOF
regarding the DFA’s attempted termination
of the Amended BOT Agreement; and
e. Other related documents, records, papers
and correspondence.

3. Chairman of the Commission on Audit or her a. Documents, records, papers and

representative/s, specifically Ms. Iluminada M.V. correspondence between DFA and COA
Fabroa (Director IV) regarding the COA’s conduct of a sectoral
performance audit on the MRP/V Project;
b. Documents, records, papers and
correspondence between DFA and COA
regarding the delays in and its
recommendation to fast-track the
implementation of the MRP/V Project;
c. Documents, records, papers and
correspondence between DFA and COA
regarding COA’s advice to cancel the
Assignment Agreement between BCA and
Philpass "for being contrary to existing
laws and regulations and DOJ opinion";
d. Documents, records, papers and
correspondence between DFA and COA
regarding DFA’s attempted termination of
the Amended BOT Agreement; and
e. Other related documents, records, papers
and correspondence.

4. Executive Director or any officer or representative a. Documents, records, papers and

of the Department of Trade and Industry Build- correspondence between DFA and BOT
Operate-Transfer Center, specifically Messrs. Noel Center regarding the delays in the
Eli B. Kintanar, Rafaelito H. Taruc and Luisito Ucab implementation of the MRP/V Project,
including DFA’s delay in the issuance of
the Certificate of Acceptance for Phase One
of the MRP/V Project and in approving the
Central Facility Site at the Star Mall
complex;
b. Documents, records, papers and
correspondence between DFA and BOT
Center regarding BCA’s financial
capability and the BOT Center’s opinion on
DFA’s demand for BCA to further prove its
financial capability to implement the
MRP/V project;
c. Documents, records, papers and
correspondence between DFA and BOT
Center regarding the DFA’s attempt to
terminate the Amended BOT Agreement,
including the BOT Center’s unsolicited
advice dated December 23, 2005 stating
that the issuance of the Notice of
Termination was "precipitate, and done
without first carefully ensuring that there
were sufficient grounds to warrant such an
issuance" and was "devoid of merit";
d. Documents, records, papers and
correspondence between DFA and BOT
Center regarding the DFA’s unwarrented
refusal to approve BCA’s proposal to
obtain the required financing by allowing
the entry of a "strategic investor"; and
e. Other related documents, records, papers
and correspondence.

23
 5. Chairman of the DFA MRP/V Advisory Board or a. Documents, records, papers and
his representative/s, specifically DFA correspondence between DFA and the
Undersecretary Franklin M. Ebdalin and MRP/V MRP/V Advisory Board regarding BCA[‘s]
Project Manager, specifically Atty. Voltaire performance of its obligations for Phase
Mauricio One of the MRP/V Project, the MRP/V
Advisory Board’s recommendation for the
issuance of the Certificate of Acceptance of
Phase One of the MRP/V Project and its
preparation of the draft of the Certificate of
Acceptance;
b. Documents, records, papers and
correspondence between DFA and the
MRP/V Advisory Board regarding the
latter’s recommendation for the DFA to
approve the Star Mall complex as the
Central Facility Site;
c. Documents, records, papers and
correspondence between DFA and the
MRP/V Advisory Board regarding BCA’s
request to allow the investment of S.F. Pass
International in Philpass;
d. Documents, records, papers and
correspondence between DFA and the
MRP/V Advisory Board regarding BCA’s
financial capability and the MRP/V
Advisory Board’s opinion on DFA’s
demand for BCA to further prove its
financial capability to implement the
MRP/V Project;
e. Documents, records, papers and
correspondence between DFA and the
MRP/V Advisory Board regarding the
DFA’s attempted termination of the
Amended BOT Agreement; and
f. Other related documents, records, papers
and correspondence.

On 1 July 2013, DFA filed its comment, alleging that the presentation of the witnesses and documents was prohibited by law and
protected by the deliberative process privilege.

The RTC Ruling

In a Resolution dated 2 September 2013, the RTC ruled in favor of BCA and held that the evidence sought to be produced was no
longer covered by the deliberative process privilege. According to the RTC, the Court held in Chavez v. Public Estates Authority10 that
acts, transactions or decisions are privileged only before a definite proposition is reached by the agency and since DFA already made a
definite proposition and entered into a contract, DFA's acts, transactions or decisions were no longer privileged. 11

The dispositive portion of the RTC Resolution reads:

WHEREFORE, the petition is granted. Let subpoena ad testificandum [and subpoena] duces tecum be issued to the persons listed in
paragraph 11 of the Petition for them to appear and bring the documents specified in paragraph 12 thereof, before the Ad Hoc Tribunal
for the hearings on October 14, 15, 16, 17, 2013 at 9:00 a.m. and 2:00 p.m. at the Malcolm Hall, University of the Philippines,
Diliman, Quezon City.12

On 6 September 2013, the RTC issued the subpoena due es tecum and subpoena ad testificandum. On 12 September 2013, DFA filed a
motion to quash the subpoena duces tecum and subpoena ad testificandum, which BCA opposed.

In an Order dated 11 October 2013, the RTC denied the motion to quash and held that the motion was actually a motion for
reconsideration, which is prohibited under Rule 9.9 of the Special Rules of Court on Alternative Dispute Resolution (Special ADR
Rules).

On 14, 16, and 17 October 2013, Undersecretary Franklin M. Ebdalin (Usec. Ebdalin), Atty. Voltaire Mauricio (Atty. Mauricio), and
Luisi to Ucab (Mr. Ucab) testified before the arbitral tribunal pursuant to the subpoena.

24
In an Order dated 8 January 2014, the RTC denied the motion for reconsideration filed by DFA. The RTC ruled that the motion
became moot with the appearance of the witnesses during the arbitration hearings. Hence, DFA filed this petition with an urgent
prayer for the issuance of a temporary restraining order and/or a writ of preliminary injunction.

In a Resolution dated 2 April 2014, the Court issued a temporary restraining order enjoining the arbitral tribunal from taking
cognizance of the testimonies of Usec. Ebdalin, Atty. Mauricio, and Mr. Ucab.

The Issues

DFA raises the following issues in this petition: (1) the 1976 UNCITRAL Arbitration Rules and the Rules of Court apply to the
present arbitration proceedings, not RA 9285 and the Special ADR Rules; and (2) the witnesses presented during the 14, 16, and 17
October 2013 hearings before the ad hoc arbitral tribunal are prohibited from disclosing information on the basis of the deliberative
process privilege.

The Ruling of the Court

We partially grant the petition.

Arbitration is deemed a special proceeding13 and governed by the special provisions of RA 9285, its IRR, and the Special ADR
Rules. 14 RA 9285 is the general law applicable to all matters and controversies to be resolved through alternative dispute resolution
methods. 15 While enacted only in 2004, we held that RA 9285 applies to pending arbitration proceedings since it is a procedural law,
which has retroactive effect:

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. 16 (Emphasis supplied)

The IRR of RA 9285 reiterate that RA 9285 is procedural in character and applicable to all pending arbitration
proceedings.17 Consistent with Article 2046 of the Civil Code, 18 the Special ADR Rules were formulated and were also applied to all
pending arbitration proceedings covered by RA 9285, provided no vested rights are impaired. 19Thus, contrary to DFA's contention,
RA 9285, its IRR, and the Special ADR Rules are applicable to the present arbitration proceeding. The arbitration between the DFA
and BCA is still pending, since no arbitral award has yet been rendered. Moreover, DFA did not allege any vested rights impaired by
the application of those procedural rules.

RA 9285, its IRR, and the Special ADR Rules provide that any party to an arbitration, whether domestic or foreign, may request the
court to provide assistance in taking evidence such as the issuance of subpoena ad testificandum and subpoena duces tecum.20 The
Special ADR Rules specifically provide that they shall apply to assistance in taking evidence, 21 and the RTC order granting assistance
in taking evidence shall be immediately executory and not subject to reconsideration or appeal. 22 An appeal with the Court of Appeals
(CA) is only possible where the RTC denied a petition for assistance in taking evidence. 23 An appeal to the Supreme Court from the
CA is allowed only under any of the grounds specified in the Special ADR Rules.24 We rule that the DFA failed to follow the
procedure and the hierarchy of courts provided in RA 9285, its IRR, and the Special ADR Rules, when DFA directly appealed before
this Court the RTC Resolution and Orders granting assistance in taking evidence.

DFA contends that the RTC issued the subpoenas on the premise that RA 9285 and the Special ADR Rules apply to this case.
However, we find that even without applying RA 9285 and the Special ADR Rules, the RTC still has the authority to issue the
subpoenas to assist the parties in taking evidence.

The 1976 UNCITRAL Arbitration Rules, agreed upon by the parties to govern them, state that the "arbitral tribunal shall apply the law
designated by the parties as applicable to the substance of the dispute. Failing such designation by the parties, the arbitral tribunal shall
apply the law determined by the conflict of laws rules which it considers applicable. " 25 Established in this jurisdiction is the rule that
the law of the place where the contract is made governs, or lex loci contractus.26 Since there is no law designated by the parties as
applicable and the Agreement was perfected in the Philippines, "The Arbitration Law," or Republic Act No. 876 (RA 876), applies.

RA 876 empowered arbitrators to subpoena witnesses and documents when the materiality of the testimony has been demonstrated to
them. 27 In Transfield Philippines, Inc. v. Luzon Hydro Corporation, 28 we held that Section 14 of RA 876 recognizes the right 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.

Considering that this petition was not filed in accordance with RA 9285, the Special ADR Rules and 1976 UNCITRAL Arbitration
Rules, this petition should normally be denied. However, we have held time and again that the ends of justice are better served when
cases are determined on the merits after all parties are given full opportunity to ventilate their causes and defenses rather than on
technicality or some procedural imperfections. 29More importantly, this case is one of first impression involving the production of
evidence in an arbitration case where the deliberative process privilege is invoked.

Thus, DFA insists that we determine whether the evidence sought to be subpoenaed is covered by the deliberative process
privilege.1âwphi1 DFA contends that the RTC erred in holding that the deliberative process privilege is no longer applicable in this
case. According to the RTC, based on Chavez v. Public Estates Authority,30 "acts, transactions or decisions are privileged only before

25
a definite proposition is reached by the agency," and since, in this case, DFA not only made "a definite proposition" but already
entered into a contract then the evidence sought to be produced is no longer privileged. 31

We have held in Chavez v. Public Estates Authority32 that:

Information, however, on on-going evaluation or review of bids or proposals being undertaken by the bidding or review committee is
not immediately accessible under the right to information. While the evaluation or review is still on-going, there are no "official acts,
transactions, or decisions" on the bids or proposals. However, once the committee makes its official recommendation, there arises
a "definite proposition" on the part of the government. From this moment, the public's right to information attaches, and any citizen
can access all the non-proprietary information leading to such definite proposition.

xxxx

The right to information, however, does not extend to matters recognized as privileged information under the separation of powers.
The right does not also apply to information on military and diplomatic secrets, information affecting national security, and
information on investigations of crimes by law enforcement agencies before the prosecution of the accused, which courts have long
recognized as confidential. The right may also be subject to other limitations that Congress may impose by law.

There is no claim by PEA that the information demanded by petitioner is privileged information rooted in the separation of powers.
The information does not cover Presidential conversations, correspondences, or discussions during closed-door Cabinet meetings
which, like internal deliberations of the Supreme Court and other collegiate courts, or executive sessions of either house of Congress,
are recognized as confidential. This kind of information cannot be pried open by a co-equal branch of government. A frank exchange
of exploratory ideas and assessments, free from the glare of publicity and pressure by interested parties, is essential to protect
the independence of decision-making of those tasked to exercise Presidential, Legislative and Judicial power. This is not the
situation in the instant case.

We rule, therefore, that the constitutional right to information includes official information on on-going negotiations before a final
contract. The information, however, must constitute definite propositions by the government and should not cover recognized
exceptions like privileged information, military and diplomatic secrets and similar matters affecting national security and public
order. Congress has also prescribed other limitations on the right to information in several legislations. (Emphasis supplied)

Contrary to the RTC's ruling, there is nothing in our Chavez v. Public Estates Authority33 ruling which states that once a "definite
proposition" is reached by an agency, the privileged character of a document no longer exists. On the other hand, we hold that before a
"definite proposition" is reached by an agency, there are no "official acts, transactions, or decisions" yet which can be accessed by the
public under the right to information. Only when there is an official recommendation can a "definite proposition" arise and,
accordingly, the public's right to information attaches. However, this right to information has certain limitations and does not cover
privileged information to protect the independence of decision-making by the government.

Chavez v. Public Estates Authority34 expressly and unequivocally states that the right to information "should not cover recognized
exceptions like privileged information, military and diplomatic secrets and similar matters affecting national security and public
order." Clearly, Chavez v. Public Estates Authority35 expressly mandates that "privileged information" should be outside the scope
of the constitutional right to information, just like military and diplomatic secrets and similar matters affecting national security and
public order. In these exceptional cases, even the occurrence of a "definite proposition" will not give rise to the public's right to
information.

Deliberative process privilege is one kind of privileged information, which is within the exceptions of the constitutional right
to information. In In Re: Production of Court Records and Documents and the Attendance of Court Officials and Employees as
Witnesses, 36 we held that:

Court deliberations are traditionally recognized as privileged communication. Section 2, Rule 10 of the IRSC provides:

Section 2. Confidentiality of court sessions. - Court sessions are executive in character, with only the Members of the Court present.
Court deliberations are confidential and shall not be disclosed to outside parties, except as may be provided herein or as authorized by
the Court.

Justice Abad discussed the rationale for the rule in his concurring opinion to the Court Resolution in Arroyo v. De Lima (TRO on
Watch List Order case): the rules on confidentiality will enable the Members of the Court to "freely discuss the issues without fear of
criticism for holding unpopular positions" or fear of humiliation for one's comments. The privilege against disclosure of these kinds
of information/communication is known as deliberative process privilege, involving as it does the deliberative process of
reaching a decision. "Written advice from a variety of individuals is an important element of the government's decision-making
process and that the interchange of advice could be stifled if courts forced the government to disclose those recommendations;" the
privilege is intended "to prevent the 'chilling' of deliberative communications."

The privilege is not exclusive to the Judiciary. We have in passing recognized the claim of this privilege by the two other branches of
government in Chavez v. Public Estates Authority (speaking through J. Carpio) when the Court declared that -

[t]he information x x x like internal deliberations of the Supreme Court and other collegiate courts, or executive sessions of either
house of Congress, are recognized as confidential. This kind of information cannot be pried open by a co-equal branch of government.
A frank exchange of exploratory ideas and assessments, free from the glare of publicity and pressure by interested parties, is essential

26
to protect the independence of decision-making of those tasked to exercise Presidential, Legislative and Judicial power. (Emphasis
supplied)

In Akbayan v. Aquino, 37 we adopted the ruling of the U.S. Supreme Court in NLRB v. Sears, Roebuck & Co,38 which stated that the
deliberative process privilege protects from disclosure "advisory opinions, recommendations, and deliberations comprising part of a
process by which governmental decisions and policies are formulated." We explained that "[w]ritten advice from a variety of
individuals is an important element of the government's decision-making process and that the interchange of advice could be stifled if
courts forced the government to disclose those recommendations"; thus, the privilege is intended "to prevent the 'chilling' of
deliberative communications."39

The privileged character of the information does not end when an agency has adopted a definite proposition or when a contract has
been perfected or consummated; otherwise, the purpose of the privilege will be defeated.

The deliberative process privilege applies if its purpose is served, that is, "to protect the frank exchange of ideas and opinions critical
to the government's decision[-]making process where disclosure would discourage such discussion in the future." 40 In Judicial Watch
of Florida v. Department of Justice, 41 the U.S. District Court for the District of Columbia held that the deliberative process privilege's
"ultimate purpose x x x is to prevent injury to the quality of agency decisions by allowing government officials freedom to debate
alternative approaches in private," and this ultimate purpose would not be served equally well by making the privilege temporary or
held to have expired. In Gwich 'in Steering Comm. v. Office of the Governor, 42 the Supreme Court of Alaska held that
communications have not lost the privilege even when the decision that the documents preceded is finally made. The Supreme Court
of Alaska held that "the question is not whether the decision has been implemented, or whether sufficient time has passed, but whether
disclosure of these preliminary proposals could harm the agency's future decision[-]making by chilling either the submission of such
proposals or their forthright consideration."

Traditionally, U.S. courts have established two fundamental requirements, both of which must be met, for the deliberative process
privilege to be invoked.43 First, the communication must be predecisional, i.e., "antecedent to the adoption of an agency
policy." Second, the communication must be deliberative, i.e., "a direct part of the deliberative process in that it makes
recommendations or expresses opinions on legal or policy matters." It must reflect the "give-and-take of the consultative
process."44 The Supreme Court of Colorado also took into account other considerations:

Courts have also looked to other considerations in assessing whether material is predecisional and deliberative. The function and
significance of the document in the agency's decision-making process are relevant. Documents representing the ideas and theories that
go into the making of policy, which are privileged, should be distinguished from "binding agency opinions and interpretations" that
are "retained and referred to as precedent" and constitute the policy itself.

Furthermore, courts examine the identity and decision-making authority of the office or person issuing the material. A document from
a subordinate to a superior official is more likely to be predecisional, "while a document moving in the opposite direction is more
likely to contain instructions to staff explaining the reasons for a decision already made."

Finally, in addition to assessing whether the material is predecisional and deliberative, and in order to determine if disclosure of the
material is likely to adversely affect the purposes of the privilege, courts inquire whether "the document is so candid or personal in
nature that public disclosure is likely in the future to stifle honest and frank communication within the agency." As a consequence, the
deliberative process privilege typically covers recommendations, advisory opinions, draft documents, proposals, suggestions,
and other subjective documents that reflect the personal opinions of the writer rather than the policy of the
agency. 45 (Emphasis

supplied)

Thus, "[t]he deliberative process privilege exempts materials that are 'predecisional' and 'deliberative,' but requires disclosure of policy
statements and final opinions 'that have the force of law or explain actions that an agency has already taken."’ 46

In City of Colorado Springs v. White, 47 the Supreme Court of Colorado held that the outside consultant's evaluation report of working
environment and policies was covered by the deliberative process privilege because the report contained observations on current
atmosphere and suggestions on how to improve the division rather than an expression of final agency decision.
In Strang v. Collyer,48 the U.S. District Court for the District of Columbia held that the meeting notes that reflect the exchange of
opinions between agency personnel or divisions of agency are covered by the deliberative process privilege because they "reflect the
agency's group thinking in the process of working out its policy" and are part of the deliberative process in arriving at the final
position. In Judicial Watch v. Clinton,49 the U.S. District Court for the District of Columbia held that handwritten notes reflecting
preliminary thoughts of agency personnel were properly withheld under the deliberative process privilege. The U.S. District Court
reasoned that "disclosure of this type of deliberative material inhibits open debate and discussion, and has a chilling effect on the free
exchange of ideas."

This Court applied the deliberative process privilege in In Re: Production of Court Records and Documents and the Attendance of
Court Officials and Employees as Wltnesses50 and found that court records which are "predecisional" and "deliberative" in nature - in
particular, documents and other communications which are part of or related to the deliberative process, i.e., notes, drafts, research
papers, internal discussions, internal memoranda, records of internal deliberations, and similar papers - are protected and cannot be the
subject of a subpoena if judicial privilege is to be preserved. We further held that this privilege is not exclusive to the Judiciary and
cited our ruling in Chavez v. Public Estates Authority.51

The deliberative process privilege can also be invoked in arbitration proceedings under RA 9285.
27
"Deliberative process privilege contains three policy bases: first, the privilege protects candid discussions within an agency; second, it
prevents public confusion from premature disclosure of agency opinions before the agency establishes final policy; and third, it
protects the integrity of an agency's decision; the public should not judge officials based on information they considered prior to
issuing their final decisions."52 Stated differently, the privilege serves "to assure that subordinates within an agency will feel free to
provide the decision[-]maker with their uninhibited opinions and recommendations without fear of later being subject to public
ridicule or criticism; to protect against premature disclosure of proposed policies before they have been finally formulated or adopted;
and to protect against confusing the issues and misleading the public by dissemination of documents suggesting reasons and rationales
for a course of action which were not in fact the ultimate reasons for the agency's action."53

Under RA 9285,54 orders of an arbitral tribunal are appealable to the courts. If an official is compelled to testify before an arbitral
tribunal and the order of an arbitral tribunal is appealed to the courts, such official can be inhibited by fear of later being subject to
public criticism, preventing such official from making candid discussions within his or her agency. The decision of the court is widely
published, including details involving the privileged information. This disclosure of privileged information can inhibit a public official
from expressing his or her candid opinion. Future quality of deliberative process can be impaired by undue exposure of the decision-
making process to public scrutiny after the court decision is made.

Accordingly, a proceeding in the arbitral tribunal does not prevent the possibility of the purpose of the privilege being defeated, if it is
not allowed to be invoked. In the same manner, the disclosure of an information covered by the deliberative process privilege to a
court arbitrator will defeat the policy bases and purpose of the privilege.

DFA did not waive the privilege in arbitration proceedings under the Agreement. The Agreement does not provide for the waiver of
the deliberative process privilege by DFA. The Agreement only provides that:

Section 20.02 None of the parties shall, at any time, before or after the expiration or sooner termination of this Amended BOT
Agreement, without the consent of the other party, divulge or suffer or permit its officers, employees, agents or contractors to
divulge to any person, other than any of its or their respective officers or employees who require the same to enable them properly to
carry out their duties, any of the contents of this Amended BOT Agreement or any information relating to the negotiations
concerning the operations, contracts, commercial or financial arrangements or affair[s] of the other parties hereto. Documents
marked "CONFIDENTIAL" or the like, providing that such material shall be kept confidential, and shall constitute prima
facieevidence that such information contained therein is subject to the terms of this provision.

Section 20.03 The restrictions imposed in Section 20.02 herein shall not apply to the disclosure of any information:

xxxx

C. To a court arbitrator or administrative tribunal the course of proceedings before it to which the disclosing party is party; x
x x55 (Emphasis supplied)

Section 20.02 of the Agreement merely allows, with the consent of the other party, disclosure by a party to a court arbitrator or
administrative tribunal of the contents of the "Amended BOT Agreement or any information relating to the negotiations concerning
the operations, contracts, commercial or financial arrangements or affair[s]of the other parties hereto." There is no express waiver of
information forming part of DFA's predecisional deliberative or decision-making process. Section 20.02 does not state that a party to
the arbitration is compelled to disclose to the tribunal privileged information in such party's possession.

On the other hand, Section 20.03 merely allows a party, if it chooses, without the consent of the other party, to disclose to the
tribunal privileged information in such disclosing party's possession. In short, a party can disclose privileged information in its
possession, even without the consent of the other party, if the disclosure is to a tribunal. However, a party cannot be compelled
by the other party to disclose privileged information to the tribunal, where such privileged information is in its possession and
not in the possession of the party seeking the compulsory disclosure.

Nothing in Section 20.03 mandates compulsory disclosure of privileged information. Section 20.03 merely states that "the restrictions
imposed in Section 20.02," referring to the "consent of the other party," shall not apply to a disclosure of privileged information by a
party in possession of a privileged information. This is completely different from compelling a party to disclose privileged information
in its possession against its own will.

Rights cannot be waived if it is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person
with a right recognized by law. 56 There is a public policy involved in a claim of deliberative process privilege - "the policy of open,
frank discussion between subordinate and chief concerning administrative action." 57Thus, the deliberative process privilege cannot be
waived. As we have held in Akbayan v. Aquino, 58 the deliberative process privilege is closely related to the presidential
communications privilege and protects the public disclosure of information that can compromise the quality of agency decisions:

Closely related to the "presidential communications" privilege is the deliberative process privilegerecognized in the United States.
As discussed by the U.S. Supreme Court in NLRB v. Sears, Roebuck & Co, deliberative process covers documents reflecting advisory
opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are
formulated. Notably, the privileged status of such documents rests, not on the need to protect national security but, on the "obvious
realization that officials will not communicate candidly among themselves if each remark is a potential item of discovery and
front page news," the objective of the privilege being to enhance the quality of agency decisions. (Emphasis supplied)

28
As a qualified privilege, the burden falls upon the government agency asserting the deliberative process privilege to prove that the
information in question satisfies both requirements - predecisional and deliberative. 59 "The agency bears the burden of establishing
the character of the decision, the deliberative process involved, and the role played by the documents in the course of that
process."60 It may be overcome upon a showing that the discoverant's interests in disclosure of the materials outweigh the
government's interests in their confidentiality.61 "The determination of need must be made flexibly on a case-by-case, ad hoc basis,"
and the "factors relevant to this balancing include: the relevance of the evidence, whether there is reason to believe the documents may
shed light on government misconduct, whether the information sought is available from other sources and can be obtained without
compromising the government's deliberative processes, and the importance of the material to the discoverant's case." 62

In the present case, considering that the RTC erred in applying our ruling in Chavez v. Public Estates Authority,63and both BCA's and
DFA's assertions of subpoena of evidence and the deliberative process privilege are broad and lack specificity, we will not be able to
determine whether the evidence sought to be produced is covered by the deliberative process privilege. The parties are directed to
specify their claims before the RTC and, thereafter, the RTC shall determine which evidence is covered by the deliberative process
privilege, if there is any, based on the standards provided in this Decision. It is necessary to consider the circumstances surrounding
the demand for the evidence to determine whether or not its production is injurious to the consultative functions of government that
the privilege of non-disclosure protects.

WHEREFORE, we resolve to PARTIALLY GRANT the petition and REMAND this case to the Regional Trial Court of Makati
City, Branch 146, to determine whether the documents and records sought to be subpoenaed are protected by the deliberative process
privilege as explained in this Decision. The Resolution dated 2 April 2014 issuing a Temporary Restraining Order is superseded by
this Decision.

SO ORDERED.

29
July 19, 2017

G.R. No. 225051

DEPARTMENT OF FOREIGN AFFAIRS (DFA), Petitioner

vs.
BCA CORPORATION INTERNATIONAL & AD HOC ARBITRAL TRIBUNAL, composed of Chairman Danilo L.
Concepcion and members, Custodio 0. Parlade and Antonio P. Jamon, Jr., Respondents

DECISION

PERALTA, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court, seeking to annul and set aside Procedural Order No. 11 dated
February 15, 2016 and Procedural Order No. 12 dated June 8, 2016, both issued by the UNCITRAL Ad Hoc Arbitral Tribunal in the
arbitration proceedings between petitioner Department of Foreign Affairs (DFA) and respondent BCA International Corporation.

The facts are as follows:

In an Amended Build-Operate-Transfer (BOT) Agreement1 dated April 5, 2002 (Agreement), petitioner DF A awarded the Machine
Readable Passport and Visa Project (MRP/V Project) to respondent BCA International Corporation. In the course of implementing
the MRPN Project, conflict arose and petitioner sought to terminate the Agreement.

Respondent opposed the termination and filed a Request for Arbitration on April 20, 2006. The Arbitral Tribunal was constituted on
June 29, 2009.2

In its Statement of Claims3 dated August 24, 2009, respondent sought the following reliefs against petitioner: (a) a judgment nullifying
and setting aside the Notice of Termination dated December 9, 2005 of the DFA, including its demand to BCA to pay liquidated
damages equivalent to the corresponding performance security bond posted by BCA; (b) a judgment confirming the Notice of Default
dated December 22, 2005 issued by BCA to the DF A and ordering the DF A to perform its obligation under the Amended BOT
Agreement dated April 5, 2002 by approving the site of the Central Facility at the Star Mall Complex in Shaw Boulevard,
Mandaluyong City, within five days from receipt of the Arbitral A ward; (c) a judgment ordering the DF A to pay damages to BCA,
reasonably estimated at ₱l00,000,000.00 as of this date, representing lost business opportunities; financing fees, costs and
commissions; travel expenses; legal fees and expenses; and cost of arbitration, including the fees of the members of the Arbitral
Tribunal; and (d) other just or equitable relief.

On October 5, 2013, respondent manifested that it shall file an Amended Statement of Claims so that its claim may conform to the
evidence they have presented.4

Petitioner opposed respondent's manifestation, arguing that such amendment at the very late stage of the proceedings will cause undue
prejudice to its interests. However, the Arbitral Tribunal gave respondent a period of time within which to file its Amended Statement
of Claims and gave petitioner time to formally interpose its objections.5

In the Amended Statement of Claims6 dated October 25, 2013, respondent interposed the alternative relief that, in the event specific
performance by petitioner was no longer possible, petitioner prayed that the Arbitral Tribunal shall render judgment ordering
petitioner to pay respondent ₱l ,648,611,531.00, representing the net income respondent is expected to earn under the Agreement, and
₱l00,000,000.00 as exemplary, temperate or nominal damages. 7

In an Opposition dated December 19, 2013, petitioner objected to respondent's Amended Statement of Claims, averring that its belated
filing violates its right to due process and will prejudice its interest and that the Tribunal has no jurisdiction over the alternative reliefs
sought by respondent.8

On August 6, 2014, respondent filed a Motion to Withdraw Amended Statement of Claims9 in the light of petitioner's opposition to the
admission of the Amended Statement of Claims and to avoid further delay in the arbitration of its claims, without prejudice to the
filing of such claims for liquidated and other damages at the appropriate time and proceeding. Thereafter, respondent filed a motion to
resume proceedings.

However, on May 4, 2015, respondent filed anew a Motion to Admit Attached Amended Statement of Claims dated April 30, 2015,
increasing the actual damages sought to ₱390,000,000.00, plus an additional ₱l0,000,000.00 for exemplary, temperate or nominal
damages.10

On November 6, 2015, petitioner filed an Opposition to the Motion to Admit Attached Amended Statement of Claims.

In Procedural Order No. 1111 dated February 15, 2016, the Arbitral Tribunal granted resp9ndept' s Motion to Admit Attached
Amended Statement of Claims dated April 30, 2015 on the premise that respondent would no longer present any additional evidence-
in-chief. Petitioner was given a period of 20 days from receipt of the Order to file its Answer to the Amended Statement of Claims and
to manifest before the Tribunal if it will present additional evidence in support of its Amended Answer in order for the Tribunal to act
accordingly.

30
Procedural Order No. 11 reads:

For resolution by the Tribunal is BCA's Motion to Admit the Amended Statement of Claim dated 30 April 2015 objected to by DF A
in its Opposition dated 6 November 2015.

BCA's Counsel made representations during the hearings that the Amendment is for the simple purp.ose of making the Statement of
Claim conform with what BCA believes it was able to prove in the course of the proceedings and that the Amendment will no longer
require the presentation of any additional evidence-in-chief.

Without ruling on what BCA was able to prove, the Tribunal hereby grants the Motion to Admit on the premise that BCA will no
longer present any additional evidence-in-chief to prove the bigger claim in the Amended Statement.

For the additional claim of 300 million pesos, BCA should pay the additional fee of 5% or 15 million pesos. Having paid 12 million
pesos, the balance of 3 million pesos shall be payable upon submission of this case for resolution. No award shall be issued and
promulgated by the Tribunal unless the balance of 40% in the Arbitrators' fees for the original Claim and Counterclaim, respectively,
and the balance of 3 million for the Amended Claim, are all fully paid by the parties.

DFA is hereby given the period of 20 days from receipt of this Order to file its Answer to the Amended Statement of Complaint, and
to manifest before this Tribunal if it will present additional evidence in support of its Amended Answer in order for the Tribunal to act
accordingly.12

On February 18, 2016, respondent filed a Motion for Partial Reconsideration 13 of Procedural Order No. 11 and prayed for the
admission of its Amended Statement of Claims by the Arbitral Tribunal without denying respondent's right to present evidence on the
actual damages, such as attorney's fees and legal cost that it continued to incur.

On February 19, 2016, petitioner filed a Motion for Reconsideration of Procedural Order No. 11 and, likewise, filed a Motion to
Suspend Proceedings dated February 19, 2016. Further, on February 29, 2016, petitioner filed its Comment/Opposition to respondent's
Motion for Partial Reconsideration of Procedural Order No. 11.

The Arbitral Tribunal, thereafter, issued Procedural Order No. 12 dated June 8, 2016, which resolved respondent's Motion for Partial
Reconsideration of Procedural Order No. 11, disallowing the presentation of additional evidence-in-chief by respondent to prove the
increase in the amount of its claim as a limitation to the Tribunals' decision granting respondent's Motion to Amend its Statement of
Claims. In Procedural Order No. 12, the Tribunal directed the parties to submit additional documentary evidence in support of their
respective positions in relation to the Amended Statement of Claims and to which the other party may submit its comment or
objections.

Procedural Order No. 12 reads:

For resolution is the partial Motion for Reconsideration of the Tribunal's Procedural Order No. 11 disallowing the presentation of
additional evidence-in-chief by Claimant to prove the increase in the amount of its Claim as a limitation to this Tribunal's decision
granting Claimant's Motion to Amend its Statement of Claims.

After a careful consideration of all the arguments presented by the Parties in their pleadings, the Tribunal hereby decides to allow the
submission of additional documentary evidence by any Party in support of its position in relation to the Amended Statement of Claims
and to which the other may submit its comments or objections. The Tribunal, however, will still not allow the taking of testimonial
evidence from any witness by any Party. The Tribunal allowed the amendment of the Statement of Claims but only for the purpose of
making the Statement of Claims conform with the evidence that had already been presented, assuming that, indeed, it was the case. In
resting its case, Respondent must have already dealt with and addressed the evidence that had already been presented by Claimant and
that allegedly supports the amended Claim. However, in order to give the Parties more opportunity to prove their respective positions,
additional evidence shall be accepted by the Tribunal, but only documentary evidence.

Wherefore, Procedural Order No. 11 is modified accordingly. The Claimant is given until 25 June 2016 to submit its additional
documentary evidence in support of the Amended Statement of Claims. Respondent is given until 15 July 2016 to file its Answer to
the Amended Statement of Claims, together with all the documentary evidence in support of its position. Claimant is given until 30
July 2016 to comment or oppose the Answer and the supporting documentary evidence, while Respondent is given until 14 August
2016 to file its comment or opposition to the Claimant's submission, together with any supporting documentary evidence. Thereafter,
hearing of the case shall be deemed terminated. The periods allowed herein are non-extendible and the Tribunal will not act on any
motion for extension of time to comply.

The Parties shall submit their Formal Offer of Evidence, in the manner previously agreed upon, on 20 September 2016 while their
respective Memorandum shall be filed on 20 October 2016. The Reply Memoranda of the Parties shall be filed on 20 November 2016.
Thereafter, with or without the foregoing submissions, the case shall be deemed submitted for Resolution.14

As Procedural Order No. 12 denied petitioner's motion for reconsideration of Procedural Order No. 11, petitioner filed this petition
for certiorari under Rule 65 of the Rules of Court with application for issuance of a temporary restraining order and/or writ of
preliminary injunction, seeking to annul and set aside Procedural Order No. 11 dated February 15, 2016 and Procedural Order No. 12
dated June 8, 2016.

31
Petitioner stated that it opted to file the petition directly with this court in view of the immensity of the claim concerned, significance
of the public interest involved in this case, and the circumvention of the temporary restraining order issued by this Court
in Department of Foreign Affairs v. BCA International Corporation, docketed as G.R. No. 210858. It cited Department of Foreign
Affairs, et al. v. Hon. Judge Falcon,15 wherein the Court overlooked the rule on hierarchy of courts and took cognizance of the petition
for certiorari.

Petitioner raised these issues:

THE AD HOC ARBITRAL TRIBUNAL COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION WHEN IT ADMITTED THE AMENDED STATEMENT OF CLAIMS DATED 30 APRIL 2015
NOTWITHSTANDING THAT:

I. THE AMENDMENT CAUSES UNDUE DELAY AND PREJUDICE TO PETITIONER DF A;

II. THE ALTERNATIVE RELIEF IN THE AMENDED STATEMENT OF CLAIMS FALLS OUTSIDE THE SCOPE OF THE
ARBITRATION CLAUSE; HENCE, OUTSIDE THE JURISDICTION OF THE AD HOC ARBITRAL TRIBUNAL;

III. THE AMENDMENT CIRCUMVENTS THE TEMPORARY RESTRAINING ORDER DATED 02 APRIL 2014 ISSUED BY
THIS HONORABLE COURT IN G.R. NO. 210858; AND

IV. PROCEDURAL ORDER NO. 12 DATED 8 JUNE 2016 VIOLATES PETITIONER DFA'S RIGHT TO DUE PROCESS. 16

Petitioner states that Article 20 of the 1976 UNCITRAL Arbitration Rules grants a tribunal the discretion to deny a motion to amend
where the tribunal "considers it inappropriate to allow such amendment having regard to the delay in making it or prejudice to the
other party or any other circumstances." It further proscribes an amendment where "the amended claim falls outside the scope of the
arbitral clause or separate arbitration agreement."

Petitioner contends that respondent's Motion to Admit Attached Amended Statement of Claims dated April 30, 2015 should have been
denied by the Arbitral Tribunal as there has been delay and prejudice to it. Moreover, other circumstances such as fair and efficient
administration of the proceedings should have warranted the denial of the motion to amend. Finally, the Arbitral Tribunal did not have
jurisdiction over the amended claims.

Petitioner prays that a temporary restraining order and/or writ of preliminary injunction be issued enjoining the Arbitral Tribunal from
implementing Procedural Order No. 11 dated February 15, 2016 and Procedural Order No. 12 dated June 8, 2016; that the said
Procedural Orders be nullified for having been rendered in violation of the 1976 UNCITRAL Arbitration Rules and this Court's
Resolution dated April 2, 2014 rendered in G.R. No. 210858; that respondent's Amended Statement of Claims dated April 30, 2015 be
denied admission; and, if this Court affirms the admission of respondent's Amended Statement of Claims, petitioner be allowed to
present testimonial evidence to refute the allegations and reliefs in the Amended Statement of Claims and to prove its additional
defenses or claims in its Answer to the Amended Statement of Claims or Amended Statement of Defense with Counterclaims.

Petitioner contends that the parties in this case have agreed to refer any dispute to arbitration under the 1976 UNCITRAL Arbitration
Rules and to compel a party to be bound by the application of a different rule on arbitration such as the Alternative Dispute
Resolution (ADR) Act of 2004 or Republic Act (RA) No. 9285 transgresses such vested right and amounts to vitiation of consent to
participate in the arbitration proceedings.

In its Comment, respondent contends that this Court has no jurisdiction to intervene in a private arbitration, which is a special
proceeding governed by the ADR Act of 2004, its Implementing Rules and Regulations (JRR) and the Special Rules of Court on
Alternative Dispute Resolution (Special ADR Rules).

Respondent avers that petitioner's objections to the admission of its Amended Statement of Claims by the Arbitral Tribunal, through
the assailed Procedural Order Nos. 11 and 12, are properly within the competence and jurisdiction of the Arbitral Tribunal to resolve.
The Arbitral Tribunal derives their authority to hear and resolve the parties' dispute from the contractual consent of the parties
expressed in Section 19. 02 of the Agreement.

In a Resolution dated July 25, 2016, the Court resolved to note the Office of the Solicitor General's Very Urgent Motion for the
Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction dated July 5, 2016.

In regard to the allegation that the Amended Statement of Claims circumvents the temporary restraining order dated April 2, 2014
issued by the Court in DFA v. BCA International Corporation, docketed as G.R. No. 210858, it should be pointed out that the said
temporary restraining order has been superseded by the Court's Decision promulgated on June 29, 2016, wherein the Court resolved to
partially grant the petition and remand the case to the RTC of Makati City, Branch 146, to determine whether the documents and
records sought to be subpoenaed are protected by the deliberative process privilege as explained in the Decision.

The issues to be resolved at the outset are which laws apply to the arbitration proceedings and whether the petition filed before the
Court is proper.

The Agreement provides for the resolution of dispute between the parties in Section 19.02 thereof, thus:

32
If the Dispute cannot be settled amicably within ninety (90) days by mutual discussion as contemplated under Section 19.01 herein,
the Dispute shall be settled with finality by an arbitrage tribunal operating under International Law, hereinafter referred to as
the "Tribunal," under the UNCITRAL Arbitration Rules contained in Resolution 31/98 adopted by the United Nations General
Assembly on December 15, 1976, and entitled "Arbitration Rules on the United Nations Commission on the International Trade
Law." The DFA and BCA undertake to abide by and implement the arbitration award. The place of arbitration shall be Pasay City,
Philippines, or such other place as may mutually be agreed upon by both parties. The Arbitration proceeding shall be conducted in the
English language.

Under Article 33 of the UNCITRAL Arbitration Rules governing the parties, "the arbitral tribunal shall apply the law designated by
the parties as applicable to the substance of the dispute." "Failing such designation by the parties, the arbitral tribunal shall apply the
law determined by the conflict of laws rules which it considers applicable." Established in this jurisdiction is the rule that the law of
the place where the contract is made governs, or lex loci contractus.17 As the parties did not designate the applicable law and the
Agreement was perfected in the Philippines, our Arbitration laws, particularly, RA No. 876, 18 RA No. 928519 and its IRR, and the
Special ADR Rules apply.20 The IRR of RA No. 9285 provides that "[t]he arbitral tribunal shall decide the dispute in accordance with
such law as is chosen by the parties. In the absence of such agreement, Philippine law shall apply." 21

In another earlier case filed by petitioner entitled Department of Foreign Affairs v. BCA International Corporation, 22docketed as G.R.
No. 210858, petitioner also raised as one of its issues that the 1976 UNCITRAL Arbitration Rules and the Rules of Court apply to the
present arbitration proceedings, not RA No. 9285 and the Special ADR Rules. We ruled therein thus:

Arbitration is deemed a special proceeding and governed by the special provisions of RA 9285, its IRR, and the Special ADR Rules.
RA 9285 is the general law applicable to all matters and controversies to be resolved through alternative dispute resolution methods.
While enacted only in 2004, we held that RA 9285 applies to pending arbitration proceedings since it is a procedural law, which has
retroactive effect.

xxxx

The IRR of RA 9285 reiterate that RA 9285 is procedural in character and applicable to all pending arbitration proceedings.
Consistent with Article 2046 of the Civil Code, the Special ADR Rules were formulated and were also applied to all pending
arbitration proceedings covered by RA 9285, provided no vested rights are impaired. Thus, contrary to DFA's contention, RA 9285, its
IRR, and the Special ADR Rules are applicable to the present arbitration proceedings. The arbitration between the DF A and BCA is
still pending, since no arbitral award has yet been rendered. Moreover, DF A did not allege any vested rights impaired by the
application of those procedural rules.

RA No. 9285 declares the policy of the State to actively promote pa1iy autonomy in the resolution of disputes or the freedom of the
parties to make their own arrangements to resolve their disputes.23 Towards this end, the State shall encourage and actively promote
the use of Alternative Dispute Resolution as an important means to achieve speedy and impartial justice and declog court dockets.24

Court intervention is allowed under RA No. 9285 in the following instances: (1) when a party in the arbitration proceedings requests
for an interim measure of protection;25 (2) judicial review of arbitral awards26 by the Regional Trial Court (RTC); and (3) appeal from
the RTC decisions on arbitral awards to the Court of Appeals. 27

The extent of court intervention in domestic arbitration is specified in the IRR of RA No. 9285, thus:

Art. 5.4. Extent of Court Intervention. In matters governed by this Chapter, no court shall intervene except in accordance with the
Special ADR Rules.

Court intervention in the Special ADR Rules is allowed through these remedies: (1) Specific Court Relief, which includes Judicial
Relief Involving the Issue of Existence, Validity and Enforceability of the Arbitral Agreement, 28Interim Measures of
Protection,29 Challenge to the Appointment of Arbitrator,30 Termination of Mandate of Arbitrator,31 Assistance in Taking
Evidence,32 Confidentiality/Protective Orders,33 Confirmation, Correction or Vacation of A ward in Domestic Arbitration,34 all to be
filed with the RTC; (2) a motion for reconsideration may be filed by a party with the RTC on the grounds specified in Rule 19.1; (3)
an appeal to the Court of Appeals through a petition for review under Rule 19.2 or through a special civil action for certiorari under
Rule 19.26; and (4) a petition for certiorari with the Supreme Court from a judgment or final order or resolution of the Court of
Appeals, raising only questions of law.

Under the Special ADR Rules, review by the Supreme Court of an appeal by certiorari is not a matter of right, thus:

RULE 19.36. Review Discretionary. - A review by the Supreme Court is not a matter of right, but of sound judicial discretion, which
will be granted only for serious and compelling reasons resulting in grave prejudice to the aggrieved party. The following, while
neither controlling nor fully measuring the court's discretion, indicate the serious and compelling, and necessarily, restrictive nature of
the grounds that will warrant the exercise of the Supreme Court's discretionary powers, when the Court of Appeals:

a. Failed to apply the applicable standard or test for judicial review prescribed in these Special ADR Rules in arriving at its decision
resulting in substantial prejudice to the aggrieved party;

b. Erred in upholding a final order or decision despite the lack of jurisdiction of the court that rendered such final order or decision;

33
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.

RULE 19.37. Filing of Petition with Supreme Court. - A party desiring to appeal by certiorari from a judgment or final order or
resolution of the Court of Appeals issued pursuant to these Special ADR Rules may file with the Supreme Court a verified petition for
review on certiorari. The petition shall raise only questions of law, which must be distinctly set forth.1âwphi1

It is clear that an appeal by certiorari to the Supreme Court is from a judgment or final order or resolution of the Court of Appeals and
only questions of law may be raised. There have been instances when we overlooked the rule on hierarchy of courts and took
cognizance of a petition for certiorari alleging grave abuse of discretion by the Regional Trial Court when it granted interim relief to a
party and issued an Order assailed by the petitioner, considering the transcendental importance of the issue involved therein 35 or to
better serve the ends of justice when the case is determined on the merits rather on technicality. 36 However, in this case, the appeal
by certiorari is not from a final Order of the Court of Appeals or the Regional Trial Court, but from an interlocutory order of the
Arbitral Tribunal; hence, the petition must be dismissed.

WHEREFORE, the Court resolves to DISMISS the petition for failure to observe the rules on court intervention allowed by RA No.
9285 and the Special ADR Rules, specifically Rule 19.36 and Rule 19.37 of the latter, in the pending arbitration proceedings of the
parties to this case.

SO ORDERED.

34
SECOND DIVISION

G.R. No. 220546, December 07, 2016

LUZON IRON DEVELOPMENT GROUP CORPORATION AND CONSOLIDATED IRON SANDS, LTD., Petitioners, v.
BRIDESTONE MINING AND DEVELOPMENT CORPORATION AND ANACONDA MINING AND DEVELOPMENT
CORPORATION, Respondents.

DECISION

MENDOZA, J.:

This petition for review on certiorari with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order
(TRO) seeks to reverse and set aside the September 8, 2015 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 133296,
which affirmed the March 18, 20132 and September 18, 20133 Orders of the Regional Trial Court, Branch 59, Makati City (RTC), in
the consolidated case for rescission of contract and damages.

The Antecedents.

On October 25, 2012, respondents Bridestone Mining and Development Corporation (Bridestone) and Anaconda Mining and
Development Corporation (Anaconda) filed separate complaints before the RTC for rescission of contract and damages against
petitioners Luzon Iron Development Group Corporation (Luzon Iron) and Consolidated Iron Sands, Ltd. (Consolidated Iron), docketed
as Civil Case No. 12-1053 and Civil Case No. 12-1054, respectively. Both complaints sought the rescission of the Tenement
Partnership and Acquisition Agreement (TPAA)4 entered into by Luzon Iron and Consolidated Iron, on one hand, and Bridestone and
Anaconda, on the other, for the assignment of the Exploration Permit Application of the former in favor of the latter. The complaints
also sought the return of the Exploration Permits to Bridestone and Anaconda.5

Thereafter, Luzon Iron and Consolidated Iron filed their Special Appearance with Motion to Dismiss6 separately against Bridestone's
complaint and Anaconda's complaint. Both motions to dismiss presented similar grounds for dismissal. They contended that the RTC
could not acquire jurisdiction over Consolidated Iron because it was a foreign corporation that had never transacted business in the
Philippines. Likewise, they argued that the RTC had no jurisdiction over the subject matter because of an arbitration clause in the
TPAA.

On December 19, 2012, the RTC ordered the consolidation of the two cases.7 Subsequently, Luzon Iron and Consolidated Iron filed
their Special Appearance and Supplement to Motions to Dismiss,8 dated January 31, 2013, seeking the dismissal of the consolidated
cases. The petitioners alleged that Bridestone and Anaconda were guilty of forum shopping because they filed similar complaints
before the Department of Environment and Natural Resources (DENR), Mines and Geosciences Bureau, Regional Panel of Arbitrators
against Luzon Iron.

The RTC Orders

In its March 18, 2013 Order, the RTC denied the motions to dismiss, as well as the supplemental motion to dismiss, finding that
Consolidated Iron was doing business in the Philippines, with Luzon Iron as its resident agent. The RTC ruled that it had jurisdiction
over the subject matter because under clause 14.8 of the TPAA, the parties could go directly to courts when a direct and/or blatant
violation of the provisions of the TPAA had been committed. The RTC also opined that the complaint filed before the DENR did not
constitute forum shopping because there was neither identity of parties nor identity of reliefs sought.

Luzon Iron and Consolidated Iron moved for reconsideration, but the RTC denied their motion in its September 18, 2013 Order.

Undaunted, they filed their petition for review with prayer for the issuance of a writ of preliminary injunction and/or TRO before the
CA.

The CA Ruling

In its September 8, 2015 Decision, the CA affirmed the March 18, 2013 and September 18, 2013 RTC Orders in denying the motions
to dismiss and the supplemental motions to dismiss. It agreed that the court acquired jurisdiction over the person of Consolidated Iron
because the summons may be validly served through its agent Luzon Iron, considering that the latter was merely the business conduit
of the former. The CA also sustained the jurisdiction of the RTC over the subject matter opining that the arbitration clause in the
TPAA provided for an exception where parties could directly go to court.

Further, the CA also disregarded the averment of forum shopping, explaining that in the complaint before the RTC, both Consolidated
Iron and Luzon Iron were impleaded but in the complaint before the DENR only the latter was impleaded. It stated that there was no
identity of relief and no identity of cause of action.

Hence, this appeal raising the following:

ISSUES

WHETHER THE COURT OF APPEALS ERRED IN RULING THAT THE TRIAL COURT ACQUIRED JURISDICTION OVER
THE PERSON OF CONSOLIDATED IRON;

35
II

WHETHER THE COURT OF APPEALS ERRED IN RULING THAT THE TRIAL COURT HAS JURISDICTION OVER THE
SUBJECT MATTER OF THE CONSOLIDATED CASES; AND

III

WHETHER THE COURT OF APPEALS ERRED IN RULING THAT BRIDESTONE/ANACONDA WERE NOT GUILTY OF
FORUM SHOPPING.9

Petitioners Luzon Iron and Consolidated Iron insist that the RTC has no jurisdiction over the latter because it is a foreign corporation
which is neither doing business nor has transacted business in the Philippines. They argue that there could be no means by which the
trial court could acquire jurisdiction over the person of Consolidated Iron under any mode of service of summons. The petitioners
claim that the service of summons to Consolidated Iron was defective because the mere fact that Luzon Iron was a wholly-owned
subsidiary of Consolidated Iron did not establish that Luzon Iron was the agent of Consolidated Iron. They emphasize that
Consolidated Iron and Luzon Iron are two distinct and separate entities.

The petitioners further assert that the trial court had no jurisdiction over the consolidated cases because of the arbitration clause set
forth in the TPAA. They reiterate that Luzon Iron and Consolidated Iron were guilty of forum shopping because their DENR
complaint contained similar causes of action and reliefs sought. They stress that the very evil sought to be prevented by the prohibition
on forum shopping had occurred when the DENR and the RTC issued conflicting orders in dismissing or upholding the complaints
filed before them.

Position of Respondents

In their Comment/Opposition,10 dated January 7, 2016, respondents Bridestone and Anaconda countered that the RTC validly
acquired jurisdiction over the person of Consolidated Iron. They posited that Consolidated Iron was doing business in the Philippines
as Luzon Iron was merely its conduit. Thus, they insisted that summons could be served to Luzon Iron as Consolidated Iron's agent.
Likewise, they denied that they were guilty of forum shopping as the issues and the reliefs prayed for in the complaints before the
RTC and the DENR differed.

Further, the respondents asserted that the trial court had jurisdiction over the complaints because the TPAA itself allowed a direct
resort before the courts in exceptional circumstances. They cited paragraph 14.8 thereof as basis explaining that when a direct and/or
blatant violation of the TPAA had been committed, a party could go directly to the courts. They faulted the petitioners in not moving
for the referral of the case for arbitration instead of merely filing a motion to dismiss. They added that actions that are subject to
arbitration agreement were merely suspended, and not dismissed.

Reply of Petitioners

In their Reply,11 dated April 29, 2016, the petitioners stated that Consolidated Iron was not necessarily doing business in the
Philippines by merely establishing a wholly-owned subsidiary in the form of Luzon Iron. Also, they asserted that Consolidated Iron
had not been validly served the summons because Luzon Iron is neither its resident agent nor its representative in the Philippines. The
petitioners explained that Luzon Iron, as a wholly-owned subsidiary, had a separate and distinct personality from Consolidated Iron.

The petitioners explained that Paragraph 14.8 of the TPAA should not be construed as an authority to directly resort to court action in
case of a direct and/or blatant violation of the TPAA because such interpretation would render the arbitration clause nugatory. They
contended that, even for the sake of argument, the judicial action under the said provisions was limited to issues or matters which were
inexistent in the present case. They added that a party was not required to file a formal request for arbitration before an arbitration
clause became operational. Lastly, they insisted that the respondents were guilty of forum shopping in simultaneously filing
complaints before the trial court and the DENR.

The Court's Ruling

The petition is impressed with merit.

Filing of complaints
before the RTC and the
DENR is forum shopping

Forum shopping is committed when multiple suits involving the same parties and the same causes of action are filed, either
simultaneously or successively, for the purpose of obtaining a favorable judgment through means other than appeal or certiorari.12
The prohibition on forum shopping seeks to prevent the possibility that conflicting decisions will be rendered by two tribunals.13

In Spouses Arevalo v. Planters Development Bank,14 the Court elaborated that forum shopping vexed the court and warranted the
dismissal of the complaints. Thus:

Forum shopping is the act of litigants who repetitively avail themselves of multiple judicial remedies in different fora, simultaneously
or successively, all substantially founded on the same transactions and the same essential facts and circumstances; and raising
substantially similar issues either pending in or already resolved adversely by some other court; or for the purpose of increasing their
chances of obtaining a favorable decision, if not in one court, then in another. The rationale against forum-shopping is that a party
should not be allowed to pursue simultaneous remedies in two different courts, for to do so would constitute abuse of court processes

36
which tends to degrade the administration of justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the
heavily burdened dockets of the courts.

xxxx

What is essential in determining the existence of forum-shopping is the vexation caused the courts and litigants by a party who asks
different courts and/or administrative agencies to rule on similar or related causes and/or grant the same or substantially similar reliefs,
in the process creating the possibility of conflicting decisions being rendered upon the same issues.

xxxx

We emphasize that the grave evil sought to be avoided by the rule against forum-shopping is the rendition by two competent tribunals
of two separate and contradictory decisions. To avoid any confusion, this Court adheres strictly to the rules against forum shopping,
and any violation of these rules results in the dismissal of a case. The acts committed and described herein can possibly constitute
direct contempt.15 [Emphases supplied]

There is forum shopping when the following elements are present: (a) identity of parties, or at least such parties representing the same
interests in both actions; (b) identity of rights asserted and reliefs prayed for, the relief being founded on the same facts; and (c) the
identity of the two preceding particulars, such that any judgment rendered in the other action will, regardless of which party is
successful, amounts to res judicata in the action under consideration.16 All the above-stated elements are present in the case at bench.

First, there is identity of parties. In both the complaints before the RTC and the DENR, Luzon Iron was impleaded as defendant while
Consolidated Iron was only impleaded in the complaint before the RTC. Even if Consolidated Iron was not impleaded in the DENR
complaint, the element still exists. The requirement is only substantial, and not absolute, identity of parties; and there is substantial
identity of parties when there is community of interest between a party in the first case and a party in the second case, even if the latter
was not impleaded in the other case.17 Consolidated Iron and Luzon Iron had a common interest under the TPAA as the latter was a
wholly-owned subsidiary of the former.

Second, there is identity of causes of action. A reading of the complaints filed before the RTC and the DENR reveals that they had
almost identical causes of action and they prayed for similar reliefs as they ultimately sought the return of their respective Exploration
Permit on the ground of the alleged violations of the TPAA committed by the petitioners.18 In Yap v. Chua,19 the Court ruled that
identity of causes of action did not mean absolute identity.

Hornbook is the rule that identity of causes of action does not mean absolute identity; otherwise, a party could easily escape the
operation of res judicata by changing the form of the action or the relief sought. The test to determine whether the causes of action are
identical is to ascertain whether the same evidence will sustain both actions, or whether there is an identity in the facts essential to the
maintenance of the two actions. If the same facts or evidence would sustain both, the two actions are considered the same, and a
judgment in the first case is a bar to the subsequent action. Hence, a party cannot, by varying the form of action or adopting a different
method of presenting his case, escape the operation of the principle that one and the same cause of action shall not be twice litigated
between the same parties or their privies. xxx20 [Emphases supplied]

In the case at bench, both complaints filed before different fora involved similar facts and issues, the resolution of which depends on
analogous evidence. Thus, the filing of two separate complaints by the petitioners with the RTC and the DENR clearly constitutes
forum shopping.

It is worth noting that the very evil which the prohibition against forum shopping sought to prevent had happened—the RTC and the
DENR had rendered conflicting decisions. The trial court ruled that it had jurisdiction notwithstanding the arbitration clause in the
TPAA. On the other hand, the DENR found that it was devoid of jurisdiction because the matter was subject to arbitration.

Summons were not

validly served

Section 12 of Rule 14 of the Revised Rules of Court provides that "[w]hen the defendant is a foreign private juridical entity which has
transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose,
or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the
Philippines."

The Rule on Summons, as it now reads, thus, makes the question whether Consolidated Iron was "doing business in the Philippines"
irrelevant as Section 12, Rule 14 of the Rules of Court was broad enough to cover corporations which have "transacted business in the
Philippines."

In fact, under the present legal milieu, the rules on service of summons on foreign private juridical entities had been expanded as it
recognizes additional modes by which summons may be served. A.M No. 11-3-6-SC21 thus provides:

Section 12. Rule 14 of the Rules of Court is hereby amended to read as follows:

"SEC. 12. Service upon foreign private juridical entity. — When the defendant is a foreign private juridical entity which has
transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose,
or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the
Philippines.

37
If the foreign private juridical entity is not registered in the Philippines or has no resident agent, service may, with leave of court, be
effected out of the Philippines through any of the following means:

a) By personal service coursed through the appropriate court in the foreign country with the assistance of the Department of Foreign
Affairs;

b) By publication once in a newspaper of general circulation in the country where the defendant may be found and by serving a copy
of the summons and the court order by registered mail at the last known address of the defendant;

c) By facsimile or any recognized electronic means that could generate proof of service; or

d) By such other means as the court may in its discretion direct."

The petitioners are mistaken in arguing that it cannot be served summons because under Section 15, Rule 14 of the Rules of Court,
extrajudicial service of summons may be resorted to only when the action is in rem or quasi in rem and not when the action is in
personam. The premise of the petitioners is erroneous as the rule on extraterritorial service of summons provided in Section 15, Rule
14 of the Rules of Court is a specific provision dealing precisely with the service of summons on a defendant which does not reside
and is not found in the Philippines. On the other hand, Section 12, Rule 14 thereof, specifically applies to a defendant foreign private
juridical entity which had transacted business in the Philippines. Both rules may provide for similar modes of service of summons,
nevertheless, they should only be applied in particular cases, with one applicable to defendants which do not reside and are not found
in the Philippines and the other to foreign private juridical entities which had transacted business in the Philippines.

In the case at bench, it is crystal clear that Consolidated Iron transacted business in the Philippines as it was a signatory in the TPAA
that was executed in Makati. Hence, as the respondents argued, it may be served with the summons in accordance with the modes
provided under Section 12, Rule 14 of the Rules of Court.

In Atiko Trans, Inc. v. Prudential Guarantee and Assurance, Inc.,23 the Court elucidated on the means by which summons could be
served on a foreign juridical entity, to wit:

On this score, we find for the petitioners. Before it was amended by A.M. No. 11-3-6-SC, Section 12 of Rule 14 of the Rules of Court
reads:

SEC. 12. Service upon foreign private juridical entity. — When the defendant is a foreign private juridical entity which has transacted
business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there
be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines.

Elucidating on the above provision of the Rules of Court, this Court declared in Pioneer International, Ltd. v. Guadiz, Jr. that when the
defendant is a foreign juridical entity, service of summons maybe made upon:

Its resident agent designated in accordance with law for that purpose;chanrobleslaw

The government official designated by law to receive summons if the corporation does not have a resident agent; or,

Any of the corporation's officers or agents within the Philippines.24 [Emphasis supplied]
The Court, however, finds that Consolidated Iron was not properly served with summons through any of the permissible modes under
the Rules of Court. Indeed, Consolidated Iron was served with summons through Luzon Iron. Such service of summons, however, was
defective.

It is undisputed that Luzon Iron was never registered before the Securities and Exchange Commission (SEC) as Consolidated Iron's
resident agent. Thus, the service of summons to Consolidated Iron through Luzon Iron cannot be deemed a service to a resident
agent25cralawred under the first mode of service.

Likewise, the respondents err in insisting that Luzon Iron could be served summons as an agent of Consolidated Iron, it being a
wholly-owned subsidiary of the latter. The allegations in the complaint must clearly show a connection between the principal foreign
corporation and its alleged agent corporation with respect to the transaction in question as a general allegation of agency will not
suffice.26 In other words, the allegations of the complaint taken as whole should be able to convey that the subsidiary is but a business
conduit of the principal or that by reason of fraud, their separate and distinct personality should be disregarded.27 A wholly-owned
subsidiary is a distinct and separate entity from its mother corporation and the fact that the latter exercises control over the former does
not justify disregarding their separate personality. It is true that under the TPAA, Consolidated Iron wielded great control over the
actions of Luzon Iron under the said agreement. This, nonetheless, does not warrant the conclusion that Luzon Iron was a mere
conduit of Consolidated Iron. In Pacific Rehouse Corporation v. CA,28 the Court ruled:

Albeit the RTC bore emphasis on the alleged control exercised by Export Bank upon its subsidiary E-Securities, "[c]ontrol, by itself,
does not mean that the controlled corporation is a mere instrumentality or a business conduit of the mother company. Even control
over the financial and operational concerns of a subsidiary company does not by itself call for disregarding its corporate fiction. There
must be a perpetuation of fraud behind the control or at least a fraudulent or illegal purpose behind the control in order to justify
piercing the veil of corporate fiction. Such fraudulent intent is lacking in this case.29 [Emphasis supplied]

In the case at bench, the complaint merely contained a general statement that Luzon Iron was the resident agent of Consolidated Iron,
and that it was a wholly-owned subsidiary of the latter. There was no allegation showing that Luzon Iron was merely a business
conduit of Consolidated Iron, or that the latter exercised control over the former to the extent that their separate and distinct

38
personalities should be set aside. Thus, Luzon Iron cannot be deemed as an agent of Consolidated Iron in connection with the third
mode of service of summons.

To reiterate, the Court did not acquire jurisdiction over Consolidated Iron because the service of summons, coursed through Luzon
Iron, was defective. Luzon Iron was neither the resident agent nor the conduit or agent of Consolidated Iron.

On the abovementioned procedural issues alone, the dismissal of the complaints before the RTC was warranted. Even granting that the
complaints were not procedurally defective, there still existed enough reason for the trial court to refrain from proceeding with the
case.

Controversy must be
referred for arbitration

The petitioners insisted that the RTC had no jurisdiction over the subject matter because under Paragraph 15.1 of the TPAA, any
dispute out of or in connection with the TPAA must be resolved by arbitration. The said provision provides:

If, for any reasonable reason, the Parties cannot resolve a material fact, material event or any dispute arising out of or in connection
with this TPAA, including any question regarding its existence, validity or termination, within 90 days from its notice, shall be
referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International
Arbitration Centre ("SIAC Rules") for the time being in force, which rules are deemed to be incorporated by reference in this clause
15.1.30

The RTC, as the CA agreed, countered that Paragraph 14.8 of the TPAA allowed the parties to directly resort to courts in case of a
direct and/or blatant violation of the provisions of the TPAA. Paragraph 14.8 stated:

Each Party agrees not to commence or procure the commencement of any challenge or claim, action, judicial or legislative enquiry,
review or other investigation into the sufficiency, validity, legality or constitutionality of (i) the assignments of the Exploration Permit
Applications(s) (sic) to LIDGC, (ii) any other assignments contemplated by this TPAA, and/or (iii) or (sic) any agreement to which
the Exploration Permit Application(s) may be converted, unless a direct and/or blatant violation of the provisions of the TPAA has
been committed.31

In Bases Conversion Development Authority v. DMCI Project Developers, Inc.,32 the Court emphasized that the State favored
arbitration, to wit:

The state adopts a policy in favor of arbitration. Republic Act No. 9285 expresses this policy:

SEC. 2. Declaration of Policy. — It is hereby declared the policy of the State to actively promote party autonomy in the resolution of
disputes or the freedom of the parties to make their own arrangements to resolve their disputes. Towards this end, the State shall
encourage and actively promote the use of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and
impartial justice and declog court dockets. As such, the State shall provide means for the use of ADR as an efficient tool and an
alternative procedure for the resolution of appropriate cases. Likewise, the State shall enlist active private sector participation in the
settlement of disputes through ADR. This Act shall be without prejudice to the adoption by the Supreme Court of any ADR system,
such as mediation, conciliation, arbitration, or any combination thereof as a means of achieving speedy and efficient means of
resolving cases pending before all courts in the Philippines which shall be governed by such rules as the Supreme Court may approve
from time to time.

Our policy in favor of party autonomy in resolving disputes has been reflected in our laws as early as 1949 when our Civil Code was
approved. Republic Act No. 876 later explicitly recognized the validity and enforceability of parties' decision to submit disputes and
related issues to arbitration.

Arbitration agreements are liberally construed in favor of proceeding to arbitration. We adopt the interpretation that would render
effective an arbitration clause if the terms of the agreement allow for such interpretation.33 [Emphases supplied]

Thus, consistent with the state policy of favoring arbitration, the present TPAA must be construed in such a manner that would give
life to the arbitration clause rather than defeat it, if such interpretation is permissible. With this in mind, the Court views the
interpretation forwarded by the petitioners as more in line with the state policy favoring arbitration.

Paragraphs 14.8 and 15.1 of the TPAA should be harmonized in such a way that the arbitration clause is given life, especially since
such construction is possible in the case at bench. A synchronized reading of the abovementioned TPAA provisions will show that a
claim or action raising the sufficiency, validity, legality or constitutionality of: (a) the assignments of the EP to Luzon Iron; (b) any
other assignments contemplated by the TPAA; or (c) any agreement to which the EPs may be converted, may be instituted only when
there is a direct and/or blatant violation of the TPAA. In turn, the said action or claim is commenced by proceeding with arbitration, as
espoused in the TPAA.

The Court disagrees with the respondents that Paragraph 14.8 of the TPAA should be construed as an exception to the arbitration
clause where direct court action may be resorted to in case of direct and/or blatant violation of the TPAA occurs. If such interpretation
is to be espoused, the arbitration clause would be rendered inutile as practically all matters may be directly brought before the courts.
Such construction is anathema to the policy favoring arbitration.

A closer perusal of the TPAA will also reveal that paragraph 14 and all its sub-paragraphs are general provisions, whereas paragraphs
15 and all its sub-clauses specifically refer to arbitration. When general and specific provisions are inconsistent, the specific provision
shall be paramount and govern the general provision.34

39
The petitioners' failure to refer the case for arbitration, however, does not render the arbitration clause in the TPAA inoperative. In
Koppel, Inc. v. Makati Rotary Club Foundation, Inc. (Koppel),35 the Court explained that an arbitration clause becomes operative,
notwithstanding the lack of a formal request, when a party has appraised the trial court of the existence of an arbitration clause, viz:

xxx The operation of the arbitration clause in this case is not at all defeated by the failure of the petitioner to file a formal "request" or
application therefor with the MeTC. We find that the filing of a "request" pursuant to Section 24 of R.A. No. 9285 is not the sole
means by which an arbitration clause may be validly invoked in a pending suit.

Section 24 of R.A. No. 9285 reads:

SEC. 24. Referral to Arbitration. — A court before which an action is brought in a matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not later that the pre-trial conference, or upon the request of both parties thereafter,
refer the parties to arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable of being
performed.

The "request" referred to in the above provision is, in turn, implemented by Rules 4.1 to 4.3 of A.M. No. 07-11-08-SC or the Special
Rules of Court on Alternative Dispute Resolution (Special ADR Rules):

RULE 4: REFERRAL TO ADR

Rule 4.1. Who makes the request. — A party to a pending action filed in violation of the arbitration agreement, whether contained in
an arbitration clause or in a submission agreement, may request the court to refer the parties to arbitration in accordance with such
agreement.

xxxx

Attention must be paid, however, to the salient wordings of Rule 4.1. It reads: "[a] party to a pending action filed in violation of the
arbitration agreement xxx may request the court to refer the parties to arbitration in accordance with such agreement."

In using the word "may" to qualify the act of filing a "request" under Section 24 of R.A. No. 9285, the Special ADR Rules clearly did
not intend to limit the invocation of an arbitration agreement in a pending suit solely via such "request." After all, non-compliance
with an arbitration agreement is a valid defense to any offending suit and, as such, may even be raised in an answer as provided in our
ordinary rules of procedure.

In this case, it is conceded that petitioner was not able to file a separate "request" of arbitration before the MeTC. However, it is
equally conceded that the petitioner, as early as in its Answer with Counterclaim, had already apprised the MeTC of the existence of
the arbitration clause in the 2005 Lease Contract and, more significantly, of its desire to have the same enforced in this case. This act
of petitioner is enough valid invocation of his right to arbitrate. xxx36 [Emphases supplied; italics in the original]

It is undisputed that the petitioners Luzon Iron and Consolidated Iron never made any formal request for arbitration. As expounded in
Koppel, however, a formal request is not the sole means of invoking an arbitration clause in a pending suit. Similar to the said case,
the petitioners here made the RTC aware of the existence of the arbitration clause in the TPAA as they repeatedly raised this as an
issue in all their motions to dismiss. As such, it was enough to activate the arbitration clause and, thus, should have alerted the RTC in
proceeding with the case.

Moreover, judicial restraint should be exercised pursuant to the competence-competence principle embodied in Rule 2.4 of the Special
Rules of Court on Alternative Dispute Resolution.37 The said provision reads:

RULE 2.4. Policy Implementing Competence-Competence Principle. — The arbitral tribunal shall be accorded the first opportunity or
competence to rule on the issue of whether or not it has the competence or jurisdiction to decide a dispute submitted to it for decision,
including any objection with respect to the existence or validity of the arbitration agreement. When a court is asked to rule upon
issue/s affecting the competence or jurisdiction of an arbitral tribunal in a dispute brought before it, either before or after the arbitral
tribunal is constituted, the court must exercise judicial restraint and defer to the competence or jurisdiction of the arbitral tribunal by
allowing the arbitral tribunal the first opportunity to rule upon such issues.

Where the court is asked to make a determination of whether the arbitration agreement is null and void, inoperative or incapable of
being performed, under this policy of judicial restraint, the court must make no more than a prima facie determination of that issue.

Unless the court, pursuant to such prima facie determination, concludes that the arbitration agreement is null and void, inoperative or
incapable of being performed, the court must suspend the action before it and refer the parties to arbitration pursuant to the arbitration
agreement. [Emphasis supplied]

Generally, the action of the court is stayed if the matter raised before it is subject to arbitration.38 In the case at bench, however, the
complaints filed before the RTC should have been dismissed considering that the petitioners were able to establish the ground for their
dismissal, that is, violating the prohibition on forum shopping. The parties, nevertheless, are directed to initiate arbitration proceedings
as provided under Paragraph 15.1 of the TPAA.
WHEREFORE, the petition is GRANTED. The September 8, 2015 Decision of the Court of Appeals in CA-G.R. SP No. 133296,
affirming the March 18, 2013 and September 18, 2013 Orders of the Regional Trial Court, Branch 59, Makati City, is hereby SET
ASIDE. The complaints in Civil Case Nos. 12-1053 and 12-1054 are DISMISSED. The parties, however, are ORDERED to
commence arbitration proceedings pursuant to Paragraph 15.1 of the Tenement Partnership and Acquisition Agreement.
SO ORDERED.

40
November 23, 2016

G.R. No. 204197

FRUEHAUF ELECTRONICS PHILIPPINES CORPORATION, Petitioner,

vs.
TECHNOLOGY ELECTRONICS ASSEMBLY AND MANAGEMENT PACIFIC CORPORATION, Respondent.

DECISION

BRION, J.:

The fundamental importance of this case lies in its delineation of the extent of permissible judicial review over arbitral awards. We
make this determination from the prism of our existing laws on the subject and the prevailing state policy to uphold the autonomy of
arbitration proceedings.

This is a petition for review on certiorari of the Court of Appeals' (CA) decision in CA-G.R. SP. No. 112384 that reversed an arbitral
award and dismissed the arbitral complaint for: lack of merit. 1 The CA breached the bounds of its jurisdiction when it reviewed the
substance of the arbitral award outside of the permitted grounds under the Arbitration Law.2

Brief Factual Antecedents

In 1978, Fruehauf Electronics Philippines Corp. (Fruehauf) leased several parcels of land in Pasig City to Signetics Filipinas
Corporation (Signetics) for a period of 25 years (until May 28, 2003). Signetics constructed a semiconductor assembly factory on the
land on its own account.

In 1983, Signetics ceased its operations after the Board of Investments (BOI) withdrew the investment incentives granted to electronic
industries based in Metro Manila.

In 1986, Team Holdings Limited (THL) bought Signetics. THL later changed its name to Technology Electronics Assembly and
Management Pacific Corp. (TEAM).

In March 1987, Fruehauf filed an unlawful detainer case against TEAM. In an effort to amicably settle the dispute, both parties
executed a Memorandum of Agreement (MOA) on June 9, 1988.3 Under the MOA, TEAM undertook to pay Fruehauf 14.7 million
pesos as unpaid rent (for the period of December 1986 to June 1988).

They also entered a 15-year lease contract4 (expiring on June 9, 2003) that was renewable for another 25 years upon mutual
agreement. The contract included an arbitration agreement:5

17. ARBITRATION

In the event of any dispute o~ disagreement between the parties hereto involving the interpretation or implementation of any provision
of this Contract of Lease, the dispute or disagreement shall be referred to arbitration by a three (3) member arbitration committee, one
member to be appointed by the LESSOR, another member to be appointed by the LESSEE, and the third member to be appointed by
these two members. The arbitration shall be conducted in accordance with the Arbitration Law (R.A. No. 876).

The contract also authorized TEAM to sublease the property. TEAM subleased the property to Capitol Publishing House (Capitol) on
December 2, 1996 after notifying Fruehauf.

On May 2003, TEAM informed Fruehauf that it would not be renewing the lease. 6

On May 31, 2003, the sublease between TEAM and Capitol expired. However, Capitol only vacated the premises on March 5, 2005.
In the meantime, the master lease between TEAM and Fruehauf expired on June 9, 2003.

On March 9, 2004, Fruehauf instituted SPProc. No.11449 before the Regional Trial Court (RTC) for "Submission of an Existing
Controversy for Arbitration." 7 It alleged: (1) that when the lease expired, the property suffered from damage that required extensive
renovation; (2) that when the lease expired, TEAM failed to turn over the premises and pay rent; and (3) that TEAM did not restore
the property to its original condition as required in the contract. Accordingly, the parties are obliged to submit the dispute to
arbitration pursuant to the stipulation in the lease contract.

8
The RTC granted the petition and directed the parties to comply with the arbitration clause of the contract.

Pursuant to the arbitration agreement, the dispute was referred to a three-member arbitration tribunal. TEAM and Fruehauf appointed
one member each while the Chairman was appointed by the first two members. The tribunal was formally constituted ion September
27, 2004 with retired CA Justice Hector L. Hofileña, as chairman, retired CA Justice Mariano M. Umali and Atty. Maria Clara B.
Tankeh-Asuncion as members.9

The parties initially submitted the following issues to the tribunal for resolution: 10
41
1. Whether or not TEAM had complied with its obligation to return the leased premises to Fruehauf after the expiration of the lease on
June 9, 2003.

1.1. What properties should be returned and in what condition?

2. Is TEAM liable for payment of rentals after June 9, 2003?

2.1. If so, how much and for what period?

3. Is TEAM liable for payment of real estate taxes, insurance, and other expenses on the leased premises after June 9, 2003?

4. Who is liable for payment of damages and how much?

5. Who is liable for payment of attorney's fees and how much?

Subsequently, the following issues were also submitted for resolution after TEAM proposed 11 their inclusion:

1. Who is liable for the expenses of arbitration, including arbitration fees?

2. Whether or not TEAM has the obligation to return the premises to Fruehauf as a "complete, rentable, and fully facilitized
electronic plant."

The Arbitral Award12

On December 3, 2008, the arbitral tribunal awarded Fruehauf: (1) 8.2 million pesos as (the balance of) unpaid rent from June 9, 2003
until March 5, 2005; and (2) 46.8 million pesos as damages. 13

The tribunal found that Fruehauf made several demands for the return of the leased premises before and after: the expiration of the
lease14 and that there was no express or implied renewal of the lease after June 9, 2003. It recognized that the sub-lessor, Capitol,
remained in possession of the lease. However, relying on the commentaries of Arturo Tolentino on the subject, the tribunal held that it
was not enough for lessor to simply vacate the leased property; it is necessary that he place the thing at the disposal of the lessor, so
that the latter can receive it without any obstacle. 15

For failing to return the property' to Fruehauf, TEAM remained liable for the payment of rents. However, if it can prove that Fruehauf
received rentals from Capitol, TEAM can deduct these from its liability. 16 Nevertheless, the award of rent and damages was without
prejudice to TEAM's right to seek redress from its sub-lessee, Capitol. 17

With respect to the improvements on the land, the tribunal viewed the situation from two perspectives:

First, while the Contract admitted that Fruehauf was only leasing the land and not the buildings and improvements thereon, it
nevertheless obliged TEAM to deliver the buildings, installations and other improvements existing at the inception of the lease uponits
expiration. 18

The other view, is that the MOA and the Contract recognized that TEAM owned the existing improvements on the property and
considered them as separate from the land for the initial 15-year term of the lease. 19 However, Fruehauf had a vested right to become
the owner of these improvements at the end of the 15-year term. Consequently, the contract specifically obligated TEAM not to
remove, transfer, destroy, or in any way alienate or encumber these improvements without prior written consent from Fruehauf. 20

Either way, TEAM had the obligation to deliver the existing improvements on the land upon the expiration of the lease. However,
there was no obligation under the lease to return the premises as a "complete, rentable, and fully facilitized electronics plant." 21Thus,
TEAM's obligation was to vacate the leased property and deliver to Fruehauf the buildings, improvements, and installations (including
the machineries and equipment existing thereon) in the same condition as when the lease commenced, save for what had been lost or
impaired by 1the lapse of time, ordinary wear and tear, or any other inevitable cause. 22

The tribunal found TEAM negligent in the maintenance of the premises, machineries, and equipment it was obliged to deliver to
Fruehauf. 23 For this failure to conduct the necessary repairs or to notify Fruehauf of their necessity, the tribunal held TEAM
accountable for damages representing the value of the repairs necessary to restore the premises to a condition "suitable for the use to
which it has been devoted' less their depreciation expense.24

On the other issues, the tribunal held that TEAM had no obligation to pay real estate taxes, insurance, and other expenses on the leased
premises considering these obligations can only arise from a renewal of the contract. 25Further, the tribunal refused: to award attorney's
fees, finding no evidence that either party acted in bad faith. 26 For the same reason, it held both parties equally liable for the expenses
of litigation, including the arbitrators' fees. 27

TEAM moved for reconsideration28 which the tribunal denied. 29 Thus, TEAM petitioned the RTC to partially vacate or modify the
arbitral award.30 It argued that the tribunal failed to properly appreciate the facts and the terms of the lease contract.

The RTC Ruling

42
On April 29, 2009, the RTC31 found insufficient legal grounds under Sections 24 and 25 of the Arbitration Law to modify or vacate
the award.32 It denied the petition and CONFIRMED, the arbitral award. 33 TEAM filed a Notice of Appeal.

On July 3, 2009,34 the RTC refused to give due course to the Notice of Appeal because according to Section 29 35 of the Arbitration
Law, an ordinary appeal under Rule 41 is not the proper mode of appeal against an order confirming an arbitral award. 36

TEAM moved for reconsideration but the R TC denied the motion on November 15, 2009.37 Thus, TEAM filed a petition
for certiorari38before the CA arguing that the RTC gravely abused its discretion in: (1) denying due course to its notice of appeal; and
(2) denying the motion to partially vacate and/or modify the arbitral award.39

TEAM argued that an ordinary appeal under Rule 41 was the proper remedy against the RTC's order confirming, modifying,
correcting, or vacating an arbitral award. 40 It argued that Rule 42 was not available because the order denying its motion to vacate was
not rendered in the exercise of the RTC's appellate jurisdiction. Further, Rule 43 only applies to decisions of quasi-judicial bodies.
Finally, an appeal under Rule 45 to the Supreme Court would preclude it from raising questions of fact or mixed questions of fact and
law.41

TEAM maintained that it was appealing the RTC's order denying its petition to partially vacate/modify the award, not the arbitral
award itself. 42 Citing Rule 41, Section 13 of the Rules of Court, the RTC's authority to dismiss the appeal is limited to instances
when it was filed out of time or when the appellant fails to pay the docket fees within the reglementary period. 43

TEAM further maintained that the RTC gravely abused its discretion by confirming the Arbitral Tribunal's award when it evidently
had legal and factual errors, miscalculations, and ambiguities. 44

The petition was docketed as CA-G.R. SP. No.112384.

The CA decision 45

The CA initially dismissed the petition. 46 As the RTC did, it cited Section 29 of the Arbitration Law:

Section 29. Appeals. - An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon
an award through certiorari proceedings, but such appeals shall be limited to questions of law. The proceedings upon such appeal,
including the judgment thereon shall be governed by the Rules of Court in so far as they are applicable.

It concluded that the appeal contemplated under the law is an appeal by certiorari limited only to questions of law.47

The CA continued that TEAM failed to substantiate its claim as to the "evident miscalculation of figures." It further held that
disagreement with the arbitrators' factual determinations and legal conclusions does not empower courts to amend or overrule arbitral
judgments.48

However, the CA amended its decision on October 25, 2012 upon a motion for reconsideration. 49

The CA held that Section 29 of the Arbitration Law does not preclude the aggrieved party from resorting to other judicial
remedies.50 Citing Asset Privatization Trust v. Court of Appeals,51the CA held that the aggrieved party may resort to a petition
for certiorari when the R TC to which the award was submitted for confirmation Has acted without jurisdiction, or with grave abuse
of discretion and there is no appeal, nor any plain, speedy remedy in the course of law. 52

The CA further held that the mere filing of a notice of appeal is sufficient as the issues raised in the appeal were not purely questions
of law. 53 It further cited Section 46 of the Alternative Dispute Resolution

(ADR) Law:54

SEC. 46. Appeal from Court Decisions on Arbitral Awards. - A decision of the regional trial court confirming, vacating, setting
aside, modifying or correcting an arbitral award may be appealed to the Court of Appeals in accordance with the rules of procedure to
be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral award shall be required by the appellant court to
post counterbond executed in favor of the prevailing party equal to the amount of the award in accordance with the rules to be
promulgated by the Supreme Court. 55

However, the CA made no further reference to A.M. No. 07-11-08-SC, the Special Rules of Court on Alternative Dispute
Resolution (Special ADR Rules) which govern the appeal procedure.

The CA further revisited the merits of the arbitral award and found several errors in law and in fact. It held: (1) that TEAM was not
obliged to pay rent because it was Capitol, not TEAM, that remained in possession of the property upon the expiration of the
lease;56 and (2) that Fruehauf was not entitled to compensation for the repair$ on the buildings because it did not become the owner of
the building until after the expiration of the lease. 57

43
Also citing Tolentino, the CA opined: (1) that a statement by the lessee that he has abandoned the premises should, as a general rule,
constitute sufficient compliance with his duty to return the leased premises; and (2) that any new arrangement made by the lessor with
another person, such as the sub-lessor, operates as a resumption of his possession. 58

On the issue of damages, the CA held that TEAM can never be liable for the damages for the repairs of the improvements on the
premises because they were owned by TEAM itself (through its predecessor, Signetics) when the lease commenced. 59

The CA REVERSED AND SET ASIDE the arbitral award and DISMISSED the arbitral complaint for lack of merit.60

This CA action prompted Fruehauf to file the present petition for review.

The Arguments

Fruehauf argues that courts do riot have the power to substitute their judgment for that of the arbitrators.61 It also insists that an
ordinary appeal is not the proper remedy against an RTC's order confirming, vacating, correcting or modifying an arbitral &ward but a
petition for review on certiorari under Rule 45. 62

Furthermore, TEAM's petition before the CA went beyond the permissible scope of certiorari - the existence of grave abuse of
discretion or errors jurisdiction - by including questions of fact and law that challenged the merits of the arbitral award.63

However, Fruehauf inconsistently argues that the remedies against an arbitral award are (1) a petition to vacate the award, (2) a
petition for review under Rule 43 raising questions of fact, of law, or mixed questions of fact and law, or (3) a petition
for certiorari under Rule 65.64 Fruehauf cites an article from the Philippine Dispute Resolution Center 65and Insular Savings Bank v.
Far East Bank and Trust, Co.66

TEAM counters that the CA correctly resolved the substantive issues of the case and that the arbitral tribunal's errors were sufficient
grounds to vacate or modify the award.67 It insists that the RTC's misappreciation of the facts from a patently erroneous award
warranted an appeal under Rule 41.68

TEAM reiterates that it "disagreed with the arbitral award mainly on questions of fact and not only on questions of
law," specifically, "on factual matters relating to specificprovisions in the contract on ownership of structures and
improvements thereon, and the improper award of rentals and penalties." 69Even assuming that it availed of the wrong mode of
appeal, TEAM posits that its appeal should still have been given due course in the interest of substantial justice. 70

TEAM assails the inconsistencies of Fruehauf’s position as to the available legal remedies against an arbitral award. 71 However, it
maintains that Section 29 of the Arbitration Law does not foreclose other legal remedies (aside from an appeal by certiorari) against
the RTC's order confirming or vacating an arbitral award pursuant to Insular Savings Bank WINS) Japan Co., Ltd. 72

The Issues

This case raises the following questions:

1. What are the remedies or the modes of appeal against an unfavorable arbitral award?

2. What are the available remedies from an RTC decision confirming, vacating, modifying, or correcting an arbitral award?

3. Did the arbitral tribunal err in awarding Fruehauf damages for the repairs of the building and rental fees from the
expiration of the lease?

Our Ruling

The petition is meritorious.

Arbitration is an alternative mode of dispute resolution outside of the regular court system. Although adversarial in character,
arbitration is technically not litigation. It is a voluntary process in which one or more arbitrators - appointed according to the parties'
agreement or according to the applicable rules of the Alternative Dispute Resolution (ADR) Law - resolve a dispute by rendering an
award. 73 While arbitration carries many advantages over court litigation, in :many ways these advantages also translate into its
disadvantages.

Resort to arbitration is voluntary. It requires consent from both parties in the form of an arbitration clause that pre-existed the
dispute or a subsequent submission agreement. This written arbitration agreement is an independent and legally enforceable contract
that must be complied with in good faith. By entering into an arbitration agreement, the parties agree to submit their dispute to an
arbitrator (ortribunal) of their own choosing and be bound by the latter's resolution.

However, this contractual and consensual character means that the parties cannot implead a third-party in the proceedings even if the
latter's participation is necessary for a complete settlement of the dispute. The
44
tribunal does not have the power to compel a person to participate in the arbitration proceedings without that person's consent. It also
has no authority to decide on issues that the parties did not submit (or agree to submit) for its resolution.

As a purely private mode of dispute resolution, arbitration proceedings, including the records, the evidence, and the arbitral award,
are confidential 74 unlike court proceedings which are generally public. This allows the parties to avoid negative publicity and protect
their privacy. Our law highly regards the confidentiality of arbitration proceedings that it devised a judicial remedy to prevent or
prohibit the unauthorized disclosure of confidential information obtained therefrom. 75

The contractual nature of arbitral proceedings affords the parties I substantial autonomy over the proceedings. The parties are free to
agree on the procedure to be observed during the proceedings. 76 This lends considerable flexibility to arbitration ; proceedings as
compared to court I litigation governed by the Rules of Court.

The parties likewise appoint the arbitrators based on agreement. There are no other legal requirements as to the competence or
technical qualifications of an arbitrator. Their only legal qualifications are: (1) being of legal age; (2) full-enjoyment of their civil
rights; and (3) the ability to read and write.77 The parties can tailor-fit the tribunal's composition to the nature of their dispute. Thus, a
specialized dispute can be resolved by experts on the subject.

However, because arbitrators do not necessarily have a background in law, they cannot be expected to have the legal mastery of a
magistrate. There is a greater risk that an arbitrator might misapply the law or misappreciate the facts en route to an erroneous
decision.

This risk of error is compounded by the absence of an effective appeal mechanism. The errors of an; arbitral tribunal are not subject
to correction by the judiciary. As a private alternative to court proceedings, arbitration is meant to be an end, not the beginning, of
litigation. 78Thus, the arbitral award is final and binding on the parties by reason of their contract - the arbitration agreement. 79

An Arbitral Tribunal does not exercise

quasi-judicial powers

Quasi-judicial or administrative adjudicatory power is the power: (1) to hear and determine questions of fact to which legislative
policy is to apply, and (2) to decide in accordance with the standards laid down by the law itself in enforcing and administering the
same law.80Quasi-judicial power is only exercised by administrative agencies - legal organs of the government.

Quasi-judicial bodies can only exercise such powers and jurisdiction as are expressly or by necessary implication conferred upon them
by their enabling statutes.81 Like courts, a quasi-judicial body's jurisdiction over a subject matter is conferred by law and exists
independently from the will of the parties. As government organs necessary for an effective legal system, a quasi-judicial tribunal's
legal existence, continues beyond the resolution of a specific dispute. In other words, quasi-judicial bodies are creatures of law.

As a contractual and consensual: body, the arbitral tribunal does not have any inherent powers over the parties. It has no power to
issue coercive writs or compulsory processes. Thus, there is a need to resort to the regular courts for interim measures of
protection 82 and for the recognition or enforcement of the arbitral award. 83

The arbitral tribunal acquires jurisdiction over the parties and the subject matter through stipulation. Upoh the rendition of the final
award, the tribunal becomes functus officio and - save for a few exceptions84 - ceases to have any further jurisdiction over the
dispute.85 The tribunal's powers (or in the case of ad hoc tribunals, their very existence) stem from the obligatory force of the
arbitration agreement and its ancillary stipulations.86 Simply put, an arbitral tribunal is a creature of contract.

Deconstructing the view that arbitral

tribunals are quasi-judicial agencies

We are aware of the contrary view expressed by the late Chief Justice Renato Corona in ABS-CBN Broadcasting Corporation v.
World Interactive Network Systems (WINS)Japan Co., Ltd. 87

The ABS-CBN Case opined that a voluntary arbitrator is a "quasi-judicial instrumentality" of the government 88pursuant to Luzon
Development Bank v. Association of Luzon Development Bank Employees, 89 Sevilla Trading Company v. Sernana, 90 Manila Midtown
Hotel v. Borromeo, 91 and Nippon Paint Employees Union-Olalia v. Court of Appeals. 92 Hence, voluntary arbitrators are included in
the Rule 43 jurisdiction of the Court of Appeals:

SECTION 1. Scope.-This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from awards,
judgments, final orders or resolutions of or authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions.
Among these agencies are the Civil Service Commission, Central: Board of Assessment Appeals, Securities and Exchange
Commission, Office of the President, Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory Board, National
Telecommunications Commission, Department of Agrarian Reform under Republic Act No. 6657, Government Service Insurance
System, Employees Compensation Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Industry Arbitration Commission, and voluntary arbitrators authorized by
law.93 (emphasis supplied)

45
Citing Insular Savings Bank v. Far East Bank and Trust Co., 94 the ABS-CBN Case pronounced that the losing party in an arbitration
proceeding may avail of three alternative remedies: (1) a petition to vacate the arbitral award before the RTC; (2) a petition for review
with the CA under Rule 43 of the Rules of Court raising questions of fact, of law, or of both; and (3) a I petition for certiorari under
Rule 65 should the arbitrator act beyond its jurisdiction or with grave abuse of discretion. 95

At first glance, the logic of this position appears to be sound. However, a critical examination of the supporting authorities would
show that the conclusion is wrong.

First, the pronouncements made in the ABS-CBN Case and in the Insular Savings Bank Case (which served as the authority for the
ABS-CBN Case) were both obiter dicta.

In the ABS-CBN Case, we sustained the CA's dismissal of the petition because it was filed as an "alternative petition for review under
Rule 43 or petition for certiorari under Rule 65." 96 We held that it was an inappropriate mode of appeal because, a petition for
review and a petition for certiorari are mutually exclusive and not alternative or successive.

In the Insular Savings Bank case, the lis mota of the case was the RTC's jurisdiction over an appeal from an arbitral award. The
parties to the arbitration agreement agreed that the rules of the arbitration provider 97 - which stipulated that the R TC shall have
jurisdiction to review arbitral awards - will govern the proceedings.98 The Court ultimately held that the RTC does not have
jurisdiction to review the merits of the award because legal jurisdiction is conferred by law, not by mere agreement of the parties.

In both cases, the pronouncements as to the remedies against an arbitral award were unnecessary for their resolution. Therefore, these
are obiter dicta - judicial comments made, in passing which are not essential to the resolution of the case and cannot therefore serve as
precedents.99

Second, even if we disregard the obiter dicta character of both pronouncements, a more careful scrutiny deconstructs their legal
authority.

The ABS-CBN Case committed the classic fallacy of equivocation. It equated the term "voluntary arbitrator" used in Rule 43, Section
1 and in the cases of Luzon Development Bank v. Association of Luzon Development Bank Employees, Sevilla Trading Company v.
Semana, Manila Midtown Hotel v. Borromeo, and Nippon Paint Employees Union-Olalia v. Court of Appeals with the term
"arbitrator/arbitration tribunal."

The first rule of legal construction, verba legis, requires that, wherever possible, the words used in the Constitution or in the statute
must be given their ordinary meaning except where technical terms are employed. 100Notably, all of the cases cited in the ABS-CBN
Case involved labor disputes.

The term "Voluntary Arbitrator" does not refer to an ordinary "arbitrator" who voluntarily agreed to: resolve a dispute. It is a
technical term with a specific definition under the Labor Code:

Art. 212 Definitions. xxx

14. "Voluntary Arbitrator" means any' person accredited by the Board as such or any person named or designated in the Collective
Bargaining Agreement by the parties to act as their Voluntary Arbitrator, or one chosen with or without the assistance of the National
Conciliation and Mediation Board, pursuant to a selection procedure agreed upon in the Collective Bargaining Agreement, or any
official that may be authorized by the Secretary of Labor and Employment to act as Voluntary Arbitrator upon the written request and
agreement of the parties to a labor dispute. 101

Voluntary Arbitrators resolve labor disputes and grievances arising from the interpretation of Collective Bargaining
Agreements. 102 These disputes were specifically excluded: from the coverage of both the Arbitration Law 103 and the ADR Law. 104

Unlike purely commercial relationships, the relationship between capital and labor are heavily impressed with public
interest. 105Because of this, Voluntary Arbitrators authorized to resolve labor disputes have been clothed with quasi-judicial authority.

On the other hand, commercial relationships covered by our commercial arbitration laws are purely private and contractual in nature.
Unlike labor relationships, they do not possess the same compelling state interest that would justify state interference into the
autonomy of contracts. Hence, commercial arbitration is a purely private system of adjudication facilitated by private citizens instead
of government instrumentalities wielding quasi-judicial powers.

Moreover, judicial or quasi-judicial jurisdiction cannot be conferred upon a tribunal by the parties alone. The Labor Code itself
confers subject-matter jurisdiction to Voluntary Arbitrators. 106

Notably, the other arbitration body listed in Rule 43 - the Construction Industry Arbitration Commission (CIAC) - is also a
government agency107 attached to the Department of Trade and Industry. 108 Its jurisdiction is likewise conferred by statute. 109 By
contrast, the subject-matter jurisdiction of commercial arbitrators is stipulated by the parties.

These account for the legal differences between "ordinary" or "commercial" arbitrators under the Arbitration Law and the ADR Law,
and "voluntary arbitrators" under the Labor Code. The two terms are not synonymous with each other. Interchanging them with one
another results in the logical fallacy of equivocation - using the same word with different meanings.

46
Further, Rule 43, Section 1 enumerates quasi-judicial tribunals whose decisions are appealable to the CA instead of the RTC. But
where legislation provides for an appeal from decisions of certain administrative bodies to the CA, it means that such bodies are co-
equal with the RTC in terms of rank and stature, logically placing them beyond the control of the latter. 110

However, arbitral tribunals and the RTC are not co-equal bodies because the RTC is authorized to confirm or to vacate (but not
reverse) arbitral awards. 111 If we were to deem arbitrators as included in the scope of Rule 43, we would effectively place it' on equal
footing with the RTC and remove arbitral awards from the scope of RTC review.

All things considered, there is no legal authority supporting the position that commercial arbitrators are quasi-judicial bodies.

What are remedies from a final domestic

arbitral award?

The right to an appeal is neither' a natural right nor an indispensable component of due process; it is a mere statutory privilege that
cannot be invoked in the absence of an enabling statute. Neither the Arbitration Law nor the ADR Law allows a losing party to appeal
from the arbitral award. The statutory absence of an appeal mechanism reflects the State's policy of upholding the autonomy of
arbitration proceedings and their corresponding arbitral awards.

This Court recognized this when we enacted the Special Rules of Court on Alternative Dispute Resolution in 2009: 112

Rule 2.1. General policies. -- It is the policy of the State to actively promote the use of various modes of ADR and to respect party
autonomy or the freedom of the parties to make their own arrangements in the resolution of disputes with the greatest cooperation of
and the least intervention from the courts. xxx

The Court shall exercise the power of judicial review as provided by these Special ADR Rules. Courts shall intervene only in the
cases allowed by law or these Special ADR Rules. 113

xxxx

Rule 19.7. No appeal or certiorari on the merits of an arbitral award - An agreement to refer a dispute to arbitration shall mean that
the arbitral award shall be final and binding. Consequently, a party to an arbitration is precluded from filing an appeal or a petition
for certiorari questioning the merits of an arbitral award. 114 (emphasis supplied)

More than a decade earlier in Asset Privatization Trust v. Court of Appeals, we likewise defended the autonomy of arbitral awards
through our policy of non-intervention on their substantive merits:

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. 115

Nonetheless, an arbitral award is not absolute. Rule 19.10 of the Special ADR Rules - by referring to Section 24 of the Arbitration
Law and Article 34 of the 1985 United Nations Commission on International Trade Law (UNCITRAL) Model Law - recognizes the
very limited exceptions to the autonomy of arbitral awards:

Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As a general rule, the court can only vacate or set aside the
decision of an arbitral tribunal upon a clear showing' that the award suffers from any of the infirmities or grounds for vacating an
arbitral award under Section 24 of Republic Act No. 876 or under Rule 34 of the Model Law in a domestic arbitration, or for
setting aside an award in an international arbitration under Article 34 of the Model Law, or for such other grounds provided under
these Special Rules.

If the Regional Trial Court is asked to set aside an arbitral award in a domestic or international arbitration on any ground other than
those provided in the Special ADR Rules, the court shall entertain such ground for the setting aside or non-recognition of the arbitral
award only if the same amounts to a violation of public policy.

The court shall not set aside or vacate the award of the arbitral tribunal merely on the ground that the arbitral tribunal
committed errors of fact, or of law, or of fact and law, as the court cannot substitute its judgment for that of the arbitral
tribunal.116

The grounds for vacating a domestic arbitral award under Section 24 of the Arbitration Law contemplate the following scenarios:

(a) when the award is procured by corruption, fraud, or other undue means; or

(b) there was evident partiality or corruption in the arbitrators or any of them; or

(c) the arbitrators were guilty of misconduct that materially prejudiced the rights of any party; or

47
 (d) 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. 117

The award may also be vacated if an arbitrator who was disqualified to act willfully refrained from disclosing his disqualification to
the parties. 118 Notably, none of these grounds pertain to the correctness of the award but relate to the misconduct of arbitrators.

The RTC may also set aside the arbitral award based on Article 34 of the UNCITRAL Model Law. These grounds are reproduced in
Chapter 4 of the Implementing Rules and Regulations (IRR) of the 2004 ADR Act:

(i) the party making the application furnishes proof that:

(aa) a party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law
to which the parties have subjected it or, failing any indication thereon, under the law of the Philippines; or

(bb) the party making the application was not given proper notice of the appointment of an arbitrator or of the
arbitral proceedings or was otherwise unable to present his case; or

(cc) the award deals with a dispute not contemplated by or not falling within the terms of the submission to
arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the
decisions on matters submitted to arbitration can be separated from those not so submitted, only the part of the
award which contains decisions on matters not submitted to arbitration may be set aside; or

(dd) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of
the parties, unless such agreement was in conflict with a provision of ADR Act from which the parties cannot
derogate, or, failing such agreement, was not in accordance with ADR Act; or

(ii) The Court finds that:

(aa) the subject-matter of the dispute is not capable of settlement by arbitration under the law of the
Philippines; or

(bb) the award is in conflict with the public policy of the Philippines. 119

Chapter 4 of the IRR of the, ADR Act applies particularly to International Commercial Arbitration. However, the abovementioned
grounds taken from the UNCITRAL, Model Law are specifically made applicable to domestic arbitration by the Special ADR
Rules. 120

Notably, these grounds are not concerned with the correctness of the award; they go into the validity of the arbitration agreement or
the regularity of the arbitration proceedings.

These grounds for vacating an arbitral award are exclusive. Under the ADR Law, courts are obliged to disregard any other grounds
invoked to set aside an award:

SEC. 41. Vacation Award. - A party to a domestic arbitration may question the arbitral award with the appropriate regional trial court
in accordance with the rules of procedure to be promulgated by the Supreme Court only on those grounds enumerated in Section 25 of
Republic Act No. 876. Any other ground raised against a domestic arbitral award shall be disregarded by the regional trial
court.121

Consequently, the winning party can generally expect the enforcement of the award. This is a stricter rule that makes Article
2044122 of the Civil Code regarding the finality of an arbitral award redundant.

As established earlier, an arbitral: award is not appealable via Rule 43 because: (1) there is no statutory basis for an appeal from the
final award of arbitrators; (2) arbitrators are not quasi-judicial bodies; and (3) the Special ADR Rules specifically prohibit the filing of
an appeal to question the merits of an arbitral award.

The Special ADR Rules allow, the RTC to correct or modify an arbitral award pursuant to Section 25 of the Arbitration Law.
However, this authority cannot be interpreted as jurisdiction to review the merits of the award. The RTC can modify or correct the
award only in the following cases:

a. Where there was an evident miscalculation of figures or an evident mistake in the description of any person, thing or
property referred to in the award;

b. Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the decision upon the
matter submitted;

c. Where the arbitrators have omitted to resolve an issue submitted to them for resolution; or

48
 d. Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been a
commissioner's report, the defect could have been amended or disregarded by the Court. 123

A losing party is likewise precluded from resorting to certiorari under Rule 65 of the Rules of Court. 124 Certiorari is a prerogative
writ designed to correct errors of jurisdiction committed by a judicial or quasi-judicial body. 125 Because an arbitral tribunal is not a
government organ exercising judicial or quasi-judicial powers, it is removed from the ambit of Rule 65.

Not even the Court's expanded certiorari jurisdiction under the Constitution 126 can justify judicial intrusion into the merits of arbitral
awards. While the Constitution expanded the scope of certiorari proceedings, this power remains limited to a review' of the acts
of "any branch or instrumentality of the Government." As a purely private creature of contract, an arbitral tribunal remains outside the
scope of certiorari.

Lastly, the Special ADR Rules are a self-contained body of rules. The parties cannot invoke remedies and other provisions from the
Rules of Court unless they were incorporated in the Special ADR Rules:

Rule 22.1. Applicability of Rules of Court. - The provisions of the Rules of Court that are applicable to the proceedings enumerated
in Rule 1.1 of these Special ADR Rules have either been included and incorporated in these Special ADR Rules or specifically
referred to herein.

In Connection with the above proceedings, the Rules of Evidence shall be liberally construed to achieve the objectives of the Special
ADR Rules. 127

Contrary to TEAM's position, the Special ADR Rules actually forecloses against other remedies outside of itself. Thus, a losing party
cannot assail an arbitral award through; a petition for review under Rule 43 or a petition for certiorari under Rule 65 because these
remedies are not specifically permitted in the Special ADR Rules.

In sum, the only remedy against; a final domestic arbitral award is to file petition to vacate or to modify/correct the award not later
than thirty (30) days from the receipt of the award. 128 Unless a ground to vacate has been established, the RTC must confirm the
arbitral award as a matter of course.

The remedies against an order

Confirming, vacating, correcting, or
modifying an arbitral award

Once the RTC orders the confirmation, vacation, or correction/modification of a domestic arbitral award, the aggrieved party may
move for reconsideration within a non-extendible period of fifteen (15) days from receipt of the order. 129 The losing party may also
opt to appeal from the RTC's ruling instead.

Under the Arbitration Law, the mode of appeal was via petition for review on certiorari:

Section 29. Appeals. - An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon
an award through certiorari proceedings, but such appeals shall be limited to questions of law. The proceedings upon such appeal,
including the judgment thereon shall be governed by, the Rules of Court in so far as they are applicable. 130

The Arbitration Law did not specify which Court had jurisdiction to entertain the appeal but left the matter to be governed by the
Rules of Court. As the appeal was limited to questions of law and was described as "certiorari proceedings," the mode of appeal can be
interpreted as an Appeal By Certiorari to this Court under Rule 45.

When the ADR Law was enacted in 2004, it specified that the appeal shall be made to the CA in accordance with the rules of
procedure to be promulgated by this Court. 131 The Special ADR Rules provided that the mode of appeal from the RTC's order
confirming, vacating, or correcting/modifying a domestic arbitral award was through a petition for review with the CA. 132 However,
the Special ADR Rules only took effect on October 30, 2009.

In the present case, the R TC disallowed TEAM' s notice of appeal from the former's decision confirming the arbitral award on July 3,
2009. TEAM moved for reconsideration which was likewise denied on November 15, 2009. In the interim, the Special ADR Rules
became effective. Notably, the Special ADR Rules apply retroactively in light of its procedural character. 133 TEAM filed its petition
for certiorari soon after.

Nevertheless, whether we apply, Section 29 of the Arbitration Law, Section 46 of the ADR Law, or Rule 19.12 of the Special ADR
Rules, there is no legal basis that an ordinary appeal (via notice of appeal) is the correct remedy from an order confirming, vacating, or
correcting an arbitral award. Thus, there is no merit in the CA's ruling that the RTC gravely abused its discretion when it refused to
give due course to the notice of appeal.

The correctness or incorrectness

of the arbitral award

We have deliberately refrained from passing upon the merits of the arbitral award - not because the award was erroneous - but because
it would be improper. None of the grounds to vacate an arbitral award are present in this case and as already established, the merits of
the award cannot be reviewed by the courts.
49
Our refusal to review the award is not a simple matter of putting procedural technicalities over the substantive merits of a case; it goes
into the very legal substance of the issues. There is no law granting the judiciary authority to review the merits of an arbitral award. If
we were to insist on reviewing the correctness of the award: (or consent to the CA's doing so), it would be tantamount to expanding
our jurisdiction without the benefit of legislation. This translates to judicial legislation - a breach of the fundamental principle of
separation of powers.

The CA reversed the arbitral award - an action that it has no power to do - because it disagreed with the tribunal's factual findings
and application of the law. However, the alleged incorrectness of the award is insufficient cause to vacate the award, given the State's
policy of upholding the autonomy of arbitral awards.

The CA passed upon questions such as: (1) whether or not TEAM effectively returned the property upon the expiration of the lease;
(2) whether or not TEAM was liable to pay rentals after the expiration of the lease; and (3) whether or not TEAM was liable to pay
Fruehauf damages corresponding to the cost of repairs. These were the same questions that were specifically submitted to the arbitral
tribunal for its resolution. 134

The CA disagreed with the tribunal's factual determinations and legal interpretation of TEAM's obligations under the contract -
particularly, that TEAM's obligation to turn over the improvements on the land at the end of the lease in the same condition as when
the lease commenced translated to an obligation to make ordinary repairs necessary for its preservation. 135

Assuming arguendo that the tribunal's interpretation of the contract was incorrect, the errors would have been simple errors of
law.1âwphi1 It was the tribunal - not the RTC or the CA - that had jurisdiction and authority over the issue by virtue of the parties'
submissions; the CA's substitution of its own judgment for the arbitral award cannot be more compelling than the overriding public
policy to uphold the autonomy of arbitral awards. Courts are precluded from disturbing an arbitral tribunal's factual findings and
interpretations of law. 136 The CA's ruling is an unjustified judicial intrusion in excess of its jurisdiction - a judicial overreach. 137

Upholding the CA's ruling would weaken our alternative dispute resolution mechanisms by allowing the courts to "throw their weight
around" whenever they disagree with the results. It erodes the obligatory force of arbitration agreements by allowing the losing parties
to "forum shop" for a more favorable ruling from the judiciary.

Whether or not the arbitral tribunal correctly passed upon the issues is irrelevant. Regardless of the amount, of the sum involved in a
case, a simple error of law remains a simple error of law. Courts are precluded from revising the award in a particular way, revisiting
the tribunal's findings of fact or conclusions of law, or otherwise encroaching upon the independence of an arbitral tribunal. 138At the
risk of redundancy, we emphasize Rule 19.10 of the Special ADR Rules promulgated by this Court en banc:

Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As a general rule, the court can only vacate or set aside the
decision of an arbitral tribunal upon a clear showing that the award suffers from any of the infirmities or grounds for vacating
an arbitral award under Section 24 of Republic Act No. 876 or under Rule 34 of the Model Law in a domestic arbitration, or
for setting aside an award in an international arbitration under Article 34 of the Model Law, or for such other grounds provided under
these Special Rules.

If the Regional Trial Court is asked to set aside an arbitral award in a domestic or international arbitration on any ground other than
those provided in the Special ADR Rules, the court shall entertain such ground for the setting aside or non-recognition of the arbitral
award only if thesame amounts to a violation of public policy.

The court shall not set aside or vacate the award of the arbitral tribunal merely on the ground that the arbitral tribunal
committed errors of fact, or of law, or of fact and law, as the court cannot substitute its judgment for that of the arbitral
tribunal.

In other words, simple errors of fact, of law, or of fact and law committed by the arbitral tribunal are not justiciable errors in this
jurisdiction. 139

TEAM agreed to submit their disputes to an arbitral tribunal. It understood all the risks - including the absence of an appeal
mechanism - and found that its benefits (both legal and economic) outweighed the disadvantages. Without a showing that any of the
grounds to vacate the award exists or that the same amounts to a violation of an overriding public policy, the award is subject to
confirmation as a matter of course. 140

WHEREFORE, we GRANT the petition. The CA's decision in CA-G. R. SP. No. 112384 is SET ASIDE and the RTC's
order CONFIRMING the arbitral award in SP. Proc. No. 11449 is REINSTATED.

SO ORDERED.

50
G.R. No. 189563 April 7, 2014

GILAT SATELLITE NETWORKS, LTD., Petitioner,

vs.
UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC., Respondent.

DECISION

SERENO, CJ:

This is an appeal via a Petition for Review on Certiorari1 filed 6 November 2009 assailing the Decision2 and Resolution3 of the Court
of Appeals (CA) in CA-G.R. CV No. 89263, which reversed the Decision4 of the Regional Trial Court (RTC), Branch 141, Makati
City in Civil Case No. 02-461, ordering respondent to pay petitioner a sum of money.

The antecedent facts, as culled from the CA, are as follows:

On September 15, 1999, One Virtual placed with GILAT a purchase order for various telecommunications equipment (sic),
accessories, spares, services and software, at a total purchase price of Two Million One Hundred Twenty Eight Thousand Two
Hundred Fifty Dollars (US$2,128,250.00). Of the said purchase price for the goods delivered, One Virtual promised to pay a portion
thereof totalling US$1.2 Million in accordance with the payment schedule dated 22 November 1999. To ensure the prompt payment of
this amount, it obtained defendant UCPB General Insurance Co., Inc.’s surety bond dated 3 December 1999, in favor of GILAT.

During the period between [sic] September 1999 and June 2000, GILAT shipped and delivered to One Virtual the purchased products
and equipment, as evidenced by airway bills/Bill of Lading (Exhibits "F", "F-1" to "F-8"). All of the equipment (including the
software components for which payment was secured by the surety bond, was shipped by GILAT and duly received by One Virtual.
Under an endorsement dated December 23, 1999 (Exhibit "E"), the surety issued, with One Virtual’s conformity, an amendment to the
surety bond, Annex "A" thereof, correcting its expiry date from May 30, 2001 to July 30, 2001.

One Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400,000.00) on the due date of May 30, 2000 in
accordance with the payment schedule attached as Annex "A" to the surety bond, prompting GILAT to write the surety defendant
UCPB on June 5, 2000, a demand letter (Exhibit "G") for payment of the said amount of US$400,000.00. No part of the amount set
forth in this demand has been paid to date by either One Virtual or defendant UCPB. One Virtual likewise failed to pay on the
succeeding payment instalment date of 30 November 2000 as set out in Annex "A" of the surety bond, prompting GILAT to send a
second demand letter dated January 24, 2001, for the payment of the full amount of US$1,200,000.00 guaranteed under the surety
bond, plus interests and expenses (Exhibits "H") and which letter was received by the defendant surety on January 25, 2001. However,
defendant UCPB failed to settle the amount of US$1,200,000.00 or a part thereof, hence, the instant complaint." 5(Emphases in the
original)

On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a Complaint 6 against respondent UCPB General Insurance Co., Inc.,
to recover the amounts supposedly covered by the surety bond, plus interests and expenses. After due hearing, the RTC rendered its
Decision,7 the dispositive portion of which is herein quoted:

WHEREFORE, premises considered, the Court hereby renders judgment for the plaintiff, and against the defendant, ordering, to wit:

1. The defendant surety to pay the plaintiff the amount of One Million Two Hundred Thousand Dollars (US$1,200,000.00)
representing the principal debt under the Surety Bond, with legal interest thereon at the rate of 12% per annum computed
from the time the judgment becomes final and executory until the obligation is fully settled; and

2. The defendant surety to pay the plaintiff the amount of Forty Four Thousand Four Dollars and Four Cents (US$44,004.04)
representing attorney’s fees and litigation expenses.

Accordingly, defendant’s counterclaim is hereby dismissed for want of merit.

SO ORDERED. (Emphasis in the original)

In so ruling, the RTC reasoned that there is "no dispute that plaintiff [petitioner] delivered all the subject equipments [sic] and the
same was installed. Even with the delivery and installation made, One Virtual failed to pay any of the payments agreed upon. Demand
notwithstanding, defendant failed and refused and continued to fail and refused to settle the obligation." 8

Considering that its liability was indeed that of a surety, as "spelled out in the Surety Bond executed by and between One Virtual as
Principal, UCPB as Surety and GILAT as Creditor/Bond Obligee," 9 respondent agreed and bound itself to pay in accordance with the
Payment Milestones. This obligation was not made dependent on any condition outside the terms and conditions of the Surety Bond
and Payment Milestones.10

Insofar as the interests were concerned, the RTC denied petitioner’s claim on the premise that while a surety can be held liable for
interest even if it becomes more onerous than the principal obligation, the surety shall only accrue when the delay or refusal to pay the
principal obligation is without any justifiable cause.11 Here, respondent failed to pay its surety obligation because of the advice of its
principal (One Virtual) not to pay.12 The RTC then obligated respondent to pay petitioner the amount of USD1,200,000.00

51
representing the principal debt under the Surety Bond, with legal interest at the rate of 12% per annum computed from the time the
judgment becomes final and executory, and USD44,004.04 representing attorney’s fees and litigation expenses.

On 18 October 2007, respondent appealed to the CA. 13 The appellate court rendered a Decision14 in the following manner:

WHEREFORE, this appealed case is DISMISSED for lack of jurisdiction. The trial court’s Decision dated December 28, 2006 is
VACATED. Plaintiff-appellant Gilat Satellite Networks Ltd., and One Virtual are ordered to proceed to arbitration, the outcome of
which shall necessary bind the parties, including the surety, defendant-appellant United Coconut Planters Bank General Insurance Co.,
Inc.

SO ORDERED. (Emphasis in the original)

The CA ruled that in "enforcing a surety contract, the ‘complementary-contracts-construed-together’ doctrine finds application."
According to this doctrine, the accessory contract must be construed with the principal agreement. 15 In this case, the appellate court
considered the Purchase Agreement entered into between petitioner and One Virtual as the principal contract, 16 whose stipulations are
also binding on the parties to the suretyship.17 Bearing in mind the arbitration clause contained in the Purchase Agreement18 and
pursuant to the policy of the courts to encourage alternative dispute resolution methods, 19 the trial court’s Decision was vacated;
petitioner and One Virtual were ordered to proceed to arbitration.

On 9 September 2008, petitioner filed a Motion for Reconsideration with Motion for Oral Argument. The motion was denied for lack
of merit in a Resolution20 issued by the CA on 16 September 2009.

Hence, the instant Petition.

On 31 August 2010, respondent filed a Comment21 on the Petition for Review. On 24 November 2010, petitioner filed a Reply. 22

ISSUES

From the foregoing, we reduce the issues to the following:

1. Whether or not the CA erred in dismissing the case and ordering petitioner and One Virtual to arbitrate; and

2. Whether or not petitioner is entitled to legal interest due to the delay in the fulfilment by respondent of its obligation under
the Suretyship Agreement.

THE COURT’S RULING

The existence of a suretyship agreement does not give the surety the right to intervene in the principal contract, nor can an arbitration
clause between the buyer and the seller be invoked by a non-party such as the surety.

Petitioner alleges that arbitration laws mandate that no court can compel arbitration, unless a party entitled to it applies for this
relief.23 This referral, however, can only be demanded by one who is a party to the arbitration agreement. 24 Considering that neither
petitioner nor One Virtual has asked for a referral, there is no basis for the CA’s order to arbitrate.

Moreover, Articles 1216 and 2047 of the Civil Code 25 clearly provide that the creditor may proceed against the surety without having
first sued the principal debtor.26 Even the Surety Agreement itself states that respondent becomes liable upon "mere failure of the
Principal to make such prompt payment." 27 Thus, petitioner should not be ordered to make a separate claim against One Virtual (via
arbitration) before proceeding against respondent.28

On the other hand, respondent maintains that a surety contract is merely an accessory contract, which cannot exist without a valid
obligation.29 Thus, the surety may avail itself of all the defenses available to the principal debtor and inherent in the debt 30 – that is, the
right to invoke the arbitration clause in the Purchase Agreement.

We agree with petitioner.

In suretyship, the oft-repeated rule is that a surety’s liability is joint and solidary with that of the principal debtor. This undertaking
makes a surety agreement an ancillary contract, as it presupposes the existence of a principal contract.31 Nevertheless, although the
contract of a surety is in essence secondary only to a valid principal obligation, its liability to the creditor or "promise" of the principal
is said to be direct, primary and absolute; in other words, a surety is directly and equally bound with the principal. 32 He becomes liable
for the debt and duty of the principal obligor, even without possessing a direct or personal interest in the obligations constituted by the
latter.33Thus, a surety is not entitled to a separate notice of default or to the benefit of excussion. 34 It may in fact be sued separately or
together with the principal debtor.35

After a thorough examination of the pieces of evidence presented by both parties, 36 the RTC found that petitioner had delivered all the
goods to One Virtual and installed them. Despite these compliances, One Virtual still failed to pay its obligation, 37 triggering
respondent’s liability to petitioner as the former’s surety.1âwphi1 In other words, the failure of One Virtual, as the principal debtor, to
fulfill its monetary obligation to petitioner gave the latter an immediate right to pursue respondent as the surety.

52
Consequently, we cannot sustain respondent’s claim that the Purchase Agreement, being the principal contract to which the Suretyship
Agreement is accessory, must take precedence over arbitration as the preferred mode of settling disputes.

First, we have held in Stronghold Insurance Co. Inc. v. Tokyu Construction Co. Ltd., 38 that "[the] acceptance [of a surety agreement],
however, does not change in any material way the creditor’s relationship with the principal debtor nor does it make the surety an
active party to the principal creditor-debtor relationship. In other words, the acceptance does not give the surety the right to intervene
in the principal contract. The surety’s role arises only upon the debtor’s default, at which time, it can be directly held liable by the
creditor for payment as a solidary obligor." Hence, the surety remains a stranger to the Purchase Agreement. We agree with petitioner
that respondent cannot invoke in its favor the arbitration clause in the Purchase Agreement, because it is not a party to that
contract.39 An arbitration agreement being contractual in nature,40 it is binding only on the parties thereto, as well as their assigns and
heirs.41

Second, Section 24 of Republic Act No. 9285 42 is clear in stating that a referral to arbitration may only take place "if at least one party
so requests not later than the pre-trial conference, or upon the request of both parties thereafter." Respondent has not presented even an
iota of evidence to show that either petitioner or One Virtual submitted its contesting claim for arbitration.

Third, sureties do not insure the solvency of the debtor, but rather the debt itself.43 They are contracted precisely to mitigate risks of
non-performance on the part of the obligor. This responsibility necessarily places a surety on the same level as that of the principal
debtor.44 The effect is that the creditor is given the right to directly proceed against either principal debtor or surety. This is the reason
why excussion cannot be invoked.45 To require the creditor to proceed to arbitration would render the very essence of suretyship
nugatory and diminish its value in commerce. At any rate, as we have held in Palmares v. Court of Appeals, 46 "if the surety is
dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal, he may pay the debt himself and
become subrogated to all the rights and remedies of the creditor."

Interest, as a form of indemnity, may be awarded to a creditor for the delay incurred by a debtor in the payment of the latter’s
obligation, provided that the delay is inexcusable.

Anent the issue of interests, petitioner alleges that it deserves to be paid legal interest of 12% per annum from the time of its first
demand on respondent on 5 June 2000 or at most, from the second demand on 24 January 2001 because of the latter’s delay in
discharging its monetary obligation.47 Citing Article 1169 of the Civil Code, petitioner insists that the delay started to run from the
time it demanded the fulfilment of respondent’s obligation under the suretyship contract. Significantly, respondent does not contest
this point, but instead argues that it is only liable for legal interest of 6% per annum from the date of petitioner’s last demand on 24
January 2001.

In rejecting petitioner’s position, the RTC stated that interests may only accrue when the delay or the refusal of a party to pay is
without any justifiable cause.48 In this case, respondent’s failure to heed the demand was due to the advice of One Virtual that
petitioner allegedly breached its undertakings as stated in the Purchase Agreement.49 The CA, however, made no pronouncement on
this matter.

We sustain petitioner.

Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the payment of a sum of money, and the debtor incurs a delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest."

Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation, and
the latter fails to comply.50 Delay, as used in Article 1169, is synonymous with default or mora, which means delay in the fulfilment of
obligations.51 It is the nonfulfillment of an obligation with respect to time.52 In order for the debtor (in this case, the surety) to be in
default, it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that
the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially. 53

Having held that a surety upon demand fails to pay, it can be held liable for interest, even if in thus paying, its liability becomes more
than the principal obligation.54 The increased liability is not because of the contract, but because of the default and the necessity of
judicial collection.55

However, for delay to merit interest, it must be inexcusable in nature. In Guanio v. Makati-Shangri-la Hotel,56 citing RCPI v.
Verchez,57 we held thus:

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability
for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract
confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve
the interests of the promissee that may include his "expectation interest," which is his interest in having the benefit of his bargain by
being put in as good a position as he would have been in had the contract been performed, or his "reliance interest," which is his
interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in
had the contract not been made; or his "restitution interest," which is his interest in having restored to him any benefit that he has
conferred on the other party. Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the
basis for action. The effect of every infraction is to create a new duty, that is, to make RECOMPENSE to the one who has been
injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances, like proof of his
exercise of due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability. (Emphasis ours)
53
We agree with petitioner that records are bereft of proof to show that respondent’s delay was indeed justified by the circumstances –
that is, One Virtual’s advice regarding petitioner’s alleged breach of obligations. The lower court’s Decision itself belied this
contention when it said that "plaintiff is not disputing that it did not complete commissioning work on one of the two systems because
One Virtual at that time is already in default and has not paid GILAT." 58Assuming arguendo that the commissioning work was not
completed, respondent has no one to blame but its principal, One Virtual; if only it had paid its obligation on time, petitioner would
not have been forced to stop operations. Moreover, the deposition of Mr. Erez Antebi, vice president of Gilat, repeatedly stated that
petitioner had delivered all equipment, including the licensed software; and that the equipment had been installed and in fact, gone
into operation.59 Notwithstanding these compliances, respondent still failed to pay.

As to the issue of when interest must accrue, our Civil Code is explicit in stating that it accrues from the time judicial or extrajudicial
demand is made on the surety. This ruling is in accordance with the provisions of Article 1169 of the Civil Code and of the settled rule
that where there has been an extra-judicial demand before an action for performance was filed, interest on the amount due begins to
run, not from the date of the filing of the complaint, but from the date of that extra-judicial demand.60 Considering that respondent
failed to pay its obligation on 30 May 2000 in accordance with the Purchase Agreement, and that the extrajudicial demand of
petitioner was sent on 5 June 2000,61 we agree with the latter that interest must start to run from the time petitioner sent its first
demand letter (5 June 2000), because the obligation was already due and demandable at that time.

With regard to the interest rate to be imposed, we take cue from Nacar v. Gallery Frames,62 which modified the guidelines established
in Eastern Shipping Lines v. CA63 in relation to Bangko Sentral-Monetary Board Circular No. 799 (Series of 2013), to wit:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded.1âwphi1 In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

xxxx

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case
falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.

Applying the above-discussed concepts and in the absence of an agreement as to interests, we are hereby compelled to award
petitioner legal interest at the rate of 6% per annum from 5 June 2000, its first date of extra judicial demand, until the satisfaction of
the debt in accordance with the revised guidelines enunciated in Nacar.

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The assailed Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 89263 are REVERSED. The Decision of the Regional Trial Court, Branch 141, Makati City is
REINSTATED, with MODIFICATION insofar as the award of legal interest is concerned. Respondent is hereby ordered to pay legal
interest at the rate of 6% per annum from 5 June 2000 until the satisfaction of its obligation under the Suretyship Contract and
Purchase Agreement.

SO ORDERED.

54
November 21, 2016

G.R. No. 216600

FEDERAL EXPRESS CORPORATION and RHICKE S. JENNINGS, Petitioners

vs.
AIRFREIGHT 2100, INC. and ALBERTO D. LINA, Respondents

DECISION

MENDOZA, J.:

Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court filed by Federal Express
Corporation (FedEx) and Rhicke S. Jennings (Jennings), assailing the January 20, 2015 Decision2 of the Court of Appeals (CA) in
CA-G.R. SP No. 135835, which affirmed the May 7, 2014 Order 3 of the Regional Trial Court, Branch 70, Pasig City

(RTC), dismissing its petition for the issuance of a confidentiality/protective order.

FedEx is a foreign corporation doing business in the Philippines primarily engaged in international air carriage, logistics and freight
forwarding, while Jennings serves as its Managing Director for the Philippines and Indonesia. Respondent Airfreight 2100 (Air21) is a
domestic corporation likewise involved in the freight forwarding business, while Alberto Lina (Lina) is the Chairman of its Board of
Directors.

The Antecedents

FedEx, having lost its International Freight Forwarder's (IFF) license to engage in international freight forwarding in the Philippines,
executed various Global Service Program (GSP) contracts with Air2l, an independent contractor, to primarily undertake its delivery
and pick-up services within the country.4

Under the GSP arrangement, the packages sent by FedEx customers from abroad would be picked up at a Philippine airport and
delivered by Air21 to its respective consignees. Conversely, packages from Philippine clients would be delivered by Air21 to the
airport and turned over to FedEx for shipment to consignees abroad. As stipulated in the GSP contracts, Air21 guaranteed that all
shipments would be cleared through customs in accordance with Philippine law. In the implementation of these contracts, however,
several issues relating to money remittance, value-added taxes, dynamic fuel charge, trucking costs, interests, and penalties ensued
between the parties.

On May 11, 2011, in an effort to settle their commercial dispute, FedEx and Air21 agreed to submit themselves to arbitration before
the Philippine Dispute Resolution Center (PDRC). Thus, on June 24, 2011, FedEx filed its Notice of Arbitration. On October 3, 2011,
the Arbitral Tribunal was constituted.

As part of the arbitration proceedings, Jennings, John Lumley Holmes (Holmes), the Managing Director of SPAC Legal of FedEx; and
David John Ross (Ross), Senior Vice President of Operations, Middle East, India and Africa, executed their respective statements 5 as
witnesses for FedEx. Ross and Holmes deposed that Federal Express Pacific, Inc., a subsidiary of FedEx, used to have an IFF license
to engage in the business of freight forwarding in the Philippines. This license, however, was suspended pending a case in court filed
by Merit International, Inc. (Merit) and Ace Logistics, Inc. (Ace), both freight forwarding companies, which questioned the issuance
of the IFF to FedEx. Absent the said license, FedEx executed the GSP contracts with Air21 to be able to conduct its business in the
Philippines. Ross and Holmes, in their individual statements, averred that Merit and Ace were either owned or controlled by Air21
employees or persons connected with the Lina Group of Companies, which included Air21.

Jennings, in his cross-examination, was identified as the source of the information that Merit and Ace were Air21's proxies and was
asked if he had any written proof of such proxy relationship.6 He answered in the negative. In his re-direct examination, he was made
to expound on the supposed proxy relationship between Merit, Ace and Air21. 7He responded that Merit and Ace were just very small
companies with meager resources, yet they were able to finance and file a case to oppose the grant of IFF license to FedEx. Jennings
also disclosed that one of the directors of Ace was a friend of Lina and that Loma Orbe, the President of Merit, was the former "boss"
of Lito Alvarez, who was also associated with Air21.

Feeling aggrieved by those statements, Lina for himself and on behalf of Air21, filed a complaint for grave slander against Jennings
before the Office of the City Prosecutor in Taguig City. 8 Lina claimed that the defamatory imputation of Jennings that Merit and Ace
were Air21 's proxies brought dishonor, discredit and contempt to his name and that of Air21. Lina quoted certain portions of the
written statements of Holmes and Ross and the Transcript of Stenographic Notes (TSN) of the April 25, 2013 arbitration hearing
reflecting Jennings' testimony to support his complaint.

Consequently, FedEx and Jennings (petitioners) filed their Petition for Issuance of a Confidentiality/Protective Order with Application
for Temporary Order of Protection and/or Preliminary Injunction before the RTC alleging that all information and documents obtained
in, or related to, the arbitration proceedings were confidential. 9 FedEx asserted that the testimony of Jennings, a witness in the
arbitration proceedings, should not be divulged and used to bolster the complaint-affidavit for grave slander as this was inadmissible
in evidence.

On January 16, 2014, the RTC granted petitioners' application for the Temporary Order of Protection.
55
Meanwhile, on February 3, 2014, the arbitral tribunal rendered an award in favor of FedEx.

Subsequently, in the assailed Order, dated May 7, 2014, the RTC denied FedEx's petition for lack of merit, stating that the statements
and arbitration documents were not confidential information. It went on to state that "[t]he statement and 'Arbitration Documents'
which purportedly consists the crime of Grave Slander under Articles 353 and 358 of the Revised Penal Code are not in any way
related to the subject under Arbitration." The RTC further wrote that "a crime cannot be protected by the confidentiality rules under
ADR. The said rules should not be used as a shield in the commission of any crime." Thus, it disposed:

WHEREFORE, in view of the foregoing, the Petition for Issuance of a Confidentiality/Protective Order is hereby DENIED for lack
of merit.

The case is hereby DISMISSED.

SO ORDERED.10

Dissatisfied, petitioners challenged the RTC order before the CA via a petition for review.

On January 20, 2015, the CA denied the petition. In its assailed decision, the CA explained that the declarations by Jennings were not
confidential as they were not at all related to the subject of mediation as the arbitration proceedings revolved around the parties' claims
for sum of money.11 Thus, the CA ruled that "statements made without any bearing on the subject proceedings are not confidential in
nature." It must be emphasized that other declarations given therein, if relative to the subject of mediation or arbitration, are certainly
confidential."12

Hence, this present petition before the Court.

GROUNDS IN SUPPORT OF THE PETITION

A.

THE COURT OF APPEALS FAILED TO APPLY, OR OTHERWISE MISAPPLIED, SECTIONS 3(H) AND 23 OF THE
ADR ACT.

B.

THE COURT OF APPEALS FAILED TO APPLY RULE 10.5 OF THE SPECIAL ADR RULES.

C.

THE TEST APPLIED BY THE COURT OF APPEALS FOR DETERMINING CONFIDENTIALITY OF INFORMATION
IS NOT SANCTIONED BY AND IS INCONSISTENT WITH THE ADR ACT AND THE SPECIAL ADR RULES.

D.

THE ASSAILED DECISION RESULTS TO SUBSTANTIAL PREJUDICE TO PETITIONERS.

E.

THE ASSAILED DECISION DEFEATS PUBLIC POLICY ON CONFIDENTIALITY OF THE RECORDS OF AND
COMMUNICATIONS MADE IN THE COURSE OF ARBITRATION.13

FedEx argues that the Jennings' statements were part of the (a) records and evidence of Arbitration (Section 23); (b) witness
statements made therein (Section 3[h][3]); and (c) communication made in a dispute resolution proceedings (Section 3 [h][l]). 14 They,
thus, averred that Jennings' oral statements made during the April 25, 2013 arbitration hearing and the TSN of the hearings, conducted
on April 22 and 25, 2013, form part of the records of arbitration and must, therefore, be considered confidential information.

For said reason, petitioners assert that Rule 10.5 of the Special Alternative Dispute Resolution (ADR) Rules, allowing for the issuance
of a confidentiality/protective order, was completely disregarded by the CA when it denied the petition filed by FedEx as a result of
Lina divulging what were supposed to be confidential information from ADR proceedings.

Petitioners also claim that in ruling that Jennings' statements were not confidential information, by applying the test of relevance that
"statements made without any bearing on the subject proceedings are not confidential in nature," the CA used a "test" that had no basis
in law and whose application in its petition amounted to judicial legislation. 15

Respondent Air21 and Lina (respondents), in their Comment,16 essentially countered that:

While the Alternative Dispute Resolution Act of 2004 (the "ADR Law") confers communications made during arbitration the privilege
against disclosure, otherwise known as the confidentiality principle, to assist the parties in having a speedy, efficient and impartial

56
resolution of their disputes, said privilege cannot be invoked to shield any party from criminal responsibility. The privilege is not
absolute. The ADR Law does not exist in a vacuum without regard to other existing jurisprudence and laws, particularly the Revised
Penal Code. Otherwise, we will permit a dangerous situation where arbitration proceedings will be used by an unscrupulous disputant
as a venue for the commission of crime, which cannot be punished by the simple invocation of the privilege. Such an absurd
interpretation of our laws cannot be deemed to be the underlying will of our Congress in framing and enacting our law on arbitration.
To be sure, a crime cannot be protected or extinguished through a bare invocation of the confidentiality rule.17

The Court's Ruling

The crucial issue in this case is whether the testimony of Jennings given during the arbitration proceedings falls within the ambit of
confidential information and, therefore, covered by the mantle of a confidentiality/protection order.

The Court finds the petition meritorious.

Section 3(h) of Republic Act (R.A.) No. 9285 or the Alternative Dispute Resolution of 2004 (ADR Act) defines confidential
information as follows:

"Confidential information" means any information, relative to the subject of mediation or arbitration, expressly intended by the
source not to be disclosed, or obtained under circumstances that would create a reasonable expectation on behalf of the source that the
information shall not be disclosed. It shall include (1) communication, oral or written, made in a dispute resolution proceedings,
including any memoranda, notes or work product of the neutral party or non-party participant, as defined in this Act; (2) an oral or
written statement made or which occurs during mediation or for purposes of considering, conducting, participating, initiating,
continuing of reconvening mediation or retaining a mediator; and (3) pleadings, motions manifestations, witness statements,
reports filed or submitted in an arbitration or for expert evaluation. [Emphases Supplied]

The said list is not exclusive and may include other information as long as they satisfy the requirements of express confidentiality or
implied confidentiality.18

Plainly, Rule 10.1 of A.M. No. 07-11-08-SC or the Special Rules of Court on Alternative Dispute Resolution (Special ADR
Rules) allows "[a] party, counsel or witness who disclosed or who was compelled to disclose information relative to the subject of
ADR under circumstances that would create a reasonable expectation, on behalf of the source, that the information shall be kept
confidential xxx the right to prevent such information from being further disclosed without the express written consent of the source or
the party who made the disclosure." Thus, the rules on confidentiality and protective orders apply when:

1. An ADR proceeding is pending;

2. A party, counsel or witness disclosed information or was otherwise compelled to disclose information;

3. The disclosure was made under circumstances that would create a reasonable expectation, on behalf of the source, that the
information shall be kept confidential;

4. The source of the information or the party who made the disclosure has the right to prevent such information from being disclosed;

5. The source of the information or the party who made the disclosure has not given his express consent to any disclosure; and

6. The applicant would be materially prejudiced by an unauthorized disclosure of the information obtained, or to be obtained, during
the ADR proceeding.

Gauged by the said parameters, the written statements of witnesses Ross, Holmes and Jennings, as well as the latter's oral testimony in
the April 25, 2013 arbitration hearing, both fall under Section 3 (h) [1] and [3] of the ADR Act which states that "communication, oral
or written, made in a dispute resolution proceedings, including any memoranda, notes or work product of the neutral party or non-
party participant, as defined in this Act; and (3) pleadings, motions, manifestations, witness statements, reports filed or submitted in an
arbitration or for expert valuation," constitutes confidential information.

Notably, both the parties and the Arbitral Tribunal had agreed to the Terms of Reference (TOR) that "the arbitration proceedings
should be kept strictly confidential as provided in Section 23 of the ADR Act and Article 25-A19 of the PDRCI Arbitration
Rules (Arbitration Rules) and that they should all be bound by such confidentiality requirements."

The provisions of the ADR Act and the Arbitration Rules repeatedly employ the word "shall" which, in statutory construction, is one
of mandatory character in common parlance and in ordinary signification. 20 Thus, the general rule is that information disclosed by a
party or witness in an ADR proceeding is considered privileged and confidential.

In evaluating the merits of the petition, Rule 10.8 of the Special ADR Rules mandates that courts should be guided by the principle
that confidential information shall not be subject to discovery and shall be inadmissible in any adversarial proceeding, to wit:

Rule 10.8. Court action. - If the court finds the petition or motion meritorious, it shall issue an order enjoining a person or persons
from divulging confidential information.

57
In resolving the petition or motion, the courts shall be guided by the following principles applicable to all ADR proceedings:
Confidential information shall not be subject to discovery and shall be inadmissible in any adversarial proceeding, whether judicial or
quasi judicial. However, evidence or information that is otherwise admissible or subject to discovery does not become inadmissible or
protected from discovery solely by reason of its use therein.

Article 5.42 of the Implementing Rules and Regulations (JRR)21 of the ADR Act likewise echoes that arbitration proceedings, records,
evidence and the arbitral award and other confidential information are privileged and confidential and shall not be published except [i]
with the consent of the parties; or [ii] for the limited purpose of disclosing to the court relevant documents where resort to the court is
allowed. Given that the witness statements of Ross, Holmes and Jennings, and the latter's arbitration testimony, fall within the ambit
of confidential information, they must, as a general rule, remain confidential. Although there is no unbridled shroud of confidentiality
on information obtained or disclosed in an arbitration proceeding, the presence of the above criteria must be apparent; otherwise, the
general rule should be applied. Here in this case, only a perceived imputation of a wrongdoing was alleged by the respondents.

In denying the said application for confidentiality/protection order, the RTC and the CA did not consider the declarations contained in
the said witness statements and arbitration testimony to be related to the subject of arbitration and, accordingly, ruled that they could
not be covered by a confidentiality order.

The Court does not agree. Suffice it to say that the phrase "relative to the subject of mediation or arbitration" need not be strictly
confined to the discussion of the core issues in the arbitral dispute. By definition, "relative" simply means "connected to," which
means that parties in arbitration proceedings are encouraged to discuss openly their grievances and explore the circumstances which
might have any connection in identifying the source of the conflict in the hope of finding a better alternative to resolve the parties'
dispute. An ADR proceeding is aimed at resolving the parties' conflict without court intervention. It was not designed to be strictly
technical or legally confined at all times. By mutual agreement or consent of the parties to a controversy or dispute, they acquiesce to
submit their differences to arbitrators for an informal hearing and extra-judicial determination and resolution. Usually, an ADR
hearing is held in private and the decision of the persons selected to comprise the tribunal will take the place of a court judgment. This
avoids the formalities, delays and expenses of an ordinary litigation. Arbitration, as envisioned by the ADR Act, must be taken in this
perspective.

Verily, it is imperative that legislative intent or spirit be the controlling factor, the leading star and guiding light in the application and
interpretation of a statute.22 If a statute needs construction, the influence most dominant in that process is the intent or spirit of the
act.23 A thing which is within the intent of the lawmaker is as much within the statute as if within the letter; and a thing which is
within the letter of the statute is not within the statute unless within the intent of the lawmakers.24 In other words, a statute must be
read according to its spirit or intent and legislative intent is part and parcel of the statute. It is the controlling factor in interpreting a
statute. Any interpretation that contradicts the legislative intent is unacceptable.

In the case at bench, the supposed questionable statements surfaced when FedEx's suspended IFF license was discussed during the
arbitration hearing. In fact, when Jennings was asked by Arbitrator Panga to expound on how the opposition of Ace and Merit could
be related to the ongoing arbitration, Jennings replied that, to his mind, it was indicative of the leverage that Air21 had over FedEx as
it was able to withhold large sums of money and siphon their joint plans from being properly established. Whether the information
disclosed in the arbitration proceeding would be given weight by the tribunal in the resolution of their dispute is a separate matter.
Likewise, the relevance or materiality of the said statements should be best left to the arbitrators' sound appreciation and judgment.
Even granting that the weight of the said statements was not fundamental to the issues in the arbitration process, nevertheless, they
were still connected to, and propounded by, a witness who relied upon the confidentiality of the proceedings and expect that his
responses be reflected.

Arbitration, being an ADR proceeding, was primarily designed to be a prompt, economical and amicable forum for the resolution of
disputes.1âwphi1 It guarantees confidentiality in its processes to encourage parties to ventilate their claims or disputes in a less formal,
but spontaneous manner. It should be emphasized that the law favors settlement of controversies out of court. Thus, a person who
participates in an arbitration proceeding is entitled to speak his or her piece without fear of being prejudiced should the process
become unsuccessful. Hence, any communication made towards that end should be regarded as confidential and privileged.

To restate, the confidential nature of the arbitration proceeding is well-entrenched in Section 23 of the ADR Act:

SEC. 23. Confidentiality of Arbitration Proceedings. - The arbitration proceedings, including the records, evidence and the arbitral
award, shall be considered confidential and shall not be published except (1) with the consent of the parties, or (2) for the limited
purpose of disclosing to the court of relevant documents in cases where resort to the court is allowed herein. Provided, however, that
the court in which the action or the appeal is pending may issue a protective order to prevent or prohibit disclosure of documents or
information containing secret processes, developments, research and other information where it is shown that the applicant shall be
materially prejudiced by an authorized disclosure thereof.

If Lina had legal grounds to suspect that Jennings committed slanderous remarks even before the arbitration proceeding commenced,
then he must present evidence independent and apart from some quoted portions of the arbitration documents.

It must be stressed that the very soul of an arbitration proceeding would be rendered useless if it would be simply used as an avenue
for evidence gathering or an entrapment mechanism to lure the other unsuspecting party into conveying information that could be
potentially used against him in another forum or in court.

Ultimately, the RTC and the CA failed to consider the fact that an arbitration proceeding is essentially a unique proceeding that is non-
litigious in character where the parties are bound by a different set of rules as clearly encapsulated under the Special ADR Rules.
Inevitably, when Lina cited portions of the said arbitration documents, he violated their covenant in the TOR to resolve their dispute
58
through the arbitration process and to honor the confidentiality of the said proceeding. To disregard this commitment would impair the
very essence of the ADR proceeding. By itself, this would have served as a valid justification for the grant of the
confidentiality/protection order in favor of FedEx and Jennings.

Thus, the claimed slanderous statements by Jennings during the arbitration hearing are deemed confidential information and the veil of
confidentiality over them must remain.

WHEREFORE, the petition is GRANTED. The January 20, 2015 Decision of the Court of Appeals (CA), in CA-G.R. SP No.
135835, is REVERSED and SET ASIDE.

The Petition for the Issuance of a Confidentiality/Protective Order filed by Federal Express Corporation and Rhicke S. Jennings is
hereby GRANTED.

SO ORDERED.

59
G.R. No. 160071, June 06, 2016

ANDREW D. FYFE, RICHARD T. NUTTALL, AND RICHARD J. WALD, Petitioners, v. PHILIPPINE AIRLINES, INC.,
Respondent.

DECISION

BERSAMIN, J.:

This case concerns the order issued by the Regional Trial Court granting the respondent's application to vacate the adverse arbitral
award of the panel of arbitrators, and the propriety of the recourse from such order.

The Case

Under review are the resolutions promulgated in C.A.-G.R. No. 71224 entitled Andrew D. Fyfe, Richard T. Nuttall and Richard J.
Wald v. Philippine Airlines, Inc. on May 30, 20031 and September 19, 2003,2 whereby the Court of Appeals (CA) respectively
granted the respondent's Motion to Dismiss Appeal (without Prejudice to the Filing of Appellee's Brief), and denied the petitioners'
Motion for Reconsideration.

Antecedents

In 1998, the respondent underwent rehabilitation proceedings in the Securities and Exchange Commission (SEC),3 which issued an
order dated July 1, 1998 decreeing, among others, the suspension of all claims for payment against the respondent.4 To convince its
creditors to approve the rehabilitation plan, the respondent decided to hire technical advisers with recognized experience in the airline
industry. This led the respondent through its then Director Luis Juan K. Virata to consult with people in the industry, and in due course
came to meet Peter W. Foster, formerly of Cathay Pacific Airlines.5 Foster, along with Michael R. Scantlebury, negotiated with the
respondent on the details of a proposed technical services agreement.6 Foster and Scantlebury subsequently organized Regent Star
Services Ltd. (Regent Star) under the laws of the British Virgin Islands.7 On January 4, 1999, the respondent and Regent Star entered
into a Technical Services Agreement (TSA) for the delivery of technical and advisory or management services to the respondent,8
effective for five years, or from January 4, 1999 until December 31, 2003.9 On the same date, the respondent, pursuant to Clause 6 of
the TSA,10 submitted a Side Letter," the relevant portions of which stated:

For and in consideration of the services to be faithfully performed by Regent Star in accordance with the terms and conditions of the
Agreement, the Company agrees to pay Regent Star as follows:
chanRoblesvirtualLawlibrary
1.1 Upon execution of the Agreement, Four Million Seven Hundred Thousand US Dollars (US$4,700,000.00), representing advisory
fees for two (2) years from the date of signature of the Agreement, with an additional amount of not exceeding One Million Three
Hundred Thousand US Dollars (US$1,300,000.00) being due and demandable upon Regent Star's notice to the Company of its
engagement of an individual to assume the position of CCA under the Agreement;

xxxx

In addition to the foregoing, the Company agrees as follows:

xxxx

In the event of a full or partial termination of the Agreement for whatever reason by either the Company or a Senior Technical
Adviser/Regent Star prior to the end of the term of the Agreement, the following penalties are payable by the terminating party:

A. During the first 2 years

1. Senior Company Adviser (CCA) -

US$800,000.00
2. Senior Commercial Adviser (SCA) -
800,000.00
3. Senior Financial Adviser (FSA) -
700,000.00
4. Senior Ground Services and Training Adviser (SAG) -
500,000.00
5. Senior Engineering and Maintenance Adviser (SAM) -
500,000.00

xxxx

For the avoidance of doubt, it is understood and agreed that in the event that the terminating party is an individual Senior Technical
Adviser the liability to pay such Termination Amount to the Company shall rest with that individual party, not with RSS. Similarly, if
the terminating party is the Company, the liability to the aggrieved party shall be the individual Senior Technical Adviser, not to
RSS.12

Regent Star, through Foster, conformed to the terms stated in the Side Letter.13 The SEC approved the TSA on January 19, 1999.14

60
In addition to Foster and Scantlebury, Regent Star engaged the petitioners in respective capacities, specifically: Andrew D. Fyfe as
Senior Ground Services and Training Adviser; Richard J. Wald as Senior Maintenance and Engineering Adviser; and Richard T.
Nuttall as Senior Commercial Adviser. The petitioners commenced to render their services to the respondent, immediately after the
TSA was executed.15

On July 26, 1999, the respondent dispatched a notice to Regent Star terminating the TSA on the ground of lack of confidence effective
July 31, 1999.16 In its notice, the respondent demanded the offsetting of the penalties due to the petitioners with the two-year advance
advisory fees it had paid to Regent Star, thus:

The side letter stipulates that "[i]n the event of a full or partial termination of the Agreement for whatever reason by either the
Company or a Senior Technical Adviser/Regent Star prior to the end of the term of the Agreement, the following penalties are payable
by the terminating party:"

During the first 2 years:

Senior Company Adviser

-
US$800,000.00
Senior Commercial Adviser
-
800,000.00
Senior Financial Adviser
-
700,000.00
Senior Ground Services and Training Adviser
-
500.000.00
Senior Engineering and Maintenance Adviser
-
500,000.00
TOTAL

US$3,300,000.00

There is, therefore, due to RSS from PAL the amount of US$3,300,000.00 by way of stipulated penalties.

However, RSS has been paid by PAL advance "advisory fee for two (2) years from date of signature of the Agreement" the amount of
US$5,700,000. Since RSS has rendered advisory services from 4 January to 31 July 1999, or a period of seven months, it is entitled to
retain only the advisory fees for seven months. This is computed as follows:

US$5,700.000 - US$237,500/month x7 = US$1,662,500

24 months

The remaining balance of the advance advisory fee, which corresponds to the unserved period of 17 months, or US$4,037,500, should
be refunded by RSS to PAL.

Off-setting the amount of US$3,300,000 due from PAL to RSS against the amount of US$4,037,500 due from RSS to PAL, there
remains a net balance of US$737,500 due and payable to PAL. Please settle this amount at your early convenience, but not later than
August 15, 1999.17ChanRoblesVirtualawlibrary

On June 8, 1999, the petitioners, along with Scantlebury and Wald, wrote to the respondent, through its President and Chief Operating
Officer, Avelino Zapanta, to seek clarification on the status of the TSA in view of the appointment of Foster, Scantleburry and Nuttall
as members of the Permanent Rehabilitation Receiver (PRR) for the respondent.18 A month later, Regent Star sent to the respondent
another letter expressing disappointment over the respondent's ignoring the previous letter, and denying the respondent's claim for
refund and set-off. Regent Star then proposed therein that the issue be submitted to arbitration in accordance with Clause 1419 of the
TSA.20

Thereafter, the petitioners initiated arbitration proceedings in the Philippine Dispute Resolution Center, Inc. (PDRCI) pursuant to the
TSA.

Ruling of the PDRCI

After due proceedings, the PDRCI rendered its decision ordering the respondent to pay termination penalties,21viz.:

On issue No. 1 we rule that the Complainants are entitled to their claim for termination penalties.

When the PAL, terminated the Technical Services Agreement on July 26, 1999 which also resulted in the termination of the services
of the senior technical advisers including those of the Complainants it admitted that the termination penalties in the amount of
US$3,300,000.00 as provided in the Letter dated January 4, 1999 are payable to the Senior Technical Advisers by PAL. Xxx. PAL's

61
admission of its liability to pay the termination penalties to the complainants was made also in its Answer. PAIAs counsel even
stipulated during the hearing that the airline company admits that it is liable to pay Complainants the termination penalties.xxx.

However, PAL argued that although it is liable to pay termination penalties the Complainants are not entitled to their respective claims
because considering that PAL had paid RSS advance "advisory fees for two (2) years" in the total amount of US$5,700,000.00 and
RSS had rendered advisory services for only seven (7) months from January 4, 1999 to July 31, 1999 that would entitle RSS to an (sic)
advisory fees of only US$1,662,500.00 and therefore the unserved period of 17 months equivalent to US$4,037,500.00 should be
refunded. And setting off the termination penalties of US$3,300,000.00 due RSS from PAL against the amount of US$4,037,500.00
still due PAL from RSS there would remain a net balance of US$737,500.00 still due PAL from RSS and/or the Senior Technical
Advisers which the latter should pay pro-rata as follows: Peter W. Forster, the sum of US$178,475.00; Richard T. Nuttall, the sum of
US$178,475.00; Michael R. Scantlebury; the sum of US$156,350.00, Andrew D. Fyfe, the sum of US$111,362.50; and Richard J.
Wald the sum of US$111,362.50. RSS is a special company which the Senior Technical Advisers had utilized for the specific purpose
of providing PAL with technical advisory services they as a group had contracted under the Agreement. Hence when PAL signed the
Agreement with RSS, it was for all intents and purposes an Agreement signed individually with the Senior Technical Advisers
including the Complainants. The RSS and the five (5) Senior Technical Advisers should be treated as one and the same,

The Arbitration Tribunals is not convinced.

xxxx

PAL cannot refuse to pay Complainants their termination penalties by setting off against the unserved period of seventeen (17) months
of their advance advisory fees as the Agreement and the Side Letter clearly do not allow refund. This Arbitration Tribunal cannot read
into the contract, which is the law between the parties, what the contract docs not provide or what the parties did not intend. It is basic
in contract interpretation that contracts that are not ambiguous are to be interpreted according to their literal meaning and should not
be interpreted beyond their obvious intendment. x x x. The penalties work as security for the Complainants against the uncertainties of
their work at PAL whose closure was a stark reality they were facing. (TSN Hearing on April 27, 2000, pp. 48-49) This would not
result in unjust enrichment for the Complainants because the termination of the services was initiated by PAL itself without cause. In
feet, PAL admitted that at the time their services were terminated the Complainants were performing well in their respective assigned
works,22 x x x.

PAL also presented hypothetical situations and certain computations that it claims would result to an "injustice" to PAL which would
then "lose a very substantial amount of money" if the claimed refund is not allowed. PAL had chosen to prc-terminate the services of
the complainants and must therefore pay the termination penalties provided in the Side Letter. If it finds itself losing "substantial"
sums of money because of its contractual commitments, there is nothing this Arbitration Tribunal can do to remedy the situation.
Jurisprudence teaches us that neither the law nor the courts will extricate a party from an unwise or undesirable contract that he or she
entered into with all the required formalities and with full awareness of its consequences. (Opulencia vs. Cowl of Appeals, 293 SCRA
385 (1998)23

Decision of the RTC

Dissatisfied with the outcome, the respondent filed its Application to Vacate Arbitral Award in the Regional Trial Court, in Makati
City (RTC), docketed as SP Proc. M-5147 and assigned to Branch 57,24 arguing that the arbitration decision should be vacated in
view of the July 1, 1998 order of the SEC placing the respondent under a state of suspension of payment pursuant to Section 6(c) of
Presidential Decree No. 902-A, as amended by P.D. No. 1799.25cralawred

The petitioners countered with their Motion to Dismiss,26 citing the following grounds, namely: (a) lack of jurisdiction over the
persons of the petitioners due to the improper service of summons; (b) the application did not state a cause of action; and (c) the
application was an improper remedy because the respondent should have filed an appeal in the CA pursuant to Rule 43 of the Rules of
Court.27cralawred

On March 7, 2001, the RTC granted the respondent's Application to Vacate Arbitral Award,28 disposing:

WHEREFORE, the subject arbitral award dated September 29, 2000 is hereby vacated and set aside, without prejudice to the
complainants' filing with the SEC rehabilitation receiver of PAL their subject claim for appropriate adjudication. The panel of
arbitrators composed of lawyers Beda Fajardo, Arturo de Castro and Bienvenido Magnaye is hereby ordered discharged on the ground
of manifest partiality.

No pronouncement as to cost and attorney's fees.

SO ORDERED.29ChanRoblesVirtualawlibrary

Anent jurisdiction over the persons of the petitioners, the RTC opined:

On the objection that the Court has not acquired jurisdiction over the person of the complainants because summonses were not issued
and served on them, the Court rules that complainants have voluntarily submitted themselves to the jurisdiction of the Court by
praying the Court to grant them affirmative relief, i.e., that the Court confirm and declare final and executory the subject arbitral
award. Moreover, under Sections 22 and 26 of the Arbitration Law (R.A. 876), an application or petition to vacate arbitral award is
deemed a motion and service of such motion on the adverse party or his counsel is enough to confer jurisdiction upon the Court over
the adverse party.

It is not disputed that complainants were duly served by personal delivery with copies of the application to vacate. In feet, they have
appeared through counsel and have filed pleadings. In line with this ruling, the objection that the application to vacate does not state a

62
cause of action against complainants must necessarily fall inasmuch as this present case is a special proceeding (Sec. 22, Arbitration
Law), and Section 3(a), Rule 1 of the 1997 Rules of Civil Procedure is inapplicable here.30

On whether or not the application to vacate was an appropriate remedy under Sections 24 and 26 of the Arbitration Law, and whether
or not the July 1, 1998 order of the SEC deprived the Panel of Arbitrators of the authority to hear the petitioners' claim, the RTC held:

The rationale for the suspension is to enable the rehabilitation receiver to exercise his powers without any judicial or extra-judicial
interference that might unduly hinder the rescue of the distressed corporation, x x x. PD No. 902-A does not provide for the duration
of the suspension; therefore, it is deemed to be effective during the entire period that the corporate debtor is under SEC receivership.

There is no dispute that PAL is under receivership (Exhibits "1" and "2"). In its Order dated 1 July 1998, the SEC declared that "all
claims for payment against PAL are deemed suspended."' This Order effectively deprived all other tribunals of jurisdiction to hear and
decide all actions for claims against PAL for the duration of the receivership.

xxxx

Unless and until the SEC lifts the Order dated 1 July 1998, the Panel of Arbitrators cannot take cognizance of complainant' claims
against PAL without violating the exclusive jurisdiction of the SEC. The law has granted SEC the exclusive jurisdiction to pursue the
rehabilitation of a private corporation through the appointment of a rehabilitation receiver (Sec 6 (d), PD No. 902-A, as amended by
PD 1799). "exclusive jurisdiction precludes the idea of co-existence and refers to jurisdiction possessed to the exclusion of others, x x
x. Thus, "(I)nstead of vexing the courts with suits against the distressed firm, they are directed to file their claims with the receiver
who is the duly appointed officer of the SEC.

x x x.31ChanRoblesVirtualawlibrary

After their motion for reconsideration32 was denied,33 the petitioners appealed to the CA by notice of appeal.

Resolution of the CA

The respondent moved to dismiss the appeal,34 arguing against the propriety of the petitioners' remedy, and positing that Section 29
of the Arbitration Law limited appeals from an order issued in a proceeding under the Arbitration Law to a review on certiorari upon
questions of law.35

On May 30, 2003, the CA promulgated the now assailed resolution granting the respondent's Motion to Dismiss Appeal.36 It declared
that the appropriate remedy against the order of the RTC vacating the award was a petition for review on certiorari under Rule 45,
viz.:

The term "certiorari" in the aforequoted provision refers to an ordinary appeal under Rule 45, not the special action of certiorari under
Rule 65. As Section 29 proclaims, it is an "appeal." This being the case, the proper forum for this action is, under the old and the new
rules of procedure, the Supreme Court. Thus, Section 2(c) of Rule 41 of the 1997 Rules of Civil Procedure states that,
"In all cases where only questions of law are raised or involved, the appeal shall be to the Supreme Court by petition for review on
certiorari in accordance with Rule 45. "
Furthermore, Section 29 limits the appeal to "questions of law," another indication that it is referring to an appeal by certiorari under
Rule 45 which, indeed, is the customary manner of reviewing such issues.

Based on the foregoing, it is clear that complainants-in-arbitration/appellants filed the wrong action with the wrong forum.

WHEREFORE, premises considered, the Motion to Dismiss Appeal (Without Prejudice to the Filing of Appellee's Brief) is
GRANTED and the instant appeal is hereby ordered DISMISSED.

SO ORDERED.37ChanRoblesVirtualawlibrary

The petitioners moved for reconsideration,38 but the CA denied their motion.39

Hence, this appeal by the petitioners.

Issues

The petitioners anchor this appeal on the following grounds, namely:

SECTION 29 OF THE ARBITRATION LAW, WHICH LIMITS THE MODE OF APPEAL FROM THE ORDER OF A REGIONAL
TRIAL COURT IN A PROCEEDING MADE UNDER THE ARBITRATION LAW TO A PETITION FOR REVIEW ON
CERTIORARI UNDER RULE 45 OF THE RULES, IS UNCONSTITUTIONAL FOR UNDULY EXPANDING THE
JURISDICTION OF THIS HONORABLE COURT WITHOUT THIS HONORABLE COURT'S CONCURRENCE;

II

THE COURT OF APPEALS HAD JURISDICTION OVER THE CA APPEAL BECAUSE:

A.

63
THIS HONORABLE COURT HAS PREVIOUSLY UPHELD THE EXERCISE BY THE COURT OF APPEALS OF
JURISDICTION OVER AN APPEAL INVOLVING QUESTIONS OF FACT OR OF MIXED QUESTIONS OF FACT AND LAW
FROM A REGIONAL TRIAL COURT'S ORDER VACATING AN ARBITRAL AWARD

B.

WHERE, AS IN THIS CASE, TFIE ISSUES ON APPEAL CONCERNED THE ABSENCE OF EVIDENCE AND LACK OF
LEGAL BASIS TO SUPPORT THE REGIONAL TRIAL COURT'S ORDER VACATING THE ARBITRAL AWARD, GRAVE
MISCHIEF WOULD RESULT IF THE REGIONAL TRIAL COURT'S BASELESS FINDINGS OF FACT OR MIXED FINDINGS
OF FACT ARE PLACED BEYOND APPELLATE REVIEW; AND

C.

THE COURT OF APPEALS' DISMISSAL OF THE CA APPEAL V/OULD IN EFFECT RESULT IN THE AFFIRMATION OF
THE REGIONAL TRIAL COURT'S EXERCISE OF JURISDICTION, OVER PERSONS UPON WHOM IT FAILED TO
VALIDLY ACQUIRE SUCH JURISDICTION AND OF APPELLATE JURISDICTION OVER THE PDRCI ARBITRAL AWARD
EVEN IF SUCH APPELLATE POWER IS EXCLUSIVELY LODGED WITH THE COURT OF APPEALS UNDER RULE 43 OF
THE RULES

III

INSTEAD OF DISMISSING THE CA APPEAL OUTRIGHT, THE COURT OF APPEALS SHOULD HAVE SHORTENED THE
PROCEEDINGS AND EXPEDITED JUSTICE BY EXERCISING ORIGINAL JURISDICTION OVER THE APPLICATION TO
VACATE PURSUANT TO RULE 43 OF THE RULES, ESPECIALLY CONSIDERING THAT THE PARTIES HAD IN FACT
ALREADY FILED THEIR RESPECTIVE BRIEFS AND THE COMPLETE RECORDS OF BOTH THE RTC APPLICATION TO
VACATE AND THE PDRCI ARBITRATION WERE ALREADY IN ITS POSSESSION; AND

IV

IN THE EVENT THAT AN APPEAL FROM AN ORDER VACATING AN ARBITRAL AWARD MAY BE MADE ONLY IN
CERTIORARI PROCEEDINGS AND ONLY TO THE SUPREME COURT, THE COURT OF APPEALS SHOULD NOT HAVE
DISMISSED THE CA APPEAL, BUT IN THE HIGHER INTEREST OF JUSTICE, SHOULD HAVE INSTEAD ENDORSED THE
SAME TO THIS HONORABLE COURT, AS WAS DONE IN SANTIAGO V. GONZALES.40

The petitioners contend that an appeal from the order arising from arbitration proceedings cannot be by petition for review on
certiorari under Rule 45 of the Rules of Court because the appeal inevitably involves mixed questions of law and fact; that their appeal
in the CA involved factual issues in view of the RTC's finding that the panel of arbitrators had been guilty of evident partiality even
without having required the respondent to submit independent proof thereon; that the appropriate remedy was either a petition for
certiorari under Rule 65 of the Rules of Court, or an ordinary appeal under Rule 41 of the Rules of Court, conformably with the
rulings in Asset Privatization Trust v. Court of Appeals41 and Adamson v. Court of Appeals,42 respectively; and that the CA
erroneously upheld the RTC's denial of their Motion To Dismiss Appeal on the basis of their counsel's voluntary appearance to seek
affirmative relief because under Section 20, Rule 14 of the Rules of Court their objection to the personal jurisdiction of the court was
not a voluntary appearance even if coupled with other grounds for a motion to dismiss.

In riposte, the respondent avers that the petition for review on certiorari should be denied due course because of the defective
verification/certification signed by the petitioners' counsel; and that the special powers of attorney (SPAs) executed by the petitioners
in favor of their counsel did not sufficiently vest the latter with the authority to execute the verification/certification in their behalf.

On the merits, the respondent maintains that: (a) the term certiorari used in Section 29 of the Arbitration Law refers to a petition for
review under Rule 45 of the Rules of Court; (b) the constitutional challenge against Section 29 of the Arbitration Law was belatedly
made; (c) the petitioners' claim of lack of jurisdiction on the part of the RTC should fail because an application to vacate an arbitral
award under Sections 22 and 26 of the Arbitration Law is only required to be in the form of a motion; and (d) the complete record of
the arbitration proceedings submitted to the RTC sufficiently proved the manifest partiality and grave abuse of discretion on the part
of the panel of arbitrators.

To be resolved are: (a) whether or not the petition for review should be dismissed for containing a defective verification/certification;
and (b) whether or not the CA erred in dismissing the appeal of the petitioners for being an inappropriate remedy.

Ruling of the Court

We deny the petition for review on certiorari.

I
There was sufficient compliance with the rule on
verification and certification against forum shopping

The respondent insists that the verification/certification attached to the petition was defective because it was executed by the
petitioners' counsel whose authority under the SPAs was only to execute the certification of non-forum shopping; and that the signing
by the counsel of the certification could not also be allowed because the Rules of Court and the pertinent circulars and rulings of the
Court require that the petitioners must themselves execute the same.

64
The insistence of the respondent is unwarranted. The SPAs individually signed by the petitioners vested in their counsel the authority,
among others, "to do and perform on my behalf any act and deed relating to the case, which it could legally do and perform, including
any appeals or further legal proceedings." The authority was sufficiently broad to expressly and specially authorize their counsel, Atty.
Ida Maureen V. Chao-Kho, to sign the verification/certification on their behalf.

The purpose of the verification is to ensure that the allegations contained in the verified pleading are true and correct, an d are not the
product of the imagination or a matter of speculation; and that the pleading is filed in good faith.43 This purpose was met by the
verification/certification made by Atty. Chao-Kho in behalf of the petitioners, which pertinently stated that:

2. Petitioners caused the preparation of the foregoing Petition for Review on Certiorari, and have read and understood all the
allegations contained therein. Further, said allegations are true and correct based on their own knowledge and authentic records in
their and the Finn's possession.44

The tenor of the verification/certification indicated that the petitioners, not Atty. Chao-Kho, were certifying that the allegations were
true and correct based on their knowledge and authentic records. At any rate, a finding that the verification was defective would not
render the petition for review invalid. It is settled that the verification was merely a formal requirement whose defect did not ne gate
the validity or efficacy of the verified pleading, or affect the jurisdiction of the court.45

We also uphold the efficacy of the certification on non-forum shopping executed by Atty. Chao-Kho on the basis of the authorization
bestowed under the SPAs by the petitioners. The lawyer of the party, in order to validly execute the certification, must be "specifically
authorized" by the client for that purpose.46 With the petitioners being non-residents of the Philippines, the sworn certification on
non-forum shopping by Atty. Chao-Kho sufficiently complied with the objective of ensuring that no similar action had been brought
by them or the respondent against each other, to wit:

5. Significantly, Petitioners are foreign residents who reside and are presently abroad. Further, the Firm is Petitioners' sole legal
counsel in the Philippines, and hence, is in a position to know that Petitioners have no other cases before any court o[r] tribunal in the
Philippines;47

In this regard, we ought not to exact a literal compliance with Section 4, Rule 45, in relation to Section 2, Rule 42 of the Rules of
Court, that only the party himself should execute the certification. After all, we have not been shown by the respondent any intention
on the part of the petitioners and their counsel to circumvent the requirement for the verification and certification on non-forum
shopping.48

II
Appealing the RTC order
vacating an arbitral award

The petitioners contend that the CA gravely erred in dismissing their appeal for being an inappropriate remedy, and in holding that a
petition for review on certiorari under Rule 45 was the sole remedy under Section 29 of the Arbitration Law. They argue that the
decision of the RTC involving arbitration could be assailed either by petition for certiorari under Rule 65, as held in Asset
Privatization Trust, or by an ordinary appeal under Rule 41, as opined in Adamson.

The petitioners are mistaken.

Firstly, the assailed resolution of the CA did not expressly declare that the petition for review on certiorari under Rule 45 was the sole
remedy from the RTC's order vacating the arbitral award. The CA rather emphasized that the petitioners should have filed the petition
for review on certiorari under Rule 45 considering that Section 29 of the Arbitration Law has limited the ground of review to
"questions of law." Accordingly, the CA correctly dismissed the appeal of the petitioners because pursuant to Section 2,49 Rule 41 of
the Rules of Court an appeal of questions of law arising in the courts in the first instance is by petition for review on certiorari under
Rule 45.

It is noted, however, that since the promulgation of the assailed decision by the CA on May 30, 2003, the law on the matter underwent
changes. On February 4, 2004. Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004) was passed by Congress, and was
approved by the President on April 2, 2004. Pursuant to Republic Act No. 9285, the Court promulgated on September 1, 2009 in A.M.
No. 07-11-08-SC the Special Rules of Court on Alternative Dispute Resolution, which are now the present rules of procedure
governing arbitration. Among others, the Special Rules of Court on Alternative Dispute Resolution requires an appeal by petition for
review to the CA of the final order of the RTC confirming, vacating, correcting or modifying a domestic arbitral award, to wit:

Rule 19.12 Appeal to the Court of Appeals. - An appeal to the Court of Appeals through a petition for review under this Special Rule
shall only be allowed from the following orders of the Regional Trial Court:
Granting or denying an interim measure of protection;

Denying a petition for appointment of an arbitrator;

Denying a petition for assistance in taking evidence;

Enjoining or refusing to enjoin a person from divulging confidential information;

Confirming, vacating or correcting/modifying a domestic arbitral award;

Setting aside an international commercial arbitration award;

65
Dismissing the petition to set aside an international commercial arbitration award even if the court does not decide to recognize or
enforce such award;

Recognizing and/or enforcing an international commercial arbitration award;

Dismissing a petition to enforce an international commercial arbitration award;

Recognizing and/or enforcing a foreign arbitral award;

Refusing recognition and/or enforcement of a foreign arbitral award;

Granting or dismissing a petition to enforce a deposited mediated settlement agreement; and

Reversing the ruling of the arbitral tribunal upholding its jurisdiction.

Although the Special Rules of Court on Alternative Dispute Resolution provides that the appropriate remedy from an order of the RTC
vacating a domestic arbitral award is an appeal by petition for review in the CA, not an ordinary appeal under Rule 41 of the Rules of
Court, the Court cannot set aside and reverse the assailed decision on that basis because the decision was in full accord with the law or
rule in force at the time of its promulgation.

The ruling in Asset Privatization Trust v. Court of Appeals50 cannot be the governing rule with respect to the order of the RTC
vacating an arbitral award. Asset Privatization Trust justified the resort to the petition for certiorari under Rule 65 only upon finding
that the RTC had acted without jurisdiction or with grave abuse of discretion in confirming the arbitral award. Nonetheless, it is worth
reminding that the petition for certiorari cannot be a substitute for a lost appeal.51

Also, the petitioners have erroneously assumed that the appeal filed by the aggrieved party in Adamson v. Court of Appeals52 was an
ordinary one. Adamson concerned the correctness of the ruling of the CA in reversing the decision of the trial court, not the propriety
of the remedy availed of by the aggrieved party. Nor did Adamson expressly declare that an ordinary appeal could be availed of to
assail the RTC's ruling involving arbitration. As such, the petitioners' reliance on Adamson to buttress their resort to the erroneous
remedy was misplaced.

We remind that the petitioners cannot insist on their chosen remedy despite its not being sanctioned by the Arbitration Law. Appeal as
a remedy is not a matter of right, but a mere statutory privilege to be exercised only in the manner and strictly in accordance with the
provisions of the law.53

III
Panel of Arbitrators had no jurisdiction
to hear and decide the petitioners' claim

The petitioners' appeal is dismissible also because the arbitration panel had no jurisdiction to hear their claim. The RTC correctly
opined that the SEC's suspension order effective July 1, 1998 deprived the arbitration panel of the jurisdiction to hear any claims
against the respondent. The Court has clarified in Castillo v. Uniwide Warehouse Club, Inc.54 why the claim for payment brought
against a distressed corporation like the respondent should not prosper following the issuance of the suspension order by the SEC,
regardless of when the action was filed, to wit:

Jurisprudence is settled that the suspension of proceedings referred to in the law uniformly applies to all actions for claims filed
against a corporation, partnership or association under management or receivership, without distinction, except only those expenses
incurred in the ordinary course of business. In the oft-cited case of Rubberworld (Phils.) Inc. v. NLRC, the Court noted that aside from
the given exception, the law is clear and makes no distinction as to the claims that are suspended once a management committee is
created or a rehabilitation receiver is appointed. Since the law makes no distinction or exemptions, neither should this Court. Ubi lex
non dislinguit nee nos distinguere debemos. Philippine Airlines, Inc. v. Zamora declares that the automatic suspension of an action for
claims against a corporation under a rehabilitation receiver or management committee embraces all phases of the suit, that is, the
entire proceedings of an action or suit and not just the payment of claims.

The reason behind the imperative nature of a suspension or stay order in relation to the creditors claims cannot be downplayed, for
indeed the indiscriminate suspension of actions for claims intends to expedite the rehabilitation of the distressed corporation by
enabling the management committee or the rehabilitation receiver to effectively exercise its/his powers free from any judicial or
extrajudicial interference that might unduly hinder or prevent the rescue of the debtor company. To allow such other actions to
continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources
would be wasted in defending claims against the corporation, instead of being directed toward its restructuring and rehabilitation.

At this juncture, it must be conceded that the date when the claim arose, or when the action was filed, has no bearing at all in deciding
whether the given action or claim is covered by the stay or suspension order. What matters is that as long as the corporation is under a
management committee or a rehabilitation receiver, all actions for claims against it, whether for money or otherwise, must yield to the
greater imperative of corporate revival, excepting only, as already mentioned, claims for payment of obligations incurred by the
corporation in the ordinary course of business.55 (Bold emphasis supplied)

IV
The requirement of due process was observed

66
The petitioners' challenge against the jurisdiction of the RTC on the ground of the absence of the service of the summons on them also
fails.

Under Section 2256 of the Arbitration Law, arbitration is deemed a special proceeding, by virtue of which any application should be
made in the manner provided for the making and hearing of motions, except as otherwise expressly provided in the Arbitration Law.

The RTC observed that the respondent's Application to Vacate Arbitral Award was duly served personally on the petitioners, who then
appeared by counsel and filed pleadings. The petitioners countered with their Motion to Dismiss vis-a-vis the respondent's application,
specifying therein the various grounds earlier mentioned, including the lack of jurisdiction over their persons due to the improper
service of summons. Under the circumstances, the requirement of notice was fully complied with, for Section 2657 of the Arbitration
Law required the application to be served upon the adverse party or his counsel within 30 days after the award was filed or delivered
"as prescribed by law for the service upon an attorney in an action."

V
Issue of the constitutionality of the
Arbitration Law is devoid of merit

The constitutionality of Section 29 of the Arbitration Law is being challenged on the basis that Congress has thereby increased the
appellate jurisdiction of the Supreme Court without its advice and concurrence, as required by Section 30, Article VI of the 1987
Constitution, to wit:

Section 30. No law shall be passed increasing the appellate jurisdiction of the Supreme Court as provided in this Constitution without
its advice and concurrence.

The challenge is unworthy of consideration. Based on the tenor and text of Section 30, Article VI of the 1987 Constitution, the
prohibition against increasing the appellate jurisdiction of the Supreme Court without its advice and concurrence applies
prospectively, not retrospectively. Considering that the Arbitration Law had been approved on June 19, 1953, and took effect under its
terms on December 19, 1953, while the Constitution was ratified only on February 2, 1987, Section 29 of the Arbitration Law could
not be declared unconstitutional.chanrobleslaw

WHEREFORE, the Court DENIES the petition for review on certiorari for lack of merit; AFFIRMS the resolution promulgated on
May 30, 2003 by the Court of Appeals in CA-G.R. CV No. 71224; and ORDERS the petitioners to pay the costs of suit.

SO ORDERED.

67
G.R. No. 173137, January 11, 2016

BASES CONVERSION DEVELOPMENT AUTHORITY, Petitioner, v. DMCI PROJECT DEVELOPERS, INC., Respondent.

G.R. NO. 173170

NORTH LUZON RAILWAYS CORPORATION, Petitioner, v. DMCI PROJECT DEVELOPERS, INC. Respondent.

DECISION

LEONEN, J.:

An arbitration clause in a document of contract may extend to subsequent documents of contract executed for the same purpose.
Nominees of a party to and beneficiaries of a contract containing an arbitration clause may become parties to a proceeding initiated
based on that arbitration clause.

On June 10, 1995, Bases Conversion Development Authority (BCDA) entered into a Joint Venture Agreement1 with Philippine
National Railways (PNR) and other foreign corporations.2chanroblesvirtuallawlibrary

Under the Joint Venture Agreement, the parties agreed to construct a railroad system from Manila to Clark with possible extensions to
Subic Bay and La Union and later, possibly to Ilocos Norte and Nueva Ecija.3 BCDA shall establish North Luzon Railways
Corporation (Northrail) for purposes of constructing, operating, and managing the railroad system.4 The Joint Venture Agreement
contained the following provision:

ARTICLE XVI
ARBITRATION

If any dispute arise hereunder which cannot be settled by mutual accord between the parties to such dispute, then that dispute shall be
referred to arbitration. The arbitration shall be held in whichever place the parties to the dispute decide and failing mutual agreement
as to a location within twenty-one (21) days after the occurrence of the dispute, shall be held in Metro Manila and shall be conducted
in accordance with the Philippine Arbitration Law (Republic Act No. 876) supplemented by the Rules of Conciliation and Arbitration
of the International Chamber of Commerce. All award of such arbitration shall be final and binding upon the parties to the dispute.5

BCDA organized and incorporated Northrail.6 Northrail was registered with the Securities and Exchange Commission on August 22,
1995.7chanroblesvirtuallawlibrary

BCDA invited investors to participate in the railroad project's financing and implementation. Among those invited were D.M.
Consunji, Inc. and Metro Pacific Corporation.8chanroblesvirtuallawlibrary

On February 8, 1996, the Joint Venture Agreement was amended to include D.M. Consunji, Inc. and/or its nominee as party.9 Under
the amended Joint Venture Agreement, D.M. Consunji, Inc. shall be an additional investor of Northrail.10 It shall subscribe to 20% of
the increase in Northrail's authorized capital stock.11chanroblesvirtuallawlibrary

On February 8, 1996, BCDA and the other parties to the Joint Venture Agreement, including D.M. Consunji, Inc. and/or its nominee,
entered into a Memorandum of Agreement.12 Under this agreement, the parties agreed that the initial seed capital of P600 million
shall be infused to Northrail.13 Of that amount, P200 million shall be D.M. Consunji, Inc.'s share, which shall be converted to equity
upon NorthraiPs privatization.14 Later, D.M. Consunji, Inc.'s share was increased to P300 million.15chanroblesvirtuallawlibrary

Upon BCDA and Northrail's request,16 DMCI Project Developers, Inc. (DMCI-PDI) deposited P300 million into NorthraiPs account
with Land Bank of the Philippines.17 The deposit was made on August 7, 199618 for its "future subscription of the Northrail shares of
stocks."19 In NorthraiPs 1998 financial statements submitted to the Securities and Exchange Commission, this amount was reflected
as "Deposits For Future Subscription."20 At that time, NorthraiPs application to increase its authorized capital stock was still pending
with the Securities and Exchange Commission.21chanroblesvirtuallawlibrary

In letters22dated April 4, 1997, D.M. Consunji, Inc. informed PNR and the other parties that DMCI-PDI shall be its designated
nominee for all the agreements it entered and would enter with them in connection with the railroad project. Pertinent portions of the
letters provide:

[I]n order to formalize the inclusion of [DMCI Project Developers, Inc.] as a party to the JVA and MOA, DMCI would like to notify
all the parties that it is designating PDI as its nominee in both agreements and such other agreements that may be signed by the parties
in furtherance of or in connection with the PROJECT. By this nomination, all the rights, obligations, warranties and commitments of
DMCI under the JVA and MOA shall henceforth be assumed performed and delivered by PDI.23 (Emphasis supplied)

Later, Northrail withdrew from the Securities and Exchange Commission its application for increased authorized capital stock.24
Moreover, according to DMCI-PDI, BCDA applied for Official Development Assistance from Obuchi Fund of Japan.25 This required
Northrail to be a 100% government-owned and controlled corporation.26chanroblesvirtuallawlibrary

On September 27, 2000, DMCI-PDI started demanding from BCDA and Northrail the return of its P300 million deposit.27 DMCI-
PDI cited Northrail's failure to increase its authorized capital stock as reason for the demand.28 BCDA and Northrail refused to return
the deposit29 for the following reasons:

68
a) At the outset, DMCI PDI/FBDC's participation in Northrail was as a joint venture partner and co-investor in the Manila Clark Rapid
Railway Project, and as such, was granted corresponding representation in the Northrail Board.

b) DMCI PDI/FBDC was privy to all the deliberations of the Northrail Board and participated in the decisions made and policies
adopted to pursue the project.

c) DMCI PDI/FBDC had full access to the financial statements of Northrail and was regularly informed of the corporation's financial
condition.30chanrobleslaw

Upon BCDA's request, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 116, Series of 200131 on June
27, 2001. The OGCC stated that "since no increase in capital stock was implemented, it is but proper to return the investments of both
FBDC and DMCI[.]"32chanroblesvirtuallawlibrary

In a January 19, 2005 letter,33 DMCI-PDI reiterated the request for the refund of its P300 million deposit for future Northrail
subscription. On March 18, 2005, BCDA denied34 DMCI-PDI's request:

We regret to say that we are of the position that the P300 [million] contribution should not be returned to DMCI for the following
reasons:
the P300 million was in the nature of a contribution, not deposits for future subscription; and

DMCI, as a joint venture partner, must share in profits and losses.35

On August 17, 2005,36 DMCI-PDI served a demand for arbitration to BCDA and Northrail, citing the arbitration clause in the June
10, 1995 Joint Venture Agreement.37 BCDA and Northrail failed to respond.38chanroblesvirtuallawlibrary

DMCI-PDI filed before the Regional Trial Court of Makati39 a Petition to Compel Arbitration40 against BCDA and Northrail,
pursuant to the alleged arbitration clause in the Joint Venture Agreement.41 DMCI-PDI prayed for "an order directing the parties to
proceed to arbitration in accordance with the terms and conditions of the agreement."42chanroblesvirtuallawlibrary

BCDA filed a Motion to Dismiss43 on the ground that there was no arbitration clause that DMCI-PDI could enforce since DMCI-PDI
was not a party to the Joint Venture Agreement containing the arbitration clause.44 Northrail filed a separate Motion to Dismiss45 on
the ground that the court did not have jurisdiction over it and that DMCI-PDI had no cause for arbitration against
it.46chanroblesvirtuallawlibrary

In the Decision47 dated February 9, 2006, the trial court denied BCDA's and Northrail's Motions to Dismiss and granted DMCI-PDI's
Petition to Compel Arbitration. The dispositive portion of the decision reads:

WHEREFORE, the petition is granted. The parties are ordered to present their dispute to arbitration in accordance with Article XVI of
the Joint Agreement.

SO ORDERED.48chanrobleslaw

The trial court ruled that the arbitration clause in the Joint Venture Agreement should cover all subsequent documents including the
amended Joint Venture Agreement and the Memorandum of Agreement. The three (3) documents constituted one contract for the
formation and funding of Northrail.49chanroblesvirtuallawlibrary

The trial court also ruled that even though DMCI-PDI was not a signatory to the Joint Venture Agreement and the Memorandum of
Agreement, it was an assignee of D.M. Consunji, Inc.'s rights. Therefore, it could invoke the arbitration clause in the Joint Venture
Agreement.50chanroblesvirtuallawlibrary

In an Order51 dated June 9, 2006, the trial court denied BCDA and Northrail's Motion for Reconsideration of the February 9, 2006
trial court Decision.

BCDA filed a Rule 45 Petition before this court, assailing the February 9, 2006 trial court Order granting DMCI-PDI's Petition to
Compel Arbitration and the June 9, 2006 Order denying BCDA and Northrail's Motion for
Reconsideration.52chanroblesvirtuallawlibrary

The issue in this case is whether DMCI-PDI may compel BCDA and Northrail to submit to arbitration.

BCDA argued that only the parties to an arbitration agreement can be bound by that agreement.53 The arbitration clause that DMCI-
PDI sought to enforce was in the Joint Venture Agreement, to which DMCI-PDI was not a party.54 There was also no evidence that
the right to compel arbitration under the Joint Venture Agreement was assigned to DMCI-PDI.55 Assuming that there was such an
assignment, BCDA did not consent to or recognize it.56 Therefore, the trial court's conclusion that DMCI-PDI was D.M. Consunji,
Inc.'s assignee had no basis.57 In BCDA's view, DMCI-PDI had no right to compel BCDA to submit to
arbitration.58chanroblesvirtuallawlibrary

BCDA also argued that the trial court decided the Motion to Dismiss in violation of the parties' right to due process. The trial court
should have conducted a hearing so that the parties could have presented their respective positions on the issue of assignment. The
trial court merely accepted DMCI-PDI's allegations, without basis.59chanroblesvirtuallawlibrary

In a separate Petition for Review,60 Northrail argued that it cannot be compelled to submit itself to arbitration because it was not a
party to the arbitration agreement.61chanroblesvirtuallawlibrary

69
Northrail also argued that DMCI-PDI cannot initiate an action to compel BCDA and Northrail to arbitration because DMCI-PDI itself
was not a party to the arbitration agreement. DMCI-PDI was not D.M. Consunji, Inc.'s assignee because BCDA did not consent to that
assignment.62chanroblesvirtuallawlibrary

In its Comment63 on BCDA's Petition, DMCI-PDI argued that Rule 45 was a wrong mode of appeal.64 The issues raised by BCDA
did not involve questions of law.65chanroblesvirtuallawlibrary

DMCI-PDI pointed out that BCDA breached their agreement when it failed to apply the P300 million deposit to Northrail
subscriptions. It turned out that such application was rendered impossible by the alleged loan requirement that Northrail be wholly
owned by the government and by Northrail's withdrawal from the Securities and Exchange Commission of its application for an
increase in authorized capital stock.66chanroblesvirtuallawlibrary

DMCI-PDI also argued that it is an assignee and nominee of D.M. Consunji, Inc., which is a party to the contracts. Therefore, it is also
a party to the arbitration clause.67chanroblesvirtuallawlibrary

DMCI-PDI contended that the arbitration agreement extended to all documents relating to the project.68 Even though the agreement
was expressed only in the Joint Venture Agreement, its effect extends to the amendment to the Joint Venture Agreement and
Memorandum of Agreement.69chanroblesvirtuallawlibrary

DMCI-PDI emphasized that BCDA had always recognized it as D.M. Consunji's assignee in its correspondences with the OGCC and
with the President of DMCI, Mr. Isidro Consunji.70 In those letters, BCDA described DMCI-PDI's participation as being the "joint
venture partner . . . and co-investor in the Manila Clark Rapid Railway Project[.]"71 Hence, it is now estopped from denying its
personality in this case.72chanroblesvirtuallawlibrary

We rule for DMCI-PDI.chanRoblesvirtualLawlibrary

I
The state has a policy in favor of arbitration

At the outset, we must state that BCDA and Northrail invoked the correct remedy. Rule 45 is applicable when the issues raised before
this court involved purely questions of law. In Villamor v. Balmores:73chanroblesvirtuallawlibrary

[t]here is a question of law "when there is doubt or controversy as to what the law is on a certain [set] of facts." The test is "whether
the appellate court can determine the issue raised without reviewing or evaluating the evidence." Meanwhile, there is a question of fact
when there is "doubt ... as to the truth or falsehood of facts." The question must involve the examination of probative value of the
evidence presented.74chanroblesvirtuallawlibrary

BCDA and Northrail primarily ask us to construe the arbitration clause in the Joint Venture Agreement. They assert that the clause
does not bind DMCI-PDI and Northrail. This issue is a question of law. It does not require us to examine the probative value of the
evidence presented. The prayer is essentially for this court to determine the scope of an arbitration clause.

Arbitration is a mode of settling disputes between parties.75 Like many alternative dispute resolution processes, it is a product of the
meeting of minds of parties submitting a pre-defined set of disputes. They agree among themselves to a process of dispute resolution
that avoids extended litigation.

The state adopts a policy in favor of arbitration. Republic Act No. 928576 expresses this policy:

SEC. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively promote party autonomy in the resolution of
disputes or the freedom of the parties to make their own arrangements to resolve their disputes. Towards this end, the State shall
encourage and actively promote the use of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and
impartial justice and declog court dockets. As such, the State shall provide means for the use of ADR as an efficient tool and an
alternative procedure for the resolution of appropriate cases. Likewise, the State shall enlist active private sector participation in the
settlement of disputes through ADR. This Act shall be without prejudice to the adoption by the Supreme Court of any ADR system,
such as mediation, conciliation, arbitration, or any combination thereof as a means of achieving speedy and efficient means of
resolving cases pending before all courts in the Philippines which shall be governed by such rules as the Supreme Court may approve
from time to time. (Emphasis supplied)

Our policy in favor of party autonomy in resolving disputes has been reflected in our laws as early as 1949 when our Civil Code was
approved.77 Republic Act No. 87678 later explicitly recognized the validity and enforceability of parties' decision to submit disputes
and related issues to arbitration.79chanroblesvirtuallawlibrary

Arbitration agreements are liberally construed in favor of proceeding to arbitration.80 We adopt the interpretation that would render
effective an arbitration clause if the terms of the agreement allow for such interpretation.81 In LM Power Engineering Corporation v.
Capitol Industrial Construction Groups, Inc.,82 this court said:

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.83chanrobleslaw

This manner of interpreting arbitration clauses is made explicit in Section 25 of Republic Act No. 9285:

70
SEC. 25. Interpretation of the Act.-In interpreting the Act, the court shall have due regard to the policy of the law in favor of
arbitration. Where action is commenced by or against multiple parties, one or more of whom are parties to an arbitration agreement,
the court shall refer to arbitration those parties who are bound by the arbitration agreement although the civil action may continue as to
those who are not bound by such arbitration agreement.

Hence, we resolve the issue of whether DMCI-PDI may compel BCDA and Northrail to submit to arbitration proceedings in light of
the policy in favor of arbitration.

BCDA and Northrail assail DMCI-PDI's right to compel them to submit to arbitration based on the assumption that DMCI-PDI was
not a party to the agreement containing the arbitration clause.

Three documents — (a) Joint Venture Agreement, (b) amended Joint Venture Agreement, and (c) Memorandum of Agreement —
represent the agreement between BCDA, Northrail, and D.M. Consunji, Inc. Among the three documents, only the Joint Venture
Agreement contains the arbitration clause. DMCI-PDI was allegedly not a party to the Joint Venture Agreement.

To determine the coverage of the arbitration clause, the relation among the three documents and DMCI-PDI's involvement in the
execution of these documents must first be understood.

The Joint Venture Agreement was executed by BCDA, PNR, and some foreign corporations.84 The purpose of the Joint Venture
Agreement was for the construction of a railroad system from Manila to Clark with a possible extension to Subic Bay and later to San
Fernando, La Union, Laoag, Ilocos Norte, and San Jose, Nueva Ejica.85 Under the Joint Venture Agreement, BCDA agreed to
incorporate Northrail, which shall have an authorized capital stock of F5.5 billion.86 The parties agreed that BCDA/PNR shall have a
30% equity with Northrail.87 Other Filipino partners shall have a total of 50% equity, while foreign partners shall have at most 20%
equity.88 Pertinent provisions of the Joint Venture Agreement are as follows:

JOINT VENTURE AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Joint Venture Agreement (JVA) made and executed at Makati, Metro Manila, this__ day of June 1995 by and between:

The BASES CONVERSION DEVELOPMENT AUTHORITY

. . . hereinafter referred to as BASECON;

The PHILIPPINE NATIONAL RAILWAYS ...;

The following corporations collectively referred to as the Foreign Group:

a) CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A... .;

b) ENTRECANALES Y TAVORA, SA . . .;

c) CUBIERTAS MZOV, S.A. . . .;

d) COBRA, S.A....; and

e) Others who may later participate in the JVA.chanRoblesvirtualLawlibrary

-and-

EUROMA DEVELOPMENT CORPORATION . . .

WITNESSETH:

....

WHEREAS, a project identified pursuant to the aforesaid policy is the establishment of a Premier International Airport Complex
located at the former Clark Air Base as expressed in Executive Order 174 s. 1994 in order to accommodate the expected heavy flow of
passenger and cargo traffic to and from the Philippines, to start the development of the Northern Luzon Grid and to accelerate the
development of Central Luzon and finally to decongest Metro Manila of its vehicular traffic;

WHEREAS, in order to implement and provide such a mass transit and access system, the parties hereto agreed to construct a double-
trac[k] railway system from Manila to Clark with a possible extension to Subic Bay and later to San Fernando, La Union, as the
second phase, and finally to Laoag, Ilocos Norte and to San Jose, Nueva Ecija, as the third phase of the project, hereinafter referred to
as the PROJECT;

ARTICLE I
DEFINITION OF TERMS

....

71
1.5 "PROJECT" means the construction, operation and management of a double-track railway system from Manila to Clark with an
extension to Subic Bay, and a possible extension to San Fernando, La Union, as the second phase, and finally to Laoag, Ilocos Norte
and to San Jose, Nueva Ecija, as the third phase of the PROJECT.

1.6 "North Luzon Railways Corporation (NORTHRAIL)["] means the joint venture corporation to be established in accordance with
Article II hereof.
. . . .chanRoblesvirtualLawlibrary

ARTICLE II
THE NORTH LUZON RAILROAD CORPORATION

2.1 BASECON shall establish and incorporate in accordance with the laws of the Republic of the Philippines a corporation to be
known as NORTH LUZON RAILWAYS CORPORATION (NORTHRAIL) with an initial capitalization of one hundred million
pesos (PI 00,000,000.00).

2.2 NORTHRAIL shall eventually have an authorized capital stock of FIVE BILLION FIVE HUNDRED MILLION PESOS (P 5.5
Billion) divided into 55,000,000 shares with par value of P 100 per share.
. . . .chanRoblesvirtualLawlibrary

ARTICLE III

PURPOSE OF NORTHRAIL

A. PRIMARY PURPOSE

3.1 To construct, operate and manage a railroad system to serve Northern and Central Luzon; and to develop, construct, manage, own,
lease, sublease and operate establishments and facilities of all kinds related to the railroad system;
. . . .chanRoblesvirtualLawlibrary

ARTICLE IV

PARTICIPATION/TRANSFER/ENCUMBRANCE OF SHARES

4.1 NORTHRAIL shall increase its authorized capital stock upon the subscription thereon by the parties to this JVA in accordance
with the following equity proportion/participation:

Foreign Group up to 20%

Euroma/Filipino partners 50%
BASECON/PNR 30%

....

4.4 The shares owned by Filipino stockholders including BASECON, PNR, EUROMA Development Corporation and hereinafter to
be owned by Filipino corporations shall not be less than sixty percent (60%) at any given time.
. . . .chanRoblesvirtualLawlibrary

ARTICLE XVI

ARBITRATION

16. If any dispute arise hereunder which cannot be settled by mutual accord between the parties to such dispute, then that dispute shall
be referred to arbitration. The arbitration shall be held in whichever place the parties to the dispute decide and failing mutual
agreement as to a location within twenty-one (21) days after the occurrence of the dispute, shall be held in Metro Manila and shall be
conducted in accordance with the Philippine Arbitration Law (Republic Act No. 876) as supplemented by the Rules of Conciliation
and Arbitration of the International Chamber of Commerce. All award of such arbitration shall be final and binding upon the parties to
the dispute.

ARTICLE XVII
ASSIGNMENT

17.1 No party to this Agreement may assign, transfer or convey this Agreement, create or incur any encumbrance of its rights or any
part of its rights and obligations hereunder or any shares of stocks of NORTHRAIL to any person, firm or corporation without the
prior written consent of the other parties or except as provided in the Articles of Incorporation and By-Laws of NORTHRAIL and this
Agreement.

17.2 This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted
assignees and designees or nominees whenever possible.89chanrobleslaw

72
The Joint Venture Agreement was amended on February 8, 199690 to include D.M. Consunji, Inc. and/or its nominee as party.91 The
participations of the parties in Northrail were also modified. Pertinent provisions of the amended Joint Venture Agreement are
reproduced as follows:

This Amendment to the Joint Venture Agreement dated 10th of June 1995 (the Agreement) made and executed at_____________ ,
Metro Manila, on this 8th day of February 1996 by and among:chanRoblesvirtualLawlibrary

BASES CONVERSION DEVELOPMENT AUTHORITY . . . hereinafter referred to as BASECON;

with

PHILIPPINE NATIONAL RAILWAYS ...

and

The following corporations collectively referred to as the FOREIGN GROUP:

CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A.. . .;

ENTRECANALES Y TAVORA, S.A....; CUBIERTAS Y MZOV, S.A. . . .;

COBRA INSTALACIONES Y SERVICIOS, S.A.. . .; and

Other investors who may later participate in the Joint Venture;chanRoblesvirtualLawlibrary

and

Other local investors to be represented by EUROMA DEVELOPMENT CORPORATION . . .

and

P.M. CONSUNJI. INC. and/or its nominee . . .

WITNESSETH THAT

WHEREAS, a Joint Venture Agreement (JVA) was executed on the 10th of June 1995 between BASECON, PNR, FOREIGN
GROUP, and EUROMA;
....

NOW, THEREFORE, for and in consideration of the foregoing premises and of the mutual covenant contained therein, THE
PARTIES HEREBY AGREE that the JVA should be amended as follows:

In Article 1.3, D.M. CONSUNJI, INC. shall be included as strategic partner, being one of the Philippine registered companies selected
by BASECON, PNR and the Lead Group on the basis of its qualifications for the implementation of the Project.

Article 4.1 should read as follows:

"NORTHRAIL shall increase its authorized capital stock upon the subscription thereon by the Parties to this JVA in accordance with
the following equity proportion/participation:

SRG.............................................. up to 10%
DMCI..................................................... 20%
BASECON/PNR............................. up to 30%
Others..................................................... 40%

In Article 4.4, the Filipino corporations whose total shares in NORTHRAIL's capital stock, which should not be less than sixty percent
(60%) at any given time, shall include D.M. CONSUNJI, INC.93 (Underscoring supplied)

On February 8, 1996, the same date of the execution of the amended Joint Venture Agreement, the same parties executed a
Memorandum of Agreement94 "to set up the mechanics for raising the seed capitalization needed by NORTHRAIL[.]"95 Pertinent
provisions of the Memorandum of Agreement are reproduced as follows:

WITNESSETH THAT

WHEREAS, the Manila - Clark Rapid Railway System Project, hereinafter referred to as the Project, was identified as one of the
major infrastructure projects to accelerate the development of Central Luzon, particularly the former U.S. bases at Clark and Subic;
....

WHEREAS, the North Luzon Railways Corporation (NORTHRAIL) was organized and incorporated to implement the development,
construction, operation and maintenance of the railway system in Northern Luzon;

73
WHEREAS, NORTHRAIL is wholly owned and controlled by BASECON;

WHEREAS, the privatization of NORTHRAIL is necessary in order to accelerate the implementation of the Project by tapping the
financial resources and expertise of the private sector;
....

WHEREAS, the Parties of the Joint Venture Agreement (JVA) of 10 June 1995, namely BASECON, PNR, SPANISH RAILWAY
GROUP and EUROMA, agreed to invite other private investors to help in the financing and implementation of the Project, and to
raise the required equity in order to accelerate the privatization of NORTHRAIL;

WHEREAS, DMCI and other private investors. . . have manifested their desire to be strategic partners in implementing the Project;

WHEREAS, DMCI and other private investors have the financial capability to implement the Project;

WHEREAS, Phase I of the Project covers the Manila - Clark section of the North Luzon railway network as defined by the JVA of 10
June 1995 . . .[;]
. . . .chanRoblesvirtualLawlibrary

ARTICLE I
PURPOSE

1.1 Purpose. This Agreement is entered into by the Parties in order to set up the mechanics for raising the seed capitalization needed
by NORTHRAIL to accelerate the implementation of the Project.
. . . .chanRoblesvirtualLawlibrary

ARTICLE II
TERMS OF AGREEMENT

....

2.1 The Parties agree to put up the necessary seed capitalization needed by NORTHRAIL to fast-track the implementation of the
Rapid Rail Transit System Project according to the following schedule:

BCDA/PNR...................... PHP 300 Million

DMCI..................................................... PHP 200 Million
SRG...................................................... PHP 100 Million
TOTAL................................................... PHP 600 Million
....

2.3 The amounts contributed by BCDA/PNR, DMCI, SRG, and others are committed to be converted to equity when NORTHRAIL is
privatized.96chanroblesvirtuallawlibrary

There is no rule that a contract should be contained in a single document.97 A whole contract may be contained in several documents
that are consistent with one other.98chanroblesvirtuallawlibrary

Moreover, at any time during the lifetime of an agreement, circumstances may arise that may cause the parties to change or add to the
terms they previously agreed upon. Thus, amendments or supplements to the agreement may be executed by contracting parties to
address the circumstances or issues that arise while a contract subsists.

When an agreement is amended, some provisions are changed. Certain parts or provisions may be added, removed, or corrected. These
changes may cause effects that are inconsistent with the wordings of the contract before the changes were applied. In that case, the old
provisions shall be deemed to have lost their force and effect, while the changes shall be deemed to have taken effect. Provisions that
are not affected by the changes usually remain effective.

When a contract is supplemented, new provisions that are not inconsistent with the old provisions are added. The nature, scope, and
terms and conditions are expanded. In that case, the old and the new provisions form part of the contract.

A reading of all the documents of agreement shows that they were executed by the same parties. Initially, the Joint Venture
Agreement was executed only by BCD A, PNR, and the foreign corporations. When the Joint Venture Agreement was amended to
include D.M. Consunji, Inc. and/or its nominee, D.M. Consunji, Inc. and/or its nominee were deemed to have been also a party to the
original Joint Venture Agreement executed by BCDA, PNR, and the foreign corporations. D.M. Consunji, Inc. and/or its nominee
became bound to the terms of both the Joint Venture Agreement and its amendment.

Moreover, each document was executed to achieve the single purpose of implementing the railroad project, such that documents of
agreement succeeding the original Joint Venture Agreement merely amended or supplemented the provisions of the original Joint
Venture Agreement.

The first agreement — the Joint Venture Agreement — defined the project, its purposes, the parties, the parties' equity participation,
and their responsibilities. The second agreement — the amended Joint Venture Agreement —- only changed the equity participation
of the parties and included D.M. Consunji, Inc. and/or its nominee as party to the railroad project. The third agreement — the
Memorandum of Agreement — raised the seed capitalization of Northrail from P100 million as indicated in the first agreement to
P600 million, in order to accelerate the implementation of the same project defined in the first agreement.

74
The Memorandum of Agreement is an implementation of the Joint Venture Agreement and the amended Joint Venture Agreement. It
could not exist without referring to the provisions of the original and amended Joint Venture Agreements. It assumes a prior
knowledge of its terms. Thus, it referred to "North Luzon railway network as defined by the JVA of 10 June
1995[.]"99chanroblesvirtuallawlibrary

In other words, each document of agreement represents a step toward the implementation of the project, such that the three agreements
must be read together for a complete understanding of the parties' whole agreement. The Joint Venture Agreement, the amended Joint
Venture Agreement, and the Memorandum of Agreement should be treated as one contract because they all form part of a whole
agreement.

Hence, the arbitration clause in the Joint Venture Agreement should not be interpreted as applicable only to the Joint Venture
Agreement's original parties. The succeeding agreements are deemed part of or a continuation of the Joint Venture Agreement. The
arbitration clause should extend to all the agreements and its parties since it is still consistent with all the terms and conditions of the
amendments and supplements.chanRoblesvirtualLawlibrary

II

BCDA and Northrail argued that they did not consent to D.M. Consunji, Inc.'s assignment of rights to DMCI-PDI. Therefore, DMCI-
PDI did not validly become a party to any of the agreement. Section 17.1 of the Joint Venture Agreement provides that rights under
the agreement may not be assigned, transferred, or conveyed without the consent of the other party.100 Thus:

17.1 No party to this Agreement may assign, transfer or convey this Agreement, create or incur any encumbrance of its rights or any
part of its rights and obligations hereunder or any shares of stocks of NORTHRAIL to any person, firm or corporation without the
prior written consent of the other parties or except as provided in the Articles of Incorporation and By-Laws of NORTHRAIL and the
Agreement.101chanroblesvirtuallawlibrary

However, Section 17.2 of the Joint Venture Agreement provides that the agreement shall be binding on nominees:

17.2 This Agreement shall inure to the benefit of and be binding upon the parties . . . and their respective successors and permitted
assignees and designees or nominees whenever applicable.102 (Emphasis supplied)

The principal parties to the agreement after its amendment include D.M. Consunji, Inc. and/or its nominee:

AMENDMENT TO THE JOINT VENTURE AGREEMENT

This Amendment to the Joint Venture Agreement dated 10th of June 1995 (the Agreement) made and executed at _____________ ,
Metro Manila, on this 8th day of February 1996 by and among:

BASES CONVERSION DEVELOPMENT AUTHORITY . . .

with

PHILIPPINE NATIONAL RAILWAYS . . .chanRoblesvirtualLawlibrary

and

....

D.M. CONSUNJI, INC. and/or its nominee, a domestic corporation duly organized and created pursuant to the laws of the Republic of
the Philippines . . .103 (Emphasis supplied)chanRoblesvirtualLawlibrary

MEMORANDUM OF AGREEMENT

This Agreement made and executed at Pasig, Metro Manila, Philippines on this 8[th] day of February 1996 by and among:

BASES CONVERSION DEVELOPMENT AUTHORITY . . .chanRoblesvirtualLawlibrary

with

PHILIPPINE NATIONAL RAILWAYS ...chanRoblesvirtualLawlibrary

and

D.M. CONSUNJI, INC. and/or its nominee, a domestic corporation duly organized and created pursuant to the laws of the Republic of
the Philippines . . .104 (Emphasis supplied)

Based on DMCI-PDFs letter to BCDA and Northrail dated April 4, 1997, D.M. Consunji, Inc. designated DMCI-PDI as its nominee
for the agreements it entered into in relation to the project:

75
[I]n order to formalize the inclusion of [DMCI Project Developers, Inc.] as a party to the JVA and MOA, DMCI would like to notify
all the parties that it is designating PDI as its nominee in both agreements and such other agreements that may be signed by the parties
in furtherance of or in connection with the PROJECT. By this nomination, all the rights, obligations, warranties and commitments of
DMCI under the JVA and MOA shall henceforth be assumed performed and delivered by PDI.105 (Emphasis supplied)

Thus, lack of consent to the assignment is irrelevant because there was no assignment or transfer of rights to DMCI-PDI. DMCI-PDI
was D.M. Consunji, Inc.'s nominee.

Section 17.2 of the Joint Venture Agreement clearly shows an intent to treat assignment and nomination differently.

17.2 This Agreement shall inure to the benefit of and be binding upon the parties . . . and their respective successors and permitted
assignees and designees or nominees whenever applicable.106 (Emphasis supplied)

Assignment involves the transfer of rights after the perfection of a contract. Nomination pertains to the act of naming the party with
whom it has a relationship of trust or agency.

In Philippine Coconut Producers Federation, Inc. (COCOFED) v. Republic,107 this court defined "nominee" as follows:

In its most common signification, the term "nominee'' refers to one who is designated to act for another usually in a limited way; a
person in whose name a stock or bond certificate is registered but who is not the actual owner thereof is considered a nominee."
Corpus Juris Secundum describes a nominee as one:

". . . designated to act for another as his representative in a rather limited sense. It has no connotation, however, other than that of
acting for another, in representation of another or as the grantee of another. In its commonly accepted meaning the term connoted the
delegation of authority to the nominee in a representative or nominal capacity only, and does not connote the transfer or assignment to
the nominee of any property in, or ownership of, the rights of the person nominating him."108 (Citations omitted)

Contrary to BCDA and Northrail's position, therefore, the agreement's prohibition against transfers, conveyance, and assignment of
rights without the consent of the other party does not apply to nomination.

DMCI-PDI is a party to all the agreements, including the arbitration agreement. It may, thus, invoke the arbitration clause against all
the parties.chanRoblesvirtualLawlibrary

III

Northrail, although not a signatory to the contracts, is also bound by the arbitration agreement.

In Lanuza v. BF Corporation,109 we recognized that there are instances when non-signatories to a contract may be compelled to
submit to arbitration.110 Among those instances is when a non-signatory is allowed to invoke rights or obligations based on the
contract.111chanroblesvirtuallawlibrary

The subject of BCDA and D.M. Consunji, Inc.'s agreement was the construction and operation of a railroad system. Northrail was
established pursuant to this agreement and its terms, and for the same purpose, thus:

ARTICLE III

PURPOSE OF NORTHRAIL

A. PRIMARY PURPOSE

3.1. To construct, operate and manage a railroad system to serve Northern and Central Luzon; and to develop, construct, manage, own,
lease, sublease and operate establishments and facilities of all kinds related to the railroad system[.]112chanrobleslaw

Northrail's capitalization and the composition of its subscribers are also subject to the provisions of the original and amended Joint
Venture Agreements, and the subsequent Memorandum of Agreement. It was pursuant to the terms of these agreements that Northrail
demanded from D.M. Consunji, Inc. the infusion of its share in subscription.

Therefore, Northrail cannot deny understanding that its existence, purpose, rights, and obligations are tied to the agreements. When
Northrail demanded for the amount of D.M. Consunji, Inc.'s subscription based on the agreements and later accepted the latter's funds,
it proved that it was bound by the agreements' terms. It is also deemed to have accepted the term that such funds shall be used for its
privatization. It cannot choose to demand the enforcement of some of its provisions if it is in its favor, and then later by whim, deny
being bound by its terms.

Hence, when BCDA and Northrail decided not to proceed with Northrail's privatization and the transfer of subscriptions to D.M.
Consunji, Inc., any obligation to return its supposed subscription attached not only to BCDA as party to the agreement but primarily to
Northrail as beneficiary that impliedly accepted the terms of the agreement and received D.M. Consunji, Inc.'s funds.

There is, therefore, merit to DMCI-PDI's argument that if the Civil Code113 gives third party beneficiaries to a contract the right to
demand the contract's fulfillment in its favor, the reverse should also be true.114 A beneficiary who communicated his or her
acceptance to the terms of the agreement before its revocation may be compelled to abide by the terms of an agreement, including the

76
arbitration clause. In this case, Northrail is deemed to have communicated its acceptance of the terms of the agreements when it
accepted D.M. Consunji, Inc.'s funds.

Finally, judicial efficiency and economy require a policy to avoid multiplicity of suits. As we said in Lanuza:

Moreover, in Heirs ofAugusto Salas, this court affirmed its policy against multiplicity of suits and unnecessary delay. This court said
that "to split the proceeding into arbitration for some parties and trial for other parties would "result in multiplicity of suits, duplicitous
procedure and unnecessary delay." This court also intimated that the interest of justice would be best observed if it adjudicated rights
in a single proceeding. While the facts of that case prompted this court to direct the trial court to proceed to determine the issues of
that case, it did not prohibit courts from allowing the case to proceed to arbitration, when circumstances warrant.115chanrobleslaw

WHEREFORE, the petitions are DENIED. The February 9, 2006 Regional Trial Court Decision and the June 9, 2006 Regional Trial
Court Order are AFFIRMED.

SO ORDERED.cralawlawlibrary

77
G.R. No. 179732, September 13, 2017

DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, Petitioner, v. CMC/MONARK/PACIFIC/HI-TRI JOINT VENTURE,

Respondent.

DECISION

LEONEN, J.:

As the administrative agency tasked with resolving issues pertaining to the construction industry, the Construction Industry
Arbitration Commission enjoys a wide latitude in recognition of its technical expertise and experience. Its factual findings are, thus,
accorded respect and even finality, particularly when they are affirmed by an appellate court.

This is a Petition for Review on Certiorari1 assailing the Court of Appeals Decision2 dated September 20, 2007 in CA-G.R. SP Nos.
88953 and 88911, which affirmed the March 1, 2005 Award of the Construction Industry Arbitration Commission (CIAC).

On April 29, 1999, Republic of the Philippines, through the Department of Public Works and Highways (DPWH), and
CMC/Monark/Pacific/Hi-Tri J.V. (the Joint Venture) executed "Contract Agreement for the Construction of Contract Package 6MI-9,
Pagadian-Buug Section, Zamboanga del Sur, Sixth Road Project, Road Improvement Component Loan No. 1473-PHI"3 (Contract) for
a total contract amount of P713,330,885.28.4

Parts I (General Conditions with forms of tender + agreement) and II (Conditions of Particular Application + Guidelines for
Preparation of Part II Clauses) of the "Conditions of Contract for Works of Civil Engineering Construction of the Federation
International Des Ingenieurs - Conseils" (Conditions of Contract) formed. part of the Contract.5 DPWH hired BCEOM French
Engineering Consultants to oversee the project.6

On October 23, 2002, or while the project was ongoing, the Joint Venture's truck and equipment were set on fire. On March 11, 2003,
a bomb exploded at Joint Venture's hatching plant located at Brgy. West Boyogan, Kumalarang, Zamboanga del Sur. According to
reports, the bombing incident was caused by members of the Moro Islamic Liberation Front.7

The Joint Venture made several written demands for extension and payment of the foreign component of the Contract. There were
efforts between the parties to settle the unpaid Payment Certificates amounting to P26,737,029.49. Thus, only the foreign component
of US$358,227.95 was up for negotiations subject to further reduction of the amount on account of payments subsequently received
by the Joint Venture from DPWH.8

In a letter dated September 18, 2003, BCEOM French Engineering Consultants recommended that DPWH promptly pay the
outstanding monies due the Joint Venture.9 The letter also stated that the actual volume of the Joint Venture's accomplishment was
"2,732m2 of hardrock and 4,444m3 of rippable rock," making the project 80% complete when it was halted.10

On March 3, 2004, the Joint Venture filed a Complaint11 against DPWH before CIAC. Joint Venture' claims, which amounted to
P77,206,047.88, were as follows:

CLAIMANT'S CLAIM

Foreign component of the project of

(US$358,227.95 @Php34.90)
Php12,502,155.46

Interest as of December 3, 4003

(Computation for the damages & losses incurred:

Php10,297,090.42 + (US$118,[email protected])
Php14,418,603.47

Equipment and financial loses

5,080,000.00

Additional costs in the contract price under Clause 69.4

20,311,072.66

78
Adjustment in the contract price under Presidential Decree No. 1594

(9,313,402.91 in pesos and 266,859.68 in dollar)

18,626,805.81

Effect of the bomping incident

6,267,410.48

TOTAL CLAIMS
Php77,206,047.8812

Meanwhile, on July 8, 2004, the Joint Venture sent a "Notice of Mutual Termination of Contract",13 to DPWH requesting for a
mutual termination of the contract subject of the arbitration case. This is due to its diminished financial capability due to DPWH's late
payments, changes in the project involving payment terms, peace and order problems, and previous agreement by the parties.

On July 16, 2004, then DPWH Acting Secretary Florante Soriquez accepted the Joint Venture's request for mutual termination of the
contract.14

After hearing and submission of the parties' respective memoranda,15 CIAC promulgated an Award16 on March 1, 2005, directing
DPWH to pay the Joint Venture its money claims plus legal interest. CIAC, however, denied the Joint Venture's claim for price
adjustment due to the delay in the issuance of a Notice to Proceed under Presidential Decree No. 1594 or the "Policies, Guidelines,
Rules, and Regulations for Government Infrastructure Contracts."17 The dispositive portion of the Award read:
WHEREFORE, premises considered and in view of the resolution of the issues presented, an Award is hereby rendered ordering the
Respondent DPWH to pay the Claimant the following:

1. Foreign Component of US$358,227.95 plus legal interest of US$18,313.79;

2. Equipment and Plant Losses of P5,080,000, plus legal interest of P464,298.08;

3. Additional Costs resulting from the Bombing of P6,267,410.48 plus legal interest of P320,410.63, and

4. Additional Costs in the contract price under Clause 69.4 of P20,311,072.66 plus legal interest of [P]1,038,368.78.

The claim of Claimant for adjustment under [Presidential Decree No.] 1594 of P18,626,805.81 is hereby denied.

Pursuant to the case of Eastern Shipping Lines vs. Court of Appeals, 234 SCRA 78, the foregoing monetary awards shall earn interest
at the rate of 12% per annum from the date the Award becomes final and executor until its satisfaction.

SO ORDERED.18
DPWH and the Joint Venture filed their respective petitions for review before the Court of Appeals.19

The Court of Appeals in its Decision20 dated September 20, 2007, sustained CIAC's Award with certain modifications and remanded
the case to CIAC for the determination of the number of days' extension that the Joint Venture is entitled to and "the conversion rate in
pesos of the awarded foreign exchange payments stated."21

The Court of Appeals held that CIAC did not commit reversible error in not awarding the price adjustment sought by the Joint Venture
under Presidential Decree No. 1594 since it was the Asian Development Bank's Guidelines on procurement that was applicable and
not Presidential Decree No. 1594.22

The Court of Appeals also held that CIAC did not err in not awarding actual damages in the form of interest at the rate of 24% since
there was no provision for such interest payment in the Contract. However, the Court of Appeals ruled that CIAC was correct when it
awarded legal interest.23

The Court of Appeals sustained the Joint Venture's argument on the non-inclusion of a clear finding of its entitlement to time
extensions in the dispositive portion of the CIAC Award.24 The Court of Appeals held that CIAC did not clearly dispose of the
matter:
Yet, a close scrutiny of the foregoing disposition shows that it does not refer to the 133 days as per Variation Order No. 2 since CIAC
made mention that the project is already terminated and the entire volume under said Order "will not be consumed". Whether or not
the Claimant then deserves to get the full 133 calendar days is a matter that has to be clearly resolved. On this, We hold that this Court
is not prepared to engage into a technical bout that only the expertise of the CIAC can pass upon.25
On the other hand, the Court of Appeals did not accept DPWH's argument that the case was already moot and academic. According to
the Court of Appeals, when the Joint Venture requested for the mutual termination of the Contract on July 8, 2004, it did not waive its
right to be paid the amounts due to it.26

The Court of Appeals, however, raised a concern with regard to CIAC's order for DPWH to pay its liabilities in US dollars. It held that
the parties have agreed that "all payments for works carried out after 31 May 2003 and related price escalation claims and retention
releases in the contract will be in pesos only, therefore no foreign exchange payments." This was never contested by the Joint Venture;
hence, it may be presumed that it acquiesced to the request of the DPWH.27

79
The dispositive portion of the Court of Appeals Decision read:
WHEREFORE, premises considered, the assailed Decision is hereby AFFIRMED with MODIFICATION to include the award to the
Claimant of time extensions per: 1) delay in payment at One Hundred Eight (108) days, and 2) extension Twenty Nine (29) days due
to peace and order situation.

Re 1) the award of time extension per Variation Order No. 2-as stated earlier elsewhere in the Decision, the CIAC must make a vivid
presentation of the number of calendar days the Claimant is entitled to, and 2) the conversion rate in pesos of the awarded foreign
exchange payments states, supra, in the assailed Decision, these matters are hereby REMANDED to the CIAC for proper disposition.
Accordingly, the rest of the challenged Decision STANDS.

SO ORDERED.28 (Emphasis in the original)

Petitioner DPWH filed the present Petition for Review29 assailing the Court of Appeals Decision. In a Resolution30 dated January.
28, 2008, this Court required respondent Joint Venture to file its Comment.

On March 27, 2008, respondent filed its comment/opposition.31 Petitioner thereafter filed its Reply32 on September 3, 2008.

The issues for resolution in this case are:

First, whether or not the case has become moot and academic due to the parties' mutual termination of the Construction Contract;

Second, whether or not the case is premature due to Joint Venture's non-compliance with the doctrine of exhaustion of administrative
remedies;

Third, whether or not the Joint Venture is entitled to the foreign component of the Project in the amount of US$358,227.95;

Fourth, whether or not the Joint Venture is entitled to time extensions due to Variation Order No. 2, peace and order problems, and
delay in payment;

Fifth, whether or not the Joint Venture is entitled to a price adjustment due to the delay of the issuance of the Notice of the Proceed;

Sixth, whether or not the Asian Development Bank Guidelines on Procurement or Presidential Decree 1594 applies with regard to
once adjustments due to the delay of the issuance of the Notice to Proceed;

Seventh, whether or not the Joint Venture is entitled to its claim for equipment and financial losses due to peace and order situation
(additional costs);

Eighth, whether or not the Joint Venture is entitled to actual damages and interest on its claims; and

Finally, whether or not the Joint Venture should be paid in local currency or in U.S. dollars.

According to respondent Joint Venture, the Petition suffers from a fatal defect in its certification against non-forum shopping. The
verification and certification against non-forum shopping was signed only by petitioner's counsel, Atty. Mary Jean D. Valderama,
from the Office of the Solicitor General.33

This Court has long enforced the strict procedural requirement of verification and certification against non-forum shopping.34 It is
settled that certification against forum shopping must be executed by the party or principal and not by counsel.35 In Anderson v.
Ho,36 this Court explained that it is the party who is in the best position to know whether he or she has filed a case before any
courts.37 It is clear in this case that counsel for petitioner, Atty. Valderama, was not clothed with authority to sign on petitioner's
behalf.

In Resolution38 dated December 10, 2007, this Court noted petitioner's Manifestation that after the petition was posted, the
verification page signed by DPWH Secretary Hermogenes E. Ebdane was submitted to the Office of the Solicitor General. In the same
Resolution, this Court granted the Office of the Solicitor General's motion to admit the attached verification and to substitute and
attach it to the petition.

This Court ruled before that: "the lack of a certification against forum shopping, unlike that of verification, is generally not cured by
its submission after the filing of the petition."39 Nevertheless, exceptions40 exist, as in the case at bar, and it is more prudent to
resolve the case on its merits than dismiss it on purely technical grounds.41

II

In the assailed Decision, the Court of Appeals held that the mutual termination of the Contract by the parties did not render the case
moot and academic.42 Accordingly, when respondent requested for the mutual termination of the Contract, it did not waive its right to
be paid the amounts due to it as shown in its letter:
In view of the above considerations, we hereby respectfully request for MUTUAL TERMINATION of our Contract. Our availment of
this remedy does not mean though that we are waiving our rights (1) to be paid for any and all monetary benefits due and owing to us
under the contract such as but not limited to payments for works already done, materials delivered on site which are intended solely
for the construction and completion of the project, price escalation, etc., (2) and without prejudice to our outstanding claims and
entitlements that are lawfully due to us.43 (Emphasis supplied)

80
Petitioner argues that the Court of Appeals erred in rendering the assailed Decision, considering that the case is already moot and
academic. Petitioner insists that "the parties' mutual termination of their contract prior to the adjudication of this case by the CIAC on
March 1, 2005, rendered the proceedings before CIAC moot and academic."44

According to petitioner, the principle of unjust enrichment does not apply in this case "because respondent has incurred negative
slippage/delay in carrying out their contractual obligations due to reasons attributable to it. Moreover, the parties' mutual termination
of the contract rendered the proceedings before the CIAC moot because there was no more contract to be enforced."45

Petitioner's argument is untenable.

Indeed, the rule is that courts will not rule on moot cases.46 However, the moot and academic principle is "not a magical formula that
can automatically dissuade the courts in resolving a case."47 Exceptions exist that would not prevent a court from taking cognizance
of cases seemingly moot and academic.48

In Carpio v. Court of Appeals,49 this Court held that a case could not be deemed moot and academic when there remains an
unresolved justiciable controversy. In that case, this Court affirmed the Court of Appeals' assailed resolutions, which denied
petitioner's prayer for dismissal based on the argument that the Sheriff's execution pending appeal of the trial court's decision rendered
the case moot and academic. This Court held that:
[I]t is obvious that there remains an unresolved justiciable controversy in the appealed case for accion publiciana. In particular, did
respondent-spouses Oria really encroach on the land of petitioner? If they did, does he have the right to recover possession of the
property? Furthermore, without preempting the disposition of the case for accion publiciana pending before the CA, we note that if
respondents built structures on the subject land, and if they were builders in good faith, they would be entitled to appropriate rights
under the Civil Code. This Court merely points out that there are still issues that the CA needs to resolve in the appealed case before it.

Moreover, there are also the questions of whether respondents should be made to pay back monthly rentals for the alleged
encroachment; and whether the reward of attorney's fees, which are also being questioned, was proper. The pronouncements of the CA
on these issues would certainly be of practical value to the parties. After all, should it find that there was no encroachment, for
instance, respondents would be entitled to substantial relief. In view of all these considerations, it cannot be said that the main case has
become moot and academic.50 (Emphasis supplied.)
In this case, issues arising from the mutually terminated Contract are not moot and academic. As the Court of Appeals found, there are
actual substantial reliefs that respondent is entitled to. There is a practical use or value to decide on the issues raised by the parties
despite the mutual termination of the Contract between them. These issues include the determination of amounts payable to
respondent by virtue of the time extensions, respondent's entitlement to price adjustments due to the delay of the issuance of the
Notice to Proceed, additional costs, actual damages, and interest on its claims. The agreement to mutually terminate the Contract did
not wipe out petitioner's obligation to pay respondent on works done before the Contract's termination on October 27, 2004.

III

According to petitioner, the filing of the claim before CIAC was premature, since under CIAC rules, there must be an exhaustion of
administrative remedies first before government contracts are brought to it for arbitration.51

Respondent, on the other hand, denies violating the rule on exhaustion of administrative remedies. It claims that it sent at least 17
demand letters to petitioner, four (4) of which were sent to the DPWH Secretary directly.52

Petitioner's argument fails to convince.

The case is not premature. The pertinent provision on available administrative remedies can be found in Sub-Clause 67.1 of the
Conditions of Contract:
Settlement of Disputes

Engineer's Decision 67.1 If a dispute of any kind whatsoever arises between the Employer and the Contractor in connection with, or
arising out of, the Contract or the execution of the Works, whether during the execution of the Works or after their completion and
whether before or after repudiation or other termination of the Contract, including any dispute as to any opinion, instruction,
determination, certificate or valuation of the Engineer, the matter in dispute shall, in the first place, be referred in writing to the
Engineer, with a copy to the other party. Such reference shall state that it is made pursuant to this Clause. No later than the eighty-
-fourth day after the day on which he received such reference the Engineer shall give notice of his decision to the Employer and the
Contractor. Such decision shall state that it is made pursuant to this Clause.

Unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue to proceed with the Works
with all due diligence and the Contractor and the Employer shall give effect forthwith to every such decision of the Engineer unless
and until the same shall be revised, as hereinafter provided, in an amicable settlement or an arbitral award.

If either the Employer or the Contractor be dissatisfied with any decision of the Engineer, or if the Engineer fails to give notice of his
decision on or before the eighty-fourth day after the day on which he received the reference, then either the Employer or the
Contractor may, on or before the seventieth day after the day on which he received notice of such decision, or on or before the
seventieth day after the day on which the said period of 84 days expired, as the case may be, give notice to the other party, with a copy
for information to the Engineer, of his intention to commence arbitration, as hereinafter provided, as to the matter in dispute. Such
notice shall establish the entitlement of the party giving the same to commence arbitration, as hereinafter provided, as to such dispute
and, subject to Sub-Clause 67.4, no arbitration in respect thereof may be commenced unless such notice is given.

If the Engineer has given notice of his decision as to a matter in dispute to the Employer and the Contractor and no notice of intention
to commence arbitration as to such dispute has been given by either the Employer or the Contractor on or before the seventieth day

81
after the day on which the patties received notice as to such decision from the Engineer, the said decision shall become final and
binding upon the Employer and the Contractor.53 (Emphasis supplied)
Under the doctrine of exhaustion of administrative remedies, the concerned administrative agency must be given the opportunity to
decide a matter within its jurisdiction before an action is brought before the courts, otherwise, the action will be declared premature.54

In this case, CIAC found and correctly ruled that respondent had duly complied with the contractual obligation to exhaust
administrative remedies provided for under sub-clause 67.1 of the Conditions of Contract before it brought the case before the
tribunal:
The Claimant further alleged that, despite of such knowledge, no relief from the Secretary was forthcoming. It would therefore be an
exercise in futility if Claimant, after it had sent respondent the seventeen (17) demand letters and despite the unequivocal admission
by Respondent's foreign consultant in charge of the project of respondent's liability and failure to pay (Annex C of the Complaint),
will further be required to undergo another series of presentation and exchange of documentation. Moreover, Respondent has not
indicated any practical benefit of resending the demand to the Secretary nor any prejudice for not doing so.

In this particular contract project, the procedural requirements governing the Settlement of Disputes is specifically provided under
Clause 67 of the Conditions of the Contract which Claimant has complied with pursuant to the first paragraph of its letter dated
September 10, 2004 (annex R) pertinent provisions thereof is read, as follows:

"Pursuant to the provision of Clause 67.1 of the conditions of contracts, we are formally referring to your good office several office
several [sic] points of disagreement between the position you have taken and the position we have argued for. These were already the
subject of voluminous correspondence between your good self and our company but no clear-cut resolution of the issues raised was
ever made."

In the last paragraph of the letter on September 10, 2004 (Annex "R"), Claimant has requested Respondent for a definitive ruling on
the disputes which were enumerated therein so that Claimant could avail of the remedies given to it by the aforesaid Clause 67.1. In
spite of Claimant's request, respondent DPWH did not act on the same.

The evidence also disclosed that as far as delayed payments are concerned, Claimant made various verbal and written demands for
payment as evidenced by Exhibits "E" to "E-16" or starting December 5, 2000. The demands were not heeded.55
A total of 17 demand letters were sent to petitioner to no avail. To require respondent to wait for the DPWH Secretary's response
while respondent continued to suffer financially would be to condone petitioner's avoidance of its obligations to respondent. Hence,
even assuming that sub-clause 67.1 was not applicable, the case would still fall within the exceptions to the doctrine of exhaustion of
administrative remedies56 since strict application of the doctrine will be set aside when requiring it would only be unreasonable under
the circumstances.57

IV

Petitioner avers that the Court of Appeals gravely erred in rendering the assailed decision because it completely ignored, overlooked,
or misappreciated facts of substance, which, if duly considered, would materially affect the outcome of the case. Petitioner argues that
the present case is an exception to the rule that only questions of law may be raised in a Petition for Review under Rule 45 of the
Rules of Court.58

Before delving into the issues raised, it is imperative to understand CIAC's role as the arbitral tribunal at the center of this dispute.

CIAC was created under Executive Order No. 1008, or the "Construction Industry Arbitration Law." It was originally under the
administrative supervision of the Philippine Domestic Construction Board59 which, in turn, was an implementing agency of the
Construction Industry Authority of the Philippines.60 The Construction Industry Authority of the Philippines is presently a part of the
Department of Trade and Industry as an attached agency.61

CIAC's specific purpose is the "early and expeditious settlement of disputes"62 in the construction industry as a recognition of the
industry's role in "the furtherance of national development goals."63

Section 4 of the Construction Industry Arbitration Law lays out CIAC's jurisdiction:
Section 4. Jurisdiction. - The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion
of the contract, or after the abandonment or breach thereof. These disputes may involve government or private contracts. For the
Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship; violation of
the terms of agreement; interpretation and/or application of contractual time and delays; maintenance and defects; payment, default of
employer or contractor and changes in contract cost.

Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall continue to be covered
by the Labor Code of the Philippines.
Republic Act No. 9184 or the "Government Procurement Reform Act," recognized CIAC's competence in arbitrating over contractual
disputes within the construction industry:
Section 59. Arbitration, Any and all disputes arising from the implementation of a contract covered by this Act shall be submitted to
arbitration in the Philippines according to the provisions of Republic Act No. 876, otherwise known as the "Arbitration Law":
Provided, however, That, disputes that are within the competence of the Construction Industry Arbitration Commission to resolve
shall be referred thereto. The process of arbitration shall be incorporated as a provision in the contract that will be executed pursuant
to the provisions of this Act: Provided, That by mutual agreement, the parties may agree in writing to resort to alternative modes of
dispute resolution. (Emphasis supplied)

82
CIAC's authority to arbitrate construction disputes was then incorporated into the general statutory framework on alternative dispute
resolution through Republic Act No. 9285, the "Alternative Dispute Resolution Act of 2004". Section 34 of Republic Act No. 9285
specifically referred to the Construction Industry Arbitration Law, while Section 35 confirmed CIAC's jurisdiction:
CHAPTER 6 - ARBITRATION OF CONSTRUCTION DISPUTES

Section 34. Arbitration of Construction Disputes: Governing Law. - The arbitration of construction disputes shall be governed by
Executive Order No. 1008, otherwise known as the Constitution Industry Arbitration Law.

Section 35. Coverage of the Law. - Construction disputes which fall within the original and exclusive jurisdiction of the Construction
Industry Arbitration Commission (the "Commission") shall include those between or among parties to, or who are otherwise bound
by, an arbitration agreement, directly or by reference whether such parties are project owner, contractor, subcontractor, quantity
surveyor, bondsman or issuer of an insurance policy in a construction project.

The Commission shall continue to exercise original and exclusive jurisdiction over construction disputes although the arbitration is
"commercial" pursuant to Section 21 of this Act.
As a general rule, findings of fact of CIAC, a quasi-judicial tribunal which has expertise on matters regarding the construction
industry, should be respected and upheld. In National Housing Authority v. First United Constructors Corp.,64 this Court held that
CIAC's factual findings, as affirmed by the Court of Appeals, will not be overturned except as to the most compelling of reasons:
As this finding of fact by the CIAC was affirmed by the Court of Appeals, and it being apparent that the CIAC arrived at said finding
after a thorough consideration of the evidence presented by both parties, the same may no longer be reviewed by this Court. The all
too-familiar rule is that the Court will not, in a petition for review on certiorari, entertain matters factual in nature, save for the most
compelling and cogent reasons, like when such factual findings were drawn from a vacuum or arbitrarily reached, or are grounded
entirely on speculation or conjectures, are conflicting or are premised on the supposed evidence and contradicted by the evidence on
record or when the inference made is manifestly mistaken or absurd. This conclusion is made more compelling by the fact that the
CIAC is a quasi-judicial body whose jurisdiction is confined to construction disputes. Indeed, settled is the rule that findings of fact of
administrative agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific
matters, are generally accorded not only respect, but finality when affirmed by the Court of Appeals.65 (Emphasis supplied)
In distinguishing between commercial arbitration, voluntary arbitration under Article 219(14) of the Labor Code,66 and construction
arbitration, Freuhauf Electronics Philippines Corporation v. Technology Electronics Assembly and Management Pacific67 ruled that
commercial arbitral tribunals are purely ad hoc bodies operating through contractual consent, hence, they are not quasi-judicial
agencies. In contrast, voluntary arbitration under the Labor Code and construction arbitration derive their authority from statute in
recognition of the public interest inherent in their respective spheres. Furthermore, voluntary arbitration under the Labor Code and
construction arbitration exist independently of the will of the contracting parties:
Voluntary Arbitrators resolve labor disputes and grievances arising from the interpretation of Collective Bargaining Agreements.
These disputes were specifically excluded from the coverage of both the Arbitration Law and the ADR Law.

Unlike purely commercial relationships, the relationship between capital and labor are heavily impressed with public interest. Because
of this, Voluntary Arbitrators authorized to resolve labor disputes have been clothed with quasi-judicial authority.

On the other hand, commercial relationships covered by our commercial arbitration laws are purely private and contractual in nature.
Unlike labor relationships, they do not possess the same compelling state interest that would justify state interference into the
autonomy of contracts. Hence, commercial arbitration is a purely private system of adjudication facilitated by private citizens instead
of government instrumentalities wielding quasi-judicial powers.

Moreover, judicial or quasi-judicial jurisdiction cannot be conferred upon a tribunal by the parties alone. The Labor Code itself
confers subject-matter jurisdiction to Voluntary Arbitrators.

Notably, the other arbitration body listed in Rule 43 - the Construction Industry Arbitration Commission (CIAC) - is also a
government agency attached to the Department of Trade and Industry. Its jurisdiction is likewise conferred by statute. By contrast, the
subject- matter jurisdiction of commercial arbitrators is stipulated by the.parties.68 (Emphasis supplied)
V

Petitioner argues that respondent is not entitled to US$358,227.95, as the foreign component of the Contract, because it is not yet
legally demandable.69 In declaring that petitioner should pay the amount as the foreign component of the project, CIAC held that
petitioner did not deny said amount in its answer and that respondent's failure to renew its Letter of Credit does not justify petitioner's
act in withholding the dollar component of the project.70

Petitioner maintains that the delay in payment was due to the negative slippage incurred by respondent and its failure to renew its
Letter of Credit. Petitioner argues that under Clause 60.11 of the Conditions of the Contract, Part II, an irrevocable standby letter of
credit is required before petitioner can release the advance payment.71 Petitioner states:
In this case, respondent does not deny that its LC No. OIDS-00022-00027-0 issued by the United Coconut Planters Bank (UCPB)
expired on October 15, 2003. Petitioner reminded respondent several times on the imperative need for the renewal of its LC to avoid
delay in the processing of its billing. The purpose of said LC is to guarantee the return of the advance payment by petitioner to
respondent.72
Hence, petitioner claims that respondent cannot compel the payment of the foreign component of the Contract because it did not
comply with the letter of credit requirement. Moreover, petitioner asserts that "In directing petitioner to pay the said award to
respondent without the latter posting the said letter of credit, the CIAC and the Court of Appeals effectively amended the stipulation
thereon in the contract which is legally impermissible."73

For respondent's part, it argues that it was impossible to renew the Letter of Credit. It explained that banks refused the renewal of the
Letter of Credit since the original contract period had already expired and petitioner did not act on respondent's requests for
extension.74 In addition, evidence shows that "the main reason of the non-payment of dollar component was due to unresolved issues,

83
the right of way acquisition problem between ADB and the [government], wherein ADB was forced to suspend the loan disbursement
for the entire 6th Road Improvement Project effective 01 June 2003 due to this conflict."75 Nevertheless, respondent admitted that the
mutual termination of the Contract rendered the requirement of a Letter of Credit for the release of the $358,227.95 moot and
academic.76

This Court affirms the findings of CIAC and the Court of Appeals that respondent is entitled to the foreign component of the Contract.

CIAC found that petitioner was not justified in withholding the payment for the dollar component of the Contract.77 Further, it found
that respondent was justified and not at fault for not reviewing the Letter of Credit. It held that:
The Arbitral Tribunal is persuaded that the main reason for the non-payment of the dollar component was due to the unresolved issues
(right of way acquisition) between the ADB and the Government of the Philippines where the Loan Disbursement was suspended by
ADB for the 61 Road Improvement Project effective 01 June 2003 . . . The foreign Consultant even admonished Respondent DPWH
and reiterated that it should take prompt action to effect payment of outstanding monies due, and nothing was ever mentioned of the
failure to renew the Letter of Credit. (paragraph 3.2 of affidavit by Ferdinand Mariano)

Moreover, Claimant explained to the Respondent why the Letter of credit could not be renewed in its letter of 01 and 15 March 2004
(Exh. "C-16" and "C-17"). It appears that one of the bank's requirements for issuance of the Letter of Credit was the approved time
extension and the extension of the contract, but Respondent refused to issue any document extending the contract.

On the other hand, the Respondent's justification was only based on its accounting requirement. It asserted that the LC guaranteed the
advance payment as well as the work completion. It further stated that the LC was a requirement by the funding bank (By Subair S.
Diron, paragraph 3.1.1 of Joint Affidavit by Heinz Reister, Diron and Pandapatan)78 (Emphasis supplied)
In National Housing Authority v. First United Constructors Corp.,79 this Court held that the respondent contractor was entitled to the
payment of its claims, as the non-posting of the required Payment Guarantee Bond was due to the inaction of petitioner National
Housing Authority:
Petitioner's subsequent refusal to process and pay these claims despite FUCC's willingness to submit a surety bond to secure the
balance of the advance payment still to be recouped by NHA - as the parties had agreed upon which bond would be submitted when
the check payment for the claim is about to be released, clearly constitutes a violation by NHA of FUCC's right to be paid these
acknowledged and recognized claims. Thus, respondent had an accrued cause of action against petitioner for these claims at the time it
filed its Complaint, the constitutive elements of which are clearly set forth therein.80 (Emphasis supplied)
In the present case, the renewal of the Letter of Credit hinged on the extension of the contract period. Despite notice by respondent of
the bank's requirement for the renewal of the Letter of Credit, petitioner chose to ignore respondent's requests for time extensions.
Therefore, petitioner cannot shift the blame to respondent and claim that the Letter of Credit was a condition sine qua non for the
payment of the dollar component of the project.

VI

Petitioner also assails the findings of the Court of Appeals with regard to the time extensions respondent is entitled to. Petitioner
argues that both the CIAC and the Court of Appeals failed to consider the subsequent payments made to respondent after the
conclusion of the arbitration hearings. Thus, the tribunal's finding that petitioner still owes respondent US$358,227.95 is factually
erroneous.

Petitioner claims that "respondent failed to prove that it is entitled to the time extensions of: (1) 133 calendar days in addition to the
144-calendar days previously agreed by the parties and (2) 108-calendar days due to delayed payments."81

On the other hand, respondent argues that it is entitled to time extensions in addition to the 144 calendar days granted to it under
Variation Order No. 2.82 Respondent claims it is entitled to a total of 277 calendar days based on the approved revised Project
Evaluation Review Tracking- Critical Path Method (PERT-CPM) diagram and S-Curve,83 As explained by witness Engr. Reyes, rock
excavation requires special skills, equipment, and explosives. These factors were not considered when the original contract schedule
was prepared.84

Respondent further claims that it is entitled to another time extension due to the delay in payment. Respondent maintains that it
infused more than double the 10% credit line amounting to P157,747,945.00.85 Respondent also claims that it had already mobilized
working and state-of-the-art equipment.86

The DPWH Bureau of Construction evaluated respondent's request for time extension and recommended its approval to the
Secretary.87 However, the recommendation was withdrawn "on the pretext that said DPWH guidelines for computation of time
extension due to delayed payments [were] revised and modified."88

Respondent points out that petitioner, through Engr. Pierre Castelli, had acknowledged that the delayed payment had greatly affected
respondent's cash flow.89

Respondent likewise asserts that it is entitled to a time extension due to peace and order problems. Petitioner did not object to
respondent's entitlement to an extension due to the peace and order situation. Hence, the only thing required is to determine the
number of calendar days' extension respondent is entitled to based on the circumstances.90

Chief Resident Engineer Andre Drockur of BCEOM French Engineering Consultant recommended a time extension of 29 calendar
days due to the peace and order situation. While respondent did not agree with the consultant's recommendation, it still adopted such
recommendation to expedite the computation of time extension due to peace and order problems.91

According to CIAC, respondent was entitled to time extensions in addition to the 144-calendar day extension agreed upon by the
parties, as per Variation Order No. 2:

84
The Arbitral tribunal finds that the computation presented by the Claimant based form the approved revised PERT/CPM and S-Curve
is acceptable and the 277 calendar days should have been granted by the Respondent or an additional of 133 calendar days. However,
the project is now terminated. The actual accomplishment as per letter of [Chief Resident Engineer] to DPWH dated September 18,
2003 shows that the actual volume of accomplishment was only 2,732 m2 of hardrock an 4,444 m3 of rippable rock. Thus, the entire
volume under Change Order #2 [or Variation Order No. 2] will not be consumed as the work is no 80% comp1ete[.]92
The Court of Appeals affirmed that respondent was entitled to a 133-day time extension in addition to the 144 calendar days under
Variation Order No. 2.93 However, the Court of Appeals noted that CIAC did not specify whether respondent was entitled to the full
133 days' extension, considering that it found that the entire volume in Variation Order No. 2 will not be fully used up due to
respondent's 80% accomplishment.94

CIAC also held that respondent was entitled to a time extension of 108 calendar days due to petitioner's delayed payments95 and
another time extension of 29 calendar days due to the peace and order situation in the project area.96

This Court sees no reason to deviate from the findings of both CIAC and the Court of Appeals with regard to respondent's entitlement
to time extensions: 1) under Variation Order No. 2; 2) due to the delay in payment; and 3) due to the peace and order situation, since
these are supported by the evidence on record.

To reiterate, findings of fact of administrative agencies and quasi--judicial bodies are entitled to great respect and even finality when
affirmed by the appellate court,97 In this case, the Court of Appeals found that respondent was entitled to the time extensions as
evaluated by CIAC, the agency tasked to resolve issues regarding the construction industry. Both tribunal found that respondent was
entitled to the extensions due to petitioners delayed payments, peace and order situation, and Variation Order No. 2. These findings
are clearly supported by the facts on record.

However, in light of the mutual termination of the Contract, the remand of the case to CIAC will serve no practical purpose and is,
therefore, unnecessary.

VII

According to respondent the delay in the issuance of the Notice to Proceed entitles it to a price adjustment under Presidential Decree
No. 1594. Bidding was conducted in January 1998 and respondent was declared the winning bidder. The Contract was signed on April
29, 1999. However, the Notice to Proceed was issued on May 5, 1999, or after a delay of more than 120 days from the bidding date,
which entitles the bidder to an adjustment in the contract unit price under Presidential Decree No. 1594.98

On the other hand, petitioner claims that respondent did not question the findings of the Court of Appeals regarding price adjustment
and claim for actual damages. Hence, it should not be allowed to assail the Court of Appeals' ruling on this issue before this Court.99

Both CIAC and the Court of Appeals found that respondent was not entitled to a price adjustment:
As to the first issue raised by the Claimant, this Court finds that the CIAC committed no reversible error in not awarding the price
adjustment being sought by the Claimant under P.D. 1594, finding as flawed its claim based on the alleged DPWH's delay in the
issuance of the notice to proceed.

We quote with approval the pertinent ratiocination of the CIAC on this point, thus:
....

However, the Claimant is not entitled to a price adjustment under P.D. 1594 because it is the ADB Guideline[s] on Procurement which
should be followed, and not the provisions on P.D. 1594. In fact the bid of the Contractor was awarded despite its being above the
approved Agency Estimates (AAE), based on the ADB guidelines, and against the provisions of P.D. 1594 (paragraph 7.2 of Joint
Affidavit by Heinz Reister, Diron and Pandapatan).

The Arbitral Tribunal finds that the Guidelines of the Asian Development Bank govern this subject Project. Moreover, P.D. 1594
honors the treaties and international or executive agreements to which the Philippine Government is a signatory. Loan agreements
such as those entered into with international funding institutions like ADB are considered to be within the ambit of DOJ opinion No.
46, S. 1987 and are therefore exempt from the application of P.D. No. 1594 as amended (Paragraph 7.1.1 of Joint Affidavit by Heinz
Reister, Diron and Pandapatan).

....
If the Claimant's bid was awarded despite its being above the approved Agency Estimates based on the ADB guidelines, and against
the provisions of P.D. 1594, We cannot see the rationale on why the Claimant now refuses to abide by the ADB guidelines on
procurement. After the claimant was benefited by the approved bid at the inception of the project, We hold that it is unjustified for the
Claimant not to be bound by the ADB guidelines under the pretext that it fails to get the supposed price adjustment.100 (Emphasis
supplied)
While respondent did not appeal the Court of Appeals' ruling with regard to its entitlement to a price adjustment under Presidential
Decree No. 1594, for purposes of clarity and to finally settle the matter, this Court affirms the findings of CIAC and the Court of
Appeals.

This Court has held that a foreign loan agreement with international financial institutions, such as a multilateral lending agency
organized by governments like the Asian Development Bank, is an executive or international agreement contemplated by our
government procurement system.101

In Abaya v. Ebdane, Jr.,102 this Court upheld the applicability of the Japan Bank for International Cooperation's Procurement
Guidelines to the implementation of the projects to be undertaken pursuant to the loan agreement between the Republic of the
Philippines and Japan Bank for International Cooperation.103

85
While the Implementing Rules and Regulations104 of Presidential Decree No. 1594 provide the formula for price adjustment in case
of delay in the issuance of a notice to proceed, the law does not proscribe parties from making certain contractual stipulations. In this
case, the Construction Contract is clear that in case of price adjustments, Clause 70 of the Conditions of Contract will apply:
3. That computation and payment of contract prices adjustment will be applied in accordance with Clause 70 of the Conditions of
Contract;105
It is unclear from the records, however, whether the Asian Development Bank Guidelines was substantially the same as Clause 70 of
the Conditions of Contract. Nevertheless, as in the Abaya case, it should be the guidelines that the parties have agreed upon, i.e., the
Asian Development Bank Guidelines, that should govern in case of issues arising from the contract. Respondent failed to proffer
evidence on what the Asian Development Bank Guidelines provide, if any, in the event of a delay in the issuance of a Notice to
Proceed.

VIII

Petitioner argues that "CIAC and the Court of Appeals grossly erred in awarding P5,080,000.00, plus legal interest of P464,298.08 for
the alleged equipment and financial losses; and additional cost resulting from the alleged bombing incident of P6,267,410.48, plus
legal interest of P320,410.63."106

Furthermore, petitioner asserts that "the award to respondent of additional costs in the contract price under Clause 69.4 of the General
Conditions of the Contract in the amount of P20,311,072.66, plus legal interest of P1,038,368.78 is improper."107 Petitioner maintains
that the award to respondent of additional costs in the contract price under Clause 69.4 of the General Conditions of Contract was
baseless, since the Engineer had not yet consulted with the parties to determine the amount of additional costs.108

In contrast, respondent claims that it is entitled to equipment and financial losses due to the peace and order situation.109

Petitioner's arguments are untenable.

It has been sufficiently established that a peace and order problem arose at the project site:
The Arbitral Tribunal was persuaded by the fact that six (6) named persons and four (4) John Does were accused of Destructive Arson
in the Municipal Circuit Trial Court of Dumalinao Zamboanga del Sur for feloniously setting on fire simultaneously one (1) unit of
Kumatsu Payloader amounting to Php3,000,000.00 and one (1) unit Isuzu 10 Wheeler Dump Truck amounting to Php800,000.00, both
belonging to the Claimant. The accused are believed NP's with motives of hatred due to vain collection of revolutionary taxes from
Claimant (Exh. "C-5").

The burning of the Payloader and Dump Truck, subject of the criminal case (Exh. "C-5'') was corroborated in its entirety by the
testimony of Pedrito G. Palancos, operator of the burnt Payloader in his affidavit, paragraph 6.6 to 6.9, part of the records of this case.

The Chief of Police of Kumalarang, Zamboanga del Sur submitted a Special Written Report to the PNP Provincial Director, regarding
the bombing at Claimant's hatching plant in Boyugan, Kumalarang, del Sur on 11 March 2003.

The bombing incident revealed that it resulted in conflagration causing damage to the Generator Set, Caterpillar Brand KVA 180-180
and the Conveyor, with total estimated cost of Php7,300,000.00.

Intelligence Action Agent gathered information that MILF Members, all armed with undetermined numbers, but believed to be under
Commander Susob Edris, were sighted by the barangay officials and the neighbor of the Plant location, when the incident occurred.
(Exh. "C-9").

The two incidents described above, one costing approximately Php3,800,000.00 and the other costing approximately Php7,300,000.00,
will have a total of approximately Php11,100,000.00 or Php11,347,410.48 to be exact. This is the amount that Claimant is entitled due
to the peace and order situation at the Project site.110
This Court finds that CIAC and the Court of Appeals did not err when they found that respondent was entitled to its claim for
equipment and financial losses. The situation was an assumed risk of petitioner as employer and is, thus, compensable under Clause
20.4 of the Conditions of Contract, which lists the Employer's risks as:
(a) war, hostilities (whether war be declared or not), invasion, act of foreign enemies,

(b) rebellion, revolution, insurrection, or military or usurped power, or civil war,

(c) ionising radiations, or contamination by radio-activity from any nuclear fuel, or from any nuclear waste from the combustion of
nuclear fuel, radio- active toxic explosive, or other hazardous properties of any explosive nuclear assembly or nuclear component
thereof,

(d) pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds,

(e) riot, commotion or disorder, unless solely restricted to employees of the Contractor or of his Subcontractors and arising from the
conduct of the Works,

(f) loss or damage due to the use or occupation by the Employer of any Section or part of the Permanent Works, except as may be
provided for in the Contract,

(g) loss or damage to the extent that it is due to the design of the Works, other any part of the design provided by the Contractor or for
which the Contractor is responsible,

86
(h) any operation of the forces of nature against which an experienced contractor could not reasonably have been expected to take
precautions.111 (Emphasis supplied)
It is clear from the above provision that the assumed risks of the employer under Clause 20.4 of the Conditions of Contract include
rebellion, revolution, insurrection, or military or usurped power, or civil war.

Petitioner further insists that respondent is not yet entitled to the claim because there is no determination by the Engineer of the costs
incurred, as required under Clause 69.4 of the Conditions of Contract.112

In its Answer before CIAC, petitioner denied respondent's claims for additional costs under Clause 69.4. Petitioner stated that its
denial will be explained more specifically in its Affirmative Defenses:
6. DENIES the allegations in paragraphs 12, 13, 14, 15 and 16 of the complaint for being preposterous, misleading and patently
without legal and factual basis, the truth being that as per the Conditions of Contract, complainant is not entitled to the payment of
additional cost on slowdown or suspension of work on the project, reimbursement for alleged equipment losses and additional time
extensions to complete the project specifically stated/discussed in the Affirmative Defenses hereof.113 (Emphasis supplied)
However, a perusal of petitioner's Affirmative Defenses reveals that no such qualification was made.

Under Rule 8, Section 10 of the Rules of Court, the "defendant must specify each material allegation of fact the truth of which he does
not admit and, whenever practicable, shall set forth the substance of the matters upon which he relies to support his denial." There are
three (3) modes of specific denial provided for under the Rules:
1) by specifying each material allegation of the fact in the complaint, the truth of which the defendant does not admit, and whenever
practicable, setting forth the substance of the matters which he will rely upon to support his denial; (2) by specifying so much of an
averment in the complaint as is true and material and denying only the remainder; (3) by stating that the defendant is without
knowledge or information sufficient to form a belief as to the truth of a material averment in the complaint, which has the effect of a
denial.114
In Aquintey v. Spouses Tibong,115 this Court held that using "specifically" in a general denial does not automatically convert that
general denial to a specific one. The denial in the answer must be definite as to what is admitted and what is denied, such that the
adverse party will not have to resort to guesswork over "what is admitted, what is denied, and what is covered by denials of
knowledge as sufficient to form a belief."116

The petitioner only tackled the issue on the claim for additional costs in the Joint Affidavit of petitioner's witnesses Heinz Reister,
Subair S. Diron, and Abdulfatak A. Pandapatan:
Issue No. 9. Is claimant entitled to additional cost under Clause 69.4 of the General Conditions of Contract? If so, how much?

Subair S. Diron and Abdulfatak A. Pandapatan testifying:

9.1
Q: Is claimant entitled to additional cost/charges under Clause 69.4 of the General Conditions of Contract?
A: Not yet, the claimant should establish that it is allowed.117
This Court finds that petitioner failed to specifically deny the claims of respondent and had, therefore, admitted such claims. This
Court agrees that respondent was able to establish its claims before the CIAC. This Court notes that the project was in Mindanao, and
mobilization of workers and equipment is not an easy feat and not without cost. Respondent believed that the suspension would only
be temporary and work could resume at any time once petitioner settled its obligation. Petitioner must compensate respondent for the
costs it incurred without any fault on respondent's part.

IX

During the arbitration hearing before the CIAC, respondent itself admitted that there was no provision in the Conditions of Contract
for interest at the rate of 24% per annum on delayed payments.118

Respondent tries to excuse the lack of contractual stipulations by claiming that the amount of 24% interest is payment for actual
damages and not stipulated interest.119

Respondent claims that petitioner is liable for the amounts respondent owes its creditors in the total amounts of P10,297,090.42 and
USD$118,094.93. In addition, respondent avers that petitioner should pay it 6% interest per annum computed from the receipt of the
first demand letter for payment sent by respondent, as a result of delay in the payment for work accomplished.120

The Court is not convinced.

It is fundamental that a contract is the law between the parties and, absent any showing that its provisions are wholly or in part
contrary to law, morals, good customs, public order, or public policy, it shall be enforced to the letter by the courts.121

Respondent was not able to establish the basis of its claim that it is entitled to an award of 24% interest. Moreover, as found by the
Court of Appeals and CIAC, the parties had agreed to delete the provision on interest on delayed payments, since the project was
funded by the Asian Development Bank.122

There is also no basis to award respondent 24% interest as actual damages for the additional expenses it incurred due to petitioner's
delayed payments.

Before actual damages may be awarded, it is imperative that the claimant proves its claims first. The issue on the amount of actual or
compensatory damages is a question of fact,123 and except as provided by law or by stipulation, one is entitled to adequate
compensation only for pecuniary loss duly proven.124

87
In this case, respondent has not sufficiently shown how awarding it 24% interest per annum on delayed payments corresponds to the
actual damages it allegedly suffered. Respondent failed to show a causal relation between the alleged losses and the injury it suffered
from petitioner's actions.

Respondent claims that it should be paid in U.S. dollars as specified in the Contract.125 It argues that the present case is an exception
to the general rule that obligations should be paid in Philippine currency.126

The Court of Appeals held that the parties subsequently agreed that payments made after March 31, 2003 shall be in pesos only:

However, one aspect in the CIAC decision is shrouded with cloud. This concerns CIAC's order to DPWH to pay its alleged liability to
the Claimant in US dollars. It is worthy to note that aside from the agreement of the parties - particularly in paragraph 5 of the
contract, supra, to fix the exchange rate at P34.9 for every US$1.00, the Claimant itself has acknowledged in its request that it was
advised by the DPWH per its letter dated 13 August 2003 that all payments for works earned out after 31 March 2003 and related
price escalation claims and retention releases in the contract will be in pesos only, therefore no foreign exchange payments. This fact
was never contested by the Claimant thereby creating a presumption that it has acquiesced to the request of the DPWH. Thus, We
cannot see Our way through on why the CIAC has still to make a ruling on the Interest Computation of Delayed Payment at 6% Per
Annum at US$45,206.14 as well as the Foreign Component of US$358,227.95 plus legal interest at US$18.313.79 citing the
exemption of transactions where the funds involved are the proceeds of loans or investments made through bona fide intermediaries or
agents, by foreign government and banking institutions such as the Asian Development Bank (ADB) from the coverage of Republic
Act 529 otherwise known a[s] "An Act to Assure Uniform Value to Philippine Coin and Currency". Worse, there was no mention
about the subsequent notice by the DPWH to the Claimant, supra about their subseq ent understanding on "no foreign exchange
payments". This is indeed one dubious area that nt, eds to he darified by no less than the CIAC itself.e DPWH to the Claimant, supra
about their subsequent understanding on "no foreign exchange payments". This is indeed one dubious area that needs to be clarified by
no less than the CIAC itself.127 (Emphasis supplied)

Again, considering that respondent did not appeal the Court of Appeals decision, the appellate court's ruling on this issue is deemed
final as to respondent, and there is no need to remand this issue to the CIAC. Issues not raised on appeal are already final and cannot
be disturbed.128

XI

CIAC imposed legal interest in its Award as follows:

In view of the foregoing, the Claimant is entitled to payment of legal interest of 6% per annum from the receipt of its extrajudicial
demand.

Thus, under Issue No. 3 where the Claimant was awarded US$358,227.95, the Claimant is entitled to legal interest of 6% per annum
commencing from 2 March 2004 up to this date (or 311 days) in the amount of US$18,313.79.

Under Issue No. 8 where the Claimant was awarded P11,347,410.48, the Claimant is entitled to legal interest of 6% per annum for the
Equipment and Plant of P5,080,000.00 commencing from 1 July 2003 (or 556 days) in, the amount of P464,298.08 and for the
resulting Additional Expenses of P6,267,410.48 commencing from 2 March 2004 (or 311 days) in the amount of P320,410.63.

Under Issue No. 9 where the Claimant was awarded P20,311,072.66, the Claimant is entitled to legal interest of 6% per annum for
Additional Cost under 69.4 of the Conditions of Contract commencing from 2 March 2004 (or 311 days) in the amount of
P1,038,368.78.

Under Issue No. 10 with respect to the delayed payment of billings for various amounts and on various dates, the Claimant is entitled
to legal interest of 6% per annum as detailed in Attachment 1, in the amount of US$45,206.14 and P2,175,516.63.

However, pursuant to the Eastern Shipping Lines vs. Court of Appeals, 234 SCRA 78 (1994), a monetary award shall earn interest at
the rate of 12% per annum from the date when the award becomes final and executory until its satisfaction.129
On May 16, 2013, the Monetary Board of the Bangko Sentral ng Pilipinas issued Resolution No. 796, which revised the interest rate to
be imposed on the loan or forbearance of any money, goods, or credits. This was implemented in Bangko Sentral ng Pilipinas Circular
No.799130 Series of 2013, which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest in
the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the
absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 43058.3 and
4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.

This Circular shall take effect on 1 July 2013.

Nacar v. Gallery Frames131 then laid down the guidelines for the imposition of legal interest:
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines are accordingly modified to
embody BSP MB Circular No. 799, as follows:

88
I. When an obligation, regardless of its source, i.e., law, contracts, quasi--contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining
the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may
be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims
or damages, except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case
falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed therein.132
Before Nacar and Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796 dated May 16, 2013, the rate of legal interest was
pegged at 12% per annurn from finality of judgment until its satisfaction, "this interim period being deemed to be by then an
equivalent to a forbearance of credit."133

With this Court's pronouncement in Nacar, the rate of interest imposed should be modified. The monetary awards, as computed by the
CIAC, should earn legal interest at the rate of 12% per annum until June 30, 2013, after which, it shall earn legal interest at the rate of
6% per annum until full satisfaction.

The other issues raised by the parties were no longer discussed due to the mutual termination of the Contract by parties, which
rendered them moot and academic.

WHEREFORE, the Petition is DENIED. The Court of Appeals Decision dated September 20, 2007 in CA-G.R. SP Nos. 88953 and
88911 is AFFIRMED with MODIFICATION as follows: (1) that the order remanding the case to the Construction Industry
Arbitration Commission for proper disposition is REVERSED for being moot and academic; and (2) that the legal interest rate is
pegged at twelve percent (12%) per annum until June 30, 2013, and then at six percent (6%) per annum until full satisfaction.

SO ORDERED.

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[ G.R. No. 192725, August 09, 2017 ]

CE CONSTRUCTION CORPORATION, PETITIONER, VS. ARANETA CENTER INC., RESPONDENT.

DECISION

LEONEN, J.:
A tribunal confronted not only with ambiguous contractual terms but also with the total absence of an instrument which definitively
articulates the contracting parties' agreement does not act in excess of jurisdiction when it employs aids in interpretation, such as those
articulated in Articles 1370 to 1379 of the Civil Code. In so doing, a tribunal does not conjure its own contractual terms and force
them upon the parties.

In addressing an iniquitous predicament of a contractor that actually renders services but remains inadequately compensated, arbitral
tribunals of the Construction Industry Arbitration Commission (CIAC) enjoy a wide latitude consistent with their technical expertise
and the arbitral process' inherent inclination to afford the most exhaustive means for dispute resolution. When their awards become the
subject of judicial review, courts must defer to the factual findings borne by arbitral tribunals' technical expertise and irreplaceable
experience of presiding over the arbitral process. Exceptions may be availing but only in instances when the integrity of the arbitral
tribunal itself has been put in jeopardy. These grounds are more exceptional than those which are regularly sanctioned in Rule 45
petitions.

This resolves a Petition for Review on Certiorari[1] under Rule 45 of the 1997 Rules of Civil Procedure, praying that the assailed April
28, 2008 Decision[2] and July 1, 2010 Amended Decision[3] of the Court of Appeals in CA-G.R. SP No. 96834 be reversed and set
aside. It likewise prays that the October 25, 2006 Decision[4] of the CIAC Arbitral Tribunal be reinstated.

The CIAC Arbitral Tribunal October 25, 2006 Decision awarded a total sum of P217,428,155.75 in favor of petitioner CE
Construction Corporation (CECON). This sum represented adjustments in unit costs plus interest, variance in take-out costs, change
orders, time extensions, attendance fees, contractor-supplied equipment, and costs of arbitration. This amount was net of the
countervailing awards in favor of respondent Araneta Center, Inc. (ACI), for defective and incomplete works, permits, licenses and
other advances.[5]

The assailed Court of Appeals April 28, 2008 Decision modified the CIAC Arbitral Tribunal October 25, 2006 Decision by awarding
a net amount of P82,758,358.80 in favor of CECON. [6] The Court of Appeals July 1, 2010 Amended Decision adjusted this amount to
P93,896,335.71.[7]

Petitioner CECON was a construction contractor, which, for more than 25 years, had been doing business with respondent ACI, the
developer of Araneta Center, Cubao, Quezon City.[8]

In June 2002, ACI sent invitations to different construction companies, including CECON, for them to bid on a project identified as
"Package #4 Structure/Mechanical, Electrical, and Plumbing/Finishes (excluding Part A Substructure)," a part of its redevelopment
plan for Araneta Center Complex.[9] The project would eventually be the Gateway Mall. As described by ACI, "[t]he Project involved
the design, coordination, construction and completion of all architectural and structural portions of Part B of the Works[;] and the
construction of the architectural and structural portions of Part A of the Works known as Package 4 of the Araneta Center
Redevelopment Project."[10]

As part of its invitation to prospective contractors, ACI furnished bidders with Tender Documents, consisting of:

Volume I: Tender Invitation, Project Description, Instructions to Tenderers, Form of Tender, Dayworks, Preliminaries and General
Requirements, and Conditions of Contract;

Volume II: Technical Specifications for the Architectural, Structural, Mechanical, Plumbing, Fire Protection and Electrical Works;
and

Addenda Nos. 1, 2, 3, and 4 relating to modifications to portions of the Tender Documents. [11]

The Tender Documents described the project's contract sum to be a "lump sum" or "lump sum fixed price" and restricted cost
adjustments, as follows:

6 TYPE OF CONTRACT

This is a Lump Sum Contract and the price is a fixed price not subject to measurement or recalculation should the actual
quantities of work and materials differ from any estimate available at the time of contracting, except in regard to Cost-Bearing
6.1 Changes which may be ordered by the Owner which shall be valued under the terms of the Contract in accordance with the
Schedule of Rates, and with regard to the Value Engineering Proposals under Clause 27. The Contract Sum shall not be
adjusted for changes in the cost of labour, materials or other matters. [12]

TENDER AND CONTRACT

Fixed Price Contract

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 1. The Contract Sum payable to the Contactor is a Lump Sum Fixed Price and will not be subject to adjustment, save only
where expressly provided for within the Contract Documents and the Form of Agreement.

2. The Contract Sum shall not be subject to any adjustment "in respect of rise and fall in the cost of materials[,] labor, plant,
equipment, exchange rates or any other matters affecting the cost of execution of Contract, save only where expressly
provided for within the Contract Documents or the Form of Agreement.

3. The Contract Sum shall further not be subject to any change in subsequent legislation, which causes additional or reduced
costs to the Contractor.[13]

The bidders' proposals for the project were submitted on August 30, 2002. These were based on "design and construct" bidding. [14]

CECON submitted its bid, indicating a tender amount of P1,449,089,174.00. This amount was inclusive of "both the act of designing
the building and executing its construction." Its bid and tender were based on schematic drawings, i.e., conceptual designs and
suppositions culled from ACI's Tender Documents. CECON's proposal "specifically stated that its bid was valid for only ninety (90)
days, or only until 29 November 2002." This tender proposed a total of 400 days, or until January 10, 2004, for the implementation
and completion of the project.[15]

CECON offered the lowest tender amount. However, ACI did not award the project to any bidder, even as the validity of CECON's
proposal lapsed on November 29, 2002. ACI only subsequently informed CECON that the contract was being awarded to it. ACI
elected to inform CECON verbally and not in writing.[16]

In a phone call on December 7, 2002, ACI instructed CECON to proceed with excavation works on the project. ACI, however, was
unable to deliver to CECON the entire project site. Only half, identified as the Malvar-to-Roxas portion, was immediately available.
The other half, identified as the Roxas to-Coliseum portion, was delivered only about five (5) months later. [17]

As the details of the project had yet to be finalized, ACI and CECON pursued further negotiations. ACI and CECON subsequently
agreed to include in the project the construction of an office tower atop the portion identified as Part A of the project. This escalated
CECON's project cost to P1,582,810,525.00. [18]

After further negotiations, the project cost was again adjusted to P1,613,615,244.00. Still later, CECON extended to ACI a
P73,615,244.00 discount, thereby"reducing its offered project cost to P1,540,000.00. [19]

Despite these developments, ACI still failed to formally award the project to CECON. The parties had yet to execute a formal
contract. This prompted CECON to write a letter to ACI, dated December 27, 2002, [20] emphasizing that the project cost quoted to
ACI was "based upon the prices prevailing at December 26, 2002" price levels. [21]

By January 2003 and with the project yet to be formally awarded, the prices of steel products had increased by 5% and of cement by
P5.00 per bag. On January 8, 2003, CECON again wrote ACI notifying it of these increasing costs and specifically stating that further
delays may affect the contract sum.[22]

Still without a formal award, CECON again wrote to ACI on January 21, 2003 [23] indicating cost and time adjustments to its original
proposal. Specifically, it referred to an 11.52% increase for the cost of steel products, totalling P24,921,418.00 for the project; a P5.00
increase per bag of cement, totalling P3,698,540.00 for the project; and costs incurred because of changes to the project's structural
framing, totalling P26,011,460.00. The contract sum, therefore, needed to be increased to P1,594,631,418.00. CECON also
specifically stated that its tender relating to these adjusted prices were valid only until January 31, 2003, as further price changes may
be forthcoming. CECON emphasized that its steel supplier had actually already advised it of a forthcoming 10% increase in steel
prices by the first week of February 2003. CECON further impressed upon ACI the need to adjust the 400 days allotted for the
completion of the project.[24]

On February 4, 2003, ACI delivered to CECON the initial tranche of its down payment for the project. By then, prices of steel had
been noted to have increased by 24% from December 2002 prices. This increase was validated by ACI. [25]

Subsequently, ACI informed CECON that it was taking upon itself the design component of the project, removing from CECON's
scope of work the task of coming up with designs. [26]

On June 2, 2003, ACI finally wrote a letter [27] to CECON indicating its acceptance of CECON's August 30, 2002 tender for an
adjusted contract sum of P1,540,000.00 only:

Araneta Center, Inc. (ACI) hereby accepts the C-E Construction Corporation (CEC) tender dated August 30, 2002, submitted to ACI
in the adjusted sum of One Billion Five Hundred Forty Million Pesos Only (P1,540,000,000.00), which sum includes all additionally
quoted and accepted items within this acceptance letter and attachments, Appendix A, consisting of one (1) page, and Appendix B,
consisting of seven (7) pages plus attachments, which sum of One Billion Five Hundred Forty Million Pesos Only
(P1,540,000,000.00) is inclusive of any Government Customs Duty and Taxes including Value Added Tax (VAT) and Expanded
Value Added Tax (EVAD, and which sum is hereinafter referred to as the Contract Sum. [28]
Item 4, Appendix B of this acceptance letter explicitly recognized that "all design except support to excavation sites, is now by
ACI."[29] It thereby confirmed that the parties were not bound by a design-and-construct agreement, as initially contemplated in ACI's
June 2002 invitation, but by a construct-only agreement. The letter stated that "[CECON] acknowledge[s] that a binding contract is
now existing."[30] However, consistent with ACI's admitted changes, it also expressed ACI's corresponding undertaking: "This
notwithstanding, formal contract documents embodying these positions will shortly be prepared and forwarded to you for
execution."[31]

91
Despite ACI's undertaking, no formal contract documents were delivered to CECON or otherwise executed between ACI and
CECON.[32]

As it assumed the design aspect of the project, ACI issued to CECON the construction drawings for the project. Unlike schematics,
these drawings specified "the kind of work to be done and the kind of material to be used." [33] CECON laments, however, that "ACI
issued the construction drawings in piece-meal fashion at times of its own choosing." [34] From the commencement of CECON's
engagement until its turnover of the project to ACI, ACI issued some 1,675 construction drawings. CECON emphasized that many of
these drawings were partial and frequently pertained to revisions of prior items of work. [35] Of these drawings, more than 600 were
issued by ACI well after the intended completion date of January 10, 2004: Drawing No. 1040 was issued on January 12, 2004, and
the latest, Drawing No. 1675, was issued on November 26, 2004. [36]

Apart from shifting its arrangement with CECON from design-and-construct to construct only, ACI introduced other changes to its
arrangements with CECON. CECON underscored two (2) of the most notable of these changes which impelled it to seek legal relief.

First, on January 30, 2003, ACI issued Change Order No. 11, [37] which shifted the portion identified as Part B of the project from
reinforced concrete framing to structural steel framing. Deleting the cost for reinforced concrete framing meant removing
P380,560,300.00 from the contract sum. Nevertheless, replacing reinforced concrete framing with structural steel framing "entailed
substitute cost of Php217,585,000, an additional Php44,281,100 for the additional steel frames due to revisions, and another
Php1,950,000 for the additional pylon." [38]

Second, instead of leaving it to CECON, ACI opted to purchase on its own certain pieces of equipment-elevators, escalators, chillers,
generator sets, indoor substations, cooling towers, pumps, and tanks-which were to be installed in the project. This entailed "take-out
costs"; that is, the value of these pieces of equipment needed to be removed from the total amount due to CECON. ACI considered a
sum totalling P251,443,749.00 to have been removed from the contract sum due to CECON. This amount of P251,443,749.00 was
broken down, as follows:

(a) For elevators/escalators, PhP106,000,000;

(b) For Chillers, PhP41,152,900;
(c) For Generator Sets, PhP53,040,000;
(d) For Indoor Substation, PhP23,024,150;
(e) For Cooling Towers, PhP5,472,809; and
(f) For Pumps and Tanks, PhP22,753,890. [39]
CECON avers that in removing the sum of P251,443,749.00, ACI "simply deleted the amount in the cost breakdown corresponding to
each of the items taken out in the contract documents." [40] ACI thereby disregarded that the corresponding stipulated costs pertained
not only to the acquisition cost of these pieces of equipment but also to so-called "builder's works" and other costs relating to their
preparation for and installation in the project. Finding it unjust to be performing auxiliary services practically for free, CECON
proposed a reduction in the take-out costs claimed by ACI. It instead claimed P26,892,019.00 by way of compensation for the work
that it rendered.[41]

With many changes to the project and ACI's delays in delivering drawings and specifications, CECON increasingly found itself unable
to complete the project on January 10, 2004. It noted that it had to file a total of 15 Requests for Time Extension from June 10, 2003 to
December 15, 2003, all of which ACI failed to timely act on. [42]

Exasperated, CECON served notice upon ACI that it would avail of arbitration. On January 29, 2004, it filed with the CIAC its
Request for Adjudication.[43] It prayed that a total sum of P183,910,176.92 representing adjusted project costs be awarded in its
favor.[44]

On March 31, 2004, CECON and ACI filed before the CIAC a Joint Manifestation [45] indicating that some issues between them had
already been settled. Proceedings before the CIAC were then suspended to enable CECON and ACI to arrive at an amicable
settlement.[46]On October 14, 2004, ACI filed a motion before the CIAC noting that it has validated P85,000,000.00 of the total
amount claimed by CECON. It prayed for more time to arrive at a settlement. [47]

In the meantime, CECON completed the project and turned over Gateway Mall to ACI. [48] It had its blessing on November 26,
2004.[49]

As negotiations seemed futile, on December 29, 2004, CECON filed with the CIAC a Motion to Proceed with arbitration proceedings.
ACI filed an Opposition.[50]

After its Opposition was denied, ACI filed its Answer dated January 26, 2005. [51] It attributed liability for delays to CECON and
sought to recover counterclaims totalling P180,752 297.84. This amount covered liquidated damages for CECON's supposed delays,
the cost of defective works which had to be rectified, the cost of procuring permits and licenses, and ACI's other advances. [52]

On February 8, 2005, ACI filed a Manifestation and Motion seeking the CIAC's clearance for the parties to enter into mediation.
Mediation was then instituted with Atty. Sedfrey Ordonez acting as mediator. [53]

After mediation failed, an arbitral tribunal was constituted through a March 16, 2005 Order of the CIAC. It was to be composed of Dr.
Ernesto S. De Castro, who acted as Chairperson with Engr. Reynaldo T. Viray and Atty. James S. Villafranca as members. [54]

ACI filed a Motion for Reconsideration of the CIAC March 16, 2005 Order. This was denied in the Order dated March 30, 2005. [55]

In the Order dated April 1, 2005, the CIAC Arbitral Tribunal set the preliminary conference on April 13, 2005. [56]

92
At the preliminary conference, CECON indicated that, the total sum it was entitled to recover from ACI needed to be adjusted to
P324,113,410.08. The CIAC Arbitral Tribunal, thus, directed CECON to file an Amended Request for Adjudication/Amended
Complaint.[57]

Following the filing of CECON's Amended Request for Adjudication/Amended Complaint and the ensuing responsive pleadings,
another preliminary conference was set on May 13, 2005. The initial hearing of the case was then set on June 10, 2005. [58]

At the initial hearing, the CIAC Arbitral Tribunal resolved to exclude the amount of P20,483,505.12 from CECON's claims as these
pertained to unpaid accomplishments that did not relate to the issue of cost adjustments attributed to ACI, as originally pleaded by
CECON.[59]

Following the conduct of hearings, the submission of the parties' memoranda and offers of exhibits, the CIAC Arbitral Tribunal
rendered its Decision on October 25, 2006. It awarded a total of P229,223,318.69 to CECON, inclusive of the costs of arbitration. It
completely denied ACI's claims for liquidated damages, but awarded to ACI a total of P11,795,162.93 on account of defective and
rectification works, as well as permits, licenses, and other advances. [60] Thus, the net amount due to CECON was determined to be
P217,428,155.75.

The CIAC Arbitral Tribunal noted that while ACI's initial invitation to bidders was for a lump-sum design-and-construct arrangement,
the way that events actually unfolded clearly indicated a shift to an arrangement where the designs were contingent upon ACI itself.
Considering that the premise for CECON's August 30, 2002 lump-sum offer of P1,540,000.00 was no longer availing, CECON was no
longer bound by its representations in respect of that lump-sum amount. It may then claim cost adjustments totalling P16,429,630.74,
as well as values accruing to the various change orders issued by ACI, totalling P159,827,046.94. [61]

The CIAC Arbitral Tribunal found ACI liable for the delays. This entitled CECON to extended overhead costs and the ensuing
extension cost of its Contractor's All Risk Insurance. For these costs, the CIAC Arbitral Tribunal awarded CECON the total amount of
P16,289,623.08. As it was ACI that was liable for the delays, the CIAC Arbitral Tribunal ruled that ACI was not entitled to liquidated
damages.[62]

The CIAC Arbitral Tribunal ruled that CECON was entitled to a differential in take out costs representing builder's works and related
costs with respect to the equipment purchased by ACI. This differential cost was in the amount of P15,332,091.47. [63] The CIAC
Arbitral Tribunal further noted that while ACI initially opted to purchase by itself pumps, tanks, and cooling towers and removed
these from CECON's scope of work, it subsequently elected to still obtain these through CECON. Considering that the corresponding
amount deducted as take-out costs did not encompass the overhead costs and profits under day work, which should have accrued to
CECON because of these equipment, the CIAC Arbitral Tribunal ruled that CECON was entitled to 18% day work rate or a total of
P21,267,908.00.[64]

The CIAC Arbitral Tribunal also found that, apart from adjusted costs incurred on account of ACI's own activities, it also became
necessary for CECON, as main contractor, to continue extending auxiliary services to the project's subcontractors because of the
delays. Thus, the CIAC Arbitral Tribunal awarded CECON attendance fees-the main contractor's mark-up for auxiliary services
extended to subcontractors - totalling P14,335,674.88. This amount was lower than the original amount prayed for by CECON (i.e.,
P19,544,667.81)[65] as the CIAC Arbitral Tribunal ruled that CECON may not claim attendance fees pertaining to subcontractors
which directly dealt with ACI. [66]

Considering that CECON's predicament was borne by ACI's fault, the CIAC Arbitral Tribunal saw it fit to award to CECON the costs
of arbitration totalling P1,083,802.58.[67]

While mainly ruling in CECON's favor, the CIAC Arbitral Tribunal found CECON liable for discolored and mismatched tiles. It noted
that CECON had engaged the services of a subcontractor for the installation of tiles, for which it claimed attendance fees. Thus, it
awarded P7,980,000.00 to ACI.[68] In addition, it found CECON liable to ACI for amounts paid in advance for permits and licenses for
the additional office tower, electrical consumption, and garbage collection. Thus, it awarded another P3,815,162.93 to ACI. [69]

The dispositive portion of the CIAC Arbitral Tribunal Decision read:

WHEREFORE, Respondent is hereby ordered to pay the Claimant the amount of PESOS TWO HUNDRED SEVENTEEN
MILLION, FOUR HUNDRED TWENTY-EIGHT THOUSAND, ONE HUNDRED FIFTY[-]FIVE PESOS AND SEVENTY[-]FIVE
CENTAVOS (Php217,428,155.75) within thirty (30) days upon promulgation of the award. Interest 6% per annum shall be imposed
on the award for any balance remaining from the promulgation of the award up to the time the award becomes final and executory.
Thereafter, interest of 12% per annum shall be imposed on any balance of the award until fully paid.

SO ORDERED.[70]
On December 4, 2006, ACI filed before the Court of Appeals a Petition for Review[71] under Rule 43 of the 1997 Rules of Civil
Procedure.

In the meantime, on December 28, 2006, the CIAC Arbitral Tribunal issued an Order [72] acknowledging arithmetical errors in its
October 25, 2006 Decision, Thus, it modified its October 25, 2006 Decision, indicating that the net amount due to CECON was
P231,357,136.72, rather than P217,428,155.75. [73]

In its assailed April28, 2008 Decision,[74] the Court of Appeals reduced the award in favor of CECON to P114,324,605.00 and
increased the award to ACI to P31,566,246.20. [75]

The Court of Appeals held as inviolable the lump-sum fixed price arrangement between ACI and CECON. It faulted the CIAC
Arbitral Tribunal for acting in excess of jurisdiction as it supposedly took it upon itself to unilaterally modify the arrangement between

93
ACI and CECON.[76]

Thus, the Court of Appeals deleted the CIAC Arbitral Tribunal's award representing cost adjustments. However, the Court of Appeals
also noted that in ACI's and CECON's March 30, 2004 Joint Ma11ifestation before CIAC, ACI conceded that P10,266,628.00 worth
of cost adjustments was due to CECON and undertook to pay CECON that amount. The Court of Appeals, hence, maintained a
P10,266,628.00 award of cost adjustment in favor of CECON.[77]

On the cost increases borne by Change Order No. 11-the shift from reinforced concrete to structural steel framing-and by transitions
from schematic diagrams to construction drawings, the Court of Appeals dismissed the CIAC Arbitral Tribunals award to CECON as
arising from "pity" and unwarranted by the lump-sum, fixed-price arrangement.[78]

The Court of Appeals held ACI liable to CECON for the sum of P12,672,488.36 for miscellaneous change orders, which it construed
to be "separate contracts that have been entered into at the time [ACI] required them." [79] It likewise held ACI liable for P1,132,946.17
representing the balance of 12 other partially paid change orders. [80]

The Court of Appeals noted that CECON was not entitled to time extensions because the arrangement between ACI and CECON had
never been altered. Consequently, it was not entitled to acceleration co ts, additional overhead, ru1d reimbursement for extending the
Contractor's All Risk Insurance.[81] Conversely, the Court of Appeals held CECON liable for delays thereby entitling ACI to liquidated
damages corresponding to 10% of the supposed contract sum of P1,540,000,000.00, or P15,400,000.00. [82]

Also on account of the supposed lump-sum arrangement, the Court of Appeals held that CECON was not entitled to attendance fees
on contract amounts increased by change order works. [83] It also stated that the rate for attendance fees, overhead, and profit for
subcontractors' works remained subject to the original contract documents based on ACI's original invitation to bidders and had never
been altered.[84]

Regarding attendance fees, the Court of Appeals proffered that the work attributed to subcontractors was merely work done by
CECON itself, thereby negating the need for attendance fees.[85]

Concerning take-out costs, the Court of Appeals stated that CECON was in no position to propose its own take-out costs as the tender
documents issued along with ACI's invitation to bidders stated that take-out costs must be based exclusively on the rates provided in
the Contract Cost Breakdown. Nevertheless, as ACI had previously undertaken to pay the variance in takeout costs amounting to
P3,811,289.70, the Court of Appeals concluded that an award for take-out costs in that amount was proper.[86]

On the CIAC Arbitral Tribunal's award for overhead costs and profits under day work, the Court of Appeals held that it was improper
to grant this award based on stipulations on day works pertaining "only to 'materials' and not to equipment." [87]

Finally, the Court of Appeals held that CECON was not entitled to costs of litigation considering that "no premium is to be placed on
the right to litigate"[88] and since ACI could not be faulted for delays.

The dispositive portion of the assailed Court of Appeals April 28, 2008 Decision read:

WHEREFORE, based on all the foregoing, the Decision of the Arbitral Tribunal is modified as follows:

a. AWARD TO CECON

NO. ISSUE Pesos (PHP)

1 Cost Adjustment 10,266,628.00
2 Take Out Cost of Equipment 3,811,289.70
3 Change Orders 99,119,200.09
a. Approved Change Orders 1,132,946.17
b. [Schematic Drawings] to [Construction Drawings] 80,108,761.60
c. Miscellaneous Change Orders 12,672,488.30
d. Change Order No. 11 5,205,004.02
[4]
Equipment Supplied by Owner 1,127,486.50
Total 114,324,605.00 (sic)
b. AWARD TO ARANETA

NO. ISSUE Pesos (PHP)

[5]
Liquidated Damages 15,400,000.00
[6]
Defective and Incomplete Works 3,000,000.00
Bookmarking Granite Tiles 6,980,000.00
[7]
Permits, Licenses and Other Advances 6,186,246.23
Total 31,566,246.20 (sic)
In addition, CECON is directed to submit all required. close-out documents within thirty (30) days from receipt of this Decision.

The parties shall bear their own costs of arbitration and litigation.

SO ORDERED.[89]
Acting on CECON's Motion for Reconsideration, the Court of Appeals issued its Amended Decision on July 1, 2010. [90] This
Amended Decision increased the award for miscellaneous change orders to P27,601,469.32; reinstated awards for undervalued works
in supplying and installing G.I. sheets worth P1,209,782.50 [91] and for the drilling of holes and application of epoxy worth
P4,543,456.00;[92] and deleted the award for takeout costs.[93]

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The dispositive portion of the assailed Court of Appeals July 1, 2010 Amended Decision read:

WHEREFORE, Our Decision dated 28 April 2008 is hereby modified as follows:

I - AWARD:

a. AWARD TO CE CONSTRUCTION, INC.

NO. ISSUE PESOS (PhP)

1 Additional costs spent on rebars. 10,266,628.00
2 Increase in the costs of cement and formworks falling under cost-bearing change. 5,205,004.02
Representing undervaluation of respondent's works in the supply and installation of
3 1,209,782.50
G.I. sheets.
4 Representing Miscellaneous Change Orders. 27,601,469.32
5 Drilling of Holes 4,543,450.00
6 [Schematic Drawings] to [Construction Drawings] 80,108,761.60
[7]
Installation of equipment supplied by owner. 1,127,486.50
TOTAL 130,062,581.94
b. AWARD TO ARANETA CENTER, INC.

1 Liquidated Damage (sic) 20,000,000.00

2 Defective and Incomplete Works 3,000,000.00
3 Bookmarking Granite Tiles 6,980,000.00
4 Permits, Licenses and other Advances 6,186,246.23
TOTAL 36,166,246.23
II - COMPUTATION:

AWARD TO CE CONSTRUCTION, INC. 130,062,581.94

LESS
AWARD TO ARANETA CENTER, INC. 36,166,246.23
BALANCE PAYABLE BY ARANETA TO CECON 93,896,335.71

SO ORDERED.[94]
Aggrieved at the Court of Appeals' ruling, CECON tiled the present Petition insisting on the propriety of the CIAC Arbitral Tribunal's
conclusions and findings.[95] It prays that the assailed Court of Appeals decisions be reversed and that the CIAC Arbitral Tribunal
October 25, 2006 Decision, as modified by its December 28, 2006 Order, be reinstated. [96]

ACI counters that the Court of Appeals July 1, 2010 Amended Decision must be upheld. [97]

ACI insists on the inviolability of its supposed agreement with CECON, as embodied in the contract documents delivered to
contractors alongside the original offer to bid. It cites specific provisions of these documents such as valuation rules and required
notices for extensions and changes, reckoning of losses and expenses, the ensuing liquidated damages for defects, cost-bearing
changes and provisional sums,[98] which define parameters for permissible changes and for reckoning corresponding costs and
liabilities. However, it did not attach any of these documents to its Comment or Memorandum. It also cites statutory provisions-
Articles 1715[99] and 1724[100]of the Civil Code-on CECON's liabilities and the primacy of stipulated contract prices.[101]

By the inviolability their agreement, ACI insists on the supposed immutability of the stipulated contract sum and on the impropriety of
the CIAC Arbitral Tribunal in writing its own terms for ACI and CECON to follow.[102] It faults the CIAC Arbitral Tribunal for
erroneously reckoning the sums due to CECON, particularly in relying on factual considerations that run afoul of contractual
stipulations and on bases such as industry practices and standards, which supposedly should not have even been considered as the
parties have already adduced their respective evidence.[103] It insists upon CECON's fault for delays and defects, making it liable for
liquidated damages.[104]

Though nominally modifying the CIAC Arbitral Tribunal October 25, 2006 Decision, the Court of Appeals actually reversed it on the
pivotal matter of the characterization of the contract between CECON and ACI. Upon its characterization of the contract as one for a
lump-sum fixed price, the Court of Appeals deleted much of the CIAC Arbitral Tribunal's monetary awards to CECON and awarded
liquidated damages to ACI.

On initial impression, what demands resolution is the issue of whether or not the Court of Appeals erred in characterizing the
contractual arrangement between petitioner CE Construction Corporation and respondent Araneta Center, Inc. as immutably one for a
lump-sum fixed price.

However, this is not merely a matter of applying and deriving conclusions from cut and dried contractual provisions. More accurately,
what is on issue is whether or not the Court of Appeals correctly held that the CIAC Arbitral Tribunal acted beyond its jurisdiction in
holding that the price of P1,540,000,000.00 did not bind the parties as an immutable lump-sum. Subsumed in this issue is the matter of
whether or not the Court of Appeals correctly ruled that CECON was rightfully entitled to time extensions and that intervening
circumstances had made ACI liable for cost adjustments, increases borne by change orders, additional overhead costs, extended
contractor's all risk insurance coverage, increased attendance fees vis-a-vis subcontractors, and arbitration costs which it awarded to
CECON.

This Court limits itself to the legal question of the CIAC Arbitral Tribunal's competence. Unless any of the exceptional circumstances

95
that warrant revisiting the factual matter of the accuracy of the particulars of every item awarded to the parties is availing, this Court
shall not embark on its own audit of the amounts owing to each.

This Court begins by demarcating the jurisdictional and technical competence of the CIAC and of its arbitral tribunals.

I.A

The Construction Industry Arbitration Commission was a creation of Executive Order No. 1008, otherwise known as the Construction
Industry Arbitration Law.[105] At inception, it was under the administrative supervision of the Philippine Domestic Construction
Board[106] which, in turn, was an implementing agency of the Construction Industry Authority of the Philippines (CIAP).[107] The
CIAP is presently attached to the Department of Trade and Industry. [108]

The CIAC was created with the specific purpose of an "early and expeditious settlement of disputes" [109] cognizant of the exceptional
role of construction to "the furtherance of national development goals." [110]

Section 4 of the Construction Industry Arbitration Law spells out the jurisdiction of the CIAC:

Section 4. Jurisdiction. - The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion
of the contract, or after the abandonment or breach thereof. These disputes may involve government or private contracts. For the
Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship; violation of
the terms of agreement; interpretation and/or application of contractual time and delays; maintenance and defects; payment, default of
employer or contractor and changes in contract cost.

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.
Though created by the act of a Chief Executive who then exercised legislative powers concurrently with the Batasang Pambansa, the
creation, continuing existence, and competence of the CIAC have since been validated by acts of Congress,

Republic Act No. 9184 or the Government Procurement Reform Act, enacted on January 10, 2003, explicitly recognized and
confirmed the competence of the CIAC:

Section 59. Arbitration. - Any and all disputes arising from the implementation of a contract covered by this Act shall be submitted to
arbitration in the Philippines according to the provisions of Republic Act No. 876, otherwise known as the "Arbitration
Law": Provided, however, That, disputes that are within the competence of the Construction Industry Arbitration Commission to
resolve shall be referred thereto. The process of arbitration shall be incorporated as a provision in the contract that will be executed
pursuant to the provisions of this Act: Provided, That by mutual agreement, the patties may agree in writing to resort to alternative
modes of dispute resolution. (Emphasis supplied)
Arbitration of construction disputes through the CIAC was formally incorporated into the general statutory framework on alternative
dispute resolution through Republic Act No. 9285, the Alternative Dispute Resolution Act of 2004 (ADR Law). Chapter 6, Section 34
of ADR Law made specific reference to the Construction Industry Arbitration Law, while Section 35 confirmed the CIAC's
jurisdiction:

CHAPTER 6
ARBITRATION OF CONSTRUCTION DISPUTES

Section 34. Arbitration of Construction Disputes: Governing Law. - The arbitration of construction disputes shall be governed by
Executive Order No. 1008, otherwise known as the Construction Industry Arbitration Law.

Section 35. Coverage of the Law. - Construction disputes which fall within the original and exclusive jurisdiction of the Construction
Industry Arbitration Commission (the "Commission") shall include those between or among parties to, or who are otherwise bound
by, an arbitration agreement, directly or by reference whether such parties are project owner, contractor, subcontractor, fabricator,
project manager, design professional, consultant, quantity surveyor, bondsman or issuer of an insurance policy in a construction
project.

The Commission shall continue to exercise original and exclusive jurisdiction over construction disputes although the arbitration is
"commercial" pursuant to Section 21 of this Act.
I.B

The CIAC does not only serve the interest of speedy dispute resolution, it also facilitates authoritative dispute resolution. Its authority
proceeds not only from juridical legitimacy but equally from technical expertise. The creation of a special adjudicatory body for
construction disputes presupposes distinctive and nuanced competence on matters that are conceded to be outside the innate expertise
of regular courts and adjudicatory bodies concerned with other specialized fields. The CIAC has the state's confidence concerning the
entire technical expanse of construction, defined in jurisprudence as "referring to all on-site works on buildings or altering structures,
from land clearance through completion including excavation, erection and assembly and installation of components and
equipment."[111]

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Jurisprudence has characterized the CIAC as a quasi-judicial, administrative agency equipped with technical proficiency that enables
it to efficiently and promptly resolve conflicts;

[The CIAC] is a quasi-judicial agency. A quasi-judicial agency or body has been defined as an organ of government other than a court
and other than a legislature, which affects the rights of private parties through either adjudication or rule-making. The very definition
of an administrative agency includes its being vested with quasi-judicial powers. The ever increasing variety of powers and functions
given to administrative agencies recognizes the need for the active intervention of administrative agencies in matters calling for
technical knowledge and speed in countless controversies which cannot possibly be handled by regular courts. The CIAC's primary
function is that of a quasi-judicial agency, which is to adjudicate claims and/or determine rights in accordance with procedures set
forth in E.O. No. 1008.[112]
The most recent jurisprudence maintains that the CIAC is a quasi-judicial body. This Court's November 23, 2016 Decision
in Fruehauf Electronics v. Technology Electronics Assembly and Management Pacific[113] distinguished construction arbitration, as
well as voluntary arbitration pursuant to Article 219(14) of the Labor Code, [114] from commercial arbitration. It ruled that commercial
arbitral tribunals are not quasi-judicial agencies, as they are purely ad hoc bodies operating through contractual consent and as they
intend to serve private, proprietary interests.[115] In contrast, voluntary arbitration under the Labor Code and construction arbitration
operate through the statutorily vested jurisdiction of government instrumentalities that exist independently of the will of contracting
parties and to which these parties submit. They proceed from the public interest imbuing their respective spheres:

Voluntary Arbitrators resolve labor disputes and grievances arising from the interpretation of Collective Bargaining Agreements.
These disputes were specifically excluded from the coverage of both the Arbitration Law and the ADR Law.

Unlike purely commercial relationships, the relationship between capital and labor are heavily impressed with public interest. Because
of this. Voluntary Arbitrators authorized to resolve labor disputes have been clothed with quasi-judicial authority.

On the other hand, commercial relationships covered by our commercial arbitratjon laws are purely private and contractual in nature.
Unlike labor relationships, they do not possess the same compelling state interest that would justify state interference into the
autonomy of contracts. Hence, commercial arbitration is a purely private system of adjudication facilitated by private citizens instead
of government instrumentalities wielding quasi-judicial powers.

Moreover, judicial or quasi-judicial jurisdiction cannot be conferred upon a tribunal by the parties alone. The Labor Code itself
confers subject-matter jurisdiction to Voluntary Arbitrators.

Notably, the other arbitration body listed in Rule 43 the Construction Industry Arbitration Commission (CIAC) - is also a government
agency attached to the Department of Trade and Industry. Its jurisdiction is likewise conferred by statute. By contrast, the subject
matter urisdiction of commercial arbitrators is stipulated by the parties. [116] (Emphasis supplied, citations omitted)
Consistent with the primacy of technical mastery, Section 14 of the Construction Industry Arbitration Law on the qualification of
arbitrators provides:

Section 14. Arbitrators. - A sole arbitrator or three arbitrators may settle a dispute.

....

Arbitrators shall be men of distinction in whom the business sector and the government can have confidence. They shall not be
permanently employed with the CIAC. Instead, thy shall render services only when called to arbitrate. For each dispute they settle,
they shall be given fees.
Section 8.1 of the Revised Rules of Procedure Governing Construction Arbitration establishes that the foremost qualification of
arbitrators shall be technical proficiency. It explicitly enables not only lawyers but also "engineers, architects, construction managers,
engineering consultants, and businessmen familiar with the construction industry" to serve as arbitrators:

Section 8.1 General Qualification of Arbitrators. - The Arbitrators shall be men of distinction in whom the business sector and the
government can have confidence. They shall be technically qualified to resolve any construction dispute expeditiously and
equitably. The Arbitrators shall come from different professions. They may include engineers, architects, construction managers,
engineering consultants, and businessmen familiar with the construction industry and lawyers who are experienced in construction
disputes. (Emphasis supplied)
Of the 87 CIAC accredited arbitrators as of January 2017, only 33 are lawyers. The majority are experts from construction-related
professions or engaged in related fields.[117]

Apart from arbitrators, technical experts aid the CIAC in dispute resolution. Section 15 of the Construction Industry Arbitration Law
provides:

Section 15. Appointment of Experts. - The services of technical or legal experts may be utilized in the settlement of disputes if
requested by any of the parties or by the Arbitral Tribunal. If the request for an expert is done by either or by both of the parties, it is
necessary that the appointment of the expert be confirmed by the Arbitral Tribunal.

Whenever the parties request for the services of an expert, they shall equally shoulder the expert's fees and expenses, half of which
shall be deposited with the Secretariat before the expert renders service. When only one party makes the request, it shall deposit the
whole amount required.
II

Consistent with CIAC's technical expertise is the primacy and deference accorded to its decisions. There is only a very narrow room
for assailing its rulings.

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Section 19 of the Construction Industry Arbitration Law establishes that CIAC arbitral awards may not be assailed, except on pure
questions of law:

Section 19. Finality of Awards. - The arbitral award shall be binding upon the parties. It shall be final and inappealable except on
questions of law which shall be appealable to the Supreme Court.
Rule 43 of the 1997 Rules of Civil Procedure standardizes appeals from quasi-judicial agencies.[118] Rule 43, Section 1 explicitly lists
CIAC as among the quasi judicial agencies covered by Rule 43.[119] Section 3 indicates that appeals through Petitions for Review
under Rule 43 are to "be taken to the Court of Appeals ... whether the affoeal involves questions of fact, of law, or mixed questions of
fact and law."[120]

This is not to say that factual findings of CIAC arbitral tribunals may now be assailed before the Court of Appeals. Section 3's
statement "whether the appeal involves questions of fact, of law, or mixed questions of fact and law" merely recognizes variances in
the disparate modes of appeal that Rule 43 standardizes: there were those that enabled questions of fact; there were those that enabled
questions of law, and there were those that enabled mixed questions fact and law. Rule 43 emphasizes that though there may have
been variances, all appeals under its scope are to be brought before the Court of Appeals. However, in keeping with the Construction
Industry Arbitration Law, any appeal from CIAC arbitral tribunals must remain limited to questions of law.

Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc.[121] explained the wisdom underlying the limitation of appeals to pure
questions of law:

Section 19 makes it crystal clear that questions of fact cannot be raised in proceedings before the Supreme Court - which is not a trier
of facts - in respect of an arbitral award rendered under the aegis of the CIAC. Consideration of the animating purpose of voluntary
arbitration in generaland arbitration under the aegis of the CIAC in particular, requires us to apply rigorously the above principle
embodied in Section 19 that the Arbitral Tribunal's findings of fact shall be final and unappealable.

Voluntary arbitration involves the reference of a dispute to an impartial body, the members of which are chosen by the parties
themselves, which parties freely consent in advance to abide by the arbitral award issued after proceedings where both parties had the
opportunity to be heard. The basic objective is to provide a speedy and inexpensive method of settling disputes by allowing the parties
to avoid the formalities, delay, expense and aggravation which commonly accompany ordinary litigation, especially litigation which
goes through the entire hierarchy of courts. [The Construction Industry Arbitration Law] created an arbitration facility to which the
construction industry in the Philippines can have recourse. The [Construction Industry Arbitration Law] was enacted to encourage the
early and expeditious settlement of disputes in the construction industry, a public policy the implementation of which is necessa and
important for the realization of national development goals.[122]
Consistent with this restrictive approach, this Court is duty-bound to be extremely watchful and to ensure that an appeal does not
become an ingenious means for und rmining the integrity of arbitration or for conveniently setting aside the conclusions arbitral
processes make. An appeal is not an artifice for the parties to undermine the process they voluntarily elected to engage in. To prevent
this Court from being a party to such perversion, this Court's primordial inclination must be to uphold the factual finqings of arbitral
tribunals:

Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in any other area for that matter, the
Court will not assist one or the other or even both parties in any effort to subvert or defeat that objective tbr their private purposes. The
Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such body had "misapprehended the
facts" and will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly disguised they might be as "legal
questions." The parties here had recourse to arbitration and chose the arbitrators themselves; they must have had confidence in such
arbitrators. The Court will not, therefore, permit the parties to relitigate before it the issues of facts previously presented and argued
before the Arbitral Tribunal, save only where a very clear showing is made that, in reaching its factual conclusions, the Arbitral
Tribunal committed an error so egregious and hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss
of jurisdiction. Prototypical examples would be factual conclusions of the Tribunal which resulted in deprivation of one or the other
party of a fair opportunity to present its position before the Arbitral Tribunal, and an award obtained through fraud or the corruption of
arbitrators. Any other, more relaxed, rule would result in setting at naught the basic objective of a voluntary arbitration and would
reduce arbitration to a largely inutile institution.[123] (Emphasis supplied, citations omitted)
Thus, even as exceptions to the highly restrictive nature of appeals may be contemplated, these exceptions are only on the nanowest of
grounds. Factual findings of CIAC arbitral tribunals may be revisited not merely because arbitral tribunals may have erred, not even
on the already exceptional grounds traditionally available in Rule 45 Petitions.[124] Rather, factual findings may be reviewed only in
cases where the CIAC arbitral tribunals conducted their affairs in a haphazard, immodest manner that the most basic integrity of the
arbitral process was imperiled. In Spouses David v. Construction Industry and Arbitration Commission:[125]

We reiterate the rule that factual findings of construction arbitrators are final and conclusive and not reviewable by this Court on
appeal, except when the petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or other undue means;
(2) there was evident partiality or corruption of the arbitrators or of any of them; (3) the arbitrators were guilty of misconduct in
refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy;
(4) one or more of the arbitrators were disqualified to act as such under section nine of Republic Act No. 876 and willfully refrained
from disclosing such disqualifications or of any other misbehavior by which the rights of any party have been materially prejudiced; or
(5) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject
matter submitted to them was not made.[126] (Citation omitted)
Guided by the primacy of CIAC's technical competence, in exercising this Court's limited power of judicial review, this Court
proceeds to rule on whether or not the Court of Appeals erred in its assailed decisions.

III

98
Properly discerning the issues in this case reveals that what is involved is not a mere matter of contractual interpretation but a question
of the CIAC Arbitral Tribunal's exercise of its powers.

III.A

F.F. Cruz v. HR Construction[127] distinguished questions of law, properly cognizable in appeals from CIAC arbitral awards, from
questions of fact:

A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the
doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same must not involve an examination of
the probative value of the evidence presented by the litigants or any of them. The resolution of tbe issue must rest solely on what the
law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question
posed is one of fact.[128]
It further explained that an inquiry into the true intention of the contracting parties is a legal, rather than a factual, issue:

On the surface, the instant petition appears to merely raise factual questions as it mainly puts in issue the appropriate amount that is
due to HRCC. However, a more thorough analysis of the issues raised by FFCCl would show that it actually asserts questions of law.

FFCCI primarily seeks from this Court a determination of whether [the] amount claimed by HRCC in its progress billing may be
enforced against it in the absence of a joint measurement of the former's completed works. Otherwise stated, the main question
advanced by FFCCI is this: in the absence of the joint measurement agreed upon in the Subcontract Agreement, how will the
completed works of HRCC be verified and the amolfnt due thereon be computed?

The determination of the foregoing question entails an interpretation of the terms of the Subcontract Agreement vis-a-vis the
respective rights of the parties herein. On this point, it should be stressed that where an interpretation of the true agreement between
the parties is involved in an appeal, the appeal is in effect an inquiry of the law between the parties, its interpretation necessarily
involves a question of law.

Moreover, we are not called upon to examine the probative value of the evidence presented before the CIAC. Rather, what is actually
sought from this Court is an interpretation of the terms of the Subcontract Agreement as it relates to the dispute between the
parties.[129] (Emphasis supplied)
Though similarly concerned with "an interpretation of the true agreement between the parties," [130] this case is not entirely congruent
with F.F. Cruz.

In F.F. Cruz, the parties' agreement had been clearly set out in writing. There was a definitive instrument which needed only to be
consulted to ascertain the parties' intent:

In resolving the dispute as to the proper valuation of the works accomplished by HRCC, the primordial consideration should be the
terms of the Subcontract Agreement. It is basic that if the tem1s of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control. [131]
Thus, this Court concluded:

Pursuant to the terms of payment agreed upon by the parties, FFCCI obliged itself to pay the monthly progress billings of HRCC
within 30 days from receipt of the same. Additionally, the monthly progress billings of HRCC should indicate the extent of the works
completed by it, the same beinff essential to the valuation of the amount that FFCCI would pay to HRCC.[132]
III.B

In this case, there is no established contract that simply required interpretation and application.

The assailed Court of Appeals April 28, 2008 Decision implies that all that had to be done to resolve the present controversy was to
apply the supposedly clear and unmistakable terms of the contract between ACI and CECON. It even echoes the words of F.F. Cruz:

It is a legal principle of long standing that when the language of the contract is explicit, leaving no doubt as to the intention of the
parties, the courts may not read into it any other intention that would contradict its plain import. The clear terms of the contract should
never be the subject matter of interpretation. Neither abstract justice nor the rule of liberal interpretation justifies the creation of a
contract for the parties which they did not make themselves or the imposition upon one party to a contract or obligation not assumed
simply or merely to avoid seeming hardships. Their true meaning must be enforced, as it is to be presumed that the contracting parties
know their scope and effects.

....

The Contract Documents expressly characterize the construction contract between [ACI] and CECON as "lump-sum" and "fixed
price" in nature. As a consequence, the Contract Documents expressly prohibit any adjustment of the contract sum due to any changes
or fluctuations in the cost of labor, materials or other matters. [133] (Citations omitted)
Upon its characterization of the contract as one for the lump-sum, fixed price of P1,540,000,000.00, the Court of Appeals faulted the
CIAC Arbitral Tribunal for acting in excess of jurisdiction as it supposedly countermanded the parties' agreement, or worse, conjured
its own tenns for the parties' compliance.[134]

It was the Court of Appeals, not the CIAC Arbitral Tribunal, that committed serious error.

99
To rule that the CIAC Arbitral Tribunal modified the parties' agreement because it was indisputably one for a lump-sum, fixed price of
P1,540,000,000.00 is begging the question. The Court of Appeals used a conclusion as a premise to support itself. It erroneously
jumped to a conclusion only to plead this conclusion in support of points that should have made up its anterior framework, points that
would have been the ones to lead to a conclusion. It then used this abortive conclusion to injudiciously dispose of the case.

The Court of Appeals took the parties' contractual relation as a revealed and preordained starting point. Then, it dismissed every prior
or subsequent detail that contradicted this assumption. It thereby conveniently terminated the discussion before it even began.

III.C

There was never a meeting of minds on the price of P1,540,000,000.00. Thus, that stipulation could not have been the basis of any
obligation.

The only thing that ACI has in its favor is its initial delivery of tender documents to prospective bidders. Everything that transpired
after this delivery militates against ACI's position.

Before proceeding to a consideration of the circumstances that negate a meeting of minds, this Court emphasizes that ACI would have
this Court sustain claims premised on supposed inviolable documents. Yet, it did not annex copies of these documents either to its
Comment or to its Memorandwn.

ACI leaves this Court compelled to rely purely on their packaged presentation and in a bind, unable to verify even the accuracy of the
syntax of its citations. This Court cannot approve of this predicament. To cursorily acquiesce to ACI's overtures without due diligence
and substantiation is being overly solicitous, even manifestly partisan.

ACI and its counsel must have fully known the importance of equipping this Court with a reliable means of confirmation, especially in
a case so steeped in the sway of circumstances. ACI's omission can only work against its cause.

By delivering tender documents to bidders, ACI made an offer. By these documents, it specitled its terms and defined the parameters
within which bidders could operate. These tender documents, therefore, guided the bidders in formulating their own offers to ACI, or,
even more fundamentally, helped them make up their minds if they were even willing to consider undertaking the proposed project. In
responding and submitting their bids, contractors, including CECON, did not peremptorily become subservient to ACI's terms. Rather,
they made their own representations as to their own willingness and ability. They adduced their own counter offers, although these
were already tailored to work within ACI's parameters.

These exchanges were in keeping with Article 1326 of the Civil Code:

Article 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears.
The mere occurrence of these exchanges of offers fails to satisfy the Civil Code's requirement of absolute and unqualified acceptance:

Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a
case, is presumed to have been entered into in the place where the offer was made. (Emphasis supplied)
Subsequent events do not only show that there was no meeting of minds on CECON's initial offered contract sum of
P1,449,089,174.00 as stated in its August 30, 2002 bid. They also show that there was never any meeting of minds on the contract sum
at all.

In accordance with Article 1321 of the Civil Code, [135] an offeror may fix the time of acceptance. Thus, CECON's August 30, 2002
offer of P1,449,089,174.00 "specifically stated that its bid was valid for only ninety (90) days, or only until 29 November
2002."[136] November 29, 2002 lapsed and ACI failed to manifest its acceptance of CECON's offered contract sum.

It was only sometime after November 29, 2002 that ACI verbally informed CECON that the contract was being awarded to it.
Through a telephone call on December 7, 2002, ACI informed CECON that it may commence excavation works. However, there is no
indication that an agreement was reached on the contract sum in any of these conversations. ACI, CECON, the CIAC Arbitral
Tribunal, and the Court of Appeals all concede that negotiations persisted.

Still without settling on a contract sum, even the object of the contract was subjected to multiple modifications. Absent a concurrence
of consent and object, no contract was perfected.[137]

An office tower atop Part A was included in CECON's scope of works and the contract sum increased to P1,582,810,525.00. Price
fluctuations were conceded after this and the project cost was again adjusted to P1,613,615,244.00. Thereafter, CECON agreed to
extend a discount and reduced its offered project cost to P1,540,000,000.00. [138]

After all these, ACI demurred on the tenns of its own tender documents and changed the project from one encompassing both design
and construction to one that was limited to construction.

Though not pertaining to the object of the contract itself but only to one (1) of its many facets, ACI also removed from CECON's
scope of works the acquisition of elevators, escalators, chillers, generator sets, indoor substations, cooling towers, pumps, and tanks.
However, much later, ACI reneged on its own and opted to still obtain pumps, tanks, and cooling towers through CECON.

100
It is ACI's contention that the offered project cost of P1,540,000,000.00 is what binds the parties because its June 2, 2003 letter
indicated acceptance of this offered amount.

This is plain error.

CECON was never remiss in impressing upon ACI that the P1,540,000,000.00 offer was not perpetually availing. WithoutACI's
timely acceptance, on December 27, 2002, CECON wrote to ACI emphasizing that the quoted sum of P1,540,000,000.00 was "based
[only] upon the prices prevailing at December 26, 2002" levels. [139] On January 8, 2003, CECON notified ACI of further increases in
costs and specifically stated that "[f]urther delay in the acceptance of the revised offer and release of the down payment may affect the
revised lump sum amount."[140] Finally, on January 21, 2003, CECON wrote again to ACI, [141] stating that the contract sum had to be
increased to P1,594,631,418.00. CECON also specifically stated, consistent with Article 1321 of the Civil Code, that its tender of this
adjusted price was valid only until January 31, 2003, as further price changes may be forthcoming. CECON also impressed upon ACI
that the 400 days allotted for the completion of the project had to be adjusted. [142]

When ACI indicated acceptance, CECON's P1,540,000,000.00 offer had been superseded. Even CECON's subsequent offer of
P1,594,631,418.00 had, by then, lapsed by more than four (4) months. Apparently totally misinformed, ACI's acceptance letter did not
even realize or remotely reference CECON's most recent P1,594,631,418.00 stipulation but insisted on the passe offer of
P1,540,000,000.00 from the past year.

ACI's supposed acceptance was not an effective, unqualified acceptance, as contemplated by Article 1319 of the Civil Code. At most,
it was a counter-offer to revert to P1,540,000,000.00.

ACI's June 2, 2003 letter stated an undertaking: "This notwithstanding, formal contract documents embodying these positions will
shortly be prepared and forwarded to you for execution." [143] Through this letter, ACI not only undertook to deliver documents, it also
admitted that the final, definitive terms between the parties had yet to be articulated in writing.

ACI's delivery CECON's review, and both parties' final act of formalizing their respective consent and affixing their respective
signatures would have established a clear point in which the contract between ACI and CECON has been perfected. These points, i.e.
ACI's delivery, CECON's review, and parties' formalization, too, would have validated the Court of Appeals' assertion that all that
remained to be done was to apply unequivocal contractual provisions.

ACI would fail on its own undertaking.

III.D

Without properly executed contract documents, what would have been a straightforward exercise, akin to the experience in F.F. Cruz,
became a drawn-out fact-finding affair. The situation that ACI engendered made it necessary for the CIAC Arbitral Tribunal to
unravel the terms binding ACI to CECON from sources other than definitive documents.

It is these actions of the CIAC Arbitral Tribunal that raise an issue, purely as a matter of law, now the subject of this Court's review;
that is, faced with the lacunae confronting it, whether or not the CIAC Arbitral Tribunal acted within its jurisdiction.

IV

The CIAC Arbitral Tribunal did not act in excess of its jurisdiction. Contrary to the Court of Appeals' and ACI's assertions, it did not
draw up its own tenns and force these terms upon ACI and CECON.

IV.A

The CIAC Arbitral Tribunal was not confronted with a barefaced controversy for which a fom1ulaic resolution sufficed. More
pressingly, it was confronted with a state of affairs where CECON rendered services to ACI, with neither definitive governing
instrwnents nor a confirmed, fixed remuneration for its services. Thus, did the CIAC Arbitral Tribunal go about the task of
asce1taining the sum properly due to CECON.

This task was well within its jurisdiction. This determination entailed the full range of subjects expressly stipulated by Section 4 of the
Construction Industry Arbitration Law to be within the CIAC's subject matter jurisdiction.

Section 4. Jurisdiction. - ....

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship; violation of
the terms of agreement; interpretation and/or application of contractual time and delays; maintenance and defects; payment, default of
employer or contractor and changes in contract cost.
CECON raised the principal issue of the payment due to it on account, not only of fluctuating project costs but more so because of
ACI's inability to timely act on many contingencies, despite proper notice and communication from and by CECON. Theretbre, at the
heart of the controversy was the "interpretation and/or application of contractual time and delays." ACI's counter-arguments, too,
directly appealed to CIAC's subject matter jurisdiction. ACI countered by asserting that sanctioning CECON's claims was tantamount
to violating the tem1s of their agreement. It further claimed liability on CECON's part for "maintenance and defects," and for
"violation of specifications for materials and workmanship."

101
ACI and CECON voluntarily submitted themselves to the CIAC Arbitral Tribunal's jurisdiction. The contending parties' own volition
is at the inception of every construction arbitration proceeding. [144] Common sense dictates that by the parties' voluntary submission,
they acknowledge that an arbitral tribunal constituted under the CIAC has full competence to rule on the dispute presented to it. They
concede this not only with respect to the literal issues recited in their terms of reference, as ACI suggests,[145] but also with respect to
their necessary incidents. Accordingly, in delineating the authority of arbitrators, the CIAC Rules of Procedure speak not only of the
literally recited issues but also of "related matters":

SECTION 21.3 Extent of power of arbitrator - The Arbitral Tribunal shall decide only such issues and related matters as are submitted
to them for adjudication. They have no power to add, to subtract from, modify, or amend any of the terms of the contract or any
supplementary agreement thereto, or any rule, regulation or policy promulgated by the CIAC.
To otherwise be puritanical about cognizable issues would be to cripple CIAC arbitral tribunals. It would potentially be to condone the
parties' efforts at tying the hands of tribunals through circuitous, trivial recitals that fail to address the complete extent of their claims
and which are ultimately ineffectual in dispensing an exhaustive and dependable resolution. Construction arbitration is not a game of
guile which may be left to ingenious textual or technical acrobatics, but an endeavor to ascertain the tluth and to dispense justice "by
every and all reasonable means without regard to technicalities of law or proc.edure." [146]

IV.B

Two (2) guiding principles steered the CIAC Arbitral Tribunal in going about its task. First was the basic matter of fairness. Second
was effective dispute resolution or the overarching principle of arbitration as a mechanism relieved of the encumbrances of litigation.
In Section 1.1 of the CIAC Rules of Procedure:

SECTION 1.1 Statement of policy and objectives - It is the policy and objective of these Rules to provide a fair and expeditious
resolution of construction disputes as an altemative to judicial proceedings, which may restore the disrupted harmonious and friendly
relationships between or among the parties. (Emphasis supplied)
CECON's predicament demanded compensation. The precise extent may yet to have been settled; yet, as the exigencies that prompted
CECON to request for arbitration unraveled, it became clear that it was not for the CIAC Arbitral Tribunal to turn a blind eye to
CECON's just entitlement to compensation.

Jurisprudence has settled that even in cases where parties enter into contracts which do not strictly confmm to standard formalities or
to the typifying provisions of nominate contracts, when one renders services to another, the latter must compensate the fonner for the
reasonable value of the services rendered. This amount shall be fixed by a court. This is a matter so basic, this Court has once
characterized it as one that "springs from the fountain of good conscience":

As early as 1903, in Perez v. Pomar, this Court mled that where one has rendered services to another, and these services are accepted
by the latter, in the absence of proof that the service was rendered gratuitously, it is but just that he should pay a reasonable
remuneration therefore because "it is a well known principle of law, that no one should be permitted to enrich himself to the damage
of another." Similary in 1914, this Court declared that in this jurisdiction, even in the absence of statute, ". . . under the general
principle that one person may not enrich himself at the expense of another, a judgment creditor would not be permitted to retain the
purchase price of land sold as the property of the judgment debtor after it has been made to appear that the judgment debtor had no
title to the land and that the purchaser had failed to secure title thereto . . ." The foregoing equitable principle which springs from the
fountain of good conscience are applicable to the case at bar. [147]
Consistent with the Construction Industry Arbitration Law's declared policy, [148] the CIAC Arbitral Tribunal was specifically charged
with "ascertain[ing] the facts in each case by every and all reasonable means." [149] In discharging its task, it was permitted to even
transcend technical rules on admissibility of evidence.[150]

IV.C

The reality of a vacuum where there were no definite contractual terms, coupled with the demands of a "fair and expeditious
resolution" of a dispute centered on contractual interpretation, called into operation Article 1371 of the Civil Code:

Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally
considered. (Emphasis supplled)
Article 1379 of the Civil Code invokes principles from the Revised Rules on Evidence. By invoking these principles, Article 1379
makes them properly applicable in every instance of contractual interpretation, even those where the need for interpretation arises
outside of court proceedings:

Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of
contracts.
As with Article 1371, therefore, the following principles from the Revised Rules on Evidence equally governed the CIAC Arbitral
Tribunal's affairs:

4. Interpretation of Documents

Section 12. Interpretation according to intention; general and particular provisions. - In the construction of an instrument, the intention
of the parties is to be pursued; and 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.

Section 13. Interpretation according to circumstances. - For the proper construction of an instrument, the circumstances under which it

102
was made, including the situation of the subject thereof and of the parties to it, may be shown, so that the judge may be placed in the
position of those whose language he is to interpret.
Within its competence and in keeping with basic principles on contractual interpretation, the CIAC Arbitral Tribunal ascertained the
trqe and just terms governing ACI and CECON. Thus, the CIAC Arbitral Tribunal did not conjure its own contractual creature out of
nothing. In keeping with this, the CIAC Arbitral Tribtmal found it proper to sustain CECON's position. There having been no meeting
of minds on the contract sum, the amount due to CECON became susceptible to reasonable adjustment, subject to proof of legitimate
costs that CECON can adduce.

Unravelling the CIAC Arbitral Tribunal's competence and establishing how it acted consistent with law resolves the principal legal
issue before us. From this threshold, the inquiry transitions to the matter of whether or not the conclusions made by the CIAC Arbitral
Tribunal were warranted.

They were. Far from being capricious, the CIAC Arbitral Tribunal's conclusions find solid basis in law and evidence.

V.A

The tender documents may have characterized the contract sum as fixed and lump-sum, but the premises for this arrangement have
undoubtedly been repudiated by intervening circumstances.

When CECON made its offer of P1,540,000,000.00, it proceeded from several premises. First, ACI would timely respond to the
representations made in its bid. Second, CECON could act on the basis of prices prevailing then. Third, the subject matter of the
contract was the entire expanse of design and construction covering all elements disclosed in the tender documents, nothing more and
nothing less. Fourth, the basic specifications for designing and building the Gateway Mall, as stated in the tender documents, would
remain consistent. Lastly, ACI would timely deliver on its concomitant obligations.

Contrary to CECON's reasonable expectations, ACI failed to timely act either on CECON's bid or on those of its competitors.
Negotiations persisted for the better part of two (2) calendar years, during which the quoted contract sum had to be revised at least five
(5) times. The object of the contract and CECON's scope of work widely varied. There were radical changes like the addition of an
entire office tower to the project and the change in the project's structural framing. There was also the undoing of CECON's freedom
to design, thereby rendering it entirely dependent on configurations that ACI was to unilaterally resolve, It turned out that ACI took its
time in delivering construction drawings to CECON, with almost 38% of construction drawings being delivered after the intended
completion date. There were many other less expansive changes to the project, such as ACI's fickleness on which equipment it would
acquire by itself. ACI even failed to immediately deliver the project site to CECON so that CECON may commence excavation, the
most basic task in setting up a structure's foundation. ACI also failed to produce definite instruments articulating its agreement with
CECON, the final contract documents.

With the withering of the premises upon which a lump-sum, fixed price arrangement would have been founded, such an arrangement
must have certainly been negated:

[T]he contract is fixed and lump sum when it was tendered and contracted as a design and constmct package. The contract scope and
character significantly changed when the design was taken over by the Respondent. At the time of the negotiation and agreement of
the amount of Php1.54 billion, there were no final plans for the change to structural steel, and all the [mechanical, electrical and
plumbing] drawings were all schematics.

[I]t is apparent to the Tribunal that the quantity and materials at the time of the P1.54B agreement are significantly different from the
original plans to the finally implemented plans. The price increases in the steel products and cement were established to have already
increased by 11.52% and by P5.00 per bag respectively by January 21, 2003. The Tribunal finds agreement with the Claimant that it is
fairer to award the price increase.

....

It should also be mentioned that Respondent had changed the scope and character of the agreement. First, there were major changes in
the plans and specifications. Originally, the contract was for design and construct. The design was deleted from the scope of the
Claimant. It was changed to a straight construction contract. As a straight construction contract, there were no final plans to speak of
at the time of the instructions to change. Then there was a verbal change to structural steel frame. No plans were available upon this
instruction to change. Next, the [mechanical, electrical and plumbing] plans were all schematics. It is therefore expected that changes
of plans are forthcoming, and that changes in costs would follow ...

....

It has been established that the original tender, request for proposal and award is for a design and construct contract. The contract
documents are therefore associated for said system of construction. When Respondent decided to change and take over the design,
such as the change from concrete to structural steel framing, "take-out" equipment from the contract and modify the [mechanical,
electrical and plumbing w]orks, the original scope of work had been drastically changed. To tie down the Claimant to the tmit prices
for the proposal for a different scope of work would be grossly unfair. This Tribunal will hold that unit price adjustment could be
allowed but only for change orders that were not in the original scope of work, such as the change order from concrete to structural
framing, the [mechanical, electrical and plumbing w]orks, [schematic drawings to construction drawings] and the Miscellaneous
Change Order Works.[151]

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V.B

Contrary to ACI's oft-repeated argument,[152] the CIAC Arbitral Tribunal correctly found that ACI had gained no solace in statutory
provisions on the immutability of prices stipulated between a contractor and a landowner. Article 1724 of the Civil Code reads:

Article 1724. The contractor who undertakes to build a structure or any other work for a stipulated price, in conformity with plans and
specifications agreed upon with the land-owner, can neither withdraw from the contract nor demand an increase in the price on
account of the higher cost of labor or materials, save when there has been a change in the plans and specifications, provided:

(1) Such change has been authorized by the proprietor in writing; and

(2) The additional price to be paid to the contractor has been determined in writing by both parties.
Article 1724 demands two (2) requisites in order that a price may become immutable: first, there must be an actual, stipulated price;
and second, plans and specifications must have definitely been agreed upon.

Neither requisite avails in this case. Yet again, ACI is begging the question. It is precisely the crux of the controversy that no price has
been set. Article 1724 does not work to entrench a disputed price and make it sacrosanct. Moreover, it was ACI which thn1st itself
upon a situation where no plans and specifications were immediately agreed upon and from which no deviation could be made. It was
ACI, not CECON, which made, revised, and deviated from designs and specifications.

V.C

The CIAC Arbitral Tribunal also merely held ACI to account for its voluntarily admitted adjustments. The CIAC Rules of Procedure
pennit deviations from technical rules on evidence, including those on admissions. Still, common sense dictates that the principle that
"[t]he act, declaration or omission of a party as to a relevant fact may be given in evidence against him" [153] must equally hold true in
administrative or quasi-judicial proceedings as they do in court actions. Certainly, each must be held to account for his or her own
voluntary declarations. It would have been plainly absurd to disregard ACI's reneging on its own admissions:

Respondent has agreed to the price increase in structural steel and after some negotiation paid the agreed amount. Respondent also
agreed to the price increase in the reinforcing bars and instructed the Claimant to bill it accordingly. To the Tribunal, such action is an
acknowledgment of the price increase. Respondent can make the case that said agreement is conditional, i.e., the Complaint must be
withdrawn. To the Tribunal, the conditionality falls both ways. The Claimant has as much interest to agree to a negotiated price
increase so that it can collect payments for the claims. The conditionalities do not change the basis for the quantity and the amotmt.
The process of the negotiation has arrived at the price difference and quantities. The Tribunal finds the process in arriving at the Joint
Manifestation, a fair determination of the unit price increase. This holding will render the discussions on Exhibit JJJJ, and the demand
of the burden of proof of the Respondent superfluous. [154]
This absurdity is so patent that the Court of Appeals was still compelled to uphold awards premised on ACI's admissions, even as it
reversed the CIAC Arbitral Tribunal decision on the primordial issue of the characterization of the contractual arrangement between
CECON and ACI:

As stated, the contract between [ACI] and CECON has not been amended or revised. The Arbitral Tribunal had no power to amend
the contract to provide that there be allowed price and/or cost adjustment removing the express stipulation that the Project is for a
lump sum or fixed price consideration. Accordingly, this Court removes the award for additional costs spent by CECON on cement
and formworks due to price increases or removing the award for these items in the total amount of PhP5,598,338.20. Since CECON is
not entitled to its claim for price increase, it is likewise not entitled to the award of the interest rate of 6% per annum.

With regard however to the additional costs for the rebars due to price increases. this Court finds that CECON is entitled to the amount
of PhP10,266,628.00 representing the additional costs spent by CECON for rebars due to price increases, notwithstanding the Arbitral
Tribunal's excess of jurisdiction in amending the contract between the parties because [ACI] and CECON had in fact agreed that
CECON was entitled to such an amount and that [ACI] would pay the same. This agreement was made in the parties' Joint
Manifestation of Compliance dated March 30, 2004 which they filed with th Arbitral Tribunal ("Joint Manifestation"). [155]
No extraordinary technical or legal proficiency is required to see that it would be the height of absurdity and injustice to insist on the
payment of an amount the consideration of which has been reduced to a distant memory. ACI's invocation of Article 1724 is useless as
the premises for its application are absent. ACI's position is an invitation for this Court to lend its imprimatur to unjust enrichment
enabled by the gradual wilting of what should have been a reliable contractual relation. Basic decency impels this Court to not give in
to ACI's advances and instead sustain the CIAC Arbitral Tribunal's conclusion that the amount due to CECON has become susceptible
to reasonable adjustment.

VI

The Arbitral Tribunal's award must be reinstated.

VI.A

With the undoing of the foundation for the Court of Appeal's fallacious, circular reasoning, its monetary awards must also necessarily
give way to the reinstatement of the CIAC Arbitral Tribunal's awards.

The inevitable changes borne by ACI's own trifling actions justify, as a consequence, compensation for cost adjustments and the
ensuing change orders, additional overhead costs for the period of extension, extended coverage for contractor's all-risk insurance, and

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attendance fees for auxiliary services to subcontractors whose functions were also necessarily prolonged. ACI's frivolity on the
acquisition of elevators, escalators, chillers, generator sets, indoor substations, cooling towers, pumps, and tanlcs also vindicates
compensation for the works that remained under CECON's account. ACI's authorship of the causes of delay supports time extensions
favoring CECON and, conversely, discredits liquidated damages benefitting ACI.

This Court upholds the Arbitral Tribunal's awards on each of the items due to CECON, as well as on its findings relating to CECON's
countervailing liabilities.

In fulfilling its task, the CIAC Arbitral Tribunal was equipped with its technical competence, adhered to the rigors demanded by the
CIAC Rules of Procedure, and was endowed with the experience of exclusively presiding over 19 months of arbitral proceedings,
examining object and documentary evidence, and probing witnesses.

VI.B

Within the CIAC Arbitral Tribunal's technical competence was its reference to prevailing industry practices, a much-bewailed point by
ACI.[156] This reference was made not only desirable but even necessary by the absence of definitive governing instruments.
Moreover, this reference was made feasible by the CIAC Arbitral Tribunars inherent expertise in the construction industry.

This reference was not only borne by practical contingencies and buttressed by recognized proficiency, it was also sanctioned by the
statutory framework of contractual interpretation within which the CIAC Arbitral Tribunal operated. Thus, the following principles
governed the interpretation of the change orders, requests, and other communications, which had effectively been surrogates of a
single definite instrument executed by the parties.

From the Civil Code:

Article 1375. Words which may have different significations shall be understood in that which is most in keeping with the nature and
object of the contract.

Article 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall
fill the omission of stipulations which are ordinarily established.
From the Revised Rules on Evidence, the following have been made applicable even outside regular litigation by Article 1379 of the
Civil Code:

Section 14. Peculiar signification of terms. - The terms of a writing are presumed to have been used in their primary and general
acceptation, but evidence is admissible to show that they have a local, technical, or otherwise peculiar signification, and were so used
and understood in the particular instance, in which case the agreement must be construed accordingly.

....

Section 19. Interpretation according to usage. - An instrument may be construed according to usage, in order to determine its true
character.[157] (Emphasis supplied)
Equally availing is the following principle. This is especially tlue of the remuneration due to CECON, considering that stipulations for
remuneration are devised for the benefit of the person rendering the service:

Section 17. Of two constn.1ctions, which preferred. - When the terms of an agreement have been intended in a different sense by the
different parties to it, that sense is to prevail against either party in which he supposed the other understood it, and when different
constructions of a provision are otherwise equally proper, that is to be taken which is the most favorable to the party in whose favor
the provision was made.[158]
VI.C

In appraising the CIAC Arbitral Tribunal's awards, it is not the province of the present Rule 45 Petition to supplant this Court's
wisdom for the inherent technical competence of and the insights drawn by the CIAC Arbitral Tribunal throughout the protracted
proceedings before it. The CIAC Arbitral Tribunal perused each of the parties' voluminous pieces of evidence. [159] Its members
personally heard, observed, tested, and propounded questions to each of the witnesses. Having been constituted solely and precisely
for the purpose of resolving the dispute between ACI and CECON for 19 months, the CIAC Arbitral Tribunal devoted itself to no
other task than resolving that controversy. This Court has the benefit neither of the CIAC Arbitral Tribunal's technical competence nor
of its irreplaceable experience of hearing the case, scrutinizing every piece of evidence, and probing the witnesses.

True, the inhibition that impels this Court admits of exceptions enabling it to embark on its own factual inquiry. Yet, none of these
exceptions, which are all anchored on considerations of the CIAC Arbitral Tribunal's integrity and not merely on mistake, doubt, or
conflict, is availing.

This Court finds no basis for casting aspersions on the integrity of the CIAC Arbitral TribunaL There does not appear to have been an
undisclosed disqualification for any of its three (3) members or proof of any prejudicial misdemeanor. There is nothing to sustain an
allegation that the parties' voluntarily selected arbitrators were conupt, fraudulent, manifestly partial, or otherwise abusive. From all
indications, it appears that the CIAC Arbitral Tribunal extended every possible opportunity for each of the parties to not only plead
their case but also to arrive at a mutually beneficial settlement. This Court has ruled, precisely, that the arbitrators acted in keeping
with their lawful competencies. This enabled them to come up with an otherwise definite and reliable award on the controversy before
it.

Inventive, hair-splitting recitals of the supposed imperfections in the CIAC Arbitral Tribunal's execution of its tasks will not compel

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this Court to supplant itself as a fact-finding, technical expert.

ACI's refutations on each of the specific items claimed by CECON and its counterclaims of sums call for the point by point appraisal
of work, progress, defects and rectifications, and delays and their causes. They are, in truth, invitations for this Court to engage in its
own audit of works and corresponding financial consequences. In the alternative, its refutations insist on the application of rates,
schedules, and other stipulations in the same tender documents, copies of which ACI never adduced and the efficacy of which this
Court has previously discussed to be, at best, doubtful.

This Court now rectifies the error made by the Court of Appeals. By this rectification, this Court does not open the doors to an
inordinate and overzealous display of this Court's authority as a final arbiter.

Without a showing of any of the exceptional circumstances justifying factual review, it is neither this Court's business nor in this
Court's competence to pontificate on technical matters. These include things such as fluctuations in prices of materials from 2002 to
2004, the architectural and engineering consequences - with their ensuing financial effects - of shifting from reinforced concrete to
structural steel, the feasibility of rectification works for defective installations and fixtures, the viability of a given schedule of rates as
against another, the audit of changes for every schematic drawing as revised by construction drawings, the proper mechanism for
examining discolored and mismatched tiles, the minutiae of installing G.I. sheets and sealing cracks with epoxy sealants, or even
unpaid sums for garbage collection.

The CIAC Arbitral Tribunal acted in keeping with the law, its competence, and the adduced evidence; thus, this Court upholds and
reinstates the CIAC Arbitral Tribunal's monetary awards.

VII

It does not escape this Court's attention that this controversy has dragged on for more than 13 years since CECON initially sought to
avail of arbitration.

The CIAC Arbitral Tribunal noted that ACI consumed a total of 840 days filing several motions and manifestations, including at least
eight (8) posturings at pursuing settlement.[160] It added, however, that ACI repeatedly failed to respond to CECON's claims during
meetings thereby constraining CECON to file motions to proceed after repeatedly being dangled hope of an early resolution. [161] It
appeared that ACI was more interested in buying time than in effecting a consummate voluntary settlement.

The CIAC Arbitral Tribunal October 25, 2006 Decision should have long brought this matter to an end. This Court does not fault ACI
for availing of remedies. Yet, this Court also notes that even in proceedings outside of the CIAC Arbitral Tribunal, ACI seems to not
have been sufficiently conscientious of time.

In this Court alone, ACI sought extensions to file its Comment no less than five (5) times. [162] It sought several other extensions in the
filing of its Memorandum.[163]

It also does not escape this Court's attention that while ACI's arguments have perennially pleaded the supposed primacy and
itnmutability of stipulations originally articulated in the tender documents, it never bothered to annex any of these documents either to
its Comment or to its Memorandum. Without these and other supporting materials, this Court is left in the uneasy predicament of
merely relying on ACI's self-stated assertions and without means of verifying even the syntax of its citations.

While presumptions of good faith may be indulged, the repercussions of ACI's vacillation cannot be denied.

Even if this Court were to ignore the delays borne by ACI's procedural posturing, this Court is compelled to hearken to ACI's original
faults. These are, after all, what begot these proceedings. These are the same original faults which so exasperated CECON; it was left
with no recourse but to seek the intervention of CIAC.

These faults began as soon as bidders responded to ACI's invitation. In CECON's case, its communicated time for the validity of its
offer lapsed without confinnation from ACI. ACI only verbally responded and only after CECON's communicated timeframe. It told
CECON to commence excavation works but failed to completely deliver the project site until five (5) months later. It engaged in
protracted negotiations, never confirming acceptance until the tenth month, after bidders had submitted their offers. By then, ACI's
supposed acceptance could not even identify CECON's most recent quoted price. It undertook to process and deliver formal
documents, yet this controversy already reached this Court and not a single page of those documents has seen the light of day. It has
repeatedly added and taken from CECONs scope of works but vigorously opposed adjustments that should have at least been given
reasonable consideration, only to admit and partially stipulate on thern. In taking upon itself the task of designing, it took its time in
delivering as many as 1,675 construction drawings to CECON, more than 600 of which were not delivered until well after the project's
intended completion date.

This Court commenced its discussion by underscoring that arbitration primarily serves the need of expeditious dispute resolution. This
interest takes on an even greater urgency in the context of construction projects and the national interest so intimately tied with them.
ACI's actions have so bogged down its contractor. Nearing 13 years after the Gateway Mall's completion, its contractor has yet to be
fully and properly compensated. Not only have ACI's actions begotten this dispute, they have hyper-extended arbitration proceedings
and dragged courts into the controversy. The delays have virtually bastardized the hopes at expeditious and effective dispute
resolution which are supposedly the hallmarks of arbitration proceedings.

For these, in addition to sustaining each of the awards due to CECON arising from the facets of the project, this Court also sustains the
CIAC Arbitral Tribunal's award to CECON of arbitration costs. Further, this Court imposes upon respondent Araneta Corporation,
Inc. the burden of bearing the costs of what have mutated into a full-fledged litigation before this Court and the Court of Appeals.

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WHEREFORE, the Petition is GRANTED. The assailed April 28, 2008 Decision and July 1, 2010 Amended Decision of the Court
of Appeals in CA-G.R. SP No. 96834 are REVERSED and SET ASIDE. The Construction Industry Arbitration Commission
Arbitral Tribunal October 25, 2006 Decision in CIAC Case No. 01-2004 is REINSTATED.

Legal interest at the rate of six percent (6%) per annum is imposed on the award from the finality of this Decision until its full
satisfaction.

Costs against respondent.

SO ORDERED.

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