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Cases On ADR

This document summarizes a Supreme Court of the Philippines case between LM Power Engineering Corporation and Capitol Industrial Construction Groups regarding a contract dispute. The Court of Appeals had ordered the parties to arbitration based on their contract containing an arbitration clause. LM Power petitioned for the Supreme Court to overturn this decision. The Supreme Court upheld the Court of Appeals decision, finding that the issues around amounts owed, work completed, and contract termination involved interpretation of multiple contract provisions, making the dispute appropriate for arbitration as stipulated in the contract.

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0% found this document useful (0 votes)

303 views331 pages

Cases On ADR

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THIRD DIVISION

[ G.R. No. 141833, March 26, 2003 ]

LM POWER ENGINEERING CORPORATION, PETITIONER, VS. CAPITOL
INDUSTRIAL CONSTRUCTION GROUPS, INC., RESPONDENT.

DECISION

PANGANIBAN, J.:

Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation

and conciliation -- are encouraged by the Supreme Court. By enabling parties to resolve
their disputes amicably, they provide solutions that are less time-consuming, less tedious,
less confrontational, and more productive of goodwill and lasting relationships.[1]

The Case

Before us is a Petition for Review on Certiorari[2] under Rule 45 of the Rules of Court,

seeking to set aside the January 28, 2000 Decision of the Court of Appeals [3] (CA) in CA-
GR CV No. 54232. The dispositive portion of the Decision reads as follows:
“WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The
parties are ORDERED to present their dispute to arbitration in accordance with their Sub-
contract Agreement. The surety bond posted by [respondent] is [d]ischarged.” [4]
The Facts

On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent

Capitol Industrial Construction Groups Inc. entered into a “Subcontract Agreement”
involving electrical work at the Third Port of Zamboanga.[5]

On April 25, 1985, respondent took over some of the work contracted to petitioner.
[6]
Allegedly, the latter had failed to finish it because of its inability to procure materials. [7]

Upon completing its task under the Contract, petitioner billed respondent in the amount
of P6,711,813.90.[8] Contesting the accuracy of the amount of advances and billable
accomplishments listed by the former, the latter refused to pay. Respondent also took
refuge in the termination clause of the Agreement.[9] That clause allowed it to set off the
cost of the work that petitioner had failed to undertake -- due to termination or take-over
-- against the amount it owed the latter.

Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati
(Branch 141) a Complaint[10] for the collection of the amount representing the alleged
balance due it under the Subcontract. Instead of submitting an Answer, respondent filed a
Motion to Dismiss,[11] alleging that the Complaint was premature, because there was no
prior recourse to arbitration.

In its Order[12] dated September 15, 1987, the RTC denied the Motion on the ground that
the dispute did not involve the interpretation or the implementation of the Agreement and
was, therefore, not covered by the arbitral clause.[13]

After trial on the merits, the RTC[14] ruled that the take-over of some work items by
respondent was not equivalent to a termination, but a mere modification, of the
Subcontract. The latter was ordered to give full payment for the work completed by
petitioner.

Ruling of the Court of Appeals

On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration.
The appellate court held as arbitrable the issue of whether respondent’s take-over of some
work items had been intended to be a termination of the original contract under Letter
“K” of the Subcontract. It ruled likewise on two other issues: whether petitioner was
liable under the warranty clause of the Agreement, and whether it should reimburse
respondent for the work the latter had taken over.[15]

Hence, this Petition.[16]

The Issues

In its Memorandum, petitioner raises the following issues for the Court’s consideration:
“A

Whether or not there exist[s] a controversy/dispute between petitioner and respondent

regarding the interpretation and implementation of the Sub-Contract Agreement dated
February 22, 1983 that requires prior recourse to voluntary arbitration;

“B

In the affirmative, whether or not the requirements provided in Article III [1] of CIAC
Arbitration Rules regarding request for arbitration ha[ve] been complied with[.]”[17]
The Court’s Ruling

The Petition is unmeritorious.

First Issue:
Whether Dispute Is Arbitrable

Petitioner claims that there is no conflict regarding the interpretation or the

implementation of the Agreement. Thus, without having to resort to prior arbitration, it is
entitled to collect the value of the services it rendered through an ordinary action for the
collection of a sum of money from respondent. On the other hand, the latter contends that
there is a need for prior arbitration as provided in the Agreement. This is because there
are some disparities between the parties’ positions regarding the extent of the work done,
the amount of advances and billable accomplishments, and the set off of expenses
incurred by respondent in its take-over of petitioner’s work.

We side with respondent. Essentially, the dispute arose from the parties’ ncongruent
positions on whether certain provisions of their Agreement could be applied to the facts.
The instant case involves technical discrepancies that are better left to an arbitral body
that has expertise in those areas. In any event, the inclusion of an arbitration clause in a
contract does not ipso facto divest the courts of jurisdiction to pass upon the findings of
arbitral bodies, because the awards are still judicially reviewable under certain
conditions.[18]

In the case before us, the Subcontract has the following arbitral clause:
“6. The Parties hereto agree that any dispute or conflict as regards to interpretation and
implementation of this Agreement which cannot be settled between [respondent] and
[petitioner] amicably shall be settled by means of arbitration x x x.”[19]
Clearly, the resolution of the dispute between the parties herein requires a referral to the
provisions of their Agreement. Within the scope of the arbitration clause are
discrepancies as to the amount of advances and billable accomplishments, the application
of the provision on termination, and the consequent set-off of expenses.

A review of the factual allegations of the parties reveals that they differ on the following
questions: (1) Did a take-over/termination occur? (2) May the expenses incurred by
respondent in the take-over be set off against the amounts it owed petitioner? (3) How
much were the advances and billable accomplishments?

The resolution of the foregoing issues lies in the interpretation of the provisions of the
Agreement. According to respondent, the take-over was caused by petitioner’s delay in
completing the work. Such delay was in violation of the provision in the Agreement as to
time schedule:
“G. TIME SCHEDULE

“[Petitioner] shall adhere strictly to the schedule related to the WORK and complete the
WORK within the period set forth in Annex C hereof. NO time extension shall be granted
by [respondent] to [petitioner] unless a corresponding time extension is granted by [the
Ministry of Public Works and Highways] to the CONSORTIUM.”[20]
Because of the delay, respondent alleges that it took over some of the work contracted to
petitioner, pursuant to the following provision in the Agreement:
“K. TERMINATION OF AGREEMENT

“[Respondent] has the right to terminate and/or take over this Agreement for any of the
following causes:

x x x x x x x x x
‘6. If despite previous warnings by [respondent], [petitioner] does not execute the WORK
in accordance with this Agreement, or persistently or flagrantly neglects to carry out
[its] obligations under this Agreement.”[21]
Supposedly, as a result of the “take-over,” respondent incurred expenses in excess of the
contracted price. It sought to set off those expenses against the amount claimed by
petitioner for the work the latter accomplished, pursuant to the following provision:
“If the total direct and indirect cost of completing the remaining part of the WORK
exceed the sum which would have been payable to [petitioner] had it completed the
WORK, the amount of such excess [may be] claimed by [respondent] from either of the
following:

‘1. Any amount due [petitioner] from [respondent] at the time of the termination of this
Agreement.”[22]
The issue as to the correct amount of petitioner’s advances and billable accomplishments
involves an evaluation of the manner in which the parties completed the work, the extent
to which they did it, and the expenses each of them incurred in connection therewith.
Arbitrators also need to look into the computation of foreign and local costs of materials,
foreign and local advances, retention fees and letters of credit, and taxes and duties as set
forth in the Agreement. These data can be gathered from a review of the Agreement,
pertinent portions of which are reproduced hereunder:
“C. CONTRACT PRICE AND TERMS OF PAYMENT

x x x x x x x x x

“All progress payments to be made by [respondent] to [petitioner] shall be subject to a

retention sum of ten percent (10%) of the value of the approved quantities. Any claims by
[respondent] on [petitioner] may be deducted by [respondent] from the progress
payments and/or retained amount. Any excess from the retained amount after deducting
[respondent’s] claims shall be released by [respondent] to [petitioner] after the issuance
of [the Ministry of Public Works and Highways] of the Certificate of Completion and
final acceptance of the WORK by [the Ministry of Public Works and Highways].

x x x x x x x x x
“D. IMPORTED MATERIALS AND EQUIPMENT

“[Respondent shall open the letters of credit for the importation of equipment and
materials listed in Annex E hereof after the drawings, brochures, and other technical data
of each items in the list have been formally approved by [the Ministry of Public Works
and Highways]. However, petitioner will still be fully responsible for all imported
materials and equipment.

“All expenses incurred by [respondent], both in foreign and local currencies in

connection with the opening of the letters of credit shall be deducted from the Contract
Prices.

x x x x x x x x x

“N. OTHER CONDITIONS

x x x x x x x x x

“2. All customs duties, import duties, contractor’s taxes, income taxes, and other taxes
that may be required by any government agencies in connection with this Agreement
shall be for the sole account of [petitioner].”[23]
Being an inexpensive, speedy and amicable method of settling disputes, [24] arbitration --
along with mediation, conciliation and negotiation -- is encouraged by the Supreme
Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of
disputes, especially of the commercial kind.[25] It is thus regarded as the “wave of the
future” in international civil and commercial disputes.[26] Brushing aside a contractual
agreement calling for arbitration between the parties would be a step backward. [27]

Consistent with the above-mentioned policy of encouraging alternative dispute resolution

methods, courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate
should be granted.[28] Any doubt should be resolved in favor of arbitration.[29]

Second Issue:
Prior Request for Arbitration

According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to

file a formal request for arbitration with the Construction Industry Arbitration
Commission (CIAC) precluded the latter from acquiring jurisdiction over the question.
To bolster its position, petitioner even cites our ruling in Tesco Services Incorporated v.
Vera.[30] We are not persuaded.
Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration
indeed required the submission of a request for arbitration, as follows:
“SECTION. 1. Submission to Arbitration -- Any party to a construction contract wishing
to have recourse to arbitration by the Construction Industry Arbitration Commission
(CIAC) shall submit its Request for Arbitration in sufficient copies to the Secretariat of
the CIAC; PROVIDED, that in the case of government construction contracts, all
administrative remedies available to the parties must have been exhausted within 90 days
from the time the dispute arose.”
Tesco was promulgated by this Court, using the foregoing provision as reference.

On the other hand, Section 1 of Article III of the new Rules of Procedure Governing

Construction Arbitration has dispensed with this requirement and recourse to the CIAC
may now be availed of whenever a contract “contains a clause for the submission of a
future controversy to arbitration,” in this wise:
“SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a construction
contract or a submission to arbitration of a construction dispute shall be deemed an
agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in such
contract or submission. When a contract contains a clause for the submission of a future
controversy to arbitration, it is not necessary for the parties to enter into a submission
agreement before the claimant may invoke the jurisdiction of CIAC.”
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91
and 3-93.[31]

The difference in the two provisions was clearly explained in China Chang Jiang Energy
Corporation (Philippines) v. Rosal Infrastructure Builders et al.[32] (an extended unsigned
Resolution) and reiterated in National Irrigation Administration v. Court of Appeals,
[33]
from which we quote thus:
“Under the present Rules of Procedure, for a particular construction contract to fall within
the jurisdiction of CIAC, it is merely required that the parties agree to submit the same to
voluntary arbitration Unlike in the original version of Section 1, as applied in
the Tesco case, the law as it now stands does not provide that the parties should agree to
submit disputes arising from their agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain and clear that as long as the parties
agree to submit to voluntary arbitration, regardless of what forum they may choose, their
agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically
choose another forum, the parties will not be precluded from electing to submit their
dispute before the CIAC because this right has been vested upon each party by law, i.e.,
E.O. No. 1008.”[34]
Clearly, there is no more need to file a request with the CIAC in order to vest it with
jurisdiction to decide a construction dispute.

The arbitral clause in the Agreement is a commitment on the part of the parties to submit
to arbitration the disputes covered therein. Because that clause is binding, they are
expected to abide by it in good faith.[35] And because it covers the dispute between the
parties in the present case, either of them may compel the other to arbitrate. [36]

Since petitioner has already filed a Complaint with the RTC without prior recourse to
arbitration, the proper procedure to enable the CIAC to decide on the dispute is to request
the stay or suspension of such action, as provided under RA 876 [the Arbitration Law]. [37]

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

against petitioner.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 198075, September 04, 2013 ]
KOPPEL, INC. (FORMERLY KNOWN AS KPL AIRCON, INC.),
PETITIONER, VS. MAKATI ROTARY CLUB FOUNDATION, INC.,
RESPONDENT.

DECISION

PEREZ, J.:

This case is an appeal[1] from the Decision[2] dated 19 August 2011 of the Court of

Appeals in C.A.-G.R. SP No. 116865.

The facts:

The Donation

Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning products, was

the registered owner of a parcel of land located at Km. 16, South Superhighway,
Parañaque City (subject land).[3] Within the subject land are buildings and other
improvements dedicated to the business of FKI.[4]

In 1975, FKI[5] bequeathed the subject land (exclusive of the improvements thereon) in

favor of herein respondent Makati Rotary Club Foundation, Incorporated by way of
a conditional donation.[6] The respondent accepted the donation with all of its
conditions.[7] On 26 May 1975, FKI and the respondent executed a Deed of
Donation[8] evidencing their consensus.

The Lease and the Amended Deed of Donation

One of the conditions of the donation required the respondent to lease the subject land
back to FKI under terms specified in their Deed of Donation.[9] With the respondent’s
acceptance of the donation, a lease agreement between FKI and the respondent was,
therefore, effectively incorporated in the Deed of Donation.

Pertinent terms of such lease agreement, as provided in the Deed of Donation, were as

follows:

1. The period of the lease is for twenty-five (25) years, [10] or until the 25th of May
2000;

2. The amount of rent to be paid by FKI for the first twenty-five (25) years is
P40,126.00 per annum.[11]

The Deed of Donation also stipulated that the lease over the subject property is
renewable for another period of twenty-five (25) years “upon mutual agreement” of FKI
and the respondent.[12] In which case, the amount of rent shall be determined in
accordance with item 2(g) of the Deed of Donation, viz:
g. The rental for the second 25 years shall be the subject of mutual agreement
and in case of disagreement the matter shall be referred to a Board of three Arbitrators
appointed and with powers in accordance with the Arbitration Law of the Philippines,
Republic Act 878, whose function shall be to decide the current fair market value of the
land excluding the improvements, provided, that, any increase in the fair market value
of the land shall not exceed twenty five percent (25%) of the original value of the land
donated as stated in paragraph 2(c) of this Deed. The rental for the second 25 years
shall not exceed three percent (3%) of the fair market value of the land excluding the
improvements as determined by the Board of Arbitrators. [13]
In October 1976, FKI and the respondent executed an Amended Deed of
Donation[14] that reiterated the provisions of the Deed of Donation, including those
relating to the lease of the subject land.

Verily, by virtue of the lease agreement contained in the Deed of

Donation and Amended Deed of Donation, FKI was able to continue in its possession and
use of the subject land.

2000 Lease Contract

Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed
of Donation was set to expire, or on 23 May 2000, FKI and respondent executed another
contract of lease (2000 Lease Contract)[15] covering the subject land. In this 2000 Lease
Contract, FKI and respondent agreed on a new five-year lease to take effect on the
26th of May 2000, with annual rents ranging from P4,000,000 for the first year up to
P4,900,000 for the fifth year.[16]

The 2000 Lease Contract also contained an arbitration clause enforceable in the event

the parties come to disagreement about the “interpretation, application and execution”
of the lease, viz:
19. Governing Law – The provisions of this [2000 Lease Contract] shall be
governed, interpreted and construed in all aspects in accordance with the laws of the
Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this [2000

After the 2000 Lease Contract expired, FKI and respondent agreed to renew their lease
for another five (5) years. This new lease (2005 Lease Contract)[18] required FKI to pay a
fixed annual rent of P4,200,000.[19] In addition to paying the fixed rent, however,
the 2005 Lease Contract also obligated FKI to make a yearly “donation” of money to the
respondent.[20] Such donations ranged from P3,000,000 for the first year up to
P3,900,000 for the fifth year.[21]

Notably, the 2005 Lease Contract contained an arbitration clause similar to that in

the 2000 Lease Contract, to wit:
19. Governing Law – The provisions of this [2005 Lease Contract] shall be
governed, interpreted and construed in all aspects in accordance with the laws of the
Republic of the Philippines.
Any disagreement as to the interpretation, application or execution of this [2005
Lease Contract] shall be submitted to a board of three (3) arbitrators constituted in
accordance with the arbitration law of the Philippines. The decision of the majority of
the arbitrators shall be binding upon [FKI and respondent]. [22] (Emphasis supplied)
The Assignment and Petitioner’s Refusal to Pay

From 2005 to 2008, FKI faithfully paid the rentals and “donations” due it per the 2005
Lease Contract.[23] But in June of 2008, FKI sold all its rights and properties relative to its
business in favor of herein petitioner Koppel, Incorporated. [24] On 29 August 2008, FKI
and petitioner executed an Assignment and Assumption of Lease and Donation [25]—
wherein FKI, with the conformity of the respondent, formally assigned all of its interests
and obligations under the Amended Deed of Donation and the 2005 Lease Contract in
favor of petitioner.

The following year, petitioner discontinued the payment of the rent and “donation”
under the 2005 Lease Contract.

According to petitioner, the Deed of Donation and Amended Deed of Donation actually

established not only one but two (2) lease agreements between FKI and
respondent, i.e., one lease for the first twenty-five (25) years or from 1975 to 2000, and
another lease for the next twenty-five (25) years thereafter or from 2000 to 2025.
[27]
Both leases are material conditions of the donation of the subject land.

Petitioner points out that while a definite amount of rent for the second twenty-five
(25) year lease was not fixed in the Deed of Donation and Amended Deed of Donation,
both deeds nevertheless prescribed rules and limitations by which the same may be
determined. Such rules and limitations ought to be observed in any succeeding lease
agreements between petitioner and respondent for they are, in themselves, material
conditions of the donation of the subject land.[28]

In this connection, petitioner cites item 2(g) of the Deed of Donation and Amended Deed

of Donation that supposedly limits the amount of rent for the lease over the second
twenty-five (25) years to only “three percent (3%) of the fair market value of the
[subject] land excluding the improvements.[29]

For petitioner then, the rental stipulations of both the 2000 Lease Contract and 2005
Lease Contract cannot be enforced as they are clearly, in view of their exorbitant
exactions, in violation of the aforementioned threshold in item 2(g) of the Deed of
Donation and Amended Deed of Donation. Consequently, petitioner insists that the
amount of rent it has to pay thereon is and must still be governed by the limitations
prescribed in the Deed of Donation and Amended Deed of Donation.[30]

The Demand Letters

On 1 June 2009, respondent sent a letter (First Demand Letter)[31] to petitioner notifying
the latter of its default “per Section 12 of the [2005 Lease Contract]” and demanding for
the settlement of the rent and “donation” due for the year 2009. Respondent, in the
same letter, further intimated of cancelling the 2005 Lease Contract should petitioner
fail to settle the said obligations.[32] Petitioner received the First Demand Letter on 2 June
2009.[33]

On 22 September 2009, petitioner sent a reply[34] to respondent expressing its

On 25 September 2009, respondent sent another letter (Second Demand Letter)[38] to

petitioner, reiterating its demand for the payment of the obligations already due under
the 2005 Lease Contract. The Second Demand Letter also contained a demand for
petitioner to “immediately vacate the leased premises” should it fail to pay such
obligations within seven (7) days from its receipt of the letter. [39] The respondent warned
of taking “legal steps” in the event that petitioner failed to comply with any of the said
demands.[40] Petitioner received the Second Demand Letter on 26 September 2009.[41]

Petitioner refused to comply with the demands of the respondent. Instead, on 30

September 2009, petitioner filed with the Regional Trial Court (RTC) of Parañaque City a
complaint[42] for the rescission or cancellation of the Deed of Donation and Amended
Deed of Donation against the respondent. This case is currently pending before Branch
257 of the RTC, docketed as Civil Case No. CV 09-0346.

The Ejectment Suit

On 5 October 2009, respondent filed an unlawful detainer case [43] against the petitioner
before the Metropolitan Trial Court (MeTC) of Parañaque City. The ejectment case was
raffled to Branch 77 and was docketed as Civil Case No. 2009-307.

On 4 November 2009, petitioner filed an Answer with Compulsory Counterclaim.[44] In it,

petitioner reiterated its objection over the rental stipulations of the 2005 Lease
Contract for being violative of the material conditions of the Deed of
Donation and Amended Deed of Donation.[45] In addition to the foregoing, however,
petitioner also interposed the following defenses:

1. The MeTC was not able to validly acquire jurisdiction over the instant unlawful
detainer case in view of the insufficiency of respondent’s demand. [46] The First
Demand Letter did not contain an actual demand to vacate the premises and,
therefore, the refusal to comply therewith does not give rise to an action for
unlawful detainer.[47]

2. Assuming that the MeTC was able to acquire jurisdiction, it may not exercise the
same until the disagreement between the parties is first referred to arbitration
pursuant to the arbitration clause of the 2005 Lease Contract.[48]

In due course, petitioner and respondent both submitted their position papers, together
with their other documentary evidence.[52] Remarkably, however, respondent failed to
submit the Second Demand Letter as part of its documentary evidence.

Rulings of the MeTC, RTC and Court of Appeals

On 27 April 2010, the MeTC rendered judgment[53] in favor of the petitioner. While the
MeTC refused to dismiss the action on the ground that the dispute is subject to
arbitration, it nonetheless sided with the petitioner with respect to the issues regarding
the insufficiency of the respondent’s demand and the nullity of the 2005 Lease Contract.
[54]
The MeTC thus disposed:
WHEREFORE, judgment is hereby rendered dismissing the case x x x, without
pronouncement as to costs.

SO ORDERED.[55]
The respondent appealed to the Regional Trial Court (RTC). This appeal was
assigned to Branch 274 of the RTC of Parañaque City and was docketed as Civil Case No.
10-0255.

On 29 October 2010, the RTC reversed[56] the MeTC and ordered the eviction of the
petitioner from the subject land:
WHEREFORE, all the foregoing duly considered, the appealed Decision of the
Metropolitan Trial Court, Branch 77, Parañaque City, is hereby reversed, judgment is
thus rendered in favor of the plaintiff-appellant and against the defendant-appellee, and
ordering the latter –

(1 to vacate the lease[d] premises made subject of the case and to restore the
) possession thereof to the plaintiff-appellant;
(2 to pay to the plaintiff-appellant the amount of Nine Million Three Hundred Sixty Two
) Thousand Four Hundred Thirty Six Pesos (P9,362,436.00), penalties and net of 5% withholding
tax, for the lease period from May 25, 2009 to May 25, 2010 and such monthly rental as will
accrue during the pendency of this case;
(3 to pay attorney’s fees in the sum of P100,000.00 plus appearance fee of P3,000.00;
)
(4 and costs of suit.
)

As to the existing improvements belonging to the defendant-appellee, as these were

built in good faith, the provisions of Art. 1678 of the Civil Code shall apply.

SO ORDERED.[57]
The ruling of the RTC is premised on the following ratiocinations:
1. The respondent had adequately complied with the requirement of demand as a
jurisdictional precursor to an unlawful detainer action.[58] The First Demand
Letter, in substance, contains a demand for petitioner to vacate when it
mentioned that it was a notice “per Section 12 of the [2005 Lease
Contract].”[59] Moreover, the issue of sufficiency of the respondent’s demand
ought to have been laid to rest by the Second Demand Letter which, though not
submitted in evidence, was nonetheless admitted by petitioner as containing a
“demand to eject” in its Answer with Compulsory Counterclaim.[60]

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease
Contract while, at the same time, impugn such contract’s validity. [61] Even
assuming that it can, petitioner still did not file a formal application before the
MeTC so as to render such arbitration clause operational. [62] At any rate, the
MeTC would not be precluded from exercising its jurisdiction over an action for
unlawful detainer, over which, it has exclusive original jurisdiction. [63]

3. The 2005 Lease Contract must be sustained as a valid contract since petitioner

was not able to adduce any evidence to support its allegation that the same is
void.[64] There was, in this case, no evidence that respondent is guilty of any tax
evasion.[65]

Aggrieved, the petitioner appealed to the Court of Appeals.

On 19 August 2011, the Court of Appeals affirmed[66] the decision of the RTC:

WHEREFORE, the petition is DENIED. The assailed Decision of the Regional Trial
Court of Parañaque City, Branch 274, in Civil Case No. 10-0255 is AFFIRMED.

xxxx

SO ORDERED. [67]
Hence, this appeal.

On 5 September 2011, this Court granted petitioner’s prayer for the issuance of a
Temporary Restraining Order[68] staying the immediate implementation of the decisions
adverse to it.

OUR RULING

Independently of the merits of the case, the MeTC, RTC and Court of Appeals all erred in
overlooking the significance of the arbitration clause incorporated in the 2005 Lease
Contract. As the Court sees it, that is a fatal mistake.

For this reason, We grant the petition.

Present Dispute is Arbitrable Under the Arbitration Clause of the 2005 Lease
Agreement Contract

Going back to the records of this case, it is discernable that the dispute between the
petitioner and respondent emanates from the rental stipulations of the 2005 Lease
Contract. The respondent insists upon the enforceability and validity of such
stipulations, whereas, petitioner, in substance, repudiates them. It is from petitioner’s
apparent breach of the 2005 Lease Contract that respondent filed the instant unlawful
detainer action.

One cannot escape the conclusion that, under the foregoing premises, the dispute
between the petitioner and respondent arose from the application or execution of
the 2005 Lease Contract. Undoubtedly, such kinds of dispute are covered by the
arbitration clause of the 2005 Lease Contract to wit:
19. Governing Law – The provisions of this [2005 Lease Contract] shall be
governed, interpreted and construed in all aspects in accordance with the laws of the
Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this [2005

Lease Contract] shall be submitted to a board of three (3) arbitrators constituted in
accordance with the arbitration law of the Philippines. The decision of the majority of
the arbitrators shall be binding upon [FKI and respondent]. [69] (Emphasis supplied)
The arbitration clause of the 2005 Lease Contract stipulates that “any
disagreement” as to the “interpretation, application or execution” of the 2005 Lease
Contract ought to be submitted to arbitration.[70] To the mind of this Court, such
stipulation is clear and is comprehensive enough so as to include virtually any kind of
conflict or dispute that may arise from the 2005 Lease Contract including the one that
presently besets petitioner and respondent.

The application of the arbitration clause of the 2005 Lease Contract in this case carries
with it certain legal effects. However, before discussing what these legal effects are, We
shall first deal with the challenges posed against the application of such arbitration
clause.
Challenges Against the Application of the Arbitration Clause of the 2005 Lease
Contract

Curiously, despite the lucidity of the arbitration clause of the 2005 Lease Contract, the
petitioner, as well as the MeTC, RTC and the Court of Appeals, vouched for the non-
application of the same in the instant case. A plethora of arguments was hurled in favor
of bypassing arbitration. We now address them.

At different points in the proceedings of this case, the following arguments were offered
against the application of the arbitration clause of the 2005 Lease Contract:

1. The disagreement between the petitioner and respondent is non-arbitrable as it

will inevitably touch upon the issue of the validity of the 2005 Lease Contract.
[71]
It was submitted that one of the reasons offered by the petitioner in justifying
its failure to pay under the 2005 Lease Contract was the nullity of such contract
for being contrary to law and public policy.[72] The Supreme Court, in Gonzales v.
Climax Mining, Ltd.,[73] held that “the validity of contract cannot be subject of
arbitration proceedings” as such questions are “legal in nature and require the
application and interpretation of laws and jurisprudence which is necessarily a
judicial function.”[74]

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease
Contract while, at the same time, impugn such contract’s validity. [75]

3. Even assuming that it can invoke the arbitration clause whilst denying the validity
of the 2005 Lease Contract, petitioner still did not file a formal application before
the MeTC so as to render such arbitration clause operational. [76] Section 24 of
Republic Act No. 9285 requires the party seeking arbitration to first file a
“request” or an application therefor with the court not later than the preliminary
conference.[77]

4. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR)

proceedings before the RTC.[78] Hence, a further referral of the dispute to
arbitration would only be circuitous.[79] Moreover, an ejectment case, in view of
its summary nature, already fulfills the prime purpose of arbitration, i.e., to
provide parties in conflict with an expedient method for the resolution of their
dispute.[80] Arbitration then would no longer be necessary in this case. [81]
None of the arguments have any merit.

First. As highlighted in the previous discussion, the disagreement between the petitioner
and respondent falls within the all-encompassing terms of the arbitration clause of
the 2005 Lease Contract. While it may be conceded that in the arbitration of such
disagreement, the validity of the 2005 Lease Contract, or at least, of such contract’s
rental stipulations would have to be determined, the same would not render such
disagreement non-arbitrable. The quotation from Gonzales that was used to justify the
contrary position was taken out of context. A rereading of Gonzales would fix its
relevance to this case.

In Gonzales, a complaint for arbitration was filed before the Panel of Arbitrators of the
Mines and Geosciences Bureau (PA-MGB) seeking the nullification of a Financial
Technical Assistance Agreement and other mining related agreements entered into by
private parties.[82] Grounds invoked for the nullification of such agreements include
fraud and unconstitutionality.[83] The pivotal issue that confronted the Court then was
whether the PA-MGB has jurisdiction over that particular arbitration complaint. Stated
otherwise, the question was whether the complaint for arbitration raises arbitrable
issues that the PA-MGB can take cognizance of.

Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of
any jurisdiction to take cognizance of the complaint for arbitration, this Court pointed
out to the provisions of R.A. No. 7942, or the Mining Act of 1995, which granted the PA-
MGB with exclusive original jurisdiction only over mining disputes, i.e., disputes
involving “rights to mining areas,” “mineral agreements or permits,” and “surface
owners, occupants, claimholders or concessionaires” requiring the technical knowledge
and experience of mining authorities in order to be resolved. [84] Accordingly, since the
complaint for arbitration in Gonzales did not raise mining disputes as contemplated
under R.A. No. 7942 but only issues relating to the validity of certain mining related
agreements, this Court held that such complaint could not be arbitrated before the PA-
MGB.[85] It is in this context that we made the pronouncement now in discussion:
Arbitration before the Panel of Arbitrators is proper only when there is a
disagreement between the parties as to some provisions of the contract between them,
which needs the interpretation and the application of that particular knowledge and
expertise possessed by members of that Panel. It is not proper when one of the parties
repudiates the existence or validity of such contract or agreement on the ground of
fraud or oppression as in this case. The validity of the contract cannot be subject of
arbitration proceedings. Allegations of fraud and duress in the execution of a contract
are matters within the jurisdiction of the ordinary courts of law. These questions are
legal in nature and require the application and interpretation of laws and
jurisprudence which is necessarily a judicial function. [86] (Emphasis supplied)
The Court in Gonzales did not simply base its rejection of the complaint for
arbitration on the ground that the issue raised therein, i.e., the validity of contracts,
is per se non-arbitrable. The real consideration behind the ruling was the limitation that
was placed by R.A. No. 7942 upon the jurisdiction of the PA-MGB as an arbitral
body. Gonzales rejected the complaint for arbitration because the issue raised therein is
not a mining dispute per R.A. No. 7942 and it is for this reason, and only for this reason,
that such issue is rendered non-arbitrable before the PA-MGB. As stated beforehand,
R.A. No. 7942 clearly limited the jurisdiction of the PA-MGB only to mining disputes.[87]

Much more instructive for our purposes, on the other hand, is the recent case of Cargill
Philippines, Inc. v. San Fernando Regal Trading, Inc.[88] In Cargill, this Court answered
the question of whether issues involving the rescission of a contract are arbitrable. The
respondent in Cargill argued against arbitrability, also citing therein Gonzales. After
dissecting Gonzales, this Court ruled in favor of arbitrability.[89] Thus, We held:
Respondent contends that assuming that the existence of the contract and the
arbitration clause is conceded, the CA's decision declining referral of the parties' dispute
to arbitration is still correct. It claims that its complaint in the RTC presents the issue of
whether under the facts alleged, it is entitled to rescind the contract with damages; and
that issue constitutes a judicial question or one that requires the exercise of judicial
function and cannot be the subject of an arbitration proceeding. Respondent cites our
ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of jurisdiction
over the complaint for declaration of nullity/or termination of the subject contracts on
the grounds of fraud and oppression attendant to the execution of the addendum
contract and the other contracts emanating from it, and that the complaint should have
been filed with the regular courts as it involved issues which are judicial in nature.

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

support its argument.[90] (Emphasis ours)
Second. Petitioner may still invoke the arbitration clause of the 2005 Lease
Contract notwithstanding the fact that it assails the validity of such contract. This is due
to the doctrine of separability.[91]

Under the doctrine of separability, an arbitration agreement is considered as

independent of the main contract.[92] Being a separate contract in itself, the arbitration
agreement may thus be invoked regardless of the possible nullity or invalidity of the
main contract.[93]

Once again instructive is Cargill, wherein this Court held that, as a further consequence
of the doctrine of separability, even the very party who repudiates the main contract
may invoke its arbitration clause.[94]

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

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

SEC. 24. Referral to Arbitration. - A court before which an action is brought in a
matter which is the subject matter of an arbitration agreement shall, if at least one party
so requests not later that the pre-trial conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it finds that the arbitration agreement
is null and void, inoperative or incapable of being performed. [Emphasis ours; italics
original]
The “request” referred to in the above provision is, in turn, implemented by Rules
4.1 to 4.3 of A.M. No. 07-11-08-SC or the Special Rules of Court on Alternative Dispute
Resolution (Special ADR Rules):

RULE 4: REFERRAL TO ADR

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

Rule 4.2. When to make request. - (A) Where the arbitration agreement exists before
the action is filed. - The request for referral shall be made not later than the pre-trial
conference. After the pre-trial conference, the court will only act upon the request for
referral if it is made with the agreement of all parties to the case.

(B) Submission agreement. - If there is no existing arbitration agreement at the time the

case is filed but the parties subsequently enter into an arbitration agreement, they may
request the court to refer their dispute to arbitration at any time during the
proceedings.

Rule 4.3. Contents of request. - The request for referral shall be in the form of a motion,
which shall state that the dispute is covered by an arbitration agreement.

Apart from other submissions, the movant shall attach to his motion an authentic copy
of the arbitration agreement.

The request shall contain a notice of hearing addressed to all parties specifying the date
and time when it would be heard. The party making the request shall serve it upon the
respondent to give him the opportunity to file a comment or opposition as provided in
the immediately succeeding Rule before the hearing. [Emphasis ours; italics original]
Attention must be paid, however, to the salient wordings of Rule 4.1. It reads:
“[a] party to a pending action filed in violation of the arbitration agreement x x
x may request the court to refer the parties to arbitration in accordance with such
agreement.”

In using the word “may” to qualify the act of filing a “request” under Section 24 of R.A.
No. 9285, the Special ADR Rules clearly did not intend to limit the invocation of an
arbitration agreement in a pending suit solely via such “request.” After all, non-
compliance with an arbitration agreement is a valid defense to any offending suit and,
as such, may even be raised in an answer as provided in our ordinary rules of procedure.
[95]

In this case, it is conceded that petitioner was not able to file a separate “request” of
arbitration before the MeTC. However, it is equally conceded that the petitioner, as
early as in its Answer with Counterclaim, had already apprised the MeTC of the
existence of the arbitration clause in the 2005 Lease Contract[96] and, more significantly,
of its desire to have the same enforced in this case. [97] This act of petitioner is enough
valid invocation of his right to arbitrate.

The JDR framework is based on the processes of mediation, conciliation or early neutral

evaluation which entails the submission of a dispute before a “JDR judge” who shall
merely “facilitate settlement” between the parties in conflict or make a “non-binding
evaluation or assessment of the chances of each party’s case.”[98] Thus in JDR, the JDR
judge lacks the authority to render a resolution of the dispute that is binding upon the
parties in conflict. In arbitration, on the other hand, the dispute is submitted to
an arbitrator/s—a neutral third person or a group of thereof—who shall have the
authority to render a resolution binding upon the parties.[99]

Clearly, the mere submission of a dispute to JDR proceedings would not necessarily

render the subsequent conduct of arbitration a mere surplusage. The failure of the
parties in conflict to reach an amicable settlement before the JDR may, in fact, be
supplemented by their resort to arbitration where a binding resolution to the dispute
could finally be achieved. This situation precisely finds application to the case at bench.

Neither would the summary nature of ejectment cases be a valid reason to disregard
the enforcement of the arbitration clause of the 2005 Lease Contract. Notwithstanding
the summary nature of ejectment cases, arbitration still remains relevant as it aims not
only to afford the parties an expeditious method of resolving their dispute.

A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is,

first and foremost, a product of party autonomy or the freedom of the parties to “make
their own arrangements to resolve their own disputes.”[100] Arbitration agreements
manifest not only the desire of the parties in conflict for an expeditious resolution of
their dispute. They also represent, if not more so, the parties’ mutual aspiration to
achieve such resolution outside of judicial auspices, in a more informal and less
antagonistic environment under the terms of their choosing. Needless to state, this
critical feature can never be satisfied in an ejectment case no matter how summary it
may be.

Having hurdled all the challenges against the application of the arbitration clause of
the 2005 Lease Agreement in this case, We shall now proceed with the discussion of its
legal effects.

Legal Effect of the Application of the Arbitration Clause

Since there really are no legal impediments to the application of the arbitration clause
of the 2005 Contract of Lease in this case, We find that the instant unlawful detainer
action was instituted in violation of such clause. The Law, therefore, should have
governed the fate of the parties and this suit:
R.A. No. 876

Section 7. Stay of civil action. - If any suit or proceeding be brought upon an issue arising
out of an agreement providing for the arbitration thereof, the court in which such suit
or proceeding is pending, upon being satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the agreement: Provided,
That the applicant for the stay is not in default in proceeding with such arbitration.
[Emphasis supplied]

R.A. No. 9285

Section 24. Referral to Arbitration. - A court before which an action is brought in a

matter which is the subject matter of an arbitration agreement shall, if at least one party
so requests not later that the pre-trial conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it finds that the arbitration agreement
is null and void, inoperative or incapable of being performed. [Emphasis supplied]
It is clear that under the law, the instant unlawful detainer action should have
been stayed;[101] the petitioner and the respondent should have been referred to
arbitration pursuant to the arbitration clause of the 2005 Lease Contract. The MeTC,
however, did not do so in violation of the law—which violation was, in turn, affirmed by
the RTC and Court of Appeals on appeal.

The violation by the MeTC of the clear directives under R.A. Nos. 876 and 9285 renders
invalid all proceedings it undertook in the ejectment case after the filing by petitioner of
its Answer with Counterclaim—the point when the petitioner and the respondent
should have been referred to arbitration. This case must, therefore, be remanded to the
MeTC and be suspended at said point. Inevitably, the decisions of the MeTC, RTC and
the Court of Appeals must all be vacated and set aside.

The petitioner and the respondent must then be referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract.

This Court is not unaware of the apparent harshness of the Decision that it is about to

make. Nonetheless, this Court must make the same if only to stress the point that, in
our jurisdiction, bona fide arbitration agreements are recognized as valid;[102] and that
laws,[103] rules and regulations[104] do exist protecting and ensuring their enforcement as
a matter of state policy. Gone should be the days when courts treat otherwise valid
arbitration agreements with disdain and hostility, if not outright “jealousy,”[105] and then
get away with it. Courts should instead learn to treat alternative means of dispute
resolution as effective partners in the administration of justice and, in the case of
arbitration agreements, to afford them judicial restraint.[106] Today, this Court only
performs its part in upholding a once disregarded state policy.

Civil Case No. CV 09-0346

This Court notes that, on 30 September 2009, petitioner filed with the RTC of Parañaque
City, a complaint[107] for the rescission or cancellation of the Deed of
Donation and Amended Deed of Donation against the respondent. The case is currently
pending before Branch 257 of the RTC, docketed as Civil Case No. CV 09-0346.

This Court recognizes the great possibility that issues raised in Civil Case No. CV 09-0346
may involve matters that are rightfully arbitrable per the arbitration clause of the 2005
Lease Contract. However, since the records of Civil Case No. CV 09-0346 are not before
this Court, We can never know with true certainty and only speculate.

In this light, let a copy of this Decision be also served to Branch 257 of the RTC of
Parañaque for its consideration and, possible, application to Civil Case No. CV 09-0346.

WHEREFORE, premises considered, the petition is hereby GRANTED. Accordingly, We

hereby render a Decision:

1. SETTING ASIDE all the proceedings undertaken by the Metropolitan Trial Court,

Branch 77, of Parañaque City in relation to Civil Case No. 2009-307 after the filing
by petitioner of its Answer with Counterclaim;

2. REMANDING the instant case to the MeTC, SUSPENDED at the point after the

filing by petitioner of its Answer with Counterclaim;

3. SETTING ASIDE the following:

a. Decision dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No.

116865,
b. Decision dated 29 October 2010 of the Regional Trial Court, Branch 274, of
Parañaque City in Civil Case No. 10-0255,

c. Decision dated 27 April 2010 of the Metropolitan Trial Court, Branch 77, of
Parañaque City in Civil Case No. 2009-307; and

4. REFERRING the petitioner and the respondent to arbitration pursuant to the

arbitration clause of the 2005 Lease Contract, repeatedly included in the 2000
Lease Contract and in the 1976 Amended Deed of Donation.

Let a copy of this Decision be served to Branch 257 of the RTC of Parañaque for its
consideration and, possible, application to Civil Case No. CV 09-0346.

No costs.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 171763, June 05, 2009 ]
MARIA LUISA PARK ASSOCIATION, INC., PETITIONER, VS. SAMANTHA
MARIE T. ALMENDRAS AND PIA ANGELA T. ALMENDRAS,
RESPONDENTS.

DECISION

QUISUMBING, J.:

This petition for review on certiorari assails the Decision[1] dated August 31, 2005
and the Resolution[2] dated February 13, 2006 of the Court of Appeals in CA-G.R. SP No.
81069.

The facts, culled from the records, are as follows:

On February 6, 2002, respondents Samantha Marie T. Almendras and Pia Angela T.
Almendras purchased from MRO Development Corporation a residential lot located in
Maria Luisa Estate Park, Banilad, Cebu City. After some time, respondents filed with
petitioner Maria Luisa Park Association, Incorporated (MLPAI) an application to
construct a residential house, which was approved in February 10, 2002. Thus,
respondents commenced the construction of their house.

Upon ocular inspection of the house, MLPAI found out that respondents violated the
prohibition against multi-dwelling[3] stated in MLPAI's Deed of Restriction.
Consequently, on April 28, 2003, MLPAI sent a letter to the respondents, demanding
that they rectify the structure; otherwise, it will be constrained to forfeit respondents'
construction bond and impose stiffer penalties.

In a Letter[4] dated April 29, 2003, respondents, as represented by their father Ruben D.

Almendras denied having violated MLPAI's Deed of Restriction.

On May 5, 2003, MLPAI, in its reply, pointed out respondents' specific violations of the
subdivision rules, to wit: (a) installation of a second water meter and tapping the
subdivision's main water pipeline, and (b) construction of "two separate entrances that
are mutually exclusive of each other." It likewise reiterated its warning that failure to
comply with its demand will result in its exercise of more stringent measures.

In view of these, respondents filed with the Regional Trial Court of Cebu City, Branch 7, a
Complaint[5] on June 2, 2003 for Injunction, Declaratory Relief, Annulment of Provisions
of Articles and By-Laws with Prayer for Issuance of a Temporary Restraining Order
(TRO)/Preliminary Injunction.

MLPAI moved for the dismissal of the complaint on the ground of lack of jurisdiction and
failure to comply with the arbitration clause[6] provided for in MLPAI's by-laws.

In an Order[7] dated July 31, 2003, the trial court dismissed the complaint for lack of
jurisdiction, holding that it was the Housing and Land Use Regulatory Board (HLURB)
that has original and exclusive jurisdiction over the case. Respondents moved for
reconsideration but their motion was denied.

Aggrieved, the respondents questioned the dismissal of their complaint in a petition for
certiorari and prohibition before the Court of Appeals.
The Court of Appeals granted the petition in its Decision dated August 31, 2005, the
dispositive portion of which reads:

WHEREFORE, in view of all the foregoing, the petition is GRANTED and the

assailed orders of the respondent trial court are declared NULL AND VOID, and SET
ASIDE. Respondent RTC is hereby ordered to take jurisdiction of Civil Case No. CEB-
29002.

SO ORDERED.[8]

MLPAI filed a motion for reconsideration but it was denied by the Court of Appeals in its
Resolution dated February 13, 2006.

Hence, this petition raising the following issues:

WHETHER THE HONORABLE COURT OF APPEALS HAS DISREGARDED LAWS AND WELL-
SETTLED JURISPRUDENCE IN HOLDING THAT JURISDICTION OVER [THE] DISPUTE
BETWEEN HOMEOWNERS AND HOMEOWNERS' ASSOCIATION LIES WITH THE REGULAR
COURTS AND NOT WITH HLURB.

II.

WHETHER THERE IS NO OTHER RELIEF AND REMEDY AVAILABLE TO PETITIONER TO

AVERT THE CONDUCT OF A VOID [PROCEEDING] THAN THE PRESENT RECOURSE. [9]

Simply stated, the issue is whether the appellate court erred in ruling that it was the
trial court and not the HLURB that has jurisdiction over the case.

Petitioner MLPAI contends that the HLURB[10] has exclusive jurisdiction over the present
controversy, it being a dispute between a subdivision lot owner and a subdivision
association, where the latter aimed to compel respondents to comply with the MLPAI's
Deed of Restriction, specifically the provision prohibiting multi-dwelling.
Respondents, on the other hand, counter that the case they filed against MLPAI is one
for declaratory relief and annulment of the provisions of the by-laws; hence, it is outside
the competence of the HLURB to resolve. They likewise stated that MLPAI's rules and
regulations are discriminatory and violative of their basic rights as members of the
association. They also argued that MLPAI's acts are illegal, immoral and against public
policy and that they did not commit any violation of the MLPAI's Deed of Restriction.

We agree with the trial court that the instant controversy falls squarely within the
exclusive and original jurisdiction of the Home Insurance and Guaranty Corporation
(HIGC),[11] now HLURB.

Originally, administrative supervision over homeowners' associations was vested by law

with the Securities and Exchange Commission (SEC). However, pursuant to Executive
Order No. 535,[12] the HIGC assumed the regulatory and adjudicative functions of the SEC
over homeowners' associations. Section 2 of E.O. No. 535 provides:

2. In addition to the powers and functions vested under the Home Financing Act,
the Corporation, shall have among others, the following additional powers:

(a) . . . and exercise all the powers, authorities and responsibilities that are vested on
the Securities and Exchange Commission with respect to homeowners associations, the
provision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding;

(b) To regulate and supervise the activities and operations of all houseowners
associations registered in accordance therewith;

xxxx

Moreover, by virtue of this amendatory law, the HIGC also assumed the SEC's original
and exclusive jurisdiction under Section 5 of Presidential Decree No. 902-A to hear and
decide cases involving:

b) Controversies arising out of intra-corporate or partnership relations, between

and among stockholders, members, or associates; between any and/or all of them and
the corporation, partnership or association of which they are stockholders, members
or associates, respectively; and between such corporation, partnership or association
and the state insofar as it concerns their individual franchise or right to exist as such
entity;[13] (Emphasis supplied.)
xxxx

Consequently, in Sta. Clara Homeowners' Association v. Gaston [14] and Metro Properties,

Inc. v. Magallanes Village Association, Inc.,[15] the Court recognized HIGC's "Revised
Rules of Procedure in the Hearing of Home Owner's Disputes," pertinent portions of
which are reproduced below:

RULE II

Disputes Triable by HIGC/Nature of Proceedings

Section 1. Types of Disputes - The HIGC or any person, officer, body, board or
committee duly designated or created by it shall have jurisdiction to hear and decide
cases involving the following:

xxxx

(b) Controversies arising out of intra-corporate relations between and among members
of the association, between any or all of them and the association of which they are
members, and between such association and the state/general public or other entity in
so far as it concerns its right to exist as a corporate entity. [16] (Emphasis supplied.)

xxxx

Later on, the above-mentioned powers and responsibilities, which had been vested in
the HIGC with respect to homeowners' associations, were transferred to the HLURB
pursuant to Republic Act No. 8763,[17] entitled "Home Guaranty Corporation Act of
2000."

In the present case, there is no question that respondents are members of MLPAI as
they have even admitted it.[18] Therefore, as correctly ruled by the trial court, the case
involves a controversy between the homeowners' association and some of its
members. Thus, the exclusive and original jurisdiction lies with the HLURB.

Indeed, in Sta. Clara Homeowners' Association v. Gaston, we held:

. . . the HIGC exercises limited jurisdiction over homeowners' disputes. The law
confines its authority to controversies that arise from any of the following intra-
corporate relations: (1) between and among members of the association; (2) between
any and/or all of them and the association of which they are members; and (3)
between the association and the state insofar as the controversy concerns its right to
exist as a corporate entity.[19] (Emphasis supplied.)

The extent to which the HLURB has been vested with quasi-judicial authority must also
be determined by referring to Section 3 of P.D. No. 957,[20] which provides:

SEC. 3. National Housing Authority. - The National Housing Authority shall have
exclusive jurisdiction to regulate the real estate trade and business in accordance with
the provisions of this Decree. (Emphasis supplied.)

The provisions of P.D. No. 957 were intended to encompass all questions regarding
subdivisions and condominiums. The intention was aimed at providing for an
appropriate government agency, the HLURB, to which all parties aggrieved in the
implementation of provisions and the enforcement of contractual rights with respect to
said category of real estate may take recourse. The business of developing subdivisions
and corporations being imbued with public interest and welfare, any question arising
from the exercise of that prerogative should be brought to the HLURB which has the
technical know-how on the matter.[21] In the exercise of its powers, the HLURB must
commonly interpret and apply contracts and determine the rights of private parties
under such contracts. This ancillary power is no longer a uniquely judicial function,
exercisable only by the regular courts.[22]

It is apparent that although the complaint was denominated as one for declaratory
relief/annulment of contracts, the allegations therein reveal otherwise. It should be
stressed that respondents neither asked for the interpretation of the questioned by-
laws nor did they allege that the same is doubtful or ambiguous and require judicial
construction. In fact, what respondents really seek to accomplish is to have a particular
provision of the MLPAI's by-laws nullified and thereafter absolve them from any
violations of the same.[23] In Kawasaki Port Service Corporation v. Amores,[24] the rule
was stated:

. . . where a declaratory judgment as to a disputed fact would be determinative of

issues rather than a construction of definite stated rights, status and other relations,
commonly expressed in written instrument, the case is not one for declaratory
judgment.[25]

Contrary to the observation of the Court of Appeals, jurisdiction cannot be made to

depend on the exclusive characterization of the case by one of the parties. [26] While
respondents are questioning the validity or legality of the MLPAI's articles of
incorporation and its by-laws, they did not, however, raise any legal ground to support
its nullification. The legality of the by-laws in its entirety was never an issue in the
instant controversy but merely the provision prohibiting multi-dwelling which
respondents assert they did not violate.[27] So to speak, there is no justiciable
controversy here that would warrant declaratory relief, or even an annulment of
contracts.

We reiterate that in jurisdictional issues, what determines the nature of an action for
the purpose of ascertaining whether a court has jurisdiction over a case are the
allegations in the complaint and the nature of the relief sought. [28]

Moreover, under the doctrine of primary administrative jurisdiction, courts cannot or

will not determine a controversy where the issues for resolution demand the exercise of
sound administrative discretion requiring the special knowledge, experience, and
services of the administrative tribunal to determine technical and intricate matters of
fact.[29]

In the instant case, the HLURB has the expertise to resolve the basic technical issue of
whether the house built by the respondents violated the Deed of Restriction, specifically
the prohibition against multi-dwelling.

As observed in C.T. Torres Enterprises, Inc. v. Hibionada:[30]

The argument that only courts of justice can adjudicate claims resoluble under
the provisions of the Civil Code is out of step with the fast-changing times. There are
hundreds of administrative bodies now performing this function by virtue of a valid
authorization from the legislature. This quasi-judicial function, as it is called, is exercised
by them as an incident of the principal power entrusted to them of regulating certain
activities falling under their particular expertise.

In the Solid Homes case for example the Court affirmed the competence of the Housing
and Land Use Regulatory Board to award damages although this is an essentially
judicial power exercisable ordinarily only by the courts of justice. This departure from
the traditional allocation of governmental powers is justified by expediency, or the need
of the government to respond swiftly and competently to the pressing problems of the
modern world.[31]

We also note that the parties failed to abide by the arbitration agreement in the MLPAI
by-laws. Article XII of the MLPAI by-laws entered into by the parties provide:

Mode of Dispute Resolution

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

Under the said provision of the by-laws, any dispute or claim against the Association or
any of its officers and governors shall first be settled amicably. If amicable settlement
fails, such dispute shall be brought by the member to an arbitration panel for final
settlement. The arbitral award shall be valid and binding between the parties unless
repudiated on grounds that the same was procured through fraud or violence, or that
there are patent or gross errors in the tribunal's findings of facts upon which the
decision was based.

The terms of Article XII of the MLPAI by-laws clearly express the intention of the parties
to bring first to the arbitration process all disputes between them before a party can file
the appropriate action. The agreement to submit all disputes to arbitration is a
contract. As such, the arbitration agreement binds the parties thereto, as well as their
assigns and heirs.[32] Respondents, being members of MLPAI, are bound by its by-laws,
and are expected to abide by it in good faith.[33]

In the instant case, we observed that while both parties exchanged correspondence
pertaining to the alleged violation of the Deed of Restriction, they, however, made no
earnest effort to resolve their differences in accordance with the arbitration clause
provided for in their by-laws. Mere exchange of correspondence will not suffice much
less satisfy the requirement of arbitration. Arbitration being the mode of settlement
between the parties expressly provided for in their by-laws, the same should be
respected. Unless an arbitration agreement is such as absolutely to close the doors of
the courts against the parties, the courts should look with favor upon such amicable
arrangements.[34]

Arbitration is one of the alternative methods of dispute resolution that is now rightfully
vaunted as "the wave of the future" in international relations, and is recognized
worldwide. To brush aside a contractual agreement calling for arbitration in case of
disagreement between the parties would therefore be a step backward. [35]

WHEREFORE, the instant petition is GRANTED. The Decision dated August 31, 2005 and
Resolution dated February 13, 2006 of the Court of Appeals in CA-G.R. SP No. 81069
are SET ASIDE. The Order dated July 31, 2003 of the Regional Trial Court of Cebu City,
Branch 7, is hereby REINSTATED.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 91228, March 22, 1993 ]
PUROMINES, INC., PETITIONER, VS. COURT OF APPEALS AND PHILIPP
BROTHERS OCEANIC, INC., RESPONDENTS.

DECISION

NOCON, J.:

This is a special civil action for certiorari and prohibition to annul and set aside
the Decision of the respondent Court of Appeals dated November 16, 1989 [1] reversing
the order of the trial court and dismissing petitioner's complaint in Civil Case No. 89-
47403, entitled Puromines, Inc. v. Maritime Factors, Inc. and Philipp Brothers Oceanic,
Inc.

Culled from the records of this case, the facts show that petitioner, Puromines, Inc.
(Puromines for brevity) and Makati Agro Trading, Inc. (not a party in this case) entered
into a contract with private respondent Philipp Brothers Oceanic, Inc. for the sale of
prilled Urea in bulk. The Sales Contract No. S151.8.01018 provided, among others an
arbitration clause which states thus:
"9. Arbitration

"Any disputes arising under this contract shall be settled by arbitration in London in
accordance with the Arbitration Act 1950 and any statutory amendment or modification
thereof. Each party is to appoint an Arbitrator, and should they be unable to agree, the
decision of an Umpire appointed by them to be final. The Arbitrators and Umpire are all
to be commercial men and resident in London. This submission may be made a rule of
the High Court of Justice in England by either party."[2]
On or about May 12, 1988, the vessel M/V "Liliana Dimitrova" loaded on board at
Yuzhny, USSR a shipment of 15,500 metric tons prilled Urea in bulk complete and in
good order and condition for transport to Iloilo and Manila, to be delivered to
petitioner. Three bills of lading were issued by the ship-agent in the Philippines,
Maritime Factors Inc., namely: Bill of Lading No. 1 dated May 12, 1988 covering 10,000
metric tons for discharge in Manila; Bill of Lading No. 2 of even date covering 4,000
metric tons for unloading in Iloilo City; and Bill of Lading No. 3, also dated May 12, 1988,
covering 1,500 metric tons likewise for discharge in Manila.

The shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and
in good order and condition. However, the shipments covered by Bill of Lading Nos. 1
and 3 were discharged in Manila in bad order and condition, caked, hardened and
lumpy, discolored and contaminated with rust and dirt. Damages were valued at
P683,056.29 including additional discharging expenses.

Consequently, petitioner filed a complaint[3] with the trial court[4] for breach of contract

of carriage against Maritime Factors, Inc. (which was not included as respondent in this
petition) as ship-agent in the Philippines for the owners of the vessel MV "Liliana
Dimitrova," while private respondent, Philipp Brothers Oceanic, Inc., was impleaded as
charterer of the said vessel and proper party to accord petitioner complete relief.
Maritime Factors, Inc. filed its Answers[5] to the complaint, while private respondent
filed a motion to dismiss, dated February 9, 1989, on the grounds that the complaint
states no cause of action: that it was prematurely filed; and that petitioner should
comply with the arbitration clause in the sales contract. [6]

The motion to dismiss was opposed by petitioner contending the inapplicability of the
arbitration clause inasmuch as the cause of action did not arise from a violation of the
terms of the sales contract but rather for claims of cargo damages where there is no
arbitration agreement. On April 26, 1989, the trial court denied respondent's motion to
dismiss in this wise:
"The sales contract in question states in part:

'Any disputes arising under this contract shall be settled by arbitration . . . ' (emphasis

supplied)

"A perusal of the facts alleged in the complaint upon which the question of sufficiency of
the cause of action is to be determined shows quite clearly that the cause of action of
the complaint arose from a breach of contract of carriage by the vessel chartered by the
defendant Philipp Brothers Oceanic, Inc. Thus, the aforementioned arbitration clause
cannot apply to the dispute in the present action which concerns plaintiff's claim for
cargo loss/damage arising from breach of contract of carriage.

"That the defendant is not the ship owner or common carrier and therefore plaintiff
does not have a legal right against it since every action must be brought against the real
party in interest has no merit either for by the allegations in the complaint the
defendant herein has been impleaded as charterer of the vessel, hence, a proper
party."[7]
Elevating the matter to the Court of Appeals, petitioner's complaint was
dismissed. The appellate court found that the arbitration provision in the sales contract
and/or the bills of lading is applicable in the present case. Said the court:
"An examination of the sales contract No. S151.8.01018 shows that it is broad
enough to include the claim for damages arising from the carriage and delivery of the
goods subject matter thereof.

"It is also noted that the bills of lading attached as Annexes 'A', 'B' and 'C' to the
complaint state, in part, ‘any dispute arising under this Bill of Lading shall be referred to
arbitration of the Maritime Arbitration Commission at the USSR Chamber of Commerce
and Industry, 6 Kuibyshevskaia Str.. Moscow, USSR, in accordance with the rules of
procedure of said commission.'

"Considering that the private respondent was one of the signatories to the sales
contract. . . all parties are obliged to respect the terms and conditions of the said sales
contract, including the provision thereof on 'arbitration.' "
Hence, this petition.

The issue raised is: Whether the phrase "any dispute arising under this contract" in the
arbitration clause of the sales contract covers a cargo claim against the vessel (owners
and/or charterers) for breach of contract of carriage.

Petitioner states in its complaint that Philipp Brothers "was the charterer of the vessel
MV ‘Liliana Dimitrova’ which transported the shipment from Yuzhny USSR to Manila."
Petitioner further alleged that the caking and hardening, wetting and melting, and
contamination by rust and dirt of the damaged portions of the shipment were due to
the improper ventilation and inadequate storage facilities of the vessel; that the wetting
of the cargo was attributable to the failure of the crew to close the hatches before and
when it rained while the shipment was being unloaded in the Port of Manila; and that as
a direct and natural consequence of the unseaworthiness and negligence of the vessel
(sic), petitioner suffered damages in the total amount of P683,056.29 Philippine
currency."[8] (underscoring supplied)

Moreover, in its Opposition to the Motion to Dismiss, petitioner said that “[t]he cause of
action of the complaint arose from breach of contract of carriage by the vessel that was
chartered by defendant Philipp Brothers"[9]
In the present petition, petitioner argues that the sales contract does not include the
contract of carriage which is a different contract entered into by the carrier with the
cargo owners. That it was an error for the respondent court to touch upon the
arbitration provision of the bills of lading in its decision inasmuch as the same was not
raised as an issue by private respondent who was not a party in the bills of
lading (emphasis Ours). Petitioner contradicts itself.

We agree with the court a quo that the sales contract is comprehensive enough to
include claims for damages arising from carriage and delivery of the goods. As a general
rule, the seller has the obligation to transmit the goods to the buyer, and concomitant
thereto, the contracting of a carrier to deliver the same. Art. 1523 of the Civil Code
provides:
"Art. 1523. Where in pursuance of contract of sale, the seller is authorized or
required to send the goods to the buyer, delivery of the goods to a carrier, whether
named by the buyer or not, for the purpose of transmission to the buyer is deemed to
be a delivery of the goods to the buyer, except in the cases provided for in article 1503,
first, second and third paragraphs, or unless a contrary intent appears.

"Unless otherwise authorized by the buyer, the seller must make such contract with the
carrier on behalf of the buyer as may be reasonable, having regard to the nature of the
goods and the other circumstances of the case. If the seller omit so to do, and the goods
are lost or damaged in course of transit, the buyer may decline to treat the delivery to
the carrier as a delivery to himself, or may hold the seller responsible in damages."

x x x
The disputed sales contract provides for conditions relative to the delivery of
goods, such as date of shipment, demurrage, weight as determined by the bill of lading
at load port and more particularly the following provisions:
“3. Intention is to ship in one bottom, approximately 5,000 metric tons to
Puromines and approximately 15,000 metric tons to Makati Agro. However, Sellers to
have right to ship material as partial shipment or co-shipment in addition to above. In
the event of co-shipment to a third party within Philippines same to be discussed with
and acceptable to both Puromines and Makati Agro.

“4. Sellers to appoint neutral survey for Seller's account to conduct initial draft survey at
first discharge port and final survey at last discharge port. Surveyor's results to be
binding and final. In the event draft survey results show a quantity less than the
combined Bills of Lading quantity for both Puromines and Makati Agro, Sellers to refund
the difference. In the event that draft survey results show a quantity in excess of
combined Bills of Lading quantity of both Puromines and Makati Agro then Buyers to
refund the difference.

“5. It is expressly and mutually agreed that neither Sellers nor vessel's Owners have any
liability to separate cargo or to deliver cargos separately or to deliver
minimum/maximum quantities stated on individual Bills of Lading. At each port vessel is
to discharge in accordance with Buyers local requirements and it is Buyer's responsibility
to separate individual quantities required by each of them at each port during or after
discharge."
As argued by respondent on its motion to dismiss, "the (petitioner) derives his
right to the cargo from the bill of lading which is the contract of affreightment together
with the sales contract. Consequently, the (petitioner) is bound by the provisions and
terms of said bill of lading and of the arbitration clause incorporated in the sales
contract."

Assuming arguendo that the liability of respondent is not based on the sales contract,

but rather on the contract of carriage, being the charterer of the vessel MV "Liliana
Dimitrova," it would, therefore, be material to show what kind of charter party the
respondent had with the shipowner to determine respondent's liability.

American jurisprudence defines charter party as a contract by which an entire ship or

some principal part thereof is let by the owner to another person for a specified time or
use.[10] Charter or charter parties are of two kinds. Charter of demise or bareboat and
contracts of affreigntment.

Under the demise or bareboat charter of the vessel, the charterer will generally be
considered as owner for the voyage or service stipulated. The charterer mans the vessel
with his own people and becomes, in effect, the owner pro hac vice, subject to liability
to others for damages caused by negligence.[11] To create a demise the owner of a vessel
must completely and exclusively relinquish possession, command and navigation
thereof to the charterer: anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at all.

On the other hand, a contract of affreightment is one in which the owner of the vessel
leases part or all of its space to haul goods for others. It is a contract for a special service
to be rendered by the owner of the vessel[12] and under such contract the general owner
retains the possession, command and navigation of the ship, the charterer or freighter
merely having use of the space in the vessel in return for his payment of the charter
hire.[13] If the charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights, responsibilities of ownership
rest on the owner and the charterer is usually free from liability to third persons in
respect of the ship.[14]

Responsibility to third persons for goods shipped on board a vessel follows the vessel's
possession and employment; and if possession is transferred to the charterer by virtue
of a demise, the charterer, and not the owner, is liable as carrier on the contract of
affreightment made by himself or by the master with third persons, and is answerable
for loss, damage or nondelivery of goods received for transportation. An owner who
retains possession of the ship, though the hold is the property of the charterer, remains
liable as carrier and must answer for any breach of duty as to the care, loading or
unloading of the cargo.[15]

Assuming that in the present case, the charter party is a demise or bareboat charter,
then Philipp Brothers is liable to Puromines, Inc., subject to the terms and conditions of
the sales contract. On the other hand, if the contract between respondent and the
owner of the vessel MV "Liliana Dimitrova" was merely that of affreightment, then it
cannot be held liable for the damages caused by the breach of contract of carriage, the
evidence of which is the bills of lading.

In any case, whether the liability of respondent should be based on the sales contract or
that of the bill of lading, the parties are nevertheless obligated to respect the arbitration
provisions on the sales contract and/or the bill of lading. Petitioner being a signatory
and party to the sales contract cannot escape from his obligation under the arbitration
clause as stated therein.

Neither can petitioner contend that the arbitration provision in the bills of lading should
not have been discussed as an issue in the decision of the Court of Appeals since it was
not raised as a special or affirmative defense. The three bills of lading were attached to
the complaint as Annexes "A," "B," and "C," and are therefore parts thereof and may be
considered as evidence although not introduced as such. [16] Hence, it was then proper
for the court a quo to discuss the contents of the bills of lading, having been made part
of the record.
Going back to the main subject of this case, arbitration has been held valid and
constitutional. Even before the enactment of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration. The rule now is that
unless the agreement is such as absolutely to close the doors of the courts against the
parties, which agreement would be void, the courts will look with favor upon such
amicable arrangements and will only interfere with great reluctance to anticipate or
nullify the action of the arbitrator.[17]

As pointed out in the case of Mindanao Portland Cement Corp. v. McDonough

Construction Company of Florida[18] wherein the plaintiff sued defendant for damages
arising from a contract, the Court said:
"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 their 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. And although it has been ruled that a
frivolous or patently baseless claim should not be ordered to arbitration, it is also
recognized that the mere fact that a defense exists against a claim does not make it
frivolous or baseless."[19]
In the case of Bengson v. Chan,[20] We upheld the provision of a contract which
required the parties to submit their disputes to arbitration and We held as follows:
"The trial court sensibly said that ‘all the causes of action alleged in the plaintiff's
amended complaint are based upon the supposed violations committed by the
defendants of the ‘Contract of Construction of a Building’ ’ and that ‘the provisions of
paragraph 15 hereof leave a very little room for doubt that the said causes of action are
embraced within the phrase ‘any and all questions, disputes or differences between the
parties hereto relative to the construction of the building,’ which must be determined
by arbitration of two persons and such determination by the arbitrators shall be ‘final,
conclusive and binding upon both parties’ unless they go to court, in which the case the
determination by arbitration is a condition precedent ‘for taking any court action.’ ’

xxx
"We hold that the terms of paragraph 15 clearly express the intention of the parties that
all disputes between them should first be arbitrated before court action can be taken by
the aggrieved party." [21]
Premises considered, We uphold the validity and applicability of the arbitration
clause as stated in Sales Contract No. S151.8.01018 to the present dispute.

WHEREFORE, petition is hereby DISMISSED and the decision of the court a

quo is AFFIRMED.
SO ORDERED.

FIRST DIVISION
[ G.R. No. 212081, February 23, 2015 ]
DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES
(DENR), PETITIONER, VS. UNITED PLANNERS CONSULTANTS, INC.
(UPCI), RESPONDENT.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari[1] is the Decision[2] dated March 26, 2014
of the Court of Appeals (CA) in CA-G.R. SP No. 126458 which dismissed the petition
for certiorari filed by petitioner the Department of Environment and Natural Resources
(petitioner).

The Facts

On July 26, 1993, petitioner, through the Land Management Bureau (LMB), entered into
an Agreement for Consultancy Services[3] (Consultancy Agreement) with respondent
United Planners Consultants, Inc. (respondent) in connection with the LMB’s Land
Resource Management Master Plan Project (LRMMP).[4] Under the Consultancy
Agreement, petitioner committed to pay a total contract price of P4,337,141.00, based on
a predetermined percentage corresponding to the particular stage of work accomplished.
[5]
In December 1994, respondent completed the work required, which petitioner formally
accepted on December 27, 1994.[6] However, petitioner was able to pay only 47% of the
total contract price in the amount of P2,038,456.30.[7]

On October 25, 1994, the Commission on Audit (COA) released the Technical Services
Office Report[8] (TSO) finding the contract price of the Agreement to be 84.14%
excessive.[9] This notwithstanding, petitioner, in a letter dated December 10, 1998,
acknowledged its liability to respondent in the amount of P2,239,479.60 and assured
payment at the soonest possible time.[10]

For failure to pay its obligation under the Consultancy Agreement despite repeated
demands, respondent instituted a Complaint[11] against petitioner before the Regional
Trial Court of Quezon City, Branch 222 (RTC), docketed as Case No. Q-07-60321. [12]

Upon motion of respondent, the case was subsequently referred to arbitration pursuant to
the arbitration clause of the Consultancy Agreement,[13] which petitioner did not oppose.
[14]
As a result, Atty. Alfredo F. Tadiar, Architect Armando N. Alli, and Construction
Industry Arbitration Commission (CIAC) Accredited Arbitrator Engr. Ricardo B. San
Juan were appointed as members of the Arbitral Tribunal. The court-referred arbitration
was then docketed as Arbitration Case No. A-001.[15]

During the preliminary conference, the parties agreed to adopt the CIAC Revised Rules
Governing Construction Arbitration[16] (CIAC Rules) to govern the arbitration
proceedings.[17] They further agreed to submit their respective draft decisions in lieu of
memoranda of arguments on or before April 21, 2010, among others.[18]

On the due date for submission of the draft decisions, however, only respondent complied
with the given deadline,[19] while petitioner moved for the deferment of the deadline
which it followed with another motion for extension of time, asking that it be given until
May 11, 2010 to submit its draft decision.[20]

In an Order[21] dated April 30, 2010, the Arbitral Tribunal denied petitioner’s motions and
deemed its non-submission as a waiver, but declared that it would still consider
petitioner’s draft decision if submitted before May 7, 2010, or the expected date of the
final award’s promulgation.[22] Petitioner filed its draft decision[23] only on May 7, 2010.

The Arbitral Tribunal rendered its Award[24] dated May 7, 2010 (Arbitral Award) in favor
of respondent, directing petitioner to pay the latter the amount of (a) P2,285,089.89
representing the unpaid progress billings, with interest at the rate of 12% per annum from
the date of finality of the Arbitral Award upon confirmation by the RTC until fully paid;
(b) P2,033,034.59 as accrued interest thereon; (c) ?500,000.00 as exemplary damages;
and (d) P150,000.00 as attorney’s fees.[25] It also ordered petitioner to reimburse
respondent its proportionate share in the arbitration costs as agreed upon in the amount of
P182,119.44.[26]

Unconvinced, petitioner filed a motion for reconsideration,[27] which the Arbitral Tribunal

merely noted without any action, claiming that it had already lost jurisdiction over the
case after it had submitted to the RTC its Report together with a copy of the Arbitral
Award.[28]

Consequently, petitioner filed before the RTC a Motion for Reconsideration[29] dated May
19, 2010 (May 19, 2010 Motion for Reconsideration) and a Manifestation and
Motion[30] dated June 1, 2010 (June 1, 2010 Manifestation and Motion), asserting that it
was denied the opportunity to be heard when the Arbitral Tribunal failed to consider its
draft decision and merely noted its motion for reconsideration.[31] It also denied receiving
a copy of the Arbitral Award by either electronic or registered mail.[32] For its part,
respondent filed an opposition thereto and moved for the confirmation[33] of the Arbitral
Award in accordance with the Special Rules of Court on Alternative Dispute Resolution
(Special ADR Rules).[34]

In an Order[35] dated March 30, 2011, the RTC merely noted petitioner’s aforesaid
motions, finding that copies of the Arbitral Award appear to have been sent to the parties
by the Arbitral Tribunal, including the OSG, contrary to petitioner’s claim. On the other
hand, the RTC confirmed the Arbitral Award pursuant to Rule 11.2 (A)[36] of the Special
ADR Rules and ordered petitioner to pay respondent the costs of confirming the award,
as prayed for, in the total amount of P50,000.00. From this order, petitioner did not file a
motion for reconsideration.

Thus, on June 15, 2011, respondent moved for the issuance of a writ of execution, to
which no comment/opposition was filed by petitioner despite the RTC’s directive
therefor. In an Order[37] dated September 12, 2011, the RTC granted respondent’s motion.
[38]

Petitioner moved to quash[39] the writ of execution, positing that respondent was not
entitled to its monetary claims. It also claimed that the issuance of said writ was
premature since the RTC should have first resolved its May 19, 2010 Motion for
Reconsideration and June 1, 2010 Manifestation and Motion, and not merely noted them,
thereby violating its right to due process.[40]

The RTC Ruling

In an Order[41] dated July 9, 2012, the RTC denied petitioner’s motion to quash.

It found no merit in petitioner’s contention that it was denied due process, ruling that its
May 19, 2010 Motion for Reconsideration was a prohibited pleading under Section 17.2,
[42]
Rule 17 of the CIAC Rules. It explained that the available remedy to assail an arbitral
award was to file a motion for correction of final award pursuant to Section 17.1[43] of the
CIAC Rules, and not a motion for reconsideration of the said award itself. [44] On the other
hand, the RTC found petitioner’s June 1, 2010 Manifestation and Motion seeking the
resolution of its May 19, 2010 Motion for Reconsideration to be defective for petitioner’s
failure to observe the three-day notice rule.[45] Having then failed to avail of the remedies
attendant to an order of confirmation, the Arbitral Award had become final and
executory.[46]

On July 12, 2012, petitioner received the RTC’s Order dated July 9, 2012 denying its
motion to quash.[47]

Dissatisfied, it filed on September 10, 2012 a petition for certiorari[48] before the CA,

docketed as CA-G.R. SP No. 126458, averring in the main that the RTC acted with grave
abuse of discretion in confirming and ordering the execution of the Arbitral Award.

The CA Ruling

In a Decision[49] dated March 26, 2014, the CA dismissed the certiorari petition on two

(2) grounds, namely: (a) the petition essentially assailed the merits of the Arbitral
Award which is prohibited under Rule 19.7[50] of the Special ADR Rules;[51] and (b) the
petition was filed out of time, having been filed way beyond 15 days from notice of the
RTC’s July 9, 2012 Order, in violation of Rule 19.28[52] in relation to Rule 19.8[53] of said
Rules which provide that a special civil action for certiorari must be filed before the
CA within 15 days from notice of the judgment, order, or resolution sought to be
annulled or set aside (or until July 27, 2012).

Aggrieved, petitioner filed the instant petition.

The Issue Before the Court

The core issue for the Court’s resolution is whether or not the CA erred in applying the
provisions of the Special ADR Rules, resulting in the dismissal of petitioner’s special
civil action for certiorari.

The Court’s Ruling

The petition lacks merit.

Republic Act No. (RA) 9285,[54] otherwise known as the Alternative Dispute Resolution
Act of 2004,” institutionalized the use of an Alternative Dispute Resolution System
(ADR System)[55] in the Philippines. The Act, however, was without prejudice to the
adoption by the Supreme Court of any ADR system as a means of achieving speedy and
efficient means of resolving cases pending before all courts in the Philippines. [56]

Accordingly, A.M. No. 07-11-08-SC was created setting forth the Special Rules of Court
on Alternative Dispute Resolution (referred herein as Special ADR Rules) that shall
govern the procedure to be followed by the courts whenever judicial intervention is
sought in ADR proceedings in the specific cases where it is allowed. [57]

Rule 1.1 of the Special ADR Rules lists down the instances when the said rules shall
apply, namely: “(a) Relief on the issue of Existence, Validity, or Enforceability of the
Arbitration Agreement; (b) Referral to Alternative Dispute Resolution (“ADR”); (c)
Interim Measures of Protection; (d) Appointment of Arbitrator; (e) Challenge to
Appointment of Arbitrator; (f) Termination of Mandate of Arbitrator; (g) Assistance in
Taking Evidence; (h) Confirmation, Correction or Vacation of Award in Domestic
Arbitration; (i) Recognition and Enforcement or Setting Aside of an Award in
International Commercial Arbitration; (j) Recognition and Enforcement of a Foreign
Arbitral Award; (k) Confidentiality/Protective Orders; and (l) Deposit and Enforcement
of Mediated Settlement Agreements.”[58]

Notably, the Special ADR Rules do not automatically govern the arbitration

proceedings itself. A pivotal feature of arbitration as an alternative mode of dispute
resolution is that it is a product of party autonomy or the freedom of the parties to make
their own arrangements to resolve their own disputes.[59] Thus, Rule 2.3 of the Special
ADR Rules explicitly provides that “parties are free to agree on the procedure to be
followed in the conduct of arbitral proceedings. Failing such agreement, the arbitral
tribunal may conduct arbitration in the manner it considers appropriate.”[60]

In the case at bar, the Consultancy Agreement contained an arbitration clause. [61] Hence,
respondent, after it filed its complaint, moved for its referral to arbitration[62] which was
not objected to by petitioner.[63] By its referral to arbitration, the case fell within the
coverage of the Special ADR Rules. However, with respect to the arbitration proceedings
itself, the parties had agreed to adopt the CIAC Rules before the Arbitral Tribunal in
accordance with Rule 2.3 of the Special ADR Rules.

On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in favor of
respondent. Under Section 17.2, Rule 17 of the CIAC Rules, no motion for
reconsideration or new trial may be sought, but any of the parties may file a motion for
correction[64] of the final award, which shall interrupt the running of the period for appeal,
[65]
based on any of the following grounds, to wit:

a. an evident miscalculation of figures, a typographical or arithmetical error;

b. an evident mistake in the description of any party, person, date, amount,

thing or property referred to in the award;

c. where the arbitrators have awarded upon a matter not submitted to them,
not affecting the merits of the decision upon the matter submitted;
d. where the arbitrators have failed or omitted to resolve certain issue/s
formulated by the parties in the Terms of Reference (TOR) and submitted
to them for resolution, and

e. where the award is imperfect in a matter of form not affecting the merits of
the controversy.

The motion shall be acted upon by the Arbitral Tribunal or the surviving/remaining
members.[66]

Moreover, the parties may appeal the final award to the CA through a petition for review
under Rule 43 of the Rules of Court.[67]

Records do not show that any of the foregoing remedies were availed of by petitioner.
Instead, it filed the May 19, 2010 Motion for Reconsideration of the Arbitral Award,
which was a prohibited pleading under the Section 17.2,[68] Rule 17 of the CIAC Rules,
thus rendering the same final and executory.

Accordingly, the case was remanded to the RTC for confirmation proceedings pursuant
to Rule 11 of the Special ADR Rules which requires confirmation by the court of the
final arbitral award. This is consistent with Section 40, Chapter 7 (A) of RA 9285 which
similarly requires a judicial confirmation of a domestic award to make the same
enforceable:

SEC. 40. Confirmation of Award. – The confirmation of a domestic arbitral award shall

be governed by Section 23[69] of R.A. 876.[70]

A domestic arbitral award when confirmed shall be enforced in the same manner as
final and executory decisions of the regional trial court.

The confirmation of a domestic award shall be made by the regional trial court in
accordance with the Rules of Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory
as provided under E.O. No. 1008. (Emphases supplied)

During the confirmation proceedings, petitioners did not oppose the RTC’s confirmation
by filing a petition to vacate the Arbitral Award under Rule 11.2 (D)[71] of the Special
ADR Rules. Neither did it seek reconsideration of the confirmation order in accordance
with Rule 19.1 (h) thereof. Instead, petitioner filed only on September 10, 2012 a special
civil action for certiorari before the CA questioning the propriety of (a) the RTC Order
dated September 12, 2011 granting respondent’s motion for issuance of a writ of
execution, and (b) Order dated July 9, 2012 denying its motion to quash. Under Rule
19.26 of the Special ADR Rules, “[w]hen the Regional Trial Court, in making a ruling
under the Special ADR Rules, has acted without or in excess of its jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal or any plain, speedy, and adequate remedy in the ordinary course of law, a
party may file a special civil action for certiorari to annul or set aside a ruling of the
Regional Trial Court.” Thus, for failing to avail of the foregoing remedies before
resorting to certiorari, the CA correctly dismissed its petition.

II.

Note that the special civil action for certiorari described in Rule 19.26 above may be
filed to annul or set aside the following orders of the Regional Trial Court.

a. Holding that the arbitration agreement is inexistent, invalid or

unenforceable;

b. Reversing the arbitral tribunal’s preliminary determination upholding its

jurisdiction;

c. Denying the request to refer the dispute to arbitration;

d. Granting or refusing an interim relief;

e. Denying a petition for the appointment of an arbitrator;

f. Confirming, vacating or correcting a domestic arbitral award;

g. Suspending the proceedings to set aside an international commercial

arbitral award and referring the case back to the arbitral tribunal;

h. Allowing a party to enforce an international commercial arbitral award

pending appeal;

i. Adjourning or deferring a ruling on whether to set aside, recognize and or

enforce an international commercial arbitral award;

j. Allowing a party to enforce a foreign arbitral award pending appeal; and

k. Denying a petition for assistance in taking evidence. (Emphasis supplied)

Further, Rule 19.7[72] of the Special ADR Rules precludes a party to an arbitration from
filing a petition for certiorari questioning the merits of an arbitral award.
If so falling under the above-stated enumeration, Rule 19.28 of the Special ADR Rules
provide that said certiorari petition should be filed “with the [CA] within fifteen (15)
days from notice of the judgment, order or resolution sought to be annulled or set aside.
No extension of time to file the petition shall be allowed.”

In this case, petitioner asserts that its petition is not covered by the Special ADR Rules
(particularly, Rule 19.28 on the 15-day reglementary period to file a petition
for certiorari) but by Rule 65 of the Rules of Court (particularly, Section 4 thereof on the
60-day reglementary period to file a petition for certiorari), which it claimed to have
suppletory application in arbitration proceedings since the Special ADR Rules do not
explicitly provide for a procedure on execution.

The position is untenable.

Execution is fittingly called the fruit and end of suit and the life of the law. A judgment,
if left unexecuted, would be nothing but an empty victory for the prevailing party.[73]

While it appears that the Special ADR Rules remain silent on the procedure for the
execution of a confirmed arbitral award, it is the Court’s considered view that the Rules’
procedural mechanisms cover not only aspects of confirmation but necessarily extend to a
confirmed award’s execution in light of the doctrine of necessary implication which
states that every statutory grant of power, right or privilege is deemed to include all
incidental power, right or privilege. In Atienza v. Villarosa,[74] the doctrine was explained,
thus:

No statute can be enacted that can provide all the details involved in its application. There
is always an omission that may not meet a particular situation. What is thought, at the
time of enactment, to be an all-embracing legislation may be inadequate to provide for
the unfolding of events of the future. So-called gaps in the law develop as the law is
enforced. One of the rules of statutory construction used to fill in the gap is the doctrine
of necessary implication. The doctrine states that what is implied in a statute is as much a
part thereof as that which is expressed. Every statute is understood, by implication, to
contain all such provisions as may be necessary to effectuate its object and purpose,
or to make effective rights, powers, privileges or jurisdiction which it grants,
including all such collateral and subsidiary consequences as may be fairly and
logically inferred from its terms. Ex necessitate legis. And every statutory grant of
power, right or privilege is deemed to include all incidental power, right or
privilege. This is so because the greater includes the lesser, expressed in the maxim, in
eo plus sit, simper inest et minus.[75] (Emphases supplied)

As the Court sees it, execution is but a necessary incident to the Court’s confirmation of
an arbitral award. To construe it otherwise would result in an absurd situation whereby
the confirming court previously applying the Special ADR Rules in its confirmation of
the arbitral award would later shift to the regular Rules of Procedure come execution.
Irrefragably, a court’s power to confirm a judgment award under the Special ADR Rules
should be deemed to include the power to order its execution for such is but a collateral
and subsidiary consequence that may be fairly and logically inferred from the statutory
grant to regional trial courts of the power to confirm domestic arbitral awards.

All the more is such interpretation warranted under the principle of ratio legis est
anima which provides that a statute must be read according to its spirit or intent,[76] for
what is within the spirit is within the statute although it is not within its letter, and that
which is within the letter but not within the spirit is not within the statute.[77] Accordingly,
since the Special ADR Rules are intended to achieve speedy and efficient resolution of
disputes and curb a litigious culture,[78] every interpretation thereof should be made
consistent with these objectives.

Thus, with these principles in mind, the Court so concludes that the Special ADR Rules,
as far as practicable, should be made to apply not only to the proceedings on confirmation
but also to the confirmed award’s execution.

Further, let it be clarified that – contrary to petitioner’s stance – resort to the Rules of
Court even in a suppletory capacity is not allowed. Rule 22.1 of the Special ADR Rules
explicitly provides that “[t]he provisions of the Rules of Court that are applicable to the
proceedings enumerated in Rule 1.1 of these Special ADR Rules have either
been included and incorporated in these Special ADR Rules or specifically referred to
herein.”[79] Besides, Rule 1.13 thereof provides that “[i]n situations where no specific rule
is provided under the Special ADR Rules, the court shall resolve such matter summarily
and be guided by the spirit and intent of the Special ADR Rules and the ADR Laws.”

As above-mentioned, the petition for certiorari permitted under the Special ADR Rules

must be filed within a period of fifteen (15) days from notice of the judgment, order or
resolution sought to be annulled or set aside.[80] Hence, since petitioner’s filing of
its certiorari petition in CA-G.R. SP No. 126458 was made nearly two months after its
receipt of the RTC’s Order dated July 9, 2012, or on September 10, 2012,[81] said petition
was clearly dismissible.[82]

III.

Discounting the above-discussed procedural considerations, the Court still finds that
the certiorari petition had no merit.

Indeed, petitioner cannot be said to have been denied due process as the records
undeniably show that it was accorded ample opportunity to ventilate its position. There
was clearly nothing out of line when the Arbitral Tribunal denied petitioner’s motions for
extension to file its submissions having failed to show a valid reason to justify the same
or in rendering the Arbitral Award sans petitioner’s draft decision which was filed only
on the day of the scheduled promulgation of final award on May 7, 2010.[83] The
touchstone of due process is basically the opportunity to be heard. Having been given
such opportunity, petitioner should only blame itself for its own procedural blunder.

On this score, the petition for certiorari in CA-G.R. SP No. 126458 was likewise
properly dismissed.

IV.

Nevertheless, while the Court sanctions the dismissal by the CA of the petition
for certiorari due to procedural infirmities, there is a need to explicate the matter of
execution of the confirmed Arbitral Award against the petitioner, a government agency,
in the light of Presidential Decree No. (PD) 1445[84] otherwise known as the “Government
Auditing Code of the Philippines.”

Section 26 of PD 1445 expressly provides that execution of money judgment against the
Government or any of its subdivisions, agencies and instrumentalities is within the
primary jurisdiction of the COA, to wit:

SEC. 26. General jurisdiction. The authority and powers of the Commission shall

extend to and comprehend all matters relating to auditing procedures, systems and
controls, the keeping of the general accounts of the Government, the preservation of
vouchers pertaining thereto for a period of ten years, the examination and inspection of
the books, records, and papers relating to those accounts; and the audit and
settlement of the accounts of all persons respecting funds or property received or
held by them in an accountable capacity, as well as the examination, audit, and
settlement of all debts and claims of any sort due from or owing to the Government
or any of its subdivisions, agencies and instrumentalities. The said jurisdiction extends
to all government-owned or controlled corporations, including their subsidiaries, and
other self-governing boards, commissions, or agencies of the Government, and as herein
prescribed, including non-governmental entities subsidized by the government, those
funded by donation through the government, those required to pay levies or government
share, and those for which the government has put up a counterpart fund or those partly
funded by the government. (Emphases supplied)

From the foregoing, the settlement of respondent’s money claim is still subject to the
primary jurisdiction of the COA despite finality of the confirmed arbitral award by the
RTC pursuant to the Special ADR Rules.[85] Hence, the respondent has to first seek the
approval of the COA of their monetary claim. This appears to have been complied with
by the latter when it filed a “Petition for Enforcement and Payment of Final and
Executory Arbitral Award”[86] before the COA. Accordingly, it is now the COA which
has the authority to rule on this latter petition.
WHEREFORE, the petition is DENIED. The Decision dated March 26, 2014 of the
Court of Appeals in CA-G.R. SP No. 126458 which dismissed the petition
for certiorari filed by petitioner the Department of Environment and Natural Resources is
hereby AFFIRMED.

SO ORDERED.

THIRD DIVISION
[ G.R. No. 141833, March 26, 2003 ]
LM POWER ENGINEERING CORPORATION, PETITIONER, VS. CAPITOL
INDUSTRIAL CONSTRUCTION GROUPS, INC., RESPONDENT.

DECISION

PANGANIBAN, J.:

Alternative dispute resolution methods or ADRs -- like arbitration, mediation,

negotiation and conciliation -- are encouraged by the Supreme Court. By enabling
parties to resolve their disputes amicably, they provide solutions that are less time-
consuming, less tedious, less confrontational, and more productive of goodwill and
lasting relationships.[1]

The Case

Before us is a Petition for Review on Certiorari[2] under Rule 45 of the Rules of Court,

seeking to set aside the January 28, 2000 Decision of the Court of Appeals [3] (CA) in CA-
GR CV No. 54232. The dispositive portion of the Decision reads as follows:
“WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The
parties are ORDERED to present their dispute to arbitration in accordance with their
Sub-contract Agreement. The surety bond posted by [respondent] is [d]ischarged.” [4]
The Facts

On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent

Capitol Industrial Construction Groups Inc. entered into a “Subcontract Agreement”
involving electrical work at the Third Port of Zamboanga. [5]
On April 25, 1985, respondent took over some of the work contracted to petitioner.
[6]
Allegedly, the latter had failed to finish it because of its inability to procure materials.
[7]

Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati
(Branch 141) a Complaint[10] for the collection of the amount representing the alleged
balance due it under the Subcontract. Instead of submitting an Answer, respondent filed
a Motion to Dismiss,[11] alleging that the Complaint was premature, because there was
no prior recourse to arbitration.

In its Order[12] dated September 15, 1987, the RTC denied the Motion on the ground that
the dispute did not involve the interpretation or the implementation of the Agreement
and was, therefore, not covered by the arbitral clause. [13]

Ruling of the Court of Appeals

On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration.
The appellate court held as arbitrable the issue of whether respondent’s take-over of
some work items had been intended to be a termination of the original contract under
Letter “K” of the Subcontract. It ruled likewise on two other issues: whether petitioner
was liable under the warranty clause of the Agreement, and whether it should
reimburse respondent for the work the latter had taken over. [15]

Hence, this Petition.[16]

The Issues

In its Memorandum, petitioner raises the following issues for the Court’s consideration:
“A

Whether or not there exist[s] a controversy/dispute between petitioner and respondent

regarding the interpretation and implementation of the Sub-Contract Agreement dated
February 22, 1983 that requires prior recourse to voluntary arbitration;

“B

In the affirmative, whether or not the requirements provided in Article III [1] of CIAC
Arbitration Rules regarding request for arbitration ha[ve] been complied with[.]” [17]
The Court’s Ruling

The Petition is unmeritorious.

First Issue:
Whether Dispute Is Arbitrable

Petitioner claims that there is no conflict regarding the interpretation or the

implementation of the Agreement. Thus, without having to resort to prior arbitration, it
is entitled to collect the value of the services it rendered through an ordinary action for
the collection of a sum of money from respondent. On the other hand, the latter
contends that there is a need for prior arbitration as provided in the Agreement. This is
because there are some disparities between the parties’ positions regarding the extent
of the work done, the amount of advances and billable accomplishments, and the set off
of expenses incurred by respondent in its take-over of petitioner’s work.

We side with respondent. Essentially, the dispute arose from the parties’ ncongruent
positions on whether certain provisions of their Agreement could be applied to the
facts. The instant case involves technical discrepancies that are better left to an arbitral
body that has expertise in those areas. In any event, the inclusion of an arbitration
clause in a contract does not ipso facto divest the courts of jurisdiction to pass upon the
findings of arbitral bodies, because the awards are still judicially reviewable under
certain conditions.[18]

In the case before us, the Subcontract has the following arbitral clause:
“6. The Parties hereto agree that any dispute or conflict as regards to
interpretation and implementation of this Agreement which cannot be settled between
[respondent] and [petitioner] amicably shall be settled by means of arbitration x x x.” [19]
Clearly, the resolution of the dispute between the parties herein requires a
referral to the provisions of their Agreement. Within the scope of the arbitration clause
are discrepancies as to the amount of advances and billable accomplishments, the
application of the provision on termination, and the consequent set-off of expenses.

“[Petitioner] shall adhere strictly to the schedule related to the WORK and complete the
WORK within the period set forth in Annex C hereof. NO time extension shall be granted
by [respondent] to [petitioner] unless a corresponding time extension is granted by [the
Ministry of Public Works and Highways] to the CONSORTIUM.” [20]
Because of the delay, respondent alleges that it took over some of the work
contracted to petitioner, pursuant to the following provision in the Agreement:
“K. TERMINATION OF AGREEMENT

“[Respondent] has the right to terminate and/or take over this Agreement for any of the
following causes:

x x x x x x x x x
‘6. If despite previous warnings by [respondent], [petitioner] does not execute
the WORK in accordance with this Agreement, or persistently or flagrantly neglects to
carry out [its] obligations under this Agreement.”[21]
Supposedly, as a result of the “take-over,” respondent incurred expenses in
excess of the contracted price. It sought to set off those expenses against the amount
claimed by petitioner for the work the latter accomplished, pursuant to the following
provision:
“If the total direct and indirect cost of completing the remaining part of the
WORK exceed the sum which would have been payable to [petitioner] had it completed
the WORK, the amount of such excess [may be] claimed by [respondent] from either of
the following:

‘1. Any amount due [petitioner] from [respondent] at the time of the termination of this
Agreement.”[22]
The issue as to the correct amount of petitioner’s advances and billable
accomplishments involves an evaluation of the manner in which the parties completed
the work, the extent to which they did it, and the expenses each of them incurred in
connection therewith. Arbitrators also need to look into the computation of foreign and
local costs of materials, foreign and local advances, retention fees and letters of credit,
and taxes and duties as set forth in the Agreement. These data can be gathered from a
review of the Agreement, pertinent portions of which are reproduced hereunder:
“C. CONTRACT PRICE AND TERMS OF PAYMENT

x x x x x x x x x

“All progress payments to be made by [respondent] to [petitioner] shall be subject to a

retention sum of ten percent (10%) of the value of the approved quantities. Any claims
by [respondent] on [petitioner] may be deducted by [respondent] from the progress
payments and/or retained amount. Any excess from the retained amount after
deducting [respondent’s] claims shall be released by [respondent] to [petitioner] after
the issuance of [the Ministry of Public Works and Highways] of the Certificate of
Completion and final acceptance of the WORK by [the Ministry of Public Works and
Highways].

x x x x x x x x x

“D. IMPORTED MATERIALS AND EQUIPMENT

“[Respondent shall open the letters of credit for the importation of equipment and
materials listed in Annex E hereof after the drawings, brochures, and other technical
data of each items in the list have been formally approved by [the Ministry of Public
Works and Highways]. However, petitioner will still be fully responsible for all imported
materials and equipment.

“All expenses incurred by [respondent], both in foreign and local currencies in

connection with the opening of the letters of credit shall be deducted from the Contract
Prices.

x x x x x x x x x

“N. OTHER CONDITIONS

x x x x x x x x x

“2. All customs duties, import duties, contractor’s taxes, income taxes, and other taxes
that may be required by any government agencies in connection with this Agreement
shall be for the sole account of [petitioner].”[23]
Being an inexpensive, speedy and amicable method of settling disputes,
[24]
arbitration -- along with mediation, conciliation and negotiation -- is encouraged by
the Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens the
resolution of disputes, especially of the commercial kind. [25] It is thus regarded as the
“wave of the future” in international civil and commercial disputes. [26] Brushing aside a
contractual agreement calling for arbitration between the parties would be a step
backward.[27]

Consistent with the above-mentioned policy of encouraging alternative dispute

resolution methods, courts should liberally construe arbitration clauses. Provided such
clause is susceptible of an interpretation that covers the asserted dispute, an order to
arbitrate should be granted.[28] Any doubt should be resolved in favor of arbitration. [29]

Second Issue:
Prior Request for Arbitration

According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to

Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration

indeed required the submission of a request for arbitration, as follows:
“SECTION. 1. Submission to Arbitration -- Any party to a construction contract
wishing to have recourse to arbitration by the Construction Industry Arbitration
Commission (CIAC) shall submit its Request for Arbitration in sufficient copies to the
Secretariat of the CIAC; PROVIDED, that in the case of government construction
contracts, all administrative remedies available to the parties must have been exhausted
within 90 days from the time the dispute arose.”
Tesco was promulgated by this Court, using the foregoing provision as reference.

On the other hand, Section 1 of Article III of the new Rules of Procedure Governing

Construction Arbitration has dispensed with this requirement and recourse to the CIAC
may now be availed of whenever a contract “contains a clause for the submission of a
future controversy to arbitration,” in this wise:
“SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a
construction contract or a submission to arbitration of a construction dispute shall be
deemed an agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in
such contract or submission. When a contract contains a clause for the submission of a
future controversy to arbitration, it is not necessary for the parties to enter into a
submission agreement before the claimant may invoke the jurisdiction of CIAC.”
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos.
2-91 and 3-93.[31]

The difference in the two provisions was clearly explained in China Chang Jiang Energy
Corporation (Philippines) v. Rosal Infrastructure Builders et al. [32] (an extended unsigned
Resolution) and reiterated in National Irrigation Administration v. Court of Appeals,
[33]
from which we quote thus:
“Under the present Rules of Procedure, for a particular construction contract to
fall within the jurisdiction of CIAC, it is merely required that the parties agree to submit
the same to voluntary arbitration Unlike in the original version of Section 1, as applied in
the Tesco case, the law as it now stands does not provide that the parties should agree
to submit disputes arising from their agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain and clear that as long as the parties
agree to submit to voluntary arbitration, regardless of what forum they may choose,
their agreement will fall within the jurisdiction of the CIAC, such that, even if they
specifically choose another forum, the parties will not be precluded from electing to
submit their dispute before the CIAC because this right has been vested upon each party
by law, i.e., E.O. No. 1008.”[34]
Clearly, there is no more need to file a request with the CIAC in order to vest it
with jurisdiction to decide a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to
submit to arbitration the disputes covered therein. Because that clause is binding, they
are expected to abide by it in good faith.[35] And because it covers the dispute between
the parties in the present case, either of them may compel the other to arbitrate. [36]

Since petitioner has already filed a Complaint with the RTC without prior recourse to
arbitration, the proper procedure to enable the CIAC to decide on the dispute is to
request the stay or suspension of such action, as provided under RA 876 [the Arbitration
Law].[37]

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

petitioner.

SO ORDERED.

THIRD DIVISION
[ G.R. No. 211504, March 08, 2017 ]
FEDERAL BUILDERS, INC., PETITIONER, VS. POWER FACTORS, INC.,
RESPONDENT.

DECISION

BERSAMIN, J.:

An agreement to submit to voluntary arbitration for purposes of vesting

jurisdiction over a construction dispute in the Construction Industry Arbitration
Commission (CIAC) need not be contained in the construction contract, or be signed by
the parties. It is enough that the agreement be in writing.

The Case

Federal Builders Inc. (Federal) appeals to reverse the decision promulgated on August
12, 2013,[1] whereby the Court of Appeals (CA) affirmed the adverse decision rendered
on May 12, 2010 by the Construction Industry Arbitration Commission (CIAC) with
modification of the total amount awarded.[2]
Antecedents

Federal was the general contractor of the Bullion Mall under a construction agreement
with Bullion Investment and Development Corporation (BIDC). In 2004, Federal engaged
respondent Power Factors Inc. (Power) as its subcontractor for the electric works at the
Bullion Mall and the Precinct Building for P18,000,000.00. [3]

On February 19, 2008, Power sent a demand letter to Federal claiming the unpaid
amount of P11,444,658.97 for work done by Power for the Bullion Mall and the Precinct
Building. Federal replied that its outstanding balance under the original contract only
amounted to P1,641,513.94, and that the demand for payment for work done by Power
after June 21, 2005 should be addressed directly to BIDC. [4] Nonetheless, Power made
several demands on Federal to no avail.

On October 29, 2009, Power filed a request for arbitration in the CIAC invoking the
arbitration clause of the Contract of Service reading as follows:
15. ARBITRATION COMMITTEE - All disputes, controversies or differences, which
may arise between the parties herein, out of or in relation to or in connection with this
Agreement, or for breach thereof shall be settled by the Construction Industry
Arbitration Commission (CIAC) which shall have original and exclusive jurisdiction over
the aforementioned disputes.[5]
On November 20, 2009, Atty. Vivencio Albano, the counsel of Federal, submitted
a letter to the CIAC manifesting that Federal agreed to arbitration and sought an
extension of 15 days to file its answer, which request the CIAC granted.

On December 16, 2009, Atty. Albano filed his withdrawal of appearance stating that
Federal had meanwhile engaged another counsel.[6]

Federal, represented by new counsel (Domingo, Dizon, Leonardo and Rodillas Law
Office), moved to dismiss the case on the ground that CIAC had no jurisdiction over the
case inasmuch as the Contract of Service between Federal and Power had been a mere
draft that was never finalized or signed by the parties. Federal contended that in the
absence of the agreement for arbitration, the CIAC had no jurisdiction to hear and
decide the case.[7]

On February 8, 2010, the CIAC issued an order setting the case for hearing, and directing
that Federal's motion to dismiss be resolved after the reception of evidence of the
parties.[8]

Federal did not thereafter participate in the proceedings until the CIAC rendered the
Final Award dated May 12, 2010,[9] disposing:
In summary: Respondent Federal Builders, Inc. is hereby ordered to pay claimant
Power Factors, Inc. the following sums:

1. Unpaid balance on the P4,276,614.75

original contract ;
2. Unpaid balance on
change order nos. 1, 2, 3, 4, 5, 6, 7, 3,006,970.32;
8, & 9
3. Interest to May 13, 2010 1,686,149.94;
4. Attorney's Fees 250,000.00;
5. Cost of Arbitration 149,503.86;

P9,369,238.87
The foregoing amount shall earn legal interest at the rate of 6% per annum from
the date of this Final Award until this award becomes final and executory, Claimant shall
then be entitled to 12% per annum until the entire amount is fully satisfied by
Respondent.

Federal appealed the award to the CA insisting that the CIAC had no jurisdiction to hear
and decide the case; and that the amounts thereby awarded to Power lacked legal and
factual bases.

On August 12, 2013, the CA affirmed the CIAC's decision with modification as to the
amounts due to Power,[10] viz.:
WHEREFORE, the CIAC Final Award dated 12 May 2010 in CIAC Case No. 31-2009
is hereby AFFIRMED with MODIFICATION.

As modified, FEDERAL BUILDERS, INC. is ordered to pay POWER FACTORS, INC. the
following:
1. Unpaid
P4,276,614.75
balance on the original
;
contract

2. Unpaid
balance on change 2,864,113.32;
orders

3. Attorney's
250,000.00;
Fees

4. Cost of
149,503.86;
Arbitration
The interest to be imposed on the net award (unpaid balance on the original
contract and change order) amounting to P7,140,728.07 awarded to POWER FACTORS
INC. shall be six (6%) per annum, reckoned from 4 July 2006 until this Decision becomes
final and executory. Further, the total award due to POWER FACTORS INC. shall be
subjected to an interest of twelve percent (12%) per annum computed from the time
this judgment becomes final and executory, until full satisfaction.

SO ORDERED.[11]
Anent jurisdiction, the CA explained that the CIAC Revised Rules of
Procedure stated that the agreement to arbitrate need not be signed by the parties; that
the consent to submit to voluntary arbitration was not necessary in view of the
arbitration clause contained in the Contract of Service; and that Federal's contention
that its former counsel's act of manifesting its consent to the arbitration stipulated in
the draft Contract of Service did not bind it was inconsequential on the issue of
jurisdiction.[12]

Concerning the amounts awarded, the CA opined that the CIAC should not have allowed
the increase based on labor-cost escalation because of the absence of the agreement
between the parties on such escalation and because there was no authorization in
writing allowing the adjustment or increase in the cost of materials and labor. [13]

After the CA denied Federal's motion for reconsideration on February 19, 2004,
[14]
Federal has come to the Court on appeal.

Issue

The issues to be resolved are: (a) whether the CA erred in upholding CIAC's jurisdiction
over the present case; and (b) whether the CA erred in holding that Federal was liable to
pay Power the amount of P7,140,728.07.

Ruling of the Court

The appeal is bereft of merit.

The parties had an effective agreement to submit to voluntary arbitration; hence, the
CIAC had jurisdiction

The need to establish a proper arbitral machinery to settle disputes expeditiously was
recognized by the Government in order to promote and maintain the development of
the country's construction industry. With such recognition came the creation of the
CIAC through Executive Order No. 1008 (E.O. No. 1008), also known as The Construction
Industry Arbitration Law. Section 4 of E.O. No. 1008 provides:
Sec. 4. Jurisdiction. — The CIAC shall have original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach thereof. These disputes
may involve government or private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration. x x x
Under the CIAC Revised Rules of Procedure Governing Construction
Arbitration (CIAC Revised Rules), all that is required for the CIAC to acquire jurisdiction is
for the parties of any construction contract to agree to submit their dispute to
arbitration.[15] Also, Section 2.3 of the CIAC Revised Rules states that the agreement may
be reflected in an arbitration clause in their contract or by subsequently agreeing to
submit their dispute to voluntary arbitration. The CIAC Revised Rules clarifies, however,
that the agreement of the parties to submit their dispute to arbitration need not be
signed or be formally agreed upon in the contract because it can also be in the form of
other modes of communication in writing, viz.:
RULE 4 - EFFECT OF AGREEMENT TO ARBITRATE

SECTION 4.1. Submission to CIAC jurisdiction - An arbitration clause in a construction

contract or a submission to arbitration of a construction dispute shall be deemed an
agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in
such contract or submission.

4.1.1 When a contract contains a clause for the submission of a future controversy to
arbitration, it is not necessary for the parties to enter into a submission agreement
before the Claimant may invoke the jurisdiction of CIAC.
4.1.2 An arbitration agreement or a submission to arbitration shall be in writing, but
it need not be signed by the parties, as long as the intent is clear that the parties agree
to submit a present or future controversy arising from a construction contract to
arbitration. It may be in the form of exchange of letters sent by post or by telefax,
telexes, telegrams, electronic mail or any other mode of communication.
The liberal application of procedural rules as to the form by which the agreement
is embodied is the objective of the CIAC Revised Rules. Such liberality conforms to the
letter and spirit of E.O. No. 1008 itself which emphasizes that the modes of voluntary
dispute resolution like arbitration are always preferred because they settle disputes in a
speedy and amicable manner. They likewise help in alleviating or unclogging the judicial
dockets. Verily, E.O. No. 1008 recognizes that the expeditious resolution of construction
disputes will promote a healthy partnership between the Government and the private
sector as well as aid in the continuous growth of the country considering that the
construction industry provides employment to a large segment of the national labor
force aside from its being a leading contributor to the gross national product. [16]

Worthy to note is that the jurisdiction of the CIAC is over the dispute, not over the
contract between the parties.[17] Section 2.1, Rule 2 of the CIAC Revised
Rules particularly specifies that the CIAC has original and exclusive jurisdiction
over construction disputes, whether such disputes arise from or are merely connected
with the construction contracts entered into by parties, and whether such disputes
arise before or after the completion of the contracts. Accordingly, the execution of the
contracts and the effect of the agreement to submit to arbitration are different matters,
and the signing or non-signing of one does not necessarily affect the other. In other
words, the formalities of the contract have nothing to do with the jurisdiction of the
CIAC.

Federal contends that there was no mutual consent and no meeting of the minds
between it and Power as to the operation and binding effect of the arbitration clause
because they had rejected the draft service contract.

The contention of Federal deserves no consideration.

Under Article 1318 of the Civil Code, a valid contract should have the following essential
elements, namely: (a) consent of the contracting parties; (b) object certain that is the
subject matter of the contract; and (c) cause or consideration. Moreover, a contract
does not need to be in writing in order to be obligatory and effective unless the law
specifically requires so.

Pursuant to Article 1356[18] and Article 1357[19] of the Civil Code, contracts shall be

obligatory in whatever form they may have been entered into, provided that all the
essential requisites for their validity are present. Indeed, there was a contract between
Federal and Power even if the Contract of Service was unsigned. Such contract was
obligatory and binding between them by virtue of all the essential elements for a valid
contract being present.

It clearly appears that the works promised to be done by Power were already executed
albeit still incomplete; that Federal paid Power P1,000,000.00 representing the originally
proposed downpayment, and the latter accepted the payment; and that the subject of
their dispute concerned only the amounts still due to Power. The records further show
that Federal admitted having drafted the Contract of Services containing the following
clause on submission to arbitration, to wit:
15. ARBITRATION COMMITTEE - All disputes, controversies or differences, which
may arise between the Parties herein, out of or in relation to or in connection with this
Agreement, or for breach thereof shall be settled by the Construction Industry
Arbitration Commission (CIAC) which shall have original and exclusive jurisdiction over
the aforementioned disputes.[20]
With the parties having no issues on the provisions or parts of the Contract of
Service other than that pertaining to the downpayment that Federal was supposed to
pay, Federal could not validly insist on the lack of a contract in order to defeat the
jurisdiction of the CIAC. As earlier pointed out, the CIAC Revised Rules specifically allows
any written mode of communication to show the parties' intent or agreement to submit
to arbitration their present or future disputes arising from or connected with their
contract.

The CIAC and the CA both found that the parties had disagreed on the amount of the
downpayment. On its part, Power indicated after receiving and reviewing the draft of
the Contract of Service that it wanted 30% as the downpayment. Even so, Power did not
modify anything else in the draft, and returned the draft to Federal after signing it. It
was Federal that did not sign the draft because it was not amenable to the amount as
modified by Power. It is notable that the arbitration clause written in the draft of
Federal was unchallenged by the parties until their dispute arose.

Moreover, Federal asserted the original contract to support its claim against Power. If
Federal would insist that the remaining amount due to Power was only P1,641,513.94
based on the original contract,[21] it was really inconsistent for Federal to rely on the
draft when it is beneficial to its side, and to reject its efficacy and existence just to to
relieve itself from the CIAC's unfavorable decision.

The agreement contemplated in the CIAC Revised Rules to vest jurisdiction of the CIAC
over the parties' dispute is not necessarily an arbitration clause to be contained only in a
signed and finalized construction contract. The agreement could also be in a separate
agreement, or any other form of written communication, as long as their intent to
submit their dispute to arbitration is clear. The fact that a contract was signed by both
parties has nothing to do with the jurisdiction of the CIAC, and this is the explanation
why the CIAC Revised Rules itself expressly provides that the written communication or
agreement need not be signed by the parties.

Although the agreement to submit to arbitration has been expressly required to be in

writing and signed by the parties therein by Section 4[22] of Republic Act No. 876
(Arbitration Law),[23] the requirement is conspicuously absent from the CIAC Revised
Rules, which even expressly allows such agreement not to be signed by the parties
therein.[24] Brushing aside the obvious contractual agreement in this case warranting the
submission to arbitration is surely a step backward. [25] Consistent with the policy of
encouraging alternative dispute resolution methods, therefore, any doubt should be
resolved in favor of arbitration.[26] In this connection, the CA correctly observed that the
act of Atty. Albano in manifesting that Federal had agreed to the form of arbitration was
unnecessary and inconsequential considering the recognition of the value of the
Contract of Service despite its being an unsigned draft.

Amounts as modified by the CA are correct

We find no reversible error regarding the amounts as modified by the CA. Power did not
sufficiently establish that the change or increase of the cost of materials and labor was
to be separately determined and approved by both parties as provided under Article
1724 of the Civil Code. As such, Federal should not be held liable for the labor cost
escalation.

WHEREFORE, the Court AFFIRMS the decision promulgated on August 12, 2013;

and ORDERS the petitioner to pay the costs of suit.
SO ORDERED.

THIRD DIVISION
[ G.R. Nos. 132848-49, June 26, 2001 ]
PHILROCK, INC., PETITIONER, VS. CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION AND SPOUSES VICENTE AND NELIA CID,
RESPONDENTS.

DECISION

PANGANIBAN, J.:

Courts encourage the use of alternative methods of dispute resolution. When parties agree
to settle their disputes arising from or connected with construction contracts, the
Construction Industry Arbitration Commission (CIAC) acquires primary jurisdiction. It
may resolve not only the merits of such controversies; when appropriate, it may also
award damages, interests, attorney’s fees and expenses of litigation.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court. The Petition seeks
the reversal of the July 9, 1997 Decision[1] and the February 24, 1998 Resolution of the
Court of Appeals (CA) in the consolidated cases docketed as CA-GR SP Nos. 39781 and
42443. The assailed Decision disposed as follows:

“WHEREFORE, judgment is hereby rendered DENYING the petitions and,

accordingly, AFFIRMING in toto the CIAC’s decision. Costs against petitioner.”[2]

The assailed Resolution ruled in this wise:

“Considering that the matters raised and discussed in the motion for reconsideration filed
by appellant’s counsel are substantially the same arguments which the Court had passed
upon and resolved in the decision sought to be reconsidered, and there being no new issue
raised, the subject motion is hereby DENIED.”[3]

The Facts

The undisputed facts of the consolidated cases are summarized by the CA as follows:
"On September 14, 1992, the Cid spouses, herein private respondents, filed a Complaint
for damages against Philrock and seven of its officers and engineers with the Regional
Trial Court of Quezon City, Branch 82.

“On December 7, 1993, the initial trial date, the trial court issued an Order dismissing the
case and referring the same to the CIAC because the Cid spouses and Philrock had filed
an Agreement to Arbitrate with the CIAC.

“Thereafter, preliminary conferences were held among the parties and their appointed
arbitrators. At these conferences, disagreements arose as to whether moral and exemplary
damages and tort should be included as an issue along with breach of contract, and
whether the seven officers and engineers of Philrock who are not parties to the
Agreement to Arbitrate should be included in the arbitration proceedings. No common
ground could be reached by the parties, hence, on April 2, 1994, both the Cid spouses and
Philrock requested that the case be remanded to the trial court. On April 13, 1994, the
CIAC issued an Order stating, thus:

'x x x the Arbitral Tribunal hereby formally dismisses the above-captioned case for
referral to Branch 82 of the Regional Trial Court, Quezon City where it first originated.

SO ORDERED.'

“The Cid spouses then filed with said Branch of the Regional Trial Court of Quezon City
a Motion To Set Case for Hearing which motion was opposed by Philrock.

“On June 13, 1995, the trial court declared that it no longer had jurisdiction over the case
and ordered the records of the case to be remanded anew to the CIAC for arbitral
proceedings.

“Pursuant to the aforementioned Order of the Regional Trial C[o]urt of Quezon City, the
CIAC resumed conducting preliminary conferences. On August 21, 1995, herein
[P]etitioner Philrock requested to suspend the proceedings until the court clarified its
ruling in the Order dated June 13, 1995. Philrock argued that said Order was based on a
mistaken premise that 'the proceedings in the CIAC fell through because of the refusal of
[Petitioner] Philrock to include the issue of damages therein,' whereas the true reason for
the withdrawal of the case from the CIAC was due to Philrock's opposition to the
inclusion of its seven officers and engineers, who did not give their consent to arbitration,
as party defendants. On the other hand, private respondent Nelia Cid manifested that she
was willing to exclude the seven officers and engineers of Philrock as parties to the case
so as to facilitate or expedite the proceedings. With such manifestation from the Cid
spouses, the Arbitral Tribunal denied Philrock's request for the suspension of the
proceedings. Philrock's counsel agreed to the continuation of the proceedings but
reserved the right to file a pleading elucidating the position he [had] raised regarding the
Court's Order dated June 13, 1995. The parties then proceeded to finalize, approve and
sign the Terms of Reference. Philrock's counsel and representative, Atty. Pericles C.
Consunji affixed his signature to said Terms of Reference which stated that 'the parties
agree that their differences be settled by an Arbitral Tribunal x x x x' (p. 9, Terms of
Reference, p. 200, Rollo).

“On September 12, 1995, [P]etitioner Philrock filed its Motion to Dismiss, alleging
therein that the CIAC had lost jurisdiction to hear the arbitration case due to the parties'
withdrawal of their consent to arbitrate. The motion was denied by x x x CIAC per Order
dated September 22, 1995. On November 8, public respondent ordered the parties to
appear before it on November 28, 1995 for the continuation of the arbitral proceedings,
and on February 7, 1996, public respondent directed [P]etitioner Philrock to set two
hearing dates in the month of February to present its evidence and to pay all fees assessed
by it, otherwise x x x Philrock would be deemed to have waived its right to present
evidence.

“Hence, petitioner instituted the petition for certiorari but while said petition was
pending, the CIAC rendered its Decision dated September 24, 1996, the dispositive
portion of which reads, as follows:

'WHEREFORE, judgment is hereby rendered in favor of the Claimant, directing

Respondent to pay Claimant as follows:

1. P23,276.25 representing the excess cash payment for materials ordered by

the Claimants, (No. 7 of admitted facts) plus interests thereon at the rate of
6% per annum from September 26, 1995 to the date payment is made.

2. P65,000.00 representing retrofitting costs.

3. P13,404.54 representing refund of the value of delivered but unworkable

concrete mix that was laid to waste.

4. P50,000.00 representing moral damages.

5. P50,000.00 representing nominal damages.

6. P50,000.00 representing attorney's fees and expenses of litigation.

7. P144,756.80 representing arbitration fees, minus such amount that may

already have been paid to CIAC by respondent.

“Let a copy of this Decision be furnished the Honorable Salvador C. Ceguera, presiding
judge, Branch 82 of Regional Trial Court of Quezon City who referred this case to the
Construction Industry Arbitration Commission for arbitration and proper disposition.'
(pp. 44-45, Rollo, CA-G.R. SP No. 42443) "[4]

Before the CA, petitioner filed a Petition for Review, docketed as CA-GR SP No. 42443,
contesting the jurisdiction of the CIAC and assailing the propriety of the monetary
awards in favor of respondent spouses. This Petition was consolidated by the CA with
CA-GR SP No. 39781, a Petition for Certiorari earlier elevated by petitioner questioning
the jurisdiction of the CIAC.

Ruling of the Court of Appeals

The CA upheld the jurisdiction of the CIAC[5] over the dispute between petitioner and
private respondent. Under Executive Order No. 1008, the CIAC acquires jurisdiction
when the parties agree to submit their dispute to voluntary arbitration. Thus, in the
present case, its jurisdiction continued despite its April 13, 1994 Order referring the case
back to the Regional Trial Court (RTC) of Quezon City, Branch 82, the court of origin.
The CIAC’s action was based on the principle that once acquired, jurisdiction remains
“until the full termination of the case unless a law provides the contrary.” No such “full
termination” of the case was evident in the said Order; nor did the CIAC or private
respondents intend to put an end to the case.

Besides, according to Section 3 of the Rules of Procedure Governing Construction

Arbitration, technical rules of law or procedure are not applicable in a single arbitration
or arbitral tribunal. Thus, the “dismissal” could not have divested the CIAC of
jurisdiction to ascertain the facts of the case, arrive at a judicious resolution of the dispute
and enforce its award or decision.

Since the issues concerning the monetary awards were questions of fact, the CA held that
those awards were inappropriate in a petition for certiorari. Such questions are final and
not appealable according to Section 19 of EO 1008, which provides that “arbitral awards
shall be x x x final and [u]nappealable except on questions of law which shall be
appealable to the Supreme Court x x x.” Nevertheless, the CA reviewed the records and
found that the awards were supported by substantial evidence. In matters falling under the
field of expertise of quasi-judicial bodies, their findings of fact are accorded great respect
when supported by substantial evidence.

Hence, this Petition.[6]

Issues

The petitioner, in its Memorandum, raises the following issues:

“A.
Whether or not the CIAC could take jurisdiction over the case of Respondent Cid spouses
against Petitioner Philrock after the case had been dismissed by both the RTC and the
CIAC.

“B.

Whether or not Respondent Cid spouses have a cause of action against Petitioner
Philrock.

“C.

Whether or not the awarding of the amount of P23,276.75 for materials ordered by
Respondent Spouses Cid plus interest thereon at the rate of 6% from 26 September 1995
is proper.

“D.

Whether or not the awarding of the amount of P65,000.00 as retrofitting costs is proper.

“E.

Whether or not the awarding of the amount of P1,340,454 for the value of the delivered
but the allegedly unworkable concrete which was wasted is proper.

“F.

Whether or not the awarding o[f] moral and nominal damages and attorney's fees and
expenses of litigation in favor of respondents is proper.

“G.

Whether or not Petitioner Philrock should be held liable for the payment of arbitration
fees.”[7]

In sum, petitioner imputes reversible error to the CA (1) for upholding the jurisdiction of
the CIAC after the latter had dismissed the case and referred it to the regular court, (2) for
ruling that respondent spouses had a cause of action against petitioner, and (3) for
sustaining the award of damages.

This Court’s Ruling

The Petition has no merit.

First Issue:
Jurisdiction

Petitioner avers that the CIAC lost jurisdiction over the arbitration case after both parties
had withdrawn their consent to arbitrate. The June 13, 1995 RTC Order remanding the
case to the CIAC for arbitration was allegedly an invalid mode of referring a case for
arbitration.

We disagree. Section 4 of Executive Order 1008 expressly vests in the CIAC original and
exclusive jurisdiction over disputes arising from or connected with construction contracts
entered into by parties that have agreed to submit their dispute to voluntary arbitration.[8]

It is undisputed that the parties submitted themselves to the jurisdiction of the

Commission by virtue of their Agreement to Arbitrate dated November 24, 1993.
Signatories to the Agreement were Atty. Ismael J. Andres and Perry Y. Uy (president of
Philippine Rock Products, Inc.) for petitioner, and Nelia G. Cid and Atty. Esteban A.
Bautista for respondent spouses.[9]

Petitioner claims, on the other hand, that this Agreement was withdrawn by respondents
on April 8, 1994, because of the exclusion of the seven engineers of petitioners in the
arbitration case. This withdrawal became the basis for the April 13, 1994 CIAC Order
dismissing the arbitration case and referring the dispute back to the RTC. Consequently,
the CIAC was divested of its jurisdiction to hear and decide the case.

This contention is untenable. First, private respondents removed the obstacle to the

continuation of the arbitration, precisely by withdrawing their objection to the exclusion
of the seven engineers. Second, petitioner continued participating in the arbitration even
after the CIAC Order had been issued. It even concluded and signed the Terms of
Reference[10] on August 21, 1995, in which the parties stipulated the circumstances
leading to the dispute; summarized their respective positions, issues, and claims; and
identified the composition of the tribunal of arbitrators. The document clearly confirms
both parties’ intention and agreement to submit the dispute to voluntary arbitration. In
view of this fact, we fail to see how the CIAC could have been divested of its
jurisdiction.

Finally, as pointed out by the solicitor general, petitioner maneuvered to avoid the RTC’s
final resolution of the dispute by arguing that the regular court also lost jurisdiction after
the arbitral tribunal’s April 13, 1994 Order referring the case back to the RTC. In so
doing, petitioner conceded and estopped itself from further questioning the jurisdiction of
the CIAC. The Court will not countenance the effort of any party to subvert or defeat the
objective of voluntary arbitration for its own private motives. After submitting itself to
arbitration proceedings and actively participating therein, petitioner is estopped from
assailing the jurisdiction of the CIAC, merely because the latter rendered an adverse
decision.[11]

Second Issue:
Cause of Action

Petitioner contends that respondent spouses were negligent in not engaging the services
of an engineer or architect who should oversee their construction, in violation of Section
308 of the National Building Code. It adds that even if the concrete it delivered was
defective, respondent spouses should bear the loss arising from their illegal operation. In
short, it alleges that they had no cause of action against it.

We disagree. Cause of action is defined as an act or omission by which a party violates

the right of another.[12] A complaint is deemed to have stated a cause of action provided it
has indicated the following: (1) the legal right of the plaintiff, (2) the correlative
obligation of the defendant, and (3) the act or the omission of the defendant in violation
of the said legal right.[13] The cause of action against petitioner was clearly established.
Respondents were purchasers of ready-mix concrete from petitioner. The concrete
delivered by the latter turned out to be of substandard quality. As a result, respondents
sustained damages when the structures they built using such cement developed cracks
and honeycombs. Consequently, the construction of their residence had to be stopped.

Further, the CIAC Decision clearly spelled out respondents’ cause of action against
petitioner, as follows:

“Accordingly, this Tribunal finds that the mix was of the right proportions at the time it
left the plant. This, however, does not necessarily mean that all of the concrete mix
delivered had remained workable when it reached the jobsite. It should be noted that
there is no evidence to show that all the transit mixers arrived at the site within the
allowable time that would ensure the workability of the concrete mix delivered.

“On the other hand, there is sufficiently strong evidence to show that difficulties were
encountered in the pouring of concrete mix from certain transit mixers necessitating the
[addition] of water and physically pushing the mix, obviously because the same [was] no
longer workable. This Tribunal holds that the unworkability of said concrete mix has
been firmly established.

“There is no dispute, however, to the fact that there are defects in some areas of the
poured structures. In this regard, this Tribunal holds that the only logical reason is that
the unworkable concrete was the one that was poured in the defective sections.” [14]

Third Issue:
Monetary Awards
Petitioner assails the monetary awards given by the arbitral tribunal for alleged lack of
basis in fact and in law. The solicitor general counters that the basis for petitioner’s
assigned errors with regard to the monetary awards is purely factual and beyond the
review of this Court. Besides, Section 19, EO 1008, expressly provides that monetary
awards by the CIAC are final and unappealable.

We disagree with the solicitor general. As pointed out earlier, factual findings of quasi-
judicial bodies that have acquired expertise are generally accorded great respect and even
finality, if they are supported by substantial evidence.[15] The Court, however, has
consistently held that despite statutory provisions making the decisions of certain
administrative agencies “final,” it still takes cognizance of petitions showing want of
jurisdiction, grave abuse of discretion, violation of due process, denial of substantial
justice or erroneous interpretation of the law.[16] Voluntary arbitrators, by the nature of
their functions, act in a quasi-judicial capacity, such that their decisions are within the
scope of judicial review.[17]

Petitioner protests the award to respondent spouses of P23,276.25 as excess payment with
six percent interest beginning September 26, 1995. It alleges that this item was neither
raised as an issue by the parties during the arbitration case, nor was its justification
discussed in the CIAC Decision. It further contends that it could not be held liable for
interest, because it had earlier tendered a check in the same amount to respondent
spouses, who refused to receive it.

Petitioner’s contentions are completely untenable. Respondent Nelia G. Cid had already
raised the issue of overpayment even prior to the formal arbitration. In paragraph 9 of the
Terms of Reference, she stated:

“9. Claimants were assured that the problem and her demands had been the subject of
several staff meetings and that Arteche was very much aware of it, a memorandum
having been submitted citing all the demands of [c]laimants. This assurance was made on
July 31, 1992 when Respondents Secillano, Martillano and Lomibao came to see
Claimant Nelia Cid and offered to refund P23,276.25, [t]he difference between the billing
by Philrock’s Marketing Department in the amount of P125,586.25 and the amount
charged by Philrock's Batching Plant Department in the amount of only P102,586.25,
which [c]laimant refused to accept by saying, ‘Saka na lang’.”[18]

The same issue was discussed during the hearing before the arbitration tribunal on
December 19, 1995.[19] It was also mentioned in that tribunal’s Decision dated September
24, 1996.[20]

The payment of interest is based on Article 2209 of the Civil Code, which provides that if
the obligation consists of the payment of a sum of money, and the debtor incurs delay, the
indemnity for damages shall be the payment of legal interest which is six per cent per
annum, in the absence of a stipulation of the rate.

Awards for Retrofitting Costs, Wasted

Unworkable But Delivered Concrete,
and Arbitration Fees

Petitioner maintains that the defects in the concrete structure were due to respondent
spouses’ failure to secure the services of an engineer or architect to supervise their
project. Hence, it claims that the award for retrofitting cost was without legal basis. It
also denies liability for the wasted unworkable but delivered concrete, for which the
arbitral court awarded P13,404.54. Finally, it complains against the award of litigation
expenses, inasmuch as the case should not have been instituted at all had respondents
complied with the requirements of the National Building Code.

We are unconvinced. Not only did respondents disprove the contention of petitioner; they
also showed that they sustained damages due to the defective concrete it had delivered.
These were items of actual damages they sustained due to its breach of contract.

Moral and Nominal Damages, Attorney’s Fees and Costs

Petitioner assails the award of moral damages, claiming no malice or bad faith on its part.

We disagree. Respondents were deprived of the comfort and the safety of a house and
were exposed to the agony of witnessing the wastage and the decay of the structure for
more than seven years. In her Memorandum, Respondent Nelia G. Cid describes her
family’s sufferings arising from the unreasonable delay in the construction of their
residence, as follows: “The family lives separately for lack of space to stay in. Mrs. Cid is
staying in a small dingy bodega, while her son occupies another makeshift room. Their
only daughter stayed with her aunt from 1992 until she got married in 1996. x x
x.”[21] The Court also notes that during the pendency of the case, Respondent Vicente Cid
died without seeing the completion of their home.[22] Under the circumstances, the award
of moral damages is proper.

Petitioner also contends that nominal damages should not have been granted, because it
did not breach its obligation to respondent spouses.

Nominal damages are recoverable only if no actual or substantial damages resulted from
the breach, or no damage was or can be shown.[23] Since actual damages have been
proven by private respondents for which they were amply compensated, they are no
longer entitled to nominal damages.

Petitioner protests the grant of attorney’s fees, arguing that respondent spouses did not
engage the services of legal counsel. Also, it contends that attorney’s fees and litigation
expenses are awarded only if the opposing party acted in gross and evident bad faith in
refusing to satisfy plaintiff’s valid, just and demandable claim.

We disagree. The award is not only for attorney’s fees, but also for expenses of litigation.
Hence, it does not matter if respondents represented themselves in court, because it is
obvious that they incurred expenses in pursuing their action before the CIAC, as well as
the regular and the appellate courts. We find no reason to disturb this award.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED; however,
the award of nominal damages is DELETED for lack of legal basis. Costs against
petitioner.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 204197, November 23, 2016 ]
FRUEHAUF ELECTRONICS PHILIPPINES CORPORATION, PETITIONER,
VS. TECHNOLOGY ELECTRONICS ASSEMBLY AND MANAGEMENT
PACIFIC CORPORATION, RESPONDENT.

DECISION

BRION, J.:

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 contract[4] (expiring on June 9, 2003) that was
renewable for another 25 years upon mutual agreement. The contract included an
arbitration agreement:[5]
17. ARBITRATION

In the event of any dispute or disagreement between the parties hereto involving the
interpretation or implementation of any provision of this Contract of Lease, the dispute or
disagreement shall be referred to arbitration by a three (3) member arbitration committee,
one member to be appointed by the LESSOR, another member to be appointed by the
LESSEE, and the third member to be appointed by these two members. The arbitration
shall be conducted in accordance with the Arbitration Law (R.A. No. 876).
The contract also authorized TEAM to sublease the property. TEAM subleased the
property to Capitol Publishing House (Capitol) on December 2, 1996 after notifying
Fruehauf.

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

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

On March 9, 2004, Fruehauf instituted SP Proc. No. 11449 before the Regional Trial
Court (RTC) for "Submission of an Existing Controversy for Arbitration."[7] It alleged: (1)
that when the lease expired, the property suffered from damage that required extensive
renovation; (2) that when the lease expired, TEAM failed to turn over the premises and
pay rent; and (3) that TEAM did not restore the property to its original condition as
required in the contract. Accordingly, the parties are obliged to submit the dispute to
arbitration pursuant to the stipulation in the lease contract.
The RTC granted the petition and directed the parties to comply with the arbitration
clause of the contract.[8]

Pursuant to the arbitration agreement, the dispute was referred to a three-member

arbitration tribunal. TEAM and Fruehauf appointed one member each while the
Chairman was appointed by the first two members. The tribunal was formally constituted
on September 27, 2004 with retired CA Justice Hector L. Hofileña, as chairman, retired
CA Justice Mariano M. Umali and Atty. Maria Clara B. Tankeh Asuncion as members. [9]

The parties initially submitted the following issues to the tribunal for resolution:[10]

1. Whether or not TEAM had complied with its obligation to return the leased
premises to Fruehauf after the expiration of the lease on June 9, 2003.

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

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

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

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

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

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

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

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

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

The Arbitral Award[12]

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

The tribunal found that Fruehauf made several demands for the return of the leased
premises before and after the expiration of the lease[14] and that there was no express or
implied renewal of the lease after June 9, 2003. It recognized that the sub-lessor, Capitol,
remained in possession of the lease. However, relying on the commentaries of Arturo
Tolentino on the subject, the tribunal held that it was not enough for lessor to simply
vacate the leased property; it is necessary that he place the thing at the disposal of the
lessor, so that the latter can receive it without any obstacle.[15]

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

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

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

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 electronis
plant."[21] Thus, TEAM's obligation was to vacate the leased property and deliver to
Fruehauf the buildings, improvements, and installations (including the machineries and
equipment existing thereon) in the same condition as when the lease commenced, save
for what had been lost or impaired by the lapse of time, ordinary wear and tear, or any
other inevitable cause.[22]

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

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

TEAM moved for reconsideration[28] which the tribunal denied.[29] Thus, TEAM

petitioned the RTC to partially vacate or modify the arbitral award.[30] It argued that the
tribunal failed to properly appreciate the facts and the terms of the lease contract.

The RTC Ruling

On April 29, 2009, the RTC[31] found insufficient legal grounds under Sections 24 and

25 of the Arbitration Law to modify or vacate the award.[32] It denied the petition and
CONFIRMED, the arbitral award.[33] TEAM filed a Notice of Appeal.

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

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 flaw.[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,[51] the CA held that the aggrieved party may resort to a petition
for certiorari when the RTC to which the award was submitted for confirmation has
acted without jurisdiction, or with grave abuse of discretion and there is no appeal, nor
any plain, speedy remedy in the course of law.[52]

The CA further held that the mere filing of a notice of appeal is sufficient as the issues
raised in the appeal were not purely questions of law.[53] It further cited Section 46 of the
Alternative Dispute Resolution (ADR) Law:[54]
SEC. 46. Appeal from Court Decisions on Arbitral Awards. - A decision of the regional
trial court confirming, vacating, setting aside, modifying or correcting an arbitral award
may be appealed to the Court of Appeals in accordance with the rules of procedure to be
promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral
award shall be required by the appellant court to post counterbond executed in favor of
the prevailing party equal to the amount of the award in accordance with the rules to be
promulgated by the Supreme Court.[55]
However, the CA made no further reference to A.M. No. 07-11-08-SC, the Special Rules
of Court on Alternative Dispute Resolution (Special ADR Rules) which govern the appeal
procedure.

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

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

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

The CA REVERSED AND SET ASIDE the arbitral award and DISMISSED the

arbitral complaint for lack of merit.[60]

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

The Arguments

Fruehauf argues that courts do not have the power to substitute their judgment for that of
the arbitrators.[61] It also insists that an ordinary appeal is not the proper remedy against an
RTC's order confirming, vacating, correcting or modifying an arbitral 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[65] and Insular Savings Bank v. Far East Bank and Trust, Co.[66]

TEAM counters that the CA correctly resolved the substantive issues of the case and that
the arbitral tribunal's errors were sufficient grounds to vacate or modify the award. [67] It
insists that the RTC's misappreciation of the facts from a patently erroneous award
warranted an appeal under Rule 41.[68]

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

TEAM assails the inconsistencies of Fruehauf's position as to the available legal remedies
against an arbitral award.[71] However, it maintains that Section 29 of the Arbitration Law
does not foreclose other legal remedies (aside from an appeal by certiorari) against the
RTC's order confirming or vacating an arbitral award pursuant to Insular Savings
Bank and ABS-CBN Broadcasting Corporation v. World Interactive Network Systems
(WINS) Japan Co., Ltd.[72]

The Issues

This case raises the following questions:

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

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

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

Our Ruling

The petition is meritorious.

Arbitration is an alternative mode of dispute resolution outside of the regular court

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

Resort to arbitration is voluntary. It requires consent from both parties in the form of an

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

However, this contractual and consensual character means that the parties cannot

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

As a purely private mode of dispute resolution, arbitration proceedings, including the

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

The contractual nature of arbitral proceedings affords the parties substantial autonomy

The parties likewise appoint the arbitrators based on agreement. There are no other

legal requirements as to the competence or technical qualifications of an arbitrator. Their
only legal qualifications are: (1) being of legal age; (2) full-enjoyment of their civil
rights; and (3) the ability to read and write.[77] The parties can tailor-fit the tribunal's
composition to the nature of their dispute. Thus, a specialized dispute can be resolved by
experts on the subject.

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

This risk of error is compounded by the absence of an effective appeal mechanism. The

errors of an arbitral tribunal are not subject to correction by the judiciary. As a private
alternative to court proceedings, arbitration is meant to be an end, not the beginning,
of litigation.[78] Thus, the arbitral award is final and binding on the parties by reason of
their contract the arbitration agreement.[79]
An Arbitral Tribunal does not exercise quasi-judicial powers

Quasi-judicial or administrative adjudicatory power is the power: (1) to hear and

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

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

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

The arbitral tribunal acquires jurisdiction over the parties and the subject matter through
stipulation. Upon the rendition of the final award, the tribunal becomes functus
officio and - save for a few exceptions[84] - ceases to have any further jurisdiction over the
dispute.[85] The tribunal's powers (or in the case of ad hoc tribunals, their very existence)
stem from the obligatory force of the arbitration agreement and its ancillary stipulations.
[86]
Simply put, an arbitral tribunal is a creature of contract.

Deconstructing the view that arbitral tribunals are quasi-judicial agencies

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

The ABS-CBN Case opined that a voluntary arbitrator is a "quasi-judicial

instrumentality" of the government[88] pursuant to Luzon Development Bank v.
Association of Luzon Development Bank Employees,[89] Sevilla Trading Company v.
Semana,[90] Manila Midtown Hotel v. Borromeo,[91] and Nippon Paint Employees Union-
Olalia v. Court of Appeals.[92] Hence, voluntary arbitrators are included in the Rule 43
jurisdiction of the Court of Appeals:
SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of
the Court of Tax Appeals and from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions.
Among these agencies are the Civil Service Commission, Central Board of Assessment
Appeals, Securities and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications Commission, Department of
Agrarian Reform under Republic Act No. 6657, Government Service Insurance System,
Employees Compensation Commission, Agricultural Inventions Board, Insurance
Commission, Philippine Atomic Energy Commission, Board of Investments,
Construction Industry Arbitration Commission, and voluntary arbitrators authorized
by law.[93] (emphasis supplied)
Citing Insular Savings Bank v. Far East Bank and Trust Co.,[94] the ABS-CBN
Case pronounced that the losing party in an arbitration proceeding may avail of three
alternative remedies: (1) a petition to vacate the arbitral award before the RTC; (2) a
petition for review with the CA under Rule 43 of the Rules of Court raising questions, of
fact, of law, or of both; and (3) a petition for certiorari under Rule 65 should the
arbitrator act beyond its jurisdiction or with grave abuse of discretion.[95]

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

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

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

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

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

Second, even if we disregard the obiter dicta character of both pronouncements, a more

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

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

The term "Voluntary Arbitrator" does not refer to an ordinary "arbitrator" who
voluntarily agreed to resolve a dispute. It is a technical term with a specific definition
under the Labor Code:
Art. 212 Definitions. xxx

14. "Voluntary Arbitrator" means any person accredited by the Board as such or any
person named or designated in the Collective Bargaining Agreement by the parties to act
as their Voluntary Arbitrator, or one chosen with or without the assistance of the National
Conciliation and Mediation Board, pursuant to a selection procedure agreed upon in the
Collective Bargaining Agreement, or any official that may be authorized by the Secretary
of Labor and Employment to act as Voluntary Arbitrator upon the written request and
agreement of the parties to a labor dispute.[101]
Voluntary Arbitrators resolve labor disputes and grievances arising from the
interpretation of Collective Bargaining Agreements.[102] These disputes were specifically
excluded from the coverage of both the Arbitration Law[103] and the ADR Law.[104]

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

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

Moreover, judicial or quasi-judicial jurisdiction cannot be conferred upon a tribunal by

the parties alone. The Labor Code itself confers subject-matter jurisdiction to Voluntary
Arbitrators.[106]

Notably, the other arbitration, body listed in Rule 43 the Construction Industry
Arbitration Commission (CIAC) - is also a government agency[107] attached to the
Department of Trade and Industry.[108] Its jurisdiction is likewise conferred by statute.
[109]
By contrast, the subject-matter jurisdiction of commercial arbitrators is stipulated by
the parties.

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

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

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

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
(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 2044[122] 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

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

Nevertheless, whether we apply, Section 29 of the Arbitration Law, Section 46 of the

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

The correctness or incorrectness of the arbitral award

We have deliberately refrained from passing upon the merits of the arbitral award - not
because the award was erroneous but because it would be improper. None of the grounds
to vacate an arbitral award are present in this case and as already established,
the merits of the award cannot be reviewed by the courts.

Our refusal to review the award is not a simple matter of putting procedural technicalities
over the substantive merits of a case; it goes into the very legal substance of the issues.
There is no law granting the judiciary authority to review the merits of an arbitral award.
If we were to insist on reviewing the correctness of the award (or consent to the CA's
doing so), it would be tantamount to expanding our jurisdiction without the benefit of
legislation. This translates to judicial legislation - a breach of the fundamental principle
of separation of powers.

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

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

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

Assuming arguendo that the tribunal's interpretation of the contract was incorrect, the

errors would have been simple errors of law. It was the tribunal - not the RTC or the CA
- that had jurisdiction and authority over the issue by virtue of the parties' submissions;
the CA's substitution of its own judgment for the arbitral award cannot be more
compelling than the overriding public policy to uphold the autonomy of arbitral awards.
Courts are precluded from disturbing an arbitral tribunal's factual findings and
interpretations of law.[136] The CA's ruling 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.[138] At the risk of redundancy, we
emphasize Rule 19.10 of the Special ADR Rules promulgated by this Court en banc:
Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As a general rule,
the court can only vacate or set aside the decision of an arbitral tribunal upon a clear
showing that the award suffers from any of the infirmities or grounds for vacating
an arbitral award under Section 24 of Republic Act No. 876 or under Rule 34 of the
Model Law in a domestic arbitration, or for setting aside an award in an international
arbitration under Article 34 of the Model Law, or for such other grounds provided under
these Special Rules.

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 CAG.R. SP. No.

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

SO ORDERED.

SECOND DIVISION
[ G.R. No. 179537, October 23, 2009 ]
PHILIPPINE ECONOMIC ZONE AUTHORITY, PETITIONER, VS. EDISON
(BATAAN) COGENERATION CORPORATION, RESPONDENT.

DECISION

CARPIO MORALES, J.:

Petitioner Philippine Economic Zone Authority (PEZA) and Edison (Bataan)

Cogeneration Corporation (respondent) entered into a Power Supply and Purchase
Agreement (PSPA or agreement) for a 10-year period effective October 25, 1997
whereby respondent undertook to construct, operate, and maintain a power plant which
would sell, supply and deliver electricity to PEZA for resale to business locators in the
Bataan Economic Processing Zone.

In the course of the discharge of its obligation, respondent requested from PEZA a tariff
increase with a mechanism for adjustment of the cost of fuel and lubricating oil, which
request it reiterated on March 5, 2004.

PEZA did not respond to both requests, however, drawing respondent to write PEZA on
May 3, 2004. Citing a tariff increase which PEZA granted to the East Asia Utilities
Corporation (EAUC), another supplier of electricity in the Mactan Economic Zone,
respondent informed PEZA of a violation of its obligation under Clause 4.9 of the PSPA
not to give preferential treatment to other power suppliers.

After the lapse of 90 days, respondent terminated the PSPA, invoking its right thereunder,
and demanded P708,691,543.00 as pre-termination fee. PEZA disputed respondent's right
to terminate the agreement and refused to pay the pre-termination fee, prompting
respondent to request PEZA to submit the dispute to arbitration pursuant to the arbitration
clause of the PSPA.

Petitioner refused to submit to arbitration, however, prompting respondent to file a

Complaint[1] against PEZA for specific performance before the Regional Trial Court
(RTC) of Pasay, alleging that, inter alia:
xxxx

4. Under Clauses 14.1 and 14.2 of the Agreement, the dispute shall be
resolved through arbitration before an Arbitration Committee composed of
one representative of each party and a third member who shall be mutually
acceptable to the parties: x x x

xxx

5. Conformably with the Agreement, plaintiff notified defendant in a letter

dated September 6, 2004 requesting that the parties submit their dispute to
arbitration. In a letter dated September 8, 2004, which defendant received
on the same date, defendant unjustifiably refused to comply with the
request for arbitration, in violation of its undertaking under the Agreement.
Defendant likewise refused to nominate its representative to the Arbitration
Committee as required by the Agreement.

6. Under Section 8 of Republic Act No. 876 (1953), otherwise known as the
Arbitration Law, (a) if either party to the contract fails or refuses to name
his arbitrator within 15 days after receipt of the demand for arbitration;
or (b) if the arbitrators appointed by each party to the contract, or appointed
by one party to the contract and by the proper court, shall fail to agree upon
or to select the third arbitrator, then this Honorable Court shall appoint
the arbitrator or arbitrators.[2] (Emphasis and underscoring supplied)

Respondent accordingly prayed for judgment

x x x (a) designating (i) an arbitrator to represent defendant; and (ii) the third arbitrator
who shall act as Chairman of the Arbitration Committee; and (b) referring the attached
Request for Arbitration to the Arbitration Committee to commence the arbitration.[3]

and for other just and equitable reliefs.

In its Answer,[4] PEZA (hereafter petitioner):

1. ADMIT[TED] the allegations in paragraphs 1, 2, 3, 4, and 6 of the

complaint, with the qualification that the alleged dispute subject of the
plaintiff's Request for Arbitration dated October 20, 2004 is not an
arbitrable issue, considering that the provision on pre-termination fee in
the Power Sales and Purchase Agreement (PSPA), is gravely onerous,
unconscionable, greatly disadvantageous to the government, against public
policy and therefore invalid and unenforceable.

2. ADMIT[TED] the allegation in paragraph 5 of the complaint with the

qualification that the refusal of the defendant to arbitrate is justified
considering that the provision on the pre-termination fee subject of the
plaintiff's Request for Arbitration is invalid and unenforceable. Moreover,
the pre-termination of the PSPA is whimsical, has no valid basis and in
violation of the provisions thereof, constituting breach of contract on the
part of the plaintiff.[5] (Emphasis and underscoring supplied)

Xxxx

Respondent thereafter filed a Reply and Motion to Render Judgment on the Pleadings,

[6]
contending that since petitioner

x x x does not challenge the fact that (a) there is a dispute between the parties; (b) the
dispute must be resolved through arbitration before a three-member arbitration
committee; and (c) defendant refused to submit the dispute to arbitration by naming its
representative in the arbitration committee,

judgment may be rendered directing the appointment of the two other members to
complete the composition of the arbitration committee that will resolve the dispute of the
parties.[7]

By Order of April 5, 2005, Branch 118 of the Pasay City RTC granted respondent's
Motion to Render Judgment on the Pleadings, disposing as follows:
WHEREFORE, all the foregoing considered, this Court hereby renders judgment in favor
of the plaintiff and against the defendant. Pursuant to Section 8 of RA 876, also known as
the Arbitration Law, and Power Sales and Purchase Agreement, this Court
hereby appoints, subject to their agreement as arbitrators, retired Supreme Court Chief
Justice Andres Narvasa, as chairman of the committee, and retired Supreme Court
Justices Hugo Gutierrez, and Justice Jose Y. Feria, as defendant's and plaintiff's
representative, respectively, to the arbitration committee. Accordingly, let the Request for
Arbitration be immediately referred to the Arbitration Committee so that it can
commence with the arbitration.

SO ORDERED.[8] (Underscoring supplied)

On appeal,[9] the Court of Appeals, by Decision of April 10, 2007, affirmed the RTC
Order.[10] Its Motion for Reconsideration[11] having been denied,[12] petitioner filed the
present Petition for Review on Certiorari,[13] faulting the appellate court

. . . WHEN IT DISMISSED PETITIONER'S APPEAL AND AFFIRMED THE 05

APRIL 2004 ORDER OF THE TRIAL COURT WHICH RENDERED JUDGMENT ON
THE PLEADINGS, DESPITE THE FACT THAT PETITIONER'S ANSWER
TENDERED AN ISSUE.

. . . WHEN IT AFFIRMED THE ORDER OF THE TRIAL COURT WHICH

REFERRED RESPONDENT'S REQUEST FOR ARBITRATION DESPITE THE FACT
THAT THE ISSUE PRESENTED BY THE RESPONDENT IS NOT AN
ARBITRABLE ISSUE.[14] (Underscoring supplied)

The petition fails.

The dispute raised by respondent calls for a proceeding under Section 6 of Republic Act
No. 876, "An Act to Authorize the Making of Arbitration and Submission Agreements, to
Provide for the Appointment of Arbitrators and the Procedure for Arbitration in Civil
Controversies, and for Other Purposes" which reads:

SECTION 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.

x x x x (Underscoring supplied)

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."[15] Given
petitioner's admission of the material allegations of respondent's complaint including the
existence of a written agreement to resolve disputes through arbitration, the assailed
appellate court's affirmance of the trial court's grant of respondent's Motion for Judgment
on the Pleadings is in order.

Petitioner argues that it tendered an issue in its Answer as it disputed the legality of the
pre-termination fee clause of the PSPA. Even assuming arguendo that the clause is
illegal, it would not affect the agreement between petitioner and respondent to resolve
their dispute by arbitration.

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
"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.[16] (Emphasis in the original; underscoring supplied)

Petitioner nevertheless contends that the legality of the pre-termination fee clause is not
arbitrable, citing Gonzales v. Climax Mining Ltd. [17] which declared that the therein
complaint should be brought before the regular courts, and not before an arbitral tribunal,
as it involved a judicial issue. Held the Court:

We agree that the case should not be brought under the ambit of the Arbitration Law xxx.
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. As
previously discussed, the complaint should have been filed before the regular courts as it
involved issues which are judicial in nature.[18]

The ruling in Gonzales was, on motion for reconsideration filed by the parties, modified,
however, 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.[19] (Emphasis and underscoring supplied)

It bears noting that respondent does not seek to nullify the main contract. It merely
submits these issues for resolution by the arbitration committee, viz:

a. Whether or not the interest of Claimant in the project or its economic return
in its investment was materially reduced as a result of any laws or
regulations of the Philippine Government or any agency or body under its
control;

b. Whether or not the parties failed to reach an agreement on the amendments

to the Agreement within 90 days from notice to respondent on May 3, 2004
of the material reduction in claimant's economic return under the
Agreement;

c. Whether or not as a result of (a) and (b) above, Claimant is entitled to

terminate the Agreement;

d. Whether or not Respondent accorded preferential treatment to EAUC in

violation of the Agreement;

e. Whether or not as a result of (d) above, Claimant is entitled to terminate the

Agreement;
f. Whether or not Claimant is entitled to a termination fee equivalent to
P708,691,543.00; and

g. Who between Claimant and Respondent shall bear the cost and expenses of
the arbitration, including arbitrator's fees, administrative expenses and legal
fees.[20]

In fine, the issues raised by respondent are subject to arbitration in accordance with the
arbitration clause in the parties' agreement.

WHEREFORE, the petition is DENIED.

SPECIAL SECOND DIVISION

[ G.R. NO. 161957, January 22, 2007 ]
JORGE GONZALES AND PANEL OF ARBITRATORS, PETITIONERS, VS.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., AND
AUSTRALASIAN PHILIPPINES MINING INC., RESPONDENTS.

[G.R. NO. 167994]

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 Clarification[3] seeking reconsideration of that part of the
Decision holding that the case should not be brought for arbitration under Republic Act
(R.A.) No. 876, also known as the Arbitration Law.[4] Respondents, citing American
jurisprudence[5] and the UNCITRAL Model Law,[6] argue that the arbitration clause in the
Addendum Contract should be treated as an agreement independent of the other terms
of the contract, and that a claimed rescission of the main contract does not avoid the
duty to arbitrate. Respondents add that Gonzales’s argument relating to the alleged
invalidity of the Addendum Contract still has to be proven and adjudicated on in a
proper proceeding; that is, an action separate from the motion to compel arbitration.
Pending judgment in such separate action, the Addendum Contract remains valid and
binding and so does the arbitration clause therein. Respondents add that the holding in
the Decision that “the case should not be brought under the ambit of the Arbitration
Law” appears to be premised on Gonzales’s having “impugn[ed] the existence or
validity” of the addendum contract. If so, it supposedly conveys the idea that Gonzales’s
unilateral repudiation of the contract or mere allegation of its invalidity is all it takes to
avoid arbitration. Hence, respondents submit that the court’s holding that “the case
should not be brought under the ambit of the Arbitration Law” be understood or
clarified as operative only where the challenge to the arbitration agreement has been
sustained by final judgment.

Both parties were required to file their respective comments to the other party’s motion
for reconsideration/clarification. [7] Respondents filed their Comment on 17 August 2005,
[8]
while Gonzales filed his only on 25 July 2006.[9]

On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or while
the motions for reconsideration in G.R. No. 161957[10] were pending, wherein Gonzales
challenged the orders of the Regional Trial Court (RTC) requiring him to proceed with
the arbitration proceedings as sought by Climax-Arimco Mining Corporation (Climax-
Arimco).

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

We first tackle the more recent case which is G.R. No. 167994. It stemmed from the
petition to compel arbitration filed by respondent Climax-Arimco before the RTC of
Makati City on 31 March 2000 while the complaint for the nullification of the Addendum
Contract was pending before the DENR Panel of Arbitrators. On 23 March 2000, Climax-
Arimco had sent Gonzales a Demand for Arbitration pursuant to Clause 19.1 [11] of the
Addendum Contract and also in accordance with Sec. 5 of R.A. No. 876. The petition for
arbitration was subsequently filed and Climax-Arimco sought an order to compel the
parties to arbitrate pursuant to the said arbitration clause. The case, docketed as Civil
Case No. 00-444, was initially raffled to Br. 132 of the RTC of Makati City, with Judge
Herminio I. Benito as Presiding Judge. Respondent Climax-Arimco filed on 5 April 2000 a
motion to set the application to compel arbitration for hearing.

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

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

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

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

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

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.
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.’”[23] Climax-Arimco argues that R.A. No. 876 gives no room for
any other issue to be dealt with in such a proceeding, and that the court presented with
an application to compel arbitration may order arbitration or dismiss the same,
depending solely on its finding as to those two limited issues. If either of these matters
is disputed, the court is required to conduct a summary hearing on it. Gonzales’s
proposition contradicts both the trial court’s limited jurisdiction and the summary
nature of the proceeding itself.

Climax-Arimco further notes that Gonzales’s attack on or repudiation of the Addendum

Contract also is not a ground to deny effect to the arbitration clause in the Contract.
The arbitration agreement is separate and severable from the contract evidencing the
parties’ commercial or economic transaction, it stresses. Hence, the alleged defect or
failure of the main contract is not a ground to deny enforcement of the parties’
arbitration agreement. Even the party who has repudiated the main contract is not
prevented from enforcing its arbitration provision. R.A. No. 876 itself treats the
arbitration clause or agreement as a contract separate from the commercial, economic
or other transaction to be arbitrated. The statute, in particular paragraph 1 of Sec. 2
thereof, considers the arbitration stipulation an independent contract in its own right
whose enforcement may be prevented only on grounds which legally make the
arbitration agreement itself revocable, thus:
Sec. 2. Persons and matters subject to arbitration.—Two or more persons or
parties may submit to the arbitration of one or more arbitrators any controversy
existing, between them at the time of the submission and which may be the subject of
an action, or the parties to any contract may in such contract agree to settle by
arbitration a controversy thereafter arising between them. Such submission or contract
shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for
the revocation of any contract.

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.

Neither can BF Corporation v. Court of Appeals[28] cited by Gonzales support his theory.

Gonzales argues that said case recognized and allowed a petition for certiorari under
Rule 65 “appealing the order of the Regional Trial Court disregarding the arbitration
agreement as an acceptable remedy.”[29] The BF Corporation case had its origins in a
complaint for collection of sum of money filed by therein petitioner BF Corporation
against Shangri-la Properties, Inc. (SPI). SPI moved to suspend the proceedings alleging
that the construction agreement or the Articles of Agreement between the parties
contained a clause requiring prior resort to arbitration before judicial intervention. The
trial court found that an arbitration clause was incorporated in the Conditions of
Contract appended to and deemed an integral part of the Articles of Agreement. Still,
the trial court denied the motion to suspend proceedings upon a finding that the
Conditions of Contract were not duly executed and signed by the parties. The trial court
also found that SPI had failed to file any written notice of demand for arbitration within
the period specified in the arbitration clause. The trial court denied SPI's motion for
reconsideration and ordered it to file its responsive pleading. Instead of filing an
answer, SPI filed a petition for certiorari under Rule 65, which the Court of Appeals,
favorably acted upon. In a petition for review before this Court, BF Corporation alleged,
among others, that the Court of Appeals should have dismissed the petition for
certiorari since the order of the trial court denying the motion to suspend proceedings
“is a resolution of an incident on the merits” and upon the continuation of the
proceedings, the trial court would eventually render a decision on the merits, which
decision could then be elevated to a higher court “in an ordinary appeal.” [30]

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

The situation in 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 Appeals [37] that “[t]he provision to submit to
arbitration any dispute arising therefrom and the relationship of the parties is part of
that contract and is itself a contract. As a rule, contracts are respected as the law
between the contracting parties and produce effect as between them, their assigns and
heirs.”[38]

The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual nature of
arbitration clauses or agreements. It provides:
Sec. 6. Hearing by court.—A party aggrieved by the failure, neglect or refusal of
another to perform under an agreement in writing providing for arbitration may
petition the court for an order directing that such arbitration proceed in the manner
provided for in such agreement. Five days notice in writing of the hearing of such
application shall be served either personally or by registered mail upon the party in
default. The court shall hear the parties, and upon being satisfied that the making of the
agreement or such failure to comply therewith is not in issue, shall make an order
directing the parties to proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in issue the court shall
proceed to summarily hear such issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no default in the proceeding
thereunder, the proceeding shall be dismissed. If the finding be that a written provision
for arbitration was made and there is a default in proceeding thereunder, an order shall
be made summarily directing the parties to proceed with the arbitration in accordance
with the terms thereof.

The court shall decide all motions, petitions or applications filed under the provisions of
this Act, within ten days after such motions, petitions, or applications have been heard
by it. [Emphasis added.]
This special proceeding is the procedural mechanism for the enforcement of the
contract to arbitrate. The jurisdiction of the courts in relation to Sec. 6 of R.A. No. 876
as well as the nature of the proceedings therein was expounded upon in La Naval Drug
Corporation v. Court of Appeals.[39] There it was held that R.A. No. 876 explicitly confines
the court's authority only to the determination of whether or not there is an agreement
in writing providing for arbitration. In the affirmative, the statute ordains that the court
shall issue an order "summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof." If the court, upon the other hand, finds that no
such agreement exists, "the proceeding shall be dismissed." [40] The cited case also
stressed that the proceedings are summary in nature. [41] The same thrust was made in
the earlier case of Mindanao Portland Cement Corp. v. McDonough Construction Co. of
Florida[42] which held, thus:
Since there obtains herein a written provision for arbitration as well as failure on
respondent's part to comply therewith, the court a quo rightly ordered the parties to
proceed to arbitration in accordance with the terms of their agreement (Sec. 6, Republic
Act 876). Respondent's arguments touching upon the merits of the dispute are
improperly raised herein. They should be addressed to the arbitrators. This proceeding
is merely a summary remedy to enforce the agreement to arbitrate. The duty of the
court in this case is not to resolve the merits of the parties' claims but only to determine
if they should proceed to arbitration or not. 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 from the Addendum Contract means that validity or invalidity of the
Addendum Contract will not affect the enforceability of the agreement to arbitrate.
Thus, Gonzales’s petition for certiorari should be dismissed.

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

The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be denied.

In the motion, Gonzales raises the same question of jurisdiction, more particularly that
the complaint for nullification of the Addendum Contract pertained to the DENR Panel
of Arbitrators, not the regular courts. He insists that the subject of his complaint is a
mining dispute since it involves a dispute concerning rights to mining areas, the
Financial and Technical Assistance Agreement (FTAA) between the parties, and it also
involves claimowners. He adds that the Court failed to rule on other issues he raised,
such as whether he had ceded his claims over the mineral deposits located within the
Addendum Area of Influence; whether the complaint filed before the DENR Panel of
Arbitrators alleged ultimate facts of fraud; and whether the action to declare the nullity
of the Addendum Contract on the ground of fraud has prescribed.

These are the same issues that Gonzales raised in his Rule 45 petition in G.R.
No. 161957 which were resolved against him in the Decision of 28 February 2005.
Gonzales does not raise any new argument that would sway the Court even a bit to alter
its holding that the complaint filed before the DENR Panel of Arbitrators involves judicial
issues which should properly be resolved by the regular courts. He alleged fraud or
misrepresentation in the execution of the Addendum Contract which is a ground for the
annulment of a voidable contract. Clearly, such allegations entail legal questions which
are within the jurisdiction of the courts.
The question of whether Gonzales had ceded his claims over the mineral deposits in the
Addendum Area of Influence is a factual question which is not proper for determination
before this Court. At all events, moreover, the question is irrelevant to the issue of
jurisdiction of the DENR Panel of Arbitrators. It should be pointed out that the DENR
Panel of Arbitrators made a factual finding in its Order dated 18 October 2001, which it
reiterated in its Order dated 25 June 2002, that Gonzales had, “through the various
agreements, assigned his interest over the mineral claims all in favor of [Climax-
Arimco]” as well as that without the complainant [Gonzales] assigning his interest over
the mineral claims in favor of [Climax-Arimco], there would be no FTAA to speak
of.”[52] This finding was affirmed by the Court of Appeals in its Decision dated 30 July
2003 resolving the petition for certiorari filed by Climax-Arimco in regard to the 18
October 2001 Order of the DENR Panel.[53]

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

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

As to the issue of prescription, Gonzales’s claims of fraud and misrepresentation

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

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

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

SO ORDERED.

SECOND DIVISION
[ G.R. NO. 152471, August 18, 2006 ]
FIESTA WORLD MALL CORPORATION, PETITIONER, VS. LINBERG
PHILIPPINES, INC., RESPONDENT.

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review on Certiorari[1] assailing the
Decision[2] dated December 12, 2001 and Resolution[3] dated February 28, 2002 rendered
by the Court of Appeals in CA-G.R. SP No. 63671, entitled "Fiesta World Mall
Corporation, petitioner, versus Hon. Florito S. Macalino, Presiding Judge of the Regional
Trial Court (RTC), Branch 267, Pasig City, and Linberg Philippines, Inc., respondents."

The facts of this case are:

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

On January 19, 2000, respondent filed with the Regional Trial Court (RTC), Branch 267,
Pasig City, a Complaint for Sum of Money against petitioner, docketed as Civil Case No.
67755. The complaint alleges that on November 12, 1997, petitioner and respondent
executed a build-own-operate agreement, entitled "Contract Agreement for Power Supply
Services, 3.8 MW Base Load Power Plant"[4] (the Contract). Under this Contract,
respondent will construct, at its own cost, and operate as owner a power plant, and to
supply petitioner power/electricity at its shopping mall in Lipa City. Petitioner, on the
other hand, will pay respondent "energy fees" to be computed in accordance with the
Seventh Schedule of the Contract, the pertinent portions of which provide:

2.1 x x x

E1 – 988,888 kw-hr x BER

Where:

E1 & E2 – Energy fees in pesos for the billing

period. Where E1 is based on the
minimum energy off-take of 988,888
kw-hrs. per month and E2 is based on
the actual meter reading less the
minimum off-take.

BER – Base energy rate at Ps 2.30/Kw-Hr

billing rate based on the exchange rate
of Ps 26.20 to the US dollar, and with
fuel oil to be supplied by LINBERG
at its own cost. The base energy rate is
subject to exchange rate adjustment
accordingly to the formula as follows:
BER – 0.6426 + 0.3224 Pn + 1.345 Fn
26.40 4.00
Where:

Pn – is defined as the average of the Bangko

Sentral ng Pilipinas' published dealing
rates for thirty (30) trading days
immediately prior to the new billing
rate.
Fn – Weighted average of fuel price per liter
based on the average of the last three
(3) purchases made by LINBERG as
evidenced by purchase invoices.

ED – Energy delivered in kw-hrs per meter

reading.

3. Minimum Energy Off-Take

The energy fees payable to LINBERG shall be on the basis of actual KWH
generated by the plant. However, if the actual KWH generated is less than
the minimum energy off-take level, the calculation of the energy fees shall
be made as if LINBERG has generated the minimum energy off-take level
of 988,888 KW-HR per month.

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

In its Answer with Compulsory Counterclaim, petitioner specifically denied the

allegations in the complaint, claiming that respondent failed to fulfill its obligations under
the Contract by failing to supply all its power/fuel needs. From November 10, 1998 until
May 21, 1999, petitioner personally shouldered the cost of fuel. Petitioner also disputed
the amount of energy fees specified in the billings made by respondent because the
latter failed to monitor, measure, and record the quantities of electricity delivered by
taking photographs of the electricity meter reading prior to the issuance of its
invoices and billings, also in violation of the Contract.[5] Moreover, in the computation of
the electrical billings, the minimum off-take of energy (E2) was based solely on the
projected consumption as computed by respondent. However, based on petitioner's
actual experience, it could not consume the energy pursuant to the minimum off-take
even if it kept open all its lights and operated all its machinery and equipment for
twenty-four hours a day for a month. This fact was admitted by respondent. While
both parties had discussions on the questioned billings, however, "there were no earnest
efforts to resolve the differences in accordance with the arbitration clause provided for in
the Contract."

Finally, as a special affirmative defense in its answer, petitioner alleged that respondent's
filing of the complaint is premature and should be dismissed on the ground of non-
compliance with paragraph 7.4 of the Contract which provides:
7.4 Disputes

If FIESTA WORLD disputes the amount specified by any invoice, it shall pay the
undisputed amount on or before such date(s), and the disputed amount shall be
resolved by arbitration of three (3) persons, one (1) by mutual choice, while the
other two (2) to be each chosen by the parties themselves, within fourteen (14) days
after the due date for such invoice and all or any part of the disputed amount paid to
LINBERG shall be paid together with interest pursuant to Article XXV from the due date
of the invoice. It is agreed, however, that both parties must resolve the disputes within
thirty (30) days, otherwise any delay in payment resulting to loss to LINBERG when
converted to $US as a result of depreciation of the Pesos shall be for the account of
FIESTA WORLD. Corollarily, in case of erroneous billings, however, LINBERG shall
be liable to pay FIESTA WORLD for the cost of such deterioration, plus interest
computed pursuant to Art. XXV from the date FIESTA WORLD paid for the erroneous
billing. (Underscoring supplied)
Thereafter, petitioner filed a Motion to Set Case for Preliminary Hearing on the ground
that respondent violated the arbitration clause provided in the Contract, thereby rendering
its cause of action premature.

This was opposed by respondent, claiming that paragraph 7.4 of the Contract on
arbitration is not the provision applicable to this case; and that since the parties failed to
settle their dispute, then respondent may resort to court action pursuant to paragraph 17.2
of the same Contract which provides:
17.2 Amicable Settlement

The parties hereto agree that in the event there is any dispute or difference between
them arising out of this Agreement or in the interpretation of any of the provisions
hereto, they shall endeavor to meet together in an effort to resolve such dispute by
discussion between them but failing such resolution the Chief Executives of
LINBERG and FIESTA WORLD shall meet to resolve such dispute or
difference and the joint decision of such shall be binding upon the parties hereto, and in
the event that a settlement of any such dispute or difference is not reached, then the
provisions of Article XXI shall apply.
Article XXI, referred to in paragraph 17.2 above, reads:

ARTICLE XXI

JURISDICTION
The parties hereto submit to the exclusive jurisdiction of the proper courts of Pasig
City, Republic of the Philippines for the hearing and determination of any action or
proceeding arising out of or in connection with this Agreement.
In its Order dated October 3, 2000, the trial court denied petitioner's motion for lack of
merit.

Petitioner then filed a Motion for Reconsideration but it was denied in an Order dated
January 11, 2001.

Dissatisfied, petitioner elevated the matter to the Court of Appeals via a Petition for
Certiorari, docketed as CA-G.R. SP No. 63671. On December 12, 2001, the appellate
court rendered its Decision dismissing the petition and affirming the challenged Orders of
the trial court.

Petitioner's Motion for Reconsideration of the above Decision was likewise denied by the
appellate court in its Resolution[6] dated February 28, 2002.

Hence, the instant Petition for Review on Certiorari.

The sole issue for our resolution is whether the filing with the trial court of respondent's
complaint is premature.

Paragraph 7.4 of the Contract, quoted earlier, mandates that should petitioner dispute any
amount of energy fees in the invoice and billings made by respondent, the same "shall be
resolved by arbitration of three (3) persons, one (1) by mutual choice, while the
other two (2) to be each chosen by the parties themselves." The parties, in
incorporating such agreement in their Contract, expressly intended that the said matter in
dispute must first be resolved by an arbitration panel before it reaches the
court. They made such arbitration mandatory.

It is clear from the records that petitioner disputed the amount of energy fees demanded
by respondent. However, respondent, without prior recourse to arbitration as required in
the Contract, filed directly with the trial court its complaint, thus violating the arbitration
clause in the Contract.

It bears stressing that such arbitration agreement is the law between the parties. Since that
agreement is binding between them, they are expected to abide by it in good faith. [7] And
because it covers the dispute between them in the present case, either of them may
compel the other to arbitrate.[8] Thus, it is well within petitioner's right to demand
recourse to arbitration.

We cannot agree with respondent that it can directly seek judicial recourse by filing an
action against petitioner simply because both failed to settle their differences amicably.
Suffice it to state that there is nothing in the Contract providing that the parties may
dispense with the arbitration clause. Article XXI on jurisdiction cited by respondent,
i.e., that "the parties hereto submit to the exclusive jurisdiction of the proper courts of
Pasig City" merely provides for the venue of any action arising out of or in connection
with the stipulations of the parties in the Contract.

Moreover, we note that the computation of the energy fees disputed by petitioner also
involves technical matters that are better left to an arbitration panel who has expertise in
those areas. Alternative dispute resolution methods or ADRs – like arbitration, mediation,
negotiation and conciliation – are encouraged by this Court. By enabling the parties to
resolve their disputes amicably, they provide solutions that are less time-consuming, less
tedious, less confrontational, and more productive of goodwill and lasting relationships.
[9]
To brush aside such agreement providing for arbitration in case of disputes between the
parties would be a step backward. As we held in BF Corporation v. Court of Appeals,[10]
It should be noted that in this jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876 (The
Arbitration Law), this Court has countenanced the settlement of disputes through
arbitration (Puromines, Inc. v. Court of Appeals, G.R. No. 91228, March 22, 1993, 220
SCRA 281-290). Republic Act No. 876 was adopted to supplement the New Civil Code's
provisions on arbitration (Chung Fu Industries Phils., Inc. v. Court of Appeals, G.R. No.
92683, February 25, 1992, 206 SCRA 545, 551). Its potentials as one of the alternative
dispute resolution methods that are now rightfully vaunted as "the wave of the future' in
international relations, is recognized worldwide. To brush aside a contractual agreement
calling for arbitration in case of disagreement between the parties would therefore be a
step backward.
In this connection, since respondent has already filed a complaint with the trial court
without prior recourse to arbitration, the proper procedure to enable an arbitration panel
to resolve the parties' dispute pursuant to their Contract is for the trial court to stay the
proceedings.[11] After the arbitration proceeding has been pursued and completed, then the
trial court may confirm the award made by the arbitration panel.[12]

In sum, we hold that the Court of Appeals erred in disregarding the arbitration clause in
the parties' Contract.

WHEREFORE, we GRANT the instant petition. The assailed Decision and Resolution

of the Court of Appeals in CA-G.R. SP No. 63671 are REVERSED. The parties are
ordered to submit their controversy to the arbitration panel pursuant to paragraph 7.4 of
the Contract. The Regional Trial Court, Branch 267, Pasig City is directed to suspend the
proceedings in Civil Case No. 67755 until after the Arbitration Panel shall have resolved
the controversy and submitted its report to the trial court. Costs against respondent.

SO ORDERED.

SECOND DIVISION
[ G.R. NO. 135362, December 13, 1999 ]
HEIRS OF AUGUSTO L. SALAS, JR., NAMELY: TERESITA D. SALAS FOR
HERSELF AND AS LEGAL GUARDIAN OF THE MINOR FABRICE
CYRILL D. SALAS, MA. CRISTINA S. LESACA, AND KARINA TERESA D.
SALAS, PETITIONERS, VS. LAPERAL REALTY CORPORATION,
ROCKWAY REAL ESTATE CORPORATION, SOUTH RIDGE VILLAGE,
INC., MAHARAMI DEVELOPMENT CORPORATION, SPOUSES THELMA
D. ABRAJANO AND GREGORIO ABRAJANO, OSCAR DACILLO,
SPOUSES VIRGINIA D. LAVA AND RODEL LAVA, EDUARDO A.
VACUNA, FLORANTE DE LA CRUZ, JESUS VICENTE B. CAPELLAN, AND
THE REGISTER OF DEEDS FOR LIPA CITY, RESPONDENTS.
DECISION

DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Order[1] of Branch 85 of the

Regional Trial Court of Lipa City[2] dismissing petitioners' complaint[3] for rescission of
several sale transactions involving land owned by Augusto L. Salas, Jr., their
predecessor-in-interest, on the ground that they failed to first resort to arbitration.

Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning
1,484,354 square meters.

On May 15, 1987, he entered into an Owner-Contractor Agreement [4] (hereinafter

referred to as the Agreement) with respondent Laperal Realty Corporation (hereinafter
referred to as Laperal Realty) to render and provide complete (horizontal) construction
services on his land.

On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in favor of
respondent Laperal Realty to exercise general control, supervision and management of
the sale of his land, for cash or on installment basis.

On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva
Ecija. He never returned.

On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court of Makati City a
verified petition for the declaration of presumptive death of her husband, Salas, Jr., who
had then been missing for more than seven (7) years. It was granted on December 12,
1996.[5]

Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold
subdivided portions thereof to respondents Rockway Real Estate Corporation and South
Ridge Village, Inc. on February 22, 1990; to respondent spouses Abrajano and Lava and
Oscar Dacillo on June 27, 1991; and to respondents Eduardo Vacuna, Florante de la Cruz
and Jesus Vicente Capalan on June 4, 1996 (all of whom are hereinafter referred to as
respondent lot buyers).
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial Court of
Lipa City a Complaint[6] for declaration of nullity of sale, reconveyance, cancellation of
contract, accounting and damages against herein respondents which was docketed as
Civil Case No. 98-0047.

On April 24, 1998, respondent Laperal Realty filed a Motion to Dismiss [7]on the ground
that petitioners failed to submit their grievance to arbitration as required under Article
VI of the Agreement which provides:
"ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNER'S representative shall be

referred to the committee represented by:
a. One representative of the OWNER;
b. One representative of the CONTRACTOR;
c. One representative acceptable to both OWNER and CONTRACTOR."[8]
On May 5, 1998, respondent spouses Abrajano and Lava and respondent Dacillo
filed a Joint Answer with Counterclaim and Crossclaim [9] praying for dismissal of
petitioners' Complaint for the same reason.

On August 9, 1998, the trial court issued the herein assailed Order dismissing
petitioners' Complaint for non-compliance with the foregoing arbitration clause.

Hence this petition.

Petitioners argue, thus:

"The petitioners' causes of action did not emanate from the Owner-Contractor
Agreement."

"The petitioners' causes of action for cancellation of contract and accounting are
covered by the exception under the Arbitration Law."

"Failure to arbitrate is not a ground for dismissal."[10]

In a catena of cases[11] inspired by Justice Malcolm's provocative dissent in Vega
v. San Carlos Milling Co.[12], this Court has recognized arbitration agreements as valid,
binding, enforceable and not contrary to public policy so much so that when there
obtains a written provision for arbitration which is not complied with, the trial court
should suspend the proceedings and order the parties to proceed to arbitration in
accordance with the terms of their agreement[13] Arbitration is the "wave of the future"
in dispute resolution.[14] To brush aside a contractual agreement calling for arbitration in
case of disagreement between parties would be a step backward. [15]

Nonetheless, we grant the petition.

A submission to arbitration is a contract.[16] As such, the Agreement, containing the

stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs.
[17]
But only they. Petitioners, as heirs of Salas, Jr., and respondent Laperal Realty are
certainly bound by the Agreement. If respondent Laperal Realty, had assigned its rights
under the Agreement to a third party, making the former, the assignor, and the latter,
the assignee, such assignee would also be bound by the arbitration provision since
assignment involves such transfer of rights as to vest in the assignee the power to
enforce them to the same extent as the assignor could have enforced them against the
debtor[18] or in this case, against the heirs of the original party to the Agreement.
However, respondents Rockway Real Estate Corporation, South Ridge Village, Inc.,
Maharami Development Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo,
Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan are not assignees of the
rights of respondent Laperal Realty under the Agreement to develop Salas, Jr.'s land and
sell the same. They are, rather, buyers of the land that respondent Laperal Realty was
given the authority to develop and sell under the Agreement. As such, they
are not "assigns" contemplated in Art. 1311 of the New Civil Code which provides that
"contracts take effect only between the parties, their assigns and heirs".

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

The petitioners' contention is without merit. For while rescission, as a general rule, is an
arbitrable issue,[20] they impleaded in the suit for rescission the respondent lot buyers
who are neither parties to the Agreement nor the latter's assigns or heirs.
Consequently, the right to arbitrate as provided in Article VI of the Agreement was
never vested in respondent lot buyers.

Respondent Laperal Realty, as a contracting party to the Agreement, has the right to
compel petitioners to first arbitrate before seeking judicial relief. However, to split the
proceedings into arbitration for respondent Laperal Realty and trial for the respondent
lot buyers, or to hold trial in abeyance pending arbitration between petitioners and
respondent Laperal Realty, would in effect result in multiplicity of suits, duplicitous
procedure and unnecessary delay. On the other hand, it would be in the interest of
justice if the trial court hears the complaint against all herein respondents and
adjudicates petitioners' rights as against theirs in a single and complete proceeding.

WHEREFORE, the instant petition is hereby GRANTED. The Order dated August 19, 1998
of Branch 85 of the Regional Trial Court of Lipa City is hereby NULLIFIED and SET ASIDE.
Said court is hereby ordered to proceed with the hearing of Civil Case No. 98-0047.

Costs against private respondents.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 136154, February 07, 2001 ]
DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL
COLLINS AND LUIS HIDALGO, PETITIONERS, VS. COURT OF APPEALS,
JUDGE BIENVENIDO L. REYES IN HIS CAPACITY AS PRESIDING
JUDGE, RTC-BR. 74, MALABON, METRO MANILA, MONTEBUENO
MARKETING, INC., LIONG LIONG C. SY AND SABROSA FOODS, INC.,
RESPONDENTS.

DECISION

BELLOSILLO, J.:

This Petition for Review on certiorari assails the 17 July 1998 Decision[1] of the

Court of Appeals affirming the 11 November 1997 Order [2] of the Regional Trial Court
which denied petitioners' Motion to Suspend Proceedings in Civil Case No. 2637-MN. It
also questions the appellate court's Resolution[3] of 30 October 1998 which denied
petitioners' Motion for Reconsideration.

On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte Corporation-USA

(DMC-USA) appointed private respondent Montebueno Marketing, Inc. (MMI) as the
sole and exclusive distributor of its Del Monte products in the Philippines for a period of
five (5) years, renewable for two (2) consecutive five (5) year periods with the consent
of the parties. The Agreement provided, among others, for an arbitration clause which
states -
12. GOVERNING LAW AND ARBITRATION[4]

This Agreement shall be governed by the laws of the State of California and/or, if
applicable, the United States of America. All disputes arising out of or relating to this
Agreement or the parties' relationship, including the termination thereof, shall be
resolved by arbitration in the City of San Francisco, State of California, under the Rules of
the American Arbitration Association. The arbitration panel shall consist of three
members, one of whom shall be selected by DMC-USA, one of whom shall be selected by
MMI, and third of whom shall be selected by the other two members and shall have
relevant experience in the industry x x x x
In October 1994 the appointment of private respondent MMI as the sole and
exclusive distributor of Del Monte products in the Philippines was published in several
newspapers in the country. Immediately after its appointment, private respondent MMI
appointed Sabrosa Foods, Inc. (SFI), with the approval of petitioner DMC-USA, as MMI's
marketing arm to concentrate on its marketing and selling function as well as to manage
its critical relationship with the trade.

On 3 October 1996 private respondents MMI, SFI and MMI's Managing Director Liong
Liong C. Sy (LILY SY) filed a Complaint[5] against petitioners DMC-USA, Paul E. Derby, Jr.,
[6]
Daniel Collins[7] and Luis Hidalgo,[8] and Dewey Ltd.[9] before the Regional Trial Court of
Malabon, Metro Manila. Private respondents predicated their complaint on the alleged
violations by petitioners of Arts. 20,[10] 21[11] and 23[12] of the Civil Code. According to
private respondents, DMC-USA products continued to be brought into the country by
parallel importers despite the appointment of private respondent MMI as the sole and
exclusive distributor of Del Monte products thereby causing them great embarrassment
and substantial damage. They alleged that the products brought into the country by
these importers were aged, damaged, fake or counterfeit, so that in March 1995 they
had to cause, after prior consultation with Antonio Ongpin, Market Director for Special
Markets of Del Monte Philippines, Inc., the publication of a "warning to the trade" paid
advertisement in leading newspapers. Petitioners DMC-USA and Paul E. Derby, Jr.,
apparently upset with the publication, instructed private respondent MMI to stop
coordinating with Antonio Ongpin and to communicate directly instead with petitioner
DMC-USA through Paul E. Derby, Jr.

Private respondents further averred that petitioners knowingly and surreptitiously

continued to deal with the former in bad faith by involving disinterested third parties
and by proposing solutions which were entirely out of their control. Private respondents
claimed that they had exhausted all possible avenues for an amicable resolution and
settlement of their grievances; that as a result of the fraud, bad faith, malice and
wanton attitude of petitioners, they should be held responsible for all the actual
expenses incurred by private respondents in the delayed shipment of orders which
resulted in the extra handling thereof, the actual expenses and cost of money for the
unused Letters of Credit (LCs) and the substantial opportunity losses due to created out-
of-stock situations and unauthorized shipments of Del Monte-USA products to the
Philippine Duty Free Area and Economic Zone; that the bad faith, fraudulent acts and
willful negligence of petitioners, motivated by their determination to squeeze private
respondents out of the outstanding and ongoing Distributorship Agreement in favor of
another party, had placed private respondent LILY SY on tenterhooks since then; and,
that the shrewd and subtle manner with which petitioners concocted imaginary
violations by private respondent MMI of the Distributorship Agreement in order to
justify the untimely termination thereof was a subterfuge. For the foregoing, private
respondents claimed, among other reliefs, the payment of actual damages, exemplary
damages, attorney's fees and litigation expenses.

On 21 October 1996 petitioners filed a Motion to Suspend Proceedings[13] invoking the

arbitration clause in their Agreement with private respondents.

In a Resolution[14] dated 23 December 1996 the trial court deferred consideration of

petitioners' Motion to Suspend Proceedings as the grounds alleged therein did not
constitute the suspension of the proceedings considering that the action was for
damages with prayer for the issuance of Writ of Preliminary Attachment and not on the
Distributorship Agreement.

On 15 January 1997 petitioners filed a Motion for Reconsideration to which private

respondents filed their Comment/Opposition. On 31 January 1997 petitioners filed
their Reply. Subsequently, private respondents filed an Urgent Motion for Leave to
Admit Supplemental Pleading dated 2 April 1997. This Motion was admitted, over
petitioners' opposition, in an Order of the trial court dated 27 June 1997.

As a result of the admission of the Supplemental Complaint, petitioners filed on 22 July

1997 a Manifestation adopting their Motion to Suspend Proceedings of 17 October 1996
and Motion for Reconsideration of 14 January 1997.

On 11 November 1997 the Motion to Suspend Proceedings was denied by the trial court

on the ground that it "will not serve the ends of justice and to allow said suspension will
only delay the determination of the issues, frustrate the quest of the parties for a
judicious determination of their respective claims, and/or deprive and delay their rights
to seek redress."[15]

On appeal, the Court of Appeals affirmed the decision of the trial court. It held that the
alleged damaging acts recited in the Complaint, constituting petitioners' causes of
action, required the interpretation of Art. 21 of the Civil Code [16] and that in determining
whether petitioners had violated it "would require a full blown trial" making arbitration
"out of the question."[17] Petitioners' Motion for Reconsideration of the affirmation was
denied. Hence, this Petition for Review.

The crux of the controversy boils down to whether the dispute between the parties
warrants an order compelling them to submit to arbitration.

Petitioners contend that the subject matter of private respondents' causes of action
arises out of or relates to the Agreement between petitioners and private respondents.
Thus, considering that the arbitration clause of the Agreement provides that all disputes
arising out of or relating to the Agreement or the parties' relationship, including the
termination thereof, shall be resolved by arbitration, they insist on the suspension of
the proceedings in Civil Case No. 2637-MN as mandated by Sec. 7 of RA 876 [18] -
Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue
arising out of an agreement providing for arbitration thereof, the court in which such
suit or proceeding is pending, upon being satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the agreement. Provided, That
the applicant for the stay is not in default in proceeding with such arbitration.
Private respondents claim, on the other hand, that their causes of action are
rooted in Arts. 20, 21 and 23 of the Civil Code,[19] the determination of which demands a
full blown trial, as correctly held by the Court of Appeals. Moreover, they claim that the
issues before the trial court were not joined so that the Honorable Judge was not given
the opportunity to satisfy himself that the issue involved in the case was referable to
arbitration. They submit that, apparently, petitioners filed a motion to suspend
proceedings instead of sending a written demand to private respondents to arbitrate
because petitioners were not sure whether the case could be a subject of arbitration.
They maintain that had petitioners done so and private respondents failed to answer
the demand, petitioners could have filed with the trial court their demand for
arbitration that would warrant a determination by the judge whether to refer the case
to arbitration. Accordingly, private respondents assert that arbitration is out of the
question.

Private respondents further contend that the arbitration clause centers more on venue
rather than on arbitration. They finally allege that petitioners filed their motion for
extension of time to file this petition on the same date [20] petitioner DMC-USA filed a
petition to compel private respondent MMI to arbitrate before the United States District
Court in Northern California, docketed as Case No. C-98-4446. They insist that the filing
of the petition to compel arbitration in the United States made the petition filed before
this Court an alternative remedy and, in a way, an abandonment of the cause they are
fighting for here in the Philippines, thus warranting the dismissal of the present petition
before this Court.

There is no doubt that arbitration is valid and constitutional in our jurisdiction. [21] Even
before the enactment of RA 876, this Court has countenanced the settlement of
disputes through arbitration. Unless the agreement is such as absolutely to close the
doors of the courts against the parties, which agreement would be void, the courts will
look with favor upon such amicable arrangement and will only interfere with great
reluctance to anticipate or nullify the action of the arbitrator. [22] Moreover, as RA 876
expressly authorizes arbitration of domestic disputes, foreign arbitration as a system of
settling commercial disputes was likewise recognized when the Philippines adhered to
the United Nations "Convention on the Recognition and the Enforcement of Foreign
Arbitral Awards of 1958" under the 10 May 1965 Resolution No. 71 of the Philippine
Senate, giving reciprocal recognition and allowing enforcement of international
arbitration agreements between parties of different nationalities within a contracting
state.[23]
A careful examination of the instant case shows that the arbitration clause in the
Distributorship Agreement between petitioner DMC-USA and private respondent MMI is
valid and the dispute between the parties is arbitrable. However, this Court must deny
the petition.

The Agreement between petitioner DMC-USA and private respondent MMI is a contract.
The provision to submit to arbitration any dispute arising therefrom and the relationship
of the parties is part of that contract and is itself a contract. As a rule, contracts are
respected as the law between the contracting parties and produce effect as between
them, their assigns and heirs.[24] Clearly, only parties to the Agreement, i.e., petitioners
DMC-USA and its Managing Director for Export Sales Paul E. Derby, Jr., and private
respondents MMI and its Managing Director LILY SY are bound by the Agreement and its
arbitration clause as they are the only signatories thereto. Petitioners Daniel Collins and
Luis Hidalgo, and private respondent SFI, not parties to the Agreement and cannot even
be considered assigns or heirs of the parties, are not bound by the Agreement and the
arbitration clause therein. Consequently, referral to arbitration in the State of California
pursuant to the arbitration clause and the suspension of the proceedings in Civil Case
No. 2637-MN pending the return of the arbitral award could be called for [25] but only as
to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY
SY, and not as to the other parties in this case, in accordance with the recent case
of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation,[26] which superseded that
of Toyota Motor Philippines Corp. v. Court of Appeals.[27]

In Toyota, the Court ruled that "[t]he contention that the arbitration clause has become
dysfunctional because of the presence of third parties is untenable ratiocinating that
"[c]ontracts are respected as the law between the contracting parties" [28] and that "[a]s
such, the parties are thereby expected to abide with good faith in their contractual
commitments."[29] However, in Salas, Jr., only parties to the Agreement, their assigns or
heirs have the right to arbitrate or could be compelled to arbitrate. The Court went
further by declaring that in recognizing the right of the contracting parties to arbitrate
or to compel arbitration, the splitting of the proceedings to arbitration as to some of the
parties on one hand and trial for the others on the other hand, or the suspension of trial
pending arbitration between some of the parties, should not be allowed as it would, in
effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay. [30]

The object of arbitration is to allow the expeditious determination of a dispute.

[31]
Clearly, the issue before us could not be speedily and efficiently resolved in its
entirety if we allow simultaneous arbitration proceedings and trial, or suspension of trial
pending arbitration. Accordingly, the interest of justice would only be served if the trial
court hears and adjudicates the case in a single and complete proceeding. [32]

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals affirming the
Order of the Regional Trial Court of Malabon, Metro Manila, in Civil Case No. 2637-MN,
which denied petitioners' Motion to Suspend Proceedings, is AFFIRMED. The Regional
Trial Court concerned is directed to proceed with the hearing of Civil Case No. 2637-MN
with dispatch. No costs.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 198226, July 18, 2014 ]
ABOITIZ TRANSPORT SYSTEM CORPORATION AND ABOITIZ
SHIPPING CORPORATION, PETITIONERS, VS. CARLOS A. GOTHONG
LINES, INC. AND VICTOR S. CHIONGBIAN, RESPONDENTS.

[G.R. NO. 198228]

ABOITIZ TRANSPORT SYSTEM CORPORATION, PETITIONER, VS.

CARLOS A. GOTHONG LINES, INC. AND VICTOR S. CHIONGBIAN,
RESPONDENTS.

DECISION

PERLAS-BERNABE, J.:

Assailed in these petitions for review on certiorari[1] are the Orders dated August
13, 2010,[2] April 15, 2011,[3] and July 6, 2011[4] of the Regional Trial Court of Cebu City,
Branch 20 (RTC) in Civil Case No. CEB-34951, which confirmed the notice of dismissal
filed by respondent Carlos A. Gothong Lines, Inc. (CAGLI) and, consequently, dismissed
the case without prejudice, denied petitioners Aboitiz Transport System Corporation
(ATSC) and Aboitiz Shipping Corporation’s (ASC) motion for reconsideration, and
deemed ATSC’s motion to exclude respondent Victor S. Chiongbian (respondent
Chiongbian) from arbitration moot and academic, respectively.

The Facts

ASC, CAGLI, and William Lines, Inc. (WLI), principally owned by the Aboitiz, Gothong, and
Chiongbian families, respectively, entered into an Agreement [5] dated January 8, 1996,
which was signed by Jon Ramon Aboitiz for ASC, Benjamin D. Gothong (Gothong) for
CAGLI, and respondent Chiongbian for WLI. In the said Agreement, ASC and CAGLI
agreed to transfer their shipping assets to WLI in exchange for the latter’s shares of
capital stock. The parties likewise agreed that WLI would run the merged shipping
business and be renamed “WG&A, Inc.” Pertinently, Section 11.06 of the Agreement
provides that all disputes arising out of or in connection with the Agreement shall be
finally settled by arbitration in accordance with Republic Act No. (RA) 876, otherwise
known as “The Arbitration Law,”[6] and that each of the parties shall appoint one
arbitrator, and the three arbitrators would then appoint the fourth arbitrator who shall
act as Chairman.

Among the attachments to the Agreement was a letter[7] dated January 8, 1996 written
by respondent Chiongbian and addressed to Gothong, stating that WLI committed to
acquire from CAGLI’s inventory certain spare parts and materials not exceeding P400
Million. In this relation, a valuation of CAGLI’s inventory was conducted wherein it was
shown that the same amounted to P514 Million.[8] Thereafter, WLI received inventory
valued at P558.89 Million, but only paid CAGLI the amount of P400 Million as agreed
upon in the Agreement.[9] Dissatisfied, CAGLI sent to WLI various letters in 2001,
demanding that the latter pay or return the inventory that it received in excess of P400
Million.[10]

Sometime in 2002, the Chiongbian and Gothong families decided to sell their respective
interests in WLI/WG&A to the Aboitiz family. This resulted in the execution of a Share
Purchase Agreement[11] whereby Aboitiz Equity Ventures (AEV) agreed to purchase and
acquire the WLI/WG&A shares of the Chiongbian and Gothong families. Thereafter, the
corporate name of WLI/WG&A was changed to ATSC. [12]

Six (6) years later, or in 2008, CAGLI sent a letter[13] dated February 14, 2008 to ATSC
demanding that the latter pay the excess inventory it delivered to WLI amounting to
P158,399,700.00. CAGLI likewise demanded AEV and respondent Chiongbian that they
refer their dispute to arbitration. [14] In response, AEV countered that the excess
inventory had already been returned to CAGLI and that it should not be included in the
dispute, considering that it is an entity separate and distinct from ATSC. [15] Thus, CAGLI
was constrained to file a complaint[16] before the RTC against Chiongbian, ATSC, ASC, and
AEV to compel them to submit to arbitration.

For their part, ATSC and AEV moved for the dismissal of the case, contending that CAGLI
did not have a cause of action for arbitration since its claim had already been paid or
otherwise, extinguished, and, in any event, said action had already prescribed. [17]

The RTC Proceedings

In an Order[18] dated December 4, 2009, the RTC dismissed the complaint only with
respect to AEV for lack of cause of action,[19] but not as to the other defendants.
Thereafter, the RTC issued an Order[20] dated February 26, 2010, directing CAGLI,
respondent Chiongbian, ATSC, and ASC to proceed to arbitration, and accordingly, the
parties appointed their respective arbitrators, with ATSC and ASC doing so only on
an ad cautelam basis.[21]

Meanwhile, ATSC filed a Motion for Reconsideration/To Exclude [22] dated March 25,
2010 praying that respondent Chiongbian be excluded from the arbitration proceedings
since the latter was not a party to the Agreement. Pending resolution of the said
motion, CAGLI filed a Notice of Dismissal[23] dated July 8, 2010, averring that it has
decided to withdraw its complaint in view of the fact that the opposing parties had not
filed their respective responsive pleadings.

In an Order[24] dated August 13, 2010, the RTC found CAGLI’s Notice of Dismissal
meritorious, and, thus, confirmed the same and ordered the case dismissed without
prejudice.

Dissatisfied, ATSC and ASC moved for reconsideration[25] which was, however, denied in
an Order[26] dated April 15, 2011. In said Order, the RTC cited Section 1 of Rule 17 of the
Rules of Court which allows the plaintiff to file a notice of dismissal of the complaint as a
matter of right “before service of the answer or a motion for summary judgment.” It
further ruled that, save for the condition that no answer or motion for summary
judgment had been priorly filed, nothing in the rules or law expressly prohibits or
restricts the right of the plaintiff to withdraw the complaint by mere notice of dismissal
at any stage of the proceedings.[27]
Separately, the RTC issued an Order[28] dated July 6, 2011, denying ATSC’s Motion for
Reconsideration/To Exclude, holding that the issue raised in the said motion has been
rendered moot and academic in view of the confirmation of CAGLI’s notice of dismissal.

Hence, the instant petitions.

The Issues Before the Court

The issues for the Court’s resolution are as follows: (a) whether or not the RTC was
correct in confirming CAGLI’s notice of dismissal and, consequently, dismissing the case
without prejudice; and (b) whether or not respondent Chiongbian should be excluded
from the arbitration proceedings.

The Court’s Ruling

The petition is meritorious.

A. Propriety of CAGLI’s Notice of Dismissal.

At the outset, the Court notes that the nature of the complaint filed by CAGLI before the
RTC is for the enforcement of an arbitration agreement, governed by Section 6 of RA
876, viz.:

Section 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.
x x x x (Emphasis supplied)

In the case of Gonzales v. Climax Mining, Ltd. (Gonzales),[29] the Court had instructed
that the special proceeding under the above-quoted provision is the procedural
mechanism for the enforcement of the contract to arbitrate. [30] RA 876 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. If there is such agreement, the court
shall issue an order summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof; otherwise, the proceeding shall be dismissed. [31] To
stress, such proceeding is merely a summary remedy to enforce the agreement to
arbitrate and the duty of the court is not to resolve the merits of the parties’ claims but
only to determine if they should proceed to arbitration or not. [32]

In the present case, the records show that the primary relief sought for in CAGLI’s
complaint, i.e., to compel the parties to submit to arbitration, [33] had already been
granted by the RTC through its Order[34] dated February 26, 2010. Undeniably, such
Order partakes of a judgment on the merits of the complaint for the enforcement of the
arbitration agreement.

At this point, although no responsive pleading had been filed by ATSC, [35] it is the rules
on appeal, or other proceedings after rendition of a judgment or final order – no longer
those on notice of dismissal – that come into play. Verily, upon the rendition of a
judgment or final order,[36] the period “before service of the answer or of a motion for
summary judgment,” mentioned in Section 1[37] of Rule 17 of the Rules of Court when a
notice of dismissal may be filed by the plaintiff, no longer applies. As a consequence, a
notice of dismissal filed by the plaintiff at such judgment stage should no longer be
entertained or confirmed.

In view of the foregoing, it was an error on the part of the RTC to have confirmed the
notice of dismissal and to have dismissed the complaint without prejudice.

B. Parties covered by Arbitration Proceedings.

Section 2 of RA 876 specifies who may be subjected to arbitration, to wit:

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

In Gonzales, the Court explained that “[d]isputes 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.” [38] Furthermore,
in Del Monte Corporation – USA v. Court of Appeals,[39] the Court stated that “[t]he
provision to submit to arbitration any dispute arising therefrom and the relationship of
the parties is part of that contract. As a rule, contracts are respected as the law between
the contracting parties and produce effect as between them, their assigns and
heirs.”[40] Succinctly put, only those parties who have agreed to submit a controversy to
arbitration who, as against each other, may be compelled to submit to arbitration.

In the present case, Section 11.06 of the Agreement, which embodies the Arbitration
Agreement among the parties, provides:

All disputes arising out of or in connection with this Agreement including any
issue as to this Agreement's validity or enforceability, which cannot be settled amicably
among the parties, shall be finally settled by arbitration in accordance with the
Arbitration Law (Republic Act No. 876) by an arbitration tribunal composed of four (4)
arbitrators. Each of the parties shall appoint one (1) arbitrator, the three (3) to appoint
the fourth arbitrator who shall act as Chairman. Any award by the arbitration tribunal
shall be final and binding upon the parties and shall be enforced by judgment of the
Courts of Cebu or Metro Manila. [41]

The three parties to the Agreement and necessarily to the arbitration agreement
embodied therein are: (a) ASC, (b) CAGLI, and (c) WLI/WG&A/ATSC. Contracts, like the
subject arbitration agreement, take effect only between the parties, their assigns and
heirs.[42] Respondent Chiongbian, having merely physically signed the Agreement as a
representative of WLI, is not a party thereto and to the arbitration agreement contained
therein. Neither is he an assignee or an heir of any of the parties to the arbitration
agreement. Hence, respondent Chiongbian cannot be included in the arbitration
proceedings.
WHEREFORE, the petitions are GRANTED. The Orders dated August 13, 2010, April 15,
2011, and July 6, 2011 of the Regional Trial Court of Cebu City, Branch 20 (RTC) in Civil
Case No. CEB-34951 are hereby REVERSED and SET ASIDE. The Order dated February 26,
2010 of the RTC is REINSTATED with MODIFICATION excluding Victor S. Chiongbian
from the arbitration proceedings.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 174938, October 01, 2014 ]
GERARDO LANUZA, JR. AND ANTONIO O. OLBES, PETITIONERS, VS.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C.
RAMOS, RUFO B. COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN
C. RAMOS, RESPONDENTS.

DECISION

LEONEN, J.:

Corporate representatives may be compelled to submit to arbitration

proceedings pursuant to a contract entered into by the corporation they represent if
there are allegations of bad faith or malice in their acts representing the corporation.

This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and
October 5, 2006 resolution. The Court of Appeals affirmed the trial court's decision
holding that petitioners, as directors, should submit themselves as parties to the
arbitration proceedings between BF Corporation and Shangri-La Properties, Inc.
(Shangri-La).

In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against
Shangri-La and the members of its board of directors: Alfredo C. Ramos, Rufo B. Colayco,
Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos.[1]

BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it
entered into agreements with Shangri-La wherein it undertook to construct for Shangri-
La a mall and a multilevel parking structure along EDSA.[2]

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

BF Corporation alleged that Shangri-La induced BF Corporation to continue with the

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

BF Corporation eventually completed the construction of the buildings. [7] Shangri-La

allegedly took possession of the buildings while still owing BF Corporation an
outstanding balance.[8]

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

On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III,
and Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF
Corporation's failure to submit its dispute to arbitration, in accordance with the
arbitration clause provided in its contract, quoted in the motion as follows: [11]

35. Arbitration

(1) Provided always that in case any dispute or difference shall arise between the Owner
or the Project Manager on his behalf and the Contractor, either during the progress or
after the completion or abandonment of the Works as to the construction of this
Contract or as to any matter or thing of whatsoever nature arising thereunder or in
connection therewith (including any matter or thing left by this Contract to the
discretion of the Project Manager or the withholding by the Project Manager of any
certificate to which the Contractor may claim to be entitled or the measurement and
valuation mentioned in clause 30(5)(a) of these Conditions or the rights and liabilities of
the parties under clauses 25, 26, 32 or 33 of these Conditions), the owner and the
Contractor hereby agree to exert all efforts to settle their differences or dispute
amicably. Failing these efforts then such dispute or difference shall be referred to
arbitration in accordance with the rules and procedures of the Philippine Arbitration
Law.

xxx xxx xxx

(6) The award of such Arbitrators shall be final and binding on the parties. The decision
of the Arbitrators shall be a condition precedent to any right of legal action that either
party may have against the other. . . .[12] (Underscoring in the original)

On August 19, 1993, BF Corporation opposed the motion to suspend proceedings. [13]

In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend
proceedings.[14]

On December 8, 1993, petitioners filed an answer to BF Corporation's complaint, with

compulsory counterclaim against BF Corporation and cross-claim against Shangri-La.
[15]
They alleged that they had resigned as members of Shangri-La's board of directors as
of July 15, 1991.[16]

After the Regional Trial Court denied on February 11, 1994 the motion for
reconsideration of its November 18, 1993 order, Shangri-La, Alfredo C. Ramos, Rufo B.
Colayco, Maximo G. Licauco III, and Benjamin Ramos filed a petition for certiorari with
the Court of Appeals.[17]

On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered
the submission of the dispute to arbitration. [18]

Aggrieved by the Court of Appeals' decision, BF Corporation filed a petition for review
on certiorari with this court.[19] On March 27, 1998, this court affirmed the Court of
Appeals' decision, directing that the dispute be submitted for arbitration. [20]

Another issue arose after BF Corporation had initiated arbitration proceedings. BF

Corporation and Shangri-La failed to agree as to the law that should govern the
arbitration proceedings.[21] On October 27, 1998, the trial court issued the order
directing the parties to conduct the proceedings in accordance with Republic Act No.
876.[22]

Shangri-La filed an omnibus motion and BF Corporation an urgent motion for

clarification, both seeking to clarify the term, "parties," and whether Shangri-La's
directors should be included in the arbitration proceedings and served with separate
demands for arbitration.[23]

Petitioners filed their comment on Shangri-La's and BF Corporation's motions, praying

that they be excluded from the arbitration proceedings for being non-parties to Shangri-
La's and BF Corporation's agreement.[24]

On July 28, 2003, the trial court issued the order directing service of demands for
arbitration upon all defendants in BF Corporation's complaint.[25] According to the trial
court, Shangri-La's directors were interested parties who "must also be served with a
demand for arbitration to give them the opportunity to ventilate their side of the
controversy, safeguard their interest and fend off their respective
positions."[26] Petitioners' motion for reconsideration of this order was denied by the
trial court on January 19, 2005.[27]

Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse
of discretion in the issuance of orders compelling them to submit to arbitration
proceedings despite being third parties to the contract between Shangri-La and BF
Corporation.[28]

In its May 11, 2006 decision,[29] the Court of Appeals dismissed petitioners' petition for
certiorari. The Court of Appeals ruled that Shangri-La's directors were necessary parties
in the arbitration proceedings.[30] According to the Court of Appeals:

[They were] deemed not third-parties to the contract as they [were] sued for
their acts in representation of the party to the contract pursuant to Art. 31 of the
Corporation Code, and that as directors of the defendant corporation, [they], in
accordance with Art. 1217 of the Civil Code, stand to be benefited or injured by the
result of the arbitration proceedings, hence, being necessary parties, they must be
joined in order to have complete adjudication of the controversy. Consequently, if [they
were] excluded as parties in the arbitration proceedings and an arbitral award is
rendered, holding [Shangri-La] and its board of directors jointly and solidarity liable to
private respondent BF Corporation, a problem will arise, i.e., whether petitioners will be
bound by such arbitral award, and this will prevent complete determination of the
issues and resolution of the controversy.[31]

The Court of Appeals further ruled that "excluding petitioners in the arbitration
proceedings . . . would be contrary to the policy against multiplicity of suits." [32]

The dispositive portion of the Court of Appeals' decision reads:

WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003
and January 19, 2005 of public respondent RTC, Branch 157, Pasig City, in Civil Case No.
63400, are AFFIRMED.[33]

The Court of Appeals denied petitioners' motion for reconsideration in the October 5,
2006 resolution.[34]

On November 24, 2006, petitioners filed a petition for review of the May 11, 2006 Court
of Appeals decision and the October 5, 2006 Court of Appeals resolution. [35]

The issue in this case is whether petitioners should be made parties to the arbitration
proceedings, pursuant to the arbitration clause provided in the contract between BF
Corporation and Shangri-La.

Petitioners argue that they cannot be held personally liable for corporate acts or
obligations.[36] The corporation is a separate being, and nothing justifies BF Corporation's
allegation that they are solidarity liable with Shangri-La.[37] Neither did they bind
themselves personally nor did they undertake to shoulder Shangri-La's obligations
should it fail in its obligations.[38] BF Corporation also failed to establish fraud or bad
faith on their part.[39]

Petitioners also argue that they are third parties to the contract between BF Corporation
and Shangri-La.[40] Provisions including arbitration stipulations should bind only the
parties.[41] Based on our arbitration laws, parties who are strangers to an agreement
cannot be compelled to arbitrate.[42]

Petitioners point out that our arbitration laws were enacted to promote the autonomy
of parties in resolving their disputes.[43] Compelling them to submit to arbitration is
against this purpose and may be tantamount to stipulating for the parties. [44]
Separate comments on the petition were filed by BF Corporation, and Maximo G.
Licauco III, Alfredo C. Ramos and Benjamin C. Ramos.[45]

Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners
that Shangri-La's directors, being non-parties to the contract, should not be made
personally liable for Shangri-La's acts.[46] Since the contract was executed only by BF
Corporation and Shangri-La, only they should be affected by the contract's stipulation.
[47]
BF Corporation also failed to specifically allege the unlawful acts of the directors that
should make them solidarity liable with Shangri-La for its obligations. [48]

Meanwhile, in its comment, BF Corporation argued that the courts' ruling that the
parties should undergo arbitration "clearly contemplated the inclusion of the directors
of the corporation[.]"[49]

BF Corporation also argued that while petitioners were not parties to the agreement,
they were still impleaded under Section 31 of the Corporation Code. [50] Section 31 makes
directors solidarity liable for fraud, gross negligence, and bad faith. [51] Petitioners are not
really third parties to the agreement because they are being sued as Shangri-La's
representatives, under Section 31 of the Corporation Code.[52]

BF Corporation further argued that because petitioners were impleaded for their
solidary liability, they are necessary parties to the arbitration proceedings. [53] The full
resolution of all disputes in the arbitration proceedings should also be done in the
interest of justice.[54]

In the manifestation dated September 6, 2007, petitioners informed the court that the
Arbitral Tribunal had already promulgated its decision on July 31, 2007. [55] The Arbitral
Tribunal denied BF Corporation's claims against them.[56] Petitioners stated that "[they]
were included by the Arbitral Tribunal in the proceedings conducted . . .
notwithstanding [their] continuing objection thereto. . . ." [57] They also stated that
"[their] unwilling participation in the arbitration case was done ex abundante ad
cautela, as manifested therein on several occasions."[58] Petitioners informed the court
that they already manifested with the trial court that "any action taken on [the Arbitral
Tribunal's decision] should be without prejudice to the resolution of [this] case." [59]

Upon the court's order, petitioners and Shangri-La filed their respective memoranda.
Petitioners and Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos
reiterated their arguments that they should not be held liable for Shangri-La's default
and made parties to the arbitration proceedings because only BF Corporation and
Shangri-La were parties to the contract.

In its memorandum, Shangri-La argued that petitioners were impleaded for their
solidary liability under Section 31 of the Corporation Code. Shangri-La added that their
exclusion from the arbitration proceedings will result in multiplicity of suits, which "is
not favored in this jurisdiction."[60] It pointed out that the case had already been mooted
by the termination of the arbitration proceedings, which petitioners actively
participated in.[61] Moreover, BF Corporation assailed only the correctness of the Arbitral
Tribunal's award and not the part absolving Shangri-La's directors from liability. [62]

BF Corporation filed a counter-manifestation with motion to dismiss [63] in lieu of the

required memorandum.

In its counter-manifestation, BF Corporation pointed out that since "petitioners'

counterclaims were already dismissed with finality, and the claims against them were
likewise dismissed with finality, they no longer have any interest or personality in the
arbitration case. Thus, there is no longer any need to resolve the present Petition, which
mainly questions the inclusion of petitioners in the arbitration proceedings." [64] The
court's decision in this case will no longer have any effect on the issue of petitioners'
inclusion in the arbitration proceedings. [65]

The petition must fail.

The Arbitral Tribunal's decision, absolving petitioners from liability, and its binding effect
on BF Corporation, have rendered this case moot and academic.

The mootness of the case, however, had not precluded us from resolving issues so that
principles may be established for the guidance of the bench, bar, and the public. In De la
Camara v. Hon. Enage,[66] this court disregarded the fact that petitioner in that case
already escaped from prison and ruled on the issue of excessive bails:

While under the circumstances a ruling on the merits of the petition for certiorari
is not warranted, still, as set forth at the opening of this opinion, the fact that this case is
moot and academic should not preclude this Tribunal from setting forth in language
clear and unmistakable, the obligation of fidelity on the part of lower court judges to the
unequivocal command of the Constitution that excessive bail shall not be required. [67]
This principle was repeated in subsequent cases when this court deemed it proper to
clarify important matters for guidance.[68]

Thus, we rule that petitioners may be compelled to submit to the arbitration

proceedings in accordance with Shangri-La and BF Corporation's agreement, in order to
determine if the distinction between Shangri-La's personality and their personalities
should be disregarded.

This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to
avoid litigation and settle disputes amicably and more expeditiously by themselves and
through their choice of arbitrators.

The policy in favor of arbitration has been affirmed in our Civil Code,[69] which was
approved as early as 1949. It was later institutionalized by the approval of Republic Act
No. 876,[70] which expressly authorized, made valid, enforceable, and irrevocable parties'
decision to submit their controversies, including incidental issues, to arbitration. This
court recognized this policy in Eastboard Navigation, Ltd. v. Ysmael and Company, Inc.:
[71]

As a corollary to the question regarding the existence of an arbitration

agreement, defendant raises the issue that, even if it be granted that it agreed to submit
its dispute with plaintiff to arbitration, said agreement is void and without effect for it
amounts to removing said dispute from the jurisdiction of the courts in which the
parties are domiciled or where the dispute occurred. It is true that there are authorities
which hold that "a clause in a contract providing that all matters in dispute between the
parties shall be referred to arbitrators and to them alone, is contrary to public policy
and cannot oust the courts of jurisdiction" (Manila Electric Co. vs. Pasay Transportation
Co., 57 Phil., 600, 603), however, there are authorities which favor "the more
intelligent view that arbitration, as an inexpensive, speedy and amicable method of
settling disputes, and as a means of avoiding litigation, should receive every
encouragement from the courts which may be extended without contravening sound
public policy or settled law" (3 Am. Jur., p. 835). Congress has officially adopted the
modern view when it reproduced in the new Civil Code the provisions of the old Code
on Arbitration. And only recently it approved Republic Act No. 876 expressly
authorizing arbitration of future disputes.[72] (Emphasis supplied)

In view of our policy to adopt arbitration as a manner of settling disputes, arbitration

clauses are liberally construed to favor arbitration. Thus, in LM Power Engineering
Corporation v. Capitol Industrial Construction Groups, Inc.,[73] this court said:

Being an inexpensive, speedy and amicable method of settling disputes,

arbitration — along with mediation, conciliation and negotiation — is encouraged by the
Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens the
resolution of disputes, especially of the commercial kind. It is thus regarded as the
"wave of the future" in international civil and commercial disputes. Brushing aside a
contractual agreement calling for arbitration between the parties would be a step
backward.

Consistent with the above-mentioned policy of encouraging alternative dispute

resolution methods, courts should liberally construe arbitration clauses. Provided such
clause is susceptible of an interpretation that covers the asserted dispute, an order to
arbitrate should be granted. Any doubt should be resolved in favor of arbitration.
[74]
(Emphasis supplied)

A more clear-cut statement of the state policy to encourage arbitration and to favor
interpretations that would render effective an arbitration clause was later expressed in
Republic Act No. 9285:[75]

SEC. 2. Declaration of Policy. - It is hereby declared the policy of the State to

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

....

SEC. 25. Interpretation of the Act. - In interpreting the Act, the court shall have due
regard to the policy of the law in favor of arbitration. Where action is commenced by
or against multiple parties, one or more of whom are parties who are bound by the
arbitration agreement although the civil action may continue as to those who are not
bound by such arbitration agreement. (Emphasis supplied)

Thus, if there is an interpretation that would render effective an arbitration clause for
purposes of avoiding litigation and expediting resolution of the dispute, that
interpretation shall be adopted.

Petitioners' main argument arises from the separate personality given to juridical
persons vis-a-vis their directors, officers, stockholders, and agents. Since they did not
sign the arbitration agreement in any capacity, they cannot be forced to submit to the
jurisdiction of the Arbitration Tribunal in accordance with the arbitration agreement.
Moreover, they had already resigned as directors of Shangri-La at the time of the
alleged default.

Indeed, as petitioners point out, their personalities as directors of Shangri-La are

separate and distinct from Shangri-La.

A corporation is an artificial entity created by fiction of law. [76] This means that while it is
not a person, naturally, the law gives it a distinct personality and treats it as such. A
corporation, in the legal sense, is an individual with a personality that is distinct and
separate from other persons including its stockholders, officers, directors,
representatives,[77] and other juridical entities.

The law vests in corporations rights, powers, and attributes as if they were natural
persons with physical existence and capabilities to act on their own. [78] For instance, they
have the power to sue and enter into transactions or contracts. Section 36 of the
Corporation Code enumerates some of a corporation's powers, thus:

Section 36. Corporate powers and capacity. - Every corporation incorporated

under this Code has the power and capacity:

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;

4. To amend its articles of incorporation in accordance with the provisions of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or
repeal the same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers and to sell
treasury stocks in accordance with the provisions of this Code; and to admit members to
the corporation if it be a non-stock corporation;

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of
other corporations, as the transaction of the lawful business of the corporation may
reasonably and necessarily require, subject to the limitations prescribed by law and
the Constitution;

8. To enter into merger or consolidation with other corporations as provided in this

Code;

9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no
corporation, domestic or foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;

10. To establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers and employees; and

11. To exercise such other powers as may be essential or necessary to carry out its
purpose or purposes as stated in its articles of incorporation. (13a)

Because a corporation's existence is only by fiction of law, it can only exercise its rights
and powers through its directors, officers, or agents, who are all natural persons. A
corporation cannot sue or enter into contracts without them.

A consequence of a corporation's separate personality is that consent by a corporation

through its representatives is not consent of the representative, personally. Its
obligations, incurred through official acts of its representatives, are its own. A
stockholder, director, or representative does not become a party to a contract just
because a corporation executed a )C contract through that stockholder, director or
representative.

Hence, a corporation's representatives are generally not bound by the terms of the
contract executed by the corporation. They are not personally liable for obligations and
liabilities incurred on or in behalf of the corporation.

Petitioners are also correct that arbitration promotes the parties' autonomy in
resolving their disputes. This court recognized in Heirs of Augusto Salas, Jr. v. Laperal
Realty Corporation[79] that an arbitration clause shall not apply to persons who were
neither parties to the contract nor assignees of previous parties, thus:

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

stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs.
But only they.[80] (Citations omitted)

Similarly, in Del Monte Corporation-USA v. Court of Appeals,[81] this court ruled:

The provision to submit to arbitration any dispute arising therefrom and the
relationship of the parties is part of that contract and is itself a contract. As a rule,
contracts are respected as the law between the contracting parties and produce effect
as between them, their assigns and heirs. Clearly, only parties to the Agreement . . . are
bound by the Agreement and its arbitration clause as they are the only signatories
thereto.[82] (Citation omitted)

This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals
Co., Inc.[83] and Stanfilco Employees v. DOLE Philippines, Inc., et al. [84]

As a general rule, therefore, a corporation's representative who did not personally bind
himself or herself to an arbitration agreement cannot be forced to participate in
arbitration proceedings made pursuant to an agreement entered into by the
corporation. He or she is generally not considered a party to that agreement.

However, there are instances when the distinction between personalities of directors,
officers, and representatives, and of the corporation, are disregarded. We call this
piercing the veil of corporate fiction.
Piercing the corporate veil is warranted when "[the separate personality of a
corporation] is used as a means to perpetrate fraud or an illegal act, or as a vehicle for
the evasion of an existing obligation, the circumvention of statutes, or to confuse
legitimate issues."[85] It is also warranted in alter ego cases "where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation." [86]

When corporate veil is pierced, the corporation and persons who are normally treated
as distinct from the corporation are treated as one person, such that when the
corporation is adjudged liable, these persons, too, become liable as if they were the
corporation.

Among the persons who may be treated as the corporation itself under certain
circumstances are its directors and officers. Section 31 of the Corporation Code provides
the instances when directors, trustees, or officers may become liable for corporate acts:

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who

willfully and knowingly vote for or assent to patently unlawful acts of the corporation or
who are guilty of gross negligence or bad faith in directing the affairs of the corporation
or acquire any personal or pecuniary interest in conflict with their duty as such directors
or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his

duty, any interest adverse to the corporation in respect of any matter which has been
reposed in him in confidence, as to which equity imposes a disability upon him to deal in
his own behalf, he shall be liable as a trustee for the corporation and must account for
the profits which otherwise would have accrued to the corporation, (n)

Based on the above provision, a director, trustee, or officer of a corporation may be

made solidarily liable with it for all damages suffered by the corporation, its
stockholders or members, and other persons in any of the following cases:

a) The director or trustee willfully and knowingly voted for or assented to a patently
unlawful corporate act;
b) The director or trustee was guilty of gross negligence or bad faith in directing
corporate affairs; and
c) The director or trustee acquired personal or pecuniary interest in conflict with his or
her duties as director or trustee.

Solidary liability with the corporation will also attach in the following instances:

a) "When a director or officer has consented to the issuance of watered stocks or who,
having knowledge thereof, did not forthwith file with the corporate secretary his written
objection thereto";[87]
b) "When a director, trustee or officer has contractually agreed or stipulated to hold
himself personally and solidarity liable with the corporation"; [88] and
c) "When a director, trustee or officer is made, by specific provision of law, personally
liable for his corporate action."[89]

When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these persons
and the corporation should be treated as one. Without a trial, courts and tribunals have
no basis for determining whether the veil of corporate fiction should be pierced. Courts
or tribunals do not have such prior knowledge. Thus, the courts or tribunals must first
determine whether circumstances exist to warrant the courts or tribunals to disregard
the distinction between the corporation and the persons representing it. The
determination of these circumstances must be made by one tribunal or court in a
proceeding participated in by all parties involved, including current representatives of
the corporation, and those persons whose personalities are impliedly the same as the
corporation. This is because when the court or tribunal finds that circumstances exist
warranting the piercing of the corporate veil, the corporate representatives are treated
as the corporation itself and should be held liable for corporate acts. The corporation's
distinct personality is disregarded, and the corporation is seen as a mere aggregation of
persons undertaking a business under the collective name of the corporation.

Hence, when the directors, as in this case, are impleaded in a case against a corporation,
alleging malice or bad faith on their part in directing the affairs of the corporation,
complainants are effectively alleging that the directors and the corporation are not
acting as separate entities. They are alleging that the acts or omissions by the
corporation that violated their rights are also the directors' acts or omissions. [90] They
are alleging that contracts executed by the corporation are contracts executed by the
directors. Complainants effectively pray that the corporate veil be pierced because the
cause of action between the corporation and the directors is the same.

In that case, complainants have no choice but to institute only one proceeding against
the parties. Under the Rules of Court, filing of multiple suits for a single cause of action
is prohibited. Institution of more than one suit for the same cause of action constitutes
splitting the cause of action, which is a ground for the dismissal of the others. Thus, in
Rule 2:

Section 3. One suit for a single cause of action. — A party may not institute more
than one suit for a single cause of action. (3a)

Section 4. Splitting a single cause of action; effect of. — If two or more suits are
instituted on the basis of the same cause of action, the filing of one or a judgment upon
the merits in any one is available as a ground for the dismissal of the others. (4a)

It is because the personalities of petitioners and the corporation may later be found to
be indistinct that we rule that petitioners may be compelled to submit to arbitration.

However, in ruling that petitioners may be compelled to submit to the arbitration

proceedings, we are not overturning Heirs of Angus to Salas wherein this court affirmed
the basic arbitration principle that only parties to an arbitration agreement may be
compelled to submit to arbitration.

In that case, this court recognized that persons other than the main party may be
compelled to submit to arbitration, e.g., assignees and heirs. Assignees and heirs may be
considered parties to an arbitration agreement entered into by their assignor because
the assignor's rights and obligations are transferred to them upon assignment. In other
words, the assignor's rights and obligations become their own rights and obligations. In
the same way, the corporation's obligations are treated as the representative's
obligations when the corporate veil is pierced.

Moreover, in Heirs of Angus to Salas, this court affirmed its policy against multiplicity of
suits and unnecessary delay. This court said that "to split the proceeding into
arbitration for some parties and trial for other parties would "result in multiplicity of
suits, duplicitous procedure and unnecessary delay."[91] This court also intimated that
the interest of justice would be best observed if it adjudicated rights in a single
proceeding.[92] While the facts of that case prompted this court to direct the trial court
to proceed to determine the issues of that case, it did not prohibit' courts from allowing
the case to proceed to arbitration, when circumstances warrant.

Hence, the issue of whether the corporation's acts in violation of complainant's rights,
and the incidental issue of whether piercing of the corporate veil is warranted, should
be determined in a single proceeding. Such finding would determine if the corporation is
merely an aggregation of persons whose liabilities must be treated as one with the
corporation.

However, when the courts disregard the corporation's distinct and separate personality
from its directors or officers, the courts do not say that the corporation, in all instances
and for all purposes, is the same as its directors, stockholders, officers, and agents. It
does not result in an absolute confusion of personalities of the corporation and the
persons composing or representing it. Courts merely discount the distinction and treat
them as one, in relation to a specific act, in order to extend the terms of the contract
and the liabilities for all damages to erring corporate officials who participated in the
corporation's illegal acts. This is done so that the legal fiction cannot be used to
perpetrate illegalities and injustices.

Thus, in cases alleging solidary liability with the corporation or praying for the piercing
of the corporate veil, parties who are normally treated as distinct individuals should be
made to participate in the arbitration proceedings in order to determine if such
distinction should indeed be disregarded and, if so, to determine the extent of their
liabilities.

In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed
to prove the existence of circumstances that render petitioners and the other directors
solidarity liable. It ruled that petitioners and Shangri-La's other directors were not liable
for the contractual obligations of Shangri-La to BF Corporation. The Arbitral Tribunal's
decision was made with the participation of petitioners, albeit with their continuing
objection. In view of our discussion above, we rule that petitioners are bound by such
decision.

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

SO ORDERED.
SECOND DIVISION
[ G.R. No. 198075, September 04, 2013 ]
KOPPEL, INC. (FORMERLY KNOWN AS KPL AIRCON, INC.),
PETITIONER, VS. MAKATI ROTARY CLUB FOUNDATION, INC.,
RESPONDENT.

DECISION

PEREZ, J.:

This case is an appeal[1] from the Decision[2] dated 19 August 2011 of the Court of

Appeals in C.A.-G.R. SP No. 116865.

The facts:

The Donation

Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning products, was

In 1975, FKI[5] bequeathed the subject land (exclusive of the improvements thereon) in

favor of herein respondent Makati Rotary Club Foundation, Incorporated by way of
a conditional donation.[6] The respondent accepted the donation with all of its conditions.
[7]
On 26 May 1975, FKI and the respondent executed a Deed of Donation[8] evidencing
their consensus.

The Lease and the Amended Deed of Donation

Pertinent terms of such lease agreement, as provided in the Deed of Donation, were as

follows:
1. The period of the lease is for twenty-five (25) years,[10] or until the 25th of May
2000;

2. The amount of rent to be paid by FKI for the first twenty-five (25) years is
P40,126.00 per annum.[11]

The Deed of Donation also stipulated that the lease over the subject property is renewable
for another period of twenty-five (25) years “upon mutual agreement” of FKI and the
respondent.[12] In which case, the amount of rent shall be determined in accordance with
item 2(g) of the Deed of Donation, viz:
g. The rental for the second 25 years shall be the subject of mutual agreement and in case
of disagreement the matter shall be referred to a Board of three Arbitrators appointed and
with powers in accordance with the Arbitration Law of the Philippines, Republic Act
878, whose function shall be to decide the current fair market value of the land excluding
the improvements, provided, that, any increase in the fair market value of the land shall
not exceed twenty five percent (25%) of the original value of the land donated as stated in
paragraph 2(c) of this Deed. The rental for the second 25 years shall not exceed three
percent (3%) of the fair market value of the land excluding the improvements as
determined by the Board of Arbitrators.[13]
In October 1976, FKI and the respondent executed an Amended Deed of Donation[14] that
reiterated the provisions of the Deed of Donation, including those relating to the lease of
the subject land.

Verily, by virtue of the lease agreement contained in the Deed of Donation and Amended

Deed of Donation, FKI was able to continue in its possession and use of the subject land.

2000 Lease Contract

Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed
of Donation was set to expire, or on 23 May 2000, FKI and respondent executed another
contract of lease (2000 Lease Contract)[15] covering the subject land. In this 2000 Lease
Contract, FKI and respondent agreed on a new five-year lease to take effect on the 26 th of
May 2000, with annual rents ranging from P4,000,000 for the first year up to P4,900,000
for the fifth year.[16]

The 2000 Lease Contract also contained an arbitration clause enforceable in the event the
parties come to disagreement about the “interpretation, application and execution” of the
lease, viz:
19. Governing Law – The provisions of this [2000 Lease Contract] shall be governed,
interpreted and construed in all aspects in accordance with the laws of the Republic of the
Philippines.

Any disagreement as to the interpretation, application or execution of this [2000

Notably, the 2005 Lease Contract contained an arbitration clause similar to that in

Any disagreement as to the interpretation, application or execution of this [2005

From 2005 to 2008, FKI faithfully paid the rentals and “donations” due it per the 2005
Lease Contract.[23] But in June of 2008, FKI sold all its rights and properties relative to its
business in favor of herein petitioner Koppel, Incorporated.[24] On 29 August 2008, FKI
and petitioner executed an Assignment and Assumption of Lease and Donation[25]—
wherein FKI, with the conformity of the respondent, formally assigned all of its interests
and obligations under the Amended Deed of Donation and the 2005 Lease Contract in
favor of petitioner.

The following year, petitioner discontinued the payment of the rent and “donation” under
the 2005 Lease Contract.

Petitioner’s refusal to pay such rent and “donation” emanated from its belief that the
rental stipulations of the 2005 Lease Contract, and even of the 2000 Lease Contract,
cannot be given effect because they violated one of the “material conditions” of the
donation of the subject land, as stated in the Deed of Donation and Amended Deed of
Donation.[26]
According to petitioner, the Deed of Donation and Amended Deed of Donation actually
established not only one but two (2) lease agreements between FKI and respondent, i.e.,
one lease for the first twenty-five (25) years or from 1975 to 2000, and another lease for
the next twenty-five (25) years thereafter or from 2000 to 2025.[27] Both leases are
material conditions of the donation of the subject land.

Petitioner points out that while a definite amount of rent for the second twenty-five (25)
year lease was not fixed in the Deed of Donation and Amended Deed of Donation, both
deeds nevertheless prescribed rules and limitations by which the same may be
determined. Such rules and limitations ought to be observed in any succeeding lease
agreements between petitioner and respondent for they are, in themselves, material
conditions of the donation of the subject land.[28]

In this connection, petitioner cites item 2(g) of the Deed of Donation and Amended Deed

The Demand Letters

On 1 June 2009, respondent sent a letter (First Demand Letter)[31] to petitioner notifying
the latter of its default “per Section 12 of the [2005 Lease Contract]” and demanding for
the settlement of the rent and “donation” due for the year 2009. Respondent, in the same
letter, further intimated of cancelling the 2005 Lease Contract should petitioner fail to
settle the said obligations.[32] Petitioner received the First Demand Letter on 2 June 2009.
[33]

On 22 September 2009, petitioner sent a reply[34] to respondent expressing its

disagreement over the rental stipulations of the 2005 Lease Contract—calling them
“severely disproportionate,” “unconscionable” and “in clear violation to the nominal
rentals mandated by the Amended Deed of Donation.” In lieu of the amount demanded
by the respondent, which purportedly totaled to P8,394,000.00, exclusive of interests,
petitioner offered to pay only P80,502.79,[35] in accordance with the rental provisions of
the Deed of Donation and Amended Deed of Donation.[36] Respondent refused this offer.
[37]
On 25 September 2009, respondent sent another letter (Second Demand Letter)[38] to
petitioner, reiterating its demand for the payment of the obligations already due under
the 2005 Lease Contract. The Second Demand Letter also contained a demand for
petitioner to “immediately vacate the leased premises” should it fail to pay such
obligations within seven (7) days from its receipt of the letter.[39] The respondent warned
of taking “legal steps” in the event that petitioner failed to comply with any of the said
demands.[40] Petitioner received the Second Demand Letter on 26 September 2009.[41]

Petitioner refused to comply with the demands of the respondent. Instead, on 30

September 2009, petitioner filed with the Regional Trial Court (RTC) of Parañaque City
a complaint[42] for the rescission or cancellation of the Deed of Donation and Amended
Deed of Donation against the respondent. This case is currently pending before Branch
257 of the RTC, docketed as Civil Case No. CV 09-0346.

The Ejectment Suit

On 5 October 2009, respondent filed an unlawful detainer case[43] against the petitioner

before the Metropolitan Trial Court (MeTC) of Parañaque City. The ejectment case was
raffled to Branch 77 and was docketed as Civil Case No. 2009-307.

On 4 November 2009, petitioner filed an Answer with Compulsory Counterclaim.[44] In it,

3. Assuming further that the MeTC has jurisdiction that it can exercise, ejectment
still would not lie as the 2005 Lease Contract is void ab initio.[49] The stipulation
in the 2005 Lease Contract requiring petitioner to give yearly “donations” to
respondent is a simulation, for they are, in fact, parts of the rent.[50] Such grants
were only denominated as “donations” in the contract so that the respondent—a
non-stock and non-profit corporation—could evade payment of the taxes
otherwise due thereon.[51]
In due course, petitioner and respondent both submitted their position papers, together
with their other documentary evidence.[52] Remarkably, however, respondent failed to
submit the Second Demand Letter as part of its documentary evidence.

Rulings of the MeTC, RTC and Court of Appeals

On 27 April 2010, the MeTC rendered judgment[53] in favor of the petitioner. While the
MeTC refused to dismiss the action on the ground that the dispute is subject to
arbitration, it nonetheless sided with the petitioner with respect to the issues regarding the
insufficiency of the respondent’s demand and the nullity of the 2005 Lease Contract.
[54]
The MeTC thus disposed:
WHEREFORE, judgment is hereby rendered dismissing the case x x x, without
pronouncement as to costs.

SO ORDERED.[55]
The respondent appealed to the Regional Trial Court (RTC). This appeal was assigned to
Branch 274 of the RTC of Parañaque City and was docketed as Civil Case No. 10-0255.

(1) to vacate the lease[d] premises made subject of the case and to restore the possession
thereof to the plaintiff-appellant;
(2) to pay to the plaintiff-appellant the amount of Nine Million Three Hundred Sixty Two
Thousand Four Hundred Thirty Six Pesos (P9,362,436.00), penalties and net of 5%
withholding tax, for the lease period from May 25, 2009 to May 25, 2010 and such monthly
rental as will accrue during the pendency of this case;
(3) to pay attorney’s fees in the sum of P100,000.00 plus appearance fee of P3,000.00;
(4) and costs of suit.

As to the existing improvements belonging to the defendant-appellee, as these were

built in good faith, the provisions of Art. 1678 of the Civil Code shall apply.

SO ORDERED.[57]
The ruling of the RTC is premised on the following ratiocinations:

1. The respondent had adequately complied with the requirement of demand as a

jurisdictional precursor to an unlawful detainer action.[58] The First Demand Letter,
in substance, contains a demand for petitioner to vacate when it mentioned that it
was a notice “per Section 12 of the [2005 Lease Contract].”[59] Moreover, the issue
of sufficiency of the respondent’s demand ought to have been laid to rest by
the Second Demand Letter which, though not submitted in evidence, was
nonetheless admitted by petitioner as containing a “demand to eject” in its Answer
with Compulsory Counterclaim.[60]

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease
Contract while, at the same time, impugn such contract’s validity.[61] Even
assuming that it can, petitioner still did not file a formal application before the
MeTC so as to render such arbitration clause operational.[62] At any rate, the MeTC
would not be precluded from exercising its jurisdiction over an action for unlawful
detainer, over which, it has exclusive original jurisdiction.[63]

3. The 2005 Lease Contract must be sustained as a valid contract since petitioner

was not able to adduce any evidence to support its allegation that the same is void.
[64]
There was, in this case, no evidence that respondent is guilty of any tax
evasion.[65]

Aggrieved, the petitioner appealed to the Court of Appeals.

On 19 August 2011, the Court of Appeals affirmed[66] the decision of the RTC:

WHEREFORE, the petition is DENIED. The assailed Decision of the Regional Trial
Court of Parañaque City, Branch 274, in Civil Case No. 10-0255 is AFFIRMED.

xxxx

SO ORDERED. [67]
Hence, this appeal.

On 5 September 2011, this Court granted petitioner’s prayer for the issuance of a
Temporary Restraining Order[68] staying the immediate implementation of the decisions
adverse to it.

OUR RULING

For this reason, We grant the petition.

Present Dispute is Arbitrable Under the Arbitration Clause of the 2005 Lease
Agreement Contract
Going back to the records of this case, it is discernable that the dispute between the
petitioner and respondent emanates from the rental stipulations of the 2005 Lease
Contract. The respondent insists upon the enforceability and validity of such stipulations,
whereas, petitioner, in substance, repudiates them. It is from petitioner’s apparent breach
of the 2005 Lease Contract that respondent filed the instant unlawful detainer action.

One cannot escape the conclusion that, under the foregoing premises, the dispute between
the petitioner and respondent arose from the application or execution of the 2005 Lease
Contract. Undoubtedly, such kinds of dispute are covered by the arbitration clause of
the 2005 Lease Contract to wit:
19. Governing Law – The provisions of this [2005 Lease Contract] shall be governed,
interpreted and construed in all aspects in accordance with the laws of the Republic of the
Philippines.

Any disagreement as to the interpretation, application or execution of this [2005

Lease Contract] shall be submitted to a board of three (3) arbitrators constituted in
accordance with the arbitration law of the Philippines. The decision of the majority
of the arbitrators shall be binding upon [FKI and respondent].[69] (Emphasis
supplied)
The arbitration clause of the 2005 Lease Contract stipulates that “any disagreement” as
to the “interpretation, application or execution” of the 2005 Lease Contract ought to be
submitted to arbitration.[70] To the mind of this Court, such stipulation is clear and is
comprehensive enough so as to include virtually any kind of conflict or dispute that may
arise from the 2005 Lease Contract including the one that presently besets petitioner and
respondent.

Challenges Against the Application of the Arbitration Clause of the 2005 Lease
Contract

At different points in the proceedings of this case, the following arguments were offered
against the application of the arbitration clause of the 2005 Lease Contract:
1. The disagreement between the petitioner and respondent is non-arbitrable as it will
inevitably touch upon the issue of the validity of the 2005 Lease Contract.[71] It
was submitted that one of the reasons offered by the petitioner in justifying its
failure to pay under the 2005 Lease Contract was the nullity of such contract for
being contrary to law and public policy.[72] The Supreme Court, in Gonzales v.
Climax Mining, Ltd.,[73] held that “the validity of contract cannot be subject of
arbitration proceedings” as such questions are “legal in nature and require the
application and interpretation of laws and jurisprudence which is necessarily a
judicial function.”[74]

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease
Contract while, at the same time, impugn such contract’s validity.[75]

3. Even assuming that it can invoke the arbitration clause whilst denying the validity
of the 2005 Lease Contract, petitioner still did not file a formal application before
the MeTC so as to render such arbitration clause operational.[76] Section 24 of
Republic Act No. 9285 requires the party seeking arbitration to first file a
“request” or an application therefor with the court not later than the preliminary
conference.[77]

4. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR)

proceedings before the RTC.[78] Hence, a further referral of the dispute to
arbitration would only be circuitous.[79] Moreover, an ejectment case, in view of its
summary nature, already fulfills the prime purpose of arbitration, i.e., to provide
parties in conflict with an expedient method for the resolution of their dispute.
[80]
Arbitration then would no longer be necessary in this case.[81]

None of the arguments have any merit.

In Gonzales, a complaint for arbitration was filed before the Panel of Arbitrators of the
Mines and Geosciences Bureau (PA-MGB) seeking the nullification of a Financial
Technical Assistance Agreement and other mining related agreements entered into by
private parties.[82] Grounds invoked for the nullification of such agreements include fraud
and unconstitutionality.[83] The pivotal issue that confronted the Court then was whether
the PA-MGB has jurisdiction over that particular arbitration complaint. Stated otherwise,
the question was whether the complaint for arbitration raises arbitrable issues that the
PA-MGB can take cognizance of.

Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of
any jurisdiction to take cognizance of the complaint for arbitration, this Court pointed out
to the provisions of R.A. No. 7942, or the Mining Act of 1995, which granted the PA-
MGB with exclusive original jurisdiction only over mining disputes, i.e., disputes
involving “rights to mining areas,” “mineral agreements or permits,” and “surface
owners, occupants, claimholders or concessionaires” requiring the technical knowledge
and experience of mining authorities in order to be resolved.[84] Accordingly, since the
complaint for arbitration in Gonzales did not raise mining disputes as contemplated under
R.A. No. 7942 but only issues relating to the validity of certain mining related
agreements, this Court held that such complaint could not be arbitrated before the PA-
MGB.[85] It is in this context that we made the pronouncement now in discussion:
Arbitration before the Panel of Arbitrators is proper only when there is a disagreement
between the parties as to some provisions of the contract between them, which needs the
interpretation and the application of that particular knowledge and expertise possessed by
members of that Panel. It is not proper when one of the parties repudiates the existence or
validity of such contract or agreement on the ground of fraud or oppression as in this
case. The validity of the contract cannot be subject of arbitration
proceedings. Allegations of fraud and duress in the execution of a contract are matters
within the jurisdiction of the ordinary courts of law. These questions are legal in nature
and require the application and interpretation of laws and jurisprudence which is
necessarily a judicial function.[86] (Emphasis supplied)
The Court in Gonzales did not simply base its rejection of the complaint for arbitration
on the ground that the issue raised therein, i.e., the validity of contracts, is per se non-
arbitrable. The real consideration behind the ruling was the limitation that was placed
by R.A. No. 7942 upon the jurisdiction of the PA-MGB as an arbitral
body. Gonzales rejected the complaint for arbitration because the issue raised therein is
not a mining dispute per R.A. No. 7942 and it is for this reason, and only for this reason,
that such issue is rendered non-arbitrable before the PA-MGB. As stated beforehand,
R.A. No. 7942 clearly limited the jurisdiction of the PA-MGB only to mining disputes.[87]

Much more instructive for our purposes, on the other hand, is the recent case of Cargill
Philippines, Inc. v. San Fernando Regal Trading, Inc.[88] In Cargill, this Court
answered the question of whether issues involving the rescission of a contract are
arbitrable. The respondent in Cargill argued against arbitrability, also citing
therein Gonzales. After dissecting Gonzales, this Court ruled in favor of arbitrability.
[89]
Thus, We held:
Respondent contends that assuming that the existence of the contract and the arbitration
clause is conceded, the CA's decision declining referral of the parties' dispute to
arbitration is still correct. It claims that its complaint in the RTC presents the issue of
whether under the facts alleged, it is entitled to rescind the contract with damages; and
that issue constitutes a judicial question or one that requires the exercise of judicial
function and cannot be the subject of an arbitration proceeding. Respondent cites our
ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of jurisdiction over
the complaint for declaration of nullity/or termination of the subject contracts on the
grounds of fraud and oppression attendant to the execution of the addendum contract and
the other contracts emanating from it, and that the complaint should have been filed with
the regular courts as it involved issues which are judicial in nature.

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

Under the doctrine of separability, an arbitration agreement is considered as independent

of the main contract.[92] Being a separate contract in itself, the arbitration agreement may
thus be invoked regardless of the possible nullity or invalidity of the main contract.[93]

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

SEC. 24. Referral to Arbitration. - A court before which an action is brought in a matter
which is the subject matter of an arbitration agreement shall, if at least one party
so requests not later that the pre-trial conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is
null and void, inoperative or incapable of being performed. [Emphasis ours; italics
original]
The “request” referred to in the above provision is, in turn, implemented by Rules 4.1 to
4.3 of A.M. No. 07-11-08-SC or the Special Rules of Court on Alternative Dispute
Resolution (Special ADR Rules):

RULE 4: REFERRAL TO ADR

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

Rule 4.2. When to make request. - (A) Where the arbitration agreement exists before the
action is filed. - The request for referral shall be made not later than the pre-trial
conference. After the pre-trial conference, the court will only act upon the request for
referral if it is made with the agreement of all parties to the case.

(B) Submission agreement. - If there is no existing arbitration agreement at the time the

case is filed but the parties subsequently enter into an arbitration agreement, they may
request the court to refer their dispute to arbitration at any time during the proceedings.

Rule 4.3. Contents of request. - The request for referral shall be in the form of a motion,
which shall state that the dispute is covered by an arbitration agreement.

Apart from other submissions, the movant shall attach to his motion an authentic copy of
the arbitration agreement.

The request shall contain a notice of hearing addressed to all parties specifying the date
and time when it would be heard. The party making the request shall serve it upon the
respondent to give him the opportunity to file a comment or opposition as provided in the
immediately succeeding Rule before the hearing. [Emphasis ours; italics original]
Attention must be paid, however, to the salient wordings of Rule 4.1. It reads: “[a] party
to a pending action filed in violation of the arbitration agreement x x x may request the
court to refer the parties to arbitration in accordance with such agreement.”

In using the word “may” to qualify the act of filing a “request” under Section 24 of R.A.
No. 9285, the Special ADR Rules clearly did not intend to limit the invocation of an
arbitration agreement in a pending suit solely via such “request.” After all, non-
compliance with an arbitration agreement is a valid defense to any offending suit and, as
such, may even be raised in an answer as provided in our ordinary rules of procedure.[95]

In this case, it is conceded that petitioner was not able to file a separate “request” of
arbitration before the MeTC. However, it is equally conceded that the petitioner, as early
as in its Answer with Counterclaim, had already apprised the MeTC of the existence of
the arbitration clause in the 2005 Lease Contract[96] and, more significantly, of its desire
to have the same enforced in this case.[97] This act of petitioner is enough valid invocation
of his right to arbitrate.

Fourth. The fact that the petitioner and respondent already underwent through JDR
proceedings before the RTC, will not make the subsequent conduct of arbitration between
the parties unnecessary or circuitous. The JDR system is substantially different from
arbitration proceedings.
The JDR framework is based on the processes of mediation, conciliation or early neutral
evaluation which entails the submission of a dispute before a “JDR judge” who shall
merely “facilitate settlement” between the parties in conflict or make a “non-binding
evaluation or assessment of the chances of each party’s case.”[98] Thus in JDR, the JDR
judge lacks the authority to render a resolution of the dispute that is binding upon the
parties in conflict. In arbitration, on the other hand, the dispute is submitted to
an arbitrator/s—a neutral third person or a group of thereof—who shall have the
authority to render a resolution binding upon the parties.[99]

Clearly, the mere submission of a dispute to JDR proceedings would not necessarily

render the subsequent conduct of arbitration a mere surplusage. The failure of the parties
in conflict to reach an amicable settlement before the JDR may, in fact, be supplemented
by their resort to arbitration where a binding resolution to the dispute could finally be
achieved. This situation precisely finds application to the case at bench.

Neither would the summary nature of ejectment cases be a valid reason to disregard the
enforcement of the arbitration clause of the 2005 Lease Contract. Notwithstanding the
summary nature of ejectment cases, arbitration still remains relevant as it aims not only to
afford the parties an expeditious method of resolving their dispute.

A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is,

first and foremost, a product of party autonomy or the freedom of the parties to “make
their own arrangements to resolve their own disputes.”[100] Arbitration agreements
manifest not only the desire of the parties in conflict for an expeditious resolution of their
dispute. They also represent, if not more so, the parties’ mutual aspiration to achieve such
resolution outside of judicial auspices, in a more informal and less antagonistic
environment under the terms of their choosing. Needless to state, this critical feature can
never be satisfied in an ejectment case no matter how summary it may be.

Having hurdled all the challenges against the application of the arbitration clause of
the 2005 Lease Agreement in this case, We shall now proceed with the discussion of its
legal effects.

Legal Effect of the Application of the Arbitration Clause

Since there really are no legal impediments to the application of the arbitration clause of
the 2005 Contract of Lease in this case, We find that the instant unlawful detainer action
was instituted in violation of such clause. The Law, therefore, should have governed the
fate of the parties and this suit:
R.A. No. 876

Section 7. Stay of civil action. - If any suit or proceeding be brought upon an issue arising
out of an agreement providing for the arbitration thereof, the court in which such suit or
proceeding is pending, upon being satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the agreement: Provided,
That the applicant for the stay is not in default in proceeding with such arbitration.
[Emphasis supplied]

R.A. No. 9285

Section 24. Referral to Arbitration. - A court before which an action is brought in a

matter which is the subject matter of an arbitration agreement shall, if at least one party
so requests not later that the pre-trial conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it finds that the arbitration agreement
is null and void, inoperative or incapable of being performed. [Emphasis supplied]
It is clear that under the law, the instant unlawful detainer action should have been
stayed;[101] the petitioner and the respondent should have been referred to arbitration
pursuant to the arbitration clause of the 2005 Lease Contract. The MeTC, however, did
not do so in violation of the law—which violation was, in turn, affirmed by the RTC and
Court of Appeals on appeal.

The violation by the MeTC of the clear directives under R.A. Nos. 876 and 9285 renders
invalid all proceedings it undertook in the ejectment case after the filing by petitioner of
its Answer with Counterclaim—the point when the petitioner and the respondent should
have been referred to arbitration. This case must, therefore, be remanded to the MeTC
and be suspended at said point. Inevitably, the decisions of the MeTC, RTC and the Court
of Appeals must all be vacated and set aside.

The petitioner and the respondent must then be referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract.

This Court is not unaware of the apparent harshness of the Decision that it is about to

make. Nonetheless, this Court must make the same if only to stress the point that, in our
jurisdiction, bona fide arbitration agreements are recognized as valid;[102] and that laws,
[103]
rules and regulations[104] do exist protecting and ensuring their enforcement as a
matter of state policy. Gone should be the days when courts treat otherwise valid
arbitration agreements with disdain and hostility, if not outright “jealousy,”[105] and then
get away with it. Courts should instead learn to treat alternative means of dispute
resolution as effective partners in the administration of justice and, in the case of
arbitration agreements, to afford them judicial restraint.[106] Today, this Court only
performs its part in upholding a once disregarded state policy.

Civil Case No. CV 09-0346

This Court recognizes the great possibility that issues raised in Civil Case No. CV 09-
0346 may involve matters that are rightfully arbitrable per the arbitration clause of
the 2005 Lease Contract. However, since the records of Civil Case No. CV 09-0346 are
not before this Court, We can never know with true certainty and only speculate.

In this light, let a copy of this Decision be also served to Branch 257 of the RTC of
Parañaque for its consideration and, possible, application to Civil Case No. CV 09-0346.

WHEREFORE, premises considered, the petition is hereby GRANTED. Accordingly,

We hereby render a Decision:

1. SETTING ASIDE all the proceedings undertaken by the Metropolitan Trial

Court, Branch 77, of Parañaque City in relation to Civil Case No. 2009-
307 after the filing by petitioner of its Answer with Counterclaim;

2. REMANDING the instant case to the MeTC, SUSPENDED at the point after the

filing by petitioner of its Answer with Counterclaim;

3. SETTING ASIDE the following:

a. Decision dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP

No. 116865,

b. Decision dated 29 October 2010 of the Regional Trial Court, Branch 274,
of Parañaque City in Civil Case No. 10-0255,

c. Decision dated 27 April 2010 of the Metropolitan Trial Court, Branch 77,
of Parañaque City in Civil Case No. 2009-307; and

4. REFERRING the petitioner and the respondent to arbitration pursuant to the

arbitration clause of the 2005 Lease Contract, repeatedly included in the 2000
Lease Contract and in the 1976 Amended Deed of Donation.

Let a copy of this Decision be served to Branch 257 of the RTC of Parañaque for its
consideration and, possible, application to Civil Case No. CV 09-0346.
No costs.

SO ORDERED.

FIRST DIVISION
[ G.R. No. 211044, July 24, 2019 ]
JACQUES A. DUPASQUIER AND CARLOS S. RUFINO FOR THEMSELVES
AND ON BEHALF OF THE NET GROUP, COMPOSED OF 19-1 REALTY
CORPORATION, 18-2 PROPERTY HOLDINGS, INC., 6-3 PROPERTY
HOLDINGS INC., ADD LAND, INC., REMEDIOS A. DUPASQUIER, PIERRE
DUPASQUIER, ANNA MARIE MORRONGIELLO, DELRUF REALTY &
DEVELOPMENT, INC., VAR BUILDINGS, INC., MARILEX REALTY,
ARESAR REALTY, SUNVAR, INC., MACARIO S. RUFINO, REMIGIO TAN,
JR., MA. AUXILIO R. PRIETO, MA. PAZ R. TANJANCO, RAMON D.
RUFINO, PAOLO R. PRIETO, VICENTE L. RUFINO, THERESA P.
VALDES, ALEXANDRA P. ROMUALDEZ, TERESA R. TAN, JAVIER
VICENTE RUFINO, CARLO D. RUFINO, LUIS CARLO R. LAUREL, MA.
ASUNCION L. UICHICO, MA. PAZ FARAH L. IMPERIAL, MA. ISABEL L.
BARANDIARAN, ALFREDO PARUNGAO, AND ALOYSIUS B. COLAYCO,
PETITIONERS, V. ASCENDAS (PHILIPPINES) CORPORATION,
RESPONDENT.

DECISION

JARDELEZA, J.:*

This is a petition for review on certiorari[1] under Rule 45 of the Rules of Court assailing
the Decision[2] dated April 3, 2012 and Resolution[3] dated January 27, 2014 of the Court
of Appeals (CA) in CA-G.R. CV No. 90835. The CA set aside the Order [4] dated
December 14, 2007 of Branch 59 of the Regional Trial Court (RTC) in Makati City, in
Civil Case No. 07-860, which declared, on summary judgment, that petitioners cannot be
compelled to arbitrate and petitioners are entitled to the Due Diligence L/C in the amount
of US$1,000,000.00.

Petitioners Jacques A. Dupasquier and Carlos S. Rufino, for themselves and on behalf of
The Net Group, composed of 19-1 Realty Corporation, 18-2 Property Holdings, Inc., 6-3
Property Holdings, Inc., Add Land, Inc., Remedios A. Dupasquier, Pierre Dupasquier,
Anna Marie Morrongiello, Delruf Realty & Development, Inc., VAR Buildings, Inc.,
Marilex Realty, Aresar Realty, Sunvar, Inc., Macario S. Rufino, Remigio Tan, Jr., Ma.
Auxilio R. Prieto, Ma. Paz R. Tanjanco, Ramon D. Rufino, Paolo R. Prieto, Vicente L.
Rufino, Theresa P. Valdes, Alexandra P. Romualdez, Teresa R. Tan, Javier Vicente
Rufino, Carlo D. Rufino, Luis Carlo R. Laurel, Ma. Asuncion L. Uichico, Ma. Paz Farah
L. Imperial, Ma. Isabel L. Barandiaran, Alfredo Parungao, and Aloysius B. Colayco
(collectively referred to as The Net Group) are corporations and individuals who grouped
together to engage in business as developer and operator of Philippine Economic Zone
Authority (PEZA)-accredited office buildings.[5]

Ascendas (Philippines) Corporation (Ascendas) is a corporation duly organized and

existing under Philippine laws.[6] It is engaged in the real estate industry, providing
business space solutions in Singapore, Philippines, and other Asian countries.[7]

On January 18, 2007, The Net Group and Ascendas entered into a Memorandum of
Understanding (MOU),[8] wherein the parties agreed in principle to Ascendas' acquisition
of the entire issued and outstanding shares of stock of the Net Corporations. The parties
agreed that the details of the contractual framework of their transaction will be contained
in the Definitive Agreements to be executed by the parties subsequent to the signing of
the MOU.[9] The parties stipulated that the Closing Date of the MOU shall be defined as
"two calendar weeks after the signing of the Memorandum of Agreement (MOA) but not
later than March 31, 2017."[10] The MOA is defined as the Memorandum of Agreement to
be signed by the parties on or before March 15, 2007, or such other date as may be
subsequently agreed upon by the parties in writing, and which, when signed, will
supersede the MOU.[11]

By way of security for full compliance with the provisions of the MOU, the parties
stipulated in Clause 5 that:

i. If Ascendas fails or refuses to sign the MOA without any justifiable reason,
including but not limited to an instance when: (1) it is given a Due
Diligence report showing no Relevant Findings; or (2) in case there are
Relevant Findings in the Due Diligence report and The Net Group issues a
certification that it shall cure and/or remedy all such Relevant Findings in
accordance with Clause 4(b) and/or as agreed upon by the Parties, then The
Net Group shall be authorized to draw upon the Due Diligence L/C upon
signing of the MOA or on March 31, 2007, whichever comes earlier:
provided, however, that The Net Group submits a certification to the
issuing bank that it is willing to execute the MOA upon submission by
Ascendas to The Net Group of the Transaction Price L/C, without need of
presenting or submitting a copy of the MOA to the said issuing bank. The
amount so drawn by The Net Group shall serve as liquidated damages in its
favor.

ii. If The Net Group fails or refuses to execute the MOA by March 31, 2007
without any justifiable reason, then The Net Group shall not be authorized
to draw down on the Due Diligence L/C and will be considered in breach of
this MOU.

iii. If the MOA is executed by the Parties on or before March 15, 2007, The
Net Group shall be authorized to draw upon the Due Diligence L/C on the
date of signing of the MOA and the amount so drawn shall form part of the
Transaction Price.[12]

The MOU likewise provided an Arbitration clause, as part of Clause 14 entitled

"Miscellaneous Provision," which reads:

i. Arbitration. In case of any dispute arising out of or in connection with this MOU,
the Parties agree to negotiate in good faith within a period of thirty (30) days after
written notice by one Party to the other Party of the existence of such dispute,
failing which the said dispute shall be referred to and finally resolved by
arbitration under the Rules of the United Nations Commission of International
Trade Law, which Rules are deemed to be incorporated by reference into this
Clause. The arbitration shall be held in Hong Kong. The language to be used in the
arbitration shall be English.[13] (Emphasis in the original.)

Likewise in Clause 14 of the MOU, the parties incorporated the effectivity of the MOU in
the following manner:

1. Effectivity. This MOU shall take effect upon the signing thereof and shall
continue to have force and effect unless earlier terminated pursuant to Clause 11
[Execution of Definitive Agreements] or until this is superseded by the execution
of the Definitive Agreements. Upon the termination or lapse of this MOU, the
MOU shall cease to have any force and effect except for Clause 14(e)
[Confidentiality], which shall survive and remain effective and enforceable.[14]

The parties appended, as Annex "C" of the MOU, a Transaction Timeline, to wit:

Particulars
Day 1 Signing of MOU
No later than Day 5 Delivery of Due Diligence L/C
No later than Day 7 Delivery of Ascendas of list of documents subject of Due
Diligence
No later than Day 14 Compilation and preparation of The Net Group of
requested documents
Day 1 to Day 42 Due Diligence Period

Negotiation on MOA

Negotiation on Definitive Agreements

No later than Day 45 Presentation of Due Diligence Findings to The Net Group
No later than Day 52 Discussion on Relevant Findings

The Net Group to decide whether to remedy or cure

Relevant Findings
Day 52 to 97 The Net Group to effect remedy or cure to (sic) Relevant
Findings
Within Day 45 to March 15, 2007 Signing of MOA and Drawdown on Due Diligence L/C
No later than March 31, 2007 Delivery of Transaction Price L/C

Signing of Project Development and Management

Agreement

Signing of Asset Management Agreement

Signing of Property Management Agreement

Signing of Executive Marketing Agreement

Signing of Lease Contract between The Net Group and

Ascendas

Signing of Deeds of Absolute Sale of Shares of Stock Net

One and/or Net Square]

Payment of Full Purchase Price of Net One and Net

Square and Initial Payment of Net Cube, Net Quad and
Net Five, if applicable

Drawdown on Due Diligence L/C (in case no MOA is

signed)
After March 15, 2007 / March 31, Payment of Balance Payments[15]
2007

In accordance with the MOU and the Transaction Timeline, Ascendas delivered to The
Net Group an irrevocable Letter of Credit (L/C) in the amount of US$1,000,000.00 or the
Due Diligence L/C specified in the MOU.[16] Thereafter, Ascendas began its due diligence
investigation on The Net Group.[17]

During the first quarter of 2007, Ascendas' Mr. Edwin Kung Wee Tack (Mr. Tack) sent
an electronic mail to The Net Group's Vice-President, Mr. Raymond Rufino (Mr.
Rufino), stating that Ascendas could not execute the MOA by the Closing Date because
the projected completion date of the due diligence is after March 31, 2007. Mr. Rufino
replied that the request for extension is unwarranted because the remaining items are
minor and can be resolved quickly. He, instead, offered to meet with Ascendas'
representatives in order to address the outstanding issues so the original timetable could
be observed.[18]

By March 31, 2007, the parties were not able to execute a MOA and Definitive
Agreements. They did not agree in writing to an extension of the Closing Date or a
revision of the Timetable.[19]

The Net Group informed Ascendas that they deemed the MOU as lapsed as of April 1,
2007. The Net Group, however, manifested their willingness to continue negotiations
with Ascendas on purely voluntary and non-exclusive basis.[20]

In its letters dated June 11, 2007,[21] July 26, 2007[22] and August 28, 2007,[23] Ascendas
informed The Net Group of its position that the MOU did not expire. Ascendas also
attributed the delay in the execution of the MOA to The Net Group. According to
Ascendas, The Net Group committed lapses in providing the information and
documentation necessary to complete its due diligence audit, and it failed to provide
Ascendas with a credible party nominated for representations and warranties on behalf of
the Dupasquier family.

On September 14, 2007, Ascendas wrote another letter to The Net Group specifying that
the parties have until September 28, 2007 to resolve the disputes between them,
otherwise, Ascendas will refer the dispute to arbitration.[24]

On September 18, 2007, The Net Group filed a petition[25] for declaratory relief with an
application for preliminary injunction/temporary restraining order (TRO) before the RTC
in Makati City. This was docketed as Civil Case No. 07-860. In its petition, The Net
Group alleged that Ascendas' demand to arbitrate is baseless. According to its
interpretation of the MOU, the Arbitration Clause would not survive the lapse of the
MOU on March 31, 2007 because the parties agreed that only the confidentiality clause
will survive the termination or lapse of the MOU. Hence, The Net Group pleaded for a
judicial declaration that the arbitration agreement contained in the MOU be declared
ineffective and that Ascendas can no longer compel The Net Group to submit to
arbitration pursuant to the relevant clause.[26] In addition, The Net Group sought for a
judicial declaration that it is already entitled to the Due Diligence L/C on the basis of the
MOU.[27] The case was raffled to Branch 59 of the RTC in Makati City.[28]

On September 25, 2007, the RTC granted The Net Group's prayer for the issuance of a
TRO.[29]

Ascendas filed an urgent omnibus motion to: (a) defer further proceedings, including the
hearing of petitioners' application for the issuance of a writ of preliminary injunction
pending the resolution of the omnibus motion; (b) dismiss the petition; and (c) reconsider
the issuance of the TRO.[30] The RTC denied the omnibus motion and set the hearing for
the application of preliminary injunction on October 9 and 10, 2007. Ascendas filed a
petition for certiorari before the CA, but the CA upheld the RTC's Orders.[31]

On October 17, 2007, Ascendas filed its answer ex abudanti ad cautelam with

compulsory counterclaim.[32] Ascendas claimed that the petition failed to state a cause of
action because petitioners' prayer that they be entitled to the cash equivalent of the Due
Diligence L/C requires a determination of whether a breach of the MOU was committed
is improper in a petition for declaratory relief. Also, it vehemently argued that the MOU
had not lapsed and assuming it had lapsed, the Arbitration Clause therein survived and
thus, the condition precedent, which is the referral to arbitration, for filing the claim was
not complied with.[33]

The Net Group filed a motion for summary judgment[34] with the RTC alleging that
Ascendas' defenses were purely legal in nature.

On December 14, 2007, the RTC promulgated its Decision[35] granting The Net Group's
motion for summary judgment, the fallo reads:

WHEREFORE, premises considered, summary judgment is hereby rendered in favor of

the petitioners and against the respondent in the following manner:

a) Declaring that respondent cannot compel petitioners to proceed to arbitration on the basis of
said arbitration clause;

b) Declaring that petitioners are entitled to the Due Diligence L/C in the amount of US
1,000,000.00;

c) Denying respondent's compulsory counter claim, prayer for attorney's fees and litigation
expenses for lack of merit; and

d) Making the injunction permanent.

SO ORDERED.[36]
Ascendas then filed a notice of appeal.

In the assailed Decision[37] dated April 3, 2012, the CA unanimously set aside the RTC's
Order dated December 14, 2007. It ruled that considering the separability doctrine
wherein the Arbitration Clause remains operative despite the termination of the contract,
the RTC cannot exercise jurisdiction over the dispute because the parties should have
referred the matter to arbitration. It likewise ruled that The Net Group's prayer to be
declared entitled to liquidated damages in their petition should have forewarned the RTC
that there has been a breach of the MOU, in which case, a petition for declaratory relief is
a procedural mistake.

Acting on The Net Group's motion for reconsideration, the members of the CA split their
votes: three in favor of the denial of the motion for reconsideration and two dissenting. [38]

Hence, this petition wherein The Net Group poses the following arguments:

THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS ERROR IN

THE ASSAILED DECISION AND RESOLUTION CONSIDERING THAT:

I. THE EXPIRATION OF THE MOU ALSO TERMINATED THE EFFECTIVITY OF

THE SUBJECT ARBITRATION CLAUSE;

II. THE PETITION FOR DECLARATORY RELIEF IN CIVIL CASE NO. 07-860 IS
PROPER AS THERE WAS NO BREACH OF THE MOU WHICH WAS THE
SUBJECT THEREOF; AND

III. THE SUMMARY JUDGMENT IN THE CIVIL CASE NO. 07-860 IS PROPER
CONSIDERING THAT THERE WAS NO GENUINE ISSUE OF FACT BEFORE
THE RTC.[39] (Emphasis in the original.)

We grant the petition.

The Net Group argues that the Arbitration Clause was time-limited, there being no
express reservation as to its continued applicability. It claims that the parties agreed to an
express termination date of the MOU including all the provisions thereof, except the
Confidentiality Clause 14(e). It alleges that such an agreement is not prohibited by law
and the courts are not free to substitute their own discretion.

Ascendas, on the other hand, claims that the CA correctly found that the parties did not
intend that the Arbitration Clause would end together with the MOU. Rather, the parties
intended to submit to arbitration any dispute arising out of or in connection with the
MOU. It states that the MOU's wordings are broad enough as to cover the issue of
whether the MOU had lapsed since it involves the interpretation and application of the
provisions of the contract.

Article 1370 of the Civil Code on the interpretation of contracts mandates that the literal
meaning of the stipulations shall prevail if the contract's terms are clear and leave no
doubt as to the intention of the contracting parties. If, however, the words of the contract
are contrary to the evident intention of the parties, the intention of the parties shall be
controlling. Thus:

Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former.

The foregoing rule was thoroughly discussed in Abad v. Goldloop Properties, Inc.:[40]

The cardinal rule in the interpretation of contracts is embodied in the first paragraph of
Article 1370 of the Civil Code: "[i]f the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulations shall
control". This provision is akin to the "plain meaning rule" applied by Pennsylvania
courts, which assumes that the intent of the parties to an instrument is "embodied in
the writing itself, and when the words are clear and unambiguous the intent is to be
discovered only from the express language of the agreement." It also resembles the
"four corners" rule, a principle which allows courts in some cases to search beneath the
semantic surface for clues to meaning. A court's purpose in examining a contract is to
interpret the intent of the contracting parties, as objectively manifested by them. The
process of interpreting a contract requires the court to make a preliminary inquiry as to
whether the contract before it is ambiguous. A contract provision is ambiguous if it is
susceptible of two reasonable alternative interpretations. Where the written terms of the
contract are not ambiguous and can only be read one way, the court will interpret the
contract as a matter of law. If the contract is determined to be ambiguous, then the
interpretation of the contract is left to the court, to resolve the ambiguity in the light of
the intrinsic evidence.[41] (Emphasis supplied; italics in the original; citations omitted.)

Thus, in interpreting a contract, the primary function of the court is to determine whether
its wordings are clear and unambiguous. If so, the court is bound to apply the literal
meaning of the contract because the manifest intention of the parties is apparent. If the
wordings, however, are ambiguous and may lead to different interpretations, the court
should determine the actual intention of the contracting parties.
In the present case, while there is no doubt that the parties intended that disputes be
referred to arbitration, the parties, nonetheless, are in conflict as to whether the
Arbitration Clause is time-limited.

It must be remembered that arbitration is a matter of contract and the parties cannot be
obliged to submit any dispute to arbitration, in the absence of their consent to submit
thereto.[42] The parties may lay their rights and liabilities in relation to the parties' resort to
arbitration in the contract. As any other agreements, the parties have freedom to establish
such stipulations, clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order and public policy.[43] The
parties may, therefore, agree as to the submission of the disputes to arbitration, the forum
of arbitration, the subject of arbitration and the termination of their arbitration agreement.

It is thus proper that a review of the following provisions of Clause 14 of the MOU be
conducted to determine the intention of the parties:

xxxx

1. Effectivity. This MOU shall take effect upon the signing thereof and shall
continue to have force and effect unless earlier terminated pursuant to Clause 11
[Execution of Definitive Agreements] or until this is superseded by the execution
of the Definitive Agreements. Upon the termination or lapse of this MOU, this
MOU shall cease to have any force and effect except for Clause 14(e)
[Confidentiality], which shall survive and remain effective and enforceable.
[44]
(Emphasis in the original.)

Using the guidelines for interpreting a contract, the literal meaning of Clause 14(e) of the
MOU is that the lapse of the MOU shall have an effect of making all its provisions,
except Clause 14(e) on Confidentiality, ineffectual. The MOU itself provides that its
"Closing Date" shall be two calendar weeks after the signing of the MOA, but not later
than March 31, 2007. Since no MOA was signed by the parties, the MOU lapsed on
March 31, 2007 by operation of the provisions of the MOU. Reading Clause 14(e) in
relation to the MOU's definition of "Closing Date", the MOU's provisions, including the
Arbitration Clause, shall be of no effect as of March 31, 2007. This is the manifest intent
of the contracting parties.

The complexity arose with Ascendas' application of the doctrine of separability in the
interpretation of the entire MOU. The doctrine of separability or severability enunciates
that an arbitration agreement is independent of the main contract. It denotes that the
invalidity of the main contract does not affect the validity of the arbitration agreement.
[45]
Ascendas espouses an argument that the Arbitration Clause remained valid despite the
lapse of the MOU.

We have to balance the application of this doctrine with the manifest intention of the
contracting parties. To our mind, this doctrine is relevant in the absence of the parties'
specific stipulation as to the Arbitration Clause's term of effectivity.

Indeed, We have adopted the doctrine of separability and ruled on its application as
recognition that arbitration may serve as an effective alternative mode of settling
disputes.

In Gonzales v. Climax Mining Ltd., respondent therein argued that the case should not be
brought to arbitration since it was claiming that the contract should be rescinded. There,
we held that "the validity of the contract containing the agreement to submit to arbitration
does not affect the applicability of the arbitration clause itself."[46]

In Cargill Philippines, Inc. v. San Fernando Regala Trading, Inc.,[47] we applied our
ruling in Gonzales by elaborating that 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."[48]

Lastly, in Koppel, Inc. v. Makati Rotary Club Foundation, Inc.[49] we acknowledged

therein petitioner's right to invoke the arbitration clause of its lease contract even if it was
assailing the validity of that contract.[50]

A review of those cases, however, reveals that one of the respective parties therein,
impugned the validity of the contract or unilaterally invoked the non-existence of the
"container contract" or the contract containing the arbitration clause. In stark contrast to
the present case, there was no agreement among the parties in the above-mentioned cases
to terminate the arbitration clause.
On this point, we note the Rhode Island Supreme Court's ruling in Radiation Oncology
Associates, Inc. v. Roger Williams Hospital.[51] In that case, the Court resolved the issue
of whether the parties intended to submit a dispute concerning the duration of their
service agreement to arbitrate. The agreement provided that it shall commence on
October 1, 2001 and shall terminate on December 31, 2004. It added that if an extension
or substitute contract is not signed by the parties prior to December 31, 2004, the
agreement shall be null and of no further effect. The Court held that the parties did not
intend to submit dispute to arbitration after the expiration of the service agreement, thus:

Our review of the services agreement leads us to conclude that the parties did not intend
to submit to arbitration disputes over the duration of their services agreement because the
terms of their agreement included a date certain for expiration. The final sentence to
paragraph 22(a) of the services agreement reads: "If an extension or substitute
contract is not signed by the parties prior to December 31, 2004, this Agreement
shall be null and void and of no further effect." As a matter of contract construction,
the strong and specific language of this expiration provision limited the reach of the
noticeably nonspecific language of the arbitration clause that "all disputes" arising under
the agreement "shall be settled by arbitration." See Crouch, 808 A.2d at 1079
(interpreting the broad language of arbitration provisions in a collective bargaining
agreement to be superseded by the more explicit provisions of a statute incorporated into
the agreement); accord Antonio Marcaccio, Inc. v. Santurri, 51 R.I. 440, 442, 155 A.
571, 572 (1931) (applying the rule that more specific contract provisions govern more
general ones in a dispute over a broker's commission); cf. 11 Samuel Williston, A
Treatise on the Law of Contracts § 32:15 at 509-10 (Richard A. Lord ed., West Group
4th ed. 1999) (indicating that, when interpreting a contract that contains contradictory
clauses, courts will typically give preference to the more specific of the two clauses).

It is true that this Court has voiced a preference in favor of arbitration as a particularly
efficacious alternative method of dispute resolution. See, e.g., Crouch, 808 A.2d at
1078; Brown v. Amaral, 460 A.2d 7, 10 (R.I. 1983); School Committee of Pawtucket v.
Pawtucket Teachers Alliance, 120 R.I. 810, 815, 390 A.2d 386, 389 (1978). But we do
not see our holding today as an affront to that principle, particularly in cases, such as that
under review, involving a challenge to the duration of a contract the terms of which
include an express expiration date. We observe that federal circuit courts similarly have
discounted the import of any "presumption" in favor of arbitration when called upon to
determine the arbitrability of duration disputes concerning contracts containing a date
certain for expiration. See Virginia Carolina Tools, Inc., 984 F.2d at 118 (holding that an
intent to arbitrate a duration dispute could not be inferred from an agreement that
contained a nonspecific arbitration clause and an express termination date
provision); National Railroad Passenger Corp. v. Boston and Maine Corp., 850 F.2d
756, 763-64 (D.C.Cir.1988) (holding that a party could overcome a broad arbitration
clause by showing an unambiguous expiration date); cf. Municipality of San Juan v.
Corporation Para el Fomento Economico de la Ciudad Capital, 415 F.3d 145, 150 & n.
8 (1st Cir.2005) (distinguishing Virginia Carolina Tools, Inc. because, in that case, the
contract at issue contained a more specific termination date). [52] (Emphasis supplied;
italics in the original.)

The language used in the subject service agreement of Radiation Oncology is somehow
identical with the MOU of the present case. In both cases, the parties incorporated a time-
limit to the agreement which gave rise to the eventual ineffectivity of the contract and its
provision. In no uncertain way that this time-limit refers to the non-signing of extension
or substitute contract before the expiration of a date certain. It is thus wise to rule that the
parties intended that the happening of the date certain would give no effect to all parts of
the MOU, including the Arbitration Clause. This ruling, however, should not be
understood as abandoning the doctrine of separability, but merely giving way to the
manifest intention of the contracting parties.

Moreover, the parties agreed to exempt the Confidentiality Clause in the effects of the
Closing Date is an indication of their intent. To our mind, this exception bolsters the
manifest intent of the parties to terminate the Arbitration Clause. The parties expressly
specified the provision of the contract that is not time-limited. Since the Arbitration
Clause is not one mentioned as an item to survive upon the termination or lapse of the
MOU, the only conclusion is that said provision has been deliberately included to be
time-limited. There is more reason for us to conclude that the parties manifested that the
Arbitration Clause should cease to effect simply because they incorporated a phrase
which would not be affected by the lapse of the period. If the parties intended the
Arbitration Clause to survive, there is no reason why they would not have so stated it
expressly.

To reiterate, where a contract is clear and unambiguous as to the intent of the parties, it is
the court's obligation to enforce its wordings accordingly. Thus, the Arbitration Clause of
the MOU ceased to have an effect by March 31, 2007 and should not be considered a
condition precedent prior to the filing of an appropriate case before our courts.

II.

We now proceed to discuss whether a declaratory relief is a proper recourse of the parties
in this case.

Declaratory relief is defined as an action by a person interested under a deed, will,

contract, or other written instrument whose rights are affected by a statute, executive
order or regulation, ordinance, or any other governmental regulation may, before breach
or violation thereof, bring an action in the appropriate Regional Trial Court to determine
any question or construction or validity arising, and for a declaration of his rights or
duties, thereunder.[53]
The requisites of an action for declaratory relief are: (i) the subject matter of the
controversy must be a deed, will, contract or other written instrument, statute, executive
order or regulation, or ordinance; (ii) the terms of said documents and the validity thereof
are doubtful and require judicial construction; (iii) there must have been no breach or the
"ripening seeds" of one between persons whose interests are adverse; (iv) there must be
an actual controversy or the "ripening seeds" of one between persons whose interests are
adverse; (v) the issue must be ripe for judicial determination; and (vi) adequate relief is
not available through other means or other forms of action or proceeding.[54]

The CA viewed that The Net Group's petition for declaratory relief is improper on the
ground that petitioners' purported claim for Due Diligence L/C is a claim for "liquidation
damages," which presupposes that a breach of the MOU has already been committed. The
CA stated that the court cannot take cognizance of a case for declaratory relief after a
breach of the subject contract has already been committed.[55]

The Net Group belies the CA's conclusion by asserting that it never claimed liquidated
damages in the context of the Civil Code and that it only sought for the interpretation of
the MOU's provision on Due Diligence L/C.

We reverse the findings of the CA on this matter.

Jurisdiction over the subject matter is conferred by the Constitution or by law, and is
determined by the allegations of the complaint and the relief prayed for, regardless of
whether the plaintiff is entitled to recover all or some of the claims. Jurisdiction is not
dependent on defendant's answer or motion to dismiss.[56]

Certainly, Rule 63 vests with the RTC the jurisdiction to hear petitions for declaratory
relief. The question now for our determination is whether the allegations in the initiatory
pleading and the character of the reliefs prayed for contemplate an action for declaratory
relief. It also requires us to resolve whether the initiatory pleading connotes a breach of
contract which removed the subject matter from the jurisdiction of the RTC over
declaratory relief. It is imperative, therefore, to examine the pertinent allegations in the
petition:

Factual Antecedents

3. On 18 January 2007, THE NET GROUP and Ascendas entered into a Memorandum of
Understanding where the parties agreed in principle to A[s]cendas' acquisition, either
directly or indirectly through qualified entities, of the entire issued and outstanding shares
of stock of THE NET GROUP companies. x x x
4. As stated in Section 1 of the MOU, the "Closing Date" was defined "two (2) weeks
after the signing of the MOA but not later than March 31, 2007." Section 11 of the MOU
provides:

xxxx

5. The MOU further provides that:

5. Security. By way of security for full compliance by both Parties with the provisions of
this MOU and/or the Definitive Agreements, each Party agrees to issue or grant the
following security to the other Party:

a. Within five (5) business days upon signing of this MOU, Ascendas
shall deliver to The Net Group the Due Diligence L/C in the amount
of US$1,000,000.00, in the form to The Net Group, to be issued by a
reputable bank duly licensed to conduct business within the
Philippines and acceptable to The Net Group.

i. If Ascendas fails or refuses to sign the MOA without any

justifiable reason, including but not limited to an instance
when: (1) it is given a Due Diligence report showing no
Relevant Findings; or (2) in case there are Relevant Findings
in accordance with Clause 4(b) and/or as agreed upon by the
Parties, then The Net Group shall be authorized to draw upon
the Due Diligence L/C upon the signing of the MOA or on
March 31, 2007, whichever comes earlier; provided, however,
the The Net Group submits a certification to the issuing bank
that it is willing to execute the MOA upon submission by
Ascendas to The Net Group of the Transaction Price L/C,
without need of presenting or submitting a copy of the MOA
to the said issuing bank. The amount so drawn by The Net
Group shall serve as liquidated damages in its favor.

xxxx

14(i) Arbitration. In case of any dispute arising out of or in connection with this MOU, the
Parties agree to negotiate in good faith within a period of thirty (30) days after written
notice by one Party to the other Party of the existence of such dispute, failing which the
said dispute shall be referred to and finally resolved by arbitration under the Rules of the
United Nations Commission of International Trade Law, which Rules are deemed to be
incorporated by reference into this Clause. The arbitrations shall be held in Hong Kong.
The language used in the arbitration shall be English.
14(l) Effectivity. This MOU shall take effect upon the signing thereof and shall continue to have
force and effect unless earlier terminated pursuant to Clause 11 or until this is superseded
by the execution of the Definitive Agreements. Upon the termination or lapse of this MOU,
this MOU shall cease to have any force and effect except for Clause 14(e), which shall
survive and remain effective and enforceable.

6. As of 31 March 2007, the parties failed to enter into any Definitive Agreement, or
agreements to implement the MOU. In a letter dated 21 May 2007, THE NET GROUP
informed respondent that due to the delay in the original timetable agreed upon, it
deemed the MOU to have lapsed as of 1 April 2007. THE NET GROUP, however, stated
that it would continue to negotiate with respondent, no longer under the MOU, but on
purely voluntary and non-exclusive basis.

7. A meeting thereafter ensued between petitioner Carlos S. Rufino, Mr. Nonoy Colayco
and respondent's Mr. Beng Khoeong Ong ("Mr. Ong"), the latter purporting to be
respondent's authorized representative in the signing negotiation and execution of the
MOU. Mr. Ong was also accompanied by respondent's Atty. Joel Cruz. At said meeting,
the parties already agreed to the release of a joint press statement to inform the public that
negotiations between the parties will no longer continue.

8. Thereafter, respondent's representatives requested THE NET GROUP to draft the joint
press statement and to process the release of the due diligence fund. Respondent further
asked THE NET GROUP to draft an agreement to be executed by the parties to confirm
the lapse of the MOU.

9. It was to THE NET GROUP'S shock and surprise that in letters dated 11 and 25 June
2007, and 28 August 2007, respondent, through Mr. Ong, suddenly took the position that
the MOU did not lapse, and that the delays were caused by THE NET GROUP.
Respondent further demanded that THE NET GROUP inhibit itself from negotiating with
other parties and finalize the MOU's implementing agreements. Worse, in its letter dated
25 July 2007, respondent sent THE NET GROUP its "final offer" for the purchase of the
shares of THE NET GROUP companies, with a threat that if THE NET GROUP would
not accept respondent's offer, the latter would bring the matter to arbitration.

Ground for Declaratory Relief

THE EFFECTIVITY OF THE MOU BETWEEN THE PARTIES LAPSED ON 31

MARCH 2007, AND THE PARTIES EXPRESSLY AGREED THAT EVEN THE
ARBITRATION CLAUSE WOULD NOT SURVIVE THE MOU. HENCE,
RESPONDENT CAN NO LONGER RELY ON SAID ARBITRATION CLAUSE
AND CANNOT COMPEL THE NET GROUP TO ARBITRATE.
THE NET GROUP IS ENTITLED TO THE FULL AMOUNT OF THE DUE
DILIGENCE L/C.

Discussion

The Effectivity of the Arbitration

Clause has lapsed. Thus, respondent
cannot compel THE NET GROUP to
arbitrate.

xxxx

THE NET GROUP is entitled to the
full amount of the Due Diligence
L/C.

18. The language of the MOU does not expressly and categorically deem the Due
Diligence L/C forfeited in favor of THE NET GROUP. It appears, however, that Section
5(a)(i) of the MOU entitles THE NET GROUP to the Due Diligence L/C as liquidated
damages, in the event that respondent fails to sign the MOA on 31 March 2007.

19. But respondent, at the time it initially confirmed the MOU to have lapsed, requested
for the return of the amount of the Due Diligence L/C. Respondent informed THE NET
GROUP that a return of the amount was necessary since the Due Diligence L/C, for all
intents and purposes, vested upon THE NET GROUP.

20. THE NET GROUP, however, believes that respondent, under the MOU, is not
entitled to the return of the monetary equivalent of the Due Diligence L/C. For THE NET
GROUP, the term used in the MOU, "Due Diligence L/C," describes its true intention, it
is respondent's payment to THE NET GROUP for gaining the right to look into, evaluate,
study a competitor's books, trade information and secrets. This is further supported by the
parties' intention to consider the Due Diligence L/C to represent liquidated damages due
to THE NET GROUP in the event no implementing agreement is signed by 31 March
2007.

21. Yet, the ambivalent language of the MOU causes THE NET GROUP to be cautious
as it is exposed to charges of misappropriation in the event that THE NET GROUP'S
interpretation of the MOU is mistaken. THE NET GROUP is even willing to consign the
amount of P48,000,000.00 (US$1,000,000.00) with this Honorable Court until the matter
is finally resolved. Accordingly, THE NET GROUP also comes to this Honorable Court
for a judicial declaration that it is already entitled to the Due Diligence L/C. [57] (Citations
omitted; emphasis in the original.)
It is apparent in the petition that The Net Group is merely seeking for the interpretation of
the MOU on two counts: (i) the applicability of the Arbitration Clause vis-à-vis the
Effectivity Clause; and (ii) the nature of the Due Diligence L/C - whether The Net Group
may automatically appropriate it under the tenor of the MOU. There is nothing in the
petition which connotes breach of contract. In so far as the wordings of the petition are
concerned, its allegations properly fall within the RTC's jurisdiction over a petition for
declaratory relief.

At any rate, the interpretation as to the actual meaning of the Due Diligence L/C in the
MOU falls within the ambit of declaratory relief, regardless of whether the ruling may be
granted in favor of The Net Group.

III.

The actual nature of the "Due Diligence L/C" may be determined in the wordings of the
MOU.

The Net Group's prayer to be declared entitled to Due Diligence L/C is founded on
Clause 5 in relation to Clause 4 and the Transaction Timeline allowing the "drawdown of
the Due Diligence L/C (in case no MOA is signed)" no later than March 31, 2007. The
doubtful provisions of Clauses 4 and 5 of the MOU state:

4. Due Diligence. Ascendas, through its authorized representatives, shall conduct the

Due Diligence Audit during the Due Diligence Period provided in Annex "C" of
this MOU. Upon commencement of the Due Diligence Period and subject to the
presentation by Ascendas of the Due Diligence L/C to The Net Group, The Net
Group shall make available to Ascendas all relevant information and data as may
be requested by Ascendas from time to time during the Due Diligence Audit
concerning the Assets for the purpose of confirming all information contained in
the Declaration Statement and other relevant records of the concerned Net
Corporation. x x x

xxxx

5. Security. By way of security for full compliance by both Parties with the
provisions of this MOU and/or the Definitive Agreements, each Party agrees to
issue or grant the following security to the other Party:

a. Within five (5) business days upon signing of this MOU, Ascendas shall deliver to The Net
Group the Due Diligence L/C in the amount of US$1,000,000.00, in the form acceptable to
The Net Group, to be issued by a reputable bank duly licensed to conduct business within the
Philippines and acceptable to The Net Group.
i. If Ascendas fails or refuses to sign the MOA without any justifiable reason, including but
not limited to an instance when: (1) it is given a Due Diligence report showing no Relevant
Findings; or (2) in case there are Relevant Findings in the Due Diligence report and The Net
Group issues a certification that it shall cure and/or remedy all such Relevant Findings in
accordance with Clause 4(b) and/or as agreed upon by the Parties, then The Net Group shall
be authorized to draw upon the Due Diligence L/C upon the signing of the MOA or on
March 31, 2007, whichever comes earlier; provided, however, that The Net Group submits
a certification to the issuing bank that it is willing to execute the MOA upon submission by
Ascendas to The Net Group of the Transaction Price L/C, without need of presenting or
submitting a copy of the MOA to the said issuing bank. The amount so drawn by The Net
Group shall serve as liquidated damages in its favor.[58] (Emphasis in the original.)

Also settled in this jurisdiction is the contract interpretation rule that "[the contract's]
provisions should not be read in isolation but in relation to each other and in their entirety
so as to render them effective, having in mind the intention of the parties and the purpose
to be achieved. The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken jointly.
[59]
Instead of resorting to extrinsic factors to determine the intent of the parties, the court
should first examine the contract in its entirety.

A reading of Clause 5 the MOU allows two interpretations: (i) The Net Group will only
be entitled to draw on the Due Diligence L/C should Ascendas fail or refuse to sign the
MOA without any justifiable reason: in which case the Due Diligence L/C server, as a
penalty for Ascendas' breach; and (ii) Ascendas has the option not to sign the MOA,
regardless of its reasons, provided that The Net Group will be allowed to draw on the
Due Diligence L/C, in which case Ascendas is not in breach but is merely exercising its
option to perform another prestation by paying the Due Diligence L/C instead of
proceeding with the execution of the MOA. If Clause 5 will be read together with Clause
4 and the Transaction Timeline, the actual intention of the parties will be revealed.

Clause 4 of the MOU states the purpose for which the Due Diligence L/C: this serves as
remuneration for The Net Group for allowing Ascendas to audit its business records. The
RTC's observation on this matter is convincing:

On the entitlement to and as to the true nature of the US$1,000,000.00, this Court so
holds that the said amount is in the nature of a fee given to petitioners for giving the
respondent the right to look into and evaluate their books, trade information and secrets,
and not liquidated damages.

From the name given to it, "Due Diligence L/C," it is descriptive of the parties' intention
to treat the same as payment to petitioners to conduct due diligence. As stipulated by the
parties, "Due Diligence L/C," under the definition of terms in their MOU, has reference
to section 5(a), which provides that the said amount shall be given to petitioners within 5
days from the signing of the MOU. The obligation of respondent to give the amount to
petitioners within 5 days from the signing of the MOU shows the intent of the parties to
treat it as payment to petitioners for the conduct of due diligence, and not as a penalty in
the form of liquidated damages.

x x x Since petitioners are already given the Due Diligence L/C upon the signing of the
MOU and because they are entitled to a drawdown no later than March 31, 2007 in case
no MOA is signed, entitlement to the amount is not dependent on whether a breach of
contract occurred.[60]

The Due Diligence L/C under Section 5(a) serves as an "exit" clause which allows the
parties to terminate the deal.[61] In mergers and acquisitions, this concept is commonly
referred to as break-up or walk-away fees, if it is the seller who terminated the deal, or
reverse break-up fees, if it is the buyer who failed to proceed with the agreement. The
clause on break-up fees allows the buyer to recoup some of its expenses if the seller
walks away or terminates the deal because of change in circumstances or the desire to
accept a better offer from another buyer. On the other hand, the reciprocal clause, or the
clause on reverse break-up fees, protects the seller by covering the latter's expenses
should the buyer walk away or default on a preliminary obligation or condition to
closing.[62]

To our mind, the RTC's interpretation is thus, more in consonance with the parties'
intention as to the real nature of the Due Diligence L/C. It is a remuneration to The Net
Group for the expenses it incurred when it opened its business to Ascendas' audit should
the latter opt out by not signing the MOA.

IV.

Lastly, we agree with the RTC that the conflict between the parties may be addressed in a
summary judgment pursuant to Rule 35 of the Rules of Court, to wit:

Sec. 1. Summary Judgment for claimant.— A party seeking to recover upon a claim,
counterclaim, or cross-claim or to obtain a declaratory relief may, at any time after the
pleading in answer thereto has been served, move with supporting affidavits, depositions
or admissions for a summary judgment in his favor upon all or any part thereof.

Under this provision, a summary judgment may be used to expedite the proceedings and
to avoid useless delays, when the pleadings, depositions, affidavits or admissions on file
show that there exists no genuine question or issue of fact in the case, and the moving
party is entitled to a judgment as a matter of law.[63]

Here, the parties merely presented issues as to the interpretation of the MOU. There was
therefore no genuine question or issue of fact that must be resolved using the presentation
of evidence. At most, the Court may rule on the interpretation of the contract by simply
reviewing its terms.
WHEREFORE, the petition is GRANTED. The assailed Decision dated April 3, 2012
and Resolution dated January 27, 2014 of the Court of Appeals are hereby SET ASIDE.

The Order of the RTC dated December 14, 2007 on the summary judgment in favor of
petitioners is REINSTATED. No costs.

SO ORDERED.

FIRST DIVISION
[ G.R. No. 196171, December 10, 2012 ]
RCBC CAPITAL CORPORATION, PETITIONER, VS. BANCO DE ORO
UNIBANK, INC., RESPONDENT.

[G.R. NO. 199238]

BANCO DE ORO UNIBANK, INC., PETITIONER, VS. COURT OF APPEALS

AND RCBC CAPITAL CORPORATION, RESPONDENTS.

DECISION

VILLARAMA, JR., J.:

Before the Court are two consolidated petitions separately filed by the parties in an
arbitration case administered by the International Chamber of Commerce-International
Court of Arbitration (ICC-ICA) pursuant to the arbitration clause in their contract.

The Case

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

In G.R. No. 199238,a petition for certiorari under Rule 65, Banco De Oro Unibank, Inc.
(BDO)assails the Resolution[3] dated September 13, 2011 in CA-G.R. SP No. 120888
which denied BDO’s application for the issuance of a stay order and/or temporary
restraining order (TRO)/preliminary injunction against the implementation of the Writ of
Execution[4] dated August 22, 2011 issued by the Makati City RTC, Branch 148 in SP
Proc. Case No. M-6046.

Factual Antecedents

On May 24, 2000, RCBC entered into a Share Purchase Agreement[5] (SPA) with
Equitable-PCI Bank, Inc. (EPCIB), George L. Go and the individual shareholders [6] of
Bankard, Inc. (Bankard) for the sale to RCBC of 226,460,000 shares (Subject Shares) of
Bankard, constituting 67% of the latter’s capital stock. After completing payment of the
contract price (P1,786,769,400), the corresponding deeds of sale over the subject shares
were executed in January 2001.

The dispute between the parties arose sometime in May 2003 when RCBC informed
EPCIB and the other selling shareholdersof an overpayment of the subject shares,
claiming there was an overstatement of valuation of accounts amounting to P478 million
and that the sellers violated their warrantyunder Section 5(g)of the SPA.[7]

As no settlement was reached, RCBC commenced arbitration proceedings with the ICC-
ICA in accordance with Section 10 of the SPA which states:

Section 10. Arbitration

Should there be any dispute arising between the parties relating to this Agreement
including the interpretation or performance hereof which cannot be resolved by
agreement of the parties within fifteen (15) days after written notice by a party to another,
such matter shall then be finally settled by arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce in force as of the time of
arbitration, by three arbitrators appointed in accordance with such rules. The venue of
arbitration shall be in Makati City, Philippines and the arbitration proceedings shall be
conducted in the English language. Substantive aspects of the dispute shall be settled by
applying the laws of the Philippines. The decision of the arbitrators shall be final and
binding upon the parties hereto and the expenses of arbitration (including without
limitation the award of attorney’s fees to the prevailing party) shall be paid as the
arbitrators shall determine.[8]

In its Request for Arbitration[9] dated May 12, 2004, Claimant RCBC charged Bankard
with deviating from and contravening generally accepted accounting principles and
practices, due to which the financial statements of Bankard prior to the stock purchase
were far from fair and accurate, and resulted in the overpayment of P556 million. For this
violation of sellers’representations and warranties under the SPA, RCBC sought its
rescission, as well as payment of actual damages in the amount of P573,132,110, legal
interest on the purchase price until actual restitution, moral damages and litigation and
attorney’s fees, with alternative prayer for award of damages in the amount of at least
P809,796,082 plus legal interest.

In their Answer,[10] EPCIB, Go and the other selling individual shareholders

(Respondents) denied RCBC’s allegations contending that RCBC’s claim is one for
overpayment or price reduction under Section 5(h) of the SPA which is already time-
barred, the remedy of rescission is unavailable, and even assuming that rescission is
permitted by the SPA, RCBC failed to file its claim within a reasonable time. They
further asserted that RCBC is not entitled to its alternative prayer for damages, being
guilty of laches and failing to set out the details of the breach as required under Section 7
of the SPA. A counterclaim for litigation expenses and costs of arbitration in the amount
of US$300,000, as well as moral and exemplary damages, was likewise raised by the
Respondents.

RCBC submitted a Reply[11] to the aforesaid Answer.

Subsequently, the Arbitration Tribunal was constituted. Mr. Neil Kaplan was nominated
by RCBC; Justice Santiago M. Kapunan (a retired Member of this Court) was nominated
by the Respondents; and Sir Ian Barker was appointed by the ICC-ICA as Chairman.

On August 13, 2004, the ICC-ICA informed the parties that they are required to pay
US$350,000 as advance on costs pursuant to Article 30 (3) of the ICC Rules of
Arbitration (ICC Rules). RCBC paid its share of US$107,000, the balance remaining
after deducting payments of US$2,500 and US$65,000 it made earlier. Respondents’
share of the advance on costs was thus fixed at US$175,000.

Respondents filed an Application for Separate Advances on Costs[12] dated September 17,

2004 under Article 30(2) of the ICC Rules, praying that the ICC fix separate advances on
the cost of the parties’ respective claims and counterclaims, instead of directing them to
share equally on the advance cost of Claimant’s (RCBC) claim. Respondents deemed this
advance cost allocation to be proper, pointing out that the total amount of RCBC’s claim
is substantially higher – more than 40 times –the total amount of their counterclaims, and
that it would be unfair to require them to share in the costs of arbitrating what is
essentially a price issue that is now time-barred under the SPA.

On September 20, 2004, the ICC-ICAinformed Respondents that their application for
separate advances on costs was premature pending the execution of the Terms of
Reference (TOR).[13] The TOR was settled by the parties and signed by the Chairman and
Members of the Arbitral Tribunal by October 11, 2004. On December 3, 2004, [14] the
ICC-ICA denied the application for separate advances on costs and invited anew the
Respondents to pay its share in the advance on costs.However, despite reminders from
the ICC-ICA, Respondents refused to pay their share in the advance cost fixed by the
ICC-ICA. On December 16, 2004, the ICC-ICA informed the parties that if Respondents
still failed to pay its share in the advance cost, it would apply Article 30(4) of the ICC
Rules and request the Arbitration Tribunal to suspend its work and set a new time limit,
and if such requested deposit remains unpaid at the expiry thereof, the counterclaims
would be considered withdrawn.[15]

In a fax-letter dated January 4, 2005, the ICC-ICA invited RCBC to pay the said amount
in substitution of Respondents.It also granted an extension until January 17, 2005 within
which to pay the balance of the advance cost (US$175,000). RCBC replied that it was not
willing to shoulder the share of Respondents in the advance on costs but nevertheless
requested for a clarification as to the effect of such refusal to substitute for Respondents’
share.[16]

On March 10, 2005, the ICC-ICA instructed the Arbitration Tribunal to suspend its work
and granted the parties a final time-limit of 15 days to pay the balance of the advance on
costs, failing which the claims shall be considered withdrawn, without prejudice to their
reintroduction at a later date in another proceeding. The parties were advised that if any
of them objects to the measure, it should make a request in writing within such period.
[17]
For the same reason of non-receipt of the balance of the advance cost, the ICC-ICA
issued Procedural Order No. 3 for the adjournment of the substantive hearings and
granting the Respondents a two-month extension within which to submit their brief of
evidence and witnesses.

RCBC objected to the cancellation of hearings, pointing out that Respondents have been
given ample time and opportunity to submit their brief of evidence and prepare for the
hearings and that their request for postponement serves no other purpose but to delay the
proceedings. It alleged that Respondents’ unjustified refusal to pay their share in the
advance on costs warrants a ruling that they have lost standing to participate in the
proceedings. It thus prayed that Respondents be declared as in default, the substantive
hearings be conducted as originally scheduled, and RCBC be allowed to submit rebuttal
evidence and additional witness statements.[18]

On December 15, 2005, the ICC-ICA notified the parties of its decision to increase the
advances on costs from US$350,000 to US$450,000 subject to later readjustments, and
again invited the Respondents to pay the US$100,000 increment within 30 days from
notice. Respondents, however, refused to pay the increment, insisting that RCBC should
bear the cost of prosecuting its own claim and that compelling the Respondents to fund
such prosecution is inequitable. Respondents reiterated that it was willing to pay the
advance on costs for their counterclaim.[19]

On December 27, 2005, the ICC-ICA advised that it was not possible to fix separate
advances on costs as explained in its December 3, 2004 letter, and again invited
Respondents to pay their share in the advance on costs.

Respondents’ response contained in the letter dated January 6, 2006 was still the same: it
was willing to pay only the separate advance on costs of their counterclaim. [20] In view of
Respondents’ continuing refusal to pay its equal share in the advanceon costs and
increment, RCBC wrote the ICC-ICA stating that the latter should compel the
Respondents to pay as otherwise RCBC will be prejudiced and the inaction of the ICC-
ICA and the Arbitration Tribunal will detract from the effectiveness of arbitration as a
means of settling disputes. In accordance with Article 30(4) of the ICC Rules, RCBC
reiterated its request to declare the Respondents as in default without any personality to
participate in the proceedings not only with respect to their counterclaims but also to the
claim of RCBC.[21]

Chairman Ian Barker, in a letter dated January 25, 2006, stated in part:

xxxx

2. The Tribunal has no power under the ICC Rules to order the Respondents to pay
the advance on costs sought by the ICC or to give the Claimant any relief against the
Respondents’ refusal to pay. The ICC Rules differ from, for example, the Rules of the
LCIA (Article 24.3) which enables a party paying the share of costs which the other party
has refused to pay, to recover “that amount as a debt immediately due from the defaulting
party.”

3. The only sanction under the ICC Rules is contained within Article 30 (4). Where a
request for an advance on costs has not been complied with, after consultation with the
Tribunal, the Secretary-General may direct the Tribunal to suspend its work. After expiry
of a time limit, all claims and counterclaims are then considered as withdrawn. This
provision cannot assist a Claimant who is anxious to litigate its claim. Such a Claimant
has to pay the sums requested (including the Respondents’ share) if it wishes the
arbitration to proceed.

4. It may be possible for a Claimant in the course of the arbitral hearing (or
whenever costs are being considered by the Tribunal) to make submissions based on
the failure of the Respondents to pay their share of the costs advance.What relief, if
any, would have to be then determined by the Tribunal after having heard
submissions from the Respondents.

5. I should be pleased if the Claimant will advise the Tribunal of its intention in relation
to the costs advance. If the costs are not paid, the arbitration cannot proceed. [22] (Italics in
the original; emphasis supplied)

RCBC paid the additional US$100,000 under the second assessment to avert suspension
of the Arbitration Tribunal’s proceedings.

Upon the commencement of the hearings, the Arbitration Tribunal decided that hearings
will be initially confined to issues of liability (liability phase) while the substantial issues
will be heard on a later date (quantum phase).

Meanwhile, EPCIB’s corporate name was officially changed to Banco De Oro (BDO)-
EPCIB after its merger with BDO was duly approved by the Securities and Exchange
Commission. As such, BDO assumed all the obligations and liabilities of EPCIB under
the SPA.

On September 27, 2007, the Arbitration Tribunal rendered a Partial Award [23] (First
Partial Award) in ICC-ICA Case No. 13290/MS/JB/JEM, as follows:

15 AWARD AND DIRECTIONS

15.1 The Tribunal makes the following declarations by way of Partial Award:

(a) The Claimant’s claim is not time-barred under the provisions of this SPA.
(b) The Claimant is not estopped by its conduct or the equitable doctrine of laches from
pursuing its claim.
(c) As detailed in the Partial Award, the Claimant has established the following breaches
by the Respondents of clause 5(g) of the SPA:
i) the assets, revenue and net worth of Bankard were overstated by reason of its
policy on and recognition of Late Payment Fees;
ii) reported receivables were higher than their realisable values by reason of the
‘bucketing’ method, thus overstating Bankard’s assets; and
iii) the relevant Bankard statements were inadequate and misleading in that their
disclosures caused readers to be misinformed about Bankard’s accounting policies
on revenue and receivables.
(d) Subject to proof of loss the Claimant is entitled to damages for the foregoing breaches.
(e) The Claimant is not entitled to rescission of the SPA.
(f) All other issues, including any issue relating to costs, will be dealt with in a further or
final award.

15.2 A further Procedural Order will be necessary subsequent to the delivery of this
Partial Award to deal with the determination of quantum and in particular, whether there
should be an Expert appointed by the Tribunal under Article 20(4) of the ICC Rules to
assist the Tribunal in this regard.

15.3 This Award is delivered by a majority of the Tribunal (Sir Ian Barker and Mr.
Kaplan). Justice Kapunan is unable to agree with the majority’s conclusion on the claim
of estoppel brought by the Respondents.[24] (Emphasis supplied)

On October 26, 2007, RCBC filed with the Makati City RTC, Branch 148 (SP Proc. Case
No. M-6046)amotion to confirm the First Partial Award, while Respondents filed a
motion to vacate the same.
ICC-ICA by letter[25] dated October 12, 2007 increased the advance on costs from
US$450,000 to US$580,000. Under this third assessment, RCBC paid US$130,000 as its
share on the increment. Respondents declined to pay its adjudged total share of
US$290,000 on account of its filing in the RTC of a motion to vacate the First Partial
Award.[26] The ICC-ICA then invited RCBC to substitute for Respondents in paying the
balance of US$130,000 by December 21, 2007.[27] RCBC complied with the
request,making its total payments in the amount of US$580,000.[28]

While RCBC paid Respondents’ share in the increment (US$130,000), it reiterated its
plea that Respondents be declared as in default and the counterclaims deemed as
withdrawn.[29]

Chairman Barker’s letter dated December 18, 2007 states in part:

8. x x x x

9. Contrary to the Complainant’s view, the Tribunal has no jurisdiction to

declare that the Respondents have no right to participate in the proceedings
concerning the claim. Article 30(4) of the ICC Rules applies only to any
counterclaim of the Respondents.

10. The Tribunal interprets the Claimant’s latest letter as an application

by the Claimant to the Tribunal for the issue of a partial award against
the Respondents in respect of their failure to pay their share of the
ICC’s requests for advance on costs.

11. I should be grateful if the Claimant would confirm that this is the situation.
If so, the Claimant should propose a timetable for which written
submissions should be made by both parties. This is an application which
can be considered by the Tribunal on written submissions.[30] (Emphasis
supplied)

RCBC, in a letter dated December 26, 2007, confirmed the Arbitration Tribunal’s
interpretation that it was applying for a partial award against Respondents’ failure to pay
their share in the advance on costs.[31]

Meanwhile, on January 8, 2008, the Makati City RTC, Branch 148 issued an order in SP
Proc. Case No. M-6046 confirming the First Partial Award and denying Respondents’
separate motions to vacate and to suspend and inhibit Barker and Kaplan. Respondents’
motion for reconsideration was likewise denied. Respondents directly filed with this
Court a petition for review on certiorari under Rule 45, docketed as G.R. No. 182248 and
entitled Equitable PCI Banking Corporation v. RCBC Capital Corporation.[32] In our
Decision dated December 18, 2008, we denied the petition and affirmed the RTC’s ruling
confirming the First Partial Award.

On January 18, 2008, the Arbitration Tribunal set a timetable for the filing of submission
by the parties on whether it should issue a Second Partial Award in respect of the
Respondents’ refusal to pay an advance on costs to the ICC-ICA.

In compliance, RCBC filed on February 7, 2008an Application for Reimbursement of

Advance on Costs Paid, praying for the issuance of a partial award directing the
Respondents to reimburse its payment in the amount of US$290,000 representing
Respondents’ share in the Advance on Costs and to consider Respondents’ counterclaim
for actual damages in the amount of US$300,000, and moral and exemplary damages as
withdrawn for their failure to pay their equal share in the advance on costs. RCBC
invoked the plain terms of Article 30 (2) and (3) to stress the liability of Respondents to
share equally in paying the advance on costs where the Arbitration Tribunal has fixed the
same.[33]

Respondents, on the other hand, filed their Opposition[34] to the said application alleging
that the Arbitration Tribunal has lost its objectivity in an unnecessary litigation over the
payment of Respondents’ share in the advance costs. They pointed out that RCBC’s letter
merely asked that Respondents be declared as in default for their failure to pay advance
costs but the Arbitration Tribunal, while denying the request offered an alternative to
RCBC: a Partial Award for Respondents’ share in the advance costs even if it was clear
from the language of RCBC’s December 11, 2007 letter that it had no intention of
litigating for the advance costs. Chairman Barker, after ruling earlier that it cannot grant
RCBC’s request to declare the Respondents as having no right to participate in the
proceedings concerning the claim, interpreted RCBC’s letter as an application for the
Arbitration Tribunal to issue a partial award in respect of such refusal of Respondents to
pay their share in the advance on costs, and subsequently directed the parties to make
submissions on the matter. Aside from violating their right to due process and to be heard
by an impartial tribunal, Respondents also argued that in issuing the award for advance
cost, the Arbitration Tribunal decided an issue beyond the terms of the TOR.

Respondents also emphasized that the parties agreed on a two-part arbitration: the first
part of the Tribunal’s proceedings would determine Respondents’ liability, if any, for
alleged violation of Section 5(g) and (h) of the SPA; and the second part of the
proceedings would determine the amounts owed by one party to another as a
consequence of a finding of liability or lack thereof. An award for “reimbursement of
advances for costs” clearly falls outside the scope of either proceedings. Neither can the
Tribunal justify such proceedings under Article 23 of the ICC Rules (Conservatory and
Interim Measures) because that provision does not contemplate an award for the
reimbursement of advance on costs in arbitration cases. Respondents further asserted that
since the advances on costs have been paid by the Claimant (RCBC), the main claim and
counterclaim may both be heard by the Arbitration Tribunal.

In his letter dated March 13, 2008, Chairman Barker advised the parties, as follows:

1. The Tribunal acknowledges the Respondents’ response to the Claimant’s

application for a Partial Award, based on the Respondents’ failure to pay
their share of the costs, as requested by the ICC.

2. The Tribunal notes that neither party has referred to an article by

Mat[t]hew Secomb on this very subject which appears in the ICC
Bulletin Vol. 14 No.1 (Spring 2003). To assist both sides and to ensure
that the Tribunal does not consider material on which the parties have not
been given an opportunity to address, I attach a copy of this article, which
also contains reference to other scholarly works on the subject.

3. The Tribunal will give each party seven days within which to submit
further written comments as a consequence of being alerted to the above
authorities.[35] (Additional emphasis supplied)

The parties complied by submitting their respective comments.

RCBC refuted Respondents’ allegation of partiality on the part of Chairman Barker and
reiterated the prayer in its application for reimbursement of advance on costs paid to the
ICC-ICA. RCBC contended that based on Mr. Secomb’s article, whether the
“contractual” or “provisional measures” approach is applied, the Arbitration Tribunal is
vested with jurisdiction and authority to render an award with respect to said
reimbursement of advance cost paid by the non-defaulting party.[36]

Respondents, on the other hand, maintained that RCBC’s application for reimbursement
of advance cost has no basis under the ICC Rules. They contended that no manifest
injustice can be inferred from an act of a party paying for the share of the defaulting party
as this scenario is allowed by the ICC Rules. Neither can a partial award for advance cost
be justified under the “contractual approach” since the matter of costs for arbitration is
between the ICC and the parties, not the Arbitration Tribunal and the parties. An
arbitration tribunal can issue decisions on costs only for those costs not fixed by the ICC.
[37]

Respondents reiterated their position that Article 30(3) envisions a situation whereby a
party would refuse to pay its share on the advance on costs and provides a remedy
therefor – the other party “shall be free to pay the whole of the advance on costs.” Such
party’s reimbursement for payments of the defaulting party’s share depends on the final
arbitral award where the party liable for costs would be determined. This is the only
remedy provided by the ICC Rules.[38]

On May 28, 2008, the Arbitration Tribunal rendered the Second Partial Award,[39] as
follows:

7 AWARD
7.1 Having read and considered the submissions of both parties, the Tribunal AWARDS,
DECLARES AND ORDERS as follows:
(a) The Respondents are forthwith to pay to the Claimant the sum of US$290,000.
(b) The Respondents’ counterclaim is to be considered as withdrawn.
(c) All other questions, including interest and costs, will be dealt with in a subsequent
award.[40]

The above partial award was received by RCBC and Respondents on June 12, 2008.

On July 11, 2008, EPCIB filed a Motion to Vacate Second Partial Award[41] in the Makati
City RTC, Branch 148 (SP Proc. Case No. M-6046). On July 10, 2008, RCBC filed in the
same court a Motion to Confirm Second Partial Award.[42]

EPCIB raised the following grounds for vacating the Second Partial Award: (a) the award
is void ab initio having been rendered by the arbitrators who exceeded their power or
acted without it; and (b) the award was procured by undue means or issued with evident
partiality or attended by misbehavior on the part of the Tribunal which resulted in a
material prejudice to the rights of the Respondents. EPCIB argued that there is no express
agreement either in the SPA or the ICC Rules for such right of reimbursement. There is
likewise no implied agreement because from the ICC Rules, the only inference is that the
parties agreed to await the dispositions on costs liability in the Final Award, not before.

On the ruling of the Arbitration Tribunal that Respondents’ application for costs are not
counterclaims, EPCIB asserted that this is contrary to Philippine law as it is basic in our
jurisdiction that counterclaims for litigation expenses, moral and exemplary damages are
proper counterclaims, which rule should be recognized in view of Section 10 of the SPA
which provides that “substantive aspects of the dispute shall be settled by applying the
laws of the Philippines.” Finally, EPCIB takes issue with Chairman Barker’s
interpretation of RCBC’s December 11, 2007 letter as an application for a partial award
for reimbursement of the substituted payments. Such conduct of Chairman Barker is
prejudicial and proves his evident partiality in favor of RCBC.

RCBC filed its Opposition,[43] asserting that the Arbitration Tribunal had jurisdiction to
consider Respondents’ counterclaim as withdrawn, the same having been abandoned by
not presenting any computation or substantiation by evidence, their only computation
relates only to attorney’s fees which are simply cost of litigation properly brought at the
conclusion of the arbitration. It also pointed out that the Arbitration Tribunal was
empowered by the parties’ arbitral clause to determine the manner of payment of
expenses of arbitration, and that the Second Partial Award was based on authorities and
treatiseson the mandatory and contractual nature of the obligation to pay advances on
costs.

In its Reply,[44] EPCIB contended that RCBC had the option to agree to its proposal for
separate advances on costs but decided against it; RCBC’s act of paying the balance of
the advance cost in substitution of EPCIB was for the purpose of having EPCIB defaulted
and the latter’s counterclaim withdrawn. Having agreed to finance the arbitration until its
completion, RCBC is not entitled to immediate reimbursement of the amount it paid in
substitution of EPCIB under an interim award, as its right to a partial or total
reimbursement will have to be determined under the final award. EPCIB asserted that the
matter of reimbursement of advance cost paid cannot be said to have properly arisen
during arbitration. EPCIB reiterated that Chairman Barker’s interpretation of RCBC’s
December 11, 2007 letter as an application for interim award for reimbursement is
tantamount to a promise that the award will be issued in due course.

After a further exchange of pleadings, and other motions seeking relief from the court in
connection with the arbitration proceedings (quantum phase), the Makati City RTC,
Branch 148 issued the Order[45] dated June 24, 2009 confirming the Second Partial Award
and denying EPCIB’s motion to vacate the same. Said court held that since the parties
agreed to submit any dispute under the SPA to arbitration and to be bound by the ICC
Rules, they are also bound to pay in equal shares the advance on costs as provided in
Article 30 (2) and (3). It noted that RCBC was forced to pay the share of EPCIB in
substitution of the latter to prevent a suspension of the arbitration proceedings, while
EPCIB’s non-payment seems more like a scheme to delay such proceedings. On the
Arbitration Tribunal’s ruling on EPCIB’s counterclaim, no error was committed in
considering it withdrawn for failure of EPCIB to quantify and substantiate it with
supporting evidence. As to EPCIB’s claim for attorney’s fees, the RTC agreed that these
should be brought only at the close of arbitration.

EPCIB moved to reconsider the June 24, 2009 Order and for the voluntary inhibition of
the Presiding Judge (Judge Oscar B. Pimentel) on the ground that EPCIB’s new counsel
represented another client in another case before him in which said counsel assailed his
conduct and had likewise sought his inhibition. Both motions were denied in the Joint
Order[46] dated March 23, 2010.

On April 14, 2010, EPCIB filed in the CA a petition for review[47] with application for
TRO and/or writ of preliminary injunction (CA-G.R. SP No. 113525) in accordance with
Rule 19, Section 4 of the Special Rules of Court on Alternative Dispute
Resolution[48] (Special ADR Rules). EPCIB assailed the Makati City RTC, Branch 148 in
denying its motion to vacate the Second Partial Award despite (a) said award having been
rendered in excess of jurisdiction or power, and contrary to public policy; (b) the fact that
it was issued with evident partiality and serious misconduct; (c) the award deals with a
dispute not contemplated within the terms of submission to arbitration or beyond the
scope of such submission, which therefore ought to be vacated pursuant to Article 34 of
the UNCITRAL Model Law; and (d) the Presiding Judge having exhibited bias and
prejudice against BDO and its counsel as confirmed by his pronouncements in the Joint
Order dated March 23, 2010 in which, instead of recusing himself, he imputed malice and
unethical conduct in the entry of appearance of Belo Gozon Elma Asuncion and Lucila
Law Offices in SP Proc. Case No. M-6046, which warrants his voluntary inhibition.

Meanwhile, on June 16, 2010, the Arbitration Tribunal issued the Final Award,[49] as
follows:

15 AWARD

15.1 The Tribunal by a majority (Sir Ian Barker & Mr. Kaplan) awards, declares and adjudges as
follows:
(a) the Respondents are to pay damages to the Claimant for breach of the sale and
purchase agreement for Bankard shares in the sum of P348,736,920.29.
(b) The Respondents are to pay to the Claimant the sum of US$880,000 in respect of the
costs of the arbitration as fixed by the ICC Court.
(c) The Respondents are to pay to the Claimant the sum of US$582,936.56 for the fees and
expenses of Mr. Best.
(d) The Respondents are to pay to the Claimant their expenses of the arbitration as follows:
(i) Experts’ fees P7,082,788.55
(ii) Costs of without prejudice meeting P22,571.45
(iii) Costs of arbitration hearings P553,420.66
(iv) Costs of transcription service P483,597.26
Total P8,144,377.62
(e) The Respondents are to pay to the Claimant the sum of P7,000,000 for party-and-party
legal costs.
(f) The Counterclaims of the Respondents are all dismissed.
(g) All claims of the Claimant are dismissed, other than those referred to above.
15.2 Justice Kapunan does not agree with the majority of the members of the Tribunal and has
issued a dissenting opinion. He has refused to sign this Award.[50]

On July 1, 2010 BDO filed in the Makati City RTC a Petition to Vacate Final Award Ad
Cautelam,[51] docketed as SP Proc. Case No. M-6995, which was raffled to Branch 65.

On July 28, 2010, RCBC filed with the Makati City RTC, Branch 148 (SP Proc. Case No.
M-6046) a Motion to Confirm Final Award.[52] BDO filed its Opposition With Motion to
Dismiss[53] on grounds that a Petition to Vacate Final Award Ad Cautelam had already
been filed in SP Proc. Case No. M-6995. BDO also pointed out that RCBC did not file
the required petition but instead filed a mere motion which did not go through the process
of raffling to a proper branch of the RTC of Makati City and the payment of the required
docket/filing fees.Even assuming that Branch 148 has jurisdiction over RCBC’s motion
to confirm final award, BDO asserted that RCBC had filed before the Arbitration
Tribunal an Application for Correction and Interpretation of Award under Article 29 of
the ICC Rules, which is irreconcilable with its Motion to Confirm Final Award before
said court. Hence, the Motion to Confirm Award was filed precipitately.

On August 18, 2010, RCBC filed an Omnibus Motion in SP Proc. Case No. M-6995
(Branch 65) praying for the dismissal of BDO’s Petition to Vacate Final Award or the
transfer of the same to Branch 148 for consolidation with SP Proc. Case No. M-6046.
RCBC contended that BDO’s filing of its petition with another court is a blatant violation
of the Special ADR Rules and is merely a subterfuge to commit forum-shopping. BDO
filed its Opposition to the Omnibus Motion.[54]

On October 28, 2010, Branch 65 issued a Resolution[55] denying RCBC’s omnibus motion

and directing the service of the petition to RCBC for the latter’s filing of a comment
thereon. RCBC’s motion for reconsideration was likewise denied in the said court’s
Order dated December 15, 2010. RCBC then filed its Opposition to the Petition to Vacate
Final Award Ad Cautelam.

Meanwhile, on November 10, 2010, Branch 148 (SP Proc. Case No. M-6046) issued an
Order[56] confirming the Final Award “subject to the correction/interpretation thereof by
the Arbitral Tribunal pursuant to the ICC Rules and the UNCITRAL Model Law,” and
denying BDO’s Opposition with Motion to Dismiss.

On December 30, 2010, George L. Go, in his personal capacity and as attorney-in-fact of
the other listed shareholders of Bankard, Inc. in the SPA (Individual Shareholders), filed
a petition in the CA, CA-G.R. SP No. 117451, seeking to set aside the above-cited
November 10, 2010 Order and to enjoin Branch 148 from further proceeding in SP Proc.
Case No. M-6046. By Decision[57] dated June 15, 2011, the CA dismissed the said
petition. Their motion for reconsideration of the said decision was likewise denied by the
CA in its Resolution[58] dated December 14, 2011.

On December 23, 2010, the CA rendered its Decision in CA-G.R. SP No. 113525, the
dispositive portion of which states:

WHEREFORE, premises considered, the following are hereby REVERSED and SET

ASIDE:

1. the Order dated June 24, 2009 issued in SP Proc. Case No. M-6046 by the
Regional Trial Court of Makati City, Branch 148, insofar as it denied the
Motion to Vacate Second Partial Award dated July 8, 2008 and granted the
Motion to Confirm Second Partial Award dated July 10, 2008;
2. the Joint Order dated March 23, 2010 issued in SP Proc. Case No. M-6046
by the Regional Trial Court of Makati City, Branch 148, insofar as it denied
the Motion For Reconsideration dated July 28, 2009 relative to the motions
concerning the Second Partial Award immediately mentioned above; and

3. the Second Partial Award dated May 28, 2008 issued in International
Chamber of Commerce Court of Arbitration Reference No.
13290/MS/JB/JEM.

SO ORDERED.[59]

RCBC filed a motion for reconsideration but the CA denied the same in its
Resolution[60] dated March 16, 2011. On April 6, 2011, it filed a petition for review on
certiorari in this Court (G.R. No. 196171).

On February 25, 2011, Branch 65 rendered a Decision[61] in SP Proc. Case No. M-6995,
as follows:

WHEREFORE, premises considered, the Final Award dated June 16, 2010 in ICC Ref.
No. 13290/MS/JB/JEM is hereby VACATED with cost against the respondent.

SO ORDERED.[62]

In SP Proc. Case No. M-6046, Branch 148 issued an Order[63] dated August 8, 2011
resolving the following motions: (1) Motion for Reconsideration filed by BDO, Go and
Individual Shareholders of the November 10, 2010 Order confirming the Final Award;
(2) RCBC’s Omnibus Motion to expunge the motion for reconsideration filed by Go and
Individual Shareholders, and for execution of the Final Award; (3) Motion for Execution
filed by RCBC against BDO; (4) BDO’s Motion for Leave to File Supplement to the
Motion for Reconsideration; and (5) Motion for Inhibition filed by Go and Individual
Shareholders. Said Order decreed:

WHEREFORE, premises considered, it is hereby ORDERED, to wit:

1. Banco De Oro’s Motion for Reconsideration, Motion for Leave to File Supplement to
Motion for Reconsideration, and Motion to Inhibit are DENIED for lack of merit.

2. RCBC Capital’s Motion to Expunge, Motion to Execute against Mr. George L. Go and
the Bankard Shareholders, and the Motion to Execute against Banco De Oro are
hereby GRANTED.

3. The damages awarded to RCBC Capital Corporation in the amount of

PhP348,736,920.29 is subject to an interest of 6% per annum reckoned from the date of
RCBC Capital’s extra-judicial demand or from May 5, 2003 until the confirmation of the
Final Award. Likewise, this compounded amount is subject to 12% interest per annum
from the date of the confirmation of the Final Award until its satisfaction. The costs of
the arbitration amounting to US$880,000.00, the fees and expenses of Mr. Best
amounting to US$582,936.56, the Claimant’s expenses of the arbitration amounting to
PhP8,144,377.62, and the party-and-party legal costs amounting to PhP7,000,000.00 all
ruled in favor of RCBC Capital Corporation in the Final Award of the Arbitral Tribunal
dated June 16, 2010 are subject to 12% legal interest per annum, also reckoned from the
date of the confirmation of the Final Award until its satisfaction.

4. Pursuant to Section 40 of R.A. No. 9285, otherwise known as the Alternative Dispute
Resolution Act of 2004 in relation to Rule 39 of the Rules of Court, since the Final
Award have been confirmed, the same shall be enforced in the same manner as final and
executory decisions of the Regional Trial Court, let a writ of execution be issued
commanding the Sheriff to enforce this instant Order confirming this Court’s Order dated
November 10, 2010 that judicially confirmed the June 16, 2010 Final Award.

SO ORDERED.[64]

Immediately thereafter, RCBC filed an Urgent Motion for Issuance of a Writ of

Execution.[65] On August 22, 2011, after approving the execution bond, Branch 148
issued a Writ of Execution for the implementation of the said court’s “Order dated
August 8, 2011 confirming the November 10, 2010

Order that judicially confirmed the June 16, 2010 Final Award x x x.”[66]

BDO then filed in the CA, a “Petition for Review (With Application for a Stay Order or
Temporary Restraining Order and/or Writ of Preliminary Injunction,” docketed as CA-
G.R. SP No. 120888. BDO sought to reverse and set aside the Orders dated November
10, 2010 and August 8, 2011, and any writ of execution issued pursuant thereto, as well
as the Final Award dated June 16, 2010 issued by the Arbitration Tribunal.

In its Urgent Omnibus Motion[67] to resolve the application for a stay order and/or
TRO/writ of preliminary injunction, and to quash the Writ of Execution dated August 22,
2011 and lift the Notices of Garnishment dated August 22, 2011, BDO argued that the
assailed orders of execution (Writ of Execution and Notice of Garnishment) were issued
with indecent haste and despite the non-compliance with the procedures in Special ADR
Rules of the November 10, 2010 Order confirming the Final Award. BDO was not given
sufficient time to respond to the demand for payment or to elect the method of
satisfaction of the judgment debt or the property to be levied upon. In any case, with the
posting of a bond by BDO, Branch 148 has no jurisdiction to implement the appealed
orders as it would pre-empt the CA from exercising its review under Rule 19 of the
Special ADR Rules after BDO had perfected its appeal. BDO stressed that the bond
posted by RCBC was for a measly sum of P3,000,000.00 to cause execution pending
appeal of a monetary award that may reach P631,429,345.29. RCBC also failed to adduce
evidence of “good cause” or “good reason” to justify discretionary execution under
Section 2(a), Rule 39 of the Rules of Court.

BDO further contended that the writ of execution should be quashed for having been
issued with grave abuse of discretion amounting to lack or excess of jurisdiction as
Branch 148 modified the Final Award at the time of execution by imposing the payment
of interests though none was provided therein nor in the Order confirming the same.

During the pendency of CA-G.R. SP No. 120888, Branch 148 continued with execution
proceedings and on motion by RCBC designated/deputized additional sheriffs to replace
Sheriff Flora who was supposedly physically indisposed.[68] These court personnel went
to the offices/branches of BDO attempting to serve notices of garnishment and to levy the
furniture, fixtures and equipment.

On September 12, 2011, BDO filed a Very Urgent Motion to Lift Levy and For Leave to
Post Counter-Bond[69] before Branch 148 praying for the lifting of the levy of BDO
Private Bank, Inc. (BPBI) shares and the cancellation of the execution sale thereof
scheduled on September 15, 2011, which was set for hearing on September 14, 2011.
BDO claimed that the levy was invalid because it was served by the RTC Sheriffs not to
the authorized representatives of BPBI, as provided under Section 9(b), Rule 39 in
relation to Section 7, Rule 57 of the Rules of Court stating that a notice of levy on shares
of stock must be served to the president or managing agent of the company which issued
the shares. However, BDO was advised by court staff that Judge Sarabia was on leave
and the case could not be set for hearing.

In its Opposition to BDO’s application for injunctive relief, RCBC prayed for its outright
denial as BDO’s petition raises questions of fact and/or law which call for the CA to
substitute its judgment with that of the Arbitration Tribunal, in patent violation of
applicable rules of procedure governing domestic arbitration and beyond the appellate
court’s jurisdiction. RCBC asserted that BDO’s application has become moot and
academic as the writ of execution was already implemented and/or enforced. It also
contended that BDO has no clear and unmistakable right to warrant injunctive relief
because the issue of jurisdiction was already ruled upon in CA-G.R. SP No. 117451
which dismissed the petition filed by Go and the Individual Shareholders of Bankard
questioning the authority of Branch 148 over RCBC’s motion to confirm the Final Award
despite the earlier filing by BDO in another branch of the RTC (Branch 65) of a petition
to vacate the said award.

On September 13, 2011, BDO, to avert the sale of the BPBI shares scheduled on
September 15, 2011 and prevent further disruption in the operations of BDO and BPBI,
paid under protest by tendering a Manager’s Check in the amount of P637,941,185.55,
which was accepted by RCBC as full and complete satisfaction of the writ of execution.
BDO manifested before Branch 148 that such payment was made without prejudice to its
appeal before the CA.[70]

On even date, the CA denied BDO’s application for a stay order and/or TRO/preliminary
injunction for non-compliance with Rule 19.25 of the Special ADR Rules. The CA ruled
that BDO failed to show the existence of a clear right to be protected and that the acts
sought to be enjoined violated any right. Neither was BDO able to demonstrate that the
injury to be suffered by it is irreparable or not susceptible to mathematical computation.

BDO did not file a motion for reconsideration and directly filed with this Court a petition
for certiorari with urgent application for writ of preliminary mandatory injunction (G.R.
No. 199238).

The Petitions

In G.R. No. 196171, RCBC set forth the following grounds for the reversal of the CA
Decision dated December 23, 2010:

THE COURT OF APPEALS ACTED CONTRARY TO LAW AND PRIOR RULINGS

OF THIS HONORABLE COURT AND COMMITTED REVERSIBLE ERROR IN
VACATING THE SECOND PARTIAL AWARD ON THE BASIS OF CHAIRMAN
BARKER’S ALLEGED PARTIALITY, WHICH IT CLAIMS IS INDICATIVE OF
BIAS CONSIDERING THAT THE ALLEGATIONS CONTAINED IN BDO/EPCIB’S
PETITION FALL SHORT OF THE JURISPRUDENTIAL REQUIREMENT THAT
THE SAME BE SUPPORTED BY CLEAR AND CONVINCING EVIDENCE.

II.

THE COURT OF APPEALS ACTED CONTRARY TO LAW AND PRIOR RULINGS

OF THIS HONORABLE COURT AND COMMITTED REVERSIBLE ERROR WHEN
IT REVERSED THE ARBITRAL TRIBUNAL’S FINDINGS OF FACT AND LAW IN
THE SECOND PARTIAL AWARD IN PATENT CONTRAVENTION OF THE
SPECIAL ADR RULES WHICH EXPRESSLY PROHIBITS THE COURTS, IN AN
APPLICATION TO VACATE AN ARBITRAL AWARD, FROM DISTURBING THE
FINDINGS OF FACT AND/OR INTERPRE[TA]TION OF LAW OF THE ARBITRAL
TRIBUNAL.[71]

BDO raises the following arguments in G.R. No. 199238:

THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN PERFUNCTORILY
DENYING PETITIONER BDO’S APPLICATION FOR STAY ORDER, AND/OR
TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION
DESPITE THE EXISTENCE AND CONCURRENCE OF ALL THE ELEMENTS FOR
THE ISSUANCE OF SAID PROVISIONAL RELIEFS

A. PETITIONER BDO HAS CLEAR AND UNMISTAKABLE RIGHTS TO

BE PROTECTED BY THE ISSUANCE OF THE INJUNCTIVE RELIEF
PRAYED FOR, WHICH, HOWEVER, WERE DISREGARDED BY
PUBLIC RESPONDENT WHEN IT DENIED PETITIONER BDO’S
PRAYER FOR ISSUANCE OF A STAY ORDER AND/OR TRO

B. PETITIONER BDO’S RIGHT TO DUE PROCESS AND EQUAL

PROTECTION OF THE LAW WAS GROSSLY VIOLATED BY THE
RTC-MAKATI CITY BRANCH 148, THE DEPUTIZED SHERIFFS AND
RESPONDENT RCBC CAPITAL, WHICH VIOLATION WAS AIDED
BY PUBLIC RESPONDENT’S INACTION ON AND EVENTUAL
DENIAL OF THE PRAYER FOR STAY ORDER AND/OR TRO

C. DUE TO THE ACTS AND ORDERS OF RTC BRANCH 148,

PETITIONER BDO SUFFERED IRREPARABLE DAMAGE AND
INJURY, AND THERE WAS DIRE AND URGENT NECESSITY FOR
THE ISSUANCE OF THE INJUNCTIVE RELIEF PRAYED FOR
WHICH PUBLIC RESPONDENT DENIED IN GRAVE ABUSE OF
DISCRETION[72]

Essentially, the issues to be resolved are: (1) whether there is legal ground to vacate the
Second Partial Award; and (2) whether BDO is entitled to injunctive relief in connection
with the execution proceedings in SP Proc. Case No. M-6046.

In their TOR, the parties agreed on the governing law and rules as follows:

Laws to be Applied

13. 13 The Tribunal shall determine the issues to be resolved in accordance

with the laws of the Republic of the Philippines.

Procedure to be Applied
14. The proceedings before the Tribunal shall be governed by the ICC Rules of
Arbitration (1 January 1998) and the law currently applicable to arbitration
in the Republic of the Philippines.[73]

As stated in the Partial Award dated September 27, 2007, although the parties provided in
Section 10 of the SPA that the arbitration shall be conducted under the ICC Rules, it was
nevertheless arbitration under Philippine law since the parties are both residents of this
country. The provisions of Republic Act No. 876[74] (RA 876),as amended by Republic
Act No. 9285[75] (RA 9285)principally applied in the arbitration between the herein
parties.[76]

The pertinent provisions of R.A. 9285 provide:

SEC. 40. Confirmation of Award. – The confirmation of a domestic arbitral award shall

be governed by Section 23 of R.A. 876.

A domestic arbitral award when confirmed shall be enforced in the same manner as final
and executory decisions of the Regional Trial Court.

The confirmation of a domestic award shall be made by the regional trial court in
accordance with the Rules of Procedure to be promulgated by the Supreme Court.

xxxx

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

Rule 11.4 of the Special ADR Rules sets forth the grounds for vacating an arbitral award:

Rule 11.4. Grounds.—(A) To vacate an arbitral award. - The arbitral award may be
vacated on the following grounds:

a. The arbitral award was procured through corruption, fraud or other undue means;

b. There was evident partiality or corruption in the arbitral tribunal or any of its
members;

c. The arbitral tribunal was guilty of misconduct or any form of misbehavior that has
materially prejudiced the rights of any party such as refusing to postpone a hearing upon
sufficient cause shown or to hear evidence pertinent and material to the controversy;

d. One or more of the arbitrators was disqualified to act as such under the law and
willfully refrained from disclosing such disqualification; or

e. The arbitral tribunal exceeded its powers, or so imperfectly executed them, such that
a complete, final and definite award upon the subject matter submitted to them was not
made.

The award may also be vacated on any or all of the following grounds:

a. The arbitration agreement did not exist, or is invalid for any ground for the revocation
of a contract or is otherwise unenforceable; or

b. A party to arbitration is a minor or a person judicially declared to be incompetent.

xxxx

In deciding the petition to vacate the arbitral award, the court shall disregard any other
ground than those enumerated above. (Emphasis supplied)

Judicial Review

At the outset, it must be stated that a review brought to this Court under the Special ADR
Rules is not a matter of right. Rule 19.36 of said Rules specified the conditions for the
exercise of this Court’s discretionary review of the CA’s decision.

Rule 19.36. Review discretionary.—A review by the Supreme Court is not a matter of

right, but of sound judicial discretion, which will be granted only for serious and
compelling reasons resulting in grave prejudice to the aggrieved party. The
following, while neither controlling nor fully measuring the court’s discretion, indicate
the serious and compelling, and necessarily, restrictive nature of the grounds that will
warrant the exercise of the Supreme Court’s discretionary powers, when the Court of
Appeals:

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

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

c. Failed to apply any provision, principle, policy or rule contained in these Special ADR
Rules resulting in substantial prejudice to the aggrieved party; and

d. Committed an error so egregious and harmful to a party as to amount to an undeniable

excess of jurisdiction.

The mere fact that the petitioner disagrees with the Court of Appeals’ determination of
questions of fact, of law or both questions of fact and law, shall not warrant the exercise
of the Supreme Court’s discretionary power. The error imputed to the Court of
Appeals must be grounded upon any of the above prescribed grounds for review or
be closely analogous thereto.

A mere general allegation that the Court of Appeals has committed serious and
substantial error or that it has acted with grave abuse of discretion resulting in substantial
prejudice to the petitioner without indicating with specificity the nature of such error or
abuse of discretion and the serious prejudice suffered by the petitioner on account
thereof, shall constitute sufficient ground for the Supreme Court to dismiss outright the
petition. (Emphasis supplied)

The applicable standard for judicial review of arbitral awards in this jurisdiction is set
forth in Rule 19.10 which states:

Rule 19.10. Rule on judicial review on arbitration in the Philippines.--As a general rule,

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

xxxx

The above rule embodied the stricter standard in deciding appeals from arbitral awards
established by jurisprudence. In the case of Asset Privatization Trust v. Court of Appeals,
[77]
this Court held:

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either
as to the law or as to the facts.Courts are without power to amend or overrule merely
because of disagreement with matters of law or facts determined by the arbitrators.They
will not review the findings of law and fact contained in an award, and will not undertake
to substitute their judgment for that of the arbitrators, since any other rule would make an
award the commencement, not the end, of litigation.Errors of law and fact, or an
erroneous decision of matters submitted to the judgment of the arbitrators, are insufficient
to invalidate an award fairly and honestly made. Judicial review of an arbitration is, thus,
more limited than judicial review of a trial.[78]

Accordingly, we examine the merits of the petition before us solely on the statutory
ground raised for vacating the Second Partial Award: evident partiality, pursuant to
Section 24 (b) of the Arbitration Law (RA 876) and Rule 11.4 (b) of the Special ADR
Rules.

Evident Partiality

Evident partiality is not defined in our arbitration laws. As one of the grounds for
vacating an arbitral award under the Federal Arbitration Act (FAA) in the United States
(US), the term “encompasses both an arbitrator’s explicit bias toward one party and an
arbitrator’s inferred bias when an arbitrator fails to disclose relevant information to the
parties.”[79]

From a recent decision[80] of the Court of Appeals of Oregon, we quote a brief discussion
of the common meaning of evident partiality:

To determine the meaning of “evident partiality,” we begin with the terms themselves.
The common meaning of “partiality” is “the inclination to favor one side.” Webster’s
Third New Int'l Dictionary 1646 (unabridged ed 2002); see also id. (defining “partial” as
“inclined to favor one party in a cause or one side of a question more than the other:
biased, predisposed” (formatting in original)). “Inclination,” in turn, means “a particular
disposition of mind or character : propensity, bent” or “a tendency to a particular aspect,
state, character, or action.” Id. at 1143 (formatting in original); see also id. (defining
“inclined” as “having inclination, disposition, or tendency”).

The common meaning of “evident” is “capable of being perceived esp[ecially] by sight :

distinctly visible : being in evidence : discernable[;] * * * clear to the understanding :
obvious, manifest, apparent.”Id. at 789 (formatting in original); see also id. (stating that
synonyms of “evident” include “apparent, patent, manifest, plain, clear, distinct, obvious,
[and] palpable” and that, “[s]ince evident rather naturally suggests evidence, it may
imply the existence of signs and indications that must lead to an identification or
inference” (formatting in original)). (Emphasis supplied)

Evident partiality in its common definition thus implies “the existence of signs and
indications that must lead to an identification or inference” of partiality.[81] Despite the
increasing adoption of arbitration in many jurisdictions, there seems to be no established
standard for determining the existence of evident partiality. In the US, evident partiality
“continues to be the subject of somewhat conflicting and inconsistent judicial
interpretation when an arbitrator’s failure to disclose prior dealings is at issue.” [82]

The first case to delineate the standard of evident partiality in arbitration proceedings
was Commonwealth Coatings Corp. v. Continental Casualty Co., et al.[83] decided by the
US Supreme Court in 1968. The Court therein addressed the issue of whether the
requirement of impartiality applies to an arbitration proceeding. The plurality opinion
written by Justice Black laid down the rule that the arbitrators must disclose to the parties
“any dealings that might create an impression of possible bias,”[84] and that underlying
such standard is “the premise that any tribunal permitted by law to try cases and
controversies not only must be unbiased but also must avoid even the appearance of
bias.”[85] In a separate concurring opinion, Justice White joined by Justice Marshall,
remarked that “[t]he Court does not decide today that arbitrators are to be held to the
standards of judicial decorum of Article III judges, or indeed of any judges.”[86] He opined
that arbitrators should not automatically be disqualified from an arbitration proceeding
because of a business relationship where both parties are aware of the relationship in
advance, or where the parties are unaware of the circumstances but the relationship is
trivial. However, in the event that the arbitrator has a “substantial interest” in the
transaction at hand, such information must be disclosed.

Subsequent cases decided by the US Court of Appeals Circuit Courts adopted different
approaches, given the imprecise standard of evident partiality in Commonwealth
Coatings.

In Morelite Construction Corp. v. New York District Council Carpenters Benefit Funds,
[87]
the Second Circuit reversed the judgment of the district court and remanded with
instructions to vacate the arbitrator’s award, holding that the existence of a father-son
relationship between the arbitrator and the president of appellee union provided strong
evidence of partiality and was unfair to appellant construction contractor. After
examining prior decisions in the Circuit, the court concluded that –

x x x we cannot countenance the promulgation of a standard for partiality as

insurmountable as “proof of actual bias” -- as the literal words of Section 10 might
suggest. Bias is always difficult, and indeed often impossible, to “prove.” Unless an
arbitrator publicly announces his partiality, or is overheard in a moment of private
admission, it is difficult to imagine how “proof” would be obtained. Such a standard, we
fear, occasionally would require that we enforce awards in situations that are clearly
repugnant to our sense of fairness, yet do not yield “proof” of anything.

If the standard of "appearance of bias" is too low for the invocation of Section 10,
and "proof of actual bias" too high, with what are we left? Profoundly aware of the
competing forces that have already been discussed, we hold that "evident partiality"
within the meaning of 9 U.S.C. § 10 will be found where a reasonable person would
have to conclude that an arbitrator was partial to one party to the arbitration.x x
x[88] (Emphasis supplied)

In Apperson v. Fleet Carrier Corporation,[89] the Sixth Circuit agreed with

the Morelite court’s analysis, and accordingly held that to invalidate an arbitration award
on the grounds of bias, the challenging party must show that “a reasonable person would
have to conclude that an arbitrator was partial” to the other party to the arbitration.

This “myriad of judicial interpretations and approaches to evident partiality” resulted in a

lack of a uniform standard, leaving the courts “to examine evident partiality on a case-by-
case basis.”[90] The case at bar does not present a non-disclosure issue but conduct
allegedly showing an arbitrator’s partiality to one of the parties.

EPCIB/BDO, in moving to vacate the Second Partial Award claimed that the Arbitration
Tribunal exceeded its powers in deciding the issue of advance cost not contemplated in
the TOR, and that Chairman Barker acted with evident partiality in making such award.
The RTC held that BDO failed to substantiate these allegations. On appeal, the CA
likewise found that the Arbitration Tribunal did not go beyond the submission of the
parties because the phrasing of the scope of the agreed issues in the TOR (“[t]he issues to
be determined by the Tribunal are those issues arising from the said Request for
Arbitration, Answer and Reply and such other issues as may properly arise during the
arbitration”)is broad enough to accommodate a finding on the liability and the
repercussions of BDO’s failure to share in the advances on costs. Section 10 of the SPA
also gave the Arbitration Tribunal authority to decide how the costs should be
apportioned between them.

However, the CA found factual support in BDO’s charge of partiality, thus:

On the issue on evident partiality, the rationale in the American case of Commonwealth
Coatings Corp. v. Continental Cas. Co. appears to be very prudent. In Commonwealth,
the United States Supreme Court reasoned that courts “should…be even more scrupulous
to safeguard the impartiality of arbitrators than judges, since the former have completely
free rein to decide the law as well as the facts, and are not subject to appellate review” in
general. This taken into account, the Court applies the standard demanded of the
conduct of magistrates by analogy. After all, the ICC Rules require that an arbitral
tribunal should act fairly and impartially. Hence, an arbitrator’s conduct should be
beyond reproach and suspicion. His acts should be free from the appearances of
impropriety.

An examination of the circumstances claimed to be illustrative of Chairman Barker’s

partiality is indicative of bias. Although RCBC had repeatedly asked for reimbursement
and the withdrawal of BDO’s counterclaims prior to Chairman Barker’s December 18,
2007 letter, it is baffling why it is only in the said letter that RCBC’s prayer was given
a complexion of being an application for a partial award. To the Court, the said
letter signaled a preconceived course of action that the relief prayed for by RCBC
will be granted.

That there was an action to be taken beforehand is confirmed by Chairman Barker’s

furnishing the parties with a copy of the Secomb article. This article ultimately favored
RCBC by advancing its cause. Chairman Barker makes it appear that he intended
good to be done in doing so but due process dictates the cold neutrality of
impartiality. This means that “it is not enough…[that] cases [be decided] without bias
and favoritism. Nor is it sufficient that…prepossessions [be rid of].

[A]ctuations should moreover inspire that belief.” These put into the equation, the
furnishing of the Secomb article further marred the trust reposed in Chairman Barker.
The suspicion of his partiality on the subject matter deepened. Specifically, his act
established that he had pre-formed opinions.

Chairman Barker’s providing of copies of the said text is easily interpretable that he had
prejudged the matter before him. In any case, the Secomb article tackled bases upon
which the Second Partial Award was founded. The subject article reflected in advance
the disposition of the ICC arbitral tribunal. The award can definitely be viewed as an
affirmation that the bases in the Secomb article were adopted earlier on. To the Court,
actuations of arbitrators, like the language of judges, “must be guarded and measured lest
the best of intentions be misconstrued.”

x x x x[91] (Emphasis supplied)

We affirm the foregoing findings and conclusion of the appellate court save for its
reference to the obiter in Commonwealth Coatings that arbitrators are held to the same
standard of conduct imposed on judges. Instead, the Court adopts the reasonable
impression of partiality standard, which requires a showing that a reasonable person
would have to conclude that an arbitrator was partial to the other party to the arbitration.
Such interest or bias, moreover, “must be direct, definite and capable of demonstration
rather than remote, uncertain, or speculative.”[92] When a claim of arbitrator’s evident
partiality is made, “the court must ascertain from such record as is available whether the
arbitrators’ conduct was so biased and prejudiced as to destroy fundamental fairness.” [93]

Applying the foregoing standard, we agree with the CA in finding that Chairman
Barker’s act of furnishing the parties with copies of Matthew Secomb’s article,
considering the attendant circumstances,is indicative of partiality such that a reasonable
man would have to conclude that he was favoring the Claimant, RCBC. Even before the
issuance of the Second Partial Award for the reimbursement of advance costs paid by
RCBC, Chairman Barker exhibited strong inclination to grant such relief to RCBC,
notwithstanding his categorical ruling that the Arbitration Tribunal “has no power under
the ICC Rules to order the Respondents to pay the advance on costs sought by the ICC or
to give the Claimantany relief against the Respondents’ refusal to pay.” [94] That
Chairman Barker was predisposed to grant relief to RCBC was shown by his act of
interpreting RCBC’s letter, which merely reiterated its plea to declare the Respondents in
default and consider all counterclaims withdrawn – as what the ICC Rules provide -- as
an application to the Arbitration Tribunal to issue a partial award in respect of BDO’s
failure to share in the advance costs. It must be noted that RCBC in said letter did not
contemplate the issuance of a partial order, despite Chairman Barker’s previous letter
which mentioned the possibility of granting relief upon the parties making submissions to
the Arbitration Tribunal. Expectedly, in compliance with Chairman Barker’s December
18, 2007 letter, RCBC formally applied for the issuance of a partial award ordering BDO
to pay its share in the advance costs.

Mr. Secomb’s article, “Awards and Orders Dealing With the Advance on Costs in ICC
Arbitration: Theoretical Questions and Practical Problems”[95] specifically dealt with the
situation when one of the parties to international commercial arbitration refuses to pay its
share on the advance on costs. After a brief discussion of the provisions of ICC Rules
dealing with advance on costs, which did not provide for issuance of a partial award to
compel payment by the defaulting party, the author stated:

4. As we can see, the Rules have certain mechanisms to deal with defaulting parties.
Occasionally, however, parties have sought to use other methods to tackle the problem of
a party refusing to pay its part of the advance on costs. These have included seeking an
order or award from the arbitral tribunal condemning the defaulting party to pay its share
of the advance on costs. Such applications are the subject of this article. [96]

By furnishing the parties with a copy of this article, Chairman Barker practically armed
RCBC with supporting legal arguments under the “contractual approach” discussed by
Secomb. True enough, RCBC in its Application for Reimbursement of Advance Costs
Paid utilized said approach as it singularly focused on Article 30(3)[97] of the ICC Rules
and fiercely argued that BDO was contractually bound to share in the advance costs fixed
by the ICC.[98] But whether under the “contractual approach” or “provisional approach”
(an application must be treated as an interim measure of protection under Article 23 [1]
rather than enforcement of a contractual obligation), both treated in the Secomb article,
RCBC succeeded in availing of a remedy which was not expressly allowed by the Rules
but in practice has been resorted to by parties in international commercial arbitration
proceedings. It may also be mentioned that the author, Matthew Secomb, is a member of
the ICC Secretariat and the “Counsel in charge of the file”, as in fact he signed some
early communications on behalf of the ICC Secretariat pertaining to the advance costs
fixed by the ICC.[99] This bolstered the impression that Chairman Barker was predisposed
to grant relief to RCBC by issuing a partial award.
Indeed, fairness dictates that Chairman Barker refrainfrom suggesting to or directing
RCBC towards a course of action to advance the latter’s cause, by providing it with legal
arguments contained in an article written by a lawyer who serves at the ICC Secretariat
and was involved or had participation -- insofar as the actions or recommendations of the
ICC -- in the case. Though done purportedly to assist both parties, Chairman Barker’s act
clearly violated Article 15 of the ICC Rules declaring that “[i]n all cases, the Arbitral
Tribunal shall act fairly and impartially and ensure that each party has a reasonable
opportunity to present its case.” Having pre-judged the matter in dispute, Chairman
Barker had lost his objectivity in the issuance of the Second Partial Award.

In fine, we hold that the CA did not err in concluding that the article ultimately favored
RCBC as it reflected in advance the disposition of the Arbitral Tribunal, as well as
“signalled a preconceived course of action that the relief prayed for by RCBC will be
granted.” This conclusion is further confirmed by the Arbitral Tribunal’s pronouncements
in its Second Partial Award which not only adopted the “contractual approach” but even
cited Secomb’s article along with other references, thus:

6.1 It appears to the Tribunal that the issue posed by this application is essentially a contractual
one. x x x
xxxx
6.5 Matthew Secomb, considered these points in the article in 14 ICC Bulletin No. 1 (2003)
which was sent to the parties. At Para. 19, the learned author quoted from an ICC Tribunal
(Case No. 11330) as follows:
“The Arbitral Tribunal concludes that the partiesin arbitrations conducted under the ICC
Rules have a mutually binding obligation to pay the advance on costs as determined by the
ICC Court, based on Article 30-3 ICC Rules which – by reference – forms part of the
parties’ agreement to arbitration under such Rules.”[100]

The Court, however, must clarify that the merits of the parties’ arguments as to the
propriety of the issuance of the Second Partial Award are not in issue here. Courts are
generally without power to amend or overrule merely because of disagreement with
matters of law or facts determined by the arbitrators. They will not review the findings of
law and fact contained in an award, and will not undertake to substitute their judgment
for that of the arbitrators. A contrary rule would make an arbitration award the
commencement, not the end, of litigation.[101] It is the finding of evident partiality which
constitutes legal ground for vacating the Second Partial Award and not the Arbitration
Tribunal’s application of the ICC Rules adopting the “contractual approach” tackled in
Secomb’s article.

Alternative dispute resolution methods or ADRs – like arbitration, mediation, negotiation

and conciliation – are encouraged by this Court. By enabling parties to resolve their
disputes amicably, they provide solutions that are less time-consuming, less tedious, less
confrontational, and more productive of goodwill and lasting relationship.
[102]
Institutionalization of ADR was envisioned as “an important means to achieve speedy
and impartial justice and declog court dockets.”[103] The most important feature of
arbitration, and indeed, the key to its success, is the public’s confidence and trust in the
integrity of the process.[104] For this reason, the law authorizes vacating an arbitral award
when there is evident partiality in the arbitrators.

Injunction Against Execution

Of Arbitral Award

Before an injunctive writ can be issued, it is essential that the following requisites are
present: (1) there must be a right inesse or the existence of a right to be protected; and (2)
the act against which injunction to be directed is a violation of such right. The onus
probandi is on movant to show that there exists a right to be protected, which is directly
threatened by the act sought to be enjoined. Further, there must be a showing that the
invasion of the right is material and substantial and that there is an urgent and paramount
necessity for the writ to prevent a serious damage.[105]

Rule 19.22 of the Special ADR Rules states:

Rule 19.22. Effect of appeal.—The appeal shall not stay the award, judgment, final order
or resolution sought to be reviewed unless the Court of Appeals directs otherwise upon
such terms as it may deem just.

We find no reversible error or grave abuse of discretion in the CA’s denial of the
application for stay order or TRO upon its finding that BDO failed to establish the
existence of a clear legal right to enjoin execution of the Final Award confirmed by the
Makati City RTC, Branch 148, pending resolution of its appeal.It would be premature to
address on the merits the issues raised by BDO in the present petition considering that the
CA still has to decide on the validity of said court's orders confirming the Final Award.
But more important, since BOO had already paid P637,941,185.55 m manager's check,
albeit under protest, and which payment was accepted by RCBC as full and complete
satisfaction of the writ of execution, there is no more act to be enjoined.

Settled is the rule that injunctive reliefs are preservative remedies for the protection of
substantive rights and interests. Injunction is not a cause of action in itself, but merely a
provisional remedy, an adjunct to a main suit. When the act sought to be enjoined has
become fait accompli, the prayer for provisional remedy should be denied. [106]

Thus, the Court ruled in Gov. Looyuko[107] that when the events sought to be prevented by
injunction or prohibition have already happened, nothing more could be enjoined or
prohibited. Indeed, it is a universal principle of law that an injunction will not issue to
restrain the performance of an act already done. This is so for the simple reason that
nothing more can be done in reference thereto. A writ of injunction becomes moot and
academic after the act sought to be enjoined has already been consummated.
WHEREFORE, premises considered, the petition m G.R. No. 199238 is DENIED. The
Resolution dated September 13, 2011 ofthe Court of Appeals in CA-G.R. SP No. 120888
is AFFIRMED.

The petition in G.R. No. 196171 is DENIED. The Decision dated December 23, 2010 of
the Court of Appeals in CA-G.R. SP No. 113525 is hereby AFFIRMED.

SO ORDERED.

[ G.R. No. 103200, August 31, 1994 ]

LA NAVAL DRUG CORPORATION, PETITIONER, VS. THE HONORABLE
COURT OF APPEALS AND WILSON C. YAO, RESPONDENTS.

DECISION

VITUG, J.:

In an effort to declog the courts of an increasing volume of work load and, most
importantly, in order to accord contending parties with expeditious alternatives for
settling disputes, the law authorizes, indeed encourages, out of court settlements or
adjudications. Compromises and arbitration are widely known and used as such
acceptable methods of resolving adversarial claims.

Arbitrations, in particular, is governed by a special law, Republic Act 876, suppletory to

which are laws and rules of general application. This case before us concerns the
jurisdiction of courts, in relation to the provisions of Section 6 of Republic Act No. 876,
and, in that respect, the applicability of the doctrine of estoppel. The law (R.A. 876),
specifically Section 6 thereof, provides:

"SEC. 6. Hearing by court. - A party aggrieved by the failure, neglect or refusal of

another to perform under an agreement in writing providing for arbitration may petition
the court for an order directing that such arbitration proceed in the manner provided
for in such agreement. Five days notice in writing of the hearing of such application shall
be served either personally or by registered mail upon the party in default. The court
shall hear the parties, and upon being satisfied that the making of the agreement or
such failure to comply therewith is not in issue, shall make an order directing the parties
to proceed to arbitration in accordance with the terms of the agreement. If the making
of the agreement or default be in issue the court shall proceed to summarily hear such
issue. If the finding be that no agreement in writing providing for arbitration was made,
or that there is no default in the proceeding thereunder, the proceeding shall be
dismissed. If the finding be that a written provision for arbitration was made and there
is a default in proceeding thereunder, an order shall be made summarily directing the
parties to proceed with the arbitration in accordance with the terms thereof.
"The court shall decide all motions, petitions or application filed under the
provisions of this Act, within ten days after such motions, petitions, or applications have
been heard by it."

In chronology, the events that have led to the case at bench are detailed in the appealed
decision of respondent appellate court, which we here reproduce in toto.

"Original action for Certiorari and Prohibition for Annulment of the Orders, dated

April 26, 1990 and June 22, 1990, respectively, of Branch LXI, Regional Trial Court,
Angeles City, in Special Case No. 6024 for Enforcement of ARBITRATION Agreement with
Damages. Petitioner assails that portion of subject Order of April 26, 1990, stating as
follows:

"`(1) Petitioner's claim for damages predicated on alleged tortuous acts of

respondents La Naval Drug corporation such as their alleged
interference and dilatory tactics, etc. in the implementation of the
Arbitration Agreement in the Contract of Lease, thereby compelling
among others the petitioner to go to Court for redress; and respondent
La Naval Drug Corporation's counterclaim for damages may be
entertained by this Court in a hearing - not summary - for the purpose,
under the Rules of Court.

'(2) a preliminary hearing of the special and affirmative defense to show that
Petitioner has no cause of action against respondent's claim for
damages is denied; a resolution on this issue is deferred after the trial of
the case on the merits.'

And challenges the Order of June 22, 1990 denying its motion for reconsideration
of the said earlier Order.
"From the petition below of respondent Yao, it appears that he is the present
owner of a commercial building a portion of which is leased to petitioner under a
contract of lease executed on December 23, 1983 with the former owner thereof, La
Proveedora, Inc., which contract expired on April 30, 1989. However, petitioner
exercised its option to lease the same building for another five years. But petitioner and
respondent Yao disagreed on the rental rate, and to resolve the controversy, the latter,
thru written notices to the former, expressed his intention to submit their disagreement
to arbitration, in accordance with Republic Act 876, otherwise known as the Arbitration
Law, and paragraph 7 of their lease contract, providing that:

"'7. x x x Should the parties fail to agree on the rate of rentals, the same shall be
submitted to a group of Arbitrators composed of three (3) members, one to be appointed
by LESSOR, another by LESSEE and the third one to be agreed upon by the two
arbitrators previously chosen and the parties hereto shall submit to the decision of the
arbitrators.'

"Thus, on May 6, 1989, respondent Yao appointed Domingo Alamarez, Jr. as his
arbitrator, while on June 5, 1989, petitioner chose Atty. Casiano Sabile as its arbitrator.
The confirmation of the appointment of Aurelio Tupang, as third arbitrator, was held in
abeyance because petitioner instructed Atty. Sabile to defer the same until its Board of
Directors could convene and approve Tupang's appointment. Respondent Yao theorizes
that this was petitioner's design to delay the arbitration proceedings, in violation of the
Arbitration Law, and the governing stipulations of their contract of lease.
"On the basis of the aforesaid allegations, respondent Yao prayed that after
summary hearing pursuant to Section 6 of the Arbitration Law, Atty. Casiano Sabile and
Domingo Alamarez be directed to proceed with the arbitration in accordance with
Section 7 of subject Contract of Lease and the applicable provisions of the Arbitration
Law, by appointing and confirming the appointment of the Third Arbitrator; and that the
Board of Three Arbitrators be ordered to immediately convene and resolve the
controversy before it, pursuant to Section 12 and the succeeding sections of the
Arbitration Law. (Annex 'A,' Petition.)
"In its Answer with Counterclaim (Annex 'C,' Petition), petitioner here specifically
denied the averments of the petition below; theorizing that such petition is premature
since respondent Yao has not yet formally required arbitrators Alamarez and Sabile to
agree on the third arbitrator, within ten (10) days from notice, and that the delay in the
arbitration was due to respondent Yao's failure to perform what is incumbent upon him,
of notifying and thereafter, requiring both arbitrators to appoint the third member of
the Board of Arbitrators. According to petitioner, it actually gave arbitrators Sabile and
Alamarez a free hand in choosing the third arbitrator; and, therefore, respondent Yao
has no cause of action against it (petitioner). By way of Counterclaim, petitioner alleged
that it suffered actual damages of P100,000.00; and incurred attorney's fees of
P50,000.00, plus P500.00 for every court appearance of its counsel.
"On October 20, 1989, respondent Yao filed an amended petition for
'Enforcement of Arbitration Agreement with Damages;' praying that petitioner be
ordered to pay interest on the unpaid rents, at the prevailing rate of interest in
commercial banks, and exemplary damages of at least P250,000.00.
"On October 24, 1989, despite petitioner's opposition to the motion to admit the
amended petition, the respondent court admitted the same.
"On October 31, 1989, petitioner answered the amended petition; contending,
among others, that the amended petition should be dismissed on the ground of non--
payment of the requisite filing fees therefor; and it being in the nature of an ordinary
civil action, a full blown and regular trial is necessary; so that respondent Yao's
proposition for a summary hearing of the arbitration issue and separate trial for his
claim for damages is procedurally untenable and implausible.
"Invoking Section 5, Rule 16 of the Rules of Court, petitioner presented a ‘Motion
to Set Case for Preliminary Hearing’ of its special and affirmative defenses, which are
grounds for a motion to dismiss.
"In its Order of November 14, 1989, the respondent court announced that the
two arbitrators chose Mrs. Eloisa R. Narciso as the third arbitrator. And on November
21, 1989, it ordered the parties to submit their position papers on the issue as to
whether or not respondent Yao's claim for damages may be litigated upon in the
summary proceeding for enforcement of arbitration agreement. It likewise informed the
parties that petitioner's ‘Motion to Set Case for Preliminary Hearing' of Special and
Affirmative Defenses would be resolved together with the question of damages.
"On April 26, 1990, the aforequoted assailed Order issued. In moving for
reconsideration of the said Order, petitioner argued that in Special Case No. 6024, the
respondent court sits as a special court exercising limited jurisdiction and is not
competent to act on respondent Yao's claim for damages, which poses an issue litigable
in an ordinary civil action. But the respondent court was not persuaded by petitioner's
submission. On June 22, 1990, it denied the motion for reconsideration." (Rollo, pp. 89-
93).

While the appellate court has agreed with petitioner that, under Section 6 of Republic Act
No. 876, a court, acting within the limits of its special jurisdiction, may in this case solely
determine the issue of whether the litigants should proceed or not to arbitration, it,
however, considered petitioner in estoppel from questioning the competence of the court
to additionally hear and decide in the summary proceedings private respondent's claim for
damages, it (petitioner) having itself filed similarly its own counterclaim with the
court a quo.
It is hardly disputable that when a court is called upon to exercise limited and special
jurisdiction, that court cannot stray to matters outside the area of its declared authority or
beyond what has been expressly invested by law (Elumbaring vs. Elumbaring, 12 Phil.
384, 387), particularly, such as in this instance, where the proceedings are summary in
nature.

Prefatorily, recalling the distinctions, pertinent to the case, between the court's lack of
jurisdiction over the person of the defendant, on the one hand, and its lack of jurisdiction
over the subject matter or the nature of the action, upon the other hand, should be useful.

The lack of jurisdiction over the person of the defendant may be waived either expressly
or impliedly. When a defendant voluntarily appears, he is deemed to have submitted
himself to the jurisdiction of the court. If he so wishes not to waive this defense, he must
do so seasonably by motion for the purpose of objecting to the jurisdiction of the court;
otherwise, he shall be deemed to have submitted himself to that jurisdiction. The
decisions promulgated heretofore by this Court would likewise seemingly apply estoppel
to bar the defendant from pursuing that defense by alleging in his answer any other issue
for dismissing the action.

A citation of a few of our decisions might be apropos.

In Wang Laboratories, Inc., vs. Mendoza (156 SCRA 44), this Court has ruled that if the
defendant, besides setting up in a motion to dismiss his objection to the jurisdiction of the
court, alleges at the same time any other ground for dismissing the action, he is deemed
to have submitted himself to the jurisdiction of the court. In the process, it has equated
the matter to a situation where, such as in Immaculata vs. Judge Navarro, et al. (146
SCRA 5), the defendant invokes an affirmative relief against his opponent.

In De Midgely vs. Judge Ferandos (64 SCRA 23, 31), the Court elaborated thusly:

"We are of the opinion that the lower court has acquired jurisdiction over the
person of Mrs. Midgely by reason of her voluntary appearance. The reservation in her
motion to dismiss that she was making a special appearance to contest the court's
jurisdiction over her person may be disregarded.
"It may be disregarded because it was nullified by the fact that in her motion to
dismiss she relied not only on the ground of lack of jurisdiction over her person but also
on the ground that there was no showing that earnest efforts were exerted to
compromise the case and because she prayed 'for such other relief as' may be deemed
'appropriate and proper.'
"x x x x x
x x x x.
"When the appearance is by motion for the purpose of objecting to the
jurisdiction of the court over the person, it must be for the sole and separate purpose of
objecting to the jurisdiction of the court. If his motion is for any other purpose than to
object to the jurisdiction of the court over his person, he thereby submits himself to the
jurisdiction of the court. A special appearance by motion made for the purpose of
objecting to the jurisdiction of the court over the person will be held to be a general
appearance, if the party in said motion should, for example, ask for a dismissal of the
action upon the further ground that the court had no jurisdiction over the subject
matter. (Syllabus, Flores vs. Zurbito, supra, at page 751. That rule was followed in
Ocampo vs. Mina and Arejola, 41 Phil. 308)."

The justification for the rule was expressed in Republic vs. Ker and Company, Ltd. (18
SCRA 207, 213-214), in this wise:

"We observe that the motion to dismiss filed on April 14, 1962, aside from
disputing the lower court's jurisdiction over defendant's person, prayed for dismissal of
the complaint on the ground that plaintiff's cause of action has prescribed.
By interposing such second ground in its motion to dismiss, Ker & Co., Ltd. availed of an
affirmative defense on the basis of which it prayed the court to resolve controversy in its
favor. For the court to validly decide the said plea of defendant Ker & Co., Ltd., it
necessarily had to acquire jurisdiction upon the latter's person, who, being the
proponent of the affirmative defense, should be deemed to have abandoned its special
appearance and voluntarily submitted itself to the jurisdiction of the court.
"Voluntary appearance cures defects of summons, if any. Such defect, if any, was
further cured when defendant filed its answer to the complaint. A defendant can not be
permitted to speculate upon the judgment of the court by objecting to the court's
jurisdiction over its person if the judgment is adverse to it, and acceding to jurisdiction
over its person if and when the judgment sustains its defenses."

The doctrine of estoppel is predicated on, and has its origin in, equity which, broadly
defined, is justice according to natural law and right. It is a principle intended to avoid a
clear case of injustice. The term is hardly distinguishable from a waiver of right.
Estoppel, like its said counterpart, must be unequivocal and intentional for, when
misapplied, it can easily become a most convenient and effective means of injustice.
Estoppel is not understood to be a principle that, as a rule, should prevalently apply but,
such as it concededly is, as a mere exception from the standard legal norms of general
application that can be invoked only in highly exceptional and justifiable cases.

Tested by the above criteria, the Court sees it propitious to re-examine specifically the
question of whether or not the submission of other issues in a motion to dismiss, or of an
affirmative defense (as distinguished from an affirmative relief) in an answer, would
necessarily foreclose, and have the effect of a waiver of, the right of a defendant to set up
the court's lack of jurisdiction over the person of the defendant.

Not inevitably.

Section 1, Rule 16, of the Rules of Court, provides that a motion to dismiss may be made
on the following grounds:

“(a)    That the court has no jurisdiction over the person of the defendant or over
the subject of the action or suit;
“(b)    That the court has no jurisdiction over the nature of the action or suit;
“(c)    The venue is improperly laid;
“(d)    That the plaintiff has no legal capacity to sue;
“(e)    That there is another action pending between the same parties for the
same cause;
“(f)     That the cause of action is barred by a prior judgment or by statute of
limitations;
“(g)    That the complaint states no cause of action;
“(h)    That the claim or demand set forth in the plaintiff's pleading has been paid,
waived, abandoned, or otherwise extinguished;
“(i)     That the claim on which the action or suit is founded is unenforceable
under the provisions of the statute of frauds;
“(j)     That the suit is between members of the same family and no earnest
efforts towards a compromise have been made."

Any ground for dismissal in a motion to dismiss, except improper venue, may, as further
set forth in Section 5 of the same rule, be pleaded as an affirmative defense and a
preliminary hearing may be had thereon as if a motion to dismiss had been filed. An
answer itself contains the negative, as well as affirmative, defenses upon which the
defendant may rely (Section 4, Rule 6, Rules of Court). A negative defense denies the
material facts averred in the complaint essential to establish the plaintiff's cause of action,
while an affirmative defense is an allegation of a new matter which, while admitting the
material allegations of the complaint, would, nevertheless, prevent or bar recovery by the
plaintiff. Inclusive of these defenses are those mentioned in Rule 16 of the Rules of Court
which would permit the filing of a motion to dismiss.

In the same manner that a plaintiff may assert two or more causes of action in a court
suit, a defendant is likewise expressly allowed, under Section 2, Rule 8, of the Rules of
Court, to put up his own defenses alternatively or even hypothetically. Indeed, under
Section 2, Rule 9, of the Rules of Court, defenses and objections not pleaded either in a
motion to dismiss or in an answer, except for the failure to state a cause of action, are
deemed waived. We take this to mean that a defendant may, in fact, feel enjoined to set
up, along with his objection to the court's jurisdiction over his person, all other possible
defenses. It thus appears that it is not the invocation of any of such defenses, but the
failure to so raise them, that can result in waiver or estoppel. By defenses, of course, we
refer to the grounds provided for in Rule 16 of the Rules of Court that must be asserted in
a motion to dismiss or by way of affirmative defenses in an answer.

Mindful of the foregoing, in Signetics Corporation vs. Court of Appeals and Freuhauf
Electronics Phils., Inc. (225 SCRA 737, 738), we lately ruled:

"This is not to say, however, that the petitioner's right to question the jurisdiction
of the court over its person is now to be deemed a foreclosed matter. If it is true, as
Signetics claims, that its only involvement in the Philippines was through a passive
investment in Sigfil, which it even later disposed of, and that TEAM Pacific is not its
agent, then it cannot really be said to be doing business in the Philippines. It is a
defense, however, that requires the contravention of the allegations of the complaint,
as well as a full ventilation, in effect, of the main merits of the case, which should not
thus be within the province of a mere motion to dismiss. So, also, the issue posed by the
petitioner as to whether a foreign corporation which has done business in the country,
but which has ceased to do business at the time of the filing of a complaint, can still be
made to answer for a cause of action which accrued while it was doing business, is
another matter that would yet have to await the reception and admission of evidence.
Since these points have seasonably been raised by the petitioner, there should be no
real cause for what may understandably be its apprehension, i.e., that by its
participation during the trial on the merits, it may, absent an invocation of separate or
independent reliefs of its own, be considered to have voluntarily submitted itself to the
court's jurisdiction."

Lack of jurisdiction over the subject matter of the suit is yet another matter. Whenever it
appears that the court has no jurisdiction over the subject matter, the action shall be
dismissed (Section 2, Rule 9, Rules of Court). This defense may be interposed at any
time, during appeal (Roxas vs. Rafferty, 37 Phil. 957) or even after final judgment
(Cruzcosa vs. Judge Concepcion, et al., 101 Phil. 146). Such is understandable, as this
kind of jurisdiction is conferred by law and not within the courts, let alone the parties, to
themselves determine or conveniently set aside. In People vs. Casiano (111 Phil. 73, 93?
94), this Court, on the issue of estoppel, held:

"The operation of the principle of estoppel on the question of jurisdiction

seemingly depends upon whether the lower court actually had jurisdiction or not. If it
had no jurisdiction, but the case was tried and decided upon the theory that it had
jurisdiction, the parties are not barred, on appeal, from assailing such jurisdiction, for
the same 'must exist as a matter of law, and may not be conferred by consent of the
parties or by estoppel' (5 C.J.S., 861-863). However, if the lower court had jurisdiction,
and the case was heard and decided upon a given theory, such, for instance, as that the
court had no jurisdiction, the party who induced it to adopt such theory will not be
permitted, on appeal, to assume an inconsistent position--that the lower court had
jurisdiction. Here, the principle of estoppel applies. The rule that jurisdiction is
conferred by law, and does not depend upon the will of the parties, has no bearing
thereon."

The rule was reiterated in Calimlim vs. Ramirez (118 SCRA 399, 406), and quite
recently, in Southeast Asian Fisheries Development Center-Aquaculture Department vs.
National Labor Relations Commission (206 SCRA 283).

Jurisdiction over the nature of the action, in concept, differs from jurisdiction over the
subject matter. Illustrated, lack of jurisdiction over the nature of the action is the situation
that arises when a court, which ordinarily would have the authority and competence to
take a case, is rendered without it either because a special law has limited the exercise of
its normal jurisdiction on a particular matter or because the type of action has been
reposed by law in certain other courts or quasi-judicial agencies for determination.
Nevertheless, it can hardly be questioned that the rules relating to the effects of want of
jurisdiction over the subject matter should apply with equal vigor to cases where the court
is similarly bereft of jurisdiction over the nature of the action.

In summary, it is our considered view, as we now so hereby express, that -

(1) Jurisdiction over the person must be seasonably raised, i.e., that it is pleaded in a
motion to dismiss or by way of an affirmative defense in an answer. Voluntary
appearance shall be deemed a waiver of this defense. The assertion, however, of
affirmative defenses shall not be construed as an estoppel or as a waiver of such
defense.

(2) Where the court itself clearly has no jurisdiction over the subject matter or the
nature of the action, the invocation of this defense may be done at any time. It is
neither for the courts nor the parties to violate or disregard that rule, let alone to
confer that jurisdiction, this matter being legislative in character. Barring highly
meritorious and exceptional circumstances, such as hereinbefore exemplified,
neither estoppel nor waiver shall apply.

In the case at bench, the want of jurisdiction by the court is indisputable, given the nature
of the controversy. The arbitration law explicitly confines the court's authority only to
pass upon the issue of whether there is or there is no agreement in writing providing for
arbitration. In the affirmative, the statute ordains that the court shall issue an order
"summarily directing the parties to proceed with the arbitration in accordance with the
terms thereof." If the court, upon the other hand, finds that no such agreement exists, "the
proceeding shall be dismissed." The proceedings are summary in nature.

All considered, the court a quo must then refrain from taking up the claims of the
contending parties for damages, which, upon the other hand, may be ventilated in
separate regular proceedings at an opportune time and venue. The circumstances
obtaining in this case are far, we hold, from justifying the application of estoppel against
either party.

WHEREFORE, the decision of the Court of Appeals and the orders of the trial court in
question are SET ASIDE. The court a quo, in the instant proceedings, is ordered to
DESIST from further hearing private respondent's claim, as well as petitioner's
counterclaim, for damages. No costs.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 196723, August 28, 2013 ]
ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION,
PETITIONER, VS. SUMITOMO CORPORATION, RESPONDENT.

[G.R. No. 196728]

SUMITOMO CORPORATION, PETITIONER, VS. ASIAN CONSTRUCTION

AND DEVELOPMENT CORPORATION, RESPONDENT.

DECISION

PERLAS-BERNABE, J.:

Before the Court are consolidated petitions for review on certiorari which assail
separate issuances of the Court of Appeals (CA) in relation to the partial and final
awards rendered by the Construction Industry Arbitration Commission’s (CIAC) Arbitral
Tribunal (Arbitral Tribunal) in CIAC Case No. 28-2008.
In particular, the petition in G.R. No. 196723[1] filed by Asian Construction and
Development Corporation (Asian Construction) seeks to annul and set aside the CA’s
Resolutions dated July 23, 2010[2] and April 18, 2011[3] in CA-G.R. SP No. 112127 which
dismissed its appeal from the Arbitral Tribunal’s Partial Award [4] dated December 15,
2009 (Partial Award) on the ground of forum shopping; while the petition in G.R. No.
196728[5] filed by Sumitomo Corporation (Sumitomo) seeks to annul and set aside the
CA’s Decision[6] dated January 26, 2011 and Resolution[7] dated April 29, 2011 in CA-G.R.
SP No. 113828 which modified the Arbitral Tribunal’s Final Award [8] dated March 17,
2010 (Final Award) by way of deleting the award of attorney’s fees in Sumitomo’s favor.

The Facts

On March 15, 1996, Asian Construction entered into a Civil Work

Agreement[9] (Agreement) with Sumitomo for the construction of a portion of the Light
Rail Transit System along the Epifanio Delos Santos Avenue, specifically, from Shaw
Boulevard, Mandaluyong City to Taft Avenue, Pasay City for a total cost of
US$19,982,000.00 (Project).[10] The said Agreement provides that the “validity,
interpretation, enforceability, and performance of [the same] shall be governed by and
construed in accordance with the law of the State of New York, U.S.A. [(New York State
Law)], without regard to, or legal effect of, the conflicts of law provisions thereof” [11] and
that any dispute, controversy or claim arising therefrom “shall be solely and finally
settled by arbitration.”[12]

In May 1996, Sumitomo paid Asian Construction the amount of US$2,997,300.00 as

advance payment to be recovered in accordance with the terms of the Agreement.
Later, an additional advance payment of US$1,998,200.00 was made in October 1997.
[13]
In all, Asian Construction received from Sumitomo the amount of US$9,731,606.62,
inclusive of the advance payments (before withholding tax of US$97,308.44). [14]

On September 1, 1998, Sumitomo informed Asian Construction that it was terminating

the Agreement effective September 5, 1998 due to the following reasons: (a) Asian
Construction’s failure “to perform and complete the civil work for [Notice to Proceed]
issued construction areas within the duration of the Time Schedule in [the] ‘Contract
Specification of Civil and Architectural Works (Station No. 8 to Station No. 13) x x x’”; (b)
Asian Construction’s failure to “provide adequate traffic management as required in the
Scope of Works [pursuant to] subparagraph 5.2.4 of the Contract Specification of Civil
and Architectural Work”; and (c) Asian Construction’s failure to “[pay] the suppliers of
certain materials and equipment used in the construction of the Project in violation of
[p]aragraph 3.1.3[,] Article 3 of the Agreement.”[15] In view of the foregoing, Sumitomo
requested Asian Construction to “make the necessary arrangements for the proper
turnover of the Project x x x.”[16] Asian Construction, however, claimed that the
accomplishments under Progress Billing No. (PB) 018 [17] dated June 10, 1998 and PB
019[18] dated July 6, 1998, as well as other various claims, were still left unpaid. [19] Hence,
on December 22, 1998, it sent Sumitomo a letter,[20] demanding payment of the total
amount of US$6,371,530.89. This was followed by several correspondences between
the parties through 1999 to 2007 but no settlement was achieved. [21]

The Proceedings Before the Arbitral Tribunal

On September 2, 2008, Asian Construction filed a complaint [22] with the CIAC, docketed
as CIAC Case No. 28-2008, seeking payment for its alleged losses and reimbursements
amounting to US$9,501,413.13, plus attorney’s fees in the amount of P2,000,000.00.
[23]
As a matter of course, an Arbitral Tribunal was constituted, with Alfredo F. Tadiar
being designated as Chairman, and Salvador P. Castro and Jesse B. Grove as Members. [24]

For its part, Sumitomo filed a Motion to Dismiss,[25] questioning the CIAC’s jurisdiction
over the dispute on the ground that the arbitration should proceed in accordance with
the Commercial Arbitration Rules of Japan. [26] However, the aforesaid motion was
denied.[27] As such, Sumitomo filed an Answer,[28] reiterating the CIAC’s alleged lack of
jurisdiction and further asserting that the claim was already time-barred. It added that
had Asian Construction discharged its obligations under the Agreement to itemize and
justify its claims, the same could have been amicably settled years ago. In this respect, it
made a counterclaim for the unutilized portion of the advance payments, attorney’s
fees and costs of litigation in the amount of at least P10,000,000.00. [29]

Subsequently, the parties signed a TOR,[30] stipulating the admitted facts and defining
the issues to be determined in the arbitration proceedings.

On December 15, 2009, the Arbitral Tribunal rendered the Partial Award [31] which
affirmed its jurisdiction over the dispute but held that the parties were bound by their
Agreement that the substantive New York State Law shall apply in the resolution of the
issues.[32] It proceeded to dismiss both the claims and counterclaims of the parties on
the ground that these had already prescribed under New York State Law’s six-year
statute of limitations[33] and ruled that, in any case, were it to resolve the same on the
merits, “it would not produce an affirmative recovery for the claimant.” [34]
Aggrieved, Asian Construction filed before the CA, on January 5, 2010, a Rule 43 Petition
for Review,[35] docketed as CA-G.R. SP No. 112127 (First CA Petition), seeking the
reversal of the Partial Award.

Meanwhile, notwithstanding its dismissal of the claims and counterclaims, the Arbitral
Tribunal further directed the parties to itemize their respective claims for costs and
attorney’s fees and to submit factual proof and legal bases for their entitlement thereto.
[36]
Pursuant to this directive, Sumitomo submitted evidence to prove the costs it had
incurred and paid as a result of the arbitration proceedings. [37] Asian Construction, on
the other hand, did not present any statement or document to substantiate its claims
but, instead, submitted an Opposition[38] dated March 8, 2010 (opposition) to
Sumitomo’s claim for costs. The Arbitral Tribunal did not act upon the opposition
because it was treated, in effect, as a motion for reconsideration which was prohibited
under the CIAC Revised Rules of Procedure Governing Construction Arbitration (CIAC
Revised Rules).[39]

On March 17, 2010, the Arbitral Tribunal rendered the Final Award [40] which granted
Sumitomo’s claim for attorney’s fees in the amount of US$200,000.00. It held that while
the filing of the arbitration suit cannot be regarded as “clearly unfounded” because of
the two progress billings that were left unpaid, Asian Construction’s disregard of the
Agreement to have the dispute resolved in accordance with New York State Law had
forced Sumitomo to incur attorney’s fees in order to defend its interest. [41] It further
noted that if Asian Construction had accepted the settlement offered by Sumitomo,
then, the arbitration proceedings would have even been aborted. [42] On the other hand,
a similar claim for attorney’s fees made by Asian Construction was denied by reason of
the latter’s failure to submit, as directed, proof of its entitlement thereto. [43] As to the
matter of costs, the Arbitral Tribunal declared Sumitomo relieved from sharing pro-
rata in the arbitration costs and, consequently, directed Asian Construction to shoulder
the same costs in full and reimburse Sumitomo the amount of P849,532.45. However, it
ordered Sumitomo to bear all the expenses related to the appointment of the foreign
arbitrator considering that such service was secured upon its own initiative and without
the participation and consent of Asian Construction. [44]

Dissatisfied with the Arbitral Tribunal’s ruling, Asian Construction filed another Rule 43
Petition for Review[45] before the CA, on May 3, 2010, docketed as CA-G.R. SP No.
113828 (Second CA Petition), this time, to set aside the Final Award. In this light, it
claimed gross negligence and partiality on the part of the Arbitral Tribunal and
asserted, inter alia, that, apart from being a non-arbitrable issue, an award of attorney’s
fees would be premature since the prevailing party can only be determined when the
case is decided with finality. Moreover, it maintained that both claims of Asian
Construction and the counterclaims of Sumitomo had already been dismissed for being
time-barred.[46]

The CA Ruling

On July 23, 2010, the CA rendered a Resolution[47] (July 23, 2010 Resolution), dismissing
Asian Construction’s First CA Petition against the Partial Award on the ground of forum-
shopping, after it was shown that: (a) the aforesaid petition was filed while the
arbitration case was still pending final resolution before the Arbitral Tribunal; and (b)
Asian Construction’s opposition to Sumitomo’s claim for costs filed before the Arbitral
Tribunal had, in fact, effectively sought for the same relief and stated the same
allegations as those in its First CA Petition. The CA also noted Asian Construction’s
premature resort to a petition for review because what was sought to be nullified was
not a final award, but only a partial one. The CA eventually denied Asian Construction’s
motion for reconsideration in a Resolution[48] dated April 18, 2011. Hence, Asian
Construction’s petition before the Court, docketed as G.R. No. 196723.

Meanwhile, the CA gave due course to Asian Construction’s Second CA Petition assailing
the Final Award and rendered a Decision[49] on January 26, 2011, upholding the Arbitral
Tribunal’s ruling except the award of attorney’s fees in favor of Sumitomo. The CA held
that the fact that Asian Construction initiated an action or refused to compromise its
claims cannot be considered unjustified or made in bad faith as to entitle Sumitomo to
the aforesaid award. Consequently, Sumitomo moved for reconsideration, [50] asserting
that Asian Construction’s Second CA Petition should have instead been dismissed in its
entirety considering their Agreement that the Arbitral Tribunal’s decisions and awards
would be final and non-appealable. However, in a Resolution[51] dated April 29, 2011, the
CA denied the motion for reconsideration. Thus, Sumitomo’s petition before the Court,
docketed as G.R. No. 196728.

The Issues Before the Court

The essential issues for the Court’s resolution are as follows: (a) in G.R. No. 196723,
whether or not the CA erred in dismissing Asian Construction’s First CA Petition on the
ground of forum shopping; and (b) in G.R. No. 196728, whether or not the CA erred in
reviewing and modifying the Final Award which Sumitomo insists to be final and
unappealable.

The Court’s Ruling

The petitions should be denied.

A. Dismissal of Asian Construction’s First CA Petition; forum shopping.

Forum shopping is the act of a litigant who repetitively availed of several judicial
remedies in different courts, simultaneously or successively, all substantially founded on
the same transactions and the same essential facts and circumstances, and all raising
substantially the same issues, either pending in or already resolved adversely by some
other court, to increase his chances of obtaining a favorable decision if not in one court,
then in another. More particularly, forum shopping can be committed in three ways,
namely: (a) by filing multiple cases based on the same cause of action and with the
same prayer, the previous case not having been resolved yet (where the ground for
dismissal is litis pendentia); (b) by filing multiple cases based on the same cause of
action and with the same prayer, the previous case having been finally resolved (where
the ground for dismissal is res judicata); and (c) by filing multiple cases based on the
same cause of action but with different prayers (splitting of causes of action, where the
ground for dismissal is also either litis pendentia or res judicata).[52] Forum shopping is
treated as an act of malpractice and, in this accord, constitutes a ground for the
summary dismissal of the actions involved.[53] To be sure, the rule against forum
shopping seeks to prevent the vexation brought upon the courts and the litigants by a
party who asks different courts to rule on the same or related causes and grant the
same or substantially the same reliefs and in the process creates the possibility of
conflicting decisions being rendered by the different fora upon the same issues. [54]

In this case, the Court finds that the CA committed no reversible error in dismissing
Asian Construction’s First CA Petition on the ground of forum shopping since the relief
sought (i.e., the reconsideration of the Partial Award) and the allegations stated therein
are identical to its opposition to Sumitomo’s claim for costs filed before the Arbitral
Tribunal while CIAC Case No. 28-2008 was still pending. These circumstances clearly
square with the first kind of forum shopping which thereby impels the dismissal of the
First CA Petition on the ground of litis pendentia.

On this score, it is apt to point out that Asian Construction’s argument that it merely
complied with the directive of the Arbitral Tribunal cannot be given any credence since
it (as well as Sumitomo) was only directed to submit evidence to prove the costs it had
incurred and paid as a result of the arbitration proceedings. However, at variance with
the tribunal’s directive, Asian Construction, in its opposition to Sumitomo’s claim for
costs, proceeded to seek the reversal of the Partial Award in the same manner as its
First CA Petition. It cannot, therefore, be doubted that it treaded the course of forum
shopping, warranting the dismissal of the aforesaid petition.

In any case, the Court observes that the First CA Petition remains dismissible since the
CIAC Revised Rules provides for the resort to the remedy of a petition for review only
against a final arbitral award,[55] and not a partial award, as in this case.

In fine, the Court upholds the CA’s dismissal of Asian Construction’s petition in CA-G.R.
SP No. 112127 (First CA Petition) and based on this, denies its petition in G.R.
No. 196723.

B. Review and modification of the Final Award.

Sumitomo Corporation faults the CA for reviewing and modifying a final and non-
appealable arbitral award and insists that the Asian Construction’s Second CA Petition
should have been, instead, dismissed outright. It mainly argues that by entering into
stipulations in the arbitration clause – which provides that “the order or award of the
arbitrators will be the sole and exclusive remedy between the parties regarding any and
all claims and counterclaims with respect to the matter of the arbitrated dispute” [56] and
that “the order or award rendered in connection with an arbitration shall be final and
binding upon the parties.”[57] Asian Construction effectively waived any and all appeals
from the Arbitral Tribunal’s decision or award.

Sumitomo’s argument is untenable.

A brief exegesis on the development of the procedural rules governing CIAC cases
clearly shows that a final award rendered by the Arbitral Tribunal is not absolutely
insulated from judicial review.

To begin, Executive Order No. (EO) 1008,[58] which vests upon the CIAC original and
exclusive jurisdiction over disputes arising from, or connected with, contracts entered
into by parties involved in construction in the Philippines, plainly states that the arbitral
award “shall be final and inappealable except on questions of law which shall be
appealable to the [Court].”[59] Later, however, the Court, in Revised Administrative
Circular (RAC) No. 1-95,[60] modified this rule, directing that the appeals from the arbitral
award of the CIAC be first brought to the CA on “questions of fact, law or mixed
questions of fact and law.” This amendment was eventually transposed into the present
CIAC Revised Rule which directs that “a petition for review from a final award may be
taken by any of the parties within fifteen (15) days from receipt thereof in accordance
with the provisions of Rule 43 of the Rules of Court.”[61] Notably, the current provision is
in harmony with the Court’s pronouncement that “despite statutory provisions making
the decisions of certain administrative agencies ‘final,’ [the Court] still takes cognizance
of petitions showing want of jurisdiction, grave abuse of discretion, violation of due
process, denial of substantial justice or erroneous interpretation of the law” and that, in
particular, “voluntary arbitrators, by the nature of their functions, act in a quasi-judicial
capacity, such that their decisions are within the scope of judicial review.” [62]

In this case, the Court finds that the CA correctly reviewed and modified the Arbitral
Tribunal’s Final Award insofar as the award of attorney’s fees in favor of Sumitomo is
concerned since the same arose from an erroneous interpretation of the law.

To elucidate, jurisprudence dictates that in the absence of a governing stipulation,

attorney’s fees may be awarded only in case the plaintiff's action or defendant's stand is
so untenable as to amount to gross and evident bad faith. [63] This is embodied in Article
2208 of the Civil Code which states:
Article 2208. In the absence of stipulation, attorney's fees and expenses of
litigation, other than judicial costs, cannot be recovered, except:

xxxx

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's[64] plainly valid, just and demandable claim;

xxxx
In this case, the parties agreed that reasonable attorney’s fees shall be paid by
the defaulting party if it fails to perform any of its obligations under the Agreement or
by the party not prevailing, if any dispute concerning the meaning and interpretation
thereto arises.[65] However, since the parties’ respective claims under the Agreement
had already prescribed pursuant to New York State Law, considering as well that the
dispute was not regarding the meaning or construction of any provision under the
Agreement,[66] their stipulation on attorney’s fees should remain inoperative. Therefore,
discounting the application of some stipulation, the Court proceeds to examine the
matter under the lens of bad faith pursuant to the above-discussed rules on attorney’s
fees.

After a careful scrutiny of the records, the Court observes that there was no gross and
evident bad faith on the part of Asian Construction in filing its complaint against
Sumitomo since it was merely seeking payment of its unpaid works done pursuant to
the Agreement. Neither can its subsequent refusal to accept Sumitomo’s offered
compromise be classified as a badge of bad faith since it was within its right to either
accept or reject the same owing to its contractual nature. [67] Verily, absent any other just
or equitable reason to rule otherwise,[68] these incidents are clearly off-tangent with a
finding of gross and evident bad faith which altogether negates Sumitomo’s entitlement
to attorney’s fees.

Hence, finding the CA’s review of the Final Award and its consequent deletion of the
award of attorney’s fees to be proper, the Court similarly denies Sumitomo’s petition in
G.R. No. 196728.

WHEREFORE, the petitions are DENIED. The Resolutions dated July 23, 2010 and April
18, 2011 of the Court of Appeals in CA-G.R. SP No. 112127, as well as its Decision dated
January 26, 2011 and Resolution dated April 29, 2011 in CA-G.R. SP No. 113828 are
hereby AFFIRMED.

SO ORDERED.

SECOND DIVISION
[ G.R. No. 204197, November 23, 2016 ]
FRUEHAUF ELECTRONICS PHILIPPINES CORPORATION, PETITIONER,
VS. TECHNOLOGY ELECTRONICS ASSEMBLY AND MANAGEMENT
PACIFIC CORPORATION, RESPONDENT.

DECISION
BRION, J.:

Brief Factual Antecedents

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).

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

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

Pursuant to the arbitration agreement, the dispute was referred to a three-member

The parties initially submitted the following issues to the tribunal for resolution:[10]

1. Whether or not TEAM had complied with its obligation to return the leased
premises to Fruehauf after the expiration of the lease on June 9, 2003.

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

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

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

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

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

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

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

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

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

The Arbitral Award[12]

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

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

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 electronis
plant."[21] Thus, TEAM's obligation was to vacate the leased property and deliver to
Fruehauf the buildings, improvements, and installations (including the machineries and
equipment existing thereon) in the same condition as when the lease commenced, save
for what had been lost or impaired by the lapse of time, ordinary wear and tear, or any
other inevitable cause.[22]

TEAM moved for reconsideration[28] which the tribunal denied.[29] Thus, TEAM

petitioned the RTC to partially vacate or modify the arbitral award.[30] It argued that the
tribunal failed to properly appreciate the facts and the terms of the lease contract.

The RTC Ruling

On April 29, 2009, the RTC[31] found insufficient legal grounds under Sections 24 and

25 of the Arbitration Law to modify or vacate the award.[32] It denied the petition and
CONFIRMED, the arbitral award.[33] TEAM filed a Notice of Appeal.

TEAM moved for reconsideration but the RTC denied the motion on November 15,
2009.[37] Thus, TEAM led a petition for certiorari[38] before the CA arguing that the RTC
gravely abused its discretion in: (1) denying due course to its notice of appeal; and (2)
denying the motion to partially vacate and/or modify the arbitral award.[39]
TEAM argued that an ordinary appeal under Rule 41 was the proper remedy against the
RTC's order confirming, modifying, correcting, or vacating an arbitral award.[40] It argued
that Rule 42 was not available because the order denying its motion to vacate was not
rendered in the exercise of the RTC's appellate jurisdiction. Further, Rule 43 only applies
to decisions of quasi-judicial bodies. Finally, an appeal under Rule 45 to the Supreme
Court would preclude it from raising questions of fact or mixed questions of fact and law.
[41]

TEAM 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]

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

The CA REVERSED AND SET ASIDE the arbitral award and DISMISSED the

arbitral complaint for lack of merit.[60]

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

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

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

Resort to arbitration is voluntary. It requires consent from both parties in the form of an

However, this contractual and consensual character means that the parties cannot

As a purely private mode of dispute resolution, arbitration proceedings, including the

The contractual nature of arbitral proceedings affords the parties substantial autonomy

over the proceedings. The parties are free to agree on the procedure to be
observed during the proceedings.[76] This lends considerable flexibility to arbitration
proceedings as compared to court litigation governed by the Rules of Court.
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.

This risk of error is compounded by the absence of an effective appeal mechanism. The

An Arbitral Tribunal does not exercise quasi-judicial powers

Quasi-judicial or administrative adjudicatory power is the power: (1) to hear and

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

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 mad 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.

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."

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]

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 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

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

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

These grounds for vacating an arbitral award are exclusive. Under the ADR Law, courts
are obliged to disregard any other grounds invoked to set aside an award:
SEC. 41. Vacation Award. - A party to a domestic arbitration may question the arbitral
award with the appropriate regional trial court in accordance with the rules of procedure
to be promulgated by the Supreme Court only on those grounds enumerated in Section 25
of Republic Act No. 876. Any other ground raised against a domestic arbitral award
shall be disregarded by the regional trial court.[121]
Consequently, the winning party can generally expect the enforcement of the award. This
is a stricter rule that makes Article 2044[122] of the Civil Code regarding the finality of an
arbitral award redundant.

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

A losing party is likewiselrecluded from resorting to certiorari under Rule 65 of the

Not even the Court's expanded certiorari jurisdiction under the Constitution[126] can

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

Nevertheless, whether we apply, Section 29 of the Arbitration Law, Section 46 of the

The correctness or incorrectness of the arbitral award

Assuming arguendo that the tribunal's interpretation of the contract was incorrect, the

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]

WHEREFORE, we GRANT the petition. The CA's decision in CAG.R. SP. No.

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

SO ORDERED.

SECOND DIVISION
[ G.R. No. 225051, July 19, 2017 ]
DEPARTMENT OF FOREIGN AFFAIRS (DFA), PETITIONER, VS. BCA
INTERNATIONAL CORPORATION & AD HOC ARBITRAL TRIBUNAL,
COMPOSED OF CHAIRMAN DANILO L. CONCEPCION AND MEMBERS,
CUSTODIO O. 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) Agreement[1] dated April 5, 2002

(Agreement), petitioner DFA 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 Claims[3] 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 DFA and ordering the DFA 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 Award; (c) a judgment ordering the DFA to pay damages to BCA,
reasonably estimated at P100,000,000.00 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 Claims[6] 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 P1,648,611,531.00, representing the net income respondent
is expected to earn under the Agreement, and P100,000,000.00 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

Claims[9] 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
P390,000,000.00, plus an additional P10,000,000.00 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. 11[11] dated February 15, 2016, the Arbitral Tribunal granted
respondent'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.

Procedural Order No. 11 reads:

For resolution by the Tribunal is BCA's Motion to Admit the Amended Statement of
Claim dated 30 April2015 objected to by DFA in its Opposition dated 6 November 2015.

BCA's Counsel made representations during the hearings that the Amendment is for the
simple purpose 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.

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 DFA;

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 (IRR) 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:
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. 9285[19] 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,[22] docketed 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 OFA 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 No. 9285 declares 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.[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 docl[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 awards[26] 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 ofRA 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,[28] Interim 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 Award 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;

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.

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.
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 pet1t1on 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.

EN BANC
[ G.R. No. 238671, June 02, 2020 ]
TAISEI SHIMIZU JOINT VENTURE, PETITIONER, VS. COMMISSION ON
AUDIT AND THE DEPARTMENT OF TRANSPORTATION (FORMERLY
DEPARTMENT OF TRANSPORTATION AND COMMUNICATION),
RESPONDENTS.

DECISION

LAZARO-JAVIER, J.:

The Case

This petition for certiorari[1] assails the Decision No. 2016-395 dated December 21,
2016[2] and Resolution No. 2018-047 dated January 22, 2018[3] of the Commission on
Audit (COA) in COA C.P. Case No. 2015-622. The first partially disapproved the
payment of the final and executory arbitral award rendered by the Construction Industry
Arbitration Commission (CIAC) in favor of petitioner Taisei Shimizu Joint
Venture[4] (TSJV); the second denied petitioner's motion for reconsideration.

Antecedents

Petitioner TSN won the contract award for the construction of the New Iloilo Airport. As
project proponent, respondent Department of Transportation[5] (DOTr) entered into a
contract agreement with TSJV on March 15, 2004, pertaining to the construction.
Following the project's completion and delivery, it turned out that some TSJV billings
had been left unpaid.

After TSJV's initial effort to collect failed, it filed with the CIAC a Request for
Arbitration and Complaint,[6] seeking payment of the following money claims:
Claim No. Particulars Amount Awarded
1 Compensation for unforeseen JPY72,486,598.00
increase in the prices of
structural steel and electrical
cables which TSJV imported
from Japan under Variation JPY55,121,589.00
Order No. 5
Php 7,151,162.80
- 12% interest as of September
12, 2014

- 12% VAT
2 Currency conversion loss Php 41,909,962.42

- 12% interest as of September Php 37,567,575.36

12, 2014
3 Interest on delayed payments Php 246,888,166.94

- 12% interest as of September Php 213,476,677.61

12, 2014
4 Claim for adjustment of the peso Php 93,447,697.63
component of Work Items under
Annex K of the Document I-
Invitation to Bid and Instruction
to Bidders P 40,829,371.64

- 12% interest per annum from

June 17, 2008 on the first
Php48,675,741.07 and computed
from October 5, 2013 on the Php 16,113,248.31
remaining Php44,771,956.56 as
of September 12, 2014

- 12% VAT as of September 12,

2014
5 Claim for compensation of costs Php 81,628,490.11
incurred due to extension of time

- 12% interest per annum Php 57,345,848.76

computed from July 4, 2008 on
the first Php77,145,933.94 and
computed from October 5, 2013
on the remaining
Php4,482,556.17 as of Php 16,676,920.66
September 12, 2014

- 12% VAT
6 Additional costs from Php142,383,393.00
performing embankment works
Php108,273,793.32
- 12% interest as of September
12, 2014 Php 30,078,862.36

- 12% VAT as of September 12,

2014
7 Damages for failure of DOTr to Php447,040,482.65
pay within a reasonable length of
time the additional costs of
aggregates Php287,068,386.23

- 12% interest as of September Php 88,093,064.27

12, 2014

- 12% VAT as of September 12,

2014
8 Attorney's fees Php 7,225,221.89

Litigation expenses Php 9,916,881.31

Total Php2,316,687,603.03[7]
In defense of the government, the DOTr responded to the Complaint and actively
participated in the CIAC proceedings.

Under its Final Award[8] dated December 11, 2014, the CIAC granted Claim Nos. 1, 3, 4,
5, and 8, viz.:
Claim No. Particulars Amount Awarded
1 Compensation for unforeseen increase Php 37,079,858.18
in the prices of structural steel and
electrical cables which TSJV imported
from Japan under Variation Order No.
5
3 Interest on delayed payments Php 68,393,583.40
4 Claim for adjustment of the peso Php104,661,421.35
component of Work Items under
Annex K of the Document I-Invitation
to Bid and Instruction to Bidders
5 Claim for compensation of costs Php 6,032,437.04
incurred due to extension of time
8 Attorney's fees and costs of arbitration Php 7,234,570.86
Total Php223,401,870.83
The DOTr was likewise directed to pay six percent (6%) interest per annum on the total
amount from the finality of the Final Award until full payment.[9]

Subsequently acting on the DOTr's motion for correction of the Final Award, the CIAC,
by Order dated February 20,2015,[10] reduced Claim No. 3. The CIAC cited TSJV's failure
to include its claim for input value added tax (VAT) in the corresponding Terms
ofReference (TOR). What TSJV did was belatedly pray for payment of its claim for input
VAT in its memorandum. Following established jurisprudence, the CIAC held that it
could not award an amount in excess of complainant's claim as indicated in the TOR even
if the evidence may later show it was entitled to a higher amount. Consequently, the
arbitral tribunal amended the Final Award, viz.:
Claim Amount Awarded
No. Particulars
1 Compensation for unforeseen Php 37,079,858.18
increase in the prices of structural
steel and electrical cables which
TSJV imported from Japan under
Variation Order No. 5
3 Interest on delayed payments Php 61,065,699.46
4 Claim for adjustment of the peso Php 104,661,421.35
component of Work Items under
Annex K of the Document I-
Invitation to Bid and Instruction to
Bidders
5 Claim for compensation of costs Php 6,032,437.04
incurred due to extension of time
8 Attorney's fees and costs of Php 7,234,570.86
arbitration
Total Php216,073,986.89
Following the finality of the CIAC's Final Award, TSJV moved for its execution. The
DOTr opposed on ground that the funds sought to be levied were public in character.
[11]
Under Resolution dated April 22, 2015, the CIAC granted the motion for execution
and directed the Clerk of Court and the Ex Officio Sheriff of the Regional Trial Court,
Makati City to implement the writ of execution.[12]

The Ex Officio Sheriff thereafter served a demand to satisfy the arbitral award on the
DOTr and issued notices of garnishment to the Philippine National Bank (PNB),
Philippine Veterans Bank (PVB), Land Bank of the Philippines (LBP), and Development
Bank of the Philippines (DBP).[13] The DOTr later on advised TSJV in writing that the
arbitral award should be referred to the COA as condition sine qua non for payment.
[14]
Meanwhile, the DBP, PVB, and PNB separately informed the Sheriff that they did not
hold funds or properties in the DOTr's name.[15] On the other hand, the LBP advised that
claimant TSJV must first seek the COA's approval for payment of the arbitral award. [16]

Again, after its initial effort to execute failed, TSN subsequently filed with the COA a
petition[17] for enforcement and payment of the arbitral award. To this, the DOTr, through
the Office of the Solicitor General (OSG), responded, thus:
8. The allegations in paragraphs 16 and 17 of the Petition are ADMITTED, with the
following manifestations:
(a) The Arbitral Tribunal rendered the Final Award dated December 11, 2014 also after a
consideration of the numerous submissions filed and pieces of evidence (documentary
and testimonial) presented by both parties during the arbitration proceedings;

(b) The original claim of Petitioner [TSJV] on its Claim Nos. 1-8, in the aggregate sum of
TWO BILLION THREE HUNDRED SIXTEEN MILLION SIX HUNDRED EIGHTY-
SEVEN THOUSAND SIX HUNDRED THREE PESOS AND THREE
CENTAVOS (Php2,316,687,603.03) as provided in the Terms of Reference,
was substantially reduced to TWO HUNDRED TWENTY-THREE MILLION FOUR
HUNDRED ONE THOUSAND EIGHT HUNDRED SEVENTY PESOS AND
EIGHTY-THREE CENTAVOS (Php223,401,870.83) plus 6% per annum interest from
December 11, 2014 until fully paid - when the Arbitral Tribunal, through the Final
Award, completely denied Claim Nos. 2, 6, and 7, while reducing Claims Nos. 1, 3, 4, 5,
and 8; and

(c) On motion of Respondent [DOTr], the latter amount of Php223,401,870.83

was further reduced to TWO HUNDRED SIXTEEN MILLION SEVENTYTHREE
THOUSAND NINE HUNDRED EIGHTY-SIX PESOS AND EIGHTY-NINE
CENTAVOS (Php216,073,986.89) plus 6% per annum interest from December 11, 2014
until fully paid - when the Arbitral Tribunal, through the Order dated February 20, 2015,
deleted the Value-Added Tax (VAT) component in respect of Claim No. 3.
xxxx

10. Finally, as relayed by Respondent's representatives to the undersigned counsel,

Respondent has no further comments or objections to the Arbitral Tribunal 's Final
Award dated December 11, 201[4], as amended by the Order dated February 20, 2015. [18]
By Decision No. 2016-395 dated December 21, 2016,[19] the COA approved payment but
only to the extent of Php104,661,421.35 or less than half of the total award. Asserting its
primary jurisdiction over money claims against government agencies and
instrumentalities, the COA claimed to have reviewed the evidence, on the basis of which
it found that only Claim No. 4 was in accord with law and the rules.

As for Claim No. 1 pertaining to compensation due to unforeseen price increases in

structural steel and electrical cables imported from Japan, the COA held that it was
covered by Section 61 of Republic Act No. 9184 (RA 9184 or The Government
Procurement Reform Act) and its Implementing Rules and Regulations (IRR).[20] There
was allegedly no showing that the parties sought the required approval of the National
Economic Development Authority (NEDA). Variation Order No. 5 was not approved by
the head of the procuring agency. TSJV failed to refer to any treaty or international
executive agreement exempting it from the application of the statute. More, there was no
proof of the triggering unforeseen extraordinary cost increase indeed took place. [21]

On Claim Nos. 3 and 5 for interest and compensation for delay related costs, the COA
denied payment as there was no law purportedly authorizing payment of interest and
costs due to extension of time (EOT). Too, allowing the claim of interest would allegedly
permit payment of expenditures incurred on account of the negligence of the
government's own officers.[22]

Lastly, on Claim No. 8 which involved payment of attorney's fees and costs of litigation,
the COA ruled that the same violated Section 1, Rule 142 of the Rules of Court that "[n]o
costs shall be allowed against the Republic of the Philippines unless otherwise provided
by law."[23]
After receiving the approved award of Php104,661,421.35,[24] TSJV pursued its partial
motion for reconsideration as regards the remaining amount of Php111,412,565.54.[25]

TSJV maintained that the COA's decision (a) contravened Section 19[26] of Executive
Order (EO) No. 1008 (the Construction Industry Arbitration Law) in relation to the rule
on immutability of final and executory judgments; (b) was contrary to the COA's own
decision in "Monolithic Construction and Concrete Products, Inc. v. Department of
Transportation and Communication,"[27] where it enforced the final and executory
judgment in favor of a claimant as the same could no longer be modified in any respect;
(c) ran counter to settled jurisprudence that RA 9184 cannot be applied retroactively; and
(d) was inconsistent with the cases relied upon by the COA in resolving the arbitral
award.

TSJV also cited Article 2208(5)[28] of the Civil Code and Section 16.5[29] of the CIAC's
Revised Rules of Procedure to support the award of attorney's fees and costs of litigation
in its favor.[30]

By its assailed Resolution dated January 22, 2018, the COA denied the motion for partial
reconsideration. While it agreed that RA 9184 should not be retroactively applied. to the
contract in question, it maintained the disallowance of Claim No. 1 for alleged non-
compliance with Section 8[31] of PD 1594 and Section 33[32] of EO 40, laying down the
authorizations/approvals required for price adjustments in certain types of government
contracts. It emphasized that the price adjustments under Claim No. 1 were not approved
by the NEDA and the head of the procuring agency. The COA further maintained its
ruling on Claim Nos. 3, 4, 5, and 8.

COA Chairperson Michael G. Aguinaldo dissented. He explained the two (2) types of
money claims which may be brought before the COA, viz .:
First, there are money claims pursued as an original action for collection of payment.
This arises, for example, where a contractor has not been paid by a government agency
and seeks collection of the amount due. By law, on the general principle that the State
cannot be sued without its consent, the claim must be filed with the Commission on
Audit. As a rule, COA's jurisdiction is limited to liquidated money claims.

Then, there are those money claims that arise from a final and executory judgment of a
court, or arbitral body such as the Construction Industry Arbitration Commission. These
claims may result from a judicial decision on an unliquidated money claim, or the
decision of an arbitral body where the contract contains an arbitration clause or the
parties consented to arbitration, or even cases which should have been filed with the
Commission under the doctrine of primary administrative jurisdiction but [were] filed
with the courts without objection from any of the parties.[33]
Citing Uy v. COA,[34] Chairperson Aguinaldo opined that the COA's jurisdiction over
original actions for money claims refers to the "quasi-judicial aspect of government audit
which includes the investigation, weighing of evidence and resolving whether items
should or should not be included, or as applied to a claim, whether it should be allowed
or disallowed in whole or in part." As for the second type of money claims, still
citing Uy, he stated that the COA may not set aside the final and executory decision of
another tribunal even in the exercise of its broad power of audit. In this regard though, he
recognized the COA's constitutional mandate to act as a dynamic, effective, efficient, and
independent watchdog of the government,[35] but he cannot concur with his colleagues'
view that "the principle of immutability of final judgments yields to the COA's primary
and exclusive constitutional authority to examine, audit, and settle claims against
government funds."[36]

The Present Petition

TSJV now seeks affirmative relief from the Court, charging the COA with grave abuse of
discretion, amounting to excess or lack of jurisdiction in disturbing the immutable and
final arbitral award in its favor.

The COA essentially counters: (a) it has primary jurisdiction over all money claims
against the government; (b) even if a final and executory judgment had already validated
a monetary claim against a government agency, its approval is still a condition sine qua
non for payment; (c) in approving or disapproving the claim, the COA exercises a quasi-
judicial function requiring it to rule on the propriety of the money claim based on the
evidence presented before it; and (d) it could not be charged with grave abuse of
discretion when its action was simply in accord with the law and the evidence. [37]

Issues

Does the COA have exclusive jurisdiction over money claims due from or owing to the
government?

II.

In the exercise of its audit power, may the COA disturb the final and executory decisions
of courts, tribunals or other adjudicative bodies?

Ruling

I. The COA's primary jurisdiction over money claims due from or owing to the
government does not preclude the exercise of jurisdiction over the same subject matter
by another adjudicatory body, tribunal, or court.

The COA posits that it is clothed with primary jurisdiction over money claims due from
or owing to the government pursuant to Article IX of the 1987 Constitution, viz.:
A. Common Provisions

SECTION 1. The Constitutional Commissions, which shall be independent, are the Civil
Service Commission, the Commission on Elections, and the Commission on Audit.

xxxx

D. The Commission on Audit

SECTION 1. (1) There shall be a Commission on Audit composed of a Chairman and

two Commissioners x x x.

SECTION 2. (1) The Commission on Audit shall have the power, authority, and duty
to examine, audit, and settle all accounts pertaining to the revenue and receipts of,
and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned or controlled corporations with
original charters, and on a post-audit basis: (a) constitutional bodies, commissions and
offices that have been granted fiscal autonomy under this Constitution; (b) autonomous
state colleges and universities; (c) other government-owned or controlled corporations
and their subsidiaries; and (d) such nongovernmental entities receiving subsidy or equity,
directly or indirectly, from or through the Government, which are required by law or the
granting institution to submit to such audit as a condition of subsidy or equity. However,
where the internal control system of the audited agencies is inadequate, the Commission
may adopt such measures, including temporary or special pre-audit, as are necessary and
appropriate to correct the deficiencies. It shall keep the general accounts of the
Government and, for such period as may be provided by law, preserve the vouchers and
other supporting papers pertaining thereto. (Emphasis supplied.)
The COA further cites the following provisions relevant to its constitutional mandate,
thus:
Presidential Decree No. 1445 (Government Auditing Code of the Philippines):

SECTION 26. General Jurisdiction. - The authority and powers of the Commission shall
extend to and comprehend all matters relating to auditing procedures, systems and
controls, the keeping of the general accounts of the Government, the preservation of
vouchers pertaining thereto for a period of ten years, the examination and inspection of
the books, records, and papers relating to those accounts; and the audit and settlement of
the accounts of all persons respecting funds or property received or held by them in an
accountable capacity, as well as the examination, audit, and settlement of all debts and
claims of any sort due from or owing to the Government or any of its subdivisions,
agencies and instrumentalities. The said jurisdiction extends to all government-owned
or controlled corporations, including their subsidiaries, and other self-governing boards,
commissions, or agencies of the Government, and as herein prescribed, including non-
governmental entities subsidized by the govenunent, those funded by donations through
the government, those required to pay levies or govenunent share, and those for which the
government has put up a counterpart fund or those partly funded by the government.

The 2009 Revised Rules of Procedure of the Commission on Audit:

Section 1, Rule II:

SECTION 1. General Jurisdiction. - The Commission on Audit shall have the power,
authority, and duty to examine, audit and settle all accounts pertaining to the revenues
and receipts of, and expenditures or uses of funds and property, owned or held in trust by,
or pertaining to the
Government x x x

xxx xxx xxx

Specifically, such jurisdiction shall extend over but not be limited to the following cases
and matters:

a. Disallowance of expenditures or uses of government funds and properties found to be

illegal, irregular, unnecessary, excessive, extravagant or unconscionable;

b. Money claims due from or owing to any government agency;

xxx xxx xxx

Section 1, Rule VIII:

SECTION 1. Original Jurisdiction. - The Commission Proper shall have original

jurisdiction over: a) money claim against the Government; b) request for concurrence
in the hiring of legal retainers by government agency; c) write off of unliquidated cash
advances and dormant accounts receivable in amounts exceeding one million pesos
(P1,000,000.00); d) request for relief from accountability for loses due to acts of
man, i.e., theft, robbery, arson, etc., in amounts in excess of Five Million pesos
(P5,000,000.00). (Emphases supplied.)
First off, there is nothing in the Constitution, laws, or even the COA rules expressly
granting the COA original and exclusive jurisdiction over money claims due from or
owing to the government.
For one, Batas Pambansa Blg. 129 as amended by RA 7691 vests jurisdiction over money
claims in the first and second level courts, thus:
Sec. 19. Jurisdiction in civil cases. - Regional Trial Cour ts shall exercise exclusive
original jurisdiction:
xxxx
(8) In all other cases in which the demand, exclusive of interest, damages of whatever
kind, attorney's fees, litigation expenses, and costs or the value of the prope1iy in
controversy exceeds [three hundred thousand pesos (P300,000.00)] or, in such other cases
in Metro Manila, where the demand exclusive of the abovementioned items exceeds [four
hundred thousand pesos (P400,000.00)].
xxx xxx xxx

Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and

Municipal Circuit Trial Courts in Civil Cases. - Metropolitan Trial Courts, Municipal
Trial Courts, and Municipal Circuit Trial Courts shall exercise:
(1) Exclusive original jurisdiction over civil actions and probate proceedings, testate and
intestate, including the grant of provisional remedies in proper cases, where the value of
the personal property, estate, or amount of the demand does not exceed [three hundred
thousand pesos (P300,000.00)] or, in Metro Manila where such personal property, estate,
or amount of the demand does not exceed [four hundred thousand pesos (P400,000.00)],
exclusive of interest, damages of whatever kind, attorney's fees, litigation expenses, and
costs, the amount of which must be specifically alleged: Provided, That interest, damages
of whatever kind, attorney's fees, litigation expenses, and costs shall be included in the
determination of the filing fees: Provided, further, That where there are several claims or
causes of actions between the same or different parties, embodied in the same complaint,
the amount of the demand shall be the totality of the claims in all the causes of action,
irrespective of whether the causes of action arose out of the same or different
transactions;
Actions against the State are not excluded from the jurisdiction of courts. For although, as
a rule, the State is immune from suit,[38] it is settled that "a suit against the State is
allowed when the State gives its consent, either expressly or impliedly. Express consent
is given through a statute, while implied consent is given when the State enters into a
contract or commences litigation."[39]

We recently held that although the COA exercises broad powers pertaining to audit
matters, it is devoid of authority to determine the validity of contracts, lest it encroaches
upon such judicial function.[40] We further decreed that the COA's jurisdiction is limited
to audit matters only. Hence, we set aside a ruling of the COA disapproving a deed of
exchange between the City Government of Cebu and a private corporation.[41] The case
clearly demonstrated why it was not unusual for the government and its instrumentalities
to be sued in the regular courts even when the action involved government funds or
property since such an action may entail resolution of issues falling within the
jurisdiction of the courts.
Other tribunals/adjudicative bodies, too, may have concurrent jurisdiction with the COA
over money claims against the government or in the audit of the funds of government
agencies and instrumentalities.

In Development Bank of the Philippines v. COA,[42] we held that under existing laws, the
COA does not have the sole and exclusive power to examine and audit government
banks. The Central Bank has concurrent jurisdiction to examine and audit, or cause the
examination and audit, of government banks. Neither was there any statutory obstacle for
a government bank to hire a private external auditor to examine its accounts without
prejudice to its being concurrently subject to a COA audit. The Court took into account,
among others, the Constitutional Commission's deliberations showing that the framers of
the Constitution downvoted a proposal to add the word "exclusive" to describe the
powers of the COA under Article IX-D, Section 2(1) of the 1987 Constitution. It also
cannot be said, therefore, that the COA's "power, authority, and duty to x x x settle all
accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government" is exclusive.

Further, Civil Service Commission (CSC) v. Pobre[43] recognized a specific case over

which the CSC and the COA each had a role in processing the leave benefits of public
officers and employees, requiring the expenditure and use of funds, thus:
While the determination of leave benefits is within the functions of the CSC as the central
personnel agency of the government, the duty to examine accounts and expenditures
relating to such benefits properly pertains to the COA. Where government expenditures
or use of funds is involved, the CSC cannot claim exclusive jurisdiction simply because
leave matters are involved. Thus, even as we recognize CSC's jurisdiction in this case, its
power is not exclusive as it is shared with the COA.
There, the Court reversed the ruling of the Court of Appeals that the COA had sole
jurisdiction over the matter of computing a government employee's terminal leave
benefits.

Later, Pobre would be cited in De Jesus v. Civil Service Commission[44] where we held

that although the COA had primary jurisdiction to determine the legality and regularity of
the grant of allowances and benefits to members of the boards of water districts
designated by the Local Water Utilities Administration (LWUA), the CSC similarly had
jurisdiction to pass upon the issue in relation to an administrative case against LWUA
officers for violation of the Code of Conduct and Ethical Standards for Public Officials
and Employees.

In the recent case of Tourism Infrastructure and Enterprise Zone Authority (TIEZA) v.
Global-V Builders Co.,[45] the Court ruled that where TIEZA and the private contractor
validly agreed to submit their construction dispute to arbitration, the CIAC properly
exercised its jurisdiction over the case. Thus:
II. Whether or not the Court of Appeals erred in ruling that COA had no primary
jurisdiction over the money claim of Global-V.

TIEZA contends that the Court of Appeals erred in ruling that CIAC had jurisdiction over
the dispute notwithstanding the primary jurisdiction of COA over the money claim of
Global-V. Global-V's demand for payment should have first been brought as a money
claim before COA, which has primary jurisdiction over the matter. The matter of
allowing or disallowing the requests for payment is within the primary power of COA to
decide. If there is a refusal on the part of a government official to grant a money claim,
the proper remedy is with COA.

The contention is unmeritorious.

The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and
the law. Section 4 of E.O. No. 1008 provides that the CIAC shall
have original and exclusive jurisdiction over disputes arising from, or connected with,
construction contracts, which may involve government or private contracts, provided that
the parties to a dispute agree to submit the dispute to voluntary arbitration.
In LICOMCEN, Inc. v. Foundation Specialists, Inc., the Court held that the text of
Section 4 of E.O. No. 1008 is broad enough to cover any dispute arising from, or
connected with, construction contracts, whether these involve mere contractual money
claims or execution of the works. x x x
Considering that TSJV and DOTr had voluntarily invoked CIAC's jurisdiction, the power
to hear and decide the present case has thereby been solely vested in the CIAC to the
exclusion of COA. Being a specific law, EO No. 1008 providing for CIAC's exclusive
jurisdiction prevails over PD 1445, granting the COA the general jurisdiction over money
claims due from or owing to the government. For this reason alone, the GOA should have
stayed its hands from modifying the CIAC's final arbitral award here, let alone from
claiming exclusive jurisdiction over the case.

II. The types of money claims brought before the COA must be distinguished.

There is merit to Chairperson Aguinaldo's opinion pertaining to the two (2) main types of
money claims which the COA may be confronted with.

The first type covers money claims originally filed with the COA. Jurisprudence specifies
the nature of the money claims which may be brought to the COA at first instance.
In Euro-Med Laboratories, Phil., Inc. v. Province of Batangas,[46] we explicitly ordained
that these cases are limited to liquidated claims, viz.:
The scope of the COA's authority to take cognizance of claims is circumscribed,
however, by an unbroken line of cases[47] holding statutes of similar import to mean
only liquidated claims, or those determined or readily determinable from vouchers,
invoices, and such other papers within reach of accounting officers. Petitioner's claim
was for a fixed amount and although respondent took issue with the accuracy of
petitioner's summation of its accountabilities, the amount thereof was readily
determinable from the receipts, invoices and other documents. Thus, the claim was well
within the COA's jurisdiction under the Government Auditing Code of the Philippines.
(Emphasis and underscoring supplied.)
We agree with Chairperson Aguinaldo that the following discussion in Uy involved the
first type of money claims, viz.:
SECOND. The case at bar brings to the fore the parameters of the power of the
respondent COA to decide administrative cases involving expenditure of public funds.
Undoubtedly, the exercise of this power involves the quasi-judicial aspect of
government audit. As statutorily envisioned, this pertains to the "examination, audit, and
settlement of all debts and claims of any sort due from or owing to the Government or
any of its subdivisions, agencies and instrumentalities". The process of government audit
is adjudicative in nature. The decisions of COA presuppose an adjudicatory process
involving the determination and resolution of opposing claims. Its work as adjudicator of
money claims for or against the government means the exercise of judicial discretion.
It includes the investigation, weighing of evidence, and resolving whether items
should or should not be included, or as applied to claim, whether it should be
allowed or disallowed in whole or in part. Its conclusions are not mere opinions but are
decisions which may be elevated to the Supreme Court on certiorari by the aggrieved
party.[48] (Emphasis supplied)
We, too agree with Chairperson Aguinaldo that the second type of money claims refers to
those which arise from a final and executory judgment of a court or arbitral body. He also
correctly cited Uy, reiterating our undeviating jurisprudence that final judgments may no
longer be reviewed or, in any way be modified directly or indirectly by a higher court, not
even by the Supreme Court, much less, by any other official, branch or department of
government.

On this score, we lay down a conceptual framework for the guidance of the COA, the
Bench, and the Bar pertaining to the COA's audit power vis-a-vis the second type of
money claims which may be brought before it during the execution stage.

III. The COA's audit review power over money claims already confirmed by final
judgment of a court or other adjudicative body is necessarily limited.

A. Once a court or other adjudicative body validly acquires jurisdiction over a money
claim against the government, it exercises and retains jurisdiction over the subject matter
to the exclusion of all others. including the COA.

Even if we broadly interpret the COA's jurisdiction as including all kinds of money
claims, it cannot take cognizance of factual and legal issues that have been raised or
could have been raised in a court or other tribunal that had previously acquired
jurisdiction over the same. To repeat, the COA's original jurisdiction is actually limited to
liquidated claims and quantum meruit cases. It cannot interfere with the findings of a
court or an adjudicative body that decided an unliquidated money claim involving issues
requiring the exercise of judicial functions or specialized knowledge and expertise which
the COA does not have in the first place.

B. The COA has no appellate review power over the decisions of any other court or
tribunal.

Once judgment is rendered by a court or tribunal over a money claim involving the State,
it may only be set aside or modified through the proper mode of appeal. It is elementary
that the right to appeal is statutory.[49] There is no constitutional nor statutory provision
giving the COA review powers akin to an appellate body such as the power to modify or
set aside a judgment of a court or other tribunal on errors of fact or law.

C. The COA is devoid of power to disregard the principle of immutability of final

judgments.

When a court or tribunal having jurisdiction over an action renders judgment and the
same becomes final and executory, res judicata sets in Norkis Trading Corp. v.
Buenavista[50] explains:
x x x Res judicata is defined as a matter adjudged; a thing judicially acted upon or
decided; a thing or matter settled by judgment. Under this doctrine, an existing final
judgment or decree rendered on the merits, and without fraud or collusion, by a court of
competent jurisdiction, upon any matter within its jurisdiction, is conclusive of the rights
of the parties or their privies, in all other actions or suits in the same or any other judicial
tribunal of concurrent jurisdiction on the points and matters in issue in the first suit. To
state simply, a final judgment or decree on the merits by a court of competent jurisdiction
is conclusive of the rights of the parties or their privies in all later suits on all points and
matters determined in the former suit.

Res judicata has two aspects: bar by prior judgment and conclusiveness of judgment as
provided under Section 47 (b) and (c), Rule 39, respectively, of the Rules of
Court. Under the doctrine of conclusiveness of judgment, facts and issues actually
and directly resolved in a former suit cannot be raised in any future case between
the same parties, even if the latter suit may involve a different cause of
action. (Emphasis supplied.)
Res judicata and immutability of final judgments are closely intertwined. Jurisprudence
teaches:
The settled and firmly established rule is that a decision that has acquired finality
becomes immutable and unalterable. This quality of immutability precludes the
modification of the judgment, even if the modification is meant to correct erroneous
conclusions of fact and law. The orderly administration of justice requires that, at the
risk of occasional errors, the judgments/resolutions of a court must reach a point of
finality set by the law. The noble purpose is to write finis to disputes once and for all.
This is a fundamental principle in our justice system, without which no end to litigations
will take place. Utmost respect and adherence to this principle must always be maintained
by those who exercise the power of adjudication. Any act that violates such principle
must immediately be struck down. Indeed, the principle of conclusiveness of prior
adjudications is not confined in its operation to the judgments of courts, but extends as
well to those of all other tribunals exercising adjudicatory powers.[51] (Emphasis
supplied.)
In Uy, we enunciated that the COA did not have the power to modify the final and
executory judgment of another adjudicative body, viz.:
THIRD. There is a further impediment in the exercise of the audit power of the
respondent COA. The MSPB decision of January 29, 1993 became final and executory
when the Provincial Government of Agusan del Sur failed to appeal within the
reglementary period. To be sure, the decision has already been partially executed as the
Acting Provincial Treasurer had paid petitioners some of their backwages. Again, our
undeviating jurisprudence is that final judgments may no longer be reviewed or in any
way modified directly or indirectly by a higher court, not even by the Supreme Court,
much less by any other official, branch or department of Government. Administrative
decisions must end sometime as public policy demands that finality be written on
controversies. In the case at bar, the action taken by COA in disallowing the further
payment by the Provincial Government of Agusan del Sur ofbackwages due the
petitioners amended the final decision of the MSPB. The jurisdiction of the MSPB to
render said decision is unquestionable. This decision cannot be categorized as
void. Thus, we cannot allow the COA to set it aside in the exercise of its broad
powers of audit. The audit authority of COA is intended to prevent irregular,
unnecessary, excessive, extravagant or unconscionable expenditures, or uses of
government funds and properties. Payment of backwages to illegally dismissed
government employees can hardly be described as irregular, unnecessary, excessive,
extravagant or unconscionable. This is the reason why the Acting Provincial Treasurer,
despite the pendency of his query with the COA, proceeded to release government funds
in partial payment of the claims of petitioners.[52] (Emphasis supplied.)
True, jurisprudence recognizes certain exceptions to the rule on immutability of final
judgments. In fact, Estalilla v. Commission on Audit[53] contains an exhaustive list of
these exceptions, viz.:
[T]he rule [on immutability of final judgments] bows to recognized exceptions, like: (1)
the conection of clerical enors; (2) the making of socalled nunc pro tunc entries that
cause no prejudice to any party; and (3) in case of void judgments. The Court has further
allowed the relaxation of the rigid rule on the immutability of a final judgment in order to
serve substantial justice in considering: (1) matters of life, liberty, honor or property; or
(2) the existence of special or compelling circumstances; or (3) the merits of the case; or
(4) a cause not entirely attributable to the fault or negligence of the party favored by the
suspension of the rules; or (5) a lack of any showing that the review sought is merely
frivolous and dilatory; or (6) the other party will not be unjustly prejudiced thereby.
Here, the COA refers to our decisions in University of the Philippines (UP) v. Dizon,
[54]
Rallos v. Cebu City,[55] Star Special Watchman v. Puerto Princesa City,
[56]
Department of Environment and Natural Resources v. United Planners
Consultants, Inc.,[57] Binga Hydroelectric Plant, Inc. v. Commission on
Audit[58] and Province of Aklan v. Jody King Construction and Development Corp.,
[59]
where we allegedly sustained its primary jurisdiction over final money judgments
against the State.

We put these cases in context.

In UP, we held that there could be no final and executory decision against UP because
there was an invalid service of the trial court's decision when it was not effected on UP's
counsel of record, but on someone else. We also ruled that both the trial court and the
Court of Appeals erred in considering UP's appeal to have been belatedly filed. We then
held that since UP's notice of appeal was timely filed, the trial court's decision against it
cannot be deemed to have attained finality. More, the trial court's award of damages
could not have attained finality since we noted that the assailed decision granting the
same did not state the factual and legal bases therefor in violation of Section 14, Article
VIII[60] of the 1987 Constitution and Section 1, Rule 36[61] of the Rules of Court. Verily,
we concluded that the trial court's decision against UP was rendered without due process.
A decision rendered without due process is undeniably void[62] and an exception to the
principle of immutability of final judgments. More important, the UP case did not even
involve any COA decision or ruling which may have set aside a final and executory
judgment of the court. In any event, as obiter, we stated that the COA still had
jurisdiction for the purpose of execution of a money judgment that may have already
been determined and liquidated by the courts. Thus, in UP, we referred to SC
Administrative Circular No. 10-00, viz.:
TO : All Judges of Lower Courts
SUBJEC : Exercise of Utmost Caution, Prudence and Judiciousness in the Issuance of Writs
T of Execution to Satisfy Money Judgments Against Government Agencies and Local
Government Units

In order to prevent possible circumvention of the rules and procedures of the Commission
on Audit, judges are hereby enjoined to observe utmost caution, prudence and
judiciousness in the issuance of writs of execution to satisfy money judgments against
government agencies and local government units.

Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31
SCRA 617, 625 [1970]), this Court explicitly stated:
The universal rule that where the State gives its consent to be sued by private parties
either by general or special law, it may limit claimant's action 'only up to the completion
of proceedings anterior to the stage of execution' and that the power of the Court
ends when the judgment is rendered, since government funds and properties may
not be seized under writs of execution or garnishment to satisfy such judgments, is
based on obvious considerations of public policy. Disbursements of public funds must be
covered by the corresponding appropriation as required by law. The functions and
public services rendered by the State cannot be allowed to be paralyzed or disrupted
by the diversion of public funds from their legitimate and specific objects, as
appropriated by law.
Moreover, it is settled jurisprudence that upon determination of State liability, the
prosecution, enforcement or satisfaction thereof must still be pursued in accordance
with the rules and procedures laid down in P.D. No. 1445, otherwise known as the
Government Auditing Code of the Philippines (Department of Agriculture v. NLRC, 227
SCRA 693, 701-02 [1993] citing Republic vs. Villasor, 54 SCRA 84 [1973]). All
moneyclaims against the Government must first be filed with the Commission on Audit
which must act upon it within sixty days. Rejection of the claim will authorize the
claimant to elevate the matter to the Supreme Court on certiorari and in effect sue the
State thereby (P.D. 1445, Sections 49-50).

However, notwithstanding the rule that government properties are not subject to levy and
execution unless otherwise provided for by statute (Republic v. Palacio, 23 SCRA 899
[1968]; Commissioner of Public Highways v. San Diego, supra) or municipal ordinance
(Municipality of Makati v. Court of Appeals, 190 SCRA 206 [1990]), the Court has, in
various instances, distinguished between government funds and properties for public use
and those not held for public use. Thus, Viuda de Tan Toea v. Municipal Council of
Iloilo (49 Phil. 52 [1926]), the Court ruled that "[w]here property of a municipal or other
public corporation is sought to be subjected to execution to satisfy judgments recovered
against such corporation, the question as to whether such property is leviable or not is to
be determined by the usage and purposes for which it is held." The following can be
culled from Viuda de Tan Toco v. Municipal Council of Iloilo:

1. Properties held for public uses - and generally everything held for
governmental purposes - are not subject to levy and sale under execution
against such corporation. The same rule applies to funds in the hands of a
public officer and taxes due to a municipal corporation.

2. Where a municipal corporation owns in its proprietary capacity, as

distinguished from its public or governmental capacity, property not used or
used for a public purpose but for quasi private purposes, it is the general
rule that such property may be seized and sold under execution against the
corporation.

3. 3. Property held for public purposes is not subject to execution merely

because it is temporarily used for private purposes. If the public use is
wholly abandoned, such property becomes subject to execution.
This Administrative Circular shall take effect immediately and the Court Administrator
shall see to it that it is faithfully implemented.

Issued this 25th day of October 2000 in the City of Manila. (Emphasis supplied.)
Rallos v. Cebu City,[63] Star Special Watchman & Detective Agency Inc. v. Puerto
Princesa City[64] and Department of Environment and Natural Resources v. United
Planners Consultants, Inc.[65] decreed that although the award was final and executory,
the COA still had to approve the same for payment. Nothing in these cases suggested that
the COA may overturn a court's final and executory money judgment against the State.

In fact, in its own Decision No. 2014-283 dated September 12, 2014,[66] in Re: Claim of
Monolithic Construction and Concrete Products, Inc. [Monolithic] against the
Department of Transportation and Communications, for payment of money judgment
relative to the contract for the Masbate Airport Asphalt Overlay and Extension of
Runway Project amounting to [Php]4,152,085.22, plus legal interest computed from the
date of finality of the Supreme Court Resolution or on June 1, 2010, and Attorney's Fees
amounting to [Php]150,000.00, the COA itself granted Monolithic's claim and
recognized that the final and executory judgment in the latter's favor "could no longer be
modified in any respect."[67] Notably, when TSJV confronted the COA with Monolithic,
the COA was simply and conspicuously silent. It totally failed to justify why it did not
apply Monolithic here even though Monolithic and TSJV were similarly situated insofar
as the finality of the respective money judgments in their favor. If this is not unequal
protection, what is?

We now proceed to Binga.[68] It involved a void compromise agreement between a party

and the government since the same did not bear the requisite recommendation of the
COA and the President, nor the approval of Congress pursuant to EO No. 292. Such void
compromise agreement cannot be ratified, much less, validated by approval of the Court
of Appeals. For this reason, therefore, there was no final and executory judgment to
speak of, as a result of which, the COA cannot be deemed to have lost jurisdiction to
disapprove a disbursement based on a void compromise agreement.

Finally, in the Province of Aklan,[69] we held that the COA should take cognizance of the
case notwithstanding a final and executory decision of the trial court. On this score, we
recognized the COA's competence over the action for money judgment, involving as it
did a liquidated money claim over which the COA has original and primary jurisdiction.

D. The COA's exercise of discretion in approving or disapproving money claims that

have been determined by final judgment is akin to the power of an execution court.

To recall, we stated in UP[70] that the primary jurisdiction of the COA over unliquidated
money claims litigated in regular courts referred to the execution of the court's final and
executory decision. There, we cited SC Administrative Circular No. 10-00[71] and held
that "the settlement of the monetary claim was still subject to the primary jurisdiction of
the COA despite the final decision of the [trial court.]"[72] Thus, we invalidated the trial
court-issued writ of execution in UP since garnishment of its funds to satisfy the
judgment awards of actual and moral damages, including attorney's fees was invalid if
there was no special appropriation by Congress to cover the liability.

To emphasize, the COA's jurisdiction over final money judgments rendered by the courts
pertains only to the execution stage. The COA's authority lies in ensuring that public
funds are not diverted from their legally appropriated purpose to answer for such money
judgments. And rightly so since the COA is tasked to guarantee that the enforcement of
these final money judgments be in accord with auditing laws which it ought to
implement.

Indeed, a final and executory judgment can no longer be disturbed, altered, or modified in
any respect, and that nothing further can be done but to execute it.[73] Succinctly, an
execution court may no longer alter a final and executory judgment save under certain
exceptions such as (i) the correction of clerical errors; (ii) the so-called nunc pro
tunc entries which cause no prejudice to any party; (iii) void judgments; and (iv)
whenever circumstances transpire after the finality of the decision rendering its execution
unjust and inequitable. This is true even if the purpose of the modification or amendment
is to correct perceived errors of law or fact.[74]

In relation to its audit review power, therefore, the COA here should have restricted
itselfto determining the source of public funds from which the final and executory arbitral
award may be satisfied pursuant to the general auditing laws the COA is tasked to
implement.

IV. In sum, the COA gravely abused its discretion when it modified or amended the
CIAC's final and executory judgment.

To recapitulate, the final and executory arbitral award in this case was validly issued by
the CIAC in the exercise of its jurisdiction over the construction dispute between TSJV
and the DOTr. These parties voluntarily submitted themselves to the arbitration
proceedings below. In the end, both parties accepted the CIAC's modified final award and
neither one nor the other sought a review thereof with the Court of Appeals or this Court.
As it was, the CIAC's final award is conclusive and binding on all the factual and legal
issues taken up therein and bars their re-litigation in any subsequent proceeding between
the parties.

To be sure, when the COA disallowed more than half of the arbitral award here, it did not
raise any jurisdictional grounds nor invoke any of the exceptions to the doctrine of
immutability of final judgments. What the COA did was reweigh the evidence on record
and point out purported errors of fact and law in the arbitral award. This is certainly
beyond the COA's constitutional mandate to audit and review the enforcement of money
claims against the government. It is also contrary to jurisprudentially defined limitations
to its audit powers. To accept the COA's theory that it has absolute discretion to disregard
final and executory judgments rendered by courts and other adjudicative bodies in valid
exercise of their jurisdiction would wreak havoc on the efficient and orderly
administration of justice. The COA then becomes a super body over and above the rule of
law.

Grave abuse of discretion is committed when an act is: 1) done contrary to the
Constitution, the law or jurisprudence, or 2) executed whimsically or arbitrarily in a
manner so patent and so gross as to amount to an evasion of a positive duty, or to a
virtual refusal to perform the duty enjoined.[75]

The COA's grave abuse of discretion here lies in its apparent overestimation of its audit
review powers in connection with final money. claims properly litigated and finally
detennined in another forum, leading it to transgress long standing legal principles and
case doctrine. This, the Court simply cannot allow. It is well-settled that the jurisdiction
to delimit constitutional boundaries has been given to this Court.[76] We will not shirk our
duty to rein in State actors or agents who overstep their authority.

While we rule that the COA may no longer modify the amount of the award, it is not
within the Court's power to determine the manner for enforcement or satisfaction thereof
as this should still be pursued in accordance with the rules and procedures laid down in
P.D. No. 1445 and other relevant laws. We cannot substitute our discretion for that of the
COA in this matter. More so in view of the undisputed fact that the certificate of
availability of funds to satisfy the arbitral award already expired on December 31, 2016.
[77]
We, therefore, resolve to remand this case to the COA for disposition of TSJV's
petition for full payment of the balance of the final arbitral award in accordance with the
guidelines established in this Decision.

ACCORDINGLY, the petition is GRANTED. The Decision No. 2016-395 dated

December 21, 2016 and Resolution No. 2018-047 dated January 22, 2018 in COA C.P.
Case No. 2015-622 are REVERSED and SET ASIDE insofar as the same disapproved
payment of Claim Nos. 1, 3, 5, and 8. The case is REMANDED to the Commission on
Audit for the expeditious payment of the balance of the arbitral award in the amount of
Php111,412,565.54.

SO ORDERED.

EN BANC
[ G.R. No. 230112, May 11, 2021 ]
GLOBAL MEDICAL CENTER OF LAGUNA, INC., PETITIONER, VS. ROSS
SYSTEMS INTERNATIONAL, INC., RESPONDENT.

[G.R. No. 230119, May 11, 2021]

ROSS SYSTEMS INTERNATIONAL, INC., PETITIONER, VS. GLOBAL

MEDICAL CENTER OF LAGUNA, INC., RESPONDENT.

DECISION

CAGUIOA, J:

Before the Court are Consolidated[1] Petitions[2] for Review on Certiorari (petitions)

under Rule 45 of the Rules of Court (Rules) filed by Ross Systems International, Inc.,
(RSII) and Global Medical Center of Laguna, Inc. (GMCLI), both assailing the
Decision[3] dated October 28, 2016 (assailed Decision) of the Court of Appeals, Sixth
Division (CA), in CA-G.R. SP No. 145753.

The assailed Decision affirmed with modification the arbitral award[4] dated May 10,
2016 of the Construction Industry Arbitration Commission (CIAC), which mainly
adjudged: (1) GMCLI was without authority to withhold and remit the 2% Creditable
Withholding Tax (CWT) on the cumulative amount of 15 progress billings of RSII; (2)
RSII was not entitled to the release of the amount of P4,884,778.92, equivalent to the 2%
CWT withheld; and (3) RSII was still entitled to the amount of P1,088,214.33,
representing the balance due after deducting from P8,131,474.83 the 2% CWT on
Progress Billings Nos. 1 to 15 (in the amount of P3,941,769.00) and the payment already
made to RSII (in the amount of P3,101,491.00).[5]

The CA likewise denied the motion for reconsideration of RSII through its
Resolution[6] dated February 21, 2017.

Factual Antecedents

GMCLI engaged the services of RSII for the construction of its hospital in Cabuyao,
Laguna, in accordance with a Construction Contract[7] (Contract) which valued the entire
construction project at P248,500,000.00,[8] with 15% of said contract price to be paid to
RSII as down payment, and the remaining balance to be paid in monthly installments
based on the percentage of work accomplished.[9] Under Section 9[10] of the Contract, all
taxes[11] on the services rendered were for the account of RSII. Finally, an arbitration
clause[12] additionally stipulated the parties' resort to arbitration in the event of dispute.
On April 12, 2015, RSII submitted to GMCLI its Progress Billing No. 15, which
indicated that it had already accomplished 79.31% of the project, equivalent to
P9,228,286.77, inclusive of VAT. After receipt and upon evaluation of GMCLI, however,
it estimated that the accomplished percentage was only at 78.84% of the entire contract
price or equivalent to P7,043,260.00 for Progress Billing No. 15,[13] to wit:

Accomplishment Percent as of April 12, 2015:

As submitted by [RSII]: 79.31% x 248,500,000.00 = P197,088,497.00

As submitted by [GMCLI]: 78.84% x 248,500,000.00 = P195,920,749.00[14]

GMCLI, after its internal audit, learned that it was unable to withhold and remit 2% CWT
on RSII's Progress Billings Nos. 1 to 14.[15] On April 29, 2015, in order to make up for its
previous non-remittances, GMCLI withheld the 2% CWT not only from Progress Billing
No. 15 (or from the amount of P7,043,260.00) but from the cumulative amount of all
Progress Billings Nos. 1-15[16] (or from the amount of P197,088,497.00, equivalent to the
submitted 79.31% accomplishment of RSII).[17] Thus, for RSII's Progress Billing No. 15
priced at P7,043,260.00., GMCLI only paid a total of P3,101,491.00, with computation as
cited by the CIAC arbitral award[18] as follows:

Evaluated billing at 78.84% accomplishment P7,043,260.00

Less: 2% of P197,088,497.01 (submitted billing of (P3,941,769.00)
RSII, instead of P195,920,749.00, as submitted by _____________
GMCLI)
Payment P3,101,491.00

RSII sent two demand letters[19] to GMCLI, claiming that it still had a balance of
P4,884,778.92 to collect from the latter, under the following allegations: (1) GMCLI's
outstanding obligation under Progress Billing No. 15 should have been P8,131,474.83,
and not merely P7,043,260.00; and (2) GMCLI should not have belatedly withheld the
2% CWT on Progress Billings Nos. 1 to 14, but should only have withheld the 2% CWT
from Progress Billing No. 15.[20]

Proceedings before the CIAC

With its demand unheeded, RSII filed a complaint and request for arbitration before the
CIAC on August 6, 2015.[21] GMCLI filed a motion to dismiss on August 27, 2015,
[22]
assailing the jurisdiction of the CIAC. A Case Management Conference was held on
October 20, 2015,[23] followed by a Preliminary Conference on November 23, 2015,
[24]
where a set of Terms of Reference (TOR) was signed.[25] After the parties submitted
their respective affidavits and pieces of documentary evidence,[26] and presented their
respective witnesses,[27] both RSII and GMCLI submitted their Supplemental Draft
Awards to the CIAC on April 26, 2016.[28]

On May 10, 2016, the CIAC promulgated its Final Award,[29] which ruled that:

1. The CIAC has jurisdiction over the instant case as it involves a construction
dispute.
2. [GMCLI] is not authorized to withhold and remit the CWT of 2% on the
cumulative amount based on Progress Billings Nos. 1 to 15.
3. [RSII] is not entitled to the release of the amount of [P]4,884,778,92 as the
balance for Progress Billing No. 15.
4. [GMCLI] is not entitled to moral damages.
5. No attorney's fees shall be paid by either party to the other.
6. The cost of arbitration shall be shouldered by the Parties in proportion to their
respective claims.[30]

The CIAC held that the crux of the controversy was the correct computation of the
amount due RSII under Progress Billing No. 15, and since the same claim stemmed from
a construction contract, said controversy qualified as a construction dispute within the
contemplation of Executive Order No. (E.O.) 1008,[31] and within the ambit of the CIAC.

The CIAC further determined that with respect to the propriety of GMCLI's act of
withholding and remitting the 2% CWT on the cumulative amount based on Progress
Billings Nos. 1 to 15, GMCLI had no more authority to withhold and remit the same,
[32]
reasoning thus:

Both [RSII] and GMCLI agree that, citing Revenue Regulation No. 2-98, as amended
(RR 2-98), the 2% withholding tax must be withheld or deducted by the latter, as the
withholding agent, from its payments for the former's services at the time said payments
were made. x x x.

xxxx

Applying the above provision to this case, [GMCLI]'s obligation to withhold the 2%
withholding tax on the income derived by the [RSII] from the former's payments of
Progress Billings Nos. 1 to 14 arose at the time it paid for each of said progress billings
submitted to it by [RSII]. Not later, or worse, much later spanning at least three years, as
what [GMCLI] did.

To justify its action of applying the 2% CWT deduction on the cumulative amount from
Progress Billing[s] No[s]. 1 to [] 15, GMCLI recorded the amount in two installments as
incomes of [RSII] for 2015. x x x This is falsehood and contrary to the above-cited
provision of the Rules and Regulations of the BIR.[33]
However, the CIAC held that despite GMCLI's lack of authority to withhold the 2%
CWT on the cumulative bill, RSII was still not entitled to the release of P4,884,778.92, or
the amount equivalent to the 2% CWT withheld on the cumulative billings. Apart from
observing that there was actually no dispute as to the computation[34] as the same was not
contested by GMCLI,[35] the CIAC held that RSII was no longer entitled to the said
amount because at the time the same was remitted to the Bureau of Internal Revenue
(BIR), RSII had not yet paid income taxes on the payments from Progress Billings Nos. 1
to 15.[36]

In addition, the CIAC held that the fact that RSII did declare the income taxes on those
payments on March 22, 2016, or after GMCLI remitted the cumulated 2% CWT to BIR,
was of no moment. Applying the doctrine of Last Clear Chance[37] analogously, the CIAC
held that RSII, having knowledge of GMCLI's prior remittance, had the last clear
opportunity to avoid the loss through a double payment of the 2% CWT. It held that
RSII's failure to avert the effective double payment could only be held on its own
account.[38]

Finally, the CIAC held that GMCLI was not entitled to its claim of moral damages, as it
could not be considered faultless, and that neither party could be awarded attorney's fees
due to both parties' contributory lapses.[39]

Proceedings before the CA

Aggrieved, RSII filed a petition for review under Rule 43 of the Rules before the CA and
assailed the CIAC arbitral award, imputing the following as errors: (1) the ruling that it
was not entitled to the release of P4,884,778.92 as the balance of the payment for
Progress Billing No. 15, and (2) the finding that it was not entitled to attorney's fees.

In its Decision[40] dated October 28, 2016, the CA partially granted the petition, the
dispositive portion of which reads:

WHEREFORE, the appeal is PARTIALLY GRANTED. The Final Award dated [May
10, 2016] issued by the Construction Industry Arbitration Commission (CIAC) in CIAC
Case No. 20-2015 is AFFIRMED with MODIFICATION in that [RSII] is still entitled
to the payment of the amount of [P]1,088,214.83, which represents the balance after
deducting from [P]8,131,474.83 (at 78.84% work accomplishment) the 2% CWT on
Progress Billing[s] Nos. 1 to 15 in the amount of [P]3,941,769.00 and the payment
already made to RSII in the amount of [P]3,101,491.00.[41]

In affirming the CIAC's award, the CA ruled that the amount of P3,815,996.50,
equivalent to the 2% CWT on Progress Billings Nos. 1 to 14 was already remitted to the
BIR,[42] and it would be unjust to require GMCLI, as the withholding agent, to effectively
shoulder the amount of tax which RSII had the legal duty to pay.[43]
With respect to granting RSII's entitlement to P1,088,214.83, the CA reasoned thus:

[RSII] is still, however, entitled to collect the amount of P1,088,214.83.

To recall, [GMCLI] initially evaluated [RSII]'s accomplishment at 78.84% and computed

the amount due to [RSII] at [P]7,043,260.00. Subtracted from this amount was the 2%
CWT on the amount of [P]197,088,497.01, equivalent to [P]3,941,769,00, which
[GMCLI] already remitted to the BIR. Thus, [GMCLI] paid [RSII] the amount of
[P]3,101,491.00.

[RSII] accepted [GMCLI]'s evaluation of its work accomplishment at 78.84% but argued
that the amount due for Progress Billing No. 15 was [P]8,131,474.83, and not
[P]7,043,260.00, and computed the amount it is still entitled to collect from [GMCLI] as
follows:

Submitted billing at 78.84% Accomplishment P8,131,474,83.

Less:
2% withholding tax for Progressive Billing No.
P145,204.91
15
P7,986,269.92
Less:
Payment made to [RSII] P3,101,491.00

Amount due / collectible P4,884,778.92

The CIAC ruled that there is no issue on the [RSII]'s computation since [GMCLI] did not
contest the same. This said, [RSII] is still entitled to the amount of P1,088,214.83, which
is computed as follows:

Submitted billing at 78.84%

Accomplishment P8,131,474,830
Less:
Payment made to [RSII] P3,101,491.00

2% withholding tax for Progressive

Billing[s] Nos. 1 to 15 P3,941,769.00

Amount due / collectible P1,088,214.83[44]

Both RSII's Motion for Partial Reconsideration and GMCLI's Motion for Reconsideration
were denied through the CA's Resolution[45] dated February 21, 2017. Hence the separate,
now consolidated, petitions filed by GMCLI and RSII before the Court.
On the one hand, GMCLI prays that the assailed Decision be partially modified and the
CIAC arbitral award be reinstated in toto.[46] On the other, RSII claims that it is entitled
not only to the balance of P1,088,214.83, but to the amount of P3,815,996.50, equivalent
to the allegedly improperly withheld 2% CWT, or that, in the alternative, GMCLI should
be ordered to issue BIR Form 2307 (Certificate of Creditable Tax Withheld at Source) in
favor of RSII.[47]

Issues

The parties come before the Court bearing the following consolidated issues: (1) whether
RSII is entitled to the release of P3,815,996.50 or the equivalent of 2% CWT on Progress
Billings Nos. 1 to 14, in addition to the award of P1,088,214.83 and (2) whether GMCLI
may be ordered to issue BIR Form 2307 to RSII.

The Court's Ruling

The Court's resolution of the case before it is three-pronged and involves: (1) a revisit and
untangling of the relevant laws and case pronouncements on the extent of judicial review
of CIAC arbitral awards;

(2) a decisive harmonization of the standing laws on CIAC review vis-à-vis perceptible

Constitutional limitations; and finally, (3) a determination of rights of the parties in
accordance with existing tax laws on creditable withholding tax.

I - Extent of Judicial Review vis-à-vis CIAC awards

The case at bar presents the Court a timely opportunity to review and demarcate the laws
and rules relevant to the relationship between the courts and the CIAC. Seen through the
lens of the national policy of enabling alternatives to dispute resolution, the Court here
takes a second look at judicial review and the specific mandate and authority of the
CIAC, with the end of tracing how the extent of the former's reach over the latter, or the
understanding thereof, has evolved over the years.

As will be seen in the succeeding discussions, the historical arc of this relationship
appears to maintain the early, original legislative intent of judicial restraint in favor of the
empowerment of arbitration. More particularly, a historical survey informs the Court of
the intent of affording parties with a direct recourse to this Court in challenging a CIAC
arbitral award on pure questions of law[48] or one where only the application of the law as
to uncontroverted facts is raised, which, under CIAC's original charter, and apart from the
most excepting of circumstances, are the only questions that may be raised against it.

Original and Affirmed Intent of E.O. 1008

The construction industry, in and of itself wrought with factual complexity, is not a
stranger to the industry-specific arbitration. In its international history, as early as the turn
of the 20th century, the peculiar intricacies of the construction processes and contracts
have led to the call for industry-focused dispute resolution that implored professional
decision-making and arbitration mechanisms.[49]

In the Philippines, the birth of construction arbitration can be traced back to the issuance
of Presidential Decree No. (P.D.) 1746,[50] which created the Construction Industry
Authority of the Philippines (CIAP). Recognizing the need to provide a national
environment conducive for its expansion, P.D. 1746 was issued to address the then non-
cohesive government policies by providing a central agency tasked to accelerate as well
as regulate the growth of the industry.

On February 4, 1985, with the growth of the construction industry in full swing, then
President Ferdinand E. Marcos issued E.O. 1008 which created the Construction Industry
Arbitration Commission (CIAC) as the arbitration machinery for the Philippine
construction industry. Its policy sought to ensure "early and expeditious settlement of
disputes" in order to provide stability for its enterprises, and fairly insulate them from
bureaucratic lags.[51] Its whereas clause[52] clearly provided for the law's resolve to remove
the disputes of the industry from the languid and problematic machinery of the courts,
with the full awareness that disputes held up in the judiciary's dockets easily translated to
infrastructure projects that halted to a standstill.

The law likewise designed the CIAC awards to be decisive and conclusive, to wit:

SECTION 19. Finality of Awards. - The arbitral award shall be binding upon the parties.
It shall be final and [u]nappealable except on questions of law which shall be appealable
to the Supreme Court.

SECTION 20. Execution and Enforcement of Awards. As soon as a decision, order or

award has become final and executory, the Arbitral Tribunal or the single arbitrator, with
the concurrence of the CIAC, shall [motu proprio] or on motion of any interested party,
issue a writ of execution requiring any sheriff or other proper officer to execute said
decision, order or award.

Section 19 of the CIAC Charter provides that findings of fact of the CIAC are no longer
open to challenge on appeal, but its legal conclusions may be assailed before the Court.
This narrow corridor of remedies against a CIAC award as categorically provided for in
its Charter was broadened by two succeeding procedural rules which significantly altered
the review mode of a CIAC award, with the final sum a scenario akin to procedural laws
defeating specialized substantive law and its inceptive spirit.
Procedural Departures:
Revised Administrative Circular No. 1-95 and
Rule 43 of 1997 Rules of Civil Procedure

The first procedural law which effectively expanded the reach of judicial review vis-à-
vis CIAC arbitral awards is Revised Administrative Circular No. 1-95, [53] issued for the
Court by then Chief Justice Andres R. Narvasa on May 16, 1995, which amended
Circular No. 1-91 and prescribed the rules governing appeals to the CA from final orders
or decisions of the Court of Tax Appeals and quasi-judicial agencies. For the first time,
the CIAC was included in the enumeration of quasi-judicial agencies, the decisions of
which may be appealed to the CA.[54] This inclusion is the first clear departure from E.O.
1008's original provision that a CIAC arbitral award may only be appealed to this Court.
Further, Revised Administrative Circular No. 1-95 also substantially extended judicial
review powers in its categorical inclusion of questions of fact as those that may be
appealed, to wit:

3. WHERE TO APPEAL. — An appear under these rules may be taken to the Court of
Appeals within the period and in the manner herein provided, whether the appeal
involves questions of fact, of law, or mixed questions of fact and law. (Emphasis
supplied)

This procedural expansion was affirmed by the 1997 Rules of Civil Procedure, as
amended, particularly Rule 43 thereof,[55] which once more included the CIAC as among
the quasi-judicial agencies the decisions of which may be appealed to the CA with
respect to either points of fact, or law, or both.

In retrospect, what may be gleaned is that the enabling of the CA to review questions of
fact pertaining to the CIAC awards departed from E.O. 1008's original design of the
relationship between the courts and the CIAC, when it created the latter. In effect, the
authoritative expertise of the CIAC was undone with these two new procedural changes
because with the CA's power to review the arbitral tribunal's factual determinations, the
CA then acts as a trial court, before which factual assertions already threshed out in the
CIAC are litigated anew. Needless to say, one may be reasonably hard-pressed to find
sound basis for a court's exercise of reviewing a specialized tribunal's findings of fact that
are well within its specialized competence and well-outside the court's.

More so, such a factual review easily runs the peril of being speculative, as it overly
extends the review powers that may invite ridicule upon the courts, which are forced to
venture into industry-specific technical findings that they are not designed to do.

To be sure, the Court dispels with utmost import any conclusion to the effect that
upholding the CIAC's authoritative expertise on questions of facts before it necessarily
translates to even the slightest implication of inadequacy of intelligence or inferiority of
competence on the part of appellate judges. This inference is as unintended as it is
unsupported by the succeeding exhaustive discussion of the history and the constitutional
schema within which this particular mode of review is found.

The Court's iteration of the original limits set upon judicial review of the CIAC arbitral
awards must not be considered impertinence against appellate judges, lest all rulings that
delineate limits be seen as a put-down of the competence of the jurisdiction they confine.
The Court here simply upholds the persuasive weight of factual findings of the CIAC,
and consequently rules against a factual judicial review that effectively undermines the
CIAC's conclusive and authoritative findings, consistent with the prevailing laws as
outlined.

It further goes without saying that appellate judges are fully equipped to conduct factual
review by evaluating whether or not factual findings of lower courts or tribunals are
supported by evidence. This fact is affirmed not in the least by the fact that in the event
that a factual review of the CIAC arbitral awards is merited in the narrowest of sense, the
same may be brought before the CA through the appropriate petition. Demonstratively,
therefore, the CA is ultimately not divested of any review powers that it was not intended
to wield, to begin with, but merely donned with the authority of review of the CIAC
arbitral awards that falls within the original extent of E.O. 1008.

Finally, this factual review of the courts also weighs heavily in costs for the parties, in
that instead of having an abridged resolution of their disputes, the same is, in fact,
lengthened, with resort to the CIAC becoming no more than an additional layer in the
process, and its resolution of construction disputes no longer the alternative to litigation,
but only the beginning.

Substantive Realignment towards

Deference to CIAC:
R.A. 9285 and the Special ADR Rules

Significantly, however, on July 28, 2003, this departure would be unequivocally

corrected and realigned with the passing of R.A. 9285,[56] also known as the Alternative
Dispute Resolution Law of 2004. Preliminarily, telling are the exchanges during the
deliberations of the House Committee on Justice of its provisions. Then deliberated as
House Bill 5654, its records reflected the legislative desire to provide alternative modes
of dispute resolution in order to provide dispute settlement machineries that are far
removed from notoriously cumbersome judicial mechanisms, in order, for one, to
decongest the courts' dockets:

THE CHAIRMAN [(Rep. Marcelino C. Libanan)]: x x x x

x x x I think from the Philippine Judicial Academy who raised the issue on separation of
powers. Nevertheless, it is the impression of the Chair that this is a very good bill and
that this will de-clog our cases in our regular courts and so we have to pass this if
possible this 12th [C]ongress.

xxxx

MR. ANTONIO M. MARTINEZ (Vice Chancellor, Philippine Judicial Academy): Thank

you, Mr. Chairman.

Just like Atty. Pilando and Dean Parlade, I would like to voice out also the sentiments of
the Judiciary on this aspect that we certainly welcome this bill. It is really a laudable
piece of legislation and would, in effect, be a very helpful device to decongest the courts
of [their] clogged dockets.

xxxx

As a matter of fact, recently, we launched the mediation project in the appellate level. We
hope that in due time, we will be able to eventually saturate all of the courts nationwide
with mediators and will be able to help us in decongesting the clogged docket of court. [57]

R.A. 9285 was also designed to draw a broad and bright line between litigation and
alternative resolutions of disputes, as was shown by the comment of the head of the
Chartered Institute of Arbitrators:

MR. MARIO VALDERAMA (Representative, Chartered Institute of Arbitrators): Thank

you, Your Honor.

Now, now to go directly to the point, when we talked about ADR, Your Honor, please,
we talk about party autonomy and of course the promotion of ADR is only the means
resulting to the effect, among them, the declogging of courts, and probably, we can do
something about the declaration of policy instead of promoting, merely promoting ADR,
then probably, what would have to be upheld would be the autonomy of the parties
insofar as their dispute resolution is concerned. The thinking being that... since we are
adults, with sufficient discretion, then we may... we should have the option of choosing
whether to go to litigation or to go ADR.[58]

Consistent with the above rationale for demarcating options for parties in dispute, as well
as relieving the courts of the workload that may no longer necessitate litigation, Sections
34-40, Chapter 6 of R.A. 9285, on the governing laws over construction disputes,
distinctly resolved all doubts in favor of the restrictive limitation of judicial review only
to questions of law, and a categorical deference to the CIAC with respect to its findings
of fact.
First, Section 34 positively provided for the return to E.O. 1008, as the original applicable
law, which in turn rules out judicial review of the CIAC's factual determination, and
exclusively provides that appeal may only be to the Court, and on the narrow limit of
questions of law only:

SEC. 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.

Second, evidencing the legislative intent to defer the threshing of facts to the CIAC and
not the courts, Section 39 likewise fittingly provides that in the event that a trial court is
notified of a construction arbitration clause between parties who are litigating before it,
the court is bound to dismiss the case, unless the parties agree to the contrary:

SEC. 39. Court to Dismiss Case Involving a Construction Dispute. - A regional trial
court where a construction dispute is filed shall, upon becoming aware, not later than the
pretrial conference, that the parties had entered into an arbitration to be conducted by the
CIAC, unless both parties, assisted by their respective counsel, shall submit to the
regional trial court a written agreement exclusive for the Court, rather than the CIAC, to
resolve the dispute.

Finally, on September 1, 2009, for the avoidance of uncertainties as to where the line of
review is drawn, the Supreme Court, through Chief Justice Reynato S. Puno, issued
Administrative Matter No. (A.M) 7-11-08-SC,[59] also known as the Special ADR Rules,
which definitively affirmed the bright-line rule on judicial restraint with regard to factual
review. Undeniably clear are Rule 19.7 and 19.10 of the Special ADR Rules, which
provide:

PART VI

RULE 19: MOTION FOR RECONSIDERATION, APPEAL AND

CERTIORARI

xxxx

B. GENERAL PROVISIONS ON APPEAL AND CERTIORARI

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. (Emphasis
supplied)
xxxx

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.

In December of the same year, the Department of Justice (DOJ) likewise issued
Department Circular No. 98,[60] which resonated R.A. 9285's intent to restore E.O. 1008's
pertinent provisions on the CIAC, as provided in Chapter 6 thereof:

CHAPTER 6
ARBITRATION OF CONSTRUCTION DISPUTES

The Construction Industry Arbitration Commission (CIAC), which has original and
exclusive jurisdiction over arbitration of construction disputes pursuant to Executive
Order No. 1008, s. 1985, otherwise known as the "Construction Industry Arbitration
Law", shall promulgate the Implementing Rules and Regulations governing arbitration of
construction disputes, incorporating therein the pertinent provisions of the ADR Act.

A slight, recent digression from this bright-line demarcation occurred in the 2011
amendment of CIAC Revised Rules of Procedure Governing Construction Arbitration
(CIAC Rules), specifically Section 18.2 thereof,[61] which echoed Rule 43 of the Rules
with respect to appeal of the CIAC award to the CA on questions of fact.

It is crucial to note, however, that the CIAC Rules only iterated the procedural license
provided in Rule 43 of the Rules, which, as seen, was already reconsidered by R.A. 9285.

In the final analysis, it appears that a circumspect consideration of the evolution of laws
illustrates that although the procedural rules have expanded the judicial review to include
questions of fact, R.A. 9285 in 2003, as seconded by the Special ADR Rules in 2009,
recalibrated said extent and restated the limit of the Court's review powers as to include
only questions of law.

Exceptions to the Rule on Pure Questions of Law

Numerous cases decided both prior to and after the passage of R.A. 9285 have confirmed
the persuasive authority of the CIAC in determining merits in a construction dispute. The
vital role of the neutral expertise of the arbitral tribunal in such disputes has been
underscored in a 2011 New York State Bar Report on the advantages of arbitration in the
field of construction:

In arbitration, the experienced construction neutral requires much less "setting the stage"
for the context of the dispute. He or she will understand substantive case law in the area,
for instance case law regarding change orders, betterment, "quantum meruit" claims and
other specialties of construction law. These concepts will not be "new" to the arbitrator so
while time may be spent on describing the application of these laws to the particular case,
the arbitrator will not need to be introduced to the concepts.

An experienced construction arbitrator will also have the ability to understand complex
construction disputes on a technical level. Construction disputes are usually resolved on
the facts and the contract. In cases that haven't settled, there is often a disagreement on
the facts and the contract. Was there a material delay by the engineer in approving shop
drawings? Were the shop drawings complete? Do the disputed Change Orders actually
represent work outside the scope of the contract? Were proper procedures followed
during drilling? Does the contract promise payment for unanticipated sub-surface site
conditions or not? Experienced arbitrators frequently commiserate that attorneys
inexperienced in arbitration often spend their time proving the filings of character or
ethics in the participants, while neglecting to address that which every arbitrator cares
about, the facts and the contract. Construction cases do not deserve to be settled on
emotion, but rather on a matrix of complex facts and contractual responsibilities.[62]

In related fashion, several notable decisions have illustrated how CIAC awards serve the
premium of persuasive factual determination, but are nevertheless not insulated from
judicial review on grounds that go into the integrity of the arbitral tribunal.

In Metropolitan Cebu Water District v. Mactan Rock Industries, Inc.,[63] the Court

repeated the early recognition of the peculiar nature of the construction industry as one
that is considered "x x x vital for the fulfilment of national development goals x x
x"[64] and the corresponding need to have its disputes decided with dispatch. In similar
import, in R.V. Santos Company, Inc. v. Belle Corporation,[65] the Court expounded on
the deference to the factual findings of the CIAC, to wit:
Section 19 [of E.O. 1008] 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 general, and 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
[u]nappealable.

xxxx

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 for 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.

In another case, we have also held that:

It is settled that findings of fact of quasi-judicial bodies, which have acquired

expertise because their jurisdiction is confined to specific matters, are generally
accorded not only respect, but also finality, especially when affirmed by the Court of
Appeals. In particular, factual findings of construction arbitrators are final and conclusive
and not reviewable by this Court on appeal.[66]

In 2015, in Philippine Race Horse Trainer's Association, Inc. v. Piedras Negras

Construction and Development Corporation[67] the Court found that the matters the
parties brought for resolution essentially required factual determination, which it held
must "rightly be left to the CIAC's sound expertise."[68] Subsequently, in the case
of Fruehauf Electronics Philippines Corporation v. Technology Electronics Assembly
and Management Pacific Corporation,[69] the Court upheld the autonomy of arbitral
awards, and refrained from reviewing factual findings thereof, reasoning thus:

We have deliberately refrained from passing upon the merits of the arbitral award — not
because the award was erroneous — but because it would be improper. None of the
grounds to vacate an arbitral award are present in this case and as already established, the
merits of the award cannot be reviewed by the courts.

Our refusal to review the award is not a simple matter of putting procedural technicalities
over the substantive merits of a case; it goes into the very legal substance of the issues.
There is no law granting the judiciary authority to review the merits of an arbitral award.
If we were to insist on reviewing the correctness of the award (or consent to the CA's
doing so), it would be tantamount to expanding our jurisdiction without the benefit of
legislation. This translates to judicial legislation — a breach of the fundamental principle
of separation of powers.

The CA reversed the arbitral award — an action that it has no power to do —
because it disagreed with the tribunal's factual findings and application of the
law. However, the alleged incorrectness of the award is insufficient cause to vacate the
award, given the State's policy of upholding the autonomy of arbitral awards.[70]

More, in CE Construction Corporation v. Araneta Center, Inc.,[71] the Court was similarly
inclined to refrain from reviewing the CIAC's factual conclusions, ruling in this wise:

x x x 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.

xxxx

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."
xxxx

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.[72]

In his Concurring Opinion, Associate Justice Marvic M.V.F. Leonen (Justice Leonen)

adds on the rationale for the high degree of deference accorded to CIAC awards, to wit:

The CIAC serves the interest not only of speedy dispute resolution, but also
of authoritative dispute resolution. It was created with a particular view of enabling
"early and expeditious settlement of disputes" aware of the exceptional role of
construction to "the furtherance of national development goals". x x x.

xxxx

CE Construction further discussed how "[t]he 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." It drew attention to how the CIAC is a "quasi-
judicial administrative agency equipped with the technical proficiency that enables it to
efficiently and promptly resolve conflicts. x x x.[73]

This judicial restraint and deference was further reaffirmed in the subsequent cases
of Metro Rail Transit Development, Corporation v. Gammon Philippines, Inc.,[74] Camp
John Hay Development Corporation v. Charter Chemical and Coating
Corporation[75] and Metro Bottled Water Corporation v. Andrada Construction &
Development Corporation, Inc.[76]

Far from being absolute, however, the general rule proscribing against judicial review of
factual matters admits of exceptions, with the standing litmus test that which pertain
to either a challenge on the integrity of the arbitral tribunal, or otherwise an
allegation of a violation of the Constitution or positive law. The 2019 case of Tondo
Medical Center v. Rante[77] illustrates:
Thus, questions on whether the CIAC arbitral tribunals conducted their affairs in a
haphazard and immodest manner that the most basic integrity of the arbitral
process was imperiled are not insulated from judicial review. Thus:

x x x 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. x x x.[78]

In other words, the scenarios that will trigger a factual review of the CIAC's arbitral
award must fall within either of the following sets of grounds:

(1) Challenge on the integrity of the arbitral tribunal (i.e., (i) the award was procured by
corruption, fraud or other undue means; (ii) there was evident partiality or corruption of the
arbitrators or of any of them; (iii) 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; (iv) one or more of the arbitrators were disqualified to act
as such under Section 9 of R.A. 876[79] or "The Arbitration Law", and willfully refrained
from disclosing such disqualifications or of any other misbehavior by which the rights of
any party have been materially prejudiced; or (v) 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) and;
(2) Allegation of the arbitral tribunal's violation of the Constitution or positive law.

In addition to the prototypical examples that exceptionally trigger a factual review of the
CIAC's arbitral awards, the Court here discerns the merit in adding the otherwise
forgotten presumption that factual findings of the CIAC arbitral tribunal may also be
revisited by the Court upon an allegation that the arbitral tribunal committed an act that is
violative of the Constitution or other positive laws. To abate fears, the delimitation
discerned in the Court's power to review factual findings of the CIAC shall in no way
plausibly allow for a situation wherein the Court's hand is stayed from correcting a
blatant constitutional or legal violation because the autonomy of the arbitral process is
paramount. Contrarily, the Court underscores that the contracted or very limited grounds
for alleging grave abuse of discretion on the part of the CIAC arbitral tribunal, however
narrow, are still principally tethered to the courts' primary duty of upholding the
Constitution and positive laws. The addition of the second ground makes plain that no
amount of contracting or expanding grounds for grave abuse will ever be permitted to lay
waste to the original purpose of the courts and their mandate to uphold the rule of law.

Given the above Court pronouncements on judicial restraint in favor of animating and
upholding the autonomy of the CIAC, as well as the more reasonable exceptions that all
only involve a determination of whether the arbitral award in question was tainted with a
challenge on the integrity of the arbitrators themselves or otherwise a violation of the
Constitution or positive law in the course of the arbitral process, the Court deems it high
time to revisit prior decisions that include among the exceptions meriting a factual review
the mere disagreement of the factual findings of the CA vis-à-vis those made by the
CIAC, as in the oft-cited case of Uniwide Sales Realty and Resources Corporation v.
Titan-Ikeda Construction and Development Corporation[80] and the more recent case
of Shangri-La Properties, Inc. v. B.F. Corporation.[81]

All told, the Court must now, sitting en banc, inescapably re-weigh the applicable laws
and harmonize them in order to make the pertinent rules consistent with the spirit of the
law that gave form to the CIAC, along with the overriding and uncontroverted national
policy of favoring the unfettered and enabled operations of the alternative modes of
resolutions such as the CIAC.

II - Mode of Appeal of CIAC awards vis-à-vis Constitutional Limitations

Unmistakably, the tracing of the evolution of laws relating to judicial review of the CIAC
awards as shown above demonstrates that the mode of appeal of the CIAC awards exists
within a latticework of constitutional licenses and restraints. These constitutional
parameters converge on three key points: (1) the prescriptive apportionment' of the
powers and appellate jurisdictions of both the CA and the Court, (2) the correlated
limitation on the Congress' power to determine and confer a court's jurisdiction, and (3)
the limitations on the Court's rule-making power. These constitutional conditions bear
upon the ultimate question of whether E.O. 1008, as echoed by the R.A. 9285, validly
provided for a direct resort to this Court for appeals on the CIAC awards.

The Court here deems it fit that navigating these constitutional considerations be
informed, foremost, by the spirit of the CIAC Charter and the CIAC's primary function
and design, with the end in view of clearing road blocks where the Constitution and other
laws have placed none.

The construction industry necessitates the constant and supported availability of speedier
and more efficient modes of resolving disputes precisely because of the very nature of the
industry itself, where an unsettled dispute can easily run projects to the ground with
serious delays and irreparable damage. Major international construction projects typically
opt for arbitration as the final tier of dispute resolution for a variety of reasons that serve
the parties' interest best, with courts limited to a supportive role.[82]

The fundamental advantage of arbitration over litigation in the specialized context of a

construction dispute goes into the general flexibility of tailoring the resolution of disputes
in a way that serves nuanced business priorities.[83] Arbitration also allows players in this
highly competitive and collaborative industry to realize their intentions of resolving
conflicts while avoiding courts and preserving professional relationships:

In each of its niches, construction cases can involve a number of contractors,

subcontractors, material suppliers and design professionals. Mediation with a
knowledgeable industry professional can not only resolve the dispute, but resolve the
dispute with a consensus regarding the cause of the dispute that allows the parties to
accept responsibility for their respective obligations.

This can lead to a resolution of the conflict which helps maintain relationships and allows
companies to work together again.[84]

With benefits to parties that include the cost and time-efficient process facilitated by
neutral and qualified decision makers or the "knowledgeable neutral" which are typically
architects, engineers or other industry professionals,[85] the availability of arbitration as a
mode for resolving construction disputes in the country has served as the impetus for the
chartering of the CIAC. Primarily grounded on matters of policy, the CIAC was created
precisely to forestall delays that resolution of construction disputes encounters in court
litigation, with the recognized net effect of frustrating national development.[86]

After recapturing the original legislative intent inclined towards promoting arbitration in
the area of the CIAC awards, it is next incumbent upon this Court to determine with a
firm degree of finality and conclusiveness whether that precedent design was carried
out with procedural and substantive validity, and ultimately whether it cleared all the
relevant constitutional hurdles and conditions.

Appellate Jurisdiction of the Court

The first constitutional limitation that the CIAC's direct appeal to the Court must hurdle is
the constitutionally detailed jurisdiction of the Court. Article VIII of the 1987
Constitution outlines the powers of the Judiciary, and Section 5(2) thereof prescribed the
Court's appellate jurisdiction, to wit:

Section 5. The Supreme Court shall have the following powers:

xxxx
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the
Rules of Court may provide, final judgments and orders of lower courts in:

(a) All cases in which the constitutionality or validity of any treaty, international or
executive agreement, law, presidential decree, proclamation, order, instruction,
ordinance, or regulation is in question.

(b) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty
imposed in relation thereto.

(d) All criminal cases in which the penalty imposed is reclusion perpetua or higher.

(e) All cases in which only an error or question of law is involved.

x x x x.

Section 5(2), Article VIII has also been considered textually exclusive to courts and does
not contemplate quasi-judicial bodies.[87] In Fabian v. Desierto[88] (Fabian), the Solicitor
General invoked the application of this provision to support its argument that Section
27[89] of R.A. 6770 does not increase the Court's appellate jurisdiction, as the Court
already has jurisdiction over questions of law by virtue of Section 5(2)(e), Article VIII of
the Constitution. This argument was, however, rejected by the Court, which interpreted
this constitutional grant of appellate jurisdiction to cover only "courts composing the
integrated judicial system":[90]

We are not impressed by this discourse. It overlooks the fact that by jurisprudential
developments over the years, this Court has allowed appeals by [certiorari] under Rule
45 in a substantial number of cases and instances even if questions of fact are directly
involved and have to be resolved by the appellate court. Also, the very provision cited by
petitioner specifies that the appellate jurisdiction of this Court contemplated therein is to
be exercised over "final judgments and orders of lower courts," that is, the courts
composing the integrated judicial system. It does not include the quasi-judicial bodies or
agencies, hence whenever the legislature intends that the decisions or resolutions of
the quasi-judicial agency shall be reviewable by the Supreme Court or the Court of
Appeals, a specific provision to that effect is included in the law creating that quasi-
judicial agency and, for that matter, any special statutory court. No such provision
on appellate procedure is required for the regular courts of the integrated judicial system
because they are what are referred to and already provided for, in Section 5, Article VIII
of the Constitution:[91]
Further, this constitutionally determined appellate jurisdiction is prescribed as the
minimum breadth of the Court's jurisdiction, as Section 2, Article VIII provides that
Congress may not diminish the apportioned appellate jurisdiction of the Court:

Section 2. The Congress shall have the power to define, prescribe, and apportion the
jurisdiction of various courts but may not deprive the Supreme Court of its jurisdiction
over cases enumerated in Section 5 hereof.

No law shall be passed reorganizing the Judiciary when it undermines the security of
tenure of its Members.

In elucidating on the operative interaction of Section 2, Article VIII of the Constitution

with Section 5(2), Article VIII, the Court in Morales v. Court of Appeals[92] (Morales)
held that:

Jurisdiction is, of course, conferred by the Constitution or by Congress. Outside the

cases enumerated in Section 5(2) of Article VIII of the Constitution, Congress has
the plenary power to define, prescribe and apportion the jurisdiction of various
courts. Accordingly, Congress may, by law, provide that a certain class of cases should
be exclusively heard and determined by one court. Such would be a special law and must
be construed as an exception to the general law on jurisdiction of courts, namely, the
Judiciary Act of 1948 as amended, or the Judiciary Reorganization Act of 1980. In short,
the special law prevails over the general law.[93]

This same constitutionally prescribed appellate jurisdiction of the Court is, however, not
incapable of increase, for as long as the Court's advice and concurrence under Section 30,
Article VI are secured:

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.

Stated differently, Congress may pass a law that increases the Court's jurisdiction, but not
one which decreases it. In case of a law increasing the Court's appellate jurisdiction, such
would only violate the constitutional proscription under Section 30, Article VI of the
Constitution if it increases the appellate jurisdiction of this Court, not lower courts,
without the former's advice and concurrence.

Proceeding from the doctrine in Morales, it follows that by the legislation of E.O. 1008,
as reiterated by R.A. No, 9285, which articulated the law's intent to provide a direct route
of appeal from the CIAC to this Court, Congress effectively increased the appellate
jurisdiction of this Court to include awards of the CIAC. This increase in appellate
jurisdiction, in turn, brings to fore the question of whether the requisite advice and
concurrence of the Court under Section 30, Article VI were triggered.
Thus, the first question distilled for the Court is whether the direct appeal of the CIAC
awards to this Court was an effective increase of the Court's appellate jurisdiction which
therefore required the Court's blessing through its advice and concurrence.

The Court finds that there was no such increase in the Court's jurisdiction that required
such concurrence. It is decisive to remember that when the 1987 Constitution was
created, the Court was already enjoying the jurisdiction over appeal from CIAC awards
on pure questions of law, as conferred to it by Congress for two years, by its passage of
E.O. 1008. The direct resort to this Court from the CIAC awards on purely legal
questions was an increase of the Court's jurisdiction that was already in place prior to the
1987 Constitution's Article VIII, Section 30 which required this Court's advice and
concurrence.

To be sure, when E.O. 1008 was enacted in 1980, no such condition of the Court's advice
and concurrence was required anywhere in the 1973 Constitution, and hence at that time,
no such concurrence was needed. With the earlier 1935 Constitution, under Section 2,
Article VIII thereof, Congress was expressly authorized to define and determine the
Court's jurisdiction, without foreclosing the authority to increase the same, the only
limitation being against any diminishing of the existing jurisdiction conferred upon it, to
wit:

ARTICLE VIII

Judicial Department

xxxx

SECTION 2. The Congress shall have the power to define, prescribe and apportion
the jurisdiction of various courts, but may not deprive the Supreme Court of its
original jurisdiction over cases affecting ambassadors, other public ministers, and
consuls, nor of its jurisdiction to review, revise, reverse, modify, or affirm on
appeal, certiorari, or writ of error, as the law or the rules of court may provide, final
judgments and decrees of inferior courts in —

(1) All cases in which the constitutionality or validity of any treaty, law, ordinance, or
executive order or regulation is in question.

(2) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty
imposed in relation thereto.

(3) All cases in which the jurisdiction of any trial court is in issue.

(4) All criminal cases in which the penalty imposed is death or life imprisonment.
(5) All cases in which an error or question of law is involved.

SECTION 3. Until the Congress shall provide otherwise the Supreme Court shall have
such original and appellate jurisdiction as may be possessed and exercised by the
Supreme Court of the Philippine Islands at the time of the adoption of this Constitution.
The original jurisdiction of the Supreme Court shall include all cases affecting
ambassadors, other public ministers, and consuls.[94]

Similarly, the 1973 Constitution likewise granted Congress with the authority to define
and apportion the Court's jurisdiction, with the sole limitation that its jurisdiction be not
diminished. Section 1, Article X, in relation to Section 5 provided:

ARTICLE X

The Judiciary

SECTION 1. The Judicial power shall be vested in one Supreme Court and in such
inferior courts as may be established by law. The Batasang Pambansa shall have the
power to define, prescribe and apportion the jurisdiction of the various courts, but
may not deprive the Supreme Court of its jurisdiction over cases enumerated in
Section five hereof.

xxxx

SECTION 5. The Supreme Court shall have the following powers:

(1) Exercise original jurisdiction over cases affecting ambassadors, other public ministers
and consuls, and over petitions for certiorari, prohibition, mandamus, quo warranto,
and habeas corpus.

(2) Review and revise, reverse, modify, or affirm on appeal or certiorari, as the law or
the Rules of Court may provide, final judgments and decrees of inferior courts in—

(a) All cases in which the constitutionality or validity of any treaty, executive agreement,
law, ordinance, or executive order or regulation is in question.

(b) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty
imposed in relation thereto.

(d) All criminal cases in which the penalty imposed is death or life imprisonment.

(e) All cases in which only an error or question of law is involved.

(3) Assign temporarily judges of inferior courts to other stations as public interest may
require. Such temporary assignment shall not last longer than six months without the
consent of the judge concerned.

(4) Order a change of venue or place of trial to avoid a miscarriage of justice.

(5) Promulgate rules concerning pleading, practice, and procedure in all courts, the
admission to the practice of law, and the integration of the Bar, which, however, may be
repealed, altered or supplemented by the Batasang Pambansa. Such rules shall provide a
simplified and inexpensive procedure for the speedy disposition of cases, shall be
uniform for all courts of the same grade, and shall not diminish, increase, or modify
substantive rights.

(6) Appoint its officials and employees in accordance with the Civil Service Law. [95]

Demonstrably, the 1973 Constitution and its immediate predecessor allowed Congress to
apportion the Court's jurisdiction, without any concomitant requirement of the Court's
prior acceptance or subsequent concurrence. It stands to undeniable reason therefore that
when E.O. 1008 vested this Court with the direct and exclusive jurisdiction over appeals
from CIAC awards, the Court's jurisdiction was increased without any need for it to first
accede to said increase.

With all the constitutional conditions met for enabling a direct appeal to the Court, the
next question for the Court's determination is the proper remedial route through which the
direct appeal of the CIAC awards to this Court may be submitted.

Based on the prior discussions, appeal from the CIAC awards may no longer be filed
under Rule 43. This leaves only appeal by certiorari under Rule 45, which provides:

RULE 45

Appeal by Certiorari to the Supreme Court

SECTION 1. 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, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law,
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. (1a, 2a)

As it stands, Rule 45 contemplates only appeals from final judgments and orders of lower
courts, and does not include quasi-judicial bodies or agencies. This differs from the
former Rule 45 of the 1964 Rules of Court which made mention only of the CA, and had
to be adopted in statutes creating and providing for appeals from certain administrative or
quasi-judicial agencies whenever the purpose was to restrict the scope of the appeal to
questions of law.

In furtherance of the animating basis for the direct appeal of the CIAC awards to this
Court, CIAC awards may reasonably be considered as an exemption to Rule 45's
exclusive contemplation of lower courts. An interpretation otherwise would create a
scenario where a procedural limitation, which may be hurdled, i.e., jurisdiction may be
increased provided it complies with Section 30, Article VI, operatively prevails over a
substantive intendment to the contrary provided by no less than the CIAC's very own
charter. Given the unique import of the CIAC's design as a specialized and expedient
mode of resolving construction disputes with persuasive finality, its substantive design
must be granted primacy over procedural rules that, as will be discussed further, place no
insurmountable obstacle before it.

Appellate Jurisdiction of the Court of Appeals

as provided by Batas Pambansa Blg. 129

With the increase in the Court's appellate jurisdiction found valid, the next constitutional
condition that confronts this issue is whether E.O. 1008, issued on February 4, 1985,
violated Batas Pambansa Blg. (B.P) 129,[96] which was earlier passed on August 14, 1981
and amended by R.A. 7902,[97] on February 23, 1995,[98] when E.O. 1008 provided for the
direct appeal of the CIAC awards to this Court, particularly, Section 9(3), Chapter I of
B.P. 129, which provides:

SEC. 9. Jurisdiction. - The Court of Appeals shall [e]xercise:

(1) Original jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas

corpus, and quo warranto, and auxiliary writs or processes, whether or not in aid of its
appellate jurisdiction;

(2) Exclusive original jurisdiction over actions for annulment of judgments of Regional
Trial Courts; and

(3) Exclusive appellate jurisdiction over all final judgements, resolutions, orders or
awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities,
boards or commission, including the Securities and Exchange Commission, the Social
Security Commission, the Employees Compensation Commission and the Civil Service
Commission, [e]xcept those falling within the appellate jurisdiction of the Supreme Court
in accordance with the Constitution, the Labor Code of the Philippines under Presidential
Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the
third paragraph and subparagraph 4 of the fourth paragraph of Section 17 of the Judiciary
Act of 1948.
The Court of Appeals shall have the power to try cases and conduct hearings, receive
evidence and perform any and all acts necessary to resolve factual issues raised in cases
falling within its original and appellate jurisdiction, including the power to grant and
conduct new trials or further proceedings. Trial or hearings in the Court of Appeals must
be continuous and must be completed within three (3) months, unless extended by the
Chief Justice. (As amended by R.A. No. 7902.) (Emphasis supplied)

This appellate jurisdiction of the CA is likewise textually exclusive. Section 1, Rule 43 of

the Rules echoes the grant of this appellate jurisdiction to the CA, to wit:

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 quasijudicial 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. (Emphasis supplied)

The language of the enumeration of quasi-judicial tribunals under Section 9(3) of B.P.
129, on the other hand, indicates that it is not an exclusive list, so that if the enabling
statute of a tribunal, later found to be a quasi-judicial agency, does not categorically
provide for an aggrieved party's judicial recourse, Section 9(3) of B.P. 129 seems to serve
to fill the gap.[99]

In a number of cases, this Court has relied on Section 9(3) of B.P. 129 to designate the
CA, via Rule 43, as the proper court to which appeals from quasi-judicial agencies
should be made, in spite of laws vesting jurisdiction directly to the Court. In First
Lepanto Ceramics, Inc. v. Court of Appeals,[100] involving Article 82 of E.O. 226, which
provided for a direct appeal from the decisions or final orders of the Board of
Investments directly with the Court, this Court ruled that Circular 1-91, which
implements B.P. 129 with respect to appeals to the CA from final orders or decisions of
the quasi judicial agencies, is controlling over said provision of E.O. 226.

In Carpio v. Sulu Resources Development Corporation,[101] which involved the

application of Section 79 of R.A. 7942,[102] which states that decisions of the Mines'
Adjudication Board (MAB) may be reviewed by this Court through a petition for review
by certiorari, the Court found that because said law increased its appellate jurisdiction
without its concurrence, appeals from decisions of the MAB shall be taken to the CA
through Rule 43 of the Rules, in accordance with B.P. 129, Circular No. 1-91, and its
rule-making power under the Constitution.

Still particularly with respect to the CIAC awards, this Court categorized the CIAC
in Metro Construction, Inc. v. Chatham Properties, Inc.[103] (Chatham) as a quasi-judicial
agency. There it held that arbitral awards may be brought to the CA, pursuant to Circular
No. 1-91, which provided a uniform procedure for appeals from quasi-judicial agencies.
The Court also ruled that said circular, together with B.P. 129, as amended by R.A. 7902,
Revised Administrative Circular No. 1-95, and Rule 43 of the Rules, effectively modified
E.O. 1008.[104] Consequently, the appeals from arbitral awards of the CIAC were also
deemed to cover questions of fact or mixed questions of fact and law. [105]

This apparent conflict between B.P. 129 and R.A. 9285, with respect to the mode of
appeal of the CIAC awards, presents the Court with the overdue opportunity to crystallize
with doctrinal precedent which between the two laws must prevail.

On this point and in accordance with the elementary statutory construction principles of
precedence of specific laws over general laws, and later laws over earlier laws, this Court
rules that R.A. 9285 prevails over B.P. 129, as the former enjoys preference over the
latter with respect to both temporal precedence as well as that of greater degree of
particularity.

First, with respect to superiority in time, it is a canon of statutory construction that in case
of conflict between two laws, one a later law and the other an earlier law, the later law
prevails as the prevailing law, being the most current articulation of legislative intent. As
applied to the case at bar, B.P. 129 is also an earlier law, 1980 vintage, whereas E.O.
1008 and R.A. 9285 are later laws, E.O. 1008 having been promulgated five years after
B.P. 129, and R.A. 9285, which iterated E.O. 1008, being issued in 2004. Therefore, E.O.
1008 and R.A. 9285, as laws that were promulgated subsequent to B.P. 129 and are the
later expressions of the legislative will 106 on the matter of CIAC's awards' mode of
appeal, must prevail over B.P. 129, thereby carving out CIAC awards as an exception to
the CA's appellate jurisdiction over appeals from quasi-judicial agencies.

Second, with respect to the level of specificity in its application, the statutory canon that
also finds bearing in this case is the canon of generalia specialibus non derogant, or a
general law does not nullify a specific or special law,[107] which provides that where two
statutes are of equal theoretical application to a particular case, the one designed therefor
should prevail.[108] It is a rule of statutory construction that a special law prevails over a
general law — regardless of their dates of passage — and the special law is to be
considered as an exception to the general law.[109] In the earlier case of Valera v. Tuason,
Jr. ,[110] the Court explained the rationale of the hierarchy of laws, to wit:
x x x A special law is not regarded as having been amended or repealed by a general law
unless the intent to repeal or alter is manifest. Generalia specialibus non derogant. And
this is true although the terms of the general act are broad enough to include the matter in
the special statute. ([Manila Railroad Company v. Rafferty] , 40 Phil., 224.) At any rate,
in the event harmony between provisions of this type in the same law or in two laws
is impossible, the specific provision controls unless the statute, considered in its
entirely, indicates a contrary intention upon the part of the legislature. Granting then
that the two laws cannot be reconciled, in so far as they are inconsistent with each other,
[S]ection 73 of the Code of Civil Procedure, being a specific law, should prevail over, or
be considered as an exception to [S]ection 211 of the Administrative Code, which is a
provision of general character. A general law is one which embraces a class of subjects or
places and does not omit any subject or place naturally belonging to such class, while a
special act is one which relates to particular persons or things of a class. [111]

A more acute case in point, involving a demonstration of a presidential decree carving

out an exception in the jurisdictions conferred under B.P. 129, is the case of Tomawis v.
Balindong.[112] Here, the Court settled the issue of jurisdiction over appeals from the
Shari'a District Court, and ruled that B.P. 129 was enacted to reorganize only existing
civil courts and is a law of general application to the judiciary, whereas P.D. 1083 is a
special law that only applies to Shari'a courts, and therefore must prevail in application to
Shari 'a courts over the former, viz.:

We have held that a general law and a special law on the same subject are statutes in pari
materia and should be read together and harmonized, if possible, with a view to giving
effect to both. In the instant case, we apply the principle generalia specialibus non
derogant. A general law does not nullify a special law. The general law will yield to
the special law in the specific and particular subject embraced in the latter. We
must read and construe [B.P.] 129 and [P.D.] 1083 together, then by taking [P.D.]
1083 as an exception to the general law to reconcile the two laws. This is so since the
legislature has not made any express repeal or modification of [P.D.] 1083, and it is well-
settled that repeals of statutes by implication are not favored. Implied repeals will not be
declared unless the intent of the legislators is manifest. Laws are assumed to be passed
only after careful deliberation and with knowledge of all existing ones on the subject, and
it follows that the legislature did not intend to interfere with or abrogate a former law
relating to the same subject matter.[113]

A more recent application of this basic principle of statutory construction is in the case
of Philippine Amusement and Gaming Corporation (PAGCOR) v. Bureau of Internal
Revenue:[114]

x x x The Legislature consider and make provision for all the circumstances of the
particular case. The Legislature having specially considered all of the facts and
circumstances in the particular case in granting a special charter, it will not be
considered that the Legislature, by adopting a general law containing provisions
repugnant to the provisions of the charter, and without making any mention of its
intention to amend or modify the charter, intended to amend, repeal, or modify the
special act. (Lewis [v.] Cook County, 74 Ill. App., 151; Philippine Railway Co. [v.]
Nolting, 34 Phil., 401).[115]

Bringing the case at bar through this second frame of statutory construction, the Court
finds that with respect to the level of generality or specialty, B.P. 129 is a general law of
procedure and jurisdiction, and must therefore yield to the more specific laws of E.O.
1008 and its iteration in R.A. 9285, which distinctively pertain to the CIAC and other
alternative modes of arbitration.

In other words, this reconciliation of laws and rules stands on the uncontroverted premise
that when E.O. 1008 conferred on this Court the jurisdiction over appeals from CIAC
awards, said conferment survived the subsequent procedural digressions, so that R.A.
9285 and the Special ADR Rules needed no Court concurrence, for they could no more
restore to this Court a jurisdiction that it never validly lost. Stated differently, when
R.A. 9285 reiterated the direct recourse of appeals from CIAC awards to this Court,
it did not endow the Court with any new jurisdiction that it did not already have as
validly apportioned to it as early as 1980. There is therefore no need for the Court's
concurrence as required under the 1987 Constitution, as there was, in fact, no increase to
concur with.

Pursuant to these two canons of reconciling apparent conflicts in application of laws, it

inevitably appears that with respect to the conferment of jurisdiction to the CA of
appellate jurisdiction over CIAC awards, both E.O. 1008 and R.A. 9285 have sufficiently
carved CIAC awards as an exception therefrom.

Exclusive Rule-Making Power of the Court

The third and final circumscription that CIAC's awards' mode of appeal to the Court must
consider is the relation of the power of Congress under Section 2, Article VIII vis-à-
vis Section 5(5), Article VIII of the Constitution, with regard to the rule-making power of
the Court. Section 5(5), Article VIII provides:

Section 5. The Supreme Court shall have the following powers:

xxxx

(5) Promulgate rules concerning the protection and enforcement of constitutional rights,
pleading, practice, and procedure in all courts, the admission to the practice of law, the
Integrated Bar, and legal assistance to the underprivileged. Such rules shall provide a
simplified and inexpensive procedure for the speedy disposition of cases, shall be uniform
for all courts of the same grade, and shall not diminish, increase, or modify substantive
rights. Rules of procedure of special courts and quasi-judicial bodies shall remain effective
unless disapproved by the Supreme Court.

x x x x.

Presently, Congress does not have the power to repeal, alter, or supplement the rules of
the Court concerning pleading, practice, and procedure. In Echegaray v. Secretary of
Justice[116] the evolution of the rule-making power of the Court was laid down, and its
discussion was later iterated in Estipona, Jr. v. Lobrigo[117] where it was held that:

While the power to define, prescribe, and apportion the jurisdiction of the various courts
is, by constitutional design, vested unto Congress, the power to promulgate rules
concerning the protection and enforcement of constitutional rights, pleading, practice,
and procedure in all courts belongs exclusively to this Court under Section 5(5), Article
VIII of the Constitution x x x.

xxxx

The separation of powers among the three co[-]equal branches of our government has
erected an impregnable wall that keeps the power to promulgate rules of pleading,
practice and procedure within the sole province of this Court. The other branches trespass
upon this prerogative if they enact laws or issue orders that effectively repeal, alter or
modify any of the procedural rules promulgated by the Court. Viewed from this
perspective, We have rejected previous attempts on the part of the Congress, in the
exercise of its legislative power, to amend the Rules of Court [x x x], to wit:

1. Fabian v. Desierto — Appeal from the decision of the Office of the Ombudsman in
an administrative disciplinary case should be taken to the Court of Appeals under
the provisions of Rule 43 of the Rules instead of appeal by certiorari under Rule 45
as provided in Section 27 of R.A. No. 6770.

2. Cathay Metal Corporation v. Laguna West Multi-Purpose Cooperative, Inc. — The

Cooperative Code provisions on notices cannot replace the rules on summons under Rule
14 of the Rules.

3. RE: Petition for Recognition of the Exemption of the GSIS from Payment of Legal
Fees; Baguio Market Vendors Multi-Purpose Cooperative (BAMARVEMPCO) v. Hon.
Judge Cabato-Cortes; In Re: Exemption of the National Power Corporation from
Payment of Filing/Docket Fee; and Rep. of the Phils. v. Hon. Mangotara, et al. —
Despite statutory provisions, the GSIS, BAMARVEMPCO, and NPC are not exempt
from the payment of legal fees imposed by Rule 141 of the Rules.
4. Carpio-Morales v. Court of Appeals (Sixth Division) — The first paragraph of Section
14 of R.A. No. 6770, which prohibits courts except the Supreme Court from issuing
temporary restraining order and/or writ of preliminary injunction to enjoin an
investigation conducted by the Ombudsman, is unconstitutional as it contravenes Rule 58
of the Rules.

Considering that the aforesaid laws effectively modified the Rules, this Court asserted its
discretion to amend, repeal or even establish new rules of procedure, to the exclusion of
the legislative and executive branches of government. To reiterate, the Court's authority
to promulgate rules on pleading, practice, and procedure is exclusive and one of the
safeguards of Our institutional independence.[118]

Balanced against the authority of Congress to grant or define the jurisdiction of courts,
the rule-making power of the Court is proscribed against promulgating rules that
diminish, increase, or modify substantive rights.

In Fabian, the question was raised as to whether the Court, in holding that the CA is the
proper court to review the final judgements of quasi-judicial agencies even in light of a
law vesting the Court with the power to do so, would be disregarding a substantive right.
The Court ruled in the negative, explaining in this wise:

x x x This brings to fore the question of whether Section 27 of [R.A.] 6770 is substantive
or procedural.

It will be noted that no definitive line can be drawn between those rules or statutes which
are procedural, hence within the scope of this Court's rule-making power, and those
which are substantive. In fact, a particular rule may be procedural in one context and
substantive in another. It is admitted that what is procedural and what is substantive is
frequently a question of great difficulty. It is not, however, an insurmountable problem if
a rational and pragmatic approach is taken within the context of our own procedural and
jurisdictional system.

In determining whether a rule prescribed by the Supreme Court, for the practice and
procedure of the lower courts, abridges, enlarges, or modifies any substantive right, the
test is whether the rule really regulates procedure, that is, the judicial process for
enforcing rights and duties recognized by substantive law and for justly
administering remedy and redress for a disregard or infraction of them. If the rule
takes away a vested right, it is not procedural. If the rule creates a right such as the
right to appeal, it may be classified as a substantive matter; but if it operates as a
means of implementing an existing right then the rule deals merely with procedure.

In the situation under consideration, a transfer by the Supreme Court, in the exercise of
its rule-making power, of pending cases involving a review of decisions of the Office of
the Ombudsman in administrative disciplinary actions to the Court of Appeals which
shall now be vested with exclusive appellate jurisdiction thereover, relates to procedure
only. This is so because it is not the right to appeal of an aggrieved party which is
affected by the law. That right has been preserved. Only the procedure by which the
appeal is to be made or decided has been changed. The rationale for this is that no litigant
has a vested right in a particular remedy, which may be changed by substitution without
impairing vested rights, hence he can have none in rules of procedure which relate to the
remedy.

Furthermore, it cannot be said that the transfer of appellate jurisdiction to the Court of
Appeals in this case is an act of creating a new right of appeal because such power of the
Supreme Court to transfer appeals to subordinate appellate courts is purely a procedural
and not a substantive power. Neither can we consider such transfer as impairing a vested
right because the parties have still a remedy and still a competent tribunal to administer
that remedy.[119]

In Fabian, the Court went on to elucidate that the transfer by this Court, in the exercise of
its rule-making power, of pending cases involving a review of decisions of the
Ombudsman (OMB) in administrative disciplinary actions to the CA which shall now be
vested with exclusive appellate jurisdiction over these, relates to procedure only. This is
so because it is not the right to appeal of an aggrieved party which is affected by the law,
as that right has been preserved, with only the procedure by which the appeal is to be
made or decided changed.

A sharp distinction on the matter of the effect of the rule pulls the case of CIAC awards
far from that of Fabian, as in the latter, the Court's act of transferring appellate
jurisdiction over the OMB decisions to the CA did not undermine or significantly alter
the party's right to appeal.

In clear contrast, the Court's act of including CIAC awards among those situations the
appeal from which must be brought before the CA via Rule 43, instead of on a direct
recourse to it as specified under E.O. 1008, did not provide a mere procedure of appeal of
CIAC awards, but correspondingly diminished the substantive rights of parties who,
pre-conflict, had elected arbitration as their speedier recourse in case of dispute.

The compelling weight of the preservation of the speed, autonomy and finality of CIAC
awards is best validated by the kind of tailor-made fit with which the design of arbitration
serves the unique demands of the construction industry. Parties in construction disputes
have also been known to predictably choose arbitration over litigation due to the
limitation of the right to appeal thereto, particularly in that laws of many
jurisdictions permit appeals of arbitral awards only on limited grounds.
Demonstrably, construction is a specialized industry with projects that are prone to
disputes owing to multiple parties, performance standards, as well as financing and profit
considerations.[120] The construction businesses' resort to alternative modes of resolution
that seek to settle controversies as opposed to pursuit of lawsuits was even called a
paradigm shift, which resulted from the wave of increasing need for dispute resolutions,
and the inversely proportional decrease of incentives for litigation.[121] Parties in
construction disputes were afforded, by legislation, with the alternative route to an
expedited and authoritative resolution of their disputes. The availability of this conclusive
alternative mode, which had been hailed as the preferred method of resolving high-value
disputes, is vital to the growth of the construction industry, and diluting the same
undoubtedly amounts to the diminishing of the parties' substantive right.

Once more, the substantive right is contained in the parties' preference to avail of
speed, flexibility, cost efficiency and industry knowledge to obtain the most
autonomous arbitration result possible.

Autonomous arbitration is one which is initiated, conducted and concluded without any
need or desire for judicial intervention,[122] with the United States Supreme Court even
affirming early on that the unmistakable purpose of Congress in affording parties with the
arbitration procedure was so that the resolution of the dispute between parties who opt for
arbitration be "speedy and not subject to delay and obstruction of the courts". [123] The
paradigm of autonomy likewise gives the parties the confidence to invite specialists to
resolve complex issues which are beyond the proficiency of court judges.

This substantive right to access this arbitration autonomy is unambiguously

subverted by the Court's overreaching exercise of its rule-making power, in its act of
delegating to the CA what the legislative wisdom otherwise categorically conferred
directly and exclusively upon this Court. The defeat of this right is evident in the
frustration of the reasons that prompted the parties to choose arbitration over litigation in
the first place. More particularly, the inclusion of the CIAC under Rule 43 weakened if
not altogether destroyed the authoritative autonomy of the CIAC, as well as eroded if not
totally obliterated its very nature as the expedited, economical, independent alternative
dispute resolution to the otherwise protracted and costly court litigation.

To be sure, the inclusion of the CIAC under Rule 43 is a clear impairment of the central
substantive right which animates the overall design of the CIAC, and is therefore invalid
for overstepping the positive limitation of the rule-making power of this Court under
Section 5(5), Article VIII of the Constitution on non-modification of substantive rights.
Thus, nothing prevents this Court from correcting this over-inclusion, as it now does in
the case at bar.

In all, the nexus between the judiciary and the arbitral tribunal is nothing short of
paradoxical, in that on the one hand, the courts often ensure the integrity of the
arbitration, but on the other, the apprehensions regarding court involvement have
precisely led parties to opt for arbitration, in the first instance.[124] As the case at bar
exhibits, perhaps the point has always been not complete severance between the two, but
only a guarantee that judicial involvement is limited to a minimum to promote the
rationale of arbitration, so that it is not so much judicial control, as it is judicial
encouragement through restraint.

All told and reconciled, the Court sitting en banc takes this overdue opportunity to
straighten out the route that an appeal from a CIAC arbitral award may take, and
inevitably carve its remedial recourse out of procedural tiers that are wholly inconsistent
with the very animus of this arbitral tribunal.

A harmonization of these conflicting rules leaves the Court with the conclusion that the
inclusion of the CIAC under Rule 43 appeals is without footing in the legal history of the
CIAC, and therefore must be unequivocally reversed.

More specifically, the Court holds that the direct recourse of an appeal of a CIAC award
on questions of law directly to this Court is the rule, pursuant to E.O. 1008 and R.A.
9285, notwithstanding Rule 43 on the CA's jurisdiction over quasi-judicial agencies, and
Rule 45 in its exclusive application to lower courts. Thus, an appeal from an arbitral
award of the CIAC may take either of two tracks, as determined by the subject matter of
the challenge.

On the one hand, if the parties seek to challenge a finding of law of the tribunal, then the
same may be appealed only to this Court under Rule 45. To determine whether a question
is one of law which may be brought before the Court under Rule 45, it is useful to recall
that a question of law involves a doubt or controversy as to what the law is on a certain
state of facts, as opposed to a question of fact which involves a doubt or difference that
arises as to the truth or falsehood of facts, or when the query necessarily calls for a
review and reevaluation of the whole evidence, including the credibility of witnesses,
existence of specific surrounding circumstances, and the decided probabilities of the
situation.[125] The test here is not the party's characterization of the question before the
Court, but whether the Court may resolve the issue brought to it by solely inquiring as to
whether the law was properly applied and without going into a review of the evidence.

On the other hand, if the parties seek to challenge the CIAC's finding of fact, the same
may only be allowed under either of two premises, namely assailing the very integrity of
the composition of the tribunal, or alleging the arbitral tribunal's violation of the
Constitution or positive law, in which cases the appeal may be filed before the CA on
these limited grounds through the special civil action of a petition for certiorari under
Rule 65, in accordance with Section 4 in relation to Section 1, Rule 65 of the Rules:
SECTION 1. Petition for certiorari. — When any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted without or in excess its or his jurisdiction, or
with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal, or any plain, speedy, and adequate remedy in the ordinary course of law, a person
aggrieved thereby may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered annulling or modifying the proceedings
of such tribunal, board or officer, and granting such incidental reliefs as law and justice
may require.

The petition shall be accompanied by a certified true copy of the judgment, order or
resolution subject thereof, copies of all pleadings and documents relevant and pertinent
thereto, and a sworn certification of non-forum shopping as provided in the third
paragraph of section 3, Rule 46. (1a)

SEC. 4. When and where petition filed. — The petition shall be filed not later than sixty
(60) days from notice of the judgment, order or resolution. In case a motion for
reconsideration or new trial is timely filed, whether such motion is required or not, the
sixty (60) day period shall be counted from notice of the denial of said motion.

The petition shall be filed in the Supreme Court or, if it relates to the acts or omissions of
a lower court or of a corporation, board, officer or person, in the Regional Trial Court
exercising jurisdiction over the territorial area as defined by the Supreme Court. It may
also be filed in the Court of Appeals whether or not the same is in aid of its appellate
jurisdiction, or in the Sandiganbayan if it is in aid of its appellate jurisdiction. If it
involves the acts or omissions of a quasi-judicial agency, unless otherwise provided by
law or these Rules, the petition shall be filed in and cognizable only by the Court of
Appeals.

In election cases involving an act or omission of a municipal or a regional trial court, the
petition shall be filed exclusively with the Commission on Elections in aid of its appellate
jurisdiction. (As amended by A.M. No. 07-7-12-SC, December 12, 2007.)

As observed by Chief Justice Alexander Gesmundo (Chief Justice Gesmundo) during the
deliberations, it would be entirely unsupported for appeal under Rule 43 to remain
available for CIAC awards after a clear demonstration to the contrary.

Furthermore, Justice Leonen, in his Concurring Opinion, sharply summarizes the utter

lack of basis in this erroneous inclusion of the CIAC under Rule 43 appeals, which he
calls out to be an "unfortunate mistake":

Since the Construction Industry Arbitration Law's adoption in 1985, procedural law and
related jurisprudence have made it appear that appeals may also be taken to the Court of
Appeals. There, the factual findings of CIAC arbitral tribunals may supposedly be
assailed. This has been an unfortunate mistake. The Court of Appeal's supposed
appellate jurisdiction to freely review factual issues finds no basis in substantive
law.

xxxx

It is opportune to repudiate the mistaken notion that appeals on questions of fact of CIAC
awards may be coursed through the Court of Appeals. No statute actually vests
jurisdiction on the Court of Appeals to entertain petitions for review emanating from the
CIAC. Metro Construction's reference to a "procedural mutation" effected by Circular
No. 1-91, 1095 and Rule 43 of the 1997 Rules of Civil Procedure do not broaden the
jurisdiction of the Court of Appeals. Neither do the amendments introduced to Batas
Pambansa Blg. 129 by Republic Act No. 7902 effect a broadening of the Court of
Appeals' appellate jurisdiction thereby extending it to a factual review of CIAC arbitral
awards.[126]

The resort to Rule 65, instead of Rule 43, further finds support in the very nature of the
factual circumstances which trigger said exceptional factual review—those that center not
on the actual findings of fact but on the integrity of the tribunal that makes these findings,
or their compliance with the Constitution or positive law, i.e., any of the following factual
allegations: (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 hear evidence pertinent and material
to the controversy; (4) one or more of the arbitrators were disqualified to act as such
under Section 9 of R.A. 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.[127]

These are the scenarios that Chief Justice Gesmundo, keenly referred to as "tribunal-
centered" and not "fact-centered" which must necessarily reframe whether the CA may or
may not review the decisions of the CIAC, to wit:

If a legal remedy exists for the review of factual findings of the arbitral tribunal in the
context of assailing the integrity of its composition, the question that should be asked is,
should the subject matter of the appeal pertain to the alleged errors in the factual findings
of the arbitral tribunal, or should the appeal center on the lack of integrity of the
composition of the arbitral tribunal? Definitely, if there is no question on the integrity of
the composition of the arbital tribunal, its award may not be subject to appeal on factual
considerations. Consequently, the remedy contemplated is tribunal-centered and not fact-
centered. This issue is important because it will determine whether the CA has
jurisdiction over the subject matter of the appeal in the first place.[128]
Proceeding from this framing of factual issues which fall within the narrow window of
the Court's factual review of CIAC awards, the Court holds that these challenges to the
CIAC tribunal's integrity or allegations of constitutional or statutory violations on the part
of the arbitral tribunal, as further enumerated under Section 24[129] of R.A. 876, partake of
the nature of imputations of grave abuse which more accurately belong within the
purview of a special civil action of a petition for certiorari under Rule 65. Stated
differently, the Court recognizes, as earlier distilled in jurisprudence, that although the
challenges to the integrity of the CIAC arbitral tribunal are first enumerated in Section 24
of R.A. 876, the same grounds are also descriptive of the narrow set of situations that
may warrant the Court's review of the same, as an exception to the more general rule that
factual findings of the CIAC arbitral tribunal are beyond review. Once more, as correctly
noted by Chief Justice Gesmundo, this appears to be the Court's understanding in its
discussion of the said grounds in the case of Hi Precision Steel Center, Inc. v. Lim Kim
Steel Builders, Inc.[130] (Hi-Precision), when it reiterated that it will not relitigate issues of
fact previously resolved by an arbitral tribunal, save for the instance of a clear showing of
grave abuse of discretion, citing as examples thereof those very instances referred to
under Section 24 of R.A. 876, viz.:

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 for 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.[131]

Collectively, these factual scenarios, when alleged, essentially challenge the integrity of
the arbitral tribunal or the constitutionality or legality of the conduct of the arbitral
process, and therefore warrant an entertainment of doubt with respect to the factual
findings of said tribunal. These factual allegations, which replicate the grounds for
vacating an arbitral award as provided in Section 24 of R.A. 876, have been found by the
Court to be the same factual allegations that will trigger an exceptional factual review of
CIAC arbitral awards, as this Court has laid down in Spouses David v. Construction
Industry and Arbitration Commission,[132] CE Construction Corp. v. Araneta Center, Inc.,
[133]
and Tondo Medical Center v. Rante.[134] The Court, in these cases, saw it fit to
exemplify the breadth of what may constitute grave abuse of discretion with the
enumeration of scenarios carried over from Section 24 of R.A. 876, in order to fine-tune
the operative examples of grave abuse in the context of the CIAC arbitral tribunals. This
is further consistent with the caution of the Court in Hi-Precision when it warned that "x
x x [a]ny other, more relaxed, rule would result in setting at naught the basic objective of
a voluntary arbitration x x x." [135] The Court's consistent pronouncement in the above
cases only reinforce its attitude towards CIAC arbitral awards, i.e., that factual findings
of the CIAC arbitral tribunal are final unless the integrity of said tribunal or the
constitutionality or legality of its actions are put in question.

Told differently, the limited instances which parties may cite as impetus for a judicial
factual review of a CIAC award pertain to integrity-centered or Constitution or law-
anchored flaws which, in turn, translate to grave abuses of discretion that are within the
ambit of a petition for certiorari under Rule 65. The correspondence is made clear given
the very nature of a Rule 65 petition, and the metes and bounds of the issues it is
designed to resolve. Demonstrably, in the case of Tagle v. Equitable PCI Bank,[136] the
Court spoke plainly:

A special civil action for Certiorari, or simply a Petition for Certiorari, under Rule 65 of

the Revised Rules of Court is intended for the correction of errors of jurisdiction only or
grave abuse of discretion amounting to lack or excess of jurisdiction. Its principal office
is only to keep the inferior court within the parameters of its jurisdiction or to prevent it
from committing such a grave abuse of discretion amounting to lack or excess of
jurisdiction.

A writ of certiorari may be issued only for the correction of errors of jurisdiction or

grave abuse of discretion amounting to lack or excess of jurisdiction. Such cannot be
used for any other purpose, as its function is limited to keeping the inferior court within
the bounds of its jurisdiction.

For a petition for certiorari to prosper, the essential requisites that have to concur are: (1)
the writ is directed against a tribunal, a board or any officer exercising judicial or quasi-
judicial functions; (2) such tribunal board or officer has acted without or in excess of
jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction;
and (3) there is no appeal or any plain, speedy and adequate remedy in the ordinary
course of law.

The phrase "without jurisdiction" means that the court acted with absolute lack of
authority or want of legal power, right or authority to hear and determine a cause or
causes, considered either in general or with reference to a particular matter. It means lack
of power to exercise authority. "Excess of jurisdiction" occurs when the court transcends
its power or acts without any statutory authority; or results when an act, though within the
general power of a tribunal, board or officer (to do) is not authorized, and invalid with
respect to the particular proceeding, because the conditions which alone authorize the
exercise of the general power in respect of it are wanting. While that of "grave abuse of
discretion" implies such capricious and whimsical exercise of judgment as to be
equivalent to lack or excess of jurisdiction; simply put, power is exercised in an arbitrary
or despotic manner by reason of passion, prejudice, or personal hostility; and such
exercise is so patent or so gross as to amount to an evasion of a positive duty or to a
virtual refusal either to perform the duty enjoined or to act at all in contemplation of law.
[137]

Further, the resort to a petition for certiorari under Rule 65 is confined to assailing the

integrity of the arbitral tribunal based on any of the aforementioned factual scenarios
(e.g., corruption, fraud, evident partiality of the tribunal), or the constitutionality or
legality of the conduct of the arbitration process, and may not remain unqualified as to
embrace other badges of grave abuse. The design and intent of the relevant laws on
judicial review of CIAC arbitral awards do not empower the CA to look into the factual
findings of the CIAC apart from the foregoing circumscribed grounds, lest the
authoritative and conclusive factual findings of the CIAC be nevertheless defeated,
albeit via a petition other than Rule 43.

This operative limiting of the grounds under Rule 65 with respect to judicial review of
CIAC arbitral awards remains consistent with the Court's constitutionally granted
authority, owing chiefly to the conceptually dynamic nature of grave abuse of discretion.
To be sure, the Constitution provided the Court's power to take cognizance of petitions
alleging grave abuse of discretion, with the second paragraph of Section 1, Article VIII of
the Constitution particularly stating:

Section 1. The judicial power shall be vested in one Supreme Court and in such lower
courts as may be established by law.

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the
Government. (Emphasis supplied)

However, far from being static, the very contours of what constitutes grave abuse of
discretion have always been traced by the Court in a judicious but fragmentary manner,
as called for by each case in jurisprudence. Distinctively, therefore, although the remedy
of petition for certiorari, as the procedural vehicle, is purposefully rigid and unyielding
in order to avoid overextension of the same over situations that do not raise an error of
jurisdiction, the concept of grave abuse of discretion which must be alleged to avail of
the certiorari remedy is, in the same degree, deliberately flexible, in order to enable it to
capture a whole spectrum of permutations of grave abuse. If the case were otherwise, i.e.,
if the concept of grave abuse were rigid, and the certiorari remedy loose, the same would
be exposed to the possibility of having a clear act of whim and caprice placed beyond the
ambit of the court's certiorari power because of a definitional discomfiture in the legal
procedure.

On point is the case of Oposa v. Factoran, Jr.,[138] where the Court, citing Justice Isagani
A. Cruz, described the dynamic property of the concept of grave abuse in the context of
the expanded judicial review power, and succinctly described it thus:

As worded, the new provision vests in the judiciary, and particularly the Supreme Court,
the power to rule upon even the wisdom of the decisions of the executive and the
legislature and to declare their acts invalid for lack or excess of jurisdiction because
tainted with grave abuse of discretion. The catch, of course, is the meaning of 'grave
abuse of discretion,' which is a very elastic phrase that can expand or
contract according to the disposition of the judiciary.[139]

The elasticity of the Court's use of its power of judicial review under the 'grave abuse of
discretion' standard has also been suggested as that which significantly depends on a
variety of considerations, even including the "rationality, predispositions, and value
judgments"[140] of the Court's members. This conceptual malleability of 'grave abuse of
discretion' allows it to stretch as it needs to cover vast permutations of grave abuse, but
also contracts, as the Court here deems it fit, so as not to negate categorical legislative
intent as provided for by E.O. 1008.

In point of fact, grave abuse as a ground for judicial review covers a multitude of
scenarios, with each operative definition colored with caprice or whim, but fleshed out in
a variety of commissions, and embraces not only those which betray a possible challenge
on the integrity of an arbitral tribunal.

Early jurisprudence has laid down a broad construction of what constitutes grave abuse of
discretion. In the 1939 case of Santos v. Province of Tarlac,[141] the concept of abuse of
discretion was construed as that which contemplates such a capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction. This was later echoed in the
1941 case of Alafriz v. Nable,[142] where the Court defined grave abuse as that where the
court has acted "x x x with absolute want of jurisdiction x x x"[143] or where the court has
transcended its jurisdiction or "x x x acted without any statutory authority x x x".[144]

In the 1960 case of Hamoy v. Hon. Sec. of Agriculture and Natural Resources, et al.,
[145]
the Court added that the abuse of discretion must be shown to be attended by "x x x
passion, prejudice, or personal hostility amounting to an evasion of positive duty x x
x."[146] Still, in 1966, in the case of Palma and Ignacio v. Q. & S. Inc., et al.,[147] the Court
further qualified abuse of discretion and added that an error of judgment is not abuse of
discretion, as the same must be colored with despotism or whim, viz.:

x x x [A]n abuse of discretion is not sufficient by itself to justify the issuance of a writ of
[certiorari]. x x x [T]he abuse must be grave and patent, and it must be shown that the
discretion was exercised arbitrarily or despotically x x x.[148]

In 1979, in Dimayacyac v. Court of Appeals,[149] the trial court therein was found to have
committed grave abuse of discretion for declaring a party before in default and rendering
judgment against them hurriedly, for mere failure of the party in default to file a pre-trial
brief. In the case of Producers Bank of the Phils. v. NLRC,[150] grave abuse of discretion
was construed as such capricious and whimsical exercise of judgment that is equivalent
to lack of jurisdiction and involves power that is exercised in an arbitrary or despotic
manner by reason of passion or personal hostility. Grave abuse of discretion must be so
patent and gross as to amount to an evasion of positive duty or to a virtual refusal to
perform the duty enjoined or to act at all m contemplation of law.

To note, in the 1999 case of Nepomuceno v. Court of Appeals,[151] the Court ruled that
"grave abuse of discretion is indeed a relative term"[152] and admits of exceptions in the
interest of substantial justice.

Recent jurisprudential iterations have further maintained this construction of grave abuse
of discretion. In the case of Dueñas, Jr. v. House of Representatives Electoral Tribunal,
[153]
grave abuse of discretion was defined as the capricious and whimsical exercise of
judgment, or the exercise of power in an arbitrary manner, where the abuse is so patent
and gross as to amount to an evasion of positive duty.[154] In Cruz v. People,[155] manifest
disregard of basic rules and procedures constituted grave abuse of discretion.
In Comilang v. Belen,[156] a showing of manifest bias and partiality likewise amounted to
grave abuse. Neri v. Yu,[157] also defined grave abuse as that which includes not only
palpable errors of jurisdiction or violations of the Constitution, the law, and
jurisprudence, but also includes gross misapprehension of facts.

Indicatively, going by the jurisprudential construction of grave abuse of discretion as

contemplated by Rule 65, the same decidedly casts a wider net than that which is
consistent with the narrower confines of factual review of CIAC arbitral awards, and
covers numerous other scenarios apart from that which may amount to a challenge of the
integrity of a tribunal. The above cases demonstrate badges of grave abuse that could not
have been contemplated as far as factual review of CIAC awards is concerned. To leave
this Rule 65 resort unqualified is, therefore, to leave it overinclusive, at the expense of the
weight and conclusiveness of findings of fact of the CIAC. Stated differently, precisely
because challenging the integrity, constitutionality or legality of the tribunal or its actions
in the arbitral process are only some of the many permutations of grave abuse within the
construction of Rule 65, the delimitation is crucial for purposes of factual review of
CIAC arbitral awards, if a resort to a petition for certiorari under Rule 65 is to be made
consistent with E.O. 1008.

By extension, if the petition for certiorari under Rule 65 route for review of CIAC

arbitral awards remains as indiscriminate as the scope of Rule 65 as it is more generally
applied, it would entertain grounds for factual review that E.O. 1008 and other relevant
rules intended to keep out.

The Court herein emphasizes that the qualification and contraction of the concept of
grave abuse of discretion under Rule 65 with respect to a CIAC arbitral award calibrates,
instead of confuses, the grounds for a Rule 65 petition. It is a contraction that is
imperative if remedial law is to promote, and not frustrate, the unique configuration of
the CIAC, and enable it to unfold as designed within the structure of the present remedial
rules. It does not proceed from the presumption that said contraction is being made in
order to address what may experientially be seen as a loose treatment of
the certiorari action in practice. On the contrary, the contraction is being made not
because the certiorari power is being indiscriminately employed, but because in itself,
even with its rigid application, said certiorari power is still not narrow enough given the
framework that the persuasive authority of CIAC awards must be ascribed primacy.

The Court also holds with particular import that there is nothing procedurally problematic
or constitutionally abhorrent in distilling the prototypical grounds under Section 24 of
R.A. 876 as reflective of the very grounds which show a grave abuse of discretion in
relation to CIAC arbitral awards. There is nothing precarious in the Court's
acknowledgment that the concept of grave abuse is elastic enough to lend itself to the
Court's calibration depending on the context within which it is to be appreciated.

Contrary to the caution offered that the concept of grave abuse of discretion is tantamount
to judicial legislation, the Court here discerns that its appropriation of the prototypical
grounds as provided under Section 24 of R.A. 876 into the judicial review of CIAC
arbitral awards, as well as its appreciation of the nuanced expressions of grave abuse of
discretion in this specific context squarely fall within the rule-making power of the Court.
The authority is rooted in Section 5(5), Article VIII of the Constitution, and the impetus
therefor described as thus:

x x x This deliberate expansion of both judicial review and rule-making powers of the
Philippine Supreme Court typifies the active re-direction of the Court's role, away from
the passivity under the standard political question doctrine that had predominated earlier
constitutional eras under the 1973 and 1935 Constitutions.

xxxx
When the 1986 EDSA "People Power" Revolution successfully ousted Marcos, one of the
first acts of the new government under Corazon Aquino (and facilitated by now
Constitutional Commissioner Roberto Concepcion) was to strengthen the independence
and judicial review powers of the Philippine Supreme Court. Under the 1987
Constitution, the Philippine Supreme Court was intentionally entrusted with broader
judicial review and rule-making powers. The framers of the 1987 Constitution envisioned
that the Court as the institution most critical to safeguarding democracy in the
Philippines' post-dictatorship constitutional order. Wary of the Court's reputational
decline in Javellana, the Philippine Supreme Court under the 1987 Constitutional
reiterated fidelity to the Constitution as the foremost mandate of judicial conduct:
"Justices and judges must ever realize that they have no constituency, serve no majority
nor minority but serve only the public interest as they see it in accordance with their oath
of office, guided only by the Constitution and their own conscience and honour."[158]

Markedly, as the Court has held in Echegaray v. Secretary of Justice[159] and Estipona, Jr.

v. Lobrigo,[160] the independent rule-making power of the Court is a reaction to the
prevenient disposition of the Court that consigns it to sidestep matters of inequity or
injustice in the court proceedings because of its lack of power to procedurally address
them. The Court therefore holds that this is not a dangerous precedent but a mere exercise
of extant rule-making and certiorari powers of the Court. This authority also since
pivoted the Court away from the previous institutional attitude of avoidance.

More, the exercise of contracting grave abuse of discretion in order to correct what has
been shown to be a procedural confoundment in the instant case is not new either in the
Court's jurisprudential history or its immediate horizon. Perhaps, there will be future
inadequacies in procedure that the Court will be moved to remedy, and that the same will
require its reconciliation or harmonization with substantive laws. The reinforced rule-
making power of the Court straightforwardly allows it to undertake the same, as it now
does.

As is apparent in the two grounds that trigger the exceptional factual review of CIAC
arbitral awards, i.e., those that pertain to either the lack of integrity or the imputed
unconstitutionality or illegality of the arbitrators or the arbitral process, the contracted
grounds are tight enough, but nevertheless embrace and preserve the courts' power to re-
examine factual findings of a CIAC arbitral tribunal, precisely when the latter's lack of
integrity, or its unconstitutional or illegal actions taint the same. Most assuredly, the
power of the courts to uphold the Constitution and preserve observance of positive law
are woven into the very fabric of the judicial system, and remain undiminished in the
Court's present interpretation of the available remedial routes from CIAC arbitral awards.

Therefore, in the instant case and for purposes of judicial review of the CIAC arbitral
awards, this Court now divines Rule 65, being confined to challenges only to the arbitral
tribunal's integrity or allegations of its actions' unconstitutionality or illegality, to be a
warranted contraction of the breadth of the concept of 'grave abuse of discretion', in order
to harmonize a Rule 65 resort with the unequivocal intent of E.O. 1008, and other
relevant laws, including R.A. 876 and R.A. 9285, which apply supplementarily. To be
sure, although E.O. 1008 applies specifically to the CIAC as a specialized arbitral
institution for the construction industry, nothing precludes the Court from applying the
umbrella legislation of R.A. 876 and its significant amendment, R.A. 9285.

Undoubtedly, R.A. 876, R.A. 9285 and E.O. 1008, while distinct, are conceptually and
operatively related in the sphere of arbitration law. For one, R.A. 9285 expressly
references E.O. 1008 as the rules of procedure that apply to construction disputes. The
whole of its Chapter 6 pertains to arbitration of construction disputes where,
substantively: (1) Section 17(d)[161] thereof provides its application to mediated
construction disputes, (2) Sections 28[162] and 29 [163] thereof outline the availability of
interim measures of protection in construction arbitration, (3) Section 35[164] thereof
enumerates the kinds of disputes that fall within the purview of the CIAC's jurisdiction,
and (4) Section 39[165] thereof relatedly authorizes the regional trial courts to dismiss a
construction dispute before it, if the same involves an arbitration clause that was not
previously resorted to.

As well, the Special ADR Rules further categorically refer to R.A. 876 when it laid down
the grounds for which, as a general rule, the court may vacate or set aside the decision of
an arbitral tribunal. Specifically, Rule 19.10 of the same provides:

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.

Still, illustratively, in the case of LM Power Engineering Corporation v. Capitol

Industrial Construction Groups Inc.,[166] the Court found no impediment in applying R.A.
876 in a suppletory nature to an otherwise purely CIAC-governed dispute, in order to stay
the court proceedings where the dispute was found to be arbitrable before the CIAC:

The arbitral clause in the Agreement is a commitment on the part of the parties to submit
to arbitration the disputes covered therein. Because that clause is binding, they are
expected to abide by it in good faith. And because it covers the dispute between the
parties in the present case, either of them may compel the other to arbitrate.

To note, although Section 24 of R.A. 876 has not been transplanted verbatim into the
CIAC Rules, the logic behind its adaption into the judicial review of the arbitral awards
remains unrefuted. It likewise remains to be negated the fact that the Court has already
jurisprudentially appropriated Section 24 of R.A. 876 as the very same situations that
may justify the Court's examination of CIAC arbitral award's findings of fact.

Furthermore, and assuredly, the resort to the courts was legislatively designed to succeed
other remedies that disputants before the CIAC may avail themselves of in case of errors
in an arbitral tribunal's award that merit its modification. The current CIAC Rules provide
a remedy that allows the parties to winnow through their arbitral award and effect the
correction of gross errors such as mathematical miscalculations and the like. The more
general R.A. 876, particularly, Section 25 thereof provides:

Section 25. Grounds for modifying or correcting award. - In any one of the following
cases, the court must make an order modifying or correcting the award, upon the
application of any party to the controversy which was arbitrated:

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

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

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

The order may modify and correct the award so as to effect the intent thereof and
promote justice between the parties. (Emphasis and underscoring supplied)
This enumeration of grounds for correction of errors in arbitral awards was adopted and
echoed in the CIAC Rules,[168] specifically Section 17 thereof:

SECTION 17.1 Motion for correction of final award - Any of the parties may file a
motion for correction of the Final award within fifteen (15) days from receipt thereof
upon any of the following grounds:

a. an evident miscalculation of figures, a typographical or arithmetical error;

b. an evident mistake in the description of any party, person, date, amount, thing or property
referred to in the award.
c. where the arbitrators have awarded upon a matter not submitted to them, not affecting the
merits of the decision upon the matter submitted;
d. where the arbitrators have failed or omitted to resolve certain issue/s formulated by the
parties in the Terms of Reference (TOR) and submitted to them for resolution; and
e. where the award is imperfect in a matter of form not affecting the merits of the
controversy.

The motion shall be acted upon by the Arbitral Tribunal or the surviving/remaining
members.

17.1.1 The filing of the motion for correction shall interrupt the running of the period for
appeal.

17.1.2 A motion for correction upon grounds other than those mentioned in this section
shall not interrupt the running of the period for appeal. (Emphasis and underscoring
supplied)

Crucially, however, the above grounds that merit a modification or correction of an

arbitral award, whether in the earlier provisions under R.A. 876 or in the recent iterations
under the CIAC Rules, importantly: (1) do not pertain to any allegation of fraud,
corruption, or grave abuse; and (2) pertain only to honest mistakes, miscalculations of
figures, and do not affect the arbitral tribunal's findings with respect to the very merit of
the dispute.

Evidently therefore, the intent of the relevant laws with respect to the treatment of arbitral
awards is two-tiered: first, that they are final as far as their appreciation of the facts that
go into the merit of the dispute is concerned; and second, in case of obvious errors of
facts (e.g., miscalculations), they are modifiable or correctible only insofar as they do not
affect the merits of the controversy. Such is the restrained attitude that courts were
intended to maintain with respect to arbitral awards. Such purposively narrow windows
for changing the arbitral tribunal's award are most in consonance with the confined
posture towards appeals as unambiguously provided for by E.O. 1008, and as fleshed out
by R.A. 9285 and the Special ADR Rules.
For more than preserving expediency and convenience, this restrained attitude against
challenging arbitral awards on their merits most importantly respects party-autonomy,
which is the essence of arbitration[169] and the pro-arbitration State policy of the country.
So that when the courts deem a CIAC arbitral award as final, barring exceptions, the
courts are really upholding the substantive rights of the disputing parties and their
exercise of autonomy in deciding in what manner, for how long, and before which forum
their dispute is to be resolved. This is but the Court's recognition that party-autonomy
underpins the very option of disputing parties to refer their construction dispute before
the CIAC, and that the same has been central in the legislative intendment of a more
limited and restricted mode of judicial review of CIAC arbitral awards.

For the avoidance of doubt, the Court now holds that the judicial review of CIAC arbitral
awards takes either of two remedial routes, depending on the issue being raised. First, if
the issue raised is a pure question of law, the petition should be filed directly and
exclusively with the Court, notwithstanding Rule 43. Second, in cases where the petition
takes issue on the integrity of the arbitral tribunal and its decision, (i.e., allegations of
corruption, fraud, misconduct, evident partiality, incapacity or excess of powers within
the tribunal), or the unconstitutionality or invalidity of its actions in the arbitral
process[170] then the parties can and should appeal the CIAC award before the CA under
Rule 65, on grounds of grave abuse of discretion amounting to lack or excess in
jurisdiction, where a factual review may then be had by the CA.

Concomitantly, the availability of a resort to the CA via a Rule 65 petition under these
circumstances must also necessarily amend Rule 19.7 of the Special ADR Rules which
proscribes any filing of a special civil action of a petition for certiorari. This necessary
amendment will allow for the narrowest of grounds for a factual review of a CIAC
arbitral award to be brought before the proper court through the correct action. This
amendment is also merited so that the Special ADR Rules may not, without their
intention, frustrate instead of facilitate the modes of appeal from CIAC arbitral awards.

This harmonization is most consistent with the spirit of the law which created the CIAC,
as was reaffirmed by R.A. 9285 and the Special ADR Rules. Accordingly, all rules and
regulations that allow the contrary, including the pertinent provisions in the Revised
Administrative Circular No. 1-95, Rule 43 of the Rules and the CIAC Rules, should be
deemed amended to conform to the rule on direct resort to this Court on pure questions of
law. As well, all the previous cases of Uniwide Sales Realty and Resources Corporation
v. Titan-Ikeda Construction and Development Corporation[171] and the more recent case
of Shangri-La Properties, Inc. v. B.F. Corporation[172] are now deemed abandoned.

Be that as it may, the Court nevertheless clarifies that this instant carving out of the CIAC
from the enumeration under Rule 43, along with the effective reversal of jurisprudence
that provide otherwise, is prospective in application, as judicial decisions applying or
interpreting laws form part of the legal system of the Philippines until they are reversed,
and remain good law until abandoned.[173] The prospective application of the present
ruling on the proper modes of appeal from a CIAC arbitral award applies in favor of
parties who have relied on the old doctrine and have acted in good faith.[174] As the Court
elaborated in Benzonan v. Court of Appeals:[175]

x x x [P]ursuant to Article 8 of the Civil Code "judicial decisions applying or interpreting

the laws or the Constitution shall form a part of the legal system of the Philippines." But
while our decisions form part of the law of the land, they are also subject to Article 4 of
the Civil Code which provides that "laws shall have no retroactive effect unless the
contrary is provided." This is expressed in the familiar legal maxim lex prospicit, non
respicit, the law looks forward not backward. The rationale against retroactivity is easy to
perceive. The retroactive application of a law usually divests rights that have already
become vested or impairs the obligations of contract and hence, is unconstitutional. [176]

The Court hereby sets the following guidelines with respect to the application of the
present ruling on modes of judicial review vis-à-vis CIAC arbitral awards:

1. For appeals from CIAC arbitral awards that have already been filed and are currently
pending before the CA under Rule 43, the prior availability of the appeal on matters of fact
and law thereon applies. This is only proper since the parties resorted to this mode of review
as it was the existing procedural rules at the time of filing, prior to the instant amendment.

2. For future appeals from CIAC arbitral awards that will be filed after the promulgation of this
Decision:

a. If the issue to be raised by the parties is a pure question of law, the appeal should be
filed directly and exclusively with the Court through a petition for review under Rule
45.

b. If the parties will appeal factual issues, the appeal may be filed with the CA, but only on
the limited grounds that pertain to either a challenge on the integrity of the CIAC
arbitral tribunal (i.e., allegations of corruption, fraud, misconduct, evident partiality,
incapacity or excess of powers within the tribunal) or an allegation that the arbitral
tribunal violated the Constitution or positive law in the conduct of the arbitral process,
through the special civil action of a petition for certiorari under Rule 65, on grounds of
grave abuse of discretion amounting to lack or excess in jurisdiction. The CA may
conduct a factual review only upon sufficient and demonstrable showing that the
integrity of the CIAC arbitral tribunal had indeed been compromised, or that it
committed unconstitutional or illegal acts in the conduct of the arbitration.

3. Under no other circumstances other than the limited grounds provided above may parties
appeal to the CA a CIAC arbitral award.

III - Judicial Review of the CIAC award in the case at bar

With the terrain on the mode of appeal from CIAC awards defined for bright-line
prospective application, this Court finally proceeds to the merit of the parties, as seen
from the lens of this limited scope of judicial review.

The narrow exception to the general deference to the expert findings and conclusions of
the CIAC attends the present consolidated petitions, as the petition presents a pure
question of law on which the construction dispute turns, i.e., the nature and legal effect of
a withholding agent's belated withholding and remitting of the 2% CWT.

Further, even without applying to the instant case the foregoing considerations on the
history of judicial review vis-à-vis CIAC awards, the Court nevertheless chiefly observes
that the CA misapplied its appellate function when it delved into settling the factual
matters and modified the mathematical computation of the CIAC with respect to the
presence or absence of an outstanding balance payable to RSII. This mathematical re-
computation is an error not because the new ruling on judicial review of CIAC awards is
applicable to this case (as it applies prospectively) but because the amounts reimbursable
to RSII were not specifically raised by the RSII as an issue in its Rule 43 petition before
the CA, since the issues raised before it were confined to the release of the amount
deducted by GMCLI from its Progress Billing No. 15 to cover the CWT of 2% on
payments for the first 14 Progress Billings.[177]

In addition, that the CA made a precipitate factual conclusion of the correctness of RSII's
mathematical computation over that of GMCLI after citing gossamer-thin basis perhaps
betrays the general impropriety of an appellate court's review of factual findings of more
specialized tribunals and quasi-judicial agencies, which were legally ascribed primacy.

As has been said, the referral of construction disputes to the CIAC is grounded on the
need for construction efforts to, as far as possible, remain unfettered by lengthy and
belabored court cases, and for parties in the construction industry to be given enough
breathing room to maneuver the same for the farsighted benefit of national development.

Disputes such as the one presented by the petitions at bar, which to date already ran a
lifespan of over four years, illustrate the need for CIAC arbitral awards to henceforth be
given the authoritative sway and deference that they merit, as well as demonstrates the
call for courts to stay their hands until a pure question of law can be distilled from the
dispute and brought before it.

The CWT Issue

Secondly, with regard to the tax issue, and without leaving RSII deprived of any remedy
under the law, the Court finds that the CIAC, as affirmed by the CA, correctly found
GMCLI to be without the authority to belatedly withhold the 2% withholding tax, but that
despite the lack of authority of GMCLI to belatedly withhold and remit the 2% CWT,
RSII is nevertheless still not entitled to the release of the amount equivalent to that
withheld in the cumulative.

The axis of the present dispute, as well as the remaining remedy herein, lies in the
definition and design of the CWT. The Expanded CWT, as defined under Section 2.57(B)
of Revenue Regulation (RR) No. 2-98[178] reads:

(B) Creditable Withholding Tax. - Under the CWT system, taxes withheld on certain
income payments are intended to equal or at least approximate the tax due of the payee
on said income. The income recipient is still required to file an income tax return, as
prescribed in Sec. 51 and Sec. 52 of the NIRC, as amended, to report the income and/or
pay the difference between the tax withheld and the tax due on the income. Taxes
withheld on income payments covered by the expanded withholding tax (referred to in
Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78 also
of these regulations) are creditable in nature.

Among the classifications of withholding taxes, the CWT is a tax imposed on certain
income payments and is creditable against the income tax due of the payee for the taxable
quarter/year in which the particular income was earned.[179] Essentially, the CWT is an
advance income tax on the payee. Prior to the actual filing of income tax return, the
taxpayer already pays a portion of its foreseeable income tax liability in the form of the
creditable income tax, withheld and remitted for him on his behalf by the withholding
agent.

Upon the filing of the payee's income tax return, the income of the payee which was
subject to the CWT is still reported in the income tax return, for the computation of the
income tax due on it. In the event that the income tax computed is more than the CWT
paid earlier, the difference shall be paid by the payee in order for his income tax to be
paid in full. Conversely, in case the income tax calculated is less than the CWT paid, the
overpayment of CWT shall either be carried over to the next taxable period for the payee,
or refunded in his favor.

RR No. 2-98, Section 2.57.3, further recites the persons required to be withholding
agents, under which GMCLI falls to wit:

SECTION 2.57.3. Persons Required to Deduct and Withhold - The following persons are
hereby constituted as withholding agents for purposes of the creditable tax required to be
withheld on income payments enumerated in Section 2.57.2:

(A) In general, any judicial person, whether or not engaged in trade or business:

xxxx
Agents, employees or any person purchasing goods or services, paying for and in
behalf of the aforesaid withholding agents shall likewise withhold in their behalf,
provided that the official receipts of payments/sales invoice shall be issued in the name of
the person whom the former represents and the corresponding certificates of taxes
withheld (BIR Form No. 2307) shall immediately be issued upon withholding of the
tax.

x x x x.[180] (Emphasis supplied; underscoring omitted)

Finally, the same RR likewise appoints the time when the 2% CWT should be withheld,
under Section 2.57.4 thereof:

SECTION 2.57.4. Time of Withholding - The obligation of the payor to deduct and

withhold the tax under Section 2.57 of the Regulations arises at the time an income
payment is paid or payable, or the income payment is accrued or recorded as an expense
or asset, whichever is applicable, in the payor's books, whichever comes first. The terms
[sic] "payable" refers to the date the obligation becomes due, demandable or legally
enforceable.

The CWT's design, therefore, for tax creditability, stands on the twin conditions of the
withholding agent's withholding the CWT, on the one hand, and the payee's crediting of
said amount in its income tax return, on the other.

The black letter of the law is demonstrably clear and, as applied to the present case,
prescribes that GMCLI should have remitted the 2% CWT as soon as each Progress
Billing was paid and accordingly should have also issued the corresponding BIR Fonn
2307 to RSII in order for the latter to have had a tax credit claim on the same. GMCLI
should therefore issue to RSII the pertinent BIR Form 2307 for all its belated withholding
of CWT, so that RSII may exhaust the remedies available to it in the law.

It also warrants mentioning that withholding agents who delay the withholding and
remittance of the CWT, are liable to pay the 25% surcharge in accordance with Section
248[181] of the National Revenue Code of 1997 (NIRC), 12% interest rate in accordance
with R.A. 10963[182] or the TRAIN Law, and the compromise penalty of not less than
P40,000.00, in compliance with Section 255[183] of the NIRC, and more specifically
Annex A[184] of the Revenue Memorandum Order (RMO) No. 7-2015.

Finally, this dispute over the construction of a hospital has already been pending for over
four years, which in the construction industry exponentially translates to increasingly
damaging delay, all the more necessitating resolution at the soonest possible time.

Conclusion
It has been said that earlier forms of arbitration predated laws and organized courts,
[185]
and that contrary to the notion that arbitration modes are novel and untested, they are
actually the courts' "next-of-kin",[186] perhaps even their progenitors. Along the same vein,
the ability of a society to empower alternative modes of dispute resolution is a hallmark
of a democracy,[187] with courts exercising their ability to stay their own hands, thereby
allowing space for the parties to a dispute to exercise their voluntary autonomy in the
name and under the principle of expedited conflict resolutions. This need to enable the
quickest and most conclusive conflict resolution possible finds exacting relevance in the
case of the construction industry, with its inherently complex dynamics, and with the
stakes that involve national interests, not in the least of which are public infrastructure
and safety.

The attributes and functions of the CIAC also operatively place it in a hybrid
classification, in that it is categorized as a quasi-judicial agency, but its very nature as an
arbitral tribunal effectively places it at par with other commercial arbitral tribunals, with
their characteristic speed, subject matter authoritativeness and overall autonomy. This
amalgamation of its design and utilities created a whole new legal animal, which, like all
things novel, poses for the Court a challenge of ascertaining its parameters and remedial
routes set by law. Perhaps, unless the legislature deems it fit to create a new and
independent set of rules that apply to the CIAC more responsively, the Court must
continue to contend with harmonizing varying material rules, all m a manner that is as
just as it is tenable under existing laws.

It is central, therefore, that the CIAC be empowered and enabled to fulfill its function as
the professionally authoritative venue for settlement of construction disputes, and not
straitjacketed to fit into the mold of the court system which it was meant to be an
alternative of. To this end, and perhaps somewhat ironically, the courts can contribute
best through non-participation, save on the narrowest of grounds. The courts are, after all,
ultimately dealers of justice, more so in industries that are of greater consequence, and
must remain true to this highest mandate, even if it means relinquishing review powers
that, in the sum of things, it was demonstrably not meant to bear.

Further, the Court in this wise irretrievably unravels the previous hesitation to completely
remove CIAC awards from the purview of Rule 43 appeals. A clear historical affirmation
of their exclusion begs no other consequence, and the Court would be remiss if it insists
on maintaining the existing procedural route after the same has been shown to be not only
substantively counterintuitive but more so unfounded.

As has been fleshed out by the present controversy, this overarching attempt towards less
court litigation and more of alternative conflict resolution in the construction industry
must only get support from the Court through its own restraint, lest it be accused of being
eager towards copious and lengthy litigations, or worse, indifferent to their costs.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. Accordingly, the
Decision dated October 28, 2016 of the Court of Appeals, Sixth Division, in CA-G.R. SP
No. 145753 is PARTIALLY REVERSED with respect to Ross Systems International,
Inc.'s entitlement to the amount of P1,088,214.83. The Construction Industry Arbitration
Commission's Final Award dated May 10, 2016 is
hereby REINSTATED with MODIFICATION, in that Global Medical Center of
Laguna, Inc. is further ORDERED to furnish Ross Systems International, Inc. with the
pertinent BIR Form 2307, in compliance with Section 2.57.3, Revenue Regulation No. 2-
98.

Furthermore, the new ruling of the Court with respect to the modes of judicial review of
the Construction Industry Arbitration Commission arbitral awards is
accorded PROSPECTIVE application and does not apply to appeals therefrom that are
currently pending before the Court of Appeals.

SO ORDERED.

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